Slide Insurance Holdings Inc (SLDE) 2025 Q2 法說會逐字稿

Greetings. Welcome to Slide Insurance Holdings second-quarter 2025 earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Garrett Edson, Investor Relations. Thank you. You may begin.

Thank you and good afternoon. With us today are your hosts Bruce Lucas, Chairman and Chief Executive Officer of Slide; and Jesse Schalk, Chief Financial Officer. By now, everyone should have access to our earnings announcement, which was released prior to this call, which may also be found on our website at ir.slideinsurance.com.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates, and projections of management regarding the company's future performance, anticipated events, or trends, and other matters that are not historical facts. Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our press release and recent filings with the SEC for more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Slide. Our statements are as of today, August 12, 2025, and we undertake no obligation to update any forward-looking statements we may make except as required by law.

In addition, this call is being webcast, and an archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at www.slideinsurance.com. With that, I'd now like to turn the call over to Chairman and CEO, Bruce Lucas. Please go ahead.

Thank you and welcome to our second-quarter 2025 earnings call and for joining us on our first call as a public company. We appreciate your interest in Slide and are excited to be speaking with you today. I'd like to start the call by thanking all of our employees for their dedication to our company. You are the heart and soul of Slide, and I'm proud to work alongside you.

I will provide a brief overview on Slide and our competitive advantage followed by Jesse walking through some of our second-quarter 2025 financial highlights, and then we'll open it up to analyst questions. On today's call, I wanted to take a few moments for those of you who may be new to the slide story to walk through our value proposition and why we expect to win over the long-term. We are proud of what we have achieved over the last several years and are very excited about our long-term future.

Slide is a high-growth coastal specialty insurer providing homeowners insurance products and solutions with a focus on underserved coastal markets which had been mispriced and, in some cases, abandoned by competitors. Slide is filling the insurance needs of homeowners in these coastal states. We are available to customers via independent agents and our direct to consumer agency.

I'm fortunate to have worked alongside my wife Shannon for the past 10 years. Shannon brings 23 years of risk management experience to the table and has been instrumental to our success. Together, we founded Slide with a shared vision of building a better platform by utilizing our combined experience, big data, and AI, machine learning, underwriting tools. To fully understand the background of our story, it's important we provide a glimpse into what the Florida market looked like a few years ago and what it looks like today.

For years, dishonest contractors worked with plaintiff attorneys to defraud the Florida insurance industry. They used assignment of benefits or AOB to encourage unsuspecting homeowners into assigning their insurance claims. Post-assignment, these contractors massively inflated alleged losses.

If an insurer disagreed, the plaintiff attorneys would file suit. And under Florida's one-way fee statute, insurance companies were forced to pay their inflated legal bills. Florida was the only state that had a one-way attorney's fee statute, and the results of that were undeniable. While Florida only had approximately 9% of homeowners claims nationally, it had approximately 79% of the homeowner lawsuits in the country.

By 2022, fraud and frivolous litigation had decimated the Florida insurance market, bankrupting 11 companies in five years. Reinsurers grew tired of paying fraudulent hurricane losses and significantly increased their pricing or pulled out of the Florida market altogether. As a result, rates skyrocketed in Florida, and the property insurance market in the state was on the verge of collapse. Despite this unprecedented volatility, we formed and launched slide at the peak of the Florida insurance crisis at a time when no one else in the industry was willing to take this risk because we believed our novel approach to underwriting and risk management would differentiate us from our competitors, and that is exactly what has happened.

Slide has been successful and profitable every year of operation, and our efforts have saved the state of Florida approximately $1 billion in assessments and losses. Thankfully, Gov. DeSantis and the legislature passed comprehensive tort reform at the end of 2022 that significantly mitigated the fraudulent abuses in Florida. Florida now looks like the other 49 states. Tort reform saved the Florida market from collapse, and the insurance market is beginning to stabilize and turn a profit for the first time in a decade.

Essentially in a short time, Florida has transitioned from an unattractive insurance market to one that is highly attractive for those that know the market best and how to most effectively underwrite that is precisely in our wheelhouse. While tort reform has been important, our unique underwriting technology has been our true differentiator. Reinsurance is our single largest expense. And we believe the challenge in these coastal markets is balancing the cost of reinsurance for each policy that we underwrite and the profitability of these policies.

Legacy solutions used widely in our industry are manual processes that only analyze these factors after a policy is bound. Slide is different. We use a $6 trillion TIV underwriting data set and our proprietary AI underwriting platform ProCast to better manage our portfolio, our concentration of risk, and our reinsurance costs to maximize profitability. Our unique approach has been beyond transformative. Since our inception in 2022, Slide has been the most profitable company in the specialty coastal sector while purchasing more reinsurance than our peers at a lower seated premium ratio.

Our first priority is taking care of our policyholders. That is achieved through great customer service and solvency. Higher ROE equates to better solvency for our policyholders. As a result, our primary focus for shareholders is maintaining our underwriting discipline and delivering sustainable and attractive annual net income and ROE. While we have produced excellent top-line growth over the past few years and expect that to continue in the years ahead, you will not see us chase near term growth for the sake of growth. We fundamentally operate our business with a long-term mindset, and we are bottom line underwriters.

This is why we built ProCast, to generate attractive and sustainable profitability with the lowest amount of risk. This approach contributed to our very successful second quarter where we grew top line by 25% year over year but grew our bottom line by 30%, while reducing our combined ratio to 67.4%. That is exactly the type of result that we strive to achieve with ProCast.

As the quarter progressed, we made the thoughtful decision to shift our underwriting focus for the quarter for a few reasons. First, with the help of ProCast, we identified opportunities to write less risky policies that are further inland, as well as condominium policies.

While these policies have lower premiums, they balance our spread of risk, have lower reinsurance costs, and typically generate a higher profit. As a result, we delivered net income and ROE that outperformed our internal projections as evidenced by our quarterly earnings.

Second, we were pleased to place our reinsurance tower on favorable terms. If we had decided in the near term to exceed our reinsurance projections, we would have been required to pay a reinsurance throughout penalty in September, which would have negatively impacted our future profitability. Third, we wanted to be prudent and take steps to minimize our risk during peak hurricane season, which should ultimately lead to stronger earnings in future quarters. And fourth, we typically reserve underwriting capacity for Citizens' takeouts in the fourth quarter.

To that end, we received approval to assume approximately 175,000 policies from Citizens in the fourth quarter. While we will maintain our disciplined approach and only assume appropriately underwritten policies, because these takeouts typically have superior combined ratios, we believe the assumption of these policies will be further accreted in net income beginning in the fourth quarter of 2025.

Citizens' assumptions have been a win for everyone, including the state of Florida, because it reduces its hurricane risk, but it also has been a win for our policyholders. A great example is some of our recent takeouts from Citizens where policyholders were offered renewals from Slide at an average 5% decrease versus their Citizens renewal premium.

Further, if a policyholder had remained as Citizens, they would have been required to purchase flood insurance, which is something that is not required by Slide. Thus, we were able to provide an even larger savings for policyholders who do not want to purchase a flood policy.

In summation, we believe our ability to properly underwrite in coastal specialty markets via our differentiated technology, our unparalleled and successful experience in one of the most challenging insurance markets in the US, and our thoughtful balance sheet and reinsurance approach positions us strongly to achieve consistent profitability and long-term value for our shareholders.

We appreciate your support in Slide. And with that, I'll now turn the call over to Jesse Schalk to provide some color on our very successful second quarter.

Thanks, Bruce, and good afternoon to everyone on the call. Let's go right into our second-quarter results. For the second quarter of 2025, gross premiums written were $435.4 million, a 25% increase compared to $348.3 million in the prior year period, driven by the acquisition of additional policies from Citizens, as well as consistent year over year renewal rates of existing written policies, including Citizens' policies assumed in prior quarters.

At the end of the quarter, we had approximately 348,400 policies in force, up 27% from one year ago and up modestly from March 31. Increased policy renewals were offset by a reduction in new business rates compared to last quarter due to the completion of one full year under the Farmers renewal rights agreement. As Bruce discussed earlier, we chose to keep policies in force consistent throughout the quarter while negotiating our reinsurance treaties and preserving growth capacity for upcoming Citizens' takeouts.

Total revenue of $261.6 million increased 25% compared to $209.1 million in the prior year period, primarily attributable to an increase in net premiums earned due to the assumption of policies from Citizens and increased renewals of existing policies. Losses and loss adjustment expenses incurred net were $91.4 million, which is inclusive of cat losses from non-hurricane weather events of $6.1 million.

This was compared to $89.5 million, which was inclusive of cat losses from non-hurricane weather events of $29.9 million in the prior year period. The modest increase was primarily due to the year-over-year growth in policies in force. While the second quarter of 2025 was a benign weather season for convective storms, the company continues to reserve for losses conservatively.

Our loss ratio for the second quarter of 2025 improved 850 basis points to 37.4% compared to 45.9% in the prior year period. Policy acquisition and other underwriting expenses in the quarter were $32.1 million compared to $17.8 million in the prior year period. The increase was primarily attributable to greater policies in force on a year-over-year basis, as well as fewer premiums earned on Citizens' policies in their assumption period.

G&A expenses were $37.9 million compared to $26.8 million in the prior year period due primarily to the growth in staffing to support the company's increased policies in force. Our combined ratio improved 250 basis points to 67.4% compared to 69.9% in the prior year period, primarily as a result of increased net premiums earned from increased policies in force and a decrease in cat losses from non-hurricane weather activity.

Net income grew 30.5% to $70.1 million compared to $53.7 million in the prior year period. Diluted earnings per share for the second quarter of 2025 was $0.56. Return on equity was 10% compared to 16.9% in the prior year period, driven by the growth in equity in the second quarter of 2025 due to retained earnings and proceeds from the company's initial public offering in June 2025. As of June 30, 2025, we have generated a return on equity of 25% year to date.

Turning to our balance sheet, as of June 30, 2025, we had cash and cash equivalents of $936.2 million, an additional $478.9 million of restricted cash held for the benefit of our captive reinsurance sales, invested assets of $458.8 million, and outstanding long-term debt of $36.3 million. We believe our capitalization and liquidity will enable the company to continue to profitably grow our business over the long-term.

With that, I thank you for your time, and we will now open up the call for Q&A. Operator?

(Operator Instructions) Alex Scott, Barclays.

Hey, thanks for taking the question. First one I had is on just the growth strategy and moving up the East Coast. I wanted to see if you could provide an update on where that's at, some of the initiatives you have, thinking through South Carolina, Rhode Island, some of the New Jersey, some of the states you're planning on moving into over the next year or two.

Yeah. Hi, Alex, it's Bruce. Thanks for the question. In terms of our growth strategy, it's consistent from pre-IPO. We've been expanding quite a bit in South Carolina recently. In fact, we wrote more written premium in South Carolina in the second quarter than we've done really in the last year and a half.

So South Carolina is starting to really kind of fly for us. We're getting a lot of growth there. Pretty happy with what market conditions look like. And of course, as we spread that risk, we're getting a lower reinsurance cost, so the profitability should increase on that book.

In terms of the Northeast, we're licensed in New York, New Jersey, and Rhode Island. We anticipate launching those new states in -- or New York and New Jersey anyway in the first quarter. We also are eyeing California for E&S, so that's a product that is in development now.

Again, we would love to have that product launch kind of first quarter, second quarter. A lot of the timeline there between first and second quarter on these products is based on regulatory review. So the faster they move, the faster we get in the market. So if it bleeds in the 2Q, it's because of regulatory review. But we are still very bullish on the opportunity, and we're looking to have some pretty nice growth in 2026 in these new states.

That's really helpful. Thanks. Second one I have for you is just see if you can make some comments on the competitive environment you've seen in Florida. On one hand, the earnings are incredible relative to your equity. On the other hand, I think the whole industry's earnings profile has improved a lot off of some of the legal reforms you mentioned in your prepared remarks.

And so I just wanted to understand like how quickly you anticipate that'll revert to some longer-term profitability profile and how that's proceeding. And what -- and particularly what you're seeing from the national carriers I'd be interested in from a competitive environment standpoint.

That's a really good question. In Florida, I mean, what we have in Florida is kind of a -- it's a very fragmented market. There have been some new entrants who have entered the market with very little capital. I'm talking $30 million type of capital. They really can't grow that much with such a small capital base.

One hurricane retention, they need to re-up on capital. So while we've seen some new entrants come in, we really haven't seen them do anything in scale. And in terms of the national writers, we're just not seeing them. I mean, they consistent with all East Coast states. They've just been pulling back. They don't want that coastal specialty zone volatility; they love auto, not so much owners.

We haven't seen any kind of resurgence from the large national writers in Florida, to my knowledge. And we're not seeing them enter into these coastal zones that we're targeting for our growth. We still maintain a very bullish growth and net underwriting profitability mindset. We still believe that our long-term target combined ratios are going to be kind of that low to mid 70s on a run rate. Nothing that we've seen recently, especially since the IPO has changed that mindset.

(Operator Instructions) Tommy McJoynt, KBW.

Hey, guys, thanks for taking our questions, and congrats on getting the IPO over the finish line. To start off, you called out the approval for 175,000 Citizens takeouts in the fourth quarter. You remind us sort of in the past what a good ratio for ultimate assumptions versus approvals looks like. And I understand that depends on what the Citizens sort of population looks like at that time and other factors. But any way you can frame for us how to think about what could actually be assumed in the fourth quarter?

Yeah, it's hard to provide that type of color until we do our selections to see what the multiple tag situation looks like. We got the IDF file. I think, yesterday, it was 650,000 policies in there. So still a big chunk of business sitting there. And I think there were around 350,000 total approvals for October.

So we do feel pretty bullish still on the opportunity at Citizens. I think in some prior assumptions, we've gotten as high as 70% plus. Other assumptions, we've gotten 30%. It just really comes down to the policies we select, what everybody else selects.

We select the same policy who's got the lower rate. I can say that our most recent takeout where there were double tags between us and another carrier, we would win about 65% to 70% of the time. I think, historically, on average, it's more like around 55% of the time. So it's hard to predict that. Let's just say that our position today is that we think that there's still a very meaningful opportunity in the fourth quarter for some pretty good growth.

Okay, got it, thanks for that color. And then a similar line along the growth channel but separate from Citizens, can you talk about some of your efforts around the organic distribution, whether that be signing up new agents, or any other channels you guys are pursuing outside of the Citizens to maintain growth once some of the Citizens depopulation efforts eventually wind down?

Yeah, I mean, another good question. I mean, we are constantly adding new agents. We have over 5,000 appointed agents. So it's a very big distribution network. We've been forming a lot of national partnerships recently with national agencies. Many of them affiliated with some of the biggest names in insurance as you can imagine.

We're working on some auto partnerships as well. And I had a very good relationship in my prior life at Heritage with some of the larger auto riders in the country. And of course, we're growing our DTC channel. We've seen really great results on DTC. We took our sweet time with it because we wanted to really beta test the model, make sure that our customer acquisition costs were in line with the return.

We've got a nice sweet spot generated here. We recently doubled the size of the division. And we do think that division will continue to grow as we move forward. But as we enter these new markets, I have those relationships. I underwrote those markets during my tenure at Heritage. I know those agents. We're pretty confident in our ability to get distribution as we grow into new states.

There are no further questions at this time. I would like to hand the conference back over to Bruce for closing remarks.

I would just like to thank everyone for attending our first public call as a public company. Thank you for your interest in Slide, and we appreciate your time in this.

Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.