RYAN - NYSE

Good afternoon, and thank you for joining us today for Ryan Specialty Holdings Third Quarter 2025 Earnings Conference Call. In addition to this call, the company filed a press release with the SEC earlier this afternoon, which has also been posted to its website at ryanspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Investors should not place undue reliance on any forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Listeners are encouraged to review the more detailed discussions of these risk factors contained in the company's filings with the SEC. The company assumes no duty to update such forward-looking statements in the future, except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release, which is filed with the SEC and available on the company's website. With that, I'd now like to turn the call over to the Founder and Executive Chairman of Ryan Specialty, Pat Ryan.

Good afternoon, and thank you for joining us to discuss our third quarter results. With me on today's call is our CEO, Tim Turner; our CFO, Janice Hamilton; our CEO of Underwriting Managers, Miles Wuller; and our Head of Investor Relations, Nick Mezick. We had a strong third quarter and are pleased with our ability to continuously deliver value for our clients across our businesses. For the quarter, we grew total revenue 25%, driven by organic revenue growth of 15% and M&A, which added nearly 10 percentage points to the top line. Adjusted EBITDAC grew 23.8% to $236 million. Adjusted EBITDAC margin was 31.2% compared to 31.5% in the prior year. Adjusted earnings per share grew 14.6% to $0.47. We remained active in M&A this quarter and have a robust pipeline, positioning us well to execute on our disciplined long-term inorganic growth strategy. Our excellent growth was driven by strength in casualty across all 3 of our specialties and modest growth in property. We generated strong new business and had high renewal retention even in the face of a complex and evolving insurance and macro environment. This achievement reflects the unmatched expertise, execution and commitment of our world-class team. Our ability to execute at this level continues to set Ryan Specialty apart and strengthens our position as one of the most formidable forces in specialty lines insurance. Moving to our recently announced initiatives this quarter. We successfully onboarded key talent across Ryan Re and alternative risk and brought innovative products to market through the launch of our flagship collateralized sidecar, Ryan Alternative Capital Re or RAC Re. Separate from those initiatives, we continue to entrench Ryan Specialty as the destination of choice for top talent. We believe we have entered into a unique and potentially transformative period within the specialty and E&S market. As the industry reacts to a transitioning market, we are attracting more talented professionals that are looking for a platform that not only withstands market cycles, but powers through them. Over the last 15 years, we built a culture and business model that stands apart from our competitors. Throughout the quarter, we saw a significant opportunity to ramp up our recruitment efforts. As a result, we added a significant number of experienced professionals to our world-class team. We expect this momentum to continue in the quarters ahead. Growth and long-term value creation are in our DNA, and we will remain true to that by continuing to prioritize strategic investments, especially as it relates to talent, de novo formations, innovative products and solutions, M&A and technology. These are all key areas that will further reinforce our commitment to our clients and our leadership in specialty insurance solutions. We believe these investments will accelerate our ability to relentlessly capture market opportunities, enhance our competitive position and deliver durable value for our shareholders over the long term. As we've noted repeatedly, our recruitment, training, development and retaining of talent is the best and most accretive investment we can make as it will continue to drive our organic growth engine for years to come. These efforts are fundamental to our strategy as a leading high-growth company and will enable our long-term success. Stepping back, our performance through these first 9 months reinforces our confidence in delivering yet another year of double-digit organic growth in 2025, marking the 15th consecutive year of achieving this increasingly remarkable accomplishment. Additionally, we are well positioned to sustain similar levels of full year organic growth into 2026. Looking beyond that, we believe we will continue delivering industry-leading organic growth, a topic Tim will address in more detail shortly. Lastly, before turning to Tim, I want to congratulate both Steve Keogh and Brendan Mulshine on their promotions to Co-Presidents of Ryan Specialty. Steve and Brendan will continue in their roles as Chief Operating Officer and Chief Revenue Officer, respectively. While stepping into this expanded leadership position following Jeremiah Bickham's transition to serving as strategic adviser through the end of the year. Steve will be focused on driving operational excellence and advancing our technology and innovation efforts, while Brendan will lead across our 3 specialties to enhance alignment and continue to maximize client impact. This announcement reflects the strength of our roster and the versatility of our leadership team built for durability and continuity. I also want to thank Jeremiah for his nearly 14 years of distinguished service to Ryan Specialty and for his support as we transition our leadership team. His dedication has been instrumental to the growth and success of our platform, and we wish him the best of luck with his future endeavors. As we wrap up 2025, we remain confident in our ability to innovate and thoughtfully invest in our business. Through relentless execution and winning new business, combined with strategic investments in growth initiatives, transformative acquisitions over the last few years, numerous additions of top talent and accelerated investments in the high-growth areas, we have built a foundation that positions us exceptionally well for the future. As the culture of this terrific team, I want to reemphasize how proud I am of the team's ability to deliver exceptional total revenue growth of 25%, driven by 15% organic growth and 10% inorganic growth. I'm even more impressed with our ability to drive adjusted EBITDAC growth of 24%, especially considering the unique opportunity to attract top broking and underwriting talent and continued investments in technology throughout the quarter. Now I'm pleased to turn the call over to our CEO, Tim Turner. Tim?

Thank you very much, Pat. Ryan Specialty had an outstanding third quarter as we once again delivered industry-leading results for our clients in the face of a very challenging property rate environment. As I mentioned on our prior call, we remain hyper-focused on successfully executing on what we can control and delivering an organic revenue growth rate of 15% for the quarter is clear validation that our strategy is working. Further, while the strong secular conditions have endured, it is our Ryan-specific growth drivers that are resonating. Most notably, our specialized intellectual capital, unique trading relationships at scale and an ability to innovate, evolve and stay ahead of the market. Ryan Specialty was built on a simple philosophy to skate where the puck is going. This is the opportunity Pat and I saw back in 2010. And in every instance where we have invested ahead of the curve, we have been rewarded. To that extent, as Pat highlighted, we are currently operating in the early stages of a unique and potentially transformative period within the specialty and E&S environment. We made substantial progress on this opportunity towards the end of the third quarter, capitalizing on the influx of world-class specialty talent. This type of strategic hiring provides us with an unmatched ability to position ourselves as the clear leader in the specialty lines industry over the long term, a trend we anticipate continuing in the quarters ahead as the industry's top talent continues to knock on our door. Additionally, as it relates to technology, the pace of change has been remarkable, driven primarily by advancements in AI and machine learning. These developments are reshaping our industry and the world around us, and we are committed to staying ahead of the curve. Of course, leveraging these opportunities requires meaningful investment. And as a result, we now expect full year 2025 margins to be roughly flat to modestly down when compared to the prior year. However, these are without a doubt the most impactful and most accretive investments we can make to ensure the long-term success and durability of the Ryan Specialty platform. Looking ahead, we remain committed to margin expansion over time while preserving the flexibility to prioritize strategic investments and capitalize on the opportunities when they arise. such as the current talent environment and also de novo formations, innovative products and solutions, M&A and technology. We believe this is the right approach to ensure continued industry-leading growth. In light of everything I've outlined, we are deferring the 2027 time line for our previously communicated 35% adjusted EBITDAC margin target. This reflects our commitment to capitalizing our growth opportunities like the ones we're seeing today and prioritizing long-term value creation over short-term benchmarks. As we've noted in the past, our strategy is designed to anticipate and address the evolving needs of our clients and trading partners. And we remain diligent on expanding our talent base and capabilities to satisfy these growing needs. We believe this is the best way to ensure that our value proposition remains dynamic, differentiated and most importantly, indispensable. We also understand the importance of the commitment we make to our teammates, equipping them with the most advanced tools to ensure innovation and top-tier service to our clients and trading partners has been and will remain an area of heightened focus going forward. These investments are fundamental to our strategy as a leading high-growth company and serve as sustainable fuel to our growth engine. Turning to growth. As Pat mentioned, we are increasingly confident in our ability to deliver yet another year of double-digit organic growth in 2025 and are in a great position to sustain a similar level of organic growth into 2026. Beyond that, we believe we can consistently deliver industry-leading organic growth on an annual basis in the years to come. Important drivers of our growth going forward are our expectation to continue capitalizing on the unique opportunity to recruit and onboard top-tier talent in the quarters ahead, while also training, developing and retaining the exceptional team we've built over the past 15 years. Continued growth in our casualty business, driven by solid flow into the E&S channel and our expertise in high hazard classes, our ability to offset another year of soft property pricing as was evident this year. Through Ryan Re, our reinsurance underwriting MGU for which we've thoughtfully staffed in anticipation of 1/1 renewals following the nationwide and Markel renewal rights deal. ongoing innovation through new product launches and investments in geographic expansion broadly across the underwriting platform, which includes alternative risk, Ryan Re as well as our newly announced sidecar, RAC Re. Contributions from recent M&A as well as the continued pursuit of future transactions as this year's M&A is next year's organic growth. And lastly, our confidence in continued growth across all 3 of our specialties. It is a very exciting time at Ryan Specialty, and we are taking advantage of the multiple pathways to strengthen our position as the global leader in specialty lines, while staying focused on creating long-term sustainable value for our shareholders. Turning to our results by specialty. Our wholesale brokerage specialty had a great quarter. In property, we returned to growth through our relentless execution, winning a high percentage of new business and head-to-head competition, supported by high renewal retention, continued steady flow into the E&S channel, partially offset by the rapid decline in property pricing in Q3. We expect the fourth quarter to face continued deterioration of property pricing given what looks like another benign hurricane season. However, our longer-term outlook remains optimistic given the frequency and severity of cat events, notwithstanding recent experience and the increasing population in cat-affected areas, creating an increased demand for E&S property solutions. With our deep capabilities, we will continue to deliver value for our trading partners and offer innovative products and solutions for the most complex issues our clients face, irrespective of the market cycle. We continue to expect property to be an important contributor to our growth over the long term. Meanwhile, our casualty practice continues to deliver very strong results, driven by excellent new business and high renewal retention. We were particularly pleased to see pockets of growth in our Construction segment in the quarter, aided by an increasing demand for the build-out of data centers. Further, we also saw strength in a number of other lines, most notably transportation, habitational risks, public entities, sports and entertainment, healthcare, social and human services and consumer product liability. Our professional lines brokers remain resilient and resourceful in identifying new opportunities. And despite ongoing pricing pressure, they too have seen solid growth this quarter. More broadly in casualty, loss trends driven by both economic and social inflation continue to influence carriers to increase rates, refine their appetite and in some cases, step back from certain products. As many of these risks move into the specialty and E&S markets, we continue to see the E&S market respond in a disciplined manner. We believe that the need for the specialized industry and product level expertise that Ryan Specialty offers has never been greater, and our value proposition has never been stronger. With typical loss trends likely to continue, we see a long runway for sustained casualty pricing in the non-admitted market. We remain confident that casualty will continue to be a strong driver of our growth moving forward and believe we will remain a leader in casualty solutions for years to come. Now turning to our delegated authority specialties, which include both binding and underwriting management. Our binding authority specialty continues to perform well, driven by our top-tier talent and expanding product set for small, tough-to-place commercial P&C risks. We continue to believe that panel consolidation and binding authority remains a long-term growth opportunity, and we are well positioned to serve our clients as this trend persists. Our underwriting management specialty also had a great quarter, driven by excellent results in transactional liability, reinsurance and casualty. We had significant contributions from recent acquisitions, which added over 30 percentage points to the top line growth of underwriting management. Our recent cohort of acquisitions continues to deliver meaningful contributions to our long-term delegated authority strategy, reinforcing the value of our broader strategic approach. Further within RSUM, we recently launched RAC Re, our flagship collateralized sidecar that adds meaningful diversified capacity to our underwriting platform. This innovative structure brings a large amount of committed capital, which we will deploy over a 2-year period. RAC Re strengthens our ability to accelerate growth, enhance flexibility through increased diversification of capital and respond swiftly to market opportunities, further demonstrating our ability to adapt to the ever-changing needs of the industry. Stepping back, our skill and discipline to manage these businesses through the current insurance cycle bolsters our ability to deliver consistently profitable underwriting results, growth and scale over the long term. We remain well positioned to capitalize on both organic and inorganic delegated authority growth opportunities. Now turning to price and flow. We have repeatedly noted that in any cycle, as certain lines are perceived to reach pricing adequacy, admitted markets have historically reentered select placements. In this cycle, however, that dynamic has not materialized in any meaningful way and the standard market has had little impact on overall rate or flow. As we've consistently said, we continue to expect the flow of business into the specialty and E&S market more so than rate to be a significant driver of Ryan Specialty's growth over the long term. This was once again demonstrated in Q3 as the flow of business into the E&S channel remains steady across all lines, helping us deliver industry-leading organic growth, notwithstanding continued property pricing headwinds. Turning to M&A. This quarter, we closed on the acquisition of JM Wilson, which is an excellent addition to our binding authority and transportation offering. Earlier this week, we announced the acquisition of Stewart Specialty Risk Underwriting, or SSRU. With approximately $13 million annual revenue, SSRU enhances our Canadian capabilities in key sectors, including construction, transportation and natural resources. Further on the M&A front, our near-term pipeline remains robust, including both tuck-ins as well as large deals. That said, we will only move forward when all of our criteria for M&A are met, most notably a strong cultural fit, strategic and accretive to the overall platform. To sum it all up, this was an outstanding quarter for Ryan Specialty, which is a testament to our day 1 philosophy, our enduring value proposition and the overall durability of this platform. When we first started, we had the vision to align RT Specialty with the deep product expertise and skill set at Ryan Specialty underwriting managers. Today, as we continue building out our business through strategic investments in world-class talent, that vision is translating into meaningful results. As the destination of choice for the best talent in the industry, our winning and empowering culture and nonstop focus on innovation continues to attract the best of the best and helps ensure our long-term success. Our scale, scope and intellectual capital built over the past 15 years remains the foundation of our ability to continue winning and expanding our market share over time. Our platform is exceedingly difficult to replicate as we built a competitive moat, and we will continue to invest further in our platform to widen the gap in our long-term competitive advantages that clearly set us apart from the rest of the specialty industry. With that, I will now turn the call over to our CFO, Janice Hamilton. Thank you.

Thanks, Tim. In Q3, total revenue grew 25% period-over-period to $755 million. This strong performance was driven by organic revenue growth of 15% and substantial contributions from M&A, which added nearly 10 percentage points to our top line. Adjusted EBITDAC grew 23.8% to $236 million. Adjusted EBITDAC margin was 31.2% compared to 31.5% in the prior year period. Our strong revenue growth was more than offset by the significant investments made in talent, including the colleagues that recently joined Ryan Re as a result of our expanded strategic relationship with Nationwide. In addition, we continue to execute on thoughtful strategic investments in recruiting at scale and in technology, further positioning us for sustained strong growth going forward. Adjusted earnings per share grew 14.6% to $0.47. Our adjusted effective tax rate was 26% for the quarter. Based on the current environment, we expect a similar tax rate for the fourth quarter of 2025. Turning to our capital allocation. M&A remains our top priority now and for the foreseeable future. We ended the quarter at 3.4x total net leverage on a credit basis and remain well positioned within our strategic framework. We remain willing to temporarily go above our comfort corridor of 3 to 4x for compelling M&A opportunities that meet our criteria that Tim outlined earlier. Our robust free cash flow generation and strong balance sheet provide us with the flexibility to continue executing on strategic M&A opportunities. Based on the current interest rate environment, we expect to record GAAP interest expense net of interest income on our operating funds of approximately $223 million in 2025, with $54 million to be expensed in the fourth quarter. As a reminder, the interest rate cap, which helped generate significant savings over the last few years, expires at the end of the year. Based on the current view of rates and at current debt levels, we'd expect interest expense to be roughly flat in 2026, more driven by the declining rate environment and the pace of M&A. Turning to guidance. As we mature as a public company, we want to provide clarity on 2 key elements of our medium-term financial guidance. On organic growth, we are confident in our ability to deliver yet again another year of double-digit organic growth for the full year 2025. As Tim outlined, we are in a great position to sustain this level of full year organic growth into 2026, and we believe we will consistently deliver industry-leading organic growth on an annual basis moving forward. On adjusted EBITDAC margin for the full year 2025, we are now guiding to an adjusted EBITDAC margin that could be flat to modestly down as compared to the prior year, which reflects our recent execution to capitalize on the unique opportunities Pat and Tim outlined earlier. With that said, this could move modestly based on our recruiting efforts over the next few months. While these initiatives will continue to create near- to medium-term margin pressure, we want to emphasize that recruiting, training, developing and retaining talent is the most impactful and most accretive investment we can make. As a result of our progress in Q3 and in light of the significant opportunities outlined by Tim, we are deferring the 2027 time line for our previously communicated 35% adjusted EBITDAC margin target. This exemplifies our commitment to long-term value creation over adherence to short-term benchmarks. However, looking ahead, we anticipate modest margin expansion in most years while maintaining the flexibility to prioritize strategic investments, particularly those in talent, de novo formations, innovative products and solutions, M&A and technology. Our overarching focus moving forward is on continuing to swiftly grow our business to enhance our position as a global leader in specialty lines. We believe this is the best way to ultimately drive and create additional long-term value for our shareholders. As we close out 2025, we expect to see a continued decline in property pricing, coupled with the potential for heightened competition during the fourth quarter, our second largest property quarter. Yet in the face of these challenging market conditions, we are extremely proud of the resilience of our team as we pursue our 15th consecutive year of double-digit organic growth. Looking ahead, we see significant opportunity to continue establishing ourselves as the destination of choice for the industry's best talent, further differentiating ourselves as a preeminent firm in the specialty lines insurance sector for decades to come. With that, we thank you for your time and would like to open up the call for Q&A. Operator?

[Operator Instructions] Our first question will come from Elyse Greenspan from Wells Fargo.

I was hoping to spend more time unpacking the 15% organic growth, especially like you guys had revised down guidance last quarter. So it seems like the 15% was probably above what you guys had expected when you connected a few months ago. So can you just like help me break it down between how much came on that 15% from submissions versus rates versus new initiatives? And anything that you can -- was there anything one-off relative to the 15% that you guys printed in the quarter?

Elyse, this is Janice. So -- thanks for the question. We had a great quarter, as everyone has said, already, top line growth of 25%, the adjusted EBITDA growth of 24%. We think that, that really does reflect the investment that we've made in the platform that we've set ourselves up to perform exceptionally well going forward. And you could really see the evidence of that this quarter. You alluded to the fact that last quarter, I mentioned that we anticipated that between the third and fourth quarters, fourth quarter would be lower effectively than our guide range and Q3 would be higher, largely just based on the business mix that we experienced. And that was part of the reason we also don't guide by quarter. If you look to what happened in the first half of the year when Q1 relative to Q2, we anticipated a similar dynamic in the third and fourth quarters this year. Overall, though, we grew significantly from a casualty perspective across all of our specialties. Tim can talk a little bit about what the drivers of that were, but largely submission growth and new business as well as high renewal retention across the board. Property, Tim also mentioned in the discussion that we actually grew this quarter, and that was driven by new business and high renewal retention as well as continued steady flow into the E&S channel. We also saw pockets of growth within construction, largely based on the build-outs of data centers. Those can be large and lumpy. So to your point earlier, that's an area that we do expect to continue the opportunity for growth, but it may not always be consistent. We've also seen significant and great underwriting results across transactional liability, driven by increased capital markets activity, structured solutions, reinsurance as well as from all of our acquisitions. we believe we're really well placed to continue to win across the board, and that was evident this quarter. Tim, is there anything you'd want to add on casualty or property?

No, I think that says it all. Thank you.

And then I guess just to expand on that, like I'm looking at the revenue breakdown, right? And I know that, that's an all-in basis. But wholesale -- it looks like wholesale grew by 9%, and there was pretty 17% in binding authority, but underwriting management, right, grew 66%. So I'm just trying -- was some of that construction stuff that you're pointing to, was that more on the binding and underwriting side that that's what drove the outside revenue growth in those 2 businesses in the quarter?

Yes, Elyse, I'd say underwriting growth in the third quarter actually isn't drastically different than what we've seen in prior quarters there. We continue to see really strong underwriting growth just based on continued investment there. I called out structured solutions, reinsurance and our acquisitions, but largely transactional-based business such as transactional liability, where we had the influx from all of the capital markets activity this quarter. Construction from the build-outs, that's primarily within the wholesale book of business. But again, I mentioned that casualty was strong also across the board, across all 3.

And Elyse, it's Miles here. We appreciate -- sorry. I mean just to decompose those numbers are obviously total. And so they are representing the annualization of a very successful and material M&A campaign in the last 18 months. But they also below that, they do represent sustained increases in PC collection representative of our profitable underwriting across the cycle. And then as Janice said, strong organic growth that we remain really proud of.

And then my last question, you guys changed -- it looks like you might have changed how you're talking about guidance. Like is it double digits for this year? Is that to mean that you think you will come in at 10%, right? So the fourth quarter will be a decent decel from like the 11% year-to-date? Or is that just setting like kind of a low bar for the full year?

Elyse, you're absolutely right. We are adjusting the way in which we're talking about guidance going forward to align more with the common industry practice. So the double digits from where we were guiding last quarter, 9% to 11%. Obviously, the reference to double digits brings the floor up to 10%. When we think about the fourth quarter, as I mentioned earlier, we anticipated that the property headwinds and the business mix that we're expecting to see in the fourth quarter would drive relatively lower organic growth compared to Q3. Some of the headwinds that I mentioned, so property, we're continuing to expect 20% to 30% rate reductions as well as increased market competition just as we get closer to the end of the fourth quarter, a phenomenon that we saw last year, and we expect will still prevail this quarter this year. We also expect just based on what we've seen to date in construction or how much the additional interest rate cut that was announced yesterday will do to get more shovels in the ground on that business. So it could be a headwind, but there's also the potential for additional of the data center build-outs that I called out earlier. In addition to that, just broader economic uncertainty around the government shutdown, transactional liability for us could be a headwind. But you're absolutely right that thinking about the double digits and the 10% effectively is the 4 is what we're calling out. But just overall, we would expect the fourth quarter to have lower organic growth than the third.

Our next question will come from Alex Scott from Barclays.

First one I had for you is on the margins. And just thinking through the back part of the year, it totally makes sense that there will be some pressure related to building out a team for the nationwide transaction in particular because you don't have revenue yet, but you got the expenses. I get that. Are there things like that where you have to build out sort of maybe ahead of when you actually begin getting revenue with other types of business as we kind of go into next year? And the reason I ask is if you don't have like a similar setup, then would you still expect to get some margin improvement in '26? Or is it something that's just going to get pushed out here further?

Yes. So I'll start that one. And then, Tim, I think you can maybe talk a little bit about how the investment in the teams work that we've been talking about on the call. So Alex, you certainly called out the reference to the fact that building out from the Markel renewal rights deal that Nationwide did that we've been appointed to underwrite for. We brought on a number of teammates from Markel over the last quarter that is part of the margin headwind. We've talked about that in the last quarter and then in this quarter. The other call out was just starting to build out more from an alternative risks perspective. That is an area where we are anticipating revenue growth in the future, but we are seeing those employees starting to build out new products and solutions. So that's why we mentioned that on the call. And then as it relates to other talent, Tim mentioned this in his prepared remarks, that we have had a significant opportunity to invest in and under, which at this point, as they begin to come online, we often see that they're not accretive until the second or third year. And so that is where a lot of the near- to medium-term margin pressures are coming from that we called out. Tim, do you want to talk a little bit more about that opportunity?

Sure. From the very beginning, we built the business by investing strategically, whether in talent, de novos, acquisitions or technology. You've seen us do this in many different aspects over the last few years. We've constantly anticipated where the market is going, and we benefited immensely from those investments. We're also focused on operational excellence. We can always become more efficient. We know that. Very excited about the business alignment and operational alignment that we have with our new co-Presidents. They'll be working across the business throughout the system in a collaborative way. We're happy to make that trade off on margins over the near term or when the balance shifts in favor of larger growth opportunities. So we're very focused on margin, and we're optimistic through '26 in the future.

Yes. I would just clarify, for 2026, because of the timing of when a lot of these new hires will be coming on, 2026 will again, for us, be a significant or a big investment year. So we would still anticipate those margin pressures going into 2026. I mentioned the 2- to 3-year kind of 2 to 3 years to start to become margin accretive. So 2026 -- and will depend also on how successful we are on the continuation of our recruitment efforts for the remainder of the year. But I just want to make sure that it's clear, going forward, absent a significant investment year like we've talked about this year that will continue to play through into '26 and early 2027, we would expect to see modest margin improvement, but we want to make sure that we're still giving ourselves the flexibility to prioritize these strategic investments.

Got it. That's all clear. Second one I had for you is on the construction part of your business. I mean it sounds like this quarter was good because you had some lumpy win or wins there. But I guess when I think about it more broadly, is that going from being a headwind to beginning to open up? Was that just a one-off? I'm just trying to understand how to think about construction, particularly with the newly acquired business coming online, what that looks like in 4Q in terms of year-over-year comps and so forth.

Absolutely. Well, Miles, I'll start with the underwriting side, which is predominantly property side of construction, and I'll hand it over to Tim. But I think my message is going to be relatively consistent from the prior quarter. So there are headwinds persisting that we want to acknowledge. So borrowing costs remain elevated. The tariffs are real, high inflationary costs remain around building inputs. And there is an emerging labor shortage likely emanating from a more robust stance on immigration. All that said, though, we're seeing great flow in the space still. We have exceptional products set to win, both large, mid and small. I'd want to emphasize, I think we highlighted on the last call, U.S. Assure was our acquisition into the SME specialty space. Technical risk underwriting was a long-standing de novo in the large and complex. We utilize the best components of both those practices to launch a mid-market solution that's been effective for about a month that's accelerating growth. And so as Jan has touched on, we absolutely feel we're winning. There's just not enough groundbreaking going on right now. So the average time between quote and groundbreaking is protracted. That said, we're deeply committed to the space. The 5 million-plus structural shortfall in available housing units in the U.S. persists. And we do believe that the 2 rate cuts so far this year are going to help flow into end of the year.

And I would just add that we know from several metrics that we receive from our clients and the markets that we're industry-leading in construction in both property and casualty. And so what new projects come into the pipeline, we're getting a high percentage of the opportunities. They're quoted, they're waiting for the trigger, and we're optimistic that we'll be finding more of those. But again, that uncertainty is lurking. It's important to know that a big part of our construction practice group is renewable property and casualty. We have a very significant book of general contractors, subcontractors and artisan contractors at every level, some of the largest in the country, middle market and of course, our small commercial is loaded with construction business. So we keep a very close eye on it, and we believe this environment could very well improve, and we look forward to finding some of these larger projects.

Our next question will come from Brian Meredith from UBS.

A couple of them here. First one, Tim, I think I heard you correctly about 30 percentage-plus points in your underwriting management business of M&A. That would kind of imply like a 35% organic revenue growth rate in that business. Is that right? And how sustainable is that type of organic revenue growth in that business?

So I think what we've said before, Brian, and I'll start this one if Miles wants to add on as well. But I think we've always said that each of our specialties was built for double-digit organic growth. We certainly saw the opportunities within underwriting managers this quarter. There were a number of areas that were fueled by capital markets activity and other -- the construction piece and some of the items that Tim talked about. I mentioned structured solutions and reinsurance. So we're continuing to expect that underwriting managers will continue to contribute double-digit organic growth. But I would also call out that there are other reconciling items between the comments that Tim made about M&A and also organic growth, just being that around profit commissions.

And I would add, we have some tremendous growth in areas like transportation, social and human services, renewable construction, as I mentioned, habitational, sports and entertainment, public entity and municipalities, classes of business that are firming by the day, loss leaders in the reinsurance world and segments of the business where our strategy has been highly effective. We believe we have the best brokers, and we've built facilities behind it to strengthen our value proposition with the client. So there's a lot of movement in that business and great growth opportunities.

Makes sense. And then second question, I'm just curious, does the market environment, meaning the pricing environment at all influence your, call it, talent investment decisions like if we're in a softening kind of property market, are you less likely to lean into that area?

Yes, it certainly influences our decisions in those areas. And obviously, things that are ultrasoft like public D&O and cyber, we backed off that build-out over the last couple of years, but accelerated in professional liability in health care, social and human services. We've mentioned our professional liability brokers who are industry-leading, pivoted and went deep into health care and social services, and that's paid off for us in a big way.

Our next question will come from Meyer Shields from KBW.

Great. Hopefully, I'm coming through. Janice, you mentioned a couple of times the typical 2- to 3-year time horizon for full productivity. And I'm wondering whether -- or maybe differently why the current situation that I think is underpinning the investment approach, wouldn't that translate into faster productivity basically if retailers are looking for an alternative wholesale broker?

Tim, do you want to talk a little bit about the dynamics of bringing on this additional talent? I've mentioned before that it takes sometimes 2 to 3 years for them to become fully accretive.

It does. And Meyer, we're always recruiting. We're always training and developing opportunistic on hiring competitors and other talented professionals around the industry, but it does take a couple of years for them to be accretive. So there's a little bit of a hangover. We pointed that out. But again, we're very much opportunistic on that. The timing of that isn't always perfect, but it's all about A-rated talent, the highest caliber talent. We're constantly looking for it. We know it's differentiating. And when it's available and they're knocking on our door, we seize the moment.

Okay. I think I get it. Second question, I'm just curious of industry operations. We've heard a number of people, including you folks talk about maybe increasing competition for business to hit full year 2025 budgets. Does that offer any opportunity for higher broker compensation?

No, I would say not. It's -- most of it is formulaic and very predictable.

Yes. We're quite disciplined as an industry, Meyer, when -- regardless of rate drifting up or down. It's -- we've -- if you look back over our published history, our net retains in both underwriting and brokerage have remained pretty consistent.

Our next question will come from Andrew Kligerman from TD Cowen.

I wanted to build out a little bit on some of the prior questions, notably the recruitment and hiring of talent because that seems like the only constant to help gauge one of the drivers of growth. So I'm kind of hoping that, a, you can kind of help frame what was the growth in organic hires, not acquired hires, but the growth in organic hires over the last couple of years. Could you kind of help frame that? And the part B of it is looking into the fourth quarter and looking at your double-digit guidance, the math would be that you could do 5% or 6% organic growth and still hit the 10% for the year. So the part B of the question is, are you feeling like you'll be on the north side of the 10% in the fourth quarter or the lower side? I mean we're a month into the fourth quarter. How are you thinking about that?

Well, I'll take part A, Andrew. We know historically, the most accretive thing we can do is to recruit talent and to train and develop our own. And so you know about the Ryan University, our internship program. We're putting several hundred kids through that a year, and we've been doing that for several years now. We can see the clear pathway to the most accretive profitable thing we can do is weave that into recruiting existing talent and building out these teams so that we can have the industry-leading breadth and depth in niches of business that get firm. We follow these niche firming phenomenons and can accelerate with deep bench strength. And that's really the key to capturing this business when the flow increases significantly.

And then I'll take Part B from that, Andrew. So yes, you mentioned the fourth quarter. I said earlier, we always anticipated that the fourth quarter would have lower relative organic growth. The math checks out for that to be around 6%. I mentioned that there were a number of different potential headwinds the macroeconomic uncertainty associated with construction and also capital markets activity for transactional liabilities. So there's an opportunity there for lumpy good guys, lumpy bad guys effectively that we want to make sure that we've had a range around internally. Also, property, we always anticipated that assuming a benign hurricane season, which looks to be the case that we would continue to see that 20 to 30 basis points -- sorry, 20% to 30% rate reduction continue. And it's hard for us to put a number on the impact specifically for what that's going to look like in the fourth quarter when we've got additional market competition. So we're comfortable with the increasing certainty around double digits, but I'm not going to put any more specifics around where we might sit at the top or bottom end of what that could look like.

That's a fair response. And I'll just end it with another tough question. Hopefully, you can give me some direction on it. So previously, the way I was thinking about EBITDAC margin was it was 32% in 2024 and the likelihood would be that it kind of came to 35% in 2027. And again, very valid reasons for not getting there in '27. But any way to kind of share your views on where it might go in '27 or when you might get to 35%?

It's a fair question, Andrew. When we think about the 35%, the target is achievable. But as we've stated, the fact that this unbelievable opportunity from a talent perspective is something that we want to make sure that we have the opportunity and the capacity to capitalize on, which is going to put us in a position to have margin pressures for '26, some of that continuing into '27. But we believe going forward, a modest amount of margin expansion is still reasonable to anticipate. And so the walk to the 35% will certainly be slower, and we'll take advantage of these opportunities when they come up, whether that's in talent or technology. Right now, the balance is shifting towards the investment as opposed to the margin expansion. But over time, I think it's fair to anticipate margin expansion -- modest margin expansion on an annual basis.

Our next question will come from Rob Cox from Goldman Sachs.

Question on the London operations. Recently, we've been hearing some market commentary around disruptions surrounding the London specialty marketplace and at least one large retail broker discussing starting some operations there. Could those disruptions be a tailwind to your business? And can you talk about how Ryan's offering stands out there and the defensibility of that business?

Sure, Bob. I'll try to answer that. First and foremost, we always do what's in the best interest of our client when it comes to approaching London. In wholesale, we're there to support the retailers in their most difficult placements, which oftentimes encompasses a full-blown marketing exercise, including London. And we have a 15-year history of finding the best independent broker in London. And as you know, they use us when they need us, and we use them when we need them. And that need continues to grow. But what's happened is there's been a little bit of shifting in London, as we know. And we're revisiting our strategy in London, and we're constantly looking at how we can improve our offerings to our clients. Looking and being sensitive to things like conflicts, channel conflicts and distribution friction. So we're very sensitive to it. We are, again, revisiting our strategy there, and we will keep everyone posted.

That's helpful. And then I just wanted to follow up on shifts from the E&S market to admitted or vice versa. It sounds like it's not happening on a broad basis still. Are there pockets where you are seeing that? And could you share any information on that by product or geography?

We're really not. We haven't seen any measurable migration back into the admitted standard market. It's been mostly competition within the non-admitted surplus lines world that are driving rates down in property as an example. So it's the secular and structural changes that we've seen over the last 20 years that have developed over 100 non-admitted surplus lines platforms, including MGUs. And many of the large standard admitted big brand companies have either bought or developed non-admitted companies. So the business is tending to stay in that channel. There's no real reason to pull it back into admitted that we can see. So again, the competition is really within the non-admitted market.

Our next question will come from Bob Huang from Morgan Stanley.

So maybe my first question is really a question on your commentary around AI, machine learning. So one of the major issues when we look at M&A roll-ups is that over time, you will end up with multiple redundant systems from the IT side and then data ends up getting siloed and then there are multiple systems, multiple passwords. As you're implementing AI projects, obviously, one of the problem is how to have connected data and also have data governance regulating that. Just curious how you're thinking about aggregating data and as you continue to do more M&As in the market and then how you're thinking about that tech implementation as you're moving towards a more AI-centric platform.

Bob, I'm happy to start, Miles, if you want to add anything to that. Yes, Bob, I think we've always -- we've been a very acquisitive company. Technology is an area that sometimes acquisitions come with a very strong platform. Sometimes acquisitions come with the expectation that they're going to move on to the RT Specialty platform. We're very thoughtful about how we approach that integration and the timing of it. We're always continuing to enhance our own technology platforms to be able to utilize data and AI. Obviously, with the transformation that has occurred in the AI industry over the last couple of years, the opportunities continue to evolve very significantly. And so it's always making sure that we're able to identify what the best opportunities are for consolidating our platforms, our data and be able to put AI on top of it. But even in the absence of consolidating all the platforms, there are solutions out there that today utilize AI to get to submissions faster, to be able to clear faster, to be able to elevate the role of the underwriter. And we're very much focused on all of those different use cases today, irrespective of the current technology landscape.

Okay. Well, I'm just going to chime in, Bob, that everything you said is real and astute and spot on. But I want to highlight a couple of kind of competitive advantages of Ryan Specialty underwriting managers that we've had over the years. So -- over the last 10 years, we've made great strides in putting all of our MGUs onto centralized back-office system, that's policy issuance, that's sub-ledger. And although certainly, these new large acquisitions are currently operating in separate environments. We've got the great benefit of data scientists already on staff, actuaries on staff. That data has been a big part of our ongoing success. We use it to raise new capital. We use it to drive better results to the carriers. So I do -- your comments are spot on, but I do want to highlight some of the investments and structural advantage we have as a firm to manage those integrations.

Okay. The MGU point is very helpful. My second question is around the organic growth. I know a lot of people have talked about that already. So apologies if we went over this. But if we were to think about new client growth and existing client growth, right, is there a way for us to kind of split out within casualty, how much of that growth is new clients and how much of that is existing clients? Is there a way for us to think about that from a casualty perspective?

Well, I would say that the customer base and the client base has been consistent. There's the top 100 Tier 1 retailers, global, national, regional, the 40-plus private equity roll-ups and then regional brokers. Then there's Tier 2, Tier 3, tens of thousands of retail brokers. So we have marketing approaches and production approaches to all 3 layers of customers, and we target them in different ways. So we're constantly rotating new marketing approaches and solutions to them based on their need profile. And we get measured every year. We're RFP-ing constantly in Tier 1 in the top 100. And they give us data on where we stand with them and like our markets do. So we know where we stand in terms of market share with them. We know much more is available for us to capture. So it's a constant challenge for us to rotate talent in different disciplines in different regions based on most of it driven by niche firming phenomenon. We shift talent into those areas very quickly. So it's a day-to-day, very active approach to the business with our retail customers.

And our final question today will come from Josh Shanker from Bank of America.

A year ago, I can imagine you were a kid in the candy store looking at the market opportunity. And you said, you know what, by 2027, we can focus on margins over growth. And here we are a year later. I think you're still that kid in the candy store, but you realize how much opportunity there is. How has the opportunity set changed over the past 9 or 12 months that you're reining in and saying, now is not the time to focus on margins, now is the time to focus on growth.

Well, the availability of talent is a big driver of that. And there's lots of factors that create those opportunities, changing situations with competitors, professional brokers and underwriters that want to change in their career path. We've been a destination of choice, and we've been very, very fortunate that they knock on our door, and we get opportunities with them. But the timing of that and the opportunities are never consistent. They're lumpy. And when we get those opportunities, we have to move quickly and swiftly. And again, it's the #1 most accretive thing we can do. It's...

But what you're seeing is there's just more opportunities now than there were a year ago. It's even better than it was a year ago.

Absolutely, definitely.

And it's also the attraction of our platform. So it's the investment we've made in tools, capabilities, products, access to distribution. So we -- I think in past calls, we spent a lot of time highlighting those investments as creating a destination of choice for organic talent as well as it's played into destination of choice as an acquirer.

Sorry. I was just going to add a little bit more on we mentioned earlier thoughts question with regard to AI. But just with the changing landscape from a technology and AI perspective, there are certainly more opportunities today to be investing in technology than where we were sitting a year ago.

And when partners see what you've done for Markel and what you're going to be doing for AXIS, have you seen a big swelling of the pipeline opportunity for you in reinsurance going forward from new partners?

We think that there is. This is Pat, that there are going to be additional opportunities. There are some discussions being held. There are a lot of -- quite a few subscale reinsurers. A lot of people are looking at should they be more focused on their core business. And that was the Markel decision there. We certainly believe that we have a unique ability to fill that need because we have the very strong credit rating and brand value of Nationwide Mutual. And we have an outstanding leadership team, outstanding teammates, underwriters behind that leadership team. So the industry is recognizing that. Reinsurance is becoming a much more important functional contribution to the capacity that needs to be brought into the E&S market. So yes, there's just a lot more focus on reinsurance. We uniquely are positioned with this brand exclusive with Nationwide Mutual fund reinsurance and our talent to seize those opportunities as they unfold. We can't predict when or how many, but clearly, there's interest.

Thank you. That concludes the Q&A session. I will now turn the call over to management for closing remarks.