Skyward Specialty (SKWD) Earnings Call Transcript

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DATE

Thursday, October 30, 2025 at 12:00 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Andrew Robinson

Chief Financial Officer — Mark Haushill

Vice President, Investor Relations — Kevin Reed

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RISKS

Chief Financial Officer Haushill noted, "We continue to observe specific pockets of increased auto liability severity inflation and, to a lesser extent, auto-exposed excess severity inflation particularly in our construction unit," highlighting persistent loss cost pressures.

Robinson stated that "global property and to a lesser extent, E&S property and inland marine are becoming increasingly competitive," indicating heightened market competition impacting pricing discipline and growth prospects in certain lines.

TAKEAWAYS

Gross Written Premiums -- Increased by 52%, with agricultural unit expansion as the largest contributor; excluding agriculture, aggregate gross written premium growth was in the mid-teens, driven by A&H, captives, surety, and specialty programs (each over 25%).

Operating Income -- $44 million in operating income, a new company record for the third quarter, alongside $38 million in underwriting income.

Earnings Growth -- with net income reaching $45.9 million, or $1.10 per diluted share.

Combined Ratio -- 89.2%, reflecting favorable underlying performance and a modest catastrophe impact.

Expense Ratio -- 28.4%, a 4.5 point improvement, attributed to economies of scale and meeting the sub-thirties target.

Net Written Premiums -- Net written premiums grew by 64% through the first nine months, with net retention at 65.1%, up from 62.9% in the prior year.

Return on Equity -- Annualized 19.7% return on equity for the third quarter.

Investment Income -- Net investment income grew $2.7 million sequentially, with $5.3 million from fixed income, offset by losses in alternative and strategic investments.

Portfolio Realignment -- Company completed monetizing its equity portfolio, realizing $16.3 million in gains, and reinvesting proceeds into fixed income.

Reserve Strength -- IBNR accounted for 73% of net reserves, with liability duration continuing to shorten, and a comprehensive review planned for Q4.

Leverage -- Debt to capital ratio finished the quarter below 11%; expected to reach approximately 28% post-close of the Apollo acquisition in 2026.

Apollo Acquisition -- Deal financing "progressing well," according to Mark Haushill, toward a 2026 close, with post-close operational planning underway and additional guidance anticipated in early December.

Technology Initiatives -- Robinson described SkyView and bot automation as allowing rapid deployment of underwriting capabilities, enabling AI-driven risk assessment and reporting.

Segment Growth Patterns -- Five of nine divisions grew by over 25%; agriculture led, with A&H up 45%, and surety rebounding 20% as federal funds increased project flow.

Product Launch -- Company introduced "nWell," an amortized collateralized surety product for oil and gas decommissioning obligations, according to Andrew Robinson.

Renewal and New Business Metrics -- Renewal pricing increased to "mid-single digits plus pure rate," according to Andrew Robinson, with mid-digit exposure growth (excluding global property); retention remained in the mid-70s, and submissions grew in the mid-teens.

SUMMARY

Skyward Specialty Insurance Group (NASDAQ:SKWD) delivered record quarterly top-line and operating results, driven primarily by substantial expansion in its agricultural portfolio. Management emphasized that nearly 50% of the business mix remains insulated from typical property, and casualty (P&C) market cycles through the first nine months of 2025, which contributed to both growth and capital efficiency. The company finalized a major portfolio shift, replacing its equity holdings with a greater allocation to fixed income at an embedded yield of 5.3% as of September 30, improving predictability of investment income. Acquisition of Apollo continues as planned, with expected leverage implications and new specialty capabilities outlined, but no change to financing or timeline based on current outperformance. Discussions confirmed loss trend vigilance within auto liability and construction lines, selective underwriting in competitive property markets, and strong adoption of technology and specialty product innovation as core strategic differentiators.

Haushill stated, "We completed the monetization of our equity portfolio and realized gains of $16.3 million," confirming the asset mix transition.

Robinson said, "The rewards for our creativity and innovation are now fully materializing" in agriculture and specialty programs.

Management acknowledged that certain segments, such as ag and specialty programs, display highly concentrated renewal cycles, resulting in uneven quarterly growth.

Acquisition expense profiles, and loss ratios are expected to vary by segment, with management planning detailed guidance on mix effects for the full year.

The company highlighted that its technology suite, including SkyView and AI-enabled bots, is used to streamline risk analysis and underwriting across divisions.

Robinson confirmed that "There's no nonrecurring items" in the period's growth.

INDUSTRY GLOSSARY

Combined Ratio: A measure of underwriting profitability, calculated as the sum of incurred losses and expenses divided by earned premiums; ratios below 100% indicate underwriting profitability.

IBNR (Incurred But Not Reported): Portion of reserves set aside for claims that have occurred but have not yet been reported to the insurer.

Captive: An insurance company formed by a parent firm to underwrite its own, or related entities’ risks; often used to retain risk and manage cost volatility.

E&S (Excess and Surplus) Lines: Insurance coverage for unique, high risk, or hard-to-place exposures not typically accepted by standard insurers.

Retention: The percentage of premiums retained by the insurer after ceding a portion to reinsurers.

Full Conference Call Transcript

Andrew Robinson: Thank you, Kevin. Good afternoon, and thank you for joining us. Our third quarter results were exceptional, extending our outstanding and consistent track record of profitable growth and double-digit returns. We achieved a number of company bests, including $44 million in operating income, $38 million in underwriting income, an 89.2% combined ratio, and 52% growth in gross written premiums. Aside from these company records, we also grew earnings by over 40% and delivered an annualized return on equity of 19.7%. Our results highlight the strength, durability, and execution excellence of our RulerNiche strategy. Also, our results again demonstrate our very intentional construction of our diversified portfolio of top-notch underwriting businesses.

In particular, the sizable portion of our portfolio that is less exposed to the P&C cycles. In this quarter, five of nine divisions grew by over 25% with our agriculture unit as the largest contributor, which I will discuss later in this call. This quarter also underscored our prudence to walk away from business where necessary. Market conditions across much of the P&C market are now showing signs of increased competition. As always, our teams are responding with discipline. Leaning in where market dynamics support our return thresholds and stepping back where they do not.

Lastly, before I turn the call over to Mark, I want to welcome Kevin Reed, our new Vice President of Investor Relations, who opened this call. Kevin is a deeply experienced IR professional, and we are pleased to have him lead this function allowing Natalie, who has been outstanding taking on double duty since our IPO, to fully focus on our other financial leadership responsibilities. With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark?

Mark Haushill: Thank you, Andrew. We had an exceptional quarter, reporting adjusted operating income of $44 million or $1.05 per diluted share, net income of $45.9 million or $1.10 per diluted share. Gross written premiums grew by 52% in the quarter versus the prior year. One significant driver of our growth was our agricultural unit and more specifically, the growth of our product in the US dairy and livestock industry. Setting aside agriculture, gross written premiums grew at a strong mid-teens rate in aggregate compared to the prior year, driven by A&H, captives, surety, and specialty programs. With all four of these divisions growing by over 25%.

Going forward, we expect quarterly growth to be somewhat uneven, as some of the divisions and units such as ag, captives, specialty programs, and A&H have very concentrated renewal cycles driving meaningful quarterly differences as seen this quarter. There will be quarters where growth is lower than what we have reported in each of the first three quarters this year. Net written premiums grew by 64% and our net retention through nine months of 65.1% increased over 62.9% in the prior year. Turning to our underwriting results. Our combined ratio of 89.2% was driven by strong underlying results and a modest catastrophe quarter. The non-cat loss ratio of 60.2% improved 0.4 points compared to 2024.

We continue to observe specific pockets of increased auto liability severity inflation and, to a lesser extent, auto-exposed excess severity inflation particularly in our construction unit. More broadly, given the wider loss inflation severity backdrop, we continue to maintain a selective position on growing our exposure and occurrence liability lines. Our shorter tail lines, including property, surety, and ag, continue to emerge favorably as does our professional, energy, and E&S liability portfolio. Our reserve position continues to be strong as IBNR makes up 73% of our net reserves, while the duration of our liabilities continues to shorten. As a reminder, our ground-up review of our loss reserves will be completed in the fourth quarter.

The expense ratio of 28.4% improved 4.5 points over the prior year quarter due to economies of scale and was in line with our expectation of sub-thirties. The $2.7 million increase in net investment income over the prior quarter was due to a $5.3 million increase in income from our fixed income portfolio resulting from higher yield and a significant increase in the invested asset base. This was partially offset by losses in our alternative and strategic investments. Underlying marks on the private credit holdings in our alternative asset portfolio continued to generate some volatility in net investment income in the quarter. This portfolio now represents approximately 4% of our investment portfolio at September 30.

Through nine months, $32 million of capital was returned and reinvested in our fixed income portfolio. During the quarter, we completed the monetization of our equity portfolio and realized gains of $16.3 million. We redeployed the proceeds into fixed income securities. This repositioning aligns our portfolio with our long-term risk and return objectives, enhances predictability of investment income, and provides further flexibility to support future growth. In the third quarter, we put $62 million to work at 5.6%. Our embedded yield was 5.3% at September 30, up from 5% a year ago. Our financial leverage is modest, as we finished the quarter under 11% debt to capital ratio.

Finally, we continue to prepare for the Apollo acquisition which we expect to close in 2026, subject to regulatory approvals. Deal financing is progressing well and remains on track. Post-close, we expect our leverage to be approximately 28%. We recognize that the equity research and investor community are working to model the impact of the Apollo acquisition. Once we are further along in the approval process, likely in early December, we anticipate providing guidance on Apollo's 2026 financial metrics. During our fourth quarter call in February, we will provide additional guidance on the Skyward Specialty Insurance Group, Inc. business. Our teams are engaged in a thoughtful plan of execution once the transaction closes.

The combination will expand our specialty capabilities, deepen our bench of underwriting talent, and strengthen our ability to deliver superior long-term returns. Now I will turn the call back over to Andrew.

Andrew Robinson: Thank you, Mark. The third quarter once again highlights the distinctiveness, strength, and consistency of our business and execution of our strategy. We continue to not only deliver excellent underwriting results and shareholder returns, but our top-line growth and resulting earnings growth continue to stand out. These financial metrics clearly showcase that we are different from the rest of the P&C industry in how we approach the market and the portfolio of businesses we have built. Given the unusually robust growth this quarter, I want to take a moment to discuss how we are managing through this changing market. This quarter, we grew by over 25% in five of our nine divisions.

That said, we also reduced our writings again in global property and in the construction unit of our Construction and Energy Solutions division as well as parts of our Professional Lines division. In these areas, opportunities to write business at pricing terms that meet our high return thresholds are simply challenged. Within those divisions, however, we've had excellent success growing specific units such as healthcare professional liability and professional lines, and the energy unit in our construction and energy solutions division. More broadly, global property and to a lesser extent, E&S property and inland marine are becoming increasingly competitive. And in casualty, we're being very selective given the loss inflation backdrop.

And yet, we still see opportunities in E&S liability, and captives both of which are growing steadily as is our energy unit, which I noted a moment ago. Turning to our ag unit. Our success this year is the result of three years of effort to build a product that is unique to put in place a strategy to manage potential volatility. Demand for reinsurance capacity in dairy and livestock revenue protection has surged as producers and approved insurance providers have sought stable risk transfer solutions amid price volatility in the market. The rewards for our creativity and innovation are now fully materializing. Our success story in ag follows other divisions.

In A&H, we have grown by 45% in the quarter and year to date. As we've discussed in the past, we focus on a small employer market and medical cost management. We use AI predictive analytics in risk qualification and selection. Our pursued before pay claims approach has high impact for our customers and we've built captive capabilities that sit side by side with our single company stop loss products. And our performance, as per the recent NAIC A&H policy experience report on the 2024 calendar year highlights we are 15 points better than the industry. In surety this quarter, we resumed a stronger growth trajectory and continue to gain market share as federal funds began to flow.

And yet we're not resting on our laurels. We launched an industry-first product called nWell, which is an amortized collateralized product for decommissioning obligations for the oil and gas industry. This launch comes amid challenges to find quality surety solutions given the dislocation that has resulted from a hand of high-profile bankruptcy-driven losses over the past few years. Undoubtedly, like our prior launches in surety, and in other divisions, we'll build a strong and profitable book around this product. Clearly, our innovation to rule our niche and execution stands out and is showing in both our growth and profitability. It allows us to navigate the more challenging P&C market in ways that others cannot.

While our profitable growth is certainly externally differentiating, I continue to believe we're leading in how we're using technology to win. SkyView, which is short for Skyward Visual Underwriting Experience, our award-winning underwriting workstation allows us to multiply with great alacrity the deployment of new capabilities to our underwriters. We continue to make huge leaps forward in using bots to automate submission ingestion through generating high-impact narratives that summarize the key risk vectors of each account. And we're making strides in using GPTs to allow our underwriters and leaders to interrogate and investigate aspects of an account business, such as summarizing claims or more broadly summarizing performance insights on a book of business.

We believe this continues to be a first mover and learning curve advantage that endures to us. As long as we stay ahead of the AI arms race, we'll continue to lead and win. Finally, our operational metrics remain positive. Renewal pricing bounced up a tick from the prior quarter to mid-single digits plus pure rate, and again, we realized mid-digit exposure growth. Both excluding global property. New business pricing continued to be in line with our in-force book. Retention remained in the mid-70s for the quarter, driven by business mix and intentional actions on auto within our construction unit. And lastly, submission growth was consistent, growing in the mid-teens this quarter.

We also remain incredibly excited about closing the Apollo acquisition and beginning to tackle the market together with our new colleagues. While we continue to operate independently until the transaction does close, the combination of our companies represents a significant step forward in our ability to innovate, lead with talent and technology, and build winning positions across the specialty insurance market. In summary, this is another excellent quarter for Skyward Specialty Insurance Group, Inc. We continue to drive top quartile underwriting results and leverage the diversity of our portfolio to continue our impressive growth in earnings while the broader P&C market becomes more challenging.

With that, I'd now like to turn the call back over to the operator to open up Q&A. Operator?

Operator: We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question that I have today will be coming from the line of Charles Gregory Peters for Raymond James. Your line is open.

Charles Gregory Peters: Oh, hey. Good afternoon, everyone. I guess the logical place to start will be with your top-line results. If we can put the agricultural opportunity aside, I'm just curious about some of the numbers we're seeing. Accident health has been strong all year. And the captives are doing quite well, too. So maybe you give us some perspective on where you're having some success in some of those other segments of your business. Is a is a good starting point.

Andrew Robinson: Greg, good afternoon. Thanks for the question. Well, look, I think that as I said in the prepared remarks, I think we're just I'd start by saying we're being appropriately cautious thoughtful, you know, describe it how you want in, you know, large chunks of what I would describe as the more traditional parts of the P&C market. Yeah. It's just it's becoming more competitive and certainly more nuanced. I think the places we're writing business you know, in those other divisions are done on, you know, smart terms and conditions. That said, look, I think that we just simply have connected you know, in other parts of our business.

You saw Surety has bounced back 20%, you know, growth this past quarter. And a lot of that really was we were still maintaining strong growth as compared to the industry on surety for the first half of the year just it bounced back to sort of a much more impressive level. Once the federal funds began to flow. And I highlighted you know, a new product launch where we've had really good success already. We're very bullish about the outlook on that, and that's sort of in the commercial surety part of our business. On A&H, I think we've talked at length about it. I did highlight the loss ratio number just to provide an external reference point.

You know, again, I think it's the small account market, medical cost management focus, and, you know, and the fact that we build an operating model that I think is you know, is really quite distinctive And, you know, we're seeing that come through both in sort of traditional single company, you know, stop loss accounts as well as, you know, on the group captive side. You know, within captives, on the P&C side, a lot of that really is just continuing to grow with the captives we have in place. We it's been some number of quarters since we launched a new captive, but the ones that we have seem to be continuing to add members.

And of course, we're we're, I think, more insulated to the market in total in terms of the price that we're able to put into the captives, that's really much more sort of like I would describe it as a stable you're always keeping price, know, up against loss trend. Your captive members understand that. And that seems to work, you know, really well.

And so, you know, I think each one is unique, but I think the reasons are, you know, a lot about how we basically have built our business and our product And know, the fact that through nine months this year, you know, nearly 50% of our business is in those categories that are not P&C cycle exposed. And I think that you know, it's hard for me to sort of identify any other company who's got a portfolio that looks like ours.

Charles Gregory Peters: Yeah. Thanks for that detail. And I appreciate, Mark, your comments about holding it back on providing 26 guidance on Apollo But know, in the context of, Andrew, what you said about your business being somewhat you know, better positioned for cycle management. Maybe you could spend a minute and talk about how the Apollo third quarter results look. And how they're positioned in the context of cycle management.

Andrew Robinson: Yeah. I mean, Greg, there really there's not a there's not a lot I can say because to be honest, we do not have regulatory approval, and I there's, like, boundaries where you know, well, I would be you know, feel comfortable. I think others, including my general counsel, assuming my left, probably wouldn't. So what I will say to you, Greg, is that is that no different than when we announced the transaction.

We really like everything that the that the Apollo team has done, and I know, I would say that on the you know, on the sort of 1969 more specialty focused syndicate, you know, they're they're weighted pretty heavily towards, you know, specialty classes And while they too are not immune to the market cycle, in many of their classes, they're they're they're they're definitely not seeing sort of, you know, some of the macro concerns. And certainly aren't heavily weighted towards, you know, property cat and things like that. And as we've talked about, 71 is entirely different business and is actually tied much more closely to the exposure growth of sort of digital economy emerging industries.

And in that regard, you know, it feels like that's rather disconnected from the P&C market largely because that business is not being competed across the market. There is very, very few and I would dare say one, which is, you know, 1971 and the things that they do, real competitors in that category. So you know, I think not unlike ours, there's there's aspects about their business that, you know, are somewhat insulated from, you know, some of the macro concerns that, you know, you all are asking about, you know, on your interactions with other companies.

Charles Gregory Peters: I understand the boundaries, and thanks for the answers.

Andrew Robinson: Thank you.

Operator: Thank you. One moment for the next question. Our next question comes from the line of Tracy Benguigui of Wolfe Research. Your line is open.

Tracy Benguigui: Thank you. Most of the P&C insurers right now are sitting on too much excess capital, so much so that it's too much to deploy for underwriting opportunities. So we've seen more muted growth And Skyward Specialty Insurance Group, Inc. is definitely more growthy, and we've clearly seen that this quarter. I would argue that maybe you're sitting on like, lower levels of capital in a way that might be a good thing. Because that means you will have a lot of discipline given more is at stake. So my question is, if we see more growth continuing at these more elevated levels going forward, I get it, it might be uneven by quarter.

Where would this capital be coming from? I mean, it feels like you don't have a lot of debt headroom. So would you access the equity markets? Or do you think the capital growth through routine earnings could sustain your growth ambitions?

Andrew Robinson: Tracy, good afternoon, and thank you for the question. And I love the positivity relative to growth outlook. Look, I think the first thing I'd say is through three quarters, in every one of the three quarters, I would argue we were differentiated on growth by a material level compared to maybe the companies you might regularly compare us to. Yeah. I would I would acknowledge that this quarter is kind of an eye-popping number 27% growth through the first three quarters this year. I will just say straight up, is you know, is more growth than we expected. So that's a good thing.

That just says that the things that we're doing, have sensibly positioned us against the market opportunities. That said, look, I don't think that I think it's impractical to think that, you know, something like a 27% growth you know, is kind of a reference number as we look out into the future. But should we find a situation, where, you know, we are capital constrained, I'll highlight to you something that I said when we announced the Apollo transaction. Which is one of the really interesting dimensions of Apollo is that they are a capital light business.

Their capital stack is effectively made up of 25% of their own capital, and 75% of other people's capital, with clear alignment between, you know, between them and their other capital providers. And we think that is always an interesting option. That potentially could move not our business, but our economic model to have a greater portion that are fee-based. And I'm not saying that in any way we are concerned about our capital. We don't think that investors give us enough credit for the fact that we are an incredibly capital-efficient organization driven by the fact that we've intentionally constructed our business portfolio the way we have. And we are very capital efficient.

But that said, we don't necessarily see any capital constraints. But that doesn't that doesn't sort of set aside this potential point that we will be evaluating whether some portion of our underwriting income should be recaptured through fees over time.

Tracy Benguigui: Very helpful. And you know, I appreciate hearing the commentary about E&S, surety, captives, agriculture growth. But could you touch on the 52% growth in specialty programs? I believe the segment includes property, GL, commercial auto, excess liability, and workers' comp. So among those lines, where were the growth standouts?

Andrew Robinson: Yes. Great question. And I think let me just start with one notable point, which is through nine months, if you look at our specialty programs premium as a percentage of our premium overall, it's 13.4%. Right? And I would I'd remind you that a meaningful portion of that is through relationships where we have a meaningful ownership position. So we're doing this in a very sort of intentional, very thoughtful way. That said, the last few quarters, we've seen a lot of growth in programs. And I as I've explained in the past, we added two programs.

One was a warranty indemnity program, and that is one where, you know, we own a you know, a position in that in that entity. The other is a long-standing personal relationship that I have and that program is in brown water and green water marine. And those two programs, we started having some of the business come on to our books in, I believe, around March. And so by the time that we get through the first quarter, we're gonna continue to see growth on a relative basis in programs that's going to be not inconsiderable through this quarter and through the next quarter.

But by the time they'll get to the second quarter of next year, we're gonna be lapping ourselves. And I don't think you're going to see that kind of growth numbers. As I've mentioned, like, when you add a program, it can be chunky, and it can it can make your numbers look different or unique. But in this case, it's really quite controlled around, you know, two very important relationships for us. Thank you.

Operator: Thank you. One moment for the next question. Next question will be coming from the line of Matthew Carletti of Citizens Capital Markets. Your line is open.

Matthew Carletti: Thanks. Good morning. Good afternoon, Matt. As I Chicago, we got a lot to go. But a lot of what I had has been asked and answered, but maybe just one if I can. You know, Mark, you I think, Mark, it was you that mentioned how there's gonna be more volatility quarter to quarter in the growth rates kind of around, you know, which kind of lines of business have big renewal periods. Can you help us with that at all?

Is there a is should we think about certain quarters of the year as being kinda we're going to have our strongest growth in this quarter typically because of the big renewal books and another quarter that will be lighter? Or is it a little more you kinda see what you get as the renewals come?

Mark Haushill: Yeah. Yeah. Thanks, Matt. I mean, look. The what we saw this quarter with the ag, that's heavily a Q3 quarter, clearly. Mhmm. In terms of other businesses, A&H is weighted more toward the first quarter property toward the first half of the year, What else am I missing, Andrew? That's a those are the three Yeah. Those are those are three that stayed out. And then and then and then, obviously, the specialty programs is lumpy as well, you know, based on when larger programs renew. I what I'd say to you, Matt, is that is that know, because as I mentioned I think, in response to Tracy's questions, like, you know, we ourselves are know, we're pretty elated.

Know, with 27% growth through nine months. It was more than we expected. I think as we come around to our guidance for next year, I think we'll try to be more specific and in helping you better understand as we've digested all this and harmonizing. But Mark is right. I think that look, in general, there's nothing particularly exciting happening in the fourth quarter. Oh, and by the way, there's a bunch of companies that are way behind plan that are leaning in maybe a little bit even more competitively than otherwise they are.

And that's not me sort of saying to you our fourth quarter is not going to be a strong fourth quarter or any of those things. But there's nothing unusual happening in the fourth quarter one way or another, and it is a more competitive quarter always as companies try to, you know, fill out their full year. So once we get beyond that and we get to our guidance that we'll provide you in the New Year, we'll we'll say something about that to you know, to help you make sure that you're you're accounting for that in your in your plans on written premium as opposed to earned premium.

Matthew Carletti: Gotcha. That's helpful. Thank you. I appreciate it. Thank you.

Operator: Thank you. If you would like to ask a question, please press 1 on your telephone. One moment for the next question. Our next question is coming from the line of Meyer Shields of Keefe, Bruyette & Woods. Your line is open.

Meyer Shields: Great. Thanks so much. I'm gonna sort of stay on this topic, but I wanted to get a sense as to whether the ag premium that you wrote in this quarter, does that have even earnings patterns over the course of the year, or is it, like, the crop side of things where a lot of it's earned as written?

Mark Haushill: Hey, Meyer. It's Mark. Yeah. We would we'll we'll earn it ratably. Over the next twelve months. For what we wrote this quarter. We don't exposure measure or exposure account for, you know, whether it's lumpy premium recognition, you'll see it in the in the gross. But in terms of earnings, just assume it flat through the rest of the next twelve months. That help?

Meyer Shields: That it helps a tremendous amount. Thank you. And that, by the way, that's that's true that's true for our entire ag book and other businesses that have kinda unique features like that, like surety and so forth. We apply that same approach consistently.

Meyer Shields: Okay. That's absolutely perfect. Related question, I just wanna make sure I understood the comment about the lumpiness. You're just talking about the fact that these different niches have different renewal calendar dates, not that there's anything nonrecurring or fundamentally nonrecurring in the third quarter premium.

Andrew Robinson: No. No. There's no nonrecurring. There's no nonrecurring items here at all If something forward or pushback that's sizable, we would highlight that. But, no, there's there's nothing there's nothing unusual. Look. I think I think it's our way of basically just saying, look. We're we delivered 27% growth through the first March. I you know, I'm sure across the universe of each of the companies that you cover, there's there's maybe one, if any, companies that look like that. And this quarter at, you know, 51%, 52% growth is just it kinda stands out.

And we just we are simply just trying to make sure that you know, you, as research analysts and our investors, understand that you know, there is real lumpiness here, and it's evident, you know, through know, through the first three quarters.

Meyer Shields: A 100%. You were very clear. I just wanted to make sure that I wasn't misinterpreting stuff. Last question, I guess, There was clearly understandable step up in operating and general expenses on a year over year basis, and I assume that relates to the growth in gross written premium. Is this a good starting point going forward? The $52 million that we saw in the

Mark Haushill: Yeah. May I mean, Meyer, there's not gonna be much movement quarter over quarter. So, yeah, I think that's a pretty good baseline. I missed the first part of the question.

Meyer Shields: Oh, okay. I'm assuming, and please correct me if I'm wrong, that, you know, the reason you have this, like, huge step up from $41 million to $52 million from the second quarter to the third is just associated with the gross written premiums. Obviously, we see it in acquisition expenses, I just wanted to

Andrew Robinson: I would suggest let's follow can we can we take that offline and make sure that we understand and give you an explanation? You know, I will I will just highlight that you know, we're you know, our other underwriting as a, you know, as a on a ratio basis, know, away from acquisition expense you know, period on period. So I

Meyer Shields: Thank you.

Andrew Robinson: Thanks, Meyer. Thank you.

Operator: One moment, please. Our next question is coming from the line of Michael Zaremski of BMO Capital Markets.

Michael Zaremski: Hey. Great. Good afternoon. Just on the overall retention levels that you all give us, which are helpful. I guess, in mid-70s, I guess, just at a high level, when we think of E&S business, we think of E&S kind of being the 70s. And more traditional being in the mid-eighties, maybe higher. So I guess the fact that you guys are mid-seventies I guess, I'm just wanna make sure just means that the non-ENS portion of book just the specialty portion is just runs at a naturally lower retention level.

Andrew Robinson: Yeah, Mike, this is Andrew. Just to step back on this and you of something that we've talked about in the past. You know, there are three big drivers of our gross to net that make us look a little bit different than maybe others in those three that we've always reminded of. Are, one, our global property business. Remember, we have a very large line in and we have a strong long-standing quota share participation. That allows us to have that large line And that's one big part. A second is captives, which is structurally that way.

And then the third is A&H, where we've had historically on the stand-alone stop loss business, very sizable quota share support with a very attractive seed that allows us to effectively lock in a portion of our underwriting results And then similarly, the A&H captives, have the same dynamic happening. That said, in the other businesses, as things grow like ag and so forth, there's very little reinsurance or, in that case, retrocessional reinsurance used And so some of this is just straight up mix. And I wouldn't look at this quarter. I would look at the year to date where I think we're sitting at about 65 ish percent, I believe. Year to date.

Think as we get to the end of the year, you know, that sort of end of year number will be a good proxy for your models for next year.

Michael Zaremski: Got it. Okay. Thank you. Pivoting, to some of the comments Mark made on just kind of the overall reserve puts and takes. It seemed like nothing new there, commercial auto, construction, are kind of called out as continuing to be, as the industry also sees, under pressure. But you also mentioned a 4Q review. So just want to make sure there's probably nothing there to are you saying that there might be a deeper dive in 4Q on some of these items?

Mark Haushill: It Mike, hey. It's Mark. It's just part of our process where and we've talked about this a lot in terms of our philosophy. Look. We do look and review our reserves each and every quarter. We are we do we our business doesn't move that quickly where I think it's appropriate to respond every single quarter. To what we see what we see. All I'm just trying to foreshadow is that's when we will all we will do the deep dive review and any adjustments that we see we'll make them in the fourth quarter. To your point, I feel great about where we are in terms of reserves. Our philosophy has not changed.

We continue to be we continue to be conservative, and that will continue. The industry, and you noted auto liability, yeah, that's something that we've been looking at a lot. But the other part of what I said in my comments is what we've seen in terms of favorable emergence elsewhere. So short story, Mike, I feel great. About where we are, but we'll update you in the fourth quarter with what happens.

Michael Zaremski: Okay. Got it. And then lastly, just a follow-up to Tracy's question on the premium growth versus equity levels. So glad and clear what you said there. I just want to you know, just you know, with the Apollo deal, coming on, there's, like, the financing terms and the timeline. That you had given us in the past. Is there guys would you all tinker with any of the financing? Or timeline based on just this much better than expected growth or nothing to think through there?

Andrew Robinson: No. Nothing to sift through that, Mike. We're there's nothing about this quarter that changes how we're approaching things. Timeline, we still expect very early in the first quarter of next year, very early in first quarter of next year and really nothing has changed. The financing has gone really well. We're in a great position, and we're there's nothing about the execution that's noteworthy in a great spot.

Michael Zaremski: Thank you.

Andrew Robinson: Thank you.

Operator: Thank you. One moment, please. Our next question will be coming from the line of Andrew E. Andersen of Jefferies. Your line is open.

Andrew E. Andersen: Hey, good afternoon. Maybe kind of back on reserves and just loss inflation. I think the construction inflation comment was new. And we've heard from some other specialty companies of some construction defect claims, but maybe you could just expand a bit on what you were trying to get across with the construction inflation comment.

Andrew Robinson: Yes. So Andrew, this is Andrew. And Mark may add to that. I think more of what we're seeing to be honest, is you know, don't know how to be sort of too vivid about this, but you know, we basically see the kind of severity that you might see in, you know, in heavy auto now making its way into F-150 accidents.

Construction know, you know, some of our book, the trades basically leading the site you know, an accident occurring you know, and what we're seeing is you know, severity inflation that to be honest, is just listen, I feel like I've I've been one of the earliest and most consistent protagonists on this because this is not new. And I the way I know this isn't new is because through nine months this year, 11% of our book is auto. And we took the company public. It was 25%. And that 11% has probably gone about 80% rate since then, And so we're probably you know, down on an exposure basis.

You know, well less than, you know, the 60% from, you know, from a premium basis. 40% from a premium basis. It's just that we keep we keep seeing the loss inflationary dimensions emerge in areas that we're surprised by. And I don't mean, like, we're surprised, like, we're not responsible prudent, professionals about how we're looking at our business. Like, you're just simply surprised that you know, that a claim of this size and an injury of this could result in that kind of loss. Yet I've I have full confidence in our claims folks the way that they're executing. And it's really nothing much more complex than that.

And I think that it should give everybody pause for even if you believe that you have ring fenced the inflationary areas, I believe that anything that is personal injury exposed occurrence liability, is fertile ground for considerable inflation. And, you know, you have to be incredibly thoughtful about how you're constructing your occurrence liability book. And I wouldn't read into anything more than what I just said because that really is kind of the dimension. And you are right that we've been talking about construction now for a couple quarters. But it has been, you know, auto focus thing. And but that's been a theme that's been consistent for us for some number of quarters.

Andrew E. Andersen: Okay. Thank you for the color there. And then just on kinda the overall rate commentary, I think I heard mid single digit plus pure rate. And mid single digit exposure, both excluding property. The mid single digit Excluding Global Property, just Global Property,

Andrew Robinson: Andrew. Oh,

Andrew E. Andersen: Okay. The exposure piece sounds fairly sizable Could you maybe just help us frame how that stands relative to the first half of the year?

Andrew Robinson: Yeah. Great question. I highlighted in the last quarter as well. We ourselves were know, listen. I think we're all sort of trying to figure out what the economy you know, what's happening in the economy and, you know, and I think in the second quarter, we similarly had a really surprisingly positive result on exposure growth. If you kind of look out over the past don't know, maybe two to three years, you know, we've been we've been bouncing between kinda like two and four on any quarter, and then the last couple quarters, it's it's ticked up a bit. That's positive.

I don't know if it tells us anything other than, you know, some of our businesses, we recapture a tiny little bit of rate in exposure. You know, I talked about surety as somewhat unique as it relates to exposure, but I we're just reporting out on what we're seeing. So I think that's a positive sign. Right? Like, it's, you know, certainly, you wanna be able to grow premiums, and exposure growth is a good way to grow premiums as long as you're priced properly.

Andrew E. Andersen: Thank you.

Andrew Robinson: Thank you.

Operator: Moment for the next question. And our next question will be coming from the line of Jon Paul Newsome of Piper Sandler. Line is open.

Jon Paul Newsome: Great. Just a couple of follow ups. One was you know, just a clarification. The debt to cap 29%, I assume that's I believe, that's a decent amount above where you want it to be long term. Is it a fair assumption that, you know, after the deal, you'd be looking at basically retaining capital until that falls down into your more comfortable range? Well, actually, Paul, I'm not uncomfortable at 28, 28 and a half percent at all, actually. We intentionally we're underlevered, if you will, to provide us with this flexibility. So, you I'm not uncomfortable with it at all.

The organic capital growth itself as you as you just pointed out, will reduce the leverage, and it and it will over time. So yeah, a, I'm not uncomfortable with the 28% and the organic capital generation over the next twelve to eighteen months. Will serve to reduce the leverage ratio. And then unrelated question, but a little bit of follow-up. On reinsurance usage. It's looking like reinsurance is amongst the most competitive places. It can that be an advantage for you folks given the structure of your company?

Andrew Robinson: And what you've talked about previously? Yeah. This is Andrew. Look, I mean, think if you go from top to bottom, our sort of purchase of reinsurance is pretty fairly spread. You know, our CAT program, as you as you know, is not a monster cat program. You know, our spend is kind of, you know, mid single digits plus, you know, kind of millions of dollars on cats. It's like know, yeah, the reinsurance markets, you know, becoming obviously more favorable to cedents, but I don't I don't know if that, you know, listen. I think that it can be helpful, but it's not gonna be a big improvement year over year.

Jon Paul Newsome: Great. Appreciate the help. Thank you, guys. Thank you.

Operator: Thank you. And our next question will be coming from the line of Michael Phillips of Oppenheimer. Your line is open.

Michael Phillips: Thank you. Good afternoon. Andrew, maybe more of a theoretical question How strong do you think the correlation is, if that even exists, between the P&C pricing cycle and demand for captive formation? That's a great no, that's a really great question. So before we really kinda leaned in on captives, We looked at this, and during and I will if you allow us, I can follow-up and try to dig out some of the information. But during the sort of the soft market period leading up to kinda, you know, let's just call it you know, 2019, 2020 kinda time frame. Captive growth still was quite robust. And relative to the P&C market very robust.

There is no question to your point that you know, a hard market environment appropriately should force in our case, we're talking group captives, so mid market kinds of risk. A company that really wants to have more direct financial connection to their cost of risk certainly, becomes an impetus. But on the flip side, you know, the retention in the captives is very sticky because you generally construct them in a way that yeah, is quite sort of measured and controlled. Know, renewal cycle to renewal cycle, And, you know, you're not you're already sort of self selecting in risks that have an attention towards risk management and have capabilities that the wider market on average doesn't have.

And so, you know, we also think that in a softer market, you're you're more immune. This is the point about sort of it's less cycle exposed. You're more immune to the P&C cycle than otherwise you would be even if you're writing P&C lines. Which we are in our in our capital. And you're saying you're more immune because of the retention piece? You took it. Yeah. Because of the retention and because the captive members themselves are directly involved in seeing the experience. And so know, in that experience tends to be a much more stable, consistent, know, here's what's happening with exposure growth. Here's what's happening with losses. Here's what's happening with loss inflation.

Because they're, you know, they're eating their own cooking. Right? I mean, it's like, you know, they're they're they're risk managers, and if they're good, they get the benefits. And if they're they're you know, they're not good, they see the cost. And if they're just very consistent, which many of them are in our case, then you get a much more stable period over period kind of renewal. Okay. No. Thanks. That perfect. Perfect. Helpful. I guess, of the reasons why I would ask for category. It's one of the reasons we love the category. It just it just, you know, it's it's you know, we're not don't have the benefits of being travelers or Hartford writing small commercial.

This is our version of like stick to your ribs kind of you know, ballast for the business. So it sounds like and what you know, one of the reasons for the question is, you know, should we get into a softer market? Does that mean any kinda slight headwind to your growth in captive? It sounds like that's not something you'd be concerned about. CAPP as I you know, we'll we'll know when the time comes, but it's it's certainly not night. Top concerns as compared to other things I'd be concerned about in the soft market.

Michael Phillips: Okay. Alright. Thanks for your time. Appreciate it.

Andrew Robinson: Thank you.

Operator: Thank you. And our next question will be coming from the line of Mark Hughes of

Mark Hughes: Yeah. Thank you very, very much. Andrew, the transactional E&S business that's been a little slower growth. I think you talked about E&S liability being a good area for you. Does that fall under the transactional bucket or heading?

Andrew Robinson: And yeah. Yeah. No. We worry I think we've mentioned in the past, we you know, our book there is you know, it's a it's a small medium business, you know, average premium. Between 40 to 50 k on the property side, you know, 50-60% of what we write. Are primary and full limits, and, you know, 40 to 50% we're writing you know, usually the primary and somebody else is writing the access. And then on the liability side, you know, it's it's a lot of million dollar primaries and, you know, and some supported and unsupported excess. Very little of what we write there has auto exposure. And that's the book. That's and so we talk about it.

You know, the property side, you know, I just I'll just say it straight up. I because we've listened to some other some other companies talk about this. You know, anybody who is presenting a case and a few are presenting a case, that, you know, that property in the E&S market, even on the smaller side of it, you know, is from a from a rate perspective, is going in a positive direction isn't starting from a position of, you know, good prudential pricing. And there's a couple out there with those commentary.

And, you know, and on the liability side, you know, I think consistent with what others have said, the, you know, sort of the primary million, primary GL is pretty competitive out there. You know, some silliness from MGAs and so forth. And the excess is know, is a better market. And for our part, you know, our excess is either supported over our primary for writing you know, if we're writing unsupported you know, the thing that we're we're generally writing is you know, business that has very little auto exposure to it. And we're very thoughtful about sort of the personal injury how heavy that personal injury loss inflation profile of exposure looks.

But the market's still pretty good.

Mark Hughes: Yeah. What's been the just a very recent trend in property? Is it kinda stepped down and therefore, you're you've adjusted your appetite, or is it just continuing to drift downward?

Andrew Robinson: Yeah. I listen. I think that think that there's just a I think I think Tracy might have made this point. There's just there's way too much capacity knocking around the property market. You know, if you're if you're writing cat and it doesn't have to be doesn't have to be big limit cat, doesn't have be shared and layered. It's just if you're writing, you know, tier one cat, you know, you're you're writing against you know, some just there's some just crazy stupidity out there.

Like, just stuff that doesn't make any sense, and anybody who believes it makes sense is fooling themselves And what happens is that, you know, good smart underwriters will say, and I've heard this from, you know, some of the other CEOs in the calls that they're saying, you know, there's just not opportunity there, then they go to the next thing and they go to the next thing. So what happens is you get an erosion in the market that just starts to find its way into other areas. To the point where, you know, as I've mentioned in the past, for example, in our property book, you know, we write fires our principal peril.

We write really, really, really tough risk. We write the stuff in the E&S market for a reason. But when you start to see silly competition come to that part of the market, you know, there's a price where we will write the business, and there's a price where we won't. We're one of the best at it. I just I'll say straight up, make a lot of money on the property side. We're super smart. We're very sensible. We deliver a good product for our customers. But we charge an appropriate price for the exposure. You know? And when the guys who come in who don't know what they're doing in that, you know, that's that's just problematic.

And what's happening is that's happening in more and more categories across the property market.

Mark Hughes: Understood. Thank you.

Andrew Robinson: And yet I still feel very good about our business and our ability to navigate. So I, you know, I wouldn't wanna be anybody else other than us.

Mark Hughes: Appreciate it.

Andrew Robinson: Thank you, Mark.

Operator: Thank you. And we now have a follow-up question coming from the line of Tracy Benguigui of Wolfe Research. Please go ahead.

Tracy Benguigui: Hey. Thanks for taking me back in the queue. I'm just curious given the uneven growth by segment, which should lead to some mix shift, I'm wondering how we should be thinking about your underlying loss ratio and expense ratio. Like for instance, surety is a low loss ratio, high expense ratio product. And other products had different profiles.

Andrew Robinson: Yeah. It's an outstanding question because we have it all in the book. Right? We have examples like Surety, which is incredibly high acquisition expense, very low loss ratio. We have A&H, which is low acquisition expense. And low expense overall and high loss ratio. Similar profile on the ag side. And what I'd say is that, again, you know, what we'll do is we'll come back in our guidance. But you know, I think that through the first March, you're seeing the earnings of that mix change coming through. But obviously, given, for example, the volume of ag, that sort of manifests itself on acquisition cost versus operating expense versus loss ratio.

We'll come back in the guidance when we give our full year guidance early in the New Year, Tracy. And until then, I don't think we really want to or are prepared to say much more.

Tracy Benguigui: Thank you.

Andrew Robinson: Thank you.

Operator: Thank you. This does conclude today's Q&A session. I would now like to turn the call back over to Kevin for closing remarks. Please go ahead, Kevin.

Kevin Reed: Thanks, Lisa, and thanks, everyone, for your questions, for participating in our conference call and for your continued interest in and support of Skyward Specialty Insurance Group, Inc. I'm available after the call to answer any additional questions you may have. Look forward to speaking with you again on our fourth quarter earnings call. Thank you, and have a wonderful day.

Operator: This concludes today's program. You may all disconnect.

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