Baldwin Insurance Group Inc (BWIN) 2025 Q3 法說會逐字稿

Ladies and gentlemen, greetings and welcome to the Baldwin Group third-quarter 2025 earnings call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead.

Thank you. Welcome to the Baldwin Group's third-quarter 2025 earnings call.

Today's call is being recorded.

Third-quarter financial results, supplemental information, and Form 10-Q were issued earlier this afternoon and are available on the company's website at ir.baldwin.com.

Please note that remarks made today may include forward-looking statements subject to various assumptions, risks, and uncertainties, including, for example, our strategy with respect to our capital allocation in the future. The company's actual results may differ materially from those contemplated by such statements.

For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release and our most recent Form 10-Q, both of which are available on the Baldwin website.

During the call today, the company may also discuss certain non-GAAP financial measures.

For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com.

I will now turn the call over to Trevor Baldwin, Chief Executive Officer of the Baldwin Group.

Good afternoon and thank you for joining us to discuss our third-quarter results reported earlier today.

I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations.

We generated strong overall results in the third quarter, despite a dynamic operating environment and the expected persistence of certain idiosyncrasies we highlighted last quarter.

Organic revenue growth in the quarter was 5%, bringing our year-to-date organic revenue growth to 9%.

Adjusted EBITDA was flat year over year, bringing our year-to-date adjusted EBITDA growth to 9%. Adjusted EBITDA margin and adjusted diluted earnings per share contracted slightly in the quarter. On a year-to-date basis, adjusted EBITDA margin is roughly flat year over year and adjusted diluted earnings per share has grown 11% year over year.

We previously discussed two temporary items that we expected to have a finite impact on our results over the near term. First, a procedural accounting change in our Insurance Advisory Solutions segment impacting timing of when we recognize commission revenues. Second, the reduced commission from QBE that went effective on May 1 on the builder-sourced homeowner's book of business we are rolling into our recently formed reciprocal exchange, BRIE.

As a reminder: These are temporary headwinds persisting through the first half of 2026 which then reversed into tailwinds, as these are not revenues that are lost, just deferred, relative to when they will be recognized in our P&L.

Adjusting to these items, total commissions and fees' organic revenue growth in Q3 would have been 10% and total overall organic revenue growth would have been 9%, bringing the year-to-date totals for both metrics to 11%.

In Insurance Advisory Solutions, overall organic revenue growth was flat compared to the third quarter of 2024. Removing the impact of the procedural accounting change, overall organic revenue growth was 4% and organic growth on core commissions and fees was 6%.

Sales velocity remained top decile at 20% in the third quarter, bringing year-to-date sales velocity to 19%, highlighting our consistent ability to take share and win new business. In fact, as we sit here today, our backlog of won but not-yet-booked new business that should bind in the first half of 2026 is sitting at a historic high for our firm, including several seven-figure commission and fee client wins from large global competitors, highlighting the demand for our innovative advice and solutions in the marketplace and the growing power and impact of our integrated operating platform.

We are consistently performing in the top decile for new business generation in our industry, based on recent industry data showing the median at 12.2% and the top quartile at 15.9%, reinforcing the effectiveness of our go-to-market strategy and the positive regard clients and prospects have for our teams and the solutions we are delivering.

The impact of rate and exposure or renewal premium change was a meaningful headwind at minus 5.7%, reflective of the continued client caution tied to macro uncertainty and reduction in large [cat-exposed] coastal property pricing, partially offset by ongoing rate action and certain litigation-exposed casualty lines of business.

From where we sit today, we expect the third-quarter renewal premium change headwind reflects a floor, going forward, from which we will see incremental improvement over the coming quarters. However, we don't anticipate this fully reverses into a tailwind in the near term, highlighting the importance of our industry-leading new business-generation capabilities to drive sustainable growth over time.

In our Underwriting, Capacity, & Technology Solutions segment, organic revenue growth came in at 16%, driven by continued strength in our multifamily portfolio, which grew commissions and fees at 16%; and our commercial umbrella portfolio, which grew organic revenue 15%.

As discussed last quarter, we continued to maintain underwriting discipline in our E&S homeowner's book in a rapidly softening property environment, which was a 400 basis points drag on UCTS organic growth in the quarter.

In July, we began migrating renewals of the builder book away from QBE into the reciprocal insurance exchange we launched earlier this year, which, thus far, is performing in line to slightly-better-than expectations.

Additionally, following the transaction we announced with Hippo, we have begun work with the Hippo and Spinnaker teams on a second builder homeowner's insurance program, which we expect to launch next year. Over time, we expect it will materially increase our capture rate of Westwood's builder business into proprietary MSI programs, which sits at around a 30% capture rate today. This should unlock a meaningful growth opportunity for our MGA and expand vital insurance capacity for our builder partners and their home buyer customers.

In our Main Street Insurance Solutions segment, organic revenue growth was slightly negative, driven by the one-time commission reset on the QBE builder book and continued elevated attrition in our Medicare business due to the broader managed care marketplace disruption. Removing the impact of the one-time commission reset on the QBE builder book, overall organic revenue growth was 8%.

As a reminder: This impact will persist until April of 2026; after which, it turns into a multiyear tailwind as the commission reduction we are absorbing today reverses back into fee revenues for our attorney-in-fact vehicle, which manages the reciprocal exchange.

I want to take a minute to talk about the exciting momentum we are seeing across our embedded home insurance businesses. As I mentioned last quarter, in December, we launched our new technology platform and digital experience to support the seamless sale of home insurance at point of mortgage origination and home sale.

This quarter, our embedded mortgage and real estate business went live with three new mortgage and real estate channel partners, bringing the total channel partners live on our platform to 10. Included in the partners who went live on our platform in Q3 was a top 20 mortgage originator who went live in mid-August and has shown very promising proof points of success. In our second week, post go-live, we sold over 150% of the volume achieved by their previous insurance partner in their best-day-ever over a two-year period. We have maintained those elevated volumes.

These results are enabled by our proprietary technology platform that powers our digital insurance buying experience and the seamless nature of this process in the mortgage and real estate transaction flows. In fact, when a potential homeowner engages through our digital experience, we bind a home insurance policy for them at a rate that is 3.5 times what is achieved through non-digital channels.

The power of our technology platform and digital agent experience includes AI-powered real-time agent advice, which is driving tremendous momentum in conversion rates and presents opportunity for margin expansion in the medium to long term.

We remain bullish on the growth prospects of this business, as we continue to make progress towards simplifying the home ownership journey through our embedded technology. Our pipeline of new embedded partners in this channel is as strong as we have seen yet, with our implementation backlog well into 2026.

As we mentioned last quarter, we completed the acquisition of Hippo's Homebuilder Distribution Network in July. We are now live and facilitating the home insurance process for 20 of the top 25 homebuilders across the country.

Our builder partners account for 57% of all new homes built in the US and 93% of the homes built by the top 25 builders in the US. In aggregate, the partners in our combined embedded home insurance strategies drove over 500,000 home and mortgage closings in 2024. which accounts for roughly 12% of homes sold in the US annually, positioning us as the leading embedded personal lines distribution platform in the $500 billion premium US personal lines market.

Before I turn it over to Brad to provide additional details on our Q3 financial performance, I want to share a strategic update that marks a pivotal moment in our evolution.

Today, we're announcing our 3B30 [Catalyst] Program, a three-year transformation program launched during the third quarter of 2025. Catalyst is designed to accelerate the infusion of automation, business process optimization, and artificial intelligence to transform and elevate our workforce, building on our two foundational pillars of talent and technology for building the broker of the future and meeting our aspirational goal of 3B30.

This initiative is designed not only to elevate the work and impact our colleagues are delivering on a daily basis but to unlock new avenues for growth. By aligning our workforce and technology investments with the demands of a rapidly changing market, we are positioning ourselves to accelerate innovation across our client engagement model and insurance product offerings; enhance client and colleague experience through smarter, more agile client service deliveries; empower our teams to elevate their focus on high-impact growth-driving activities; and enable enhanced real-time decision-making by streamlining processes, data, and systems.

We anticipate a cumulative transformation charge of approximately $40 million by the end of 2028, with cumulative savings over the same period of approximately $50 million and projected run rate annualized savings of 40 million by the end of 2028.

We expect savings to ramp over time, with no material savings in 2025, $3 million to $5 million in savings in 2026 and $10 million to $15 million in 2027.

We expect charges of $15 million in each of 2026 and 2027.

The 3B30 Catalyst Program is designed to accelerate our ability to capture operating leverage across our business, while simultaneously enhancing growth, both organically and through M&A.

Cash restructuring charges of approximately $40 million reflect a savings-to-cost ratio of roughly 1.25 times and are largely related to workforce transformation and technology implementation. The charges represent less than 10% of expected free cash flow over the next three years and do not impact our expectation to deliver double-digit free cash flow growth, driven by strong growth in revenue, operating income, and working capital improvements.

This is an important step forward for our firm, one that reflects our commitment to positioning ourselves for the rapidly evolving technology landscape, further bolstering our status as a leading destination for our industry's top talent and accelerating our pace to fulfill our vision for the broker of the future.

As we move forward, we remain focused on delivering long-term value for our clients, colleagues, and shareholders, driving growth and innovation and expanding margins and free cash flow.

In summary, we're pleased with our third-quarter results in such a dynamic insurance market and macro operating environment. While we expect we will continue to face an insurance marketplace in transition, we are increasingly confident in our ability to deliver in 2026 and beyond, as evidenced by the strength of the underlying momentum in the business.

We sincerely thank our clients for placing their trust in us to provide strategic guidance, expert insights, and innovative solutions in an ever-changing risk landscape.

We also extend our deep appreciation to our colleagues for their steadfast dedication and tireless efforts in delivering meaningful results for our clients and valued insurance partners.

With that, I'll turn it over to Brad, who will detail our financial results.

Thanks, Trevor. Good afternoon, everyone.

For the third quarter, we generated organic revenue growth of 5% and total revenue of $365.4 million. Looking at the segment level, organic revenue growth was flattened in IAS; up 16% in UCTS; and down 2% in MIS.

We recorded GAAP net loss for the third quarter of $30.2 million or GAAP diluted loss per share of $0.27.

Adjusted net income for the third quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $36.5 million or $0.31 per fully diluted share.

A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC.

Adjusted EBITDA for the third quarter was roughly flat at $72.5 million compared to $72.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year over year to 19.8% for the quarter compared to 21.5% in the prior year period.

Adjusted free cash flow for the third quarter was up 26% to $42 million compared to $33 million in Q3 2024. The increase in adjusted free cash flow was driven by improved working capital, which we communicated would normalize in the back half of 2025.

We ended the quarter with net leverage at approximately 4.1 times, down from Q2 2025 and remain on track to hit or exceed our goal of 4 times by the end of the year.

On that topic, with the business entering this period of a positive inflection on our financial profile through improved free cash flow, reduced leverage, and line of sight to achieve our goal of bringing leverage under 4 times and maintaining it there going forward, I want to take a minute to talk about capital allocation priorities.

First, our highest and best use of capital is organic reinvestment in our business. Whether it is the technology platforms we have built to support our leading embedded insurance franchise, continued investment in specialized insurance talent, or ongoing investments in scaling our sales force, these investments drive our highest returns, measured on both an internal rate of return and return on invested capital basis. We have ample opportunity to continue these investments at elevated returns, with the governor on those investments being the margin accretion objectives we have outlined and remain committed to.

Second is M&A, where we have proven over the past five years we can be disciplined allocators of capital to drive enhanced business results and strong financial returns. We are enthused by the quality of opportunities in our pipeline. We plan to remain thoughtful, relative to our capital allocation strategy, resulting in an M&A cadence that is more episodic in nature.

Third -- and a new leg of the stool for capital allocation at Baldwin -- behind internal reinvestment and M&A, we are adding share repurchases. We believe this can be an important tool used opportunistically to deploy capital when we see market dislocations that create compelling return opportunities for our shareholders. Consistent with the foregoing, based on discussions held with our Board of Directors, once our net leverage is comfortably under 4 times, our Board intends to authorize a share buyback plan of up to $200 million, subject to maintaining our long-term leverage goals.

On the capital management front, in September, we announced the successful repricing of our Term Loan B to SOFR plus 250 basis points, a 50 basis points improvement on the spread or approximately $5 million of annual interest expense savings.

We also had entered into a floating-to-fixed interest rate swap agreement with a notional amount of $500 million, which exchanges one month's SOFR for a fixed rate of 3.244%.

Moving to expectations, for the fourth quarter, we expect revenue of $345 million to $355 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $68 million and $73 million and adjusted diluted EPS of $0.028 to $0.032 cents per share.

Consistent with prior years, we are also sharing a broad initial view of 2026 financial expectations. We preliminarily expect 2026 revenue in the $1.66 billion to $1.7 billion range; organic growth in the high single digits; adjusted EBITDA in the $380 million to $400 million range; and adjusted diluted earnings per share between $1.95 and $2.10. This would result in a five-year CAGR for all of those metrics in the high-teens to low 20%s.

In addition, we expect double-digit growth in operating free cash flow. As we've previously indicated, we expect an acceleration of organic revenue growth in the back half of 2026 once we lap the idiosyncratic headwinds discussed.

In summary, we are pleased with the overall performance of the business year to date, as we continue to navigate a dynamic operating environment. We continue to see incredibly strong internal fundamentals across all three of our segments and feel confident in our ability to generate durable, outsized results for shareholders.

We will now take questions. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. I

(Operator Instructions)

Gregory Peters, Raymond James.

I think I'd like to start with the results in the IAS segment. You called out a couple things in your commentary, the flat organic. I think you said, excluding the revenue recognition change, organic was up 4%. And then, you talked about the sales velocity being up really strong.

What I'm trying to get at is I'm trying to reconcile what we hear from you quarter after quarter, which is really strong sales velocity and success in the sales velocity; and trying to reconcile that with what we're seeing with the IAS organic numbers.

Maybe that the revenue recognition change is going to -- what is the deciding factor here and what changes next year? I'm not sure but I thought I'd just give you an opportunity to talk more about that.

Yeah. Hey, Greg. It's Trevor. Good evening.

Let's, I think, unpack a few points there.

One, again, sales velocity of 20% in a quarter, 19% year to date, strong results. Something we're, I think, super pleased with. Top decile, relative to what we see across the industry. I think, strong confirmation around the value that clients and prospects are seeing from our teams and how they go to market.

A lot of confidence around that momentum. You heard me talk about the largest backlog of clients won but not yet booked, including some very large clients from large global brokers. So the momentum there continues.

The second is the accounting procedural change we mentioned, which is about a $7 million headwind of revenue and $5 million headwind to EBITDA in the quarter.

Of note: That's not revenue that's gone. That's simply timing.

As a reminder: We moved from chewing up to cash receipt trends on a monthly basis to waiting until policy expiration. And so that's simply revenue in EBITDA that will be booked next year, upon policy expirations.

The third is rate and exposure. Renewal premium change was a 5.7% headwind in the quarter, representing a low point in our historical data, as well as what we expect to be a floor, going forward. I anticipate that we will see that incrementally improve over the coming quarters before normalizing into a neutral, if not slight, tailwind in the back half of next year.

As we unpack that data, I think it's helpful to parse it a little bit. As we look at our property and casualty business in IAS, rate and exposure was about a 2.8%. headwind. You can think about that being probably about one-third rate, two-thirds just sluggish exposure pull-through, as we continue to see client caution.

On the employee benefit side, it was about an 800 basis points headwind. You can think about that largely being exposure-driven as a result of a softer employment environment.

What I would tell you is, based on what we're seeing in healthcare cost trend, renewal dynamics, et cetera. we expect that to normalize back up, certainly by the beginning of 2026, based on expected rate pull-through as a result of elevated medical loss ratios that have been seen across the industry.

As you just step back broadly, were in a period of, call it, 12 to 18 months of renewal premium change headwinds. We called that out on our last call, where we expected this year to be a 2% to 3% headwind. We're sitting at 2.5% headwind year to date. I would expect that that's still a good number for the full year.

As we think about the impact of that next year, I think that that headwind ebbs and likely flattens out or reverses into a slight tailwind as you get into the back half of next year, as we begin lapping some of these periods of elevated rate pullback, particularly in large cat-exposed property.

So we feel really good about the underlying fundamentals in the IAS business. We feel good about client retention. We feel really good about new business wins and momentum that continues to build there.

We expect we've got 6 to 9 months of continued, what I'd call, insurance and macro market headwinds that are going to show up in the form of ebbing renewal premium change headwinds. But, ultimately, as you think about the broader dynamics of where the dynamics of risk are headed, both from a natural catastrophe standpoint in terms of frequency and severity of events, in terms of social inflation or legalized system abuse on casualty, it's hard to imagine a world where renewal premium change isn't at least low- to mid-single digits, over time.

If you normalize to that, you know, just taking the 5.7% [RPC] to flat, plus normalizing for the accounting change, IAS is a double-digit growth business in the quarter.

Just a clarification on the procedural change:

It's a headwind. A couple quarters of headwind. Is there going to be, once we anniversary it, to be, like, four quarters of an unusual benefit and then, we go back to some normalized rate?

Yeah. That's the right way to think about it, Greg.

Yeah. Great. The second question, it's technically the third but the second question I had was on the organic revenue results in the Underwriting, Capacity, & Technology Solutions business because that's been really very consistent and strong -- recorded strong results.

I'm just curious about what competition you're seeing in that marketplace. The genesis behind that would be, earlier today, Progressive had its quarterly call and they talked about renter's insurance as being an area of focus for them. And so it just triggered, hey, It doesn't show up in your numbers but how are you seeing competitive pressures in your UCTS business?

Yeah. Greg, I'd say, broadly, we have a diversified portfolio of products, including both commercial and personal lines; including property, short tail, casualty, mid, and long tail. And so there's not a broad-brush, I'd say, commentary to answer that question. Competitive dynamics, market pressures, vary product by product, line by line.

At a very high level, what I would tell you is, we're very thoughtful about the products that we go to market with, ensuring that we've been able to identify a way in which we can carve out a real right to win, both around how the product is built and underwritten and highly segmented from a pricing standpoint, as well as from a distribution standpoint and how we have unique access and competitive advantage, relative to the way in which our product is being sold into the marketplace.

Specific to your question around renters, I think there's multiple ways in which people go to market for that business. We happen to go to market exclusively as an embedded insurance provider; meaning, we're partnering with the [ERP] technology platforms that property management firms use to operate their buildings and manage their leases and books. And so we become that embedded solution of convenience.

As a result, our renter's product is not sold in traditional manners. I think, as Progressive thinks about their product, I suspect it's more like a GEICO renter's product or a Lemonade renter's product and that's a more traditional go-to-market strategy.

That's just one -- we're just not competing for that type of business. Our renter's customers is one that is opting in to our product because they can bind it in less than 30 seconds natively in the leasing workflow. It's a solution of convenience.

We, in fact, are going to be launching next year a new innovative renter's product that is embedded into the rent ledger -- and so nationally embedded into the rent payment -- which -- we're really excited about some of the momentum that could drive into continued, building penetration.

So we feel good about our competitive positioning there. It's not that we don't have competitors, we do. But this is a space we've been in for a while. We have leading market share. We feel really good about our right to win and the competitive moats we have as a result of our technology platform and how that enables our go-to-market.

Charlie Lederer, BMO Capital Markets.

Hey, thanks. Quick one on your preliminary outlook for 2026 organic, of high single digits. What are you, if anything, embedding for the attorney-in-fact fees on BRIE and also, the embedded mortgage channel revenue?

Yeah. Hey, Charlie. This is Trevor.

I would tell you that we have nominal assumptions built in for the attorney-in-fact. While I wouldn't quite call it nominal on embedded, it's certainly not heroic. That's a business we expect to build over time. We're super excited about the momentum we have there.

You heard me share some of those statistics around the early proof points of success with some of our mortgage partners that have gone live on the platform. So we're quite enthused.

We've got a terrific backlog. Our digital agent workflow and how it's embedded into the mortgage process, how it enables a seamless insurance buying and binding experience, is driving really, really compelling conversion statistics.

When a potential homeowner opts into our digital experience, we bind a home policy for them 3.5 times the rate at which we do through traditional channels. As a result, we're already ahead of our early pro formas and expectations around conversion rates in the mortgage channel.

We're super excited. So lots of momentum there. But we anticipate that has a growing impact on our financial results but not a material impact on 2026.

Thanks. That's helpful.

And then, maybe just another one on IAS. If I take out the pull-forward that you guys called out last quarter; and then, take out some of the headwinds this quarter from the accounting change; and then, presumably, the pull-forward was taken out of this quarter. The acceleration is, like, pretty pronounced.

Is that just sales velocity because sales velocity was a little slower? So I'm trying to connect the dots. Maybe it's just business mix. I don't know if there's any color you can add.

I'm not fully following the question, Charlie.

Sales velocity was 20% so quite strong. When you say pull-forward, you mean the impact of the procedural accounting change and how that pushes out the timing of recognizing revenue?

I was more talking about, like, the -- I think you guys talked about two energy clients last quarter that bumped up the IAS organic.

Maybe I'm --

Yeah, yeah. Those were pulled forward into the second quarter. Correct?

From the third quarter, right? Or was it from a --?

That's correct.

Yeah. So if you factor that in, it's a pretty pronounced acceleration. I don't know if that's just business mix or, yeah, I was just trying to understand.

Yeah. I'm following you, Charlie.

Yeah. I think I would point you to rate and exposure and the headwinds that created as an offset.

Yeah. As you heard, we're feeling really good about the underlying momentum in the IAS business. It's somewhat masked by the market renewal premium change dynamics and this accounting change that's just simply pushing revenue into next year.

But at 20% sales velocity, that's as good as it gets. We're super pleased with the momentum and the backlog of new business and how that positions us into 2026.

Elyse Greenspan, Wells Fargo.

Hi. Thanks. I have a follow-up, trying to parse together some of the commentary on IAS.

Specific to the guide, right, I think you guys said, organic, mid-single digits, right, I think in the fourth quarter. What are you assuming for IAS?

And then, within the guidance next year for high-single-digit organic, I think you said that's back-half heavy? So do you expect to start in the low single digits and pick up?

And then, also, what does that imply for IAS embedded within the guide next year, as well?

Yeah. Hey, Elise. This is Trevor.

Consistent with past practice, we're not going to get into segment-level [OG] guides. What I would say is we feel good about mid-single digits for Q4 across the business.

As we look towards 2026, we feel good about high-single digits. We would expect organic growth to accelerate through the year, particularly in the back half, as we lap the two idiosyncratic headwinds that we called out that come to an end then.

As you overheard in some of the earlier Q&A, we have strong new business momentum in the IAS business. We have had pretty meaningful renewal premium change headwinds, some driven by rate, some driven by exposure. We expect that we've seen the floor there and that that begins to ebb.

But I would still expect [RPC] headwinds in the first half of next year before that begins to normalize.

And then, within the guidance for next year, within the revenue guide, what are you assuming for M&A? Obviously, it depends upon when the deal is closed but what's embedded within next year's guidance for any level of M&A?

Yeah. I would say we have a nominal amount of M&A embedded into next year's guidance. We continue to maintain a strong pipeline with a lot of really interesting opportunities. But it's nominal to the guide we provided for '26.

And then, the savings that you guys outlined, like, [3 to 5], next year, right? I think [10 to 15] in 2'7. Is the expectation that those will all fall to the bottom line and help margin? Or is there some level of reinvestment being contemplated, as well?

Those savings articulated are net of reinvestment.

Okay. Great. Thank you.

Pablo Singzon, J.P. Morgan.

Hi. Good afternoon.

Maybe first one for Trevor. I know you spoke about employee benefits early on this year. I was a bit surprised by your update today. I think you had mentioned something, like, 800 bps headwind there versus about 300 bps in (inaudible).

Is there anything unique about the employers you place insurance for? Maybe they work in industries that are more economic-sensitive and just given the weakness in the labor market that's been being widely reported on today, what gives you confidence that you'll see a recovery in IAS OG next year?

Yeah. Hey, Pablo.

No. I don't think there's a particular uniqueness in our employee benefits client base. As I think about where it skews heavy, our largest concentration of benefits clients would be on the West Coast, with a pretty heavy bent towards technology.

Maybe we skew a little bit heavier there, which would make sense, just based on some of the headcount trends we've seen, relative to early adopters on AI and things of that nature.

As you mentioned, our confidence around the OG and the acceleration heading into next year, that's less about -- that doesn't contemplate a stronger labor market, that contemplates real-time visibility that we have now into the cost of healthcare and the cost of health insurance and how that ultimately will inflate premiums.

There's been a pretty significant increase in healthcare cost trend this year well-documented in the managed care space. But I'd say that that also exists in the traditional [pre-'65] marketplace, as well.

While I'd say that it was good in multiple ways for our business, one, as costs go up, demand for our advice and our innovative solutions goes up. Our scale and the breadth of tools and capabilities enable us to bring value in ways that many of our smaller competitors are just unable to do.

It also drives, ultimately, up costs for a business that's largely commission-oriented. When premiums are up, as you know, our revenues tend to trend in a similar direction.

Okay. Thanks, Trevor. That was helpful.

Second question is just on the QVE and the ramp-up in attorney-in-fact fees, right? The question there is, is holding premium volumes constant? This goes to basically the gap between the commission you lost and how much you'll earn in fees, right? How many years would it take you to get back to your previous state, assuming premium volumes are the same, right?

Yeah. We expect it to take two to two-and-a-half years from [5/1] of 2026. Importantly, Pablo, for the time being, we account for that [AIF] on the equity method and so it will not come into revenue. It will come into EBITDA.

Okay. Thank you.

Andrew Andersen, Jefferies.

Hey. Good afternoon. Sorry. Maybe some more questions on the reciprocal.

I think, in response to an earlier question, you said you were anticipating a nominal benefit from the reciprocal in organic. Is there any part of this going into organic? If you just maybe parse that out a bit?

Yeah. Andrew, thanks. It's Brad.

No. There's no benefit to organic on the reciprocal. I think that was in reference to the other part of that question. The only benefit of the AIF is the direct earnings benefit, where we get 75% of the earnings under the equity method.

Okay. Thanks.

When we're talking about this turning into a tailwind -- and you just mentioned a moment ago, it sounds like it could take two years to fully flip over. I think the fee income would be on the policies binding and on a look back.

I'm struggling with how it turns into a tailwind in the second half of '26. It feels like maybe you're past the peak of the headwind. But there still is a headwind persisting until we get to the end of two years. Is that the right way of thinking about it?

No. No, it's not. On [4/30]/2026, the headwinds from the commission step-down, going from [31] to [26] on the QVE program cease to be a headwind because the entire portfolio will have annualized on to that 26% commission rate.

At the same time, the attorney-in-fact, which we own, will be accruing revenue in at 5% of premium as earned into the reciprocal.

That's an important distinction because commissions are booked upfront upon policy binding, whereas AIF fees are booked over life of the policy, ratably. And so there is a difference in the earn-end rate from a timing perspective, which drives some of this; and then, there's also the timeline that it takes to roll all of the premium off of QBE and all of the states we're doing business into the reciprocal.

And so while the first 12 months, you fully absorb the commission reduction, it takes us a couple years to fully roll all of that premium off of QVE and all of the states we're doing business in fully into the reciprocal.

The AIF does not begin earning AIF fees until those premiums renew into that reciprocal vehicle.

Importantly, we started with Texas on July 1, which is the largest state in the QVE portfolio. and will likely be following, thereafter, with California, which is the second largest state. And so we intend to get through the states with the largest volumes of premium next year and have the vast majority of that premium rolling in.

As a result, the IAF fees, they're already beginning to earn. They're just not meaningful, at this point in time. But they will build, month by month; and after that two- to two-and-a-half -year time period, should be fully run-rated in.

Thank you. Really appreciate the walkthrough.

Brian Meredith, UBS.

Hey. Thanks. Two questions.

Just, first one, Trevor, just curious, your assumptions as far as how much you're going to be able to renew in the reciprocal and your guidance and what is it looking like, so far?

Yeah. We are currently renewing at a rate that is slightly better than our assumption, coming in. We are constraining that with a higher cancellation reserve out of, I'd say, an appropriate degree of caution.

But, thus far, we've seen cancellation rates level out at a level that is below what our initial assumptions were.

Great. That's helpful.

The second question, just a big picture, back on the capital management. I appreciate the color Brad just gave on getting below -- comes below 4 times before you buy back stock.

But just given where your stock is trading right now -- and it feels like it's obviously below its intrinsic value -- why wouldn't you use some of the free cash flow you're generating right now and buy back some stock a little bit right now? It seems like a pretty good return on investment.

Yeah. Thanks, Brian.

Look, we do, as we mentioned in the prepared remarks, intend to authorize a buyback program once our leverage is comfortably below for times. We've been incredibly vocal, publicly, about reaching that guide and the critical importance of financial flexibility that comes, post-reaching that less-than 4 times.

Importantly, we don't intend to use buybacks programmatically. Really, this adds a tool to the toolkit for us when we're seeing periods of dislocation in our stock price.

It is very clearly a third option for us for capital deployment after, as we talked about, organic investments and M&A. But, certainly, there are times where it makes financial sense, as you indicated.

That decision point will really be whether we feel like we can generate significantly better risk-adjusted returns at that point in time through a buyback versus deploying capital through M&A.

We leverage various valuation techniques and metrics, as well as our line of sight to the M&A pipeline, in making that decision.

So 4 times remains a priority. That's why we're not stepping in now.

But, Brian, we agree with your general sentiments, which is, it is a very attractive investment opportunity, right now. We just feel like we've made very strong commitments to our shareholders around prioritizing getting leverage under 4 times before all else. And so we'll be there shortly. And then, we'll see where things stand.

Thank you.

Tommy McJoynt, KBW.

Hey, guys. Good evening.

When you give us that $40 million annualized run rate savings from the expense program, what expense line denominator should we reference to get to a result of thinking about Baldwin's automation efforts are going to take out x percent of expenses out of the business?

Yeah. You should largely think about that as being related to workforce transformation.

Okay. And then, you did mention the 3B30. I don't know if I just didn't hear it but when you first introduced it a year ago, it was 3B30 in 5. Is there a timeline for that program, still? Is it still the same timeline?

Hadn't changed. Same timeline.

Sounds good. Thank you.

Pablo Sigzon, J.P. Morgan.

Hi. Thanks for taking my follow-up.

On the UCTS business, I think about $15 million of the organic revenues generated this year are rising from, basically, a rental program that has converted to a captive format.

The question there is, do you expect that business to grow next year? Do you expect further conversions? Because, effectively, what's happening is that, instead of booking a commission or booking a premium, that helps organics.

I was just wondering of your plans for that piece of UCTS. Thank you.

Hey, Pablo. We would expect it to continue to grow but not at the rate on a relative basis that it is now. We think about that captive as really being an opportunity to optimize the economics on a very well-run, low-volatility program. And so you should really think about that as our way of accessing the appropriate level of supplemental and contingent revenues on a high-performing program.

Got it. Thanks, Trevor.

Thanks, Pablo.

With that, I think we're going to wrap up for the evening.

I want to just thank you, all, for joining us on the call.

We're really excited for the growing momentum we have across our business, as we head into 2026.

In closing, I want to thank our colleagues for their hard work and dedication in delivering innovative solutions and exceptional results for our clients.

I also want to thank our clients for their continued trust and confidence in our teams.

Thank you, all, very much. We look forward to speaking to you, again, next quarter.

Thank you. This concludes today's teleconference.

You may disconnect your lines at this time. Thank you for your participation.