Bowhead Specialty Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 6, 2025
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Operator

Hello, and welcome to Bowhead Specialties q one twenty twenty five earnings call. After the prepared remarks, we will hold a question and answer session. For those in the q and a room, please click the raise hand button found on the black bar at the bottom of your screen to join the question queue. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time.

Operator

With that, I would like to turn the call over to Shirley head of investor relations. Shirley, you may begin.

Shirley Yap
Head of IR & CAO at Bowhead Specialty Holdings

Thanks, Abigail. Good morning, and welcome to Bowhead's first quarter twenty twenty five earnings conference call. I'm Shirley Yap, Bowhead's chief accounting officer and head of investor relations. Joining me today are Steven Sills, our chief executive officer, and Brad Mulcahy, our chief financial officer. Earlier this morning, we released our financial results for the first quarter of twenty twenty five.

Shirley Yap
Head of IR & CAO at Bowhead Specialty Holdings

You can find our earnings release in the investor relations section of our website. Our form 10 q will be also available on our website later this evening. Before we begin, I'd like to remind everyone that this call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs.

Shirley Yap
Head of IR & CAO at Bowhead Specialty Holdings

Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward looking statement except as required by law. Additionally, we will be referencing certain non GAAP financial measures on this call. Reconciliations of these non GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the investor relations section of our website.

Shirley Yap
Head of IR & CAO at Bowhead Specialty Holdings

With that, I'll turn the call over to Steven. Steven?

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join our call today. I'm pleased to report that Bowhead generated strong disciplined premium growth of over 26% in the first quarter compared to the same quarter in 2024, writing $175,000,000 in premium. I'd like to highlight the term disciplined premium growth, as I'm proud of the discipline our underwriters exhibited in both favorable and challenging market conditions that resulted in this growth. Once again, our casualty division drove the largest component of this growth, with a 34% increase in premium, while our health care liability and professional liability divisions grew 103%, respectively.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Additionally, Baleen generated $2,700,000 of premiums during its third full quarter of operations, further perfecting our flow underwriting operation. In casualty, similar to previous quarters, the growth in premiums came mostly from our excess book, reflecting continued favorable underwriting and pricing conditions in the market. In addition to achieving double digit rate increases, our underwriters continue to improve the profile of the portfolio by deploying lower average limits. Also, in our excess construction business, we continue to diversify away from writing one off individual project policies to more practice policies, which have the benefit of being renewable. In our health care liability division, we continued to grow the book responsibly with a concerned eye on emerging regulatory, crime, and abuse risks within the sector.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Our continued success has been due to our broker partners and insureds who value our health care expertise and analytics. In our professional liability division, the first quarter of each year historically tends to be the smallest quarter, with many markets chasing a small inventory of new business opportunities. Nevertheless, we continue to achieve disciplined premium growth in the small and middle market space, which is core to our cross cycle profitability strategy. Turning to Baleen. We generated $2,700,000 in premiums during its third full quarter of operations, January sequential increase from Q4.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

The growth during the quarter was driven by the expansion in Baleen's distribution network. While Baleen's premiums were small at this time compared to our craft underwriting operation, which has been operating for over four years, we're happy with the monthly consistent growth. We look forward to a meaningful ramp up in premiums during the second half of the year, one year after launch. Brad, over to you.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Thanks, Steven. Bowhead is starting 2025 with an adjusted net income of $11,500,000 or 34¢ per diluted share, and adjusted return on average equity of 12.1% in the first quarter. Gross written premiums increased more than 26% to $175,000,000 for the quarter. As Stephen mentioned, our premium growth came from each of our divisions, but with casualty driving the growth and representing a larger proportion of our portfolio compared to Q1 last year. During the quarter, we increased reserves for audit premiums that were billed and fully earned in Q1, but were associated with prior accident years.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

While this manifests as 0.4 points of prior accident year reserve increases, this development was not based on actual losses settling for more than reserve and did not represent an increase in estimated reserves on unresolved claims. Additionally, changes to our portfolio mix as well as the cash payout of compensation to our internal claims team during the first quarter, also known as paid ULE, resulted in a 2.1 increase in our current accident year loss ratio. The timing of these compensation payouts in Q1 results in a small level of seasonality between our loss and expense ratios that historically tends to normalize by the end of the year. As a result of these items, our loss ratio for the quarter was 66.9%, an increase of 2.5 points from 64.4% for the full year ended 2024. We continue to expect our loss ratio to be in the mid-sixty percent range for the full year.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

As a reminder, given Bowhead does not write any property risks, we did not experience any material direct losses from the recent California wildfires or any other natural catastrophes and do not expect to in future quarters. Also as a relatively new company, we are reliant on industry observed loss information in lieu of internal data when determining reserves, which is evidenced by our high ratio of IBNR as a percentage of total reserves at 89% for the end of the quarter. Our expense ratio for Q1 was 30.4%, a decrease of one point compared to 31.4% for the full year ended 2024. The decrease was primarily driven by the temporary reduction in our operating expense ratio due to the paid ULA item previously mentioned, partially offset by the increase in earned broker commissions due to changes in our portfolio mix as well as the reduction in earned ceding commissions stemming from our 2024 ceded reinsurance treaties. As a reminder, since there's volatility in our quarterly expense ratio, we suggest that our investors view our expense ratio trends on an annual basis, which will likely be in the low 30s for the full year.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Overall, the effect of the loss ratio and expense ratio contributed to a combined ratio of 97.3% for the quarter. In terms of our investment portfolio, net investment income increased 64% year over year to $12,600,000 in the quarter, primarily due to higher average balance of investments and higher yields on invested assets. Our investment portfolio had a book yield of 4.7% and a new money rate of 4.8% at the end of the quarter. The average credit quality of our investment portfolio remained at AA, and we extended our average duration from two point two years at the end of twenty twenty four to two point eight years at the end of this quarter. Our effective tax rate for the first quarter was 21%, which is below our effective tax rate of 24.3% for the year end 2024 as we expect to realize tax benefits in 2025 associated with the vesting of stock based compensation that will drive our tax rate lower.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Additionally, weighted average shares outstanding and diluted weighted average shares outstanding are expected to increase in 2025 as we issue new awards and these older awards vest. Lastly, total equity was $391,000,000 giving us a diluted book value per share of $11.61 at the end of the quarter, an increase of 5% from year end. With that, I'll turn the call back to Steven.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Thanks, Brad. I'd like to take a moment to reiterate Bowhead's strategic priorities for achieving cross cycle profitability. These priorities remain consistent since the founding of our company in November of twenty twenty, and we believe it's especially important to reaffirm them given the volatility and uncertainty in the current environment. Since inception, our strategic priorities for achieving cross cycle profitability included profitably growing our existing lines of business, opportunistically and strategically expanding our products and markets, maintaining our underwriting first culture across market cycles, and leveraging expertise, technology, data, and analytics to drive underwriting performance. In the development of our craft underwriting operation, we focused on profitable growing lines in the attractive excess and surplus lines market, starting with professional liability in 2020, followed shortly thereafter with strategic and opportunistic expansions into casualty and health care liability.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We hired experienced underwriters who were proven leaders in their field, created a strong, disciplined, and collaborative underwriting culture, implemented technology, and utilized data and analytics to drive underwriting performance. In May of twenty twenty four, we supplemented our craft underwriting solution with our flow business, which is a streamlined, tech enabled, low touch form of underwriting focused on small, niche, and hard to place risks. Further, we're now applying our baleen technology to cost effectively underwrite small and middle market accounts, focusing initially on certain professional liability products. With our craft and flow underwriting operations, and the ability to apply baleen technology to small and middle market accounts, we believe Bowhead is set up to generate consistent underwriting profits across our product offerings and through all market cycles. Unlike other startups from 2020, where money was raised for hiring underwriters to just start writing business in a hard market, we have cautiously built a franchise that will serve our investors and employees across market cycles.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Turning to our specialty insurance industry, the uncertainty in the current environment seems to be creating a lot of confusion. On one hand, we're pleased to see fellow markets maintaining underwriting discipline, like we are. But on the other hand, we're seeing no shortage of undisciplined, or dare I say foolishly reckless, markets and underwriting behavior. As an example, during the quarter in one of our professional liability renewals, the insured had a full tower loss. We sat in the middle excess layer.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

To our surprise, the rest of the towered offered a token rate reduction, while we were the only market pushing for a significant rate increase. Needless to say, we're proud of our team for standing their ground, and we're supportive of their decision to have our broker replace us at the reduced rates. As we've said in the past, we've created an underwriting first organization here at Bowhead, built to achieve sustainable and profitable growth across market cycles. The uncertainty and volatility in our current environment will not change our disciplined approach to underwriting or our focus on profitable growth. Before we turn the call over for questions, I wanted to briefly touch on tariffs and the potential impact on the specialty insurance market in which we operate.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

If the tariffs were to persist, we could see a slowdown in The U. S. E And S construction industry for a period of time. However, with the excess casualty market making up for legacy losses that are still plaguing the industry and tariffs likely to increase costs, we don't expect anytime soon to see a reversal of compressed limits being offered, nor do we expect to see a significant drop in pricing that would overturn the strong market we are seeing today. From Bowhead's perspective, despite the macroeconomic uncertainty stemming from tariffs, as we've said in the past, we believe Bowhead is well positioned to profitably grow premiums by around 20% on an annual basis.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

In the context of the $95,000,000,000 commercial E and S market, there's ample runway for continued expansion. Our submission volume continues to grow across all our divisions. We're investing in technology and implementing process enhancements to drive greater operational efficiency. And the strategic mix of our craft and flow underwriting operation, combined with our ability to leverage Baleen's technology to cost effectively underwrite small and middle market accounts, enhances both our scalability and profitability. Overall, with our disciplined approach to underwriting and our expanding craft and flow platforms, we believe we've positioned ourselves well for sustainable and profitable growth across market cycles.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

With that, we'll turn the call over for questions.

Operator

Thank you. If you would like to ask a question, please click the raise hand button found on the black bar at the bottom of your screen. When it is your turn, you will receive a message from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form.

Operator

Our first question will come from Paul Newsome with PSC. Paul, please go ahead with your question.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Steven, good morning. Thanks for the call. I was hoping you might have some comments, additional comments and color about the competitive environment. We've heard a lot to, this quarter about, increased competition, especially in in large account. And, obviously, it doesn't necessarily intersect directly with what you're doing or maybe it does.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

But maybe you could just kinda thought add some thoughts about how some of those industry comments we've heard may be intersecting with what you see in in your business.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Sure. Thanks. First question, or the first issue is, you know, how you would define specialty. And, you know, we do we do casualty and professional and health care, and it's really different with each one of them. Professional, we're seeing more competition, although there's some small shoots that are indicating that, maybe things might start, may be starting to stabilize.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Casualty is still particularly excess casualty is still reorganizing, if you will, with compressing limits and, you know, creating opportunities. We are not in the large company market. We don't write, you know, Fortune 100 type business. Wouldn't be able to speak to that. That's predominantly, we believe, a retail market.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

And in our casualty space, we do wholesale only.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

That's that's great. So, different second question. Could you walk through the mechanics of the reserve development? I haven't seen something like this where you have an audit premium impact on reserves and just, you know, maybe a little bit of detail as just exactly how that mechanically works in the accounting so we have a better sense of, what exactly happened.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Sure, Paul.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

This is Brad.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yeah. Paul, this is Brad. Thanks for the question. We had, mentioned last year that we were going to allow some prior year development for these audit premiums. They're mostly in our primary casualty book, and we started seeing them come through last year.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

And previously, how we were handling it is, you know, the the premium relates to a prior accident year by definition, and we would just kinda reallocate some IBNR in those prior accident years. Or you could, you know, put some, some reserves into the current accident year for that, audit premium. But, again, it relates to a prior year. So, we just thought, you know, it's it should be noise. It shouldn't be large, but it's just good hygiene, to let it, increase the prior accident years and ultimately should should kind of close into zero as we as we scale.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

But for right now, just, we're gonna let that kind of flow through. We think it's it's more of a good hygiene thing and, just a good, you know, good practice to go and, to be more conservative on our on our reserves.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

So does that have also a a a small premium impact as well in the quarter in some way, in some place?

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yeah. Exactly. Yeah. There's premium there's premium on that. There's there's a mismatch, though, because you don't add you don't add premium to those prior accident years, you know, with with, some of the schedule p, and things like that.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

So there's a mismatch between where you put the premium and where you put the reserves. But, ultimately, if we had a claim on those policies, the claim would be in those prior accident years. So we want the reserves to be in those in those accident years irrespective of where the the premium is booked.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Okay. So bear with me and apologize for this. But if if you didn't have the mismatch, if you push it all through, say, the current year, it would all it would basically show up as margin neutral impact. Is that right? In my mind, I getting that in my head right?

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

If you didn't have the mismatch.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Correct. Yeah. If we just if we just forced it into the current accident year, it would be fine until we had a claim, and then we'd have a claim in the prior year and the reserves in the current year.

Paul Newsome
Paul Newsome
MD & Senior Research Analyst at Piper Sandler Companies

Got it. Thank you for your patience. Appreciate it.

Operator

Our next question comes from Matthew Carletti with Citizens Bank. Matthew, please go ahead with your question.

Matt Carletti
Managing Director at Citizens JMP

Hi. Thanks. Good morning. Steven, I was hoping you could, maybe just dive into Bailean a little bit more now that you've had several quarters of of rollout. Just a little more, I guess, qualitative rather than quantitative just on how the rollout's gone, kind of what maybe has surprised you, good, bad, or otherwise.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Sure. Thanks.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

The the most important thing for getting Baylene up and running is to get the technology to work. We needed to be able to respond to a submission and be able to issue a bindable quote or even issue a policy in a matter of minutes. We've gotten that technology to work. Number two is to get the brokers to feed the business. And we believe that compared to some of the competition, we have a very viable product, in in several different ways.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We believe that we're more transparent in the way that we do the business. What's what's probably been the hardest thing to, prevent it from growing faster than it has, and once again, we're pleased with the way it's scaling, but even going faster, is that when you're dealing with 5,000 or $6,000 premiums, the question is, how much brokers are prepared to market the business? Or given the small size, do they just simply roll it over? So we've been opening up a lot of brokers. It's been uneven in terms of brokers that have supported it.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Some have been, you know, all in, if you will. Some we need to keep visiting and visiting to get it to grow. But we're confident that we're we're getting there. And, the way we budgeted this for the year, we showed it growing a lot larger in the second half of the year. And, we're still, confident that we're gonna get that done in the second half of the year.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

So, we're very pleased with the way it's rolling out. And, I think you'll see the results, you know, in future quarters.

Matt Carletti
Managing Director at Citizens JMP

Okay. Great. And then a quick numbers question, if I could, probably for Brad. Brad, you've mentioned in your comments, the tax rate was lower at 21% in Q1, and part of it relates to, kind of anticipated benefits from stock awards. Is that 21 a good bogey of where you think the for the year, or is that just kind of a a starting point and we should think a little higher?

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

I would say that's a, you know, on a lower range of where we should be. The the big variable is gonna be how our stock price changes and how that impacts those awards. So, fingers crossed, the stock goes up, you know, that could that could be beneficial. But that's that's it's hard for us really to determine that internally, but we're kinda thinking that's it's on the low range right now.

Matt Carletti
Managing Director at Citizens JMP

Okay. That makes sense. Thank you. Appreciate it.

Operator

Our next question will come from Meyer Shields with KBW. Please go ahead with your question.

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

Great. Thanks. I also have a mechanics question for Brad. I was hoping you could talk us through the seasonality of the ULAE impact that you discussed adding 2.1 points this quarter.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yeah. Thanks for the question. Just to to clarify what happens there. It happened last quarter too. When we pay our internal bonuses on q one, we pay all of our employees, and that's sitting in our expense ratio as it should.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

For the for the claims team, we actually reallocate all of their costs into our loss ratio. That's pretty standard, our internal claims team. We do that every quarter. But in q one, because we have this blip of the payments for their bonuses, it actually shows a a larger transfer from our expense ratio to our loss ratio. I think, similar to what we were talking about with the audit premiums as we scale, these these kinds of things kinda just become smaller noise, and it's not a a big issue.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

But I think at this at the scale that we're at right now, it's, something we just wanted to point out that added a little bit of seasonality, to to both ratios.

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

So going forward, and I know things are gonna change, but if you had the same quarterly results without this, should we just move 2.1 points from the loss ratio to the expense ratio?

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

No. Thank you. The 2.1 points is a combination of that compensation payment and just mix change that we we have kind of every quarter. So I did not pay the claims team that much, in compensation. So thanks for letting me clarify that.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

It's a portion of that, but, obviously, I don't wanna give the exact amount, of how much we're we're paying people.

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

Okay. No. That's that's helpful. Thank you. The second question, just more broadly, Steven, you talked about, obviously relying on external information, given Bowhead's age.

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

Do you from that perspective, are you seeing change in loss trends in either direction?

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

In other direction? How do you mean?

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

In in in either direction. In other words, worsening or lightening up loss trends.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We see pockets of places that are not good. We were happy to see the change in the laws in Georgia because we thought it was a pretty untenable proposition there where when you got a policy limit demand, you you really had a gun to your head of you either had to agree to it or, there was maybe a very much of a possibility of extra contractual obligations. There's been some concern about some of the suggested changes that are gonna take place in Florida. It remains to be seen whether, the governor there will sign the legislation. But we do see, you know, an upward trend in claims, but we believe that the renewals and the way we're writing our business, well exceed the trends that we're seeing.

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

Okay. Fantastic. And then just one follow-up if I can. When you see something like the legislation in Georgia, is there an accompanying uptick in competition for risks in the state?

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We're pretty much taking a wait and see attitude. I mean, we've seen in a lot of states in the past. It passes one year, and then it goes away in the next year. So, intuitively, you would suggest that that would be the case. But I think there are people that might be tiptoeing back in, but, we're not intending of going in a whole hog as if it's a whole new as if it's a whole new world.

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

Okay. Fantastic. Thank you so much.

Operator

Our next question will come from Pablo Singzon with JPMorgan. Please go ahead with your question.

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

Hi. Good morning. Thanks for taking my question. So first off, for Steven, I I just wanted to follow-up on your comments about broker receptivity with respect to Beeline. Can can you talk a little bit more about what GoEd is doing to open up brokered markets further and perhaps some commentary on the types of wholesale brokers where you're seeing more success or less success?

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

About what we're doing to open it up, you said?

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

Correct. To to to improve receptivity, I guess. Yep.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Sure. Well, the the, it's a lot of shoe leather, if you will, involved in in opening people up. As I've mentioned before, this is a wholesale only product. Frequently, it would fall it's what falls out of binding authority business. And so we've gone around to people who have binding authority business, who handle this small business, and we open them up to send send it in to us.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We have the ability of reading the submissions, and as I said before, being able to process it and issue a bindable quote within a matter of minutes. And but it's still when the competition sends a renewal quote, and it's easier just to send out a renewal quote rather than send it to another market and do policy comparisons and things like that. Sometimes brokers just renew it with the incumbent market. But we are growing the business. We're continuing to grow the business.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

And as I said, I'm confident you're going to see a lot bigger growth in the second half of this year as we're able to explain in more hand to hand combat that why it's superior to switch to our product.

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

Thank you for that. Second question yeah. Yes. It is, Eva. Thank you.

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

And then second question, just moving to another topic. The 20 annual premium growth comment in the press release and what you mentioned in in the remarks, is that a comment for this year or perhaps more medium term? Just trying to square that comment versus the growth you put up, right, this quarter, which is 26%. I'm not sure if you're implying slower growth through the balance of '25 or, if not, maybe in future years.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yeah. Thanks. It's, it's something we struggle with internally, really. We've you know, we're trying to give you guys some sort of a, you know, direction of where we think the business can go, and it's the same direction we're using internally as, you know, 20%. You know, just seems comfortable, for where we're scaled at right now.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

I will tell you, I've not adjusted my, our internal full year number. We still haven't adjusted that despite q one being higher than '20. We think it is, you know, if it's there, we'll we'll do it. Our our focus is always on, profitable growth, obviously. I would say they also there's nothing that makes me think we couldn't continue the Q1 growth.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

But we do have Q3 and Q4, the comparables are are gonna be tough, so we're a little bit cautious. But, again, nothing nothing that I see that says that, you know, it's going away. But 20% is just more of a give you guys some kind of direction of what we're thinking, longer term, meeting the long term.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

We haven't we haven't seen it. We haven't seen anything in the casualty space that indicates that in, old time incumbent markets have fixed their books completely, and there's still adjustments in terms of cutting back limits and getting prices up to a more reasonable level. And, of course, we didn't we only opened up our doors for casualty in, January of twenty one. So we don't have the remediation problems. We don't have the cutback and limit problems that the others have had, but we're still able to operate in that environment.

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

Thanks for those answers. And maybe I'll sneak in one more for Brad. Brad, on the 4Q call, you had talked about the ceding fee paid to AmFam stepping up, right, I think from 200 bps to two seventy five bps in the second quarter, which I think you said nets to about 2% of firm premiums after expenses. So I guess just holding all those equal, and obviously, all else equal, right, but if you just think about the sequential pattern here of the acquisition ratio, how much incremental combined ratio points will that jump represent? Right?

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

And then will the step up impact be fully reflected in 2Q, or will it be spread between 2Q and 3Q?

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yes.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Remember that, we earned that expense just like, any other commission expense. So it'll be gradual as it starts to as we start to see it, this quarter goes into effect, about a month maybe, in in q two at the anniversary of the IPO. So, yeah, that's a I would call that a a headwind right now for our expense ratio that won't be a cliff, but it'll, you know, it'll it'll slowly impact, the business as we go forward and, likely offset some of the tailwinds that we have, like just the general scaling of the business that you would expect to see on the expense ratio. So that's kind of our our, our our kind of view on the the low thirties, number for what we're expecting on the expense ratio.

Pablo Singzon
Pablo Singzon
Executive Director at J.P. Morgan

Okay. Thank you for your answers.

Operator

Our last question will come from Bob Tianhwang with Morgan Stanley. Please go ahead with your question.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Hi. Good morning. So first question is maybe on growth. You you you touched on this decent amount. About the 20% premium growth, is it fair to assume that vast majority of this should come from the casualty business for one?

Jian Huang
Jian Huang
Analyst at Morgan Stanley

But, also, after a casualty, what should be the order of magnitude of growth for other lines? Is it gonna be baleen as the next driver of growth, or is it more professional liability or health care? Just kinda curious if there's a way to think about that.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Sure.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

On on absolute number size, certainly casualty, it's the largest and is growing, as as we've said, more than the others. Percentage wise, yeah, it'll be baleen, because baleen starting from such a small base. After that, we'll probably see health care and and then professional. As I mentioned, there is the possibility that some of the stuff in some of the professional business, maybe has started to bottom out and maybe start to grow. But at the current time, in absolute dollar wise, we see it as casualty, healthcare, professional, baleen.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Percentage wise, it'll be Balin, casualty, health care, and professional.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Great. That that's very helpful. Thank you for that. Maybe my second question, is on expense ratio. And this is something you guys talked about too, so maybe just expanding on this a little bit.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

You talked about expense ratio coming down due to scaling, and you also spoke to various other aspect of it. As you think about continue to invest in BeiLean and then also continue to build out and maintain the technology spending. Longer term, like, what would be a good way to think about your expense ratio as one you're growing the business, but also to kind of have to maintain that that the momentum you're you're having on on the technology side. Like, what would be the balance of efficiency versus internal investments?

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

Yeah. Good question, Bob, because it's, you know, when you're when you're in a business that's growing this fast, there there's a danger that you're not investing enough in the business. And so that's kind of what we look at, when we look at our expense ratio is it's not so much keeping it down, but is it at the right level? Are we investing enough? When we look at technology in particular, we have some internal metrics of how much of our premium we should be spending on technology.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

And even that is more of a guidepost where if there's a if there's a good reason to have, some technology in there that, you know, we would need, we should we should spend it. I would say the you know, I've heard I've heard people suggest that because we don't have legacy mainframes and things like that, we should be spending less on technology than other companies. But the reality is, it's still expensive, some of these, you know, systems. There's always something new out there that the underwriters want want to see and a new toy that's that's out there that, you know, we gotta manage that within our our expenses. But, I would say outside of, you know, staff costs, that's our biggest administrative expenses is technology.

Brad Mulcahey
Brad Mulcahey
CFO at Bowhead Specialty Holdings

And, we're always looking for a cost benefit analysis when we invest in something that we do see the efficiencies that we will see it. And, if not, you know, we gotta cut it loose because that is that's the whole purpose of investing in in technology.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

I mean, there's two parts, obviously. One is, are we able to replace a manual function by have it having it done automatically, like like with to be able to to be able to read something without it being manually entered. And the other is is how does it help us make better underwriting decisions, being able to find out information from other than the source of the submission. And then there's the combination of both of those, in that if we're able to present the underwriters with information at their fingertips rather than have them go searching for it, we believe it'll help them go through more submissions to find the best ones, and then make a better underwriting decision when they finally prepare the quote.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Got it. No. That's really helpful. Thank you.

Operator

That concludes the question and answer portion of today's call. I will now hand the call back to Steven Sills, CEO, for closing remarks.

Stephen Sills
Stephen Sills
Founder, President, CEO & Director at Bowhead Specialty Holdings

Thank you. Bowhead delivered another strong quarter to start a new year. I wanna once again thank the entire Bowhead team and our stockholders for your continued support. We look forward to another year of profitable growth and the continued execution of our cross cycle strategy. Thanks, and we'll speak to you along the way.

Operator

Thank you for joining today's session. The call has now concluded.

Executives
Analysts
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Key Takeaways

  • Disciplined Premium Growth: Bowhead delivered over 26% year-over-year growth in Q1, writing $175 million in premiums led by a 34% rise in casualty and 103% increases in both health care liability and professional liability divisions.
  • Strong Q1 Financial Performance: Adjusted net income was $11.5 million (34¢ per diluted share) with an adjusted ROAE of 12.1%, a combined ratio of 97.3% (66.9% loss ratio; 30.4% expense ratio), and net investment income up 64% to $12.6 million.
  • Underwriting Discipline & Strategy: Management reaffirmed its cross-cycle profitability priorities—profitable growth in craft and flow operations, strategic expansions, and leveraging technology and analytics—while maintaining strict underwriting standards even in volatile markets.
  • Baleen Expansion & Outlook: In its third full quarter Baleen generated $2.7 million in premiums through distribution network growth, with management expecting a meaningful ramp-up in the second half of 2025.
  • Loss Reserves & Full-Year Outlook: Q1 included a 0.4-point reserve increase for prior-year audit premiums and 2.1 points of ULAE seasonality, and Bowhead expects a mid-sixty percent full-year loss ratio, no material catastrophe losses, and around 20% premium growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Bowhead Specialty Q1 2025
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