RYAN SPECIALTY HOLDINGS INC

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

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The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Information Concerning Forward-Looking Statements”.

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The following discussion and analysis summarizes the significant factors affecting the consolidated operating

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The following discussion provides commentary on the financial results derived from our audited financial statements for the years ended December 31, 2023, 2022, and 2021 prepared in accordance with U.S. GAAP. In addition, we regularly review the following Non-GAAP measures when assessing performance: Organic revenue growth rate, Adjusted compensation and benefits expense, Adjusted compensation and benefits expense ratio, Adjusted general and administrative expense, Adjusted general and administrative expense ratio, Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted net income, Adjusted net income margin, and Adjusted diluted earnings per share. See “Non-GAAP Financial Measures and Key Performance Indicators” for further information.

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The following discussion provides commentary on the financial results derived from our audited financial

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Founded by Patrick G. Ryan in 2010, we are a service provider of specialty products and solutions for insurance brokers, agents, and carriers. We provide distribution, underwriting, product development, administration, and risk management services by acting as a wholesale broker and a managing underwriter or a program administrator with delegated authority from insurance carriers. Our mission is to provide industry-leading innovative specialty insurance solutions for insurance brokers, agents, and carriers.

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Founded by Patrick G. Ryan in 2010, we are a service provider of specialty products and solutions for insurance

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For retail insurance agents and brokers, we assist in the placement of complex or otherwise hard-to-place risks. For insurance carriers, we work with retail and wholesale insurance brokers to source, onboard, underwrite, and service these same types of risks. A significant majority of the premiums we place are bound in the E&S market, which includes Lloyd’s of London. There is often significantly more flexibility in terms, conditions, and rates in the E&S market relative to the Admitted or “standard” insurance market. We believe that the additional freedom to craft bespoke terms and conditions in the E&S market allows us to best meet the needs of our trading partners, provide unique solutions, and drive innovation. We believe our success has been achieved by providing best-in-class intellectual capital, leveraging our trusted and long-standing relationships and developing differentiated solutions at a scale unmatched by many of our competitors.

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For retail insurance agents and brokers, we assist in the placement of complex or otherwise hard-to-place risks.

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We are a holding company and our sole material asset is a controlling equity interest in New LLC, which is also a holding company and its sole material asset is a controlling equity interest in the LLC. The Company operates and controls the business and affairs of, and consolidates the financial results of, the LLC through New LLC. We conduct our business through the LLC. As the LLC is substantively the same as New LLC, for the purpose of this discussion, we will refer to both New LLC and the LLC as the “LLC.”

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We are a holding company and our sole material asset is a controlling equity interest in New LLC, which is also

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The LLC is a limited liability company taxed as a partnership for income tax purposes, and its taxable income or loss is passed through to its members, including the Company. The LLC is subject to income taxes on its taxable income in certain foreign countries, in certain state and local jurisdictions that impose income taxes on partnerships, and on the taxable income of its U.S. corporate subsidiaries. As a result of our ownership of LLC Common Units, we are subject to U.S. federal, state, and local income taxes with respect to our allocable share of any taxable income of the LLC and are taxed at the prevailing corporate tax rates. We intend to cause the LLC to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement. See “Liquidity and Capital Resources - Tax Receivable Agreement” for additional information about the TRA.

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The LLC is a limited liability company taxed as a partnership for income tax purposes, and its taxable income

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During the first quarter of 2023 we initiated the ACCELERATE 2025 program that will enable continued growth, drive innovation, and deliver sustainable productivity improvements over the long term. The program will result in approximately $90.0 million of cumulative one-time charges through 2024, funded through operating cash flow. Restructuring costs will primarily be included in General and administrative expense, relating to third-party professional services, lease and contract terminations costs, and other expenses. The remaining costs will be incurred through Compensation and benefits expense, predominately relating to third-party contractor and other workforce-related costs. We expect the program to generate annual savings of approximately $50.0 million in 2025. See“Note 5, Restructuring” in the footnotes to the consolidated financial statements in this Annual Report for further discussion.

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During the first quarter of 2023, we initiated the ACCELERATE 2025 program toenable continued growth,

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For the year ended December 31, 2023, we incurred restructuring costs of $48.4 million, which represent cumulative costs since the inception of the plan. Of the cumulative $48.4 million in costs, $25.8 million was general and administrative with the remaining balance being workforce related. While the current results of the ACCELERATE 2025 program are in line with expectations, changes to the total savings estimate and timing of the ACCELERATE 2025 program may evolve as we continue to progress through the plan and evaluate other potential opportunities. The actual amounts and timing may vary significantly based on various factors.

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For the year ended December 31, 2024, we incurred restructuring costs of$59.7 million. Combined with

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In December 2023 we announced the signing of a definitive agreement to acquire Castel Underwriting Agencies Limited (“Castel”), a managing general underwriter platform, from Arch Financial Holdings (UK) Limited and minority shareholders. Castel is headquartered in London, England with additional offices in the Netherlands and Belgium and operations in Singapore. The transaction is expected to close during the first half of 2024, subject to regulatory approvals and customary closing conditions.

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Limited (“Castel”). Castel is headquartered in London, England, with additional offices and operations in the Netherlands,

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We believe these acquisitions complement our product capabilities, enhance our human capital, expand our total addressable market, and provide us access to new markets in new geographies. See “Note 4, Mergers and Acquisitions” in the footnotes to the consolidated financial statements in this Annual Report for further discussion.

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We believe these acquisitions complement our product capabilities, enhance our human capital, expand our

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Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:

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Our historical financial performance has been, and we expect our financial performance in the future to be,

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We have successfully integrated businesses complementary to our own to increase both our distribution reach and our product and service capabilities. We continuously evaluate acquisitions and intend to further pursue targeted acquisitions that complement our product and service capabilities or provide us access to new markets. We have previously made, and intend to continue to make, acquisitions with the objective of enhancing our human capital and product and service capabilities, entering natural adjacencies, and expanding our geographic presence. Our ability to successfully pursue strategic acquisitions is dependent upon a number of factors, including sustained execution of a disciplined and selective acquisition strategy which requires acquisition targets to have a cultural and strategic fit, competition for these assets, purchase price multiples that we deem appropriate and our ability to effectively integrate targeted companies or assets and grow our business. We do not have agreements or commitments for any material acquisitions at this time.

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We have successfully integrated businesses complementary to our own to increase both our distribution reach

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We have deep engagement with our retail broker trading partners, and we believe we have the ability to transact in even greater volume with nearly all of them. For example, in 2023, our revenue derived from the Top 100 firms (as ranked by Business Insurance) expanded faster than our Organic revenue growth rate of 15.0%. Our ability to deepen and broaden relationships with our retail broker trading partners and increase sales is dependent upon a number of factors, including client satisfaction with our distribution reach and our product capabilities, retail brokers continuing to require or desire our services, competition, pricing, economic conditions, and spending on our product offerings.

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We have deep engagement with our retail broker trading partners, and we believe we have the ability to transact

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We believe there is substantial opportunity to continue to grow our Binding Authority Specialty, as we believe that both M&A consolidation and panel consolidation are in nascent stages in the binding authority market. Our ability to grow our Binding Authority Specialty is dependent upon a number of factors, including a continuing ability to secure sufficient capital support from insurers, the quality of our services and product offerings, marketing and sales efforts to drive new business prospects and execution, new product offerings, the pricing and quality of our competitors’ offerings, and the growth in demand for the insurance products.

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We believe there is substantial opportunity to continue to grow our Delegated Authority business, which

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We have invested heavily in building a durable business that is able to adapt to the continuously evolving E&S market and intend to continue to do so. We are focused on enhancing the breadth of our product and service offerings as well as developing and launching new solutions to address the evolving needs of the specialty insurance industry and markets. Our future success is dependent upon a number of factors, including our ability to successfully develop, market, and sell existing and new products and services to both new and existing trading partners.

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We have invested heavily in building a durable business that is able to adapt to the continuously evolving E&S

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We earn commissions, which are calculated as a percentage of the total insurance policy premium, and fees. Changes in the insurance market or specialty lines that are our focus, characterized by a period of increasing (or declining) premium rates, could positively (or negatively) impact our profitability.

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Changes in the insurance market or specialty lines that are our focus, characterized by a period of increasing (or declining)

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Growth in certain lines of business, such as project-based construction and M&A transactional liability insurance, is partially dependent on a variety of macroeconomic factors inasmuch as binding the underlying insurance coverage is subject to the underlying activity occurring. In periods of economic growth and liquid credit markets, this underlying activity can accelerate and provide tailwinds to our growth. In periods of economic decline and tight credit markets, this underlying activity can slow or be delayed and provide headwinds to our growth. As interest rates have rapidly risen, leading to friction in debt markets, we have observed some delays to both construction projects and M&A activity which, in turn, pauses the binding of construction and M&A transactional liability insurance policies. We believe over time these lines of business will continue to grow as the economy steadies and again grows.

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Growth in certain lines of business, such as project-based construction and M&A transactional liability

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The growing relevance of the E&S market has been driven by the rapid emergence of large, complex, high-hazard, and otherwise hard-to-place risks across many lines of insurance. This trend continued in 2023, with $80 billion of insured catastrophe losses, mostly driven by a record setting year, both in frequency and severity, for severe convective storms (“SCS”) with 21 SCS events above $1 billion in losses, which together accounted for $58 billion in losses. The year also included hurricane losses on both the East and West coasts of the US, and sizable wildfire losses. Additionally, these risks include more severe hurricanes that occur with greater frequency, more devastating wildfires, more frequent flooding, escalating jury verdicts and social inflation, geographic shifts in population density, a proliferation of cyber threats, novel health risks, risks associated with large sports and entertainment venues, building and labor cost inflation relative to insured value, and the transformation of the economy to a “digital first” mode of doing business. We believe that as the complexity of the E&S market continues to escalate, wholesale brokers and managing underwriters that do not have sufficient scale, or the financial and intellectual capital to invest in the required specialty capabilities, will struggle to compete effectively. This will further the trend of market share consolidation among the wholesale firms that do have these capabilities. We will continue to invest in our intellectual capital to innovate and offer custom solutions and products to better address these evolving market fundamentals.

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The growing relevance of the E&S market has been driven by the rapid emergence of large, complex, high-

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Although we believe this growth will continue, we recognize that the growth of the E&S market might not be linear as risks can and do shift between the E&S and non-E&S markets as market factors change and evolve. For example, we benefited from a rapid increase in both the rate and flow of public company D&O policies into the wholesale channel in 2020 and 2021. Throughout 2022 and 2023 as the public company D&O insurance markets stabilized, IPO markets have slowed, and new insurance capital that previously entered the market has impacted the public company D&O space, public company D&O rate decreases have accelerated. We believe these factors have also created opportunities for retailers to place some of that coverage directly.

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Although we believe this growth will continue, we recognize that the growth of the E&S market might not be

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Net commissions and fees are derived primarily from our three Specialties and are paid for our role as an intermediary in facilitating the placement of coverage in the insurance distribution chain. Net commissions and policy fees are generally calculated as a percentage of the total insurance policy premium placed, although fees can often be a fixed amount irrespective of the premium, but we also receive supplemental commissions based on the volume placed or profitability of a book of business. We share a portion of these net commissions and policy fees with the retail insurance broker and recognize revenue on a net basis. Additionally, carriers may also pay us a contingent commission or volume-based commission, both of which represent forms of contingent or supplemental consideration associated with the placement of coverage and are based primarily on underwriting results, but may also contain considerations for only volume, growth and/or retention. Although we have compensation arrangements called contingent commissions in all three Specialties that are based in whole or in part on the underwriting performance, we do not take any direct insurance risk other than through our equity method investment in Geneva Re through Ryan Investment Holdings, LLC. We also receive loss mitigation and other fees, some of which are not dependent on the placement of a risk.

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Net commissions and fees are derived primarily from our three Specialtiesand are paid for our roleas an

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In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers to secure insurance coverage for their clients, who are the ultimate insured party. Our Wholesale Brokerage and Binding Authority Specialties generate revenues through commissions and fees from clients, as well as through supplemental commissions, which may be contingent commissions or volume-based commissions from carriers. Commission rates and fees vary depending upon several factors, which may include the amount of premium, the type of insurance coverage provided, the particular services provided to a client or carrier, and the capacity in which we act. Payment terms are consistent with current industry practice.

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In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers

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In our Underwriting Management Specialty, we generally work with retail insurance brokers and often other wholesale brokers to secure insurance coverage for the ultimate insured party. Our Underwriting Management Specialty generates revenues through commissions and fees from clients and through contingent commissions from carriers. Commission rates and fees vary depending upon several factors including the premium, the type of coverage, and additional services provided to the client. Payment terms are consistent with current industry practice.

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insurance coverage for the ultimate insured party. Our Underwriting Management Specialty generates revenues through

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Fiduciary investment income consists of interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity, in cash and cash equivalents, until disbursed.

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Fiduciary investment income consists of interest earned on insurance premiums and surplus lines taxes that are

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Compensation and benefits is our largest expense. It consists of (i) salary, incentives and benefits to employees, and commissions to our producers and (ii) equity-based compensation associated with the grants of awards to employees, executive officers and directors. We operate in competitive markets for human capital and we need to maintain competitive compensation levels in order to maintain and grow our talent base.

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Compensation and benefits is our largest expense. It consists of (i) salary, incentives and benefits to employees,

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General and administrative expense includes travel and entertainment expenses, office expenses, accounting, legal, insurance and other professional fees, and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.

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General and administrative expense includes travel and entertainment expenses, office expenses, accounting,

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Amortization expense consists primarily of amortization related to intangible assets we acquired in connection with our acquisitions. Intangible assets consist of customer relationships, trade names, and internally developed software.

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with our acquisitions. Intangible assets consist of customer relationships, trade names, and internally developed software.

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Interest expense, net consists of interest payable on indebtedness, amortization of the Company’s interest rate cap, imputed interest on contingent consideration, and amortization of deferred debt issuance costs, offset by interest income on the Company’s Cash and cash equivalents balances and payments received in relation to the interest rate cap.

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Interest expense, net consists of interest payable on indebtedness, amortization of the Company’s interest rate

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For years ended December 31, 2023 and 2022, Other non-operating loss included charges related to the change in the TRA liability caused by a change in our blended state tax rates. In 2021, Other non-operating loss included the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value was due to the occurrence of a Realization Event in the third quarter of 2021, which was defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. It also includes the expense associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt in the first quarter of 2021.

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2023 and 2022, Other non-operating loss included charges related to the change in the TRA liability caused by a change in

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Income tax expense includes tax on the Company’s allocable share of any net taxable income from the LLC, from certain state and local jurisdictions that impose taxes on partnerships, as well as earnings from our foreign subsidiaries and C-Corporations subject to entity level taxation.

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Income tax expense includes tax on the Company’s allocable share of any net taxable income from the LLC,

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For the periods presented prior to March 31, 2021, our financial statements include the non-controlling interest related to the net income attributable to Ryan Re. Post-IPO, we report a non-controlling interest based on the LLC Common Units not owned by the Company. Net income and Other comprehensive income (loss) are attributed to the non-controlling interests based on the weighted average LLC Common Units outstanding during the period and Net income attributed to the non-controlling interests is presented on the Consolidated Statements of Income. Refer to“Note 10, Stockholders’ Equity” of the audited consolidated financial statements in this Annual Report for more information.

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Net income and Other comprehensive income (loss) are attributed to the non-controlling interests based on the

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Below is a summary table of the financial results and Non-GAAP measures that we find relevant to our business operations:

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Below is a summary table of the financial results and Non-GAAP measures that we find relevant to our

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(1) Compensation and benefits expense ratio is defined as Compensation and benefits expense divided by Total revenue.

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(1)Compensation and benefits expense ratio is defined as Compensation and benefits expense divided by Total revenue.

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(2) General and administrative expense ratio is defined as General and administrative expense divided by Total revenue.

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(2)General and administrative expense ratio is defined as General and administrative expense divided by Total revenue.

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(3) Net income margin is defined as Net income divided by Total revenue.

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(3)Net income margin is defined as Net income divided by Total revenue.

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(4) See “Note 12, Earnings (Loss) Per Share” in the footnotes to the consolidated financial statements in this Annual Report for further discussion of how these metrics are calculated.

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further discussion of how these metrics are calculated.

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These measures are Non-GAAP. Please refer to the section entitled“Non-GAAP Financial Measures and Key Performance Indicators” below for definitions and reconciliations to the most directly comparable GAAP measure.

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These measures are Non-GAAP. Please refer to the section entitled“Non-GAAP Financial Measures and Key

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$259.5 million, or 15.0%, of the period-over-period change in Total revenue was due to organic revenue growth in Net commissions and fees. Organic revenue growth represents growth in Net commissions and fees, adjusted to eliminate revenue attributable to acquisitions for the first twelve months of ownership, and other items such as the change in contingent commissions and the impact of changes in foreign exchange rates. In aggregate, our net commission rates were consistent period-over-period. Also, we grew our client relationships, in aggregate, within each of our three Specialties. The growth of these relationships is due to the combination of a growing E&S market and winning new business from competitors. The largest growth factor in the period was our property portfolio across our three Specialties, driven by an increase in the pricing for property insurance as well as an increase in the flow of property risks into the E&S market. We also experienced growth across the majority of our casualty lines. This growth was partially offset by a number of factors, none of which were individually significant such as (i) a decline in Net commissions and fees generated from the placement of public company D&O insurance policies, related to a slow-down in IPO activity and an associated rapid premium rate decrease and (ii) a decrease in Net commissions and fees generated from large commercial construction projects and M&A activity related to a slow-down in underlying activity during the year;

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organic revenue growth in Net commissions and fees. Organic revenue growth represents

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Organic revenue growth rate represents the percentage change in Total revenue, as compared to the prior year, adjusted for revenue attributable to recent acquisitions during the first 12 months of Ryan Specialty’s ownership, and other adjustments such as contingent commissions, fiduciary investment income, and the impact of changes in foreign exchange rates.

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the first twelve months of Ryan Specialty’s ownership, and other adjustments such as the

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$3.3 million, or 0.3%, of the period-over-period change in Total revenue was due to changes in contingent commissions and the impact of foreign exchange rates on our Net commissions and fees.

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due to changes in contingent commissions and the impact of foreign exchange rates on our