Accelerant's Q3 2025 Earnings Call: Contradictions Emerge on Premium Growth, Reinsurance Strategies, and Capitalization

Date of Call: None provided

Financials Results

• Revenue: $267M, up 74% YOY
• EPS: $0.38 adjusted EPS (adjusted net income $80M vs $19M prior year)
• Gross Margin: Gross loss ratio 50.1%, in the low-50s target range; improved by favorable prior-year development
• Operating Margin: Adjusted EBITDA margin 39%, up from 17% YOY

Guidance:

• Q4 2025 exchange-rated premium expected $1.06B–$1.10B
• Q4 2025 third-party direct written premium expected $415M–$430M
• Q4 2025 adjusted EBITDA expected $57M–$62M (midpoint implies FY exchange-rated premium ~$4.18B, adjusted EBITDA ~$270M)
• Full-year 2026: at least $5B exchange-rated premium, $2.1B third-party direct written premium, and $269M adjusted EBITDA
• Medium term (3–5 years): target ~2/3 of portfolio written by third-party insurers; net retention to trend toward ~10%

Business Commentary:

• Exchange-Rated Premium Growth:
• Accelerant reported $1.04 billion in exchange-rated premium for Q3 2025, marking a 17% year-over-year increase.
• Adjusting for two atypical members, the exchange-rated premium would have grown by 29%.
• Growth was driven by a high net revenue retention rate of 135% and an increase in member count to 265.

• Third-Party Insurer Expansion:
• Accelerant plans to have $415-$430 million of third-party direct written premium in Q4 2025, representing 32% of exchange-rated premium.
• The company aims to have two-thirds of its portfolio written by third-party insurance companies in the medium term.

• This expansion is supported by the addition of several third-party insurers, including a Lloyd’s facility and Ozark Specialty Insurance Company, aimed at diversifying risk capital partners.

• Strong Financial Performance:

• Revenue for Q3 2025 grew 74% year-over-year to $267 million.
• Adjusted EBITDA rose over 300% year-over-year to $105 million, with an adjusted EBITDA margin of 39%, up from 17% last year.
• Growth was driven by increased exchange services and MGA operations revenue, as well as improved operating leverage.

• Gross Loss Ratio and Data-Driven Insights:
• Accelerant's gross loss ratio for Q3 was 50%, with expectations for the portfolio to maintain a loss ratio in the low 50s.
• The company attributes this stability to its proprietary data-driven risk scoring models and the diversification of its portfolio with small policies.
• The integration of more third-party exposure data and advanced data infrastructure supports refined risk models and profitable growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: “we had a strong quarter. We beat on both exchange-rated premium and adjusted EBITDA.” Adjusted EBITDA $105M (over 300% YOY); revenue $267M (+74% YOY). Management reiterated strong pipeline (> $3B annualized) and concrete Q4 and 2026 targets, signaling confidence in growth and profitability.

Q&A:

• Question from Roland Major (RBC Capital Markets): On the guide, does moving business to third-party insurers create expense shifts as gross written on Accelerant moderates? Also, the deck cites 90 new products — any notable new exposures or upcoming product opportunities?
  Response: Some expense shifts expected as volume moves off Accelerant underwriting, but management expects margins to remain largely stable; the 90 new products are mainly book-rolls and specialized SME launches (no major appetite expansion).

• Question from Elise Greenspan (Wells Fargo): Why wouldn't EBITDA growth outpace premium growth next year, and what is your definition of 'medium term' for the two-thirds third-party target and Hadron's future share?
  Response: Margins are expected to hold; shifting mix to third-party increases fee-based exchange/MGA revenue but reduces underwriting revenue; 'medium term' = 3–5 years and Hadron’s share should drift down (Q4 2026 guidance ~33%).

• Question from Charlie Letterer (BMO Capital Markets): Can you break down the $1.8B under contract for the $2.1B third-party 2026 target and describe pacing over the next five quarters? Also, how should we think about cash flow conversion outside underwriting?
  Response: Third-party growth happens via discrete product migrations producing quarter-to-quarter jumps with expected acceleration; exchange services show very high cash conversion and eliminations don’t affect cash collection—detailed conversion metrics will be provided offline.

• Question from Bob Wong (Morgan Stanley): As Hadron becomes a smaller percentage of third-party premium, which partners will drive growth and under what circumstances are partners moved off the platform?
  Response: Growth will be broad (Lloyd’s highlighted as a meaningful new risk-exchange insurer) with multiple partners expected to grow materially; small reinsurance partners were removed to free capacity for larger partners—management has sufficient risk capital to support a doubling of premium.

• Question from Robert Cox (Goldman Sachs): Can you clarify the Lloyd’s development (was there a decline story earlier) and the trend of third-party insurers accessing reinsurers directly? Is Hadron already ceding direct?
  Response: Lloyd’s relationship is strong and now includes a direct insurance facility; there is a clear trend of third-party insurers moving to cede direct to reinsurers over time, and Hadron has already transitioned to ceding directly.

• Question from Paul Newsom (Piper Sandler): How often do you ask members to leave the platform and why? Also, why has your gross loss ratio moved down this year instead of up?
  Response: Partings are rare (~15 total since 2018; ~5 for underwriting/performance issues); most exits stem from distribution failure not rate levels. The lower loss ratio reflects the portfolio’s very small-policy mix, granular data-driven underwriting, and favorable prior-year property development; expect low-50s with quarterly variability.

• Question from Andrew Kilgerman (TD Cowen): Can you confirm Hadron’s capital/surplus and comment on the texture of the ~50% loss ratio and prior-year development? Also update on the pipeline?
  Response: Hadron’s group surplus is ~ $200M and is conservatively managed; the quarter’s ~50.1% loss ratio benefited from favorable prior-year property development and small-policy diversification; blended rate change ~+4% broadly keeps pace with loss trends; pipeline > $3B annualized at quarter end.

• Question from Charlie Letterer (BMO Capital Markets): Is the medium-term two-thirds third-party target a change from three months ago? And why is the underwriting expense ratio lighter than IPO guidance?
  Response: The two-thirds third-party target is unchanged; underwriting expense ratio is lighter due to favorable gross loss-ratio outcomes, lower DAC from business mix/higher ceded rates, and some OpEx migration as more volume goes to third-party insurers—expect expense ratios broadly stable near-term.

Contradiction Point 1

Premium Growth and Market Strategy

It involves differing perspectives on premium growth and market strategy, which are crucial for understanding the company's financial outlook and competitive positioning.

Are there any expenses related to the transition to third-party exchanges? - Roland Major (RBC Capital Markets)

2025Q3: As we transition business to third parties directly, gross written premium growth will moderate and eventually flatline. - Hamed Ali Yaqorbi(Investor Relations Associate, Blue Shirt Group)

Can you quantify third-party premium growth excluding Hadron's portion? - Hristian Getsov (Wells Fargo)

2025Q2: All third-party insurance companies are growing quickly, and the mix of third-party insurance will decrease over time. - Jeffrey Radke(Co-Founder and CEO)

Contradiction Point 2

Reinsurance Relationship and Capitalization

It highlights differing statements about reinsurance relationships and capitalization, which are important for understanding the company's financial and strategic positioning.

Can you break down the $1.8 billion in third-party premium contracts for 2026 and discuss the timing of the increase over the next five quarters? - Charlie Letterer (BMO Capital Markets)

2025Q3: We expect a solid mix of fronting carriers and other types. The diversity of risk capital types remains crucial, including professional reinsurers and institutional investors. Hybrid front companies like Hadron are valuable, but managing diversity is key. - Jeff Radke(Co-founder and CEO)

Will the third-party insurers primarily be fronting carriers like Hadron? - Robert Cox (Goldman Sachs)

2025Q2: We expect a solid mix of fronting carriers and other types. The diversity of risk capital types remains crucial, including professional reinsurers and institutional investors. Hybrid front companies like Hadron are valuable, but managing diversity is key. - Jeffrey Radke(Co-Founder and CEO)