Skyward Specialty Insurance Group Q1 2025 Earnings Report

Skyward Specialty Insurance Group EPS Results

• Actual EPS: $0.90
• Consensus EPS: $0.78
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $0.75

Skyward Specialty Insurance Group Revenue Results

• Actual Revenue: $328.53 million
• Expected Revenue: $310.94 million
• Beat/Miss: Beat by +$17.59 million
• YoY Revenue Growth: N/A

Skyward Specialty Insurance Group Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: After Market Closes
• Conference Call Date: Friday, May 2, 2025
• Conference Call Time: 9:30AM ET

Skyward Specialty Insurance Group (NASDAQ:SKWD), an insurance holding company, underwrites commercial property and casualty insurance products in the United States. It offers general liability, excess liability, professional liability, commercial auto, group accident and health, property, surety, and workers' compensation insurance products. Skyward Specialty Insurance Group, Inc. was incorporated in 2006 and is headquartered in Houston, Texas.

Skyward Specialty Insurance Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Skyward Specialty First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Natalie Schoolcraft, Vice President of Investor Relations.

[Operator]

Please go ahead.

[Natalie Schoolcraft, VP - IR at Skyward Specialty Insurance Group]

Thank you, Michelle. Good morning, everyone, and welcome to our first quarter twenty twenty five earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson and Chief Financial Officer, Mark Hochel. We will begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today may include forward looking statements, which by their nature involve a number of risk factors and uncertainties, which may affect future financial performance.

[Natalie Schoolcraft, VP - IR at Skyward Specialty Insurance Group]

Such risk factors may cause actual results to differ materially from those contained in our projections or forward looking statements. These types of factors are discussed in our press release as well as in our 10 ks that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non GAAP measures along with other supplemental financial schedules are included as part of our press release and available on our website under the Investors section. With that, I will turn the call over to Andrew. Andrew?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Thank you, Natalie. Good morning, everyone, and thank you for joining us. We had a great start to the year reporting net income of $42,000,000 and adjusted operating income of $37,300,000 driven by $28,500,000 of underwriting income. For the quarter, our adjusted operating income was 90¢ per diluted share. Each metric I highlighted is the best reported in company history.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Our strong growth this quarter of 17% is a direct result of our diversified business portfolio and the strong execution of our Rule Our Niche strategy. In this quarter, our A and H division and our global agriculture unit were standouts delivering extraordinary growth, while transactional E and S, surety and specialty programs all contributed nicely to our growth. In this quarter, we had the widest spread of growth across our divisions that we've experienced as a public company. We believe the diversity of our portfolio is unique to a company of our size and allows us to rapidly reallocate capital to underwriting units that offer the greatest returns, and importantly, to continue to deliver strong growth in operating income, when many others in this market will struggle to do so. I'll talk more about this later in the call.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark?

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Thank you, Andrew. We had another strong quarter reporting company best adjusted operating income of 37,300,000.0 or $0.90 per diluted share and net income of 42,100,000.0 or $1.1 per diluted share. Gross written premiums grew by 17% for the quarter. Agriculture, accident and health, specialty programs, transactional E and S and surety each contributed meaningfully to growth this quarter. Net written premiums grew by 20% and our net retention of 64.1% was up over the prior year of 62.6%, but in line with our full prior year net retention.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

We added agriculture and credit insurance and reinsurance as our ninth division. Previously, we consolidated agriculture with global property and credit with surety. While in the quarter this division accounted for 16% of our gross written premiums, there is significant seasonality to these lines and we expect that this division will account for 10% to 12% of our premiums for the full year. Turning to our underwriting results, our first quarter combined ratio was 90.5% and included 2.2 points of cat losses, principally from Midwest convective storms and California wildfires. The non cat loss ratio of 60.2% for the quarter improved 0.4 points compared to 2024 and is also the best in company history.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

For the quarter, we did not recognize any prior year loss development yet we saw favorable emergence. Our reserve position continues to be strong as IBNR now makes up in excess of 70% of net reserves, up from 69% at December 31. As we have discussed previously, the proportion of our IBNR to total reserves has increased while we have also shortened our liability durations and increased the speed of recognition in claims. The expense ratio of 28.1 improved 0.6 points over the prior year quarter and was in line with our expectations of sub-30s. The business mix shift continued to impact acquisition costs for the quarter but was offset by improvements in our other operating and general expenses ratio benefiting from scale of our business.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

We expect our expense ratio to increase somewhat over the remainder of the year, but still targeting sub-30s. Turning to our investment results, we reported net investment income of $19,300,000 in the quarter compared to $18,300,000 a year ago. In the first quarter we put $126,000,000 to work at 6%. In the first quarter we found better relative value in structure versus investment grade corporate credit as credit spreads were near at all time tight levels. The net investment income from our fixed income portfolio increased to $16,700,000 from $12,500,000 in the first quarter of twenty twenty four driven by a higher portfolio yield and a significant increase in the invested asset base.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Our embedded yield was 5.2% at March 31 versus 4.7% a year ago and 5.1% at December 31. We reported a loss of 2,100,000.0 in our alternative and strategic investments portfolio due to the change in the fair value of limited partnership investments. Our financial leverage is modest as we finished the quarter with a low 12% debt to capital ratio. Given our undrawn capacity from our revolver and our current leverage, have ample debt financing flexibility. Our effective tax rate of 18.2% was 3.5 points lower than the first quarter of twenty twenty four, driven by stock based compensation awards that vest in the first quarter of each year.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

By the end of twenty twenty five, we expect our full year effective tax rate to be between 2122%. With respect to the material weakness in IT controls that we reported at year end, which I'll remind you had no impact on our financial statements, new controls and procedures have been designed are in the process of being implemented. We expect to remediate the material weakness this year. Lastly, April 1 is when we renew property reinsurance programs including our CAP program, global property quota share and property excess of loss. All of these renewals were orderly and we are satisfied with the terms and structures of these programs.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Our property cat treaty renewed at the expiring structure specifically a 15,000,000 first event net retention and 36,000,000 cover. Overall, our property placements provide greater protection at lower costs and or better terms. Now, I'll turn the call back over to Andrew.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Thank you, Mark. Our outstanding first quarter performance reflects the strength of our diversified portfolio, our underwriting discipline in light of the softening market across several lines, and our ability to adapt quickly to evolving market conditions. Our global agriculture unit and accident health division contributed meaningfully to our growth this quarter. This is noteworthy since we're intentionally seeking growth in high return areas that are less exposed to the P and C cycles. Our investment in our agriculture unit has been timely given the changes in the P and C backdrop.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We serve markets that have government subsidized programs, and we've constructed a well diversified global portfolio. In specific instances, we've developed unique solutions that are in high demand from our clients, and our results so far are even better than we expected. We are very bullish that we can continue to grow earnings in this business with very attractive returns on capital. Our Accident and Health division had strong growth in 2024, driven principally by our captive offering to the medical stop loss market. The first quarter was a continuation of that trend plus a return to growth in the traditional stop loss business as a result of the failures of a handful of MGAs due to poor performance.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We had anticipated this given an irrational pricing and the market capacity that supports it. Just a reminder that we are not competing against companies focused on large accounts. Our focus is on smaller accounts generally with 500 lives or less. That said, the poor performance in the large group market has been a contributor to the improving conditions in the market we serve. Our USP around medical cost management is distinct and is one reason we are winning.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Our approach to claims is the second reason we are winning as providers are systematically cost shifting, which is a trend that will increase given the administration's cutback on health care funding. Our competitors are paying and pursuing as compared to our unique capabilities to negotiate final payment before any cash goes out the door. And of course, our talent and technology are the third reason we're winning. We simply have an outstanding team. And as I've discussed in the past, we have a leadership position in technology, including our use of AI and predictive analytics in risk selection and pricing.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We continue to see a decrease in global property premiums, but we are very pleased with the first quarter performance with a 95 plus percent account retention. And while the market softened very quickly, we were prepared in our underwriting strategy to deploy our primary layer capacity over longer stretches to defend our position. This allowed us to keep accounts, maintain a strong risk adjusted price while foregoing some premium to maintain underwriting margins. The strength and performance of our global property business where we often lead on the primary layer was rewarded with a strong renewal of our quota share reinsurance program, including an increase in capacity, which will enable us to go further with the underwriting strategy I just outlined. Our lead role in writing the primary layer and when appropriate leading the market and settling claims, plus our long standing relationships with the chief risk officers of our insureds strengthens our ability to weather what is clearly a tougher market.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Beyond what I just noted, we had double digit growth in transactional E and S, surety and specialty programs. Transactional E and S remains a vibrant division and is a true surplus lines writer of property and liability. Our book is somewhat less exposed to the E and S light risks that flow back and forth between the admitted and non admitted market. Nonetheless, there are no shortage of instances of irresponsible behavior we observe in our market, in particular from fronted programs and certain MGAs. In surety, we are very mindful of both the potential economic slowdown and reduced federal funding, including that flown to states and munis.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We did observe a reduction in bonding activity for federal contractors, but on the other hand, our SBA activity continues to be strong. Overall, Q1 bid bond requests were up 19% from the prior year. And so notwithstanding my comments on the federal contracts, the demand in Q1 was robust. In programs, our growth was originated by those program managers where we have an ownership position, which is roughly 75% of our total programs division. This ownership is a further measure of alignment in addition to the underwriting performance compensation structures we employ when we delegate authority.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Professional lines was down slightly given softening conditions in the lines we target. Irresponsible competition is coming from a number of sources, but again, fronted programs and certain MGAs seem to work on economics that is distinct from the rest of the industry. It will only be a matter of time before the irresponsible fronts in these MGAs in professional and transactional E and S and the capacity that supports those programs recognize the financial outcomes of their actions. Until then, we'll keep our powder dry. Lastly, Construction and Energy Solutions was somewhat impacted by our intentional actions in commercial auto and a selective approach on other casualty.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

That said, we continue to find attractive new business opportunities in both areas. Turning to operational metrics, we saw some improvements compared to the fourth quarter. On renewal pricing, we were consistent with our prior quarter at mid single digits plus pure rate. Retention improved to roughly 80% for the quarter, driven by business mix and the wrap up of actions on commercial auto. Lastly, we continue to see strong submission growth, which was in the mid teens this quarter and over 20% in transactional E and S.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Altogether, our lower earnings volatility, consistent earnings growth, our strong underwriting results and strong returns on equity are a direct outflow of the Skyward team's excellent execution of our Ruler niche strategy. We remain confident we'll continue to generate top quartile returns at all parts of the market cycle. I'd now like to turn the call back over to the operator to open up Q and A. Operator?

[Operator]

Thank you. The first question comes from Alex Scott with Barclays. Your line is open.

[Alex Scott, Equity Research Analyst at Barclays]

Hey, good morning. First one I had for you is on the growth opportunities you're seeing in agriculture and credit insurance in particular. And maybe if you could just give us a little more color and texture to what you're doing there and how it's driving such great growth?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, thanks Alex and thanks for the question. So first on ag, don't know if I want to say too much more in this instance beyond what I said in the prepared remarks. What I will highlight, we hired a just a fantastic industry veteran, James Tran to lead our entry into it. And we had sort of the basic premise that we wanted to have a global portfolio, because we want to be well diversified, we didn't want to add volatility to our business. And I just think that, you know, he's brought that capability.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We, I think we're probably active in, you know, probably eight or nine different countries at this point. And what we have seen is just some great opportunities where we've been able to press down. They earn the same opportunities year to year. But James and his team have done an excellent job. And I think we just we feel very good about how we're approaching those markets, the position that we've built quickly, and the portfolio that we have.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And I think our just our general sense is that we have line of sight for that to continue, quite honestly, with some very substantial treaty opportunities that are lined up for Q3. With credit, it's quite a diversified approach. So we started with a focus on mortgage, Obviously, it's a relatively quiet time in mortgage. We're an insurer for Fannie and Freddie. We're reinsurers for the PMIs.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

But the fellow that we hired JP Latour to lead that effort has also brought us into, you know, to participate on a reinsurance basis and trade credit, and other areas of credit insurance. And I think today, we're probably being a little bit more defensive than we were last year, just simply because, you know, the uncertain economic backdrop. And so in this quarter, that really wasn't a particularly meaningful contributor to the growth that you saw in that reporting division.

[Alex Scott, Equity Research Analyst at Barclays]

Got it. That's all helpful. For the next one, I wanted to see if you could talk a little bit about the environment and just tariffs in general and how you're thinking about loss cost trend across your businesses? I mean, guys are in a lot of niche areas. So it's not always easy for us on the outside to kind of tell how some of these things would tunnel their way into your loss cost trend.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, so great question, Alex. And you're right with how you framed it. There's a lot about sort of the specifics of our business that probably makes unpacking it a little bit more difficult. But overall, I think we're still in the view that loss cost trend in our portfolio in total is somewhere in the five to six range. By and large, we've tried to limit the amount of exposure we have in what we see as being sort of the high inflation exposed bodily injury categories in casualty and liability.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I think one of the things that we make sure that we do is we're keeping our limits short. Much of what we do in excess is written over our primary. And so from a casualty perspective, we're trying to keep it in check as much as we can. On the property side, there's probably a few different pieces to it. Think from inflation related to tariffs, we probably have some in APD and certainly on the global property side, reconstruction costs are going to go up.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I think on the flip side, much of what we have inside of our E and S portfolio is a cash value. And so I think it's less inflation exposed. And as I've mentioned in the past, as materials go up, we benefit from that on surety because effectively, you're getting a bond that's increasing in size without sort of a proportionate loss cost increase. And we have some countermeasures that are beneficial in our book. I think the other thing I'd say to you, Alex, is that a little bit surprises because we've listened to the questions that have come in prior calls.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And while, you know, for us, we're certainly not ignoring the tariffs question, it's clearly on our, you know, on our thinking. We just think that there's so many other things that are going on in the economy to pay attention to that our leaders started to prepare themselves and are monitoring, whether it be cost shifting in healthcare going on. I think, certainly tariffs might impact the cost of drugs and particularly coming from other countries. I will say that the reduction in federal funds that are flowing downstream to states into munis is probably going to lead to a reduction in capital projects and some cost shifting going We're watching sort of the credit environment. We're watching obviously safety on job sites and so forth, because you're going to have probably a reduction in oversight at OSHA.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And if we have a softer economy, you know, the sort of the maintenance and attention to safety might come under pressure. So, know, we're looking at all these things and you layer on top of it potential, you know, economy that as it gets a little bit tougher, you start to see instances of moral hazard emerging. And so when we think about the environment, we're thinking about all those things. And I have to sort of hand it to the leaders of our organization. They've done an excellent job of sort of outlining, which of those things are potentially impactful to each of their businesses and how it is that we're preparing ourselves from a countermeasures perspective.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And so I would just widen the conversation and say, that's the dialogue. And I think we're probably about as well prepared as anybody can be, given the uncertainty that we're seeing right now.

[Alex Scott, Equity Research Analyst at Barclays]

Got it. Thank you.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

You're welcome.

[Operator]

And our next question comes from Matt Carletti with Citizens. Your line is open.

[Matt Carletti, Managing Director at Citizens JMP]

Thanks. Good morning.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Good morning.

[Matt Carletti, Managing Director at Citizens JMP]

Andrew, you talked a bit in your opening comments about some

[Matt Carletti, Managing Director at Citizens JMP]

of the extraordinary growth you saw in crop and A and H. And if I recall kind of last year, there was definitely some, for lack of a better term, kind of seasonality to the growth rate across the year. I was hoping maybe you could just touch on that, how much kind of frame Q1 within kind of your expectations for rest of the year and how much of that might be helped or hindered by some of the opportunities that are specific to kind of Q1 timeframe?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yes. Thanks, Matt. I appreciate the question, because does give us a chance to talk a little about this. So last year, I think you'll remember, we grew at 20% for the full year. First quarter was a high growth quarter, second quarter was a lower growth quarter, third and fourth quarters were again, high growth quarters.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And there is definitely seasonality. I'll just I'll highlight a few of the few of the items that are particularly important today. You know, the January 1 renewals in A and H is a monster renewal, it tends to make up over 50% of the annual written premium. And so if you're going to capture a market opportunity, that's the moment in time that you're going to capture it. So it kind of amplifies what you see in terms of growth overall.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And so, and you saw that here, as I mentioned, you know, sort of the backdrop and the reasons why, you know, on the flip side, you know, it's a lower sort of, you know, renewal quarter in the second quarter. And conversely, global property, the second quarter is the largest quarter for the year. And in the sort of go back two years, you'll see that it was an incredibly large growth quarter in global property. Last year, we were down a little bit, I think 6% or 7%. And of course, this year, we're in a tougher market.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

So I wouldn't be surprised if global property shrinks a bit. And so when we do look at it all together, the second quarter is for us going to be a lower growth quarter, the third quarter will be a higher growth quarter. And the fourth quarter is really determined on what the sort of the end of the year competition looks like as folks are trying to close out their plans. But I'll go back to what I said, when we gave guidance last quarter, we guided to a mid teens growth number. We did that last year as well.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We got into mid teens last year, we delivered 20. This year, we got into mid teens again. And I feel confident, notwithstanding some of the uncertainty in the economic backdrop that we're well positioned to deliver that and probably be at a rather distinctive level of growth for the year given our portfolio.

[Matt Carletti, Managing Director at Citizens JMP]

Great. That's super helpful. Thank you. And then if I could ask one more. Just on reserves, I think Mark, you commented that there was obviously you didn't release anything during the quarter, but that there was favorable emergence behind the scenes and walked us through some of the other numbers.

[Matt Carletti, Managing Director at Citizens JMP]

Could you just give a little color on kind of what areas of the book you're seeing that favorable emergence?

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Sure. So just a little bit of background. Look, we just finished year end right where we did our ground up. So in the first quarter, what we rely on is our A to E. And in the quarter twenty twenty, our accident years 2020 and after emerged favorably, specifically a MAT and property surety and professional liability.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

The occurrence liability lines also developed or emerged favorably for the same accident years while we had a little bit of increase in the prior accident years meaning '19 and prior. All in that we saw favorable emergence across the company but we didn't recognize that. We've talked a lot about here how we look at reserves relative to indicated seasonality and magnitude. And once the accident years we feel like are mature, they'll converge. But all in, Matt, it was favorable emergence in the quarter.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

And our book versus indicated the margin has increased relative to where it was at the end of the year. Does that help?

[Matt Carletti, Managing Director at Citizens JMP]

That's perfect. Thanks for the color. Appreciate it.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Thanks, Matt.

[Operator]

And the next question is from Meyer Shields with KBW. Your line is open.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thanks so much. Andrew, one last tariff question, if I can. I understand that it's maybe not the most pressing issue. But in terms of the global agriculture book, does it face

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

the same

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

challenges as domestic crop insurance does if crop prices fall? And how should we think about that risk more broadly?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Well, look, I mean, you know that here in The US, the federal program is effectively a price and yield program. And so, there is obviously some exposure relative to price if consumption due to exports and becomes an issue. And similarly, although it's very crop specific, whether imports might create greater demand domestically. What I'd say to you is that of what we have written so far this year, our US business is about 40% of our portfolio. This goes back to my point of being well diversified.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And I think that we've taken measures to protect ourselves. And I will also say to you, Mara, that we have reserved very conservatively, I'd say well above what we would expect the ultimates to be. And so I feel like even under sort of a stress situation that we're pretty well protected.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, that's very helpful. Thank you. And then I apologize if I missed this. But is the first quarter acquisition expense ratio a good proxy for the rest

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

of the year? I know you

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

talked about other expenses coming back maybe later in the year.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Yeah, Mayor. Maybe I didn't do a good job. Yeah, I think it's a pretty good proxy. Look, I'm expecting it to tick up a little bit. But yeah, I would look at the first quarter as a pretty

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

good proxy.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Mayor, the thing that you can imagine is that there's a really wide spread, right? So unsurprisingly, most of our wholesale driven businesses, right? Transactional E and S, our Marine unit, which sits in there, our professional lines business, all that is relatively high acquisition costs. Obviously, surety is off the charts.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Surety, in fact, depending on what class could be as much as 40%. On the other hand, we have some quite low acquisition cost businesses. And so part of this is just where we're seeing the growth. And I think I'd echo Mark maybe a little bit more conservatively. I personally, given how I sort of see the sort of the earn through and the opportunities that are in front of us, I think that we will see acquisition costs tick up here, you know, over the coming few quarters.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I believe we'll also make some progress, continued progress on our controllable OUE. But in aggregate, it's probably likely that we're going to go up from kind of that low 20 eight number, partly due just to the mix of business. And also, we're going to continue to invest in our business because we continue to believe there's good opportunities.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. That's very helpful. And Mark, it's for sure me, not you.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

And

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

missed that one.

[Operator]

And our next question is from Gregory Peters with Raymond James.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

Hi, Andrew and Mark.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Hi, Greg.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Good morning.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

So,

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

Andrew, in your comments, you spoke about the submission growth and the retention. And I I you know, all all submissions aren't necessarily created equal. Right? And so, you know, some of the other companies in the public market have reported some volatility around their submissions. So maybe you could give us some texture about what you're seeing in the submissions.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

Are they all interesting opportunities? Are you still turning away a big chunk of them? Any color there would be helpful.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, that's a great question. So I'll see if I can sort of parse it out. Let start with the big one that a lot of folks focus on, which is within our E and S area where I highlighted that in this quarter, we were above 20%. And I would actually say materially above 20%. I think that there's still a very good flow.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I will say that the competition for the business is increasing. So I wouldn't distinguish by saying we're seeing more submission activity that doesn't fit as compared to prior quarters as much as we're seeing more competition on the things that are flowing. Now, I will tell you that we really are a true surplus lines writer. So a lot of the stuff that we're writing is less exposed. But boy, occasionally you see some pretty crazy behavior out there.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And sometimes you see, you know, a lot more activity than otherwise you might see. But good submission activity. And I don't think there's a difference in terms of the quality within, you know, a couple other areas. So for example, in industry solutions, that submission activity is kind of running around 10%. And I think that we're pretty focused in terms of our distribution.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Quite honestly, we tend to know the books reasonably well. So unless it's new business to those brokers, it might be accounts that we've competed on in the past haven't won and we want to compete again this year. And so I think that that's pretty steady. And gave my commentary on surety where we include bid bonds in our submission activity, but bid bonds are the best early indicator in the numbers of 19% up over the prior year is a pretty good indicator that there's still a strong flow that's gonna follow. And then I would just say to you as it relates to other parts of our business, global property, A and H, the numbers aren't big enough to make a difference.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

But one highlight for you is that in just to give you a sense for how strong we're hitting in ANH, our RFP submission count for ANH was up 59% year over year, which speaks entirely to what a compelling proposition we've built in that market. We have a lot of distributors, trading partners who want to do more business with us. And we're seeing that in RFP submission count.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

Interesting detail. In one of the other answers, or I I guess it was in your commentary, when you're talking about the surety business, you talked about the government related work, the federal contractors and stuff. Can you give us a sense of or size How much of your business is government related versus private contractors?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yes. So the government portion and I won't get these numbers exact, but the $150,000,000 plus, excluding anything tied to the SBA is about, I don't know, probably $20,000,000 of our book. And we have a, you know, we have a couple of distributors who are really sort of, you know, focused on that part of the market. And then, you know, and otherwise, the business is either, you know, business that is, you know, private or public private together or public works. And, you know, that runs the gamut, you know, states, munis, etc.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And I highlighted the federal sort of piece because it was the one piece in the first quarter that stood out. In fact, it's probably the only piece where we saw an outcome that was less than what we'd expected.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

Got it. Okay. If I could just slip in one follow-up question on the program business, You emphasized that you have an ownership position that feels like in the marketplace, there's growing interest in the program market, or at least a lot of other companies are talking about that. Can you give us just a reminder refresher on how you approach new programs and the due diligence process, etcetera? And how you're thinking about that market?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, Greg. Yeah,

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

thank you. And it's a great question. Let me just start. I think probably most folks are aware that the program world has meaningfully outgrown the rest of the commercial market. And there's a whole bunch of reasons there.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

There's obviously a great deal of private equity and private consolidation, a huge amount of money behind it. And I will say that there are some fantastic MGAs program administrators out there and I'd like to think that we want to partner with those guys. Our strategy around that world is the same as our strategy with everything that we do that we manufacture, which is we're looking to rule our niche. So if we can partner with somebody who has capabilities that we can't replicate on our own, whether they be owing to some technology or product or expertise or distribution relationship or whatever the case may be. And we see them as having a view on how to build a really competitive position and we can partner with them the right way, that's the sort of profile for success.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And if you go down sort of our roster of program partnerships, they check the box on those items. Now I'll highlight a couple other things for you that are really important. As I mentioned, we have material investments, and that is a further mechanism for alignment. We try to ensure that the mechanisms that we use for compensating the program administrators align as much as possible to our own internal measures for how it is that we compensate underwriters. And so that's a critical component.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I'll highlight a couple other things that are really important. Are very intentional about ensuring that at a minimum, the data flow that we are receiving is as close to equal to the data flow that we have for our internally managed business. So that if we want to ask and answer a question on, hey, we want to look at a particular risk factor in terms of the frequency developed over the first six months as compared to every prior accident year, can we answer that question? And we should be able to answer that question as we could with any internally internally underwritten business. And so whether it be data as a minimum has to be equal, but oftentimes we're exchanging technology and other things.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And the last point I would make that's really important is I would argue that in many classes in our industry, it is absolutely impossible to perform at an equivalent level to a competent full stack insurer that has the claims. And now there are instances, for example, we have a brown water green water marine program with a great program administrator and the claims expertise around that is very specific and who does the claims is sort of singularly focused on that area of expertise. But it's really hard in like a GL class or a PL class to believe that they're going to do it anywhere near as well as we can. And so in every instance where we can do the claims, we do. And that's a huge difference in terms of how we approach it.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And this bifurcation between underwriting and claims, and the belief that you can deliver excellent results with those things sort of operating independently inside different organizations, particularly if those organizations are kind of like the larger TPAs is absolutely just that is a that's a proposition that I just don't believe in and don't support. And we tend to sort of operate our specialty programs business accordingly.

[C. Gregory Peters, Managing Director - Insurance at Raymond James]

That's great detail. Thanks for the answers.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

You're welcome.

[Operator]

And the next question comes from Andrew Kligerman with TV Co. And your line is open.

[Andrew Kligerman, Managing Director at TD Securities]

Hey, good morning. So global ag terrific, terrific growth. I'm kind of, would like to get a little more kind of color on where you're participating in the reinsurance markets. Is it more quota share, excess of loss? Is some of it catastrophic in nature?

[Andrew Kligerman, Managing Director at TD Securities]

What countries outside of The US are really big for you? Just trying to get a little color around what you like there and the kind of returns, whatever you could share.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, thanks Andrew and thanks for the question. So I'll share, this is an area where I'm normally very open and transparent as an area I'm going to be, I actually listened to another company's call and a similar question was asked and that particular CEO was not answering the question fully. And I might not answer your question fully, because I think there's more we want to But that said, look, just list the countries, and this would not be a complete list, it would include in addition to The US, Canada, Brazil, China, India, Thailand would be a handful. Are there others I'm missing? Those are major ones.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

It

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

would include both crop as well as dairy livestock. We actually think of a couple of things in aquaculture, believe it or not. So it really runs the gamut. I'd say probably 90% of our exposure is quota share. And yeah, I don't think that there's much more than I can say about it other than, as I referenced in my commentary, at least in a couple of instances, we have product that we believe nobody else offers in the marketplace, which is part of the reason that we're winning.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And as I said, I don't want go too much further. But this is one of places where if you bring in one of the best people out there and we surround them with sort of the right kind of capabilities, you can do something special. And I think it's showing up in our results.

[Andrew Kligerman, Managing Director at TD Securities]

That was actually very helpful. The next question is around the global property. So I see your gross written premium came off about 18.5%, but the retention was very good. I think you called that out in your remarks. So maybe Andrew, could you talk a little bit about the pricing environment, maybe any color on where rates going and maybe into kind of subcategories of the global property, regional, whatever.

[Andrew Kligerman, Managing Director at TD Securities]

Again, thing, whatever you can share there would be of interest.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, no, I'd be happy to share quite a bit. Also thank you for that question. So, first off, we're writing Global 1,000 accounts, we're writing accounts with very, very, very large schedules. As I mentioned, we're writing the primary layer. What that means is we're writing the layer that sits right above, you know, their deductible self insured retention, which, you know, will oftentimes run-in the 10s of millions of dollars.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

You know, during sort of a hard market period, we might write, for example, a share of the primary 100,000,000. And as I mentioned in remarks, one of the things that we're doing is we're writing over larger stretches. We might be writing over $200 2 50 million dollars And the way that we've been able to do that is I think that there is a greater abundance of in addition to we have a very large line that we work with quota share support. And that line, by the way, got even larger by a full third as a result of our 04/2001 renewal. But prior to that, we were using that full line and then augmenting it with, I think what's been a relatively abundant fact market to provide something that is a really substantive primary layer cover.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And what I'd say to you is in terms of pricing, you know, it's a little bit hard because you're stretching over longer stretches and so forth. But you know, it's definitely down, you know, kind of high single digits. But that said, the way that sort of the risk adjusted pricing runs through for us, we are pretty darn confident that in combination with where we use back and so forth, that our risk adjusted pricing or effectively our expected net underwriting margin probably is a lot less than the reduction in pure rate. I see. That's And I will say our results our results have been so damn good, that this is the reason that we were able to not only increase, you know, our capacity by a full third, we had a very significant increase in participants who support us.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And I I'm actually I can't, we're so well positioned against this market right now. I'm really, really pleased where we are in what is clearly a very, very sort of rapidly changing rate environment. But I think our proposition is one that's rather unique, just simply because the line size that we can bring.

[Andrew Kligerman, Managing Director at TD Securities]

So it sounds like you really like your returns in that business. Is there a risk that pricing comes off a lot more sharply in the next year or two? Or do you think it could stabilize?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Well, it's come off

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

really fast. I mean, we were tracing it. Last year, this quarter, the second quarter last year, think we were down about 7%. And that's where we really started to see things kind of level and maybe come off a bit. And the third quarter is a very quiet quarter for the global property market and the fourth quarter is quite an active quarter.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And so fourth quarter things came up, it felt like just things just the bottom dropped out here in the first quarter. And I, listen, I don't know, it's one of these things where we like our position. I think we rode the market up, as the market presented, but the fact that we have, you know, over 95% account retention tells you that, you know, of the 100 plus accounts that make up that book, it's really sticky stuff. And I feel like we're going to continue to generate a good underwriting return, you know, most sort of backdrops. And that compares Andrew, I'll remind you that, like when the cat markets were going crazy eighteen months, two years ago, we expressly said, you know, we're not going to just go right into the cat markets because that stuff's going to come off.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

You know, I was listening to the commentary of, you know, one of our competitors on their earnings call saying, you know, well, you know, the market's gotten soft really quickly, you know, and we're losing accounts. Of course, that's capacity swapping in that market. And we don't want to be in that place. We want to be in a place that we can be durable even as the market softens. And I think global property is a really good example of that.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And I think that even if the market softens, yeah, could our business be when it peaked out at $2.50, could it go down to 150? Sure. But my guess is that we will find a way to make a good underwriting profit and we will find a way to maintain a decent position with, you know, with a good portion of that hundred plus accounts that we do business with.

[Andrew Kligerman, Managing Director at TD Securities]

It's great. Thanks for the insights.

[Operator]

And our next question comes from Mark Hughes with Truist Securities. Your line is open.

[Mark Hughes, Analyst at Truist Securities]

Yeah. Thank you. Good morning.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Morning.

[Mark Hughes, Analyst at Truist Securities]

Anything

[Mark Hughes, Analyst at Truist Securities]

on the loss pick when we think about subsequent quarters? You've talked about some of those growth dynamics, and that's very helpful. When we think about the accident year loss pick, is this a good place to go or will that move around a little bit?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Well, I'll let Mark jump in. Think that probably as opposed to the prior years, in select circumstances for this accident year, our loss picks, we started to reflect some of the performance that we were seeing, meaning in specific circumstances, adjusted down, some circumstances we adjusted up. Yeah, look, mean, I think that setting aside kind of the earn through on mix, it was a good quarter for us. It was our best ex cat accident year loss result that we've ever had. And I think it's a good reference point.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

I want to encourage anybody to take down their models. You know, we think that, you know, kind of the overall guidance that we gave at the beginning of the year is probably the right guidance. And, you know, but yeah, I think that you won't see a lot of volatility in our accident year loss results as you haven't seen a lot of volatility in accident year loss results in the 12 quarters that we've been public.

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

Yes, right.

[Mark Hughes, Analyst at Truist Securities]

Yeah, very good. Andrew, key part of your strategy has been to hire new people, bring them on, they build out their books and that supports your overall top line growth. How is that climate now, your ability to hire, your appetite for hiring? Is this the right time in the cycle to be doing that? Just some perspective would be great.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

It's a great question. I think that what we are doing, Mark, is that we're evaluating our hiring plans based on what we're seeing performance of our business. So if we're performing according to expectations, and we don't see things moving to yellow in the markets, we're proceeding. And in other instances, we're unquestionably slowing down. There are a couple of things that we're working on that are strategic.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

They tend to be combining the expertise of our organization as it stands today with technology to potentially go after an adjacent part of the market. And those investments and the resourcing around them are going to continue because they're strategic for us. But I think like if you ask, hey, there's a particular region in surety that, you know, we've been looking to fill. And if we have a candidate, we would say, you know, how are we performing? Do we have confidence?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Do we want to make that, you know, that kind of commitment right now? And that kind of conversation repeats itself every day in our organization. I think as opposed to a year and two years ago, I think we were just sort of pedal to metal because we had confidence across the board. Now we're just making sure that we're not making decisions on resources that we're going to regret at a later point.

[Mark Hughes, Analyst at Truist Securities]

Yeah. Okay. Mark, do you have the cash flow number in the quarter? Think you said you put $126,000,000 to work at 6%. But if you looked at the cash from operations, do you happen to have that number?

[Mark Haushill, Executive VP & CFO at Skyward Specialty Insurance Group]

I'm pretty sure it's right at 100,000,000 Mark, but I'll confirm it. I'm pretty sure.

[Mark Hughes, Analyst at Truist Securities]

Okay. Very good. Thank you.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Thanks, Mark.

[Operator]

And our next question comes from Michael Phillips with Oppenheimer. Your line is open.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Good morning, Mike. Hello?

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

Sorry, are you having Can you hear me okay?

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

We can hear you now. Yeah, for sure.

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

Yeah, thanks. Thanks. Hit the pumps. Sensory data, you recap that accident year basis for I think for the recent four or so accident years. When I look at and Andrew, this is kind of around, I guess your commentary on commercial auto recently pretty cautionary comments.

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

When I look at the accident year loss pick for commercial auto, it's down six, seven points in the recent accident year 2024. I assume that's just maybe because of repositioning that you've done. But just any comments you can make there on that tick for commercial auto? Thank you.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, I think it's three simple things.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

One is to your point, it's absolutely about mix. We're down to a book where we really were very satisfied with the mix. Obviously, we've driven a lot of price in as has everybody, no surprise there. But the thing I would absolutely unequivocally point you to is please do look at our frequency. If you look at the twenty four year as of twelve months, the frequency is down by over 50% as compared to only five years earlier.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

And you'll see at every period of seasoning, so twelve months for twenty four, twenty four months for twenty three, etcetera, etcetera, The frequency is way, way, way down. And that frequency is really a key driver, obviously, against an increasing severity backdrop that is flowing through into our loss picks.

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

Yeah, okay, perfect. Thank you. Saw that.

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

Appreciate that. And totally random question, but when we see lumpiness in the alt and strategic investments row, I know your strategic investments is more on the private insurance space. Is that lump I assume the lumpiness is more from the alt and not the latter. Just kind of want to check on that.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, it is the alt.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

Yeah, and it's the old opportunistic fixed income portfolio. The arena managed portfolio that is down to 5% of our total investments at this point. That's the driver of the volatility.

[Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.]

Okay, thank you very much.

[Andrew Robinson, CEO & Chairman of Board at Skyward Specialty Insurance Group]

You are welcome.

[Operator]

I am showing no further questions at this time. I would now like to turn the call back over to Natalie Schoolcraft for closing remarks.

[Natalie Schoolcraft, VP - IR at Skyward Specialty Insurance Group]

Thanks everyone for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialty. I am available after the call to answer any additional questions that you may have. We look forward to speaking with you again on our second quarter earnings call. Thank you and have a wonderful day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Natalie Schoolcraft, VP - IR
• Andrew Robinson, CEO & Chairman of Board
• Mark Haushill, Executive VP & CFO

Analysts

• Alex Scott, Equity Research Analyst at Barclays
• Matt Carletti, Managing Director at Citizens JMP
• Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)
• C. Gregory Peters, Managing Director - Insurance at Raymond James
• Andrew Kligerman, Managing Director at TD Securities
• Mark Hughes, Analyst at Truist Securities
• Mike Phillips, Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.