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Octave Specialty Group Q4 2025 Earnings Call Transcript

Date

Tuesday, Feb. 24, 2026 at 8:30 a.m. ET

Call participants

• President & Chief Executive Officer — Claude L. LeBlanc
• Chief Financial Officer — David Trick

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Takeaways

• Insurance distribution segment revenue growth -- Revenue increased 65% in 2025, with 14% organic growth, excluding eight months of Octave Ventures and not reflecting the ArmadaCare acquisition.
• Octave Ventures organic revenue growth -- Organic revenue grew 18% in 2024 and accelerated to 47% in 2025.
• MGA portfolio development -- Nine of 22 MGAs were launched in 2024 and 2025; over 40% of the MGA portfolio is in the early growth phase, with some already generating top-line and early bottom-line contributions.
• Geographic and product mix -- The portfolio includes nine MGAs based in London and Bermuda and 13 in the U.S.; about 28% of the MGA portfolio is in specialty A&H, 30% in casualty, and 42% in non-cat property segments.
• Capacity and capital partners -- Combined aligned capacity from Lloyd’s syndicates, curated partners, and Everspan totals more than $2 billion as of the start of 2026.
• ArmadaCare acquisition performance -- Integrated ahead of schedule; contributed for two months in Q4 2025 with EBITDA margins over 40%, and is expected to drive revenue synergies across A&H MGAs in 2026.
• AI and technology initiatives -- Launched proprietary AI platform, Hammurabi, in the ESL business to streamline risk prediction and pricing; further integration of AI tools is ongoing across MGAs.
• Everspan segment metrics -- Gross premiums written: $80 million (up 34%); net premiums written: $23 million (was negative $3 million last year); net earned premium: $18 million (flat year over year); net loss and LAE ratio: 61.8% (up from 51.9%); effective loss and LAE ratio including sliding scale commissions: 62.9% (down from 66.8%).
• Combined ratio achievement -- Achieved a combined ratio below 100% for the first time, expected to remain below 100% in 2026.
• Insurance distribution adjusted EBITDA margin -- Margin rose to 15% in 2025 from 12% in 2024; on an operating basis, exceeded $10 million at a 22.6% margin.
• Adjusted EBITDA (consolidated) -- For 2025, $1.4 million versus $5 million in 2024, reflecting growth in distribution and lower corporate expenses, offset by Everspan repositioning.
• 2026 segment guidance -- Insurance Distribution targets organic revenue growth of at least 20% and adjusted EBITDA of about $40 million; Specialty Insurance (Everspan) expects $410 million gross written premiums and $7.5 million adjusted EBITDA.
• 2026 consolidated guidance -- Expected adjusted net income of approximately $0.50 per share; corporate adjusted expenses to be under $30 million.
• Net loss to shareholders -- Reported $30 million net loss, or $0.84 per share for 2025, compared to $22 million, or $0.56 per share in 2024, due to acquisition costs, business exit impacts, and legacy impairment.
• Seasonality -- Earnings remain heavily weighted to the first and fourth quarters; ArmadaCare and other A&H businesses deliver approximately 60% of annual earnings in Q1 alone.
• Expected NCI buy-in cash use -- Management expects NCI (noncontrolling interest) buy-ins to require less than $50 million cash in 2026, to be funded from existing cash and some additional borrowing.
• Equity-based compensation -- Equity compensation is projected to decrease by several million dollars in 2026 compared to 2025.
• Pricing environment -- Non-cat property rates are seeing reductions of 5%-10%, casualty rates are stable or increasing, and excess casualty lines are seeing double-digit rate hikes; A&H pricing is increasing 10%-12%.

Risks

• Reported net loss to shareholders widened to $30 million in 2025 from $22 million, primarily due to acquisition costs, business exits, and a legacy impairment.
• Adjusted consolidated EBITDA fell to $1.4 million in 2025 from $5 million in 2024, as Everspan's repositioning and new start-up costs offset distribution segment gains.
• Insurance Distribution segment's start-up MGA investments created a drag on total adjusted EBITDA of just under $3 million in Q4, with six entities generating negative EBITDA for 2025.
• Everspan's G&A ratio increased to 11.7%, which management characterized as "higher than we want," although it is expected to decline as scale is reached.

Summary

Octave Specialty Group (NYSE:OSG) completed its transition to a focused specialty insurance and distribution platform, highlighted by new MGA launches and the ArmadaCare acquisition. Management emphasized that the Insurance Distribution segment delivered significant revenue and margin gains, while Everspan returned to premium growth and achieved a sub-100% combined ratio. Consolidated EBITDA and net income remain pressured by transitional costs, legacy impairments, and new business investments. Guidance for 2026 indicates a shift toward higher margins and profitability, with organic growth and AI-led operational initiatives expected to drive performance.

• Leadership expects cash outflows related to noncontrolling interest buy-ins to stay below $50 million during 2026, with funding from cash balances and incremental borrowing.
• Equity-based compensation will decrease materially in 2026, and investment income is forecast to be flat to slightly higher.
• Seasonality effects persist, especially in A&H, where 60% of earnings are concentrated in the first quarter, but the spread is expected to moderate as de novo MGAs reach breakeven by year-end.
• Rate cuts in non-cat property are being offset by strong rate gains in casualty and A&H, which management believes supports continued top-line expansion.

Industry glossary

• MGA (Managing General Agent): An insurance intermediary with authority to underwrite and bind policies, often managing specialty lines and acting as an extension of an insurer.
• E&S (Excess and Surplus): Insurance market segment focused on risks not covered by standard admitted insurers, typically higher risk or specialty lines.
• A&H (Accident and Health): Insurance coverage segment dealing with accident, health, disability, and medical stop-loss products.
• LAE (Loss Adjustment Expenses): Expenses incurred by insurers in settling claims, including investigation and legal defense costs.
• Combined ratio: A key insurance metric that sums loss and expense ratios to assess underwriting profitability; a ratio below 100% indicates an underwriting profit.
• Sliding scale commission: A variable commission paid to agents or MGAs that adjusts based on the loss performance of the policies underwritten.
• NCI (Noncontrolling interest): The portion of equity ownership in subsidiaries not attributable to the parent company, often referring to profit-sharing arrangements with minority partners.
• EBITDA margin: EBITDA expressed as a percentage of revenue, used to assess operating profitability before interest, tax, depreciation, and amortization.

Full Conference Call Transcript

Claude L. LeBlanc: Thank you, Karen, and good morning, everyone. As we close out 2025, the fourth quarter marks the first full period in which Octave Specialty Group, Inc. operated as a standalone specialty insurance platform, a milestone that reflects the culmination of a multiyear strategic transformation. Our insurance distribution platform, inclusive of Octave Partners and Octave Ventures, is well established and uniquely positioned in the specialty program sector, with aligned underwriting capacity, a scalable data and technology infrastructure, and a clear path for sustained organic growth and meaningful margin expansion. Our model has allowed us to attract and partner with top underwriting talent, distribution partners, and leading capital and capacity providers.

The culture we have built is one of entrepreneurship, collaboration, specialization, and partnership, supported by a centralized and scalable operating model.

As we move forward in 2026 and beyond, we are starting from a position of strength. Despite an increasingly challenging market in 2025, Octave Specialty Group, Inc. was able to grow its insurance distribution business revenue by 65% over 2024, fueled by 14% organic growth. This number excludes eight months of Octave Ventures, formerly known as BEAT, and does not include our recent acquisition Armodicare. David will walk through the detailed financial results for the fourth quarter shortly.

As we look ahead, our well-diversified, high-growth, and rapidly scaling platform is supported by strong tailwinds including the following. One, embedded growth. Nine of our total 22 MGAs were launched in 2024 and 2025. With over 40% of our total MGA portfolio in early growth stages, and some already delivering strong top-line and early bottom-line growth, we believe this stable of MGAs will represent a significant portion of our future organic growth and earnings as they continue to scale over the next two to four years. Looking at Octave Ventures on a standalone basis, we saw organic revenue growth of approximately 18% in 2024, increasing to approximately 47% in 2025.

The Ventures incubator platform has a strong pipeline of future MGA opportunities it is evaluating, with particular focus on the U.S. E&S and SME segments. Two, geographic and product diversification. Our MGAs are geographically spread, with nine of our total MGAs based in London and Bermuda, with the remaining 13 in the United States. This provides us with a competitive advantage supporting growth and managing through market cycles. Our Lloyd’s market MGAs tend to move to profitability faster than U.S. MGAs and also move faster through pricing cycles, which creates more frequent opportunities to deploy capital opportunistically. Our U.S. market MGAs, by contrast, offer greater rate stability and more predictable underwriting conditions, which supports consistent margin management.

Our MGA portfolio is also diversified by line of business, with approximately 28% in specialty A&H and the remaining 72% in several specialty P&C lines, split 30% casualty and 42% non-cat exposed property. Outside of A&H, we cover approximately nine segments of the P&C market. We believe the diversity of our platform is one of our core strengths and differentiators. Three, aligned and curated third-party capacity. In 2025, we continued to expand our line capacity through our Lloyd’s syndicates, as well as our rapidly broadening curated capital and capacity partners, which together with Everspan stands at over $2,000,000,000 entering 2026. And lastly, our minority interest buy-in.

For certain MGAs, Octave Specialty Group, Inc. has the ability to acquire material portions of minority interests over a predetermined schedule, which allows us to systematically expand earnings attributable to our shareholders aligned with the ongoing performance of the MGAs. This also represents a built-in source of earnings growth, which when combined with other growth drivers, will enable us to rapidly scale both top- and bottom-line growth in the near to medium term. In total, when considering Octave Specialty Group, Inc.’s embedded growth, diversified product and geographic mix, access to aligned capacity, and contractual rights to buy in minority interest, we believe we are well positioned for strong growth for years to come.

I will now turn to our RamadaCare acquisition. The acquisition of RemodiCare in the fourth quarter fits our goal of increasing shareholder value and marked a defining step in our transformation. ArmadaCare enhances our product diversification, deepens our position in the specialty A&H market, adds meaningful scale, and generates recurring revenue streams with attractive EBITDA margins of over 40% that are less correlated to the general P&C commercial cycle. It is precisely the kind of complementary, durable business we want in our portfolio as we enter a softening P&C market cycle. While our fourth quarter results reflect only a two-month contribution, the integration of RemodiCare has progressed ahead of schedule and the platform’s early performance is exceeding our expectations.

With the addition of RamonaCare, we were actively progressing revenue synergies across broader accident and health MGAs. We expect A&H to account for roughly a quarter of our distribution business in 2026 across three platforms and seven lines of business.

I am also pleased with our fourth quarter launch of 1889 Specialty, a management liability and professional lines MGA focused on the SME financial institutions market, led by Blair Bartlett and backed by A rated capacity. This launch reflects our continued ability to identify top talent within the specialty market with track records of delivering strong underwriting results, and Octave Ventures’ ability to stand up businesses quickly.

Over the past several years, we have purposely constructed a specialty platform designed to deliver innovative, differentiated solutions to brokers, agents, and carriers across multiple specialty verticals. As our platform has grown, so has our operational sophistication. We are executing a focused initiative to unify our operating infrastructure onto a single integrated data and technology architecture, one that will further enhance scalability, improve data analytics and risk selection, and accelerate our operational velocity, driving scale and revenue growth. Central to this effort is the integration of AI-driven tools across our MGA platform. These tools are designed to improve risk selection, elevate pricing sophistication, and drive meaningful operational efficiency gains, ultimately translating into expanded margins. This is not future-state thinking.

It is already underway and I will discuss one specific example in a moment.

Turning to Everspan. We are happy with the steps we took to reposition the book in 2024, and after some reserve strengthening in the first nine months of the year, we produced a loss ratio, including the impact of sliding scale, of 62.9% in the fourth quarter 2025. We now believe Everspan is positioned for reasonable and controlled growth in 2026. Everspan’s focus remains on the casualty markets where we are continuing to see more pricing discipline than in the property markets.

As for our 2026 outlook, we expect our EBITDA profile to follow a natural maturation curve as our MGAs scale and season. We expect contribution margins to improve and operating leverage to emerge with increasing clarity beginning in 2026 and accelerated beyond. We are already seeing signs of this in the first quarter, and while not yet complete, early Q1 results across most of our businesses are very encouraging and supportive of our guidance, which I will cover shortly. One notable example is our exchange platform, which is on track for record results in our ESL business following a couple of years of challenging results.

One catalyst for this performance is the official launch of Hammurabi, our proprietary AI platform built specifically around the medical stop-loss business. Hammurabi replaces traditional labor-intensive processes with near-instant risk prediction and pricing accuracy, enabling our underwriters to move faster, price more precisely, and scale more efficiently than ever before. We believe Hammurabi is a genuine competitive differentiator that has the potential to expand to other business lines over time, and we are just beginning to unlock this potential. We are also actively utilizing and developing data and AI tools across our platform, which we believe will help us to rapidly scale and differentiate our business model into the future.

I will now turn the call over to David Trick to review our fourth quarter results. David?

David Trick: Thank you, Claude. Good morning, everyone. For 2025, Octave Specialty Group, Inc. reported a net loss to shareholders of $30,000,000 or $0.84 per share compared to a net loss from continuing operations to shareholders of $22,000,000 or $0.56 per share in 2024. The higher loss in 2025 was driven by costs associated with the Amarticare acquisition, exit from the financial guarantee business and associated expense reduction initiatives, and an impairment of a legacy strategy minority investment. Significantly lower interest expense, and to a lesser degree, the benefit of two months of our Medicare results, helped to partially offset these transitional and transactional expenses.

Adjusted EBITDA from continuing operations to stockholders, which excludes these transactional and transitional expenses, increased to $1,400,000 compared to $5,000,000 in 2024. Adjusted EBITDA improved as a result of growth in the insurance distribution segment and lower adjusted corporate expenses, partially offset by lower results at Everspan in connection with the strategic repositioning of that business. Everspan is now positioned for controlled and profitable growth into 2026.

Despite some of the market dynamics that Claude mentioned, Octave Specialty Group, Inc.’s insurance distribution segment grew premium production 9%, commission revenue 13%, and generated organic revenue growth of just over 8%. These results are a testament to the platform we continue to build and set a foundation for our 2026 expectations, which Claude will review momentarily.

Total revenues were up 5% to just under $47,000,000 in fourth quarter 2025 versus fourth quarter 2024 and were impacted by lower profit commissions and FX gains, which collectively declined by about $4,000,000. The reduction in profit commissions was not a result of any systemic shift and we believe our underlying underwriting results remain in line with expectations. The Insurance Distribution segment net loss to shareholders improved to $1,400,000 in the quarter compared to a net loss of $6,000,000 in the prior-year quarter, benefiting mostly from a significant reduction in interest expense and growth in the business including two months contribution from ArmadaCare.

Adjusted EBITDA to shareholders grew to just over $7,000,000 compared to just over $5,000,000 in 2024, a 33% increase. During the fourth quarter, our investment in start-up MGAs created a drag on total adjusted EBITDA of just under $3,000,000, or approximately $1,500,000 to shareholders. This investment is about three-quarters of the impact of last year’s fourth quarter. Notably, we had six entities that produced a negative EBITDA in 2025. All but two of these are anticipated to be breakeven or be profitable by 2026. This dynamic is characteristic of a component of the underlying growth engine and our ability to expand EBITDA margins over time.

Insurance Distribution adjusted EBITDA margin in 2025 was 15%, up from 12% last year at this time, trending favorably towards our longer-term goal of mid-twenties plus margins. On an operating basis, that is before the impact of NCI, Insurance Distribution reported over $10,000,000 of adjusted EBITDA at a 22.6% margin compared to just under $10,000,000 and a 22.3% margin in 2024. As noted previously, our margins can be expected to flex a bit period to period depending on the relative performance of each MGA compared to our ownership level. That will converge over time with margins on an operating basis as we buy in certain NCI.

Everspan’s gross premium written, net premium written, and earned in the quarter were $80,000,000, $23,000,000, and $18,000,000 respectively. Gross premiums written were up 34%, while net premiums written were up from last year’s negative $3,000,000, and net earned premium was basically flat year over year. Production and total revenues were heavily influenced by the repositioning of our portfolio, which began in late 2024. We now believe Everspan is positioned for controlled and profitable growth. Our net loss and LAE ratio was 61.8% in 2025, up from 51.9% in 2024. However, losses were meaningfully impacted by sliding scale commissions, which we have used as an effective tool to help moderate loss results.

Including the impact of sliding scale commissions, our effective loss and LAE ratio was 62.9% in 2025 compared to 66.8% in 2024, a decrease of nearly four full percentage points. Moreover, our active programs, as opposed to those in runoff, were operating at a combined loss ratio in the low 60s as of year-end. And 99.4% our combined ratio fell to below 100% for the first time this year, and our expectations are that this will remain the case in 2026.

Our G&A ratio was 11.7% in 2025, higher than we want, but as noted before, our expectations are that our G&A ratio will recede as we approach scale, which we generally consider at about $500,000,000 of gross written premiums, which we believe can be achieved in 2028. For 2025, Everspan’s pretax income was $1,300,000 and adjusted EBITDA was $1,500,000, down from $2,600,000 and $2,700,000 respectively in 2024. The decline was mostly related to the $1,800,000 reduction in revenue related to the factors I noted earlier, as well as an increase in G&A.

Corporate G&A expenses were $25,000,000 in the quarter compared to $14,600,000 in 2024. On an adjusted basis, G&A expenses were $7,500,000 compared to $8,800,000 in 2024. The difference between reported expenses and adjusted expenses in the current quarter was attributable to acquisition and integration costs of about $7,800,000, impairment of a legacy minority investment of $3,100,000, and restructuring and expense reduction initiatives of $7,600,000. We previously outlined certain select corporate expense reduction initiatives. These select initiatives are estimated to generate approximately $17,000,000 of reported expense savings compared to where we were pre-sale of our legacy financial guarantee business, and have over a $10,000,000 impact from adjusted corporate EBITDA when fully complete. I will now turn the call back to Claude.

Thank you, David.

Claude L. LeBlanc: As we look ahead, I believe we are uniquely positioned to grow both revenue and EBITDA as our newest MGAs build momentum and scale, our more established MGAs expand product lines, we continue to grow our distribution channels, and all of our platforms work together to deliver synergies. The sum of these parts is expected to deliver improving margins and increasing operating leverage in 2026 and beyond. With that in mind, we are providing guidance regarding our expectations for 2026. For our Insurance Distribution segment, we are expecting organic revenue growth of at least 20% and adjusted EBITDA of approximately $40,000,000 for the full year 2026.

For our Specialty Insurance segment, which includes Everspan, we expect gross written premiums of around $410,000,000 and adjusted EBITDA of approximately $7,500,000 for the full year 2026. Corporate adjusted expenses are expected to be below $30,000,000 for the year. And on a consolidated basis, we expect to generate adjusted net income of around $0.50 per share for 2026. We are proud of what we have built and excited about the opportunities that lie ahead of us to deliver meaningful value to our shareholders. We look forward to providing you updates on our progress in the coming quarters. Operator, please open the call for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up. The first question is from Mark Douglas Hughes from Truist Securities. Please go ahead.

Mark Douglas Hughes: Yeah. Thank you. Good morning. Claude, how do you see the—you talked about a strong pipeline of de novo start-ups. What are you seeing for 2026?

Claude L. LeBlanc: We are seeing a number of opportunities that are both in the Lloyd’s market, but I think primarily in the U.S. market where we are focused principally for our growth initiatives. And we are currently looking to continue to diversify and broaden our writings in other lines and other areas, and we are seeing lots of opportunity for that. And we still have a lot of white space, so I think we can certainly fit in a number of other businesses.

But I would say that we are probably targeting a lesser number certainly than the last two years, maybe two or three, just given the significant number that we were able to launch in 2024 and 2025, and really focusing on their growth over the next two to three years. But we are looking for, I will say, two to four per year, I think, is what we indicated previously, and that is probably our continued cadence that we are targeting.

Mark Douglas Hughes: Very good. David, how do we think about the cash flow in 2026? And I am thinking one thing in particular, the buy-in of noncontrolling interest. But how do you see cash from operations, and then any outlays again, like the noncontrolling, and kind of netting out through the course of the year?

David Trick: Sure. So it is overall, you know, cash flow is continuing to improve in terms of distributions, if you will, up to the holding company and at the operating level as well. I mean, our expectations based on our current view is, and I think we gave a similar amount in the last quarter, that NCI buy-in this year will be less than $50,000,000. And so funding for that will come from cash, and our expectations at this point is some marginal additional borrowing as well.

Mark Douglas Hughes: Appreciate that. And then maybe a couple specific items. Equity-based comp and net investment income. Again, for 2026. Any early thoughts?

David Trick: Oh, sorry. Net investment income, I would say, be relatively flat to marginally higher in 2026. And equity comp will be, relative to 2025, would be down a few million dollars from the prior year.

Mark Douglas Hughes: Very good. And then when you think about the earnings throughout the year, seasonally, the $0.50, I think you have talked about the profitability of the new de novo startup should be improving, hit breakeven or better by the fourth quarter. But when you take into account seasonality, any rough guidance on how the quarterly earnings spread should look?

David Trick: Yeah. I mean, while it is continuing to shift based on, as you know, some of the new MGAs that come into play, which we would expect to improve throughout the year for those startups that are currently losing money and, like I mentioned in my comments, most of which will be profitable by the end of the year. So that is a favorable dynamic through the course of the year in terms of weighting earnings towards the back end. But nonetheless, our A&H businesses in particular, as well as a number of other businesses, are very heavily weighted towards the first quarter. So overall, our seasonality continues as it has in the past.

While it is mutating a little bit, it continues to be heavily weighted towards the first quarter and the fourth quarter. And in particular, for example, some of our A&H businesses, including ArmadaCare, they are weighted about 60% of their earnings and EBITDA is weighted towards the first quarter. So overall, we continue with our seasonality profile that is both for first quarter, excuse me, and fourth quarter, but certainly starting to moderate modestly as the new businesses start to reach breakeven and move towards profitability.

Mark Douglas Hughes: Then maybe one final question. How do you see the pricing environment in the kind of three main buckets, the accident and health, the casualty, and non-cat property?

Claude L. LeBlanc: So on the non-cat property side, I think fairly consistent with some of the market commentary, I think we are seeing probably 5% to 10% rate reductions on some of the programs. Others have been more stable in non-cat property. On the casualty side, we have seen some rate increases and some programs that have been more on the stable side. So really a blend, but the more challenging areas, certainly the excess casualty lines, have really seen double-digit rate increases. And as far as A&H goes, very strong organic growth, and I would say that is probably on average, when we look at the balance of our portfolio, probably double digit. Organic growth in our three businesses.

Mark Douglas Hughes: And is that double-digit pricing? Or—

Claude L. LeBlanc: It is a combination. The pricing is probably close to double digit, a little higher, 10% to 12%, and the volume is revenue growth is also very strong because of new products and just other growth initiatives that are being put in place. Thank you very much.

Operator: This concludes the question-and-answer session as well as today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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