PLGO

Good morning, ladies and gentlemen, welcome to the Pelagos Insurance Capital first quarter 2026 earnings conference call. As a reminder, this call is being recorded for replay purposes. Following the conclusion of formal remarks, the management team will host a question-and-answer session and instructions will be given at that time. With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead.

Good morning and welcome to Pelagos Insurance Capital's first quarter 2026 earnings conference call. With me today are Dan Burrows, our CEO; Allan Decleir, our CFO; and Jonny Strickle, our Group Managing Director. Before we begin, I'd like to remind everyone that statements made during the call, including the question-and-answer section, will include forward-looking statements. Management's comments regarding expectations, projections, targets, and any future results are based upon current assessments and assumptions and are subject to a number of risks, uncertainties, and emerging information developing over time. It is important to note that actual results may differ materially from those expressed or implied today. Additional information regarding factors shaping these outcomes can be found in our SEC filings, including our earnings press release issued last night. Management will also make reference to certain non-GAAP and proprietary measures of financial performance.

The reconciliations to U.S. GAAP for each non-GAAP financial measure as well as description of our proprietary financial measures can be found in our earnings press release and financial supplement available on our website at pelagosinsurancecapital.com. With that, I'll turn the call over to Dan.

Thank you, Miranda. Good morning, everyone, and thank you for joining us today. I'm pleased to welcome you to our first earnings call as Pelagos Insurance Capital. The Pelagos rebrand marks an exciting milestone and a deliberate step in our evolution. Our new name is a stronger, clearer reflection of who we are, an expert capital allocator accelerating our resilient, high-performing, diversified portfolio by bringing together strategic capital and underwriting expertise through our expanding community of specialist partners. Our strong first quarter performance builds on our momentum from last year. I want to highlight three key areas that both underscore our progress and position us well for continued success. First, we once again delivered excellent results, demonstrating the strength and flexibility of our capital allocator model.

We achieved a combined ratio of 86.6%, generated annualized operating ROAE of 15.2%, and grew book value per diluted share to $26.22, including dividends, an increase of 7.2% in the quarter. This represents our best ever quarter of value creation for our shareholders. Second, our growth this quarter highlights the unique advantages of our model. We grew gross premiums written by 7%, driven by our new underwriting partners. As our platform evolves, we will continue to expand on this. What sets us apart in the market is our ability to allocate capital across a diverse and expanding universe of distribution networks. This gives us multiple differentiated points of access to the market and allows us to execute with agility.

Third, we continue to successfully balance profitable underwriting with meaningful capital returns, creating significant value for shareholders. This is underscored by the accretion to our book value per share, which to reiterate, increased by 7.2% in the first quarter alone. We continue to believe that our current market price of stock is undervalued, and as part of our capital management strategy, we repurchased $219 million of shares in the quarter. This includes $163 million bought through a privately negotiated transaction to repurchase all the remaining shares of one of our original PE sponsors, CVC. Importantly, following this strategic transaction, approximately 65% of our shares are now in the public float. At current market valuation, we do not anticipate any further secondary follow-on offerings with our remaining original and long-term PE sponsors in the near term. Turning to our segments.

Within Insurance, we grew gross premiums written this quarter by 13%, driven by the continued execution of our strategy to expand new underwriting partnerships across multiple lines of business. Property again delivered strong performance with continued growth and new business momentum. Our disciplined underwriting approach has enabled us to maintain our margin through our leadership position and by optimizing our use of outward reinsurance, even amid a competitive environment and rate pressure. This is evidenced by the fact that over the last three years we have been running at an average sub 40% loss ratio for our property line, despite an active cat and secondary peril environment.

Within Property, construction has had a strong start to the year, with growth driven by success in the open market, particularly in complex and post-loss accounts where pricing and terms are more attractive. Some segments continue to experience pressure, we have remained selective while continually adapting our underwriting approach. Asset-Backed Finance and Portfolio Credit continued its strong performance with both our existing and new underwriting partners as we continue to convert our pipeline of opportunities. This is not only diversifying our portfolio, but giving us additional ways to grow in a market with high barriers to entry and where we have deep expertise. We continue to see strong margins across these products, which are insulated from traditional market cycles. In Marine, we saw strong new business flow with a step change in marine war rates driven by conflict in the Middle East.

As a leader, our ability to quickly respond, executing bespoke trades in the open market enables us to actively manage our portfolio at the individual risk level. Our underwriting discipline is driven by a precise risk assessment process. Along with our underwriting partners, we analyze each risk across critical factors like vessel, journey, crew origination, cargo, and beneficial ownership, allowing us to underwrite vessel by vessel, avoiding broader coverage through facilities. Outside of war, market conditions in hull, cargo, and liability remain competitive, and we continue to prioritize underwriting discipline to maintain portfolio quality. Our Political, Violence, and Terror lines also presented opportunities for growth in the quarter, driven by our agile approach to selecting individual risks that meet our pricing hurdles. Pricing in the Middle East remains strong. We continue to benefit from our scale and lead position, enabling selective deployment and margin preservation in attractive segments.

The evolving geopolitical landscape is creating new opportunities in this region, which we are well-positioned to continue executing on. In our Reinsurance segment, gross premiums written were $404 million for the quarter. This represented growth of 7%, excluding the impact of the reinstatement premiums related to the California wildfires in Q1 2025. We are pleased with the results of our January 1st renewal season. Our underlying portfolio is supported by strong margins and sustained demand, and we've delivered a three-year average annual loss ratio in the sub 20% for this segment, clearly demonstrating the healthy margin profile of the business. Before I hand it over to Allan to discuss our first quarter results in more detail, I'd like to take a moment to highlight how our capital allocator model uniquely positions us in this market.

While the market is seeing increased competition in certain lines today, that pressure is verticalized. By that, we mean the pricing difference between lead and follow markets continues to become more pronounced, and being a price maker, not taker, is increasingly important. As a market leader, we continue to see strong pricing, retention levels, and access to business. Our ability to pick and choose how, where, and when we execute across lines and geographies and with the right partners gives us the flexibility to capitalize on the most attractive opportunities. For example, following the outbreak of conflicts in the Middle East, we immediately set an underwriting and risk appetite framework and working alongside our partners, we're among the first to underwrite risk and deploy capital.

This enabled us to maximize pricing and set terms and conditions, demonstrating our ability to not only match the right capital to the right risk, but also to the right partner at the right time. In summary, our strong capital position, deep relationships, and access to the market, we continue to see significant opportunities for disciplined, profitable growth. As demonstrated by our results this quarter, the deliberate actions we are taking across risk selection, our outwards reinsurance strategy, and capital allocation position us to deliver strong performance throughout the cycle. With that, I'll turn the call over to Allan.

Thanks, Dan. Pelagos Insurance Capital delivered operating net income of $88 million or $0.94 per diluted common share in the first quarter, resulting in an annualized operating return on average equity of 15.2%. This performance was driven by another quarter of excellent underwriting results. Our combined ratio of 86.6% was a significant improvement of 29 points over the first quarter of 2025. Our book value per diluted common share grew to $26.22. Including dividends, this increased by 7.2%, delivering outstanding value creation in the quarter. Taking a closer look at our quarterly results. We grew our gross premiums written by 7% versus the same quarter last year to $1.8 billion. During the quarter, in the Insurance segment, gross premiums written increased by 13%.

We saw continued growth from new underwriting partnerships in several lines of business. In the Reinsurance segment, we had growth of 7%, excluding the impact of the reinstatement premiums related to the California wildfires in Q1 2025. This growth was driven by new underwriting partnerships. Our net premiums earned were $515 million in insurance and $54 million in reinsurance. Through our network of underwriting partnerships, we saw additional opportunities to strategically deploy capital in the quarter, including in lines that have an accelerated earning pattern, enabling us to exceed the expectations provided on our last call. Looking into the second quarter, we expect net earned premiums to be similar to the first quarter in our Insurance segment and $65 million-$75 million in our Reinsurance segment. Our excellent underwriting performance resulted in a combined ratio of 86.6%. I will now break down the components of our combined ratio in more detail.

For the quarter, our catastrophe and large losses were 12.7 points of the combined ratio or $72 million. This represents a significant improvement compared to the same period last year when catastrophe and large losses were 55.3 points of the combined ratio or $333 million, primarily related to the California wildfires. As Dan said, the evolving geopolitical landscape, particularly in the Middle East, has created underwriting opportunities for us. It is an ongoing situation and we continue to monitor it. The loss experience in the first quarter was minimal. During the quarter, our attritional loss ratio was 27.2 points of the combined ratio, consistent with the low levels we have reported over the last several quarters. We recognized net favorable prior year development of $3 million for the quarter compared to $41 million in the prior year period.

We had continued positive development on catastrophe losses and benign prior year attritional experience in our Reinsurance segment and better than expected loss emergence in multiple lines of business in our Insurance segment. In the quarter, we, like others, recognized increased loss estimates related to the Baltimore Bridge collapse. Turning to expenses, underlying policy acquisition expenses were 26.8 points of the combined ratio for the first quarter, consistent with 27.8 points in the prior year period. Policy acquisition expenses to TFP were 15.3 points of the combined ratio in the quarter. The increase of 2.3 points from prior year related to the excellent underwriting results in the current year. Our general and administrative expenses were $29 million in the quarter. This is consistent with what we shared on our last call and continue to expect through 2026.

Moving on to our investment results, our net investment income was $44 million, consistent with the fourth quarter of 2025. As of March 31st, 92% of our portfolio is in cash and fixed maturity securities yielding an average of 4.4%. The fixed maturity securities have an average rating of A+, with an average duration of 2.7 years and a new money yield of 4.5%. Turning to taxes, our effective tax rate for the first quarter was a negative 4.8%. In the quarter, we recorded a one-time benefit due to the U.K. government updating its tax laws to conform with the most recent OECD guidance on Pillar 2 global minimum tax. Excluding this discrete item, our effective tax rate remains in line with our expectations at 16%.

Turning to capital management, we are in a very strong capital position, which has enabled us to grow our underwriting portfolio and also return capital to shareholders. In the first quarter, we repurchased 11.5 million common shares for $219 million at an average price of $19 per share, which includes our previously disclosed repurchase from CVC. Our repurchases have been highly accretive on both a book value and earnings per share basis to our shareholders, contributing $0.75 to our diluted book value per share in the first quarter alone. We have repurchased an additional $14 million of common shares through May 8th, with $185 million remaining on our share repurchase authorization. Since our IPO, we have repurchased $600 million of our common shares, or 30% of our shares, at an average price of $17.66 per share.

We continued to pay a quarterly common dividend in the first quarter. Last week, we announced a $0.15 dividend payable in June. In April, we also redeemed our $125 million junior subordinated notes, reducing our debt and resulting in a pro forma debt-to-capital ratio of 24.2% as of March 31.

In summary, our financial results once again demonstrated strong earnings power as well as effective capital management, resulting in 7.2% growth in book value per diluted share. With that, I will now turn the call over to Jonny.

Thanks, Allan, and good morning, everyone. As Dan mentioned, at a time when the market is finding it more challenging, our model continues to drive profitable growth as we grow and form new relationships with trading partners. As a capital allocator, we bring together underwriting partners, each with their own strengths, expertise, and differentiated access points to the market. Based on our underwriting and risk appetite framework, we strategically allocate capital to the right partners to execute on our plan. Each of these partners has their own unique way of accessing segments of the market. Utilizing several partners in the same marketplace enables us to grow and diversify in areas we already know and like and where we have extensive expertise.

For example, in property, through the Fidelis partnership, we have broad access to the E&S market, which has been a great source of growth for the past few years, and it continues to deliver attractive underwriting margins. As competition has increased in that area, we have been able to complement our existing portfolio by expanding our focus and diversifying to other areas of the property market through some of our new underwriting partners. An example of which is Bamboo Insurance, who are market leaders in providing coverage for homeowners in California and Texas. Similarly, our long-term partnership with Euclid Mortgage enables us to diversify our mortgage book geographically. Our existing European mortgage portfolio has performed exceptionally well over a number of years. However, achieving consistent access to the U.S. market has historically been difficult due to the limited number of well-established participants.

By partnering with Euclid and leveraging their unique relationships in this market, we have been able to successfully grow our U.S. mortgage book, building a more diversified and robust overall portfolio. This highlights how we are leveraging the agility our model provides us to change how we are accessing risks and driving profitable growth in existing classes of business we know well and like. These new partnerships are becoming an increasingly meaningful part of our business. We have a strong pipeline of potential partners and we expect continued growth with the partners we've already onboarded as these relationships are structured with scalability in mind. As opportunities develop or market conditions evolve, we are able to scale efficiently and access risk in a differentiated way that complements and is diversifying to our existing portfolio.

This underpins our full year outlook, and we continue to expect top line growth of mid-single digits across the entire portfolio. Outwards reinsurance is another key area of focus for us, and it plays a critical role in managing exposures, reducing volatility and continually optimizing our risk profile. This year, we have taken advantage of market conditions and leveraged our position to materially improve our outwards coverage. Moving to aggregate structures where possible on our nat cat protections, cutting quota share cessions on the most attractive lines of business, and purchasing a new whole account aggregate excess of loss cover, reducing overall portfolio volatility while enhancing margin. The combination of these actions has significantly improved our risk profile and helps to offset rate pressure on our inwards book.

We have now secured the majority of our outwards reinsurance for the year and are very pleased with the position we are in today. I will now pass it back over to Dan.

Thanks, Jonny. To sum it all up, our first quarter marks an excellent start to 2026. Our results speak to the strength of our business and demonstrate the resilience of our approach as a strategic capital allocator. Our diversified portfolio, deep relationships and ability to allocate capital dynamically give us clear advantages in navigating an evolving risk environment. At a time where market access and risk selection matter more than ever, these differentiators will allow us to grow profitably and continue to deliver strong results. With that operator, we will now open the line for questions.

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Before we take your questions, I'd like to kindly ask everyone to please limit your question to one primary question along with a single follow-up. If you have any further questions, please rejoin the queue. With that, our first question comes from Meyer Shields with KBW. Your line is open.

Oh, great. Thanks so much. Good morning. Allan, you mentioned that there was, I guess adverse development on the Baltimore Bridge. We've certainly seen that. I was wondering first if you could maybe quantify the impact of this particular loss reserve increase and give us events as to the underlying, favorable development from other lines.

Hi, Meyer. It's Jonny here. Actually, I'll take that one. I'll just give a bit of background on what happened on Baltimore first, then get to your question. I mean, you've probably seen in the press, the State of Maryland announced a settlement with the International Group over the quarter, and we provide reinsurance for them. That came at a level above where the market had its reserve set. Reflecting that in our results had an impact on prior year development, as you've seen in the results that we reported through. To put that into context, I think we're really pleased with where prior year development is overall. I mean, we ended the quarter with favorable prior year development if you factor the reinsurance cover in as well. I really think that demonstrates the resilience of the portfolio.

We can absorb significant impacts like this, without resulting in a deterioration. In terms of the movement itself, I mean, what I can say on it is we moved our reserves appropriately in line with the underlying market loss, and reflecting the dynamics of the various components of what's quite a complex claim. If I think outside of Baltimore, we also mentioned property D&F in our release, where we had two or three large losses coming through on the prior year on that. To give a bit of context around that, Q1 is when we'd really expect to see losses like that coming through. These are events that happened at the end of 2025 and were reported to us in 2026, rather than deteriorations on things that we knew specifically about at that point in time.

Of course, we set IBNR provisions to allow for things like that. Actually, even when you take into account those three losses coming through on D&F, D&F had favorable prior year development in the quarter, and I don't think that was clear in some of our releases. I just wanted to clear that up and provide clarity. It actually ran at a sub 30% loss ratio. I think it's a really great marker actually to show rate adequacy in that class of business, that even with three losses hitting our large threshold coming through on the prior year in one quarter, 30% loss ratio and favorable PYD overall. I just wanted to clear things up there. Hopefully, that gets your question.

It does. I'm looking for more clarification. Go ahead.

Sorry, yeah, Meyer. I was just gonna kind of frame that Baltimore event. As you know now, it's the biggest marine loss in history. When I say historically, my experience would tell me that type of event would move the market. We'd expect a price correction when the particular cover renews early next year. Right now we're focused on opportunities. That's really the crux of our business, isn't it? We're always looking for opportunity.

Okay. Completely understood. If I can switch gears just briefly. I'm trying to get a sense as to the lines of business where you're growing in Reinsurance specifically.

In the Reinsurance pillar, is that right?

Yes, that's right. Taking out the reinstatement premiums from last year. There was some growth, and I'm wondering which lines you reinsure or which lines you're growing your inward reinsurance.

Yes. Property cat reinsurance. We haven't broadened our offering out in that line in terms of lines of business. What we have done is add a new underwriting partner that we talked about a bit last time, OAK Global. A big chunk of their book is property cat reinsurance. I think they provide us a slightly different access point into that market. Their CEO, who heads up the underwriting there, ex-RenRe for 20 years, really well-known in the market, a proven track record of delivering in that space. As a capital allocator, we like to have options, and I think having OAK alongside the Fidelis partnership to write property cat risk gives us access to more of the market and helps give us that optionality to flex between partners depending on where the market is at any one time.

Yeah. I think I'd just add, Meyer, with, you know, we have very high hurdles for our underwriting partners for all of them. When we look at OAK in their first year as a Lloyd's syndicate, they came in with a sub 85 combined ratio, which when we think about, you know, year 1 with expenses, that's a, that's a really good performance and ahead of our sort of target plan. Onboarding more of that is really what we're, what we're looking to do in the future.

Okay. Fantastic. Thank you so much.

Your next question comes from Peter Knudsen with Evercore ISI. Your line is open.

Morning. Thanks so much for taking my questions. My first one, you guys, you know, talked a bit about your outwards reinsurance. I'm just wondering if you could, you know, potentially size the savings that you achieved from outwards reinsurance this year/what you expect going forward and, you know, how much of that can offset some of the pricing pressure on the inwards book? Thanks.

Hey, hey, Peter. It's Jonny here. I'll start off on that one. There's certainly price reductions in that space. I think we gave some color on that last time at about 20%, if you think about it that way. The way we tend to deal with that is to buy more coverage rather than bank the saving, and we've certainly done that. I mentioned we bought an aggregate excess of loss cover that's more targeted around frequency of large loss. That's where some of the spend went. Some of it came on lowering retention levels relative to our overall portfolio or broadening coverage on an excess of loss basis. We really see it as an opportunity to enhance our risk profile and manage volatility down rather than something to just bank as a cash saving.

Great. Yeah. Thank you. I was just wondering if you could provide an update on RPIs. I'm most specifically interested in property D&F. I know you just mentioned, you know, that you still see that segment as rate adequate. You know, I would be curious how this has changed from year-end or more broadly, you know, just in insurance and reinsurance. Versus the RPIs, I think, last disclosed in the third quarter, how those have changed things.

Yeah. Thanks, Peter. It's Dan here. I'll take that. Firstly, I think you'll hear from us a consistent theme with others you've heard in this earnings season. It is a competitive market. We think across our diversified portfolio, we have 100 lines of business plus many of which aren't actually impacted by market cycles. We see plenty of margin. Jonny's talked about loss ratios. I think we scripted that earlier around the property direct running the last three years, sub-40. Property reinsurance running sub-20 loss ratio. Plenty of margin in the business after years of compound increase. That said, we would categorize the retrocession market as probably the most competitive, where we've seen terms and conditions broaden. Jonny said, you know, 20% there, thereabout, in terms of rate improvement, which as a buyer has been really good to improve margin.

When we look at, you know, property direct, property reinsurance 1-1, 4-1, like others, we would say mid to high single digits, low double-digit reductions. There are other factors to think about. Obviously, our lead position, how we can leverage that to get better terms and conditions in a verticalized market. How we use outwards reinsurance. Again, talking about those loss ratios, there's plenty of margin in the book. I think obviously we've seen improvement in marine via the war breach products, political violence through the conflicts in the Middle East. We're happy with the margin across most lines. I think still an outlier would be aviation, and we cut our premium, as detailed in the last call, by about 50% in the last year. We haven't seen any upside there, but it's all about margins.

That's how we think about the market, not so much about RPI, but we allocate capital to a risk because we think about the margin it provides to our portfolio.

Great. Thanks so much.

Your next question comes from Leon Cooperman with Omega Family Office. Your line is open.

Thank you very much. I have an observation and a question. Is there anything unusual in your first quarter results that you consider non-recurring? Or you think that's a good example of the earnings of the company?

No. Obviously, in the first quarter, we did have a large PNT with CVC. As I said on my introduction to the call, we do not anticipate any further secondary offerings in the near term with our existing original PE sponsors. We will continue to buy back shares, and when we think about underwriting, you know, we will allocate to, you know, the highest margin business that we can. Other than that one PNT, there's nothing unusual in the quarter.

That means that at the end of this year, it would seem to me that your book value would be in excess of $30. If I just take the $1 in earnings roughly in the quarter and multiply that by three remaining quarters of the year.

Yeah, I think.

You know.

If we can execute our plan for the rest of the year, we could be close to $30 there or thereabout. I think that demonstrates, you know, since the formation of the business in 2023, we've grown book value per share by about 68%. It's quite exceptional growth, and we continue to do that. Long as we can consistently compound good quarters, performance, combined ratio, increase book value, it makes it impossible for investors to ignore that. That's what we're focused on.

That's my second observation. You know, I'm not an insurance expert but I am an analyst. I basically, the typical analyst has a price objective of about $22, $23, $24, which is below book value. I see no reason why the stock should sell below book value, given your rates of return and how you allocate your capital. I'm just curious, you know, the only explanation could be either that people think you're earning in excess of what is normalized, and you don't think it's the case. That people end up paying attention because you have not had the aging in the market. Over time, I would expect that your returns would either, your market would either do better, or the market would be validated at this lower price objective.

Yeah. We're working hard to make sure we're impossible to ignore, Leon. Compounding successful quarters on top of each other is what we're striving to do.

Right. Okay. Very good. Well, good luck because it seems to me the market's making a major mistake in valuing you guys. As long as they continue to make a mistake, they look at you as a pile of capital. At a minimum, it should be worth book value, which is $30, $31. You know, given your expertise in allocating capital, I think you deserve a significant premium to book value. If you were in line with the industry, your stock would be well over $30. You know, 1.5x book would be a reasonable number. Everybody tells me.

Yeah.

Because of the structure of the company that I'm too optimistic. I say, no, the management is allocating capital intelligently, and Mr. Brindle is a very good underwriter. Now we're gonna supplement Mr. Brindle with other people. They're gonna give you good investment opportunities, and you're gonna allocate to the best capital returns. You know, why are you selling at a discount to book value? I don't understand.

Yeah. We agree, Leon. I think what we would say is the performance is because of the structure. It works exactly as intended, and we're gonna keep on doing what we do well.

Good. Good. I'm happy. I own about 8% of the company, I'm happy. Good.

Thanks, Leon. Thanks for the question.

Your next question comes from Alex Scott with Barclays. Your line is open.

Hi, thanks for taking it. Can you expand just on what you're seeing in the pricing environment for, you know, more broadly in property, maybe separate from some of the niche areas that grown into like, you know, you mentioned the Bamboo partnership, and I get that that's very different. You know, in terms of like the E&S property cat, we're hearing rates down as much as 30%. I mean, what are you seeing in your markets? What are you doing to bob and weave around that? I mean, are you gonna have to pull back in some of that where it's not rate adequate? Do you feel like, you know, even with some of these moves, you're still finding, you know, good shots on goal?

Yeah. Thanks, Alex. Look, first thing, as I've said previously, when you just look at the loss ratios for our direct property books, sub 40% for the last three years. Yes, there is more competition. We operate as a leader. We can restructure, reallocate, think about the risk. It's a verticalized market. What we're seeing is more in the single to high single digit decreases, low double-digit decreases, but optimizing the outwards is how we think about it to improve the margin. There is gonna always be a range, we completely agree. We wouldn't follow the market to the sort of extremes that you're talking about. As a leader that's relevant to our clients, we don't have to.

It's Jonny here. I'll just add to that. It's a very short-tailed line of business. I think if rate adequacy was starting to get tight, you would see that come through very quickly. As Dan said, we've run at less than 40% in aggregate since we launched the business. This quarter in particular, we're less than 30%, and that's despite getting three big losses coming through that happened at the end of last year. I think that really shows two things, that rate adequacy for us is still in a great place, and outwards reinsurance has helped us manage the volatility and improve margins in that line as well.

Yeah, it's Dan again. It goes back to the point when we think about the market, it's not about the RPI, it's about the margin in the business. That's how we allocate our capital.

Makes sense. Okay. Thank you. Could you give us, you know, more on just, you know, how impactful some of these partners that you're bringing online are to the capital you're deploying? You know, are there an increasing amount of opportunities there? Is that something where you expect to continue to grow those partnerships? I just wanna think through how that can support growth.

Hey, Alex, it's Jonny here. I'll take that one as well. In terms of our growth, yeah, they've been a meaningful component of that. We said last time they were around half of our growth last year. They've continued to grow into Q1 this year. I don't think that is necessarily growing the number of partners we do business with in a dramatic way. I mean, I think that's something, but certainly not gonna be in the hundreds. You know, it's gonna be in the tens for sure.

The way I try and think about that is at the moment, every single partner we onboard, every opportunity they bring, the entire management team is fully engaged in reviewing that, deciding how to size it, how to approach it, how to execute on it, we will not move away from that. It won't get to a quantity where we aren't able to do that anymore. What I would point to is some of the partners that we've talked about publicly, Euclid and OAK being great examples, are really scalable platforms. They're growing in their first few years of business. We're able to grow with them alongside here. Actually, scalability is one of the key factors we think about when trying to onboard partners.

If I think about that strategy into the future, I would expect us to grow with new underwriting partners, but don't expect that to be a continual increase in terms of number of partners. Some of it's gonna be growth with existing.

Okay. All right. Thank you.

Your next question comes from Pablo Singzon with JPMorgan. Your line is open.

Hi, this is Kevin on for Pablo. Just wanted to hear what your medium-term outlook was for the mortgage partnership with Euclid. I think a lot of the growth that has come from Euclid has been taking larger share of the mortgage reinsurance market. With the underlying market not growing as much, what are your thoughts on medium term growth?

Yeah, I think, actually, I think Euclid made an announcement yesterday. You know, consistent with that, we see opportunity for growth, but we also can grow with the partnership. They have a very high performing portfolio there as well. That's really what it's all about. It's combining the partnership with new underwriting access to build a really strong platform for growth. Yeah, we're excited, and we see opportunity there.

Yeah, I think it's Jonny here. It's all about balance in sort of the asset-backed finance class of business. It's trying to get balance geographically by industry, by product type, by distribution point into the market. We hadn't historically had much of a footprint in the U.S. mortgage market, naturally there's more room for us to grow there, and by growing there, it helps diversify the portfolio. I think Euclid's a great partner to execute on that with.

Great. Thanks. On the loss experience. Loss experience has been good in recent quarters. Is that changing your full year outlook on loss ratios? I think you had said mid-40s ex-TYD last quarter, but you've been running in the high 30s, low 40s.

Hey, it's Jonny here. I mean, we're still comfortable with our mid-40s pick, I think. I mean, obviously we're pleased to have beat that the last two or three quarters, and hope we do into the future. I think that's an appropriate place to set expectations.

Okay. Great. Thank you.

Your next question comes from Andrew Andersen with Jefferies. Your line is open.

Hey, good morning. How would you characterize the political risk market today versus the pre-conflict environment, just in terms of pricing capacity and attachment points?

Great question. I think as we've mentioned earlier, for us, when we think about specifically through the conflict, the opportunity created would mostly be in war breach and political violence/terror. There were minimal losses in Q1. We are only six weeks into Q2. There have been some very high-profile losses in the market. Our exposure to those is very manageable and well within our large loss load. I think it's also a really good example of the capital allocation model and how we work with our partners. You know, we were very quickly able to set an underwriting risk appetite and framework. We allocated our capital to the Fidelis partnership. We think they're best in class. They have significant experience, depth of knowledge, and they're best placed to take advantage of opportunities that we're seeing.

Our approach is also a little bit different to others. We prefer to individually write each risk on its own merits. When we think about war breach, we'd look at per vessel, per voyage. We think that's essential in a live fluid environment and a much more accretive route to the business rather than writing facilities, which often end up giving you broader cover. You don't really get the data. Exposure tracking is less precise. We're seeing opportunity. Political risk, you know, to the side, has been running really, really well. We've been seeing, you know, a good pipeline of business before and during this conflict. The immediate opportunity is more around lines like war breach, political violence, and terror.

Thanks. You mentioned earlier on the call just some competition in certain lines. Can you maybe just expand a bit on how durable you think the pricing advantage is from being a lead underwriter? Are you seeing any signs of maybe follow up, follower catch up compressing that pricing advantage?

No. If anything, we're seeing a more pronounced state of verticalization. You're seeing follow markets that aren't even shown renewals. That's happening, and that's what happens in a more competitive environment. We've got to make sure that we're relevant, we stay, you know, leveraging our position multiclass. You know, there's been very attractive compound increases for the last six, seven, eight years in some classes. I think the loss ratios especially that we've talked about demonstrate the margin in the business. You can then use outwards reinsurance to supplement the margin. At the moment, it works for us. We're confident with our targets for the rest of the year. You just gotta work hard. It's as simple as that.

Thank you.

Your next question comes from Michael Zaremski with BMO. Your line is open.

Hey, thanks. Good morning. Nice to see the stock popping this morning. I guess my question is, well, specifically, whether directionally Fidelis has head count growth, kind of aspirations within a quarter or, you know, maybe near term or longer term. I ask I guess in the context of kind of looking at some of the employee and G&A growth, kind of juxtaposing that with the market environment, but also some of the cool things you guys are doing with third parties. Also, with the pretty material Bermuda tax credits that also come online, you know, came online last year and will continue to come online. Thanks.

Yeah. Thanks, Mike. Just to remind you, we are Pelagos. You know, the structure was built meant to be efficient, meant to be lean. That will continue into the future. I mean, there's multi layers to your question. I don't know if you Jonny?

Being lean is really important to us, I think, and we feel we can execute the strategy that we've started on in the last year and a half in terms of moving to new underwriting partners and remain lean. I think one of the big advantages you have from being a lean company is it opens up margin to spend on reducing volatility. I think Bamboo, again, is a great example of that. We've been able to access the property market but not take cat risk to have an event cap that completely removes that, and the margin still remains attractive. How do you get there? You get there by having a really low expense ratio. It's something that we've got to focus on.

It is something that I think in terms of a long-term run rate, we've given some color on before, but it's certainly not something that, we see growing as a percent of premium.

Got it. That's helpful. I guess just switching gears. I don't think it was touched on, but if it was, you can It'd be a short answer, but in the press release you talked about non-renewing a cyber policy. I know that there's plenty of very, you know, high quality peers that have said that line of business, you know, probably doesn't typically, meet their appetite in terms of making it a much bigger line of business in their portfolios. Maybe you can kinda touch on what's taking place in that marketplace and why it was not renewed. Thanks.

Sure. I mean, for us, I think we've been pretty consistent on how we think about cyber. The bit that's stopped us entering that market in the past has been the systemic risk, so the risk in the tail. A product that emerged over the past few years was capped quota shares. Us reinsuring someone else and having a loss ratio cap that really removed the worry about that systemic risk. That's when we entered into the cyber market and were successful in doing a number of deals. We come into this year, there's been pressure in some places on where those caps are or having them removed completely. I think that's a term and condition that we just cannot move on.

Where we can't get the cap to be a level that we find acceptable, then we'd walk away from it, and that's exactly what's happened with the example that we mentioned this quarter.

That's good color. Just lastly then, do these cyber policies are they standalone or do they touch other policies that they need to be written in a bit of a package when you know, broker them when you're buying them through the brokers?

Thanks. It's Dan here. That's a standalone single policy. We effectively just didn't like the structure, simple as that.

Thank you.

Your next question comes from Rob Cox with Goldman Sachs. Your line is open.

Hey, thanks. Good morning. Yeah, I am just curious, a question on the new partnerships. you know, as you expand beyond the Fidelis partnership with these new partners, how do you maintain the same level of differentiated underwriting, as you have with the Fidelis partnership, where you have the frequent underwriting meetings and the right of first refusal? Are you employing any of those same arrangements with these new partners, or is it more about selecting them at the beginning of the partnership?

Hey, Rob, it's Jonny here. I'll kick off on that one. I think it's one of the attributes we look for in a partner. We want someone that truly wants partnership. By that we mean they want our input into their business plan, how they execute, what their risk profile is. If it's someone that's not looking to do that, they would fall at the first hurdle. It wouldn't be someone that we entered a partnership with. In terms of them monitoring that as they execute on it for us, with the Fidelis partnership, right, over 100 lines of business, we've been doing that since we split the business. There's a whole oversight framework we put around that which we've copied over to new partners effectively. Yes, we're just as involved with them.

Obviously, there's proportionality in terms of sizing of different partnerships and how much of our time we spend on it. It all goes through exactly the same process, same level of oversight. Like I say, one of the key things we look for in a partner is a partner that's open to that.

Okay, great. Thank you. Just as a follow-up, just a question on premium leverage. You know, at least on a GAAP basis, we've noticed the premium leverage at 1.3x surplus, which we kind of have observed is more or less similar to some of the other companies we follow that have, you know, less exposure to property or short tail lines that, you know, may have more volatile underwriting returns. I'm just curious, how should we be thinking about where the firm is comfortable running the business within its risk framework going forward?

Thanks, Rob. It's Allan here. Absolutely. Our approach to capital allocation has been similar to the last few quarters. We're always looking for opportunities to strategically deploy capital into profitable underwriting. Certainly, as you've seen over the last few years, we're more into the specialty market and less into the nat cat space, and we're 80% insurance now and 20% reinsurance. Also, with our capital management strategy, we have bought back, as I said in my prepared remarks, $600 million of shares over the last three years. We're a lot more efficient, I guess, on the capital management front. When you look at premium to surplus between the types of business we write, our level of capital, our level of debt, we're a lot more efficient than we used to be.

I think what you're seeing now is where we are comfortable in terms of capital, in terms of rating agencies, in terms of regulators, going forward.

It's Jonny here. Just to add to that, in terms of the risk profile, I mean, there's no real change in that relative to the premium that we've been writing. What I'd point to you there is as we've said before, the number of options in the outwards reinsurance space, whether it's through cat bond, ILW, UNL cover, has really opened up in the last 18 months or so. We've been able to take advantage of that to keep the net risk profile where we want it relative to our capital position.

That's helpful. Thank you.

Your next question comes from Matt Carletti with Citizens. Your line is open.

Hey, thanks. Good morning. Just a follow-up to Andrew's question a few questions ago, Dan, specifically around some of the opportunities coming out of the Middle East, war breach, political violence, et cetera. Just in terms of timing, you know, when the event kind of started in the quarter, can you just help us, a little bit of context to understand kind of how much of those opportunities might be reflected in kind of what we saw in the quarter versus how much of those might be coming in the future, whether it be 2Q or forward?

Thanks, Matt. Thanks for the question. Yes, I think it obviously spans both quarters. You'll see a bigger uptick in Q2 than Q1. I think that's probably the only way I can really frame it for you. It's obviously an ongoing situation. We still see opportunity in that area, it's gonna be loaded more to Q2 than it was in Q1.

Just keep in mind, it depends how people participate. If you participate through a facility or you give the pen away to some extent there, you may have booked your expected uptick in that in the first quarter. Whereas if you write risk by risk and look through to the underlying, then it's just, you know, as you incept each policy.

All right, great. Thank you.

Thank you. That concludes today's question-and-answer session. I'd like to turn the call back to Dan Burrows for closing remarks.

Thank you very much. We really appreciate everyone joining us today. If you do, as usual, have any additional questions, we're here to take your calls. We thank you for your ongoing support, and I hope you all enjoy the remainder of your day.

This concludes today's conference call. Thank you for participating. You may now disconnect.