By David Bull

Feb 21 - (The Insurer) - Shares in Ryan Specialty traded down on Friday morning despite the company reporting Q4 profits in line with Wall Street expectations and forecasting another year of double-digit organic growth as well as margin expansion and a robust M&A pipeline.

On Thursday, the firm reported organic growth of 12.8% for 2024 and said it is guiding to a range of 11% to 13% for 2025, along with an adjusted Ebitdac margin of 32.5% to 33.5%.

For the fourth quarter, Ryan Specialty reported adjusted diluted earnings per share of $0.45, which matched analysts' consensus forecasts. Organic growth slowed to 11% in the quarter from 16.5% in Q4 2023.

In a note on Thursday after the earnings release, KBW analyst Meyer Shields maintained his outperform rating on Ryan Specialty shares but lowered his 2025 and 2026 EPS forecasts to reflect lower margins and higher interest expense, partly offset by faster inorganic growth.

He described the firm’s guidance for 2025 margin as “a little light”.

Ryan Specialty's share price was down as much as 7% in early Friday trading before recovering to trade around 4% lower as at 10.30am ET.

On the firm’s earnings call on Friday morning, management highlighted a challenging prior-period comparison given that the final quarter of 2023 had benefited from fast-hardening property market conditions, which have since moved into softer territory.

Founding chairman Pat Ryan said that January's California wildfires should serve as a reminder of the risk that remains in the property line of business, after rates decelerated in Q4 2024 driven by what some viewed as a benign hurricane season.

“Well, we were lucky. (Hurricane Milton) didn't hit Tampa, it went down to Sarasota … So rates were decelerating, but the wildfires and just a recognition, we believe, I think others would support this that property is going to be a growing line of business in '25.

“It's hard to forecast precisely what that is because of the actions taken by some carriers and decelerating rates, but the risks are out there and they're expanding. You can see the wildfires, and that can translate into further damage with spring rains,” he cautioned.

Against that backdrop, Ryan said the firm was “really pleased” with the 11% organic growth in Q4 2024.

He said the firm’s “bullish” view on property growth in the long term was demonstrated by its investment in Velocity Risk Underwriters, with the acquisition of the MGU along with a 9.9% stake in its carrier platform Velocity Specialty Insurance Company, which is in the process of being acquired by FM.

“We were very pleased to bring FM Global in and getting them to initially invest in E&S property. They’ve never done that before. So the whole commitment to property underwriting and distribution … indicates how bullish we are for the future of property for our firm,” said the industry veteran.

CASUALTY AN ORGANIC GROWTH DRIVER

Earlier on the call, Ryan Specialty CEO Tim Turner said that full-year organic growth of 12.8% was driven by “consistent results” in casualty, with property also “solid” for much of the year.

He highlighted Velocity as one of seven acquisitions made by the firm, with a focus on expanding its delegated authority platform.

“As demonstrated, each of these acquisitions support our strategic vision of aligning specialised underwriting products with our distribution expertise across industries, expanding our capabilities and offering clients diverse, innovative solutions. On top of everything else, we believe we can further enhance these already great businesses through our track record of productivity improvements,” he added.

In wholesale brokerage, Turner pointed to an “outstanding year” with strong new business and high renewal retention, as the admitted market continues to react to escalating loss costs by “dumping and shedding risks” that are then moving into the specialty and E&S market.

“We remain confident that casualty will be a strong driver of our growth moving forward and that we will continue to be a leader in casualty solutions for years to come,” he said.

The executive – who led Ryan Specialty’s wholesale business RT Specialty before succeeding Ryan as group CEO last autumn – said that there are no signs of admitted markets stepping back in on placements in a measurable way.

“And the standard market is not meaningfully impacting the rate or flow of our portfolio in the aggregate. As we’ve said since our IPO, we continue to expect the flow of business into the specialty and E&S market to be a significant driver of Ryan Specialty’s growth over the long term, more so than rate,” he continued.

“We believe E&S will continue to outpace growth in the admitted market overshadowing any cyclical shifts. This is further supported by the significant commitment to the E&S market made by carriers that historically participated only in the admitted market and the addition of new capital,” said Turner.

He also pointed to the firm’s Accelerate 2025 programme as helping optimise its platform to support long-term growth.

M&A TO CONTRIBUTE TO GROWTH OUTLOOK

Ryan Specialty CFO Janice Hamilton said that margin expansion in 2025 will be driven by contributions from recent M&A as well as underlying margin expansion, partially offset by a headwind for fiduciary investment income as a result of lower interest rates.

On the call, management was probed by analysts on organic growth and margin forecasts.

Hamilton said that organic growth would be driven at a high level by secular trends and specialties against a backdrop of increasing and ever more complex risks, retail brokers growing organically and inorganically, panel consolidation and the E&S market outpacing the admitted market.

More specific drivers will include strong new business opportunities, including in casualty, she added.

Growth in the firm’s delegated authority business will be bolstered by its spate of acquisitions, said the executive.

Turner added that the firm is seeing a “great comeback” in professional liability.

“It’s clear proof of the incredible resilience and the strength of our industry-leading national professional liability team. They continue to find new opportunities to grow and expand their market share,” he said.