Our next fireside chat here today is with American Integrity, and we are happy to be joined by Bob Ritchie, Jon Ritchie, and Brian Foley. Bob, can I turn it over to you to make any introductory remarks?
Happy to. Thank you for the opportunity, and thanks for listening to our story. Our story is not unique, and Florida is not unique. Florida is rebellious sometimes, and so for almost 20 years we have been building this company. I can tell you it is not proof of concept. It is real. So much so that other states are looking at our successes and how maybe they can replicate it. Who would have thought that? So we have never had a problem with Mother Nature.
Some people will tell you that we have. We have not. Reinsurance ebbs and flows, both capacity and pricing. What has kept us up at night and what created so many failures was the litigation crisis. Matter of fact, we were not in the insurance business. We were in the lawsuit management business. That is all different. And we are growing successfully. We are 16 months in as a publicly traded company.
I am not here to tell you that we have learned everything. I am to tell you we are serious students for investors as we grow this company responsibly. And we are just looking forward to telling our story. Excuse me. Go ahead.
Yeah. I think kind of a good area to start is probably the most common question and, frankly, concern that we get around Florida, is around the competitive environment. I think everyone, the consensus view is the reforms are working.
Yep.
The carriers in Florida are printing very strong returns. Reinsurance pricing is trending favorably. Why does this not invite more competition, perhaps fears of prices getting cut, national carriers coming back into Florida? Just speak about the competitive environment.
There's a lot to unpack there, but thank you for that. First and foremost, third most populous state. We need more, not less. Even today, Tommy, as I look at the cadre of competition, first and foremost, Florida is not unique, but especially different compared to, say, California. I mentioned this last year in this very room. Our commissioner is appointed, not elected. That's a game changer. Mike Yaworsky, who's been on the job now, what, Jon, about three years. In my view, we had a great woman, Kevin McCarty. Guy before Yaworsky, not so much. Yaworsky's been responsible. He's done his job as an advocate, of course, for the consumer, but also for a healthy market. Tommy, I am not seeing any evidence of any rate filings, both new companies and existing, where buying business can be an option for Florida.
As we look at the competitive landscape, look, we got a lot of great competition, but the models are different. We're fortunate because, almost 20 years into this, we've got deep relationships. Back to a few more of your question points. I think the inference is, will margins go out the window because competition becomes reckless? I don't see that. I do not see that in the short or medium term. Later, we can talk about the confidence I've got in Tallahassee and why these reforms are real. Competition is not something that keeps American Integrity up at night. We have two rules. They're very simple in insurance. God, they're hard. If you write a piece of business, make a profit, underwriting profit, not investment, and offer to renew it. So pick the right ones. This marketplace is in an exceptional place.
Matter of fact, I don't believe there's never been a better time, even with rates coming down, with reinsurers or primary insurers or investors, to look at Florida. I don't say that because it's a calm season. No, the weather's not the problem. Competition is also not the problem.
Can you talk a little bit about the phenomenon for why Florida is dominated by specialists rather than national carriers?
Sure. You do not want to hear just from me. Jon, will you take that?
Yeah. Look, national carriers are, rightfully so, beholden to national AM Best standards, and Florida does not get a carve-out. That is why specialty carriers like American Integrity, amongst others, are able to exist in the marketplace. However, they want the auto, of course, within the state of Florida. They just do not want the homeowners risk, and that is a channel for us from a distribution perspective. We write with virtually every national carrier that actively writes auto insurance in Florida, and there are no indications that they are changing their flavor or their take on Florida property, and particularly homeowners risk, in terms of the commentary we are hearing from them privately and then, of course, what we are hearing publicly.
We do believe from a national carrier perspective, carving out State Farm, who does write within the state of Florida with their pup company, we feel like the moat is pretty wide and deep in terms of the protection of the specialist role within Florida.
Yeah. An important element of your story that I think about often is the organic growth opportunity. The Citizens takeouts have largely played out when you look at the number of policies still there. Let's talk about a couple of the verticals that you guys are interested in growing in, and we'll start off with the tri-county area.
Yes.
That region was sort of off limits for you
Yes
for a number of years.
Yes.
What led to the decision to turn that back on, give you conviction that it was safe to write there? Along the same lines, how do you convince independent agents in that region to start writing your product when you hadn't been in that area for a number of years?
Great question. You will help me in a second, Jon. South Florida, when the company was formed in 2007, we did a little down there. This was way before the lawsuit crisis. There was a kitchen fire crisis down there at that time, but we were a very small company, and we did not need to be risking $10 million-$12 million of surplus. There were other bets that were safer, number one. Number two, Miami-Dade for any industry is ripe with fraud, and if you are going to do business in Miami-Dade, pick your right partners. The reason we have got the confidence today, and we did not do it overnight, these reforms are 2022, 2023. We began writing just last year in South Florida. We are not doing it just because we are public. This was already in the works.
The confidence level exists because of the substantial reduction in first-party losses that were created by bad laws. As a matter of fact, Morgan & Morgan shut down their first party property division. Carefully looking at South Florida, Miami in particular, we had openings where we could immediately write. Can you help with that?
Yeah. For us, the builder channel, new construction channel, we were able to enter that space immediately. They were looking for additional capacity, and new construction is healthy in that part of the state, as it is throughout the entirety of Florida. In addition to that, I already spoke to it, but the national carriers were looking for additional capacity there. To your point, Tommy, yeah, we had to actively, and we still are actively appointing independent agents, particularly in Dade and Broward. We remained open in a limited fashion in Palm Beach County, throughout the entirety of the last 20 years. So we had some distribution that existed already. But we have found that certainly us going into Dade and Broward has been welcomed by the independent agents in that part of the state.
They were looking for a marquee name in terms of longevity in the marketplace like American Integrity to add to their distribution channel or lineup, if you will. So, we have seen very favorable success, to the point now where one out of every five new business policies that we are writing on a daily basis is coming from the tri-county region.
To expand on that, this is all public. Look at some stats. Through Q2, American Integrity wrote 43,000 new business policies. That was up 54%. Of that 43,000, to Jon's point, 7,600 came from tri-county. 9,000 came from middle-aged homes, which might be your next reference point. It is a part of our growth story. It is not all of it. It is being underwritten in ways that produce profit, retention, and renewal.
Yeah. If you want to also do a little talk about the middle-aged-
Yep
home opportunity. And honestly, it might be helpful for you to characterize what that is for people. What defines a middle-aged home?
Love to. So you have a chance to meet our new CFO. Can you take this question, Brian, and talk about middle-aged roofs, homes, call it what you like, and why it is a driver and important to us?
Yeah, happy to. We define middle-aged homes as a roof that is older than five years in age. Specifically, in the HO3 product, that is where we saw the heaviest amount of litigation during the crisis. In those middle-aged HO3 homes, we pulled back significantly. We were predominantly writing new business policies only for new construction. The DP3 product that we write is a little bit more insulated from some of this frivolous activity because of the actual cash value on the roofs. We were still able to write that. As Bob said, and as Jon said, we feel very comfortable that the regulatory reforms are working as intended and are allowing us to move back into that market, which is a huge subset of the Florida market. It's really core to who we are.
When this business was founded, we did many middle-aged roofs, and we love that business, and we price it accordingly, and we have the data to do so. We just didn't really feel comfortable with all the litigation that was in place. Now we're moving back into that market with force.
Thanks, Brian. During the crisis, I was accused of being the roof guy. I guess I probably still am in Tallahassee. We had town criers one year holding up placards, "There's no such thing as a free roof." I even had a flyover once, got accused of being Flo from Progressive on the House floor. Because now laws exist and the impetus is taken away, free roofs are no longer available, mainly because we obliterated something called the one-way attorney fee statute, a 130-year-old statute, in this reform. If you want a free roof, hire your own lawyer. Oh, and by the way, we've got policy language unique for us that obliterates the Sebo destruction. We'll take you on, we'll do it case by case. You won't get the free roof, and you'll hate us, and we'll keep our surplus.
Those are a couple good opportunities in Florida. A common playbook for some public Florida carriers has been to expand a bit outside of Florida.
Yes.
Some have gone as far as the Northeast.
Yep
To California. You guys have relationships with home builders that has introduced you to some other states in the Southeast. Would you ever consider writing in the Southeast, not through the builder relationships?
Sure, and we are. By the way, we didn't go out of Florida just because we were public. This was always on the drawing board, number one. Number two, our first state was South Carolina. It's taken us three years to get to 30,000 customers. Very proud of them. They're profitable. The starting point were these builder agents, largely Westwood, part of Baldwin Group. Said we need capacity. We don't want to give it all to others, and Progressive doesn't want our business anymore. We began expanding out of Florida, being very cognizant, and I won't name names, it's not fair, but other Florida companies have done it unsuccessfully. Only a few have done it successfully. One of them is ASI, and they're gone now. We were thoughtful, and it took us 15 years. We had a crisis, so we didn't want to do it then.
Took us 15 years to go outside Florida. The predominant book of business will always be in Florida in this foreseeable future. But South Carolina is attendant to what we do. It allows us for new construction. It gives us power of relationships for Westwood to write even more in Florida. We're more important to them now. Same thing for Georgia, same thing for North Carolina. As we build that nucleus and hire staff, we've begun to appoint other independent agents that are writing non-new business. Can you talk about that, Jon?
Yeah. We have seen success sort of in descending order of what Bob just described, just given longevity in the marketplace of getting independent agents appointed in those three states. The new construction piece certainly is still the largest component of new business in those expansion states. But we are seeing some really good momentum with independents, and beginning conversations with national carrier partners in certain states where it may make sense for them to offer capacity or us to offer capacity to them to write homeowners' risk, particularly in South Carolina.
The entry was distribution, certainly product focused, but not as a whim to create top-line growth.
Maybe just to be direct, can you envision a scenario where you are not at least 90% Florida
Yes
within the next few years?
Yes. Now, I cannot give forward-looking advice in a room like this. The majority, I can tell you, is Florida for the next good couple of three years. Today though, as you look at our policy count, we had 462,000 customers at the end of Q2. At that time, there was about 30,000 outside of Florida. Call it 420, 430 was Florida, 30 outside. That mix is 92/8. What would it be in a couple of three years more than that? It will be a double digit part of that pie for outside of Florida, yet Florida will be dominant.
Everyone in insurance knows that the earnings are much more sensitive to combined ratios than they are to top line. As we think about that top-line projection and sort of taking all these inputs together, what is your base case, maybe expectation for top-line premium growth over the next couple of years? Is double-digit growth feasible?
Yes. Now we have not told you and given you those forward numbers, and we are close to doing that. Brian will. We clearly see this engine as we look into next year of producing customer growth in the low double-digit scenario. Anything else you want to add to this?
Right.
Yeah. Look, we had a record second quarter, and that was 43,000 new business policies, the best the company has ever done. We are very proud of that. Additionally, based on the Quasar data that we also publish, we are the number one voluntary writer of new business in Florida from the public company peer set year to date 6/30. We feel that that momentum is going to continue. We kind of look at this business from a customer count, from a PIF count. Like Bob said, I think we have exceeded our expectations thus far this year into the double digits. I think it is reasonable to expect that growth in customer count to be kind of high single digits, low double digits over the long run.
Then kind of translating that into premium, as some of you are aware, we are in a modestly softening rate environment across the P&C industry. Things are not falling off of a cliff, and we publish some data in our decks that kind of show rate stability but still down kind of 1%, 2%, 3%, 4%, certainly not double-digit rate declines. So you can probably expect written premium to trail the customer growth modestly, and we'll kind of continue to see how the market evolves going forward and putting those pieces together based on cat loss experience, reinsurance costs, inflation, et cetera.
As the top line might adjust, I want to assure you the combined ratios are all being priced for profit. The other thing too that has really helped us, and I don't say this in a way to feel like we're the biggest and best because we're not, is the diversity and multiplicity of our distribution system. About six years ago, we hired Dick Dowd, who is our EVP of Sales and Marketing. Dick worked with me at American Modern two decades ago. A brilliant, successful guy. At the heart of Dick's magic is relationships. Great example is Allstate. Before Dick came on board, Allstate said, "Well, you can do business with us like everybody else, but it's take all comers." I said, "No, that's not us." Take all comers for agents, parts of the state. No.
Dick was successful in working with Bill Borst in breaking that code. I'm happy to tell you that Allstate, we don't put all of our marbles for reasons that Allstate will change their underwriting appetite a lot. Yet we can be there as Allstate and Ivantage need us. So this multiplicity and diversity that Dick has built for builder agents, national accounts, affiliates, like mortgage companies, realtors, and of course, our bread and butter are the independent agents in Florida. That's our backbone. So it's not like the backbone has shrunk or gotten less strong, or that slice of that pie is not growing. It is. Just the entire pie is building, and these new segments are creating really good pie slices.
Yeah.
Anything else you want to add there?
Sum it up.
That is our magic. It is in our publicly presented investor presentations. It is here from my words. No secrets here. Anybody else can do it. It just takes time. It takes time. We are in a position post-reform, I can tell you, that the history of this company, when I founded this company, I had a lot of people in the industry thought I was crazy. "You are going to Florida to do what? Come on. It will not be sustainable."
As passionate as I was, as David Clark and I founded this company, and shortly after, Jon, as he joined the company, and now of course Brian, I am more excited today about the opportunity, not to buy business, not to change our underwriting approaches, but we are doing it differently. We are not quite valued yet. The stock and the market cap will do what it is supposed to over time.
Here is what I am not changing, is what I am doing, what we are doing, and running this company and growing it. The time now for this company has never been brighter.
Before we jump into the reinsurance side, which I certainly want to talk to you about, I am happy to take any questions from the audience if there are any. Okay. Let us jump into the reinsurance side. Florida carriers spend a huge chunk of their budget paying for reinsurance, and rightfully so. Can you talk a little bit about the evolution of your reinsurance tower and how having that vertical and sideways protection allows you to sleep well at night, even in the middle of hurricane season?
Jon's going to tell you, but I got four words. How sweet it is. Even post-Monte Carlo. Go ahead.
Our buying philosophy has always been certainly from a first event perspective to cover now to a 130-year-plus return period, but it's the horizontal cover too. The 2004 storm season has always been the barometer for us. Can American Integrity withstand a similar season, both in frequency and severity, with the current exposure? That's something that's been incredibly important for us to buy to. Beyond that, retention, both first and subsequent event retentions, we've always wanted to keep those as low as possible given the market and the economics, just to protect the balance sheet. In terms of the evolution of the tower, certainly that has changed throughout the course of market cycles in terms of participation from certain regions or lack thereof.
The type of cover that we're purchasing, we've been active in the ILS community for going on a decade now, and that's become a very important part of both our vertical cover. The 6/1 renewal was positive. Obviously, a storm-free season last year was beneficial, for both reinsurers, but also us as buyers of cover for this year's renewal. As Bob was alluding to, the reform is you can't ignore it any longer. The last couple renewal cycles, the commentary from reinsurers, and I understand their position, was, "Let's wait and see how this is actually going to play out. Is it going to be as intended?
Will it be unwound?" Hurricane Milton, two years ago, and Helene to a certain extent, but certainly Milton really was the event that they can point to and we certainly are pointing to show litigation frequency was a fraction of what it was for Hurricane Ian or Hurricane Irma previously. Severity was significantly lower than what those events were because of the lack of litigation. The sentiment in Bermuda and London and mainland Europe and domestically is reform worked. Loss costs are going down, and therefore pricing is reducing. Absent an event this season, we certainly would expect a similar type of environment next year when we renew the program.
Can you actually summarize for everyone what was the result of your recent June renewal in terms of maybe pricing or some general metrics around that?
Yeah. The commentary, generally speaking, was mid-teen risk-adjusted rate decreases for us. We were in excess of that. We certainly did see marginal improvement upon what the consensus was in terms of rate reductions. But it's more than just rate on line reductions. It's terms and condition. It's types of cover that was able to be returned back to the market. For instance, cascading cover for traditional reinsurance fell completely out of vogue in the last 10 years because of market conditions, and we were able to reintroduce that to add some sideways cover that we didn't have previously. Rate, terms and conditions, and type of cover offered, it was all beneficial for American Integrity and the market in general.
We also have some uniqueness, and it isn't terribly expensive. Not everyone buys for this sideways, horizontal cover. Here's been the mantra I've had. We were able to do it every year but one or two during the extreme crisis. Is that if 2004 would repeat itself again, where four majors hit Florida in a single year, we want to manage those four retentions, those four deductibles. We also want to manage the opportunity to fully, in advance, reinsure, granted smaller towers, as the multiplicity of an extraordinary year might happen. That's sleep insurance for you as an investor, for us as an operator. I'm happy to say that we've strengthened that. What Jon was alluding to is strengthening that horizontal coverage.
There's been some market chatter coming out of Monte Carlo, that January you might see prices down another 10% or so.
Yep
is sort of the whisper number-
Yep
that we're hearing. Understanding, January is not the Florida renewal season. Do you guys have a base case expectation for, knock on wood, if this is a benign hurricane season, that what you would expect pricing to do? Or is the next leg going to be more addressing the terms and conditions side of what you might see the cascading features?
Both. In fact, even before Monte Carlo, Brian and David Clark, who's in the audience, our executive chairman, and Jon, had begun to model a what if. June 1st is a long way away, but the bellwether is the 1/1. If it is - 10 1/1, and we have a clean year, we don't know yet. Look, we're right at the peak time. It only takes one. Here's what I tell everybody, says, "Oh, we're done." No, we're not. 1992 was supposed to be a less than average year. Hurricane Andrew was in August. We're only September or whatever day it is today, ninth. So we're not clean yet, but let's just say we are. Say we're clean. Say we're - 10 for the industry, and the Monte Carlo chatter was right. Yes, we're setting up for another substantial reduction in rates on line for June.
We'll go out early, as we do, and seam this up in Q1.
Yeah. What I will say is, you asked the question, we certainly don't plan for rate declines like we saw at 6/1 this year, then potentially what will happen next year. Obviously, if we get - 10, that would be terrific. We'd be welcoming that. It's not how we run the business. We're not planning for a perpetual soft market in reinsurance. Our brokers that give us data, the industry reinsurance brokers obviously track pricing and ROEs pretty closely for the reinsurers. I think the reinsurer ROEs are still quite healthy. If you look at a 20-year period, I think you could make the argument that reinsurers have been willing to go lower in price than we saw at 6/1 of this year, but time will tell.
Look, we're all capitalists. We're going to ride the waves. If rates on line go down, we're going to endure overreactions. They're not regulated, I'm not criticizing, they're capitalists. Yet, in my view, Floridians in particular, from a regulatory, from a consumer perspective, we're all better served if we have normalized reinsurance, given the dynamics of not being regulated, is always cyclical. We'll ride it. I'm proud of this. We've had nearly no defections over these 15, 20 years for participants. Unless they got bought or they reinsured, they went out of property. Okay, I get all that. They've stayed with us. They've grown. London has shrunk a little bit here. We're going to get the best deal. I never want to do a win-lose negotiation. I think that's unhealthy. In times of scarcity of reinsurance capacity, that's remembered.
We're going to do right by our investors, by our P&L. Not looking for the absolute lowest dollar, but we'll be within range. This year, we did beat, because the marketplace saw a couple of things. They saw being publicly traded, the due diligence, I think that was an intangible that helped. Here's what they do see, and we're mixing it with middle-aged homes, is the new construction stock. The dynamics of our rating classification factors are superior. The market, everybody says that they differentiate pricing. It's hard, especially as the market softens in reinsurance. Yet, I believe the work we did, we benefited from those elements.
I agree.
Is it worth fighting for lower attachment points, you think, when it comes to these negotiations?
Oh, yeah.
Just remind us, do you have a general rule that you try to subscribe to about where you want attachments to be relative to either-
Yep
pre-tax earnings or some ratio?
We don't want to expose more than 10% or 15%. We were just talking about this last night. I believe, because we've been conservative. Privately held company, very small starting out. For years, we had a $6 million retention. My brain's still attached to that. We don't want it. We'd overpay. We won't get it again. I think we feel that, again, I'm not trying to give forward-looking advice, that this retention could go upward just a little bit, don't you think, Brian?
Yeah. Our book has grown, so I think it logically makes sense that as that grows and our capital and surplus grow as well, that you'd expect retentions to move up. There's games to be played at the bottom of the tower. That's where the most expensive reinsurance is. So you got to do a cost-benefit analysis as to what's worth it. I think a reasonable expectation is that retention's probably move up a little bit from here.
Here's what we don't want. War wounds of the past. Poe, 2004. Didn't buy them below the Florida Hurricane Catastrophe Fund, which means they had a retention. It was crazy. Bore them. Then they thought, "Well, we'll go back, and we'll play craps again and get it back." In 2005, there were two more large deductibles. Here's where I'm going. Horizontal cover, that retention needs to slide down quickly from event two, event three, event four. Because we don't want to, in most years, even with one or two, it's an earnings. It's not a capital surplus event. Yet, if we kept that $35 million x 4, obviously, we'd be raising money again. We don't want to do that. Can't say it would never happen, but the responsible companies will both buy horizontal and then keep that retention down for the subsequent events.
I'll pause again here just to see if there's any questions that anybody has. All right. Switching over, I think a common theme across property and casualty lines is expectations for loss ratios to deteriorate as this soft market starts to permeate more. Can you talk about your expectations for where you think your attritional loss ratios, ignoring the cat side, where you think the attritional loss ratio can go from really currently strong levels?
Happy to, and we can talk loss ratios. At the end of the day, it is about pure premium. Frequency and severity, that is the driver, not the number. Let us look at frequency. Post-reform, frequency for the industry was approaching 6%, down to 3%, 3.5%. Ours is less because of the quality and nature of our book. You do not go out of business with a severity problem. You go out of business with a frequency problem. Frequency for the industry, and especially for us, is really performing well. Severity is in range. Inflation is not zero. We have an inflation guard factor which helps to absorb that. Net net, you look at those two together in the pure premium, those trends are remarkable. The reduction in average premium is not because people are gambling on the loss cost.
It is that the lawyer tax has been squeezed out, and now that can be appropriately displayed in their rate. There are two other points. There is inflation, which is not zero, and of course, reinsurance. Your next question or thought might be, well, you got litigation tax out. You got reinsurance down. Yeah, of course. Yet the downward pressure is single digit, partially offset by the inflation guard factor.
Yeah, and one point to note here is, as Bob said, certainly it is a mid-single-digit primary rate reduction environment. However, for American Integrity, as we are adding tri-county and middle-aged homes to the portfolio with a higher average premium, that is being offset or that rate reduction is being offset by the mix change for the book of business. With that being said, certainly as those two segments grow, we fully anticipate in our modeling that, yeah, that is probably got 1.5 point , maybe 2 point increase to the non-cat loss ratio, just given the risk profile of that business. The premium we are collecting certainly compensates for that.
Yeah, it is a fraction. It is math. Yeah.
ROEs last year were 40%, incredibly strong. Do you think mid-teens is the right ROE for this business through the cycle? Then how long does it take before it decreases to that level?
I do, and Brian's the guy to tell us. Go ahead, Brian.
Yeah, so look, our ROEs and our Florida peers' ROEs have been elevated for the last several years, and there's a couple of things driving that. So there was this huge depopulation of Citizens, which gives tremendous windfall to earnings because you're not paying acquisition costs upfront, and then you're getting some benefits on the reinsurance side, provided you're taking those businesses out, or policies, I should say, out after wind season. So that is a very short-term elevated ROE kind of profile. Now, we are entering a period of more normalization. So Citizens is at the lowest level it's ever been at, and we do not feel like there are tremendous amount of opportunities to continue to take policies out of Citizens. We'll look, maybe 100, 200 here and there.
Really going forward, it's a voluntary growth story, and you're not going to see that short-term benefit from taking policies from Citizens. So yes, our ROEs were terrific last year. Another component of that was there wasn't a landfalling hurricane in Florida. But over the long run, I do think this is a mid-teens ROE kind of story. I think we're certainly at a point in the cycle that is above that, and we're pleased that I think we'll be in that period of time, at least for next year, with more normalization probably coming after that. But we'll see.
Our business plan, our model, our P&L, our combined ratio, not dependent upon the clean season. Matter of fact, we model 0.8, call it one, hurricane per year. One retention per year. Yeah, great. When you got the clean year, good. There's more capital. Last year, we did a special dividend. We'll also look at share buybacks this year. We're in heavy discussions. What we don't want to do is to do it prematurely. Let's wait until December 1st, and let's see how the season clears out. Then we're looking at the responsible way to use or even return some of that excess capital.
When we take these different pieces, mid-teens ROE target, running above that currently, the potential growth opportunity maybe somewhere in the low double digits. There's still probably a gap there where you're generating excess capital.
Yeah.
Can you talk about, one, what is the right level of premium leverage to run at? Is there a chance to optimize around that?
Yep.
Then two, you briefly touched on it there, but firmly rank the priorities there for excess capital buybacks, dividends, things like that.
Happy to. The writing ratios for Florida, they are not things that really can be achieved, and I will explain why in a minute. Gross, 10 : 1. Net, 4 : 1. There is something called a risk-based capital, RBC ratio. That is the driver. Maybe you can give some color on that.
Yeah, so I understand the question. Where we really manage the business to is an RBC ratio, and if you look at peers and public companies, that is kind of floating around the 400% range. So it is not as simple as just saying, "Oh, net written premiums to surplus is X, and that is our target." It is a much more complicated way to think about capital. In terms of where we are at now, we have a fair amount of excess capital at the holdco, but also keep in mind that we have uses for that. The first priority is organic growth with our voluntary new business policies that we are writing in the state of Florida and ex-Florida. I would say the second priority is taking down the quota share. So our quota share was at 40%.
We took that down to 25% this year, and I think we will continue to step that down into 2027. That will consume some capital. After that, we have always had a track record of returning capital to shareholders. If we have excess, we do not want to hoard piles of cash. I think both dividends and buybacks are certainly on the table. M&A would probably be the lowest priority for us. It is not that we will never do a deal, but it would have to be a pretty high bar there.
We are growing nicely organically, so we are de-risking our growth.
That's right.
When it comes to buybacks versus dividends, I assume you guys factor in the liquidity of the stock when you contemplate buybacks.
Yes and no. Look, there's levels where we're clearly buyers and liquidity of the stock may not matter as much, but it's on our mind. I wouldn't say it's the sole defining factor.
That's great. All right. Well, gentlemen, thank you very much for your time this morning.
Thanks for the opportunity, Tommy. Appreciate it.