Octave Specialty Group, Inc. (OSG) Earnings

Management highlights

### Overall Financial Performance - Octave delivered a strong Q2 2026 with improving consolidated results: net loss to shareholders improved to $14.4 million ($0.33 per share) from a $20.5 million ($0.42 per share) loss YoY. Consolidated adjusted EBITDA swung positive to $3.7 million from a negative $4.6 million YoY. - 2026 is expected to be the first year the company generates positive adjusted net income per share (excluding legacy financial guarantee business) since launching its P&C strategy in 2021. ### Portfolio and Market Strategy - The U.S. and global P&C market is softening: large wholesale property rates are down 10-20% YoY, while low cat-exposed SME property sees muted softening; large casualty faces robust competition but better rate resilience than property; SME casualty and targeted specialty lines continue mid-single to double-digit rate growth; A&H maintains positive rate trends and strong secular growth. - Octave's diversified portfolio across A&H, specialty P&C, and select property lines reduces exposure to single market cycles, with A&H growth uncorrelated to broader P&C pricing trends. - The MGA model leverages experienced underwriting leadership that has navigated prior cycles, supporting disciplined capital deployment, margin protection, and sustained growth. - 9 new MGAs launched since 2024, representing 40% of the total MGA portfolio; these are in the early scaling phase, with typical 18-24 month timelines to break even and deliver positive EBITDA, and 5+ year growth trajectories. Roughly 75% of current organic growth comes from the 2024 and 2025 MGA class, half of which already generate positive EBITDA. ### Operational Updates - Three new senior leaders were hired for Everspan Group (Head of Reinsurance, Chief Underwriting Officer, Chief Operating Officer) to strengthen scaling and underwriting discipline. - Octave launched a proprietary AI-driven underwriting platform in partnership with CyTora, currently active in U.S. MGAs writing management, financial, and professional liability programs. The platform reduced submit-to-quote time from several hours to ~7 minutes, improving efficiency and underwriting quality. Full rollout to all applicable U.S. MGAs is planned for H2 2026. - Expense reduction initiatives continue at the corporate level, with management targeting ongoing downward adjustment to adjusted expenses to meet long-term goals.

Guidance

- Insurance Distribution Segment: Organic growth guidance raised to 25%+ from the prior 20%+ expectation; adjusted EBITDA guidance increased to $45 million from the prior $40 million, reflecting stronger-than-expected momentum and portfolio diversity. - Everspan Segment: Adjusted EBITDA guidance revised down to $6 million from $7.5 million, driven by higher-than-expected acquisition costs for new onboarding programs. This still represents a 58% increase over 2025's $3.8 million adjusted EBITDA, and the new programs are expected to deliver more stable long-term loss ratios. - Full-year 2026 adjusted net income per share guidance revised to a range of $0.15 to $0.20 per share from the prior expectation of $0.50 per share, driven by updated estimates for interest expense, depreciation, taxes, and non-controlling interest allocation. Even with the revision, this represents a ~$0.76 per share improvement from 2025's adjusted loss of $0.58 per share. - All other guidance remains unchanged.

Segment performance

Octave Specialty Group operates two core business segments, plus corporate operations: 1. Insurance Distribution Segment: Total revenue grew 77% year-over-year to $58.4 million, with 44% organic growth, driven by the 2025 acquisition of ArmadaCare and expansion of existing MGAs. Adjusted EBITDA grew nearly fourfold to $9.8 million YoY, with adjusted EBITDA margin expanding from 7.6% to 16.8%. Net loss to shareholders decreased from $7.7 million YoY to $3.7 million, and adjusted net income swung positive to $4.6 million from a $3 million YoY loss. This segment contributes 100% of consolidated positive adjusted EBITDA. 2. Specialty Insurance (Everspan) Segment: Gross premiums written were $95 million (down 2% YoY), net premiums written were $23 million (up 52% YoY), and premiums earned were $22 million (up 34% YoY). The segment reported a 61.4% loss ratio, a 640 basis point improvement YoY, with active programs running at a 59% loss ratio. G&A expense ratio declined to 9.4% from 16% YoY, bringing the combined ratio down to 100.6% from 106.7% YoY. Pre-tax income was $1.2 million (double YoY results), and adjusted EBITDA was $1.8 million (nearly triple YoY results). 3. Corporate Operations: Reported GAAP corporate expenses declined 14% YoY from $14 million to $12 million, and adjusted expenses declined to $7.9 million from $8.3 million YoY.

Risks & headwinds

- Broad P&C market softening, particularly for large CAT-exposed property lines, could pressure pricing and margins if softening continues longer than expected, especially if no large catastrophic events occur to reverse the trend. - New MGA launches and new Everspan programs carry inherent underwriting risk, and poor selection or monitoring could lead to higher-than-expected loss ratios. - Everspan is still scaling toward its $500 million premium target, and fixed overhead costs continue to create near-term drag on profitability and combined ratio that will not fully ameliorate until scale is reached.

Analyst Q&A

• Q: What is the pipeline for new MGA launches in 2026 and 2027, and how is capacity availability looking for the portfolio? /

  A: Octave expects only 1-2 new MGA launches in 2026, down from the 9 launched in 2024-2025, as the firm prioritizes scaling existing recent launches, which already deliver ~75% of current organic growth. For 2027, the firm targets 2-4 selective new launches, with a deep overall pipeline. Strong underlying portfolio performance has attracted broad capacity support from existing and new partners, and Octave continues to add at least one new capacity partner per quarter as part of its curated diversification strategy.

• Q: What is the rate outlook for non-cat property and Everspan excess liability, and how close is the market to a pricing floor? /

  A: Large CAT-exposed property lines are seeing 10-20% rate declines, and Octave expects softening to continue through the rest of 2026 and into 2027 barring major catastrophic events. Octave's portfolio is concentrated in SME non-large account non-CAT property, so average rate declines are a more muted 5-10%. For Everspan excess liability, pricing remains positive relative to loss trends, though growth of rate increases has moderated, and the pipeline of high-quality differentiated programs has improved recently.

• Q: What are A&H market trends for Octave, and how important is this segment to the overall portfolio? /

  A: A&H makes up roughly a third of Octave's portfolio, providing valuable balance to broader P&C market softening. Core A&H lines including excess stop loss and benefits are seeing strong organic growth and low double-digit to high single-digit rate increases, supported by ongoing positive underlying industry trends that are expected to continue through 2027.

• Q: Everspan recently added senior executive talent; what quality control processes are in place to manage underwriting risk for new programs? /

  A: The new senior leaders bring deep specialized underwriting and reinsurance expertise to strengthen the team's existing capabilities. Octave acts as a gross line underwriter (not just a fronting platform) that conducts full due diligence on every program, and supplements in-house expertise with external resources when needed. Ongoing oversight includes program audits 90 days after launch and annual audits thereafter to monitor exposure and maintain underwriting quality.