---
source_file: ''
source_url: https://www.sec.gov/Archives/edgar/data/1519449/000151944924000012/0001519449-24-000012-index.htm
doc_type: sec
title: Skyward/2023/FY/Annual report
tables: 0
parsed_at: '2026-07-06T04:53:26Z'
---

###### Cover ($ in millions)

**12 Months Ended**

| USD ($) $ in Millions — | Dec. 31, 2023 | Mar. 27, 2024 | Jun. 30, 2023 |
| --- | --- | --- | --- |
| Cover — Document Type | 10-K | — | — |
| Cover — Document Annual Report | true | — | — |
| Cover — Document Period End Date | Dec. 31, 2023 | — | — |
| Cover — Current Fiscal Year End Date | --12-31 | — | — |
| Cover — Document Transition Report | false | — | — |
| Cover — Entity File Number | 001-41591 | — | — |
| Cover — Entity Registrant Name | SKYWARD SPECIALTY INSURANCE GROUP, INC. | — | — |
| Cover — Entity Incorporation, State or Country Code | DE | — | — |
| Cover — Entity Tax Identification Number | 14-1957288 | — | — |
| Cover — Entity Address, Address Line One | 800 Gessner Road | — | — |
| Cover — Entity Address, Address Line Two | Suite 600 | — | — |
| Cover — Entity Address, City or Town | Houston | — | — |
| Cover — Entity Address, State or Province | TX | — | — |
| Cover — Entity Address, Postal Zip Code | 77024-4284 | — | — |
| Cover — City Area Code | 713 | — | — |
| Cover — Local Phone Number | 935-4800 | — | — |
| Cover — Title of 12(b) Security | Common stock, par value $0.01 | — | — |
| Cover — Trading Symbol | SKWD | — | — |
| Cover — Security Exchange Name | NASDAQ | — | — |
| Cover — Entity Well-known Seasoned Issuer | No | — | — |
| Cover — Entity Voluntary Filers | No | — | — |
| Cover — Entity Current Reporting Status | No | — | — |
| Cover — Entity Interactive Data Current | Yes | — | — |
| Cover — Entity Filer Category | Non-accelerated Filer | — | — |
| Cover — Entity Small Business | false | — | — |
| Cover — Entity Emerging Growth Company | true | — | — |
| Cover — Entity Ex Transition Period | false | — | — |
| Cover — Document Financial Statement Error Correction [Flag] | false | — | — |
| Cover — ICFR Auditor Attestation Flag | false | — | — |
| Cover — Entity Shell Company | false | — | — |
| Cover — Entity Common Stock, Shares Outstanding | — | 39,995,027 | — |
| Cover — Documents Incorporated by Reference | Portions of the Registrant’s Proxy Statement relating to the 2024 annual meeting of stockholders (the “2024 Proxy Statement”), which will be filed within 120 days of December 31, 2023, are incorporated by reference into Part III of this Form 10-K. | — | — |
| Cover — Entity Central Index Key | 0001519449 | — | — |
| Cover — Amendment Flag | false | — | — |
| Cover — Document Fiscal Year Focus | 2023 | — | — |
| Cover — Document Fiscal Period Focus | FY | — | — |
| Cover — Entity Public Float | — | — | 600 |

###### Audit Information

| — | 12 Months Ended Dec. 31, 2023 |
| --- | --- |
| Audit Information — Auditor Name | Ernst & Young LLP |
| Audit Information — Auditor Location | Houston, Texas |
| Audit Information — Auditor Firm ID | 42 |

## Business

###### Who We Are

* Skyward Specialty was formed as a Delaware corporation on January 3, 2006, as an insurance holding company p. 1.
* The company operated under the name Houston International Insurance Group, Ltd. until re-branding as Skyward Specialty in November 2020 p. 1.
* Skyward Specialty is a growing specialty insurance company providing commercial property and casualty (P&C) products and solutions on both non-admitted (E&S) and admitted bases, primarily in the United States p. 1.
* The company focuses on underserved, dislocated, and/or markets where standard insurance coverages are insufficient for businesses p. 1.
* Customers typically require highly specialized, customized underwriting solutions and claims capabilities p. 1.
* The company develops and delivers tailored insurance products and services for niche markets p. 1.
* The portfolio of insured risks is highly diversified, covering customers in various industries, distributed through multiple channels, and includes multiple lines of business p. 1.
* Lines of business include general liability, excess liability, professional liability (including cyber insurance), commercial auto, group accident and health, property, agriculture, surety, and workers’ compensation p. 1.
* The company insures both short and medium duration liabilities p. 1.
* The business mix is balanced between E&S and admitted markets p. 1.
* Diversification, underwriting, and claims expertise are believed to produce strong growth and consistent profitability across P&C insurance pricing cycles p. 1.
* The company is led by an entrepreneurial executive management team with decades of insurance leadership experience in the global P&C industry p. 1.
* The leadership is supported by an experienced team aligned with the company's strategy p. 1.
* The company aims to deliver long-term value for shareholders by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles p. 1.
* All insurance company subsidiaries are group rated and have financial strength ratings of "A-" (Excellent) from A.M. Best Company, with a positive outlook p. 1.

###### Our Business and Our Strategy

* The company operates with one reportable segment, offering a broad array of insurance coverages across various market niches p. 2.
* Each of the eight underwriting divisions, referred to as "continuing business," has dedicated underwriting leadership and technical staff p. 2.
* This structure and expertise aim to effectively serve customer needs, be a value-add partner to distributors, and earn attractive risk-adjusted returns p. 2.
* For the year ended December 31, 2023, *43% of gross written premiums* were admitted, and *57% were non-admitted* p. 2.
* In 2023, each of the eight underwriting divisions wrote over *$100.0 million in gross written premiums* p. 2.
* *Accident & Health (A&H)*: Provides medical stop-loss solutions for organizations with fewer than 2,500 employees, and group/single-employer captive solutions p. 2.
* The A&H division manages medical costs and provides claims oversight, partnering with select distribution partners p. 2.
* A&H targets small and medium-sized enterprises seeking to self-insure a portion of healthcare costs p. 2.
* A&H products are written on an admitted basis and distributed through retail and wholesale brokers p. 2.
* *Captives*: Offers group captive solutions by leveraging underwriting and claims expertise from other divisions p. 2.
* The Captives division broadens market reach and writes profitable business with limited additional expense by utilizing company-wide expertise in underwriting, claims, technology, and analytics p. 2.
* The Captives underwriting division writes group A&H, property, general liability, commercial auto, excess liability, and workers’ compensation on both E&S and admitted bases p. 2.
* This business is often administered through partnerships with third-party captive managers p. 2.
* *Global Property and Agriculture*: The Global Property unit provides property-only solutions for large multi-jurisdictional entities with complex property exposures p. 2.
* Global Property business is written entirely on an E&S basis and distributed through retail and select wholesale brokers p. 2.
* The Global Property unit has cultivated its book and position with customers and distribution partners over more than ten years p. 2.
* The Global Agriculture unit provides secondary and reinsurance solutions for crop, livestock, and other renewable resources p. 2.
* *Industry Solutions*: Comprises three underwriting units: Construction, Energy, and Specialty Trucking p. 2.
* Construction and Energy units provide general liability, excess liability, commercial auto, workers’ compensation, and inland marine solutions, primarily on an admitted basis p. 2.
* These units serve middle-market construction and energy production/servicing customers p. 2.
* The Specialty Trucking unit writes commercial auto and general liability solutions for mid-sized intermodal trucking companies on an E&S basis p. 2.
* Industry Solutions targets segments with high severity exposures, offering multi-line solutions through skilled underwriters and claims professionals p. 2.
* Products are distributed through retail agents and brokers and a select network of wholesalers p. 2.
* *Professional Lines*: Includes three underwriting units: Management Liability, Professional Liability (including cyber insurance), and Allied Health p. 2.
* Professional Liability and Allied Health provide E&S primary and excess claims-made liability products, distributed exclusively through wholesale brokers p. 2.
* Management Liability offers both E&S and admitted products, distributed through wholesale and retail brokers p. 2.
* *Programs*: Partners with program administrators focused on specific markets aligned with the company's expertise and strategy p. 2.
* This partnership approach allows profitable participation or extended reach in certain markets, leveraging administrators' competitive advantages like scale or proprietary technology p. 2.
* The Programs division writes property, general liability, commercial auto liability, excess liability, and workers’ compensation on both E&S and admitted bases p. 2.
* *Surety*: Provides contract, commercial, and transactional surety solutions for trade and services organizations requiring bonding p. 2.
* The focus is on small to medium-sized enterprises with aggregate bond programs up to approximately *$50.0 million for contract* and *$75.0 million for commercial and transactional* p. 2.
* Surety business is written on an admitted basis and distributed through retail agents and brokers p. 2.
* *Transactional E&S*: Offers primary and excess non-catastrophe prone property and general liability solutions p. 2.
* This division emphasizes risks considered hard to place due to complexity, loss history, or limited operating history (e.g., start-ups) p. 2.
* Success in this market relies on technical underwriting, thoughtful coverage provisions, pricing, and high-quality broker service p. 2.
* Access to the market in this division is exclusively through wholesale brokers p. 2.
* Business units and lines previously exited and placed into run-off are referred to as "exited business" p. 2.
* The company's strategy, known as “Rule Our Niche,” aims to lead in chosen market niches and establish sustainable competitive positions p. 2.
* Key elements of the strategy include:
  1. Providing differentiated products, services, and solutions for target markets p. 2.
  2. Attracting and retaining exceptional underwriting and claims talent, incentivized to align with organizational and corporate goals p. 2.
  3. Amplifying expertise with advanced technology and analytics for superior risk selection, pricing, and claims management p. 2.
  4. Empowering underwriting and claims teams with significant decision-making authority p. 2.
  5. Fostering a culture of nimbleness and responsiveness to market opportunities and dislocation p. 2.
* The strategy forms the basis for building a strong defensible market position, creating a competitive moat, and winning in chosen markets p. 2.
* The principles of the strategy are considered key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles p. 2.
* The company consistently strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics p. 2.

###### Our Competitive Strengths

* *Competitive strengths* include: focus on profitable niches, highly skilled underwriters, superior claims staff and operations, superior business intelligence platform, advanced technology and new risk data for underwriting and claims, diversified business, attractive and winning culture, and a high-quality, experienced leadership team aligned with shareholders p. 3.
* The company targets niche areas of the commercial lines P&C markets that offer attractive risk-adjusted returns p. 3.
* The company focuses on underserved, dislocated markets or those where standard products are insufficient p. 3.
* Risks in core markets require efficient, individual underwriting to generate sustainable underwriting profit p. 3.
* The company builds underwriting divisions with deeply experienced underwriters empowered to make decisions p. 3.
* This structure allows for innovative and unique products and solutions for distribution partners and customers, even for challenging risks p. 3.
* Underwriters' experience is augmented with data and predictive analytics to differentiate risk selection, pricing, and enhance efficiency p. 3.
* The company hires underwriting and technical staff based on expertise and experience p. 3.
* Underwriting teams are knowledgeable, experienced, and empowered, which is critical for complex risks that are difficult to automate p. 3.
* The company does not impose strict underwriting rules, allowing professionals to use their expertise and judgment in evaluating and pricing risks p. 3.
* The company provides tools and authority to its staff to underwrite complex risks profitably p. 3.
* The company has a specialized team of claims professionals knowledgeable about their niches and lines of business p. 3.
* Claims professionals address first-party claims with fair solutions and third-party claims with comprehensive responses, aiming for consistent and early loss recognition of indemnity and loss adjustment expenses (LAE) p. 3.
* The company responds quickly to claims with specialized adjusters using expertise, advanced technology, and analytics p. 3.
* Technology is deeply embedded in the claims process, from first notice of loss to investigation and settlement p. 3.
* Analytics capabilities provide senior leadership and claims teams with real-time, detailed information on open claims and benchmarks against closed claims p. 3.
* *SkyBI*, the business intelligence platform, provides real-time intelligence to senior leadership and technical teams for decision-making p. 3.
* SkyBI incorporates best practices from the management team's experience in P&C insurance and technology p. 3.
* SkyBI is a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities p. 3.
* SkyBI provides information and performance metrics across the company in a visualized format p. 3.
* Data in SkyBI can be filtered by categories such as distributor, customer segment, line of business, industry, underwriter, and risk feature p. 3.
* SkyBI aids in establishing clear objectives and facilitating decision-making p. 3.
* Underwriting and claims decisions are augmented with new types of risk data and advanced technology p. 3.
* Underwriting decisions are supported by historical data and in-depth risk evaluation from investments in data collection and processing p. 3.
* Underwriting and claims capabilities are amplified by combining historical data with new risk data and predictive analytics p. 3.
* The company has built a diversified group of underwriting divisions across multiple product lines, industries, geographies, and distribution channels p. 3.
* The company adapts to market conditions by growing certain lines when favorable and limiting exposure when conditions are less favorable p. 3.
* The diversity of the book allows the company to respond to and capitalize on market opportunities and dislocations across P&C insurance market and pricing cycles p. 3.
* The company has a distinctive culture, evidenced by internal surveys, Glassdoor, LinkedIn, and selection as a "Best Places to Work in Insurance" p. 3.
* The culture and operating approach feature a flat communication and decision-making structure p. 3.
* Staff are trusted to make decisions that achieve financial results and are supported by a clear measurement system p. 3.
* The company adopted a hybrid work schedule for employee flexibility p. 3.
* The company maintains an entrepreneurial environment that encourages and rewards a proactive approach to market disruption p. 3.
* This environment aligns with the company's identity as a specialty insurer and helps attract talent and deliver results p. 3.
* The executive leadership team, led by CEO Andrew Robinson, is experienced, innovative, and entrepreneurial p. 3.
* The leadership team has a track record of success in senior management roles at industry-leading P&C companies and in building new businesses p. 3.
* Senior leadership compensation is aligned with shareholders, with a material portion in long-term and short-term incentives tied to underwriting returns p. 3.
* Executive leadership has additional long-term incentive targets tied to growth in book value per share p. 3.

###### Our Strategy in Action

* The company's "Rule Our Niche" strategy aims to generate best-in-class underwriting profitability for its niches and create superior long-term shareholder value through growth in book value per share p. 4.
* The strategy's core tenets include attracting and retaining blue-chip underwriting and claims talent to expand market position p. 4.
* The company seeks to hire technical underwriting professionals with long-standing industry relationships and claims professionals with expertise in their niches p. 4.
* These relationships are crucial for consistent access to preferred business p. 4.
* The company believes it is a preferred employer for industry talent, which helps grow its market position p. 4.
* Another tenet is leveraging technology to differentiate from competitors p. 4.
* The company uses new forms of risk data and advanced technology in complex, higher-severity risk categories within the specialty P&C insurance market p. 4.
* SkyBI enables prompt sensing and quick response to market changes p. 4.
* Core operating platforms allow efficient entry into new markets without complex systems p. 4.
* The company believes its technological advantage supports profitable growth and expansion into additional specialty market niches p. 4.
* A further tenet is profitably growing existing lines of business and expanding with new underwriting divisions p. 4.
* The company is positioned to capitalize on trends affecting customers in the U.S. and globally p. 4.
* Trends include increased demand for specialized insurance due to rising and complex risks from climate change, severe weather, supply chain uncertainty, financial inflation, cyber risk, novel health risks, increased litigation, attorney involvement, jury awards, and healthcare delivery/cost p. 4.
* Another market trend is "micro cycles and micro dislocations" where P&C insurance market segments experience hardening and softening at different times p. 4.
* The company has responded to these trends by launching new underwriting units, entering underserved markets, partnering on advanced technology, and launching new captive solutions p. 4.
* Gross written premium growth and profitability indicate momentum and position the company for continued expansion p. 4.
* Differentiating on daily excellence to drive best-in-class underwriting performance is also a core tenet p. 4.
* Meeting long-term goals, including best-in-class underwriting returns and book value per share growth, depends on executing day-to-day operations across all functional departments (underwriting, product management, claims management) p. 4.
* SkyBI provides senior management with a foundation to monitor performance, including renewal rates, new business pricing, portfolio performance, claims aging, and reserving practices p. 4.
* Focus on fundamentals driving underwriting excellence is central to the strategy p. 4.
* Cross-functional collaboration ensures regular review of performance and trends by underwriting, claims, actuarial, and product management teams to implement portfolio, pricing, and coverage changes quickly p. 4.
* The final tenet is using the balance sheet to capture a larger market share p. 4.
* The company is committed to maintaining a strong balance sheet with conservative loss reserves and strong capitalization ratios p. 4.
* This is considered imperative for maintaining confidence among customers, distribution partners, reinsurers, regulators, rating agencies, and shareholders p. 4.
* Claims case reserve practices have been strengthened to reserve to the expected ultimate loss within 90 days of the first notice of loss p. 4.
* The company also increases the level of IBNR reserves held above claims case reserves p. 4.
* This conservative reserve philosophy is believed to position the company for consistently strong underwriting profitability p. 4.

###### Marketing and Distribution

* *Marketing and distribution approach* mirrors underwriting approach and is a key facet of the "Rule Our Niche" strategy p. 5.
* The Company and its underwriting teams have strong relationships and reputations with *distribution partners*, which helps establish new affiliations p. 5.
* *Distribution partners* are attracted by deep expertise in niche markets, high-caliber underwriters, culture of innovation, thoughtful product line-up and design, and speed and quality of responsiveness p. 5.
* All underwriting divisions invest significant effort in sustaining and expanding *distribution partner loyalty* and long-term relationships p. 5.
* *Choice of distribution partners* is tailored to access specific business the Company seeks to write p. 5.
* Products are distributed through *retail agents, wholesale brokers, select program administrators, and captive managers* p. 5.
* This distribution approach allows effective and efficient access to *targeted business* based on market niche needs and dynamics p. 5.

###### Underwriting

* The company's underwriting approach is central to its "Rule Our Niche" strategy and market success p. 6.
* Underwriting teams are specialized within eight divisions, focusing on specific niches p. 6.
* *Kirby Hill*, President of Industry Solutions, Captives and Programs underwriting divisions, has over 30 years of insurance business experience p. 6.
* *John Burkhart*, President of Specialty Lines (Professional Lines, Surety, Transactional E&S, A&H underwriting divisions), has approximately 30 years of underwriting experience p. 6.
* *Doug Davies*, Senior Vice President of the Global Property and Agriculture Underwriting Division, has approximately 20 years of underwriting experience p. 6.
* The underwriting approach emphasizes hiring experienced, best-in-class, and diverse technical underwriters with proven track records in specific specialty niche markets p. 6.
* Underwriters' skills are enhanced with advanced technology and data analytics, and they are given appropriate decision-making authority p. 6.
* This approach aims for superior risk selection and pricing, and sustainable best-in-class underwriting results across market cycles p. 6.
* The company augments underwriting professionals' capabilities using new data and analytics for risk selection and pricing p. 6.
* Underwriting data is captured in the business intelligence platform, SkyBI, which serves as a comprehensive data repository for reporting, analytics, and other data capabilities p. 6.
* SkyBI is a key tool for senior management and business leaders p. 6.
* The company is highly selective in binding policies; underwriters are encouraged to move on from opportunities that do not meet premium and coverage standards p. 6.
* When accepting risks, terms and prices are carefully established to suit the underlying exposure p. 6.
* In the admitted market, the company ensures approved forms and filed rates are appropriate and adequate for accepted risks, while allowing flexibility for specific/unique exposures p. 6.
* In the E&S market, the company uses freedom of rate and form to match risk and coverage to unique market needs and exposures p. 6.
* Policies are crafted to offer affordable and appropriate protection for insureds' exposures, while making potential losses more predictable and claims costs manageable p. 6.
* Underwriting teams receive support and collaboration from Claims, Actuarial, Product Management, Legal and Compliance, and Finance departments p. 6.
* This collaboration ensures timely analysis and action on business trends, legal and tort developments, and competitor and regulatory actions p. 6.
* Underwriters are considered central to the company, with all support functions incentivized and measured to achieve underwriting profitability targets p. 6.
* This structure helps identify opportunities and issues early, contributing to the company's nimbleness and ability to leverage market disruptions p. 6.
* Underwriting controls and procedures are regularly reviewed to ensure profitable underwriting across all served markets p. 6.

###### Claims Management

* Skyward's claims department operates under six guiding principles: prompt and comprehensive claim investigations using advanced analytics and technology; providing quality claims handling service and customer engagement; promptly establishing reserves based on best estimates of ultimate loss; effectively pursuing contribution and subrogation; detecting and preventing fraud; and disciplined litigation management for superior legal defense and cost monitoring p. 7.
* The company provides continuous training to its claim staff on claim evaluation, strategy, litigation management, good-faith claims handling, and best practices to achieve timely and optimal claim outcomes p. 7.
* The majority of claims are handled in-house p. 7.
* Third Party Administrators (TPAs) are utilized for specific instances such as programs, captives, occupational accident, workers' compensation, and Loss Portfolio Transfer (LPT) runoff claims p. 7.
* TPAs are actively managed, overseen, and regularly audited to ensure compliance with claims handling and reserving guidelines and best practices p. 7.
* Independent legal counsel is retained for liability claims against an insured, selected based on geographical location and expertise p. 7.
* Litigation guidelines are developed for claims professionals and outside counsel to ensure appropriate defense and adherence to standards p. 7.
* A legal spend management solution is used to analyze legal invoices for adherence to case handling and billing practice standards, ensuring reasonable legal costs p. 7.
* Technology is leveraged to gain efficiencies in claims handling, including a solution for speeding up claims correspondence and automating routine tasks like vendor payments p. 7.
* The company is piloting artificial intelligence to route claims to the most suitable handler based on likely severity p. 7.
* A Large Language Model is being developed to identify claims with early indicators of potential severity, unusual exposures, or the propensity for legal representation by third-party claimants p. 7.
* A "quick strike" program has been implemented for commercial auto claims, deploying experienced investigators and vendors to accident scenes, ideally within two hours, to evaluate facts and resolve third-party claims quickly p. 7.
* Claims handlers and managers are organized by line of business to ensure specialized expertise p. 7.
* Claims managers and adjusters collaborate closely with underwriting partners to inform them of legal trends and emerging claims issues, educating underwriters on loss experience for risk selection p. 7.

###### Technology

* Technology is central to Skyward Specialty Insurance Group's operations and decision-making, aiming for long-term success p. 8.
* The company deploys technology to gain competitive advantages in three primary functional areas p. 8.
* *SkyBI*, the business intelligence platform, provides real-time intelligence to senior leadership and technical teams for decision-making p. 8.
* SkyBI incorporates best practices from the management team's experience in P&C insurance and technology sectors p. 8.
* SkyBI is a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities p. 8.
* SkyBI presents information and performance metrics across the company in an easy-to-consume visualized format p. 8.
* Data in SkyBI can be filtered by categories such as distributor, customer segment, line of business, industry, underwriter, and risk feature p. 8.
* SkyBI helps establish clear line of sight to objectives and facilitates the decision-making process p. 8.
* *Predictive analytics technology* augments employee capabilities daily using new risk data and predictive analytics, including AI, for risk selection, pricing, and claims handling p. 8.
* Actions within each underwriting division are intentional to "Rule Our Niche" p. 8.
* The company aims for constant innovation, with actions specific to each division/market served p. 8.
* *Core transactional platforms*, including policy administration, billing, and claims systems, are designed for nimble scaling and business expansion p. 8.
* The company generally uses customized third-party vendor-developed core operating applications p. 8.
* The core platform organization is used for all business except Accident & Health, Global Property, and Surety, which require dedicated core processing components due to their unique features p. 8.
* Data from all divisions' core operating platforms flows to the SkyBI platform with comparable data quality and granularity p. 8.
* The use of advanced technology for underwriting and claims, SkyBI, and core operating platforms creates a flywheel effect for the business p. 8.
* This technology allows underwriters to better select risk, claims professionals to better adjudicate claims, unit leaders to better communicate with reinsurance and third-party partners, and senior leadership to better evaluate business trends p. 8.
* These tools also enable more accurate, effective, and efficient communication with distribution partners, reinsurers, and other third-party partners p. 8.
* The company faces external threats to its information technology systems, including system failure, data theft attempts, and ransomware attacks p. 8.
* The technology infrastructure is designed to function through major disruptions p. 8.
* Data is replicated in real-time to a third-party cloud disaster recovery site for use in case of a major system failure p. 8.
* Data is backed up daily for system restoration if needed p. 8.
* Actions taken to prevent system and data disruptions include: actively monitoring Cybersecurity and Infrastructure Security Agency’s (CISA) cybersecurity directives and taking immediate action on identified vulnerabilities p. 8.
* Monthly vulnerability scans are conducted on all network-attached devices at all locations, with patching applied as needed p. 8.
* Two-factor authentication is required for access to any company systems p. 8.
* Monthly security training is conducted for all employees p. 8.
* Endpoint detection agents are implemented for threat detection and response p. 8.
* Desktop scenarios are performed to practice responses to breaches with cybersecurity insurance partners and retained security consultants p. 8.
* Annual penetration testing is performed p. 8.
* The company constantly reviews its security breach posture and regularly implements updated processes, best practices, and tools p. 8.

###### Reinsurance

* We strategically purchase reinsurance from third parties to protect capital from severity events (large single event losses or catastrophes) and reduce earnings volatility p. 9.
* Our reinsurance contracts are predominantly one year in length and renew annually, primarily in January and June p. 9.
* At each annual renewal, we consider factors such as changes to underlying insurance coverage, updated loss activity, capital and surplus levels, risk appetite changes, and the cost and availability of reinsurance treaties p. 9.
* We purchase quota share, excess of loss, and facultative reinsurance to limit exposure from losses on any one occurrence p. 9.
* The mix of reinsurance purchased considers efficiency, cost, risk appetite, and specific factors of underlying risks p. 9.
* *Quota share reinsurance* involves a reinsurer assuming a specified percentage of losses from a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission p. 9.
* *Excess of loss reinsurance* involves a reinsurer assuming all or a portion of losses for an individual claim or event above a specified amount in exchange for a negotiated premium, including our catastrophe reinsurance program p. 9.
* *Facultative coverage* is a reinsurance contract for individual risks, used to supplement treaty limits or cover risks/perils excluded from treaty reinsurance p. 9.
* For the year ended December 31, 2023, *property insurance* represented 27% of our gross written premiums p. 9.
* We manage and monitor property writings by geographic area to limit potential loss aggregation from severe events like hurricanes, convective storms, and earthquakes p. 9.
* We buy catastrophe reinsurance to mitigate aggregation of property losses due to a single event or series of events p. 9.
* We use third-party stochastic and our own deterministic models to analyze the risk of loss aggregation for catastrophe reinsurance purchases p. 9.
* Our modeling indicates that an event beyond our 1 in 250-year PML would be required to exhaust our *$28.0 million property catastrophe coverage* p. 9.
* We aim to expose no more than *3.0% of our stockholders’ equity* to a catastrophic loss less than a 1 in 250-year event p. 9.
* Our current reinsurance program is believed to provide coverage well in excess of theoretical losses from any recorded historical event p. 9.
* In 2020, we entered into a *LPT retroactive reinsurance agreement* with a Bermuda-domiciled third-party reinsurer for liabilities related to certain policies issued or assumed for policy years 2017 and prior p. 9.
* The LPT agreement aims to limit volatility associated with business written during those years p. 9.
* Additional information about the LPT is in Item 7 of this Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Losses and LAE" p. 9.
* We seek to purchase reinsurance from reinsurers rated at least "A-" ("Excellent") or better by A.M. Best p. 9.
* As of December 31, 2023, *99% of our reinsurance recoverables* were from reinsurers rated "A-" (Excellent) or better by A.M. Best, or were collateralized p. 9.
* We retain primary liability to policyholders if reinsurers fail to pay claims, which could result in losses to us p. 9.
* We establish allowances for uncollectible reinsurance amounts p. 9.
* Our *allowance for uncollectible reinsurance* was $2.3 million at December 31, 2023, compared to $0.0 million at December 31, 2022 p. 9.

###### Allowance for uncollectible reinsurance by line of business

| Line of Business | Maximum Company Retention |
| --- | --- |
| Accident & Health | $0.88 million per occurrence |
| Commercial Auto (1) | $1.0 million per occurrence |
| Cyber | $2.69 million per occurrence |
| Excess Casualty (1)(2) | $1.24 million per occurrence |
| General Liability (1) | $1.25 million per occurrence |
| Professional Lines (2) | $2.7 million per occurrence |
| Property (3) | $2.8 million per occurrence |
| Representation and Warranty | $2.5 million per occurrence |
| Surety (2) | $3.0 million per occurrence |
| Workers’ Compensation (2) | $2.33 million per occurrence |

(1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.
(2) Reinsurance is subject to a loss ratio cap or aggregate level of loss cover that exceeds a modeled 1:250-year PML event.
(3) Catastrophe loss protection is purchased up to $28.0 million in excess of $12.0 million retention, which provides cover for a 1:250-year PML event.

###### Reinsurance by company

| ($ in thousands) Reinsurer | Reinsurance Recoverables | AM Best Rating |
| --- | --- | --- |
| Everest Reinsurance Co. | 121,832 | A+ |
| eCaptive PC1-IC (and PC2-IC), Inc (1) | 121,805 | Unrated |
| RGA Reinsurance Company | 37,070 | A+ |
| Partner Reinsurance Co. of the US | 23,381 | A+ |
| Swiss Reinsurance America Corp | 22,334 | A+ |
| General Reinsurance Corp | 21,548 | A++ |
| Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2) | 20,859 | Unrated |
| ACE (Chubb Property & Casualty Insurance Company) | 16,003 | A+ |
| Aspen Insurance UK Limited | 14,822 | A |
| Munich Reinsurance America Inc. | 14,817 | A+ |
| **Top 10 Total** | 414,471 | — |
| All Others | 181,863 | — |
| **Total** | 596,334 | — |

(1) This reinsurer facilitates our eMaxx captive; we hold collateral in a statutory trust of $150.8 million on our reinsurance recoverables.
(2) This reinsurer facilitates our LPT reinsurance agreement; we maintain the right of offset of our recoverables for premiums we owe to the reinsurer, we held collateral in a statutory trust of $23.0 million on our net reinsurance recoverables.

###### Enterprise Risk Management

* *Enterprise Risk Management (ERM)* is integrated into company operations and guides daily activities p. 10.
* *ERM approach* aims to achieve an acceptable risk-adjusted return for shareholders through intentional underwriting and asset portfolio construction p. 10.
* *Underwriting portfolio* balances liability duration p. 10.
* *Reinsurance* is used to manage volatility from single losses and cumulative losses from single or series of events p. 10.
* *Investment strategy* focuses on a diversified target portfolio that balances yield, liquidity, volatility, and potential for principal loss p. 10.
* *Chief Risk Officer* oversees critical ERM processes and chairs the cross-functional corporate ERM Committee p. 10.
* *Economic Capital Model (ECM)* formalizes the company's view of risk and solvency in terms of potential economic loss p. 10.
* *ECM output* measures potential earnings and capital loss for various scenarios p. 10.
* *Risk tolerances* are set and updated annually by the ERM Committee and discussed with the Board's Risk Committee p. 10.
* *ECM* provides a probabilistic modeled view of earnings and capital loss, incorporating potential losses from catastrophes, reserving, underwriting, market, credit risk, strategic, and operational risks p. 10.
* *Chief Risk Officer* and ERM Committee review and maintain a comprehensive risk register with accountabilities for mitigation p. 10.
* *Top 10 risks* are identified, quantified, and reviewed quarterly by the Chief Risk Officer and ERM Committee p. 10.
* *Reports* on risks are submitted regularly to the Risk Committee by the Chief Risk Officer and ERM Committee p. 10.
* *Operational processes and controls* are designed to identify, assess, and manage key risks continuously p. 10.
* *Underwriting Committee* oversees changes in risk appetite, product line, and division expansion p. 10.
* *Claims handling practices* are monitored against guidelines through regular internal audits p. 10.
* *Monthly large loss reviews* are conducted within Claims p. 10.
* *Watchlist* of potential high severity claims is maintained and monitored within Claims p. 10.
* *Quarterly reserve studies* are performed by Actuarial p. 10.
* *Reserve Committee* meets quarterly to review and respond to trends in loss emergence p. 10.
* *Key observations* from the Reserve Committee are discussed with the CEO p. 10.
* *Underwriting divisions* assess rate change and retention on existing business, new business quality, pricing adequacy, and loss emergence compared to expectations on a monthly and quarterly basis p. 10.
* *SkyBI platform* provides real-time portfolio, underwriting, claims, and actuarial analytics p. 10.
* *ERM* is central to decision-making and daily activities p. 10.
* *ERM* is a core component of the strategy to achieve market-leading risk-adjusted returns for shareholders p. 10.

###### Reserves

* The company maintains reserves for specific claims incurred and reported, IBNR reserves, and reserves for uncollectible reinsurance when appropriate p. 11.
* The ultimate liability may be greater or less than current reserves, and there is always a risk of inadequate reserves in the insurance industry p. 11.
* Reserves are continually monitored using new information on reported claims and statistical analyses p. 11.
* Anticipated inflation is implicitly reflected in the reserving process through analysis of cost trends and historical development review p. 11.
* The company does not discount its reserves for losses and LAE to reflect estimated present value p. 11.
* *Case reserves* are established for the estimated ultimate payment amount after assessing coverage, damages, and other investigations when a claim is reported p. 11.
* Case reserve estimates are based on reserving practices and the claims adjuster’s experience and knowledge of the claim's nature and value p. 11.
* Case reserves are revised periodically based on subsequent developments for each claim p. 11.
* For more information on claims management, refer to the "Claims Management" section in Item 1 p. 11.
* *IBNR reserves* are established in accordance with industry practice to cover estimated future loss payments on incurred but not yet reported claims and potential development on reported claims p. 11.
* IBNR reserves are estimated using generally accepted actuarial reserving techniques that consider quantitative loss experience data and qualitative factors p. 11.
* Loss reserves are regularly reviewed using various actuarial techniques p. 11.
* Reserve estimates are updated as historical loss experience develops, additional claims are reported and/or settled, and new information becomes available p. 11.
* Reserves can be increased or decreased as claims move towards settlement, impacting earnings through adverse development or reserve releases p. 11.
* For additional information on loss reserves, refer to Item 7 of Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Results of Operations - Losses and LAE” and “Critical Accounting Policies” p. 11.

###### Investments

* The company aims for a *balanced investment portfolio* primarily consisting of investments that yield predictable and stable returns, complemented by strategic investments for attractive risk-adjusted returns p. 12.
* An *Enterprise Based Asset Allocation model* is used for investment allocation strategy, integrated into the Economic Capital Model p. 12.
* This model helps understand the *impact of investment allocation decisions* on capital, liquidity, and risk profile across various market scenarios p. 12.
* The company actively manages and monitors *investment risk* to balance stable growth and liquidity with compliance to insurance regulatory and rating agency frameworks p. 12.
* The *investment portfolio* mainly comprises cash and cash equivalents and investment-grade fixed-maturity securities, with additional investments fitting the company's risk appetite p. 12.
* The *Investment Committee of the Board of Directors* reviews and approves the investment policy and strategy p. 12.
* This committee meets regularly to review *investment activities, tactics, and new investment opportunities* p. 12.
* The *portfolio is directed internally* and includes both self-managed investments and portfolios managed by third-party investment management firms p. 12.
* The *opportunistic fixed income portfolio* is managed by Arena Investors, LP, an affiliate of The Westaim Corporation, which is the company's largest shareholder p. 12.
* For additional discussion on investments and related market risks, refer to *Item 7 of this Form 10-K*, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments" p. 12.

###### Competition

* The specialty lines property & casualty insurance market comprises numerous markets and sub-markets, each with unique customer needs, products, services, and economic/structural features p. 13.
* Competition in underwriting divisions comes from other specialty and standard insurers, as well as program administrators p. 13.
* Competition factors include pricing, company reputation and perceived financial strength, broker relationships, product terms and conditions, independent rating agency ratings, speed and reputation of claims payment, and the experience/reputation of underwriting and claims teams p. 13.
* Due to the diversity of underwriting divisions, competition is broad, with some competitors specific to certain divisions p. 13.
* Notable competitors include Markel Corporation, W.R. Berkley Corporation, American Financial Group Inc., Tokio Marine Holdings, Inc., CNA Financial Corporation, Hiscox, Ltd., RLI Corp., Intact Finance Corporation, Kinsale Capital Group, Inc., and James River Group Holdings, Ltd. p. 13.

###### Our Structure

* Operations are principally conducted through four insurance companies p. 14.
* *Houston Specialty Insurance Company (HSIC)*, the largest insurance subsidiary, underwrites multiple lines of insurance on a surplus lines basis in 50 states, the District of Columbia, and select foreign countries p. 14.
* *Imperium Insurance Company (IIC)*, a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia p. 14.
* *Great Midwest Insurance Company (GMIC)*, a subsidiary of IIC, underwrites multiple lines of insurance on an admitted basis in all 50 states, the District of Columbia, and is a certified surety bond company listed with the Department of the Treasury p. 14.
* *Oklahoma Specialty Insurance Company (OSIC)*, a subsidiary of GMIC, is an approved surplus lines company in 49 states and the District of Columbia p. 14.
* Skyward Re is a wholly-owned captive reinsurance company domiciled in the Cayman Islands, incorporated on January 7, 2020 p. 14.
* Skyward Re was established to facilitate the LPT (Loss Portfolio Transfer) p. 14.
* Additional information about the LPT is available in Item 7 of this Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Loss and LAE" p. 14.
* Two non-insurance companies are also operated: Skyward Underwriters Agency, Inc. and Skyward Service Company p. 14.
* *Skyward Underwriters Agency, Inc.* is a licensed agent, managing general agent, and reinsurance broker p. 14.
* *Skyward Service Company* provides various administrative services to the subsidiaries p. 14.
* Each entity in the organizational structure is wholly-owned by its immediate parent p. 14.
* *Skyward Specialty Insurance Group, Inc.* (Delaware corporation) is the parent company p. 14.
* Skyward Specialty Insurance Group, Inc. has direct subsidiaries: Skyward Service Company (Delaware corporation), Houston Specialty Insurance Company (Texas stock insurance company), Skyward Underwriters Agency, Inc. (Texas corporation), and Skyward Re (Cayman Islands corporation) p. 14.
* Houston Specialty Insurance Company has one direct subsidiary: Imperium Insurance Company (Texas stock insurance company) p. 14.
* Imperium Insurance Company has one direct subsidiary: Great Midwest Insurance Company (Texas stock insurance company) p. 14.
* Great Midwest Insurance Company has one direct subsidiary: Oklahoma Specialty Insurance Company (Oklahoma insurance corporation) p. 14.

###### Geographic distribution of premiums

| — | 2023 |
| --- | --- |
| Texas | 11.4% |
| California | 9.0 |
| New York | 8.7 |
| Louisiana | 8.0 |
| Florida | 7.3 |
| Pennsylvania | 3.4 |
| New Jersey | 3.4 |
| Georgia | 3.3 |
| Illinois | 3.2 |
| Massachusetts | 2.4 |
| All other states | 39.9 |
| **Total** | 100.0% |

Our Structure

###### Ratings

* Skyward Specialty Insurance Group, Inc. holds an *"A-" (Excellent) rating* with a positive outlook from A.M. Best p. 15.
* A.M. Best rates insurance companies based on factors relevant to policyholders p. 15.
* A.M. Best assigns *16 ratings* to insurance companies, ranging from "A++" (Superior) to "F" (In Liquidation) p. 15.
* The *"A-" (Excellent) rating* is the fourth highest rating assigned by A.M. Best p. 15.
* A.M. Best evaluates a company's financial and operating performance by reviewing its profitability, leverage, liquidity, book of business, reinsurance adequacy, asset quality and market value, loss and loss expense reserves adequacy, surplus adequacy, capital structure, management experience and competence, and market presence p. 15.
* A.M. Best's ratings reflect its opinion on an insurance company’s financial strength, operating performance, and ability to meet obligations to policyholders p. 15.
* These ratings are based on factors relevant to policyholders, agents, insurance brokers, and intermediaries, and are not specifically related to securities issued by the company p. 15.

###### Regulation

* The company is regulated by insurance regulatory authorities in the states where it conducts business p. 16.
* State insurance laws and regulations primarily protect policyholders, consumers, and claimants, not stockholders or other investors p. 16.
* The nature and extent of state regulation varies by jurisdiction p. 16.
* State insurance regulators have broad administrative power over matters such as capital and surplus requirements, licensing, product form and rate review, reserve adequacy, statutory accounting methods, financial reports, affiliate transactions, and investment types and amounts p. 16.
* Insurance company regulation is constantly changing due to governmental agency and legislative responses to issues p. 16.
* The state insurance regulatory framework has faced increased federal scrutiny in recent years p. 16.
* Some state legislatures have considered or enacted laws that alter and often increase state authority to regulate insurance companies and holding company systems p. 16.
* The National Association of Insurance Commissioners ("NAIC") and some state insurance regulators are re-examining existing laws and regulations, focusing on insurer solvency, interpretations of existing laws, and new law development p. 16.
* The federal government does not directly regulate the business of insurance, but federal initiatives affect the industry p. 16.
* The Federal Insurance Office ("FIO") was established within the U.S. Department of the Treasury in July 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") p. 16.
* The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in regulation that could contribute to a systemic crisis in the insurance industry or U.S. financial system p. 16.
* The FIO has no express regulatory authority over insurance companies or other insurance industry participants p. 16.
* The company operates as an insurance holding company system p. 16.
* The company is subject to the insurance holding company laws of Texas, where its primary insurance companies are domiciled, and Oklahoma p. 16.
* These statutes require each insurance company in the system to register with the insurance department of its state of domicile p. 16.
* Registration involves furnishing information about holding company system operations that may materially affect the operations, management, or financial condition of the domiciled insurers p. 16.
* These statutes mandate that all transactions among holding company system members must be fair and reasonable p. 16.
* Transactions between insurance subsidiaries and their parents and affiliates generally require disclosure to state regulators p. 16.
* Notice to or prior approval from the applicable state insurance regulator is generally required for any material or extraordinary transaction p. 16.

###### Intellectual Property

* The company has applied for various *trademark registrations* in the United States at both federal and state levels p. 17.
* The company plans to pursue additional *trademark registrations* and other intellectual property protection if deemed beneficial and cost-effective p. 17.
* The company monitors its *trademarks and service marks* and protects them from unauthorized use as necessary p. 17.

###### Employees and Human Capital

* *Employees*: approximately 515 as of December 31, 2023 p. 18.
* Employees are not subject to any collective bargaining agreement, and there are no known current efforts to implement such an agreement p. 18.
* The company believes it has good working relations with its employees p. 18.
* The company aims to be an employer of choice, fostering a culture committed to diversity of thought, background, and perspective p. 18.
* The company embraces diversity, equity, and inclusion initiatives to improve workplace culture and value employees as people p. 18.
* The goal is to attract, develop, and retain diverse talent, promoting a culture where different viewpoints are valued, individuals are respected, treated fairly, and have opportunities to excel p. 18.
* The company offers a competitive benefits package including medical, dental, and vision insurance, a 401(k) plan, paid time off, family leave, employee assistance programs, and an employee stock purchase plan p. 18.
* The company emphasizes employee training and development, providing opportunities for further education and professional development p. 18.

## Risk Factors

* Investing in the company's common stock carries a high degree of risk p. 19.
* Investors should carefully consider the risks and uncertainties described in the report, including consolidated financial statements and related notes, and other SEC filings, before investing p. 19.
* The listed risks and uncertainties are not exhaustive; additional unstated, unknown, or currently immaterial risks may also affect the company p. 19.
* If any of the described risks occur, the company's business, operating results, financial condition, and prospects could be materially harmed p. 19.
* Such events could lead to a decline in the common stock price, potentially resulting in a loss of part or all of an investment p. 19.

###### Summary of Material Risk Factors

* *Underwriting risk*: Financial condition and results of operations could be materially adversely affected if underwriting risk is not accurately assessed p. 20.
* *Competition*: Intense competition for business in the industry p. 20.
* *Distribution channels*: Reliance on insurance retail agents and brokers, wholesalers, and program administrators exposes the business to certain risks that could adversely affect results p. 20.
* *Reinsurance*: Inability to purchase third-party reinsurance in desired amounts on commercially acceptable terms or terms that adequately protect the company may materially adversely affect business, financial condition, and results of operations p. 20.
* *Loss reserves*: Losses and loss expense reserves may be inadequate to cover actual losses, which could have a material adverse effect on financial condition, results of operations, and cash flows p. 20.
* *Financial strength rating*: A decline in financial strength rating may adversely affect the amount of business written p. 20.
* *Coverage interpretation*: Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in policies could have a material adverse effect on financial condition and results of operations p. 20.
* *Reinsurer reimbursement*: Reinsurers may not reimburse for claims on a timely basis, or at all, which may materially adversely affect business, financial condition, and results of operations p. 20.
* *Claims payment*: Failure to accurately and timely pay claims could materially and adversely affect business, financial condition, results of operations, and prospects p. 20.
* *Economic factors*: Adverse economic factors, including recession, inflation, high unemployment, or lower economic activity, could lead to fewer policy sales, increased claim frequency, premium defaults, or falsification of claims, affecting growth and profitability p. 20.
* *Industry cyclicality*: The insurance business is historically cyclical, which may affect financial performance and cause operating results to vary quarter-to-quarter, not indicative of future performance p. 20.
* *Regulation*: Extensive regulation may adversely affect the ability to achieve business objectives; failure to comply could result in penalties, including fines and suspensions, adversely affecting financial condition and results of operations p. 20.
* *Key personnel*: Loss of one or more key personnel or inability to attract and retain qualified personnel could adversely affect the company p. 20.
* *Internal controls*: Failure to achieve and maintain effective internal controls could impact operating results and financial condition, and negatively affect the market price of common stock p. 20.
* *Public company costs*: Costs will increase significantly due to operating as a public company, requiring substantial management time to comply with public company regulations p. 20.

###### Risks Related to Our Business and Industry

* *Underwriting success* depends on accurately assessing risks and establishing appropriate premium rates p. 21.
* *Employee decisions* in the ordinary course of business can expose the company to risk p. 21.
* *Competition* in the insurance industry is intense, based on factors like price, financial strength, distribution relationships, product terms, ratings, claims payment speed, and underwriting team experience p. 21.
* *Competitors* include other specialty insurance companies, standard insurance companies, and underwriting agencies p. 21.
* *Industry consolidation* may increase competition p. 21.
* Some competitors are larger with greater financial, marketing, and other resources, and can absorb large losses more easily p. 21.
* Other competitors have longer operating histories and more market recognition in certain lines of business p. 21.
* *New industry or legislative developments* could increase competition p. 21.
* *Capital-raising* by competitors could lead to new market entrants and excess capital in the industry p. 21.
* *Federal regulatory reform* of the insurance industry could increase competition from standard carriers p. 21.
* *Increased competition* could affect the supply and demand for insurance, the ability to price products at risk-adequate rates, retain existing business, or underwrite new business on favorable terms p. 21.
* *Business depends* on insurance retail agents, brokers, wholesalers, and program administrators p. 21.
* *Substantially all products* are distributed through independent retail agents and brokers who own "renewal rights" p. 21.
* *Relationships with distributors* can be discontinued at any time or may not be profitable p. 21.
* *Consolidation of insurance distribution firms* may increase their influence on commission rates and concentration of business with particular brokers p. 21.
* *Premiums collected by brokers* and remitted to the company expose the company to credit risk p. 21.
* In certain jurisdictions, payment to a broker is considered payment to the insurer, making the company liable even if it doesn't receive the premium p. 21.
* *Failure of brokers* to remit premiums has not been material to date, but could require the company to provide coverage without payment p. 21.
* *Limitations on canceling policies* for non-payment could reduce underwriting profits p. 21.
* The company reviews the *financial condition of new brokers* and periodically reviews existing distributors p. 21.
* *Distributors* not meeting profitability standards or business objectives may have restricted access to products or their relationships terminated p. 21.
* *Deterioration in distributor relationships* or uncompetitive compensation could lead distributors to place more premium with other carriers p. 21.
* *Distributors exceeding authority*, failing to transfer collected premiums, or breaching obligations could expose the company to liability p. 21.
* *Continued consolidation of insurance distribution firms* could affect sales channels, leading to loss of market access, market share, talent, or increased commission costs p. 21.
* *Digitization acceleration* poses risks if distributors cannot keep pace with technology-driven customer demands p. 21.
* *Inability to purchase third-party reinsurance* on acceptable terms could materially adversely affect the business p. 21.
* *Reinsurance* protects capital from severity events and reduces earnings volatility p. 21.
* *Failure to renew or enter new reinsurance arrangements* could increase loss exposure, potentially requiring a reduction in underwriting commitments p. 21.
* *Reinsurers may exclude certain coverages* or alter terms, leading to gaps in reinsurance protection and greater risk exposure p. 21.
* *Losses and loss expense (LAE) reserves* may be inadequate to cover actual losses p. 21.
* *Reserves* are estimates of ultimate settlement and administration costs, not exact calculations p. 21.
* *Factors reviewed in the reserving process* include claims inflation, claims development patterns, pricing, legislative activity, social/economic patterns, and litigation/judicial/regulatory trends p. 21.
* *Internal and external events* can increase exposure to losses p. 21.
* *Uncertainties impacting reserve adequacy* include the time to fully appreciate covered losses, retroactive enforcement of new theories of liability, and volatility in financial markets/economic events p. 21.
* *Increased cost due to "social inflation"* (medical costs, technology in vehicles, attorney involvement, litigation financing, lawsuit abuse) could increase claim frequency and severity p. 21.
* *Increased claim frequency*, even without liability, could escalate evaluation costs beyond established reserves p. 21.
* *Inadequate reserves* would require increases, reducing net income and stockholders' equity p. 21.
* *Loss experience substantially exceeding reserves* could adversely affect future earnings, liquidity, and financial rating p. 21.
* *A decline in financial strength rating* may adversely affect the amount of business written p. 21.
* *Independent ratings agencies* like A.M. Best assess financial strength and quality p. 21.
* *A.M. Best's rating* is based on balance sheet strength, operating performance, and business profile p. 21.
* *A.M. Best financial strength ratings* range from "A++" (Superior) to "F" p. 21.
* As of the filing date, *A.M. Best assigned an "A-" (Excellent) rating with a positive outlook* to the company p. 21.
* *A.M. Best's analysis* includes comparisons to peers, industry standards, operating plans, philosophy, and management p. 21.
* *Factors that could lead to a rating downgrade* include changes in business practices, unfavorable financial/regulatory/market trends, losses exceeding reserves, unresolved issues with regulators, inability to retain key personnel, investment portfolio losses, limited liquidity, or changes in A.M. Best's capital adequacy methodology p. 21.
* *A rating downgrade or withdrawal* could cause distribution partners and insureds to choose competitors, increase reinsurance costs or reduce availability, or limit the ability to write new and renewal insurance contracts p. 21.
* *Increased scrutiny from rating organizations* due to earnings and capital pressures in the financial industry could lead to adverse ratings consequences p. 21.
* *Unexpected changes in interpretation of coverage or provisions*, including loss limitations and exclusions, could materially affect financial condition and results p. 21.
* *Enforceability of loss limitations or exclusions* is not assured, as industry practices and legal/judicial/social conditions change p. 21.
* *Court or regulatory actions* could nullify limitations or exclusions, or legislation could modify/bar their use, leading to higher than anticipated losses and LAE p. 21.
* *Court decisions* could broaden coverage by reading policy exclusions narrowly p. 21.
* These issues could broaden coverage beyond underwriting intent or increase claim frequency/severity p. 21.
* *Reinsurers may not reimburse claims timely or at all*, which could materially adversely affect the business p. 21.
* *Reinsurance contracts* require premium payments to reinsurers who reimburse for covered claims p. 21.
* *Reinsurance does not relieve the company* of its primary liability to policyholders p. 21.
* *Reinsurers may default* due to insolvency, lack of liquidity, operational failure, political/regulatory prohibitions, fraud, asserted defenses, or documentation deficiencies p. 21.
* *Disputes with reinsurers* can be time-consuming, costly, and uncertain p. 21.
* As of December 31, 2023, the company had *$596.3 million in aggregate reinsurance recoverables* p. 21.
* *Failure to accurately and timely pay claims* could materially and adversely affect the business p. 21.
* *Factors affecting claims payment* include training/experience of claims representatives (including TPAs), management effectiveness, and appropriate procedures/systems p. 21.
* *Ineffective TPA management* or inability to handle claim volume could adversely affect workload capacity and operating margins p. 21.
* *Severe weather conditions, catastrophes, pandemics, and man-made events* may adversely affect the business p. 21.
* *Catastrophes* include natural events (severe winter weather, tornadoes, windstorms, earthquakes, hailstorms, thunderstorms, fires) and man-made events (explosions, war, terrorist attacks, riots) p. 21.
* *Changing weather patterns and climatic conditions* increase the unpredictability and frequency of natural disasters p. 21.
* *Climate change* may increase the frequency and severity of extreme weather events, such as hurricanes p. 21.
* *Increased frequency and severity of weather events* could affect the ability to predict, quantify, reinsure, and manage catastrophe risk p. 21.
* *Losses from catastrophes* depend on the frequency and severity of events and total insured exposure p. 21.
* *Exposure to losses is managed* by analyzing the probability and severity of loss events and their impact on underwriting and investment portfolios p. 21.
* *Inability to obtain reinsurance coverage* for severe weather and catastrophes could materially adversely affect the business p. 21.
* *Pandemics, outbreaks, public health crises, and geopolitical/social events* expose the business to risk p. 21.
* *Policy terms* are expected to preclude coverage for virus-related claims, but court decisions and governmental actions may challenge exclusions p. 21.
* *Program administrators' failure to comply* with guidelines could adversely affect results p. 21.
* *Program administrators* have limited quoting and binding authority and sell products through retail agents and brokers p. 21.
* *Non-compliance by program administrators* could bind the company to unanticipated risks p. 21.
* *Actual renewals of existing contracts* not meeting expectations could materially adversely affect future written premium and results p. 21.
* Most contracts are for a *one-year term* p. 21.
* *Assumptions about renewal rates* are made in financial forecasting p. 21.
* *Cyclical nature of the insurance industry* with intense price-based competition can affect renewals p. 21.
* *Increased public attention to ESG matters* may expose the company to negative public perception, reputational harm, additional costs, or stock price impact p. 21.
* *Failure to respond to ESG concerns* could harm business and reputation p. 21.
* *Insureds include controversial industries*, and providing policies to them could decrease demand for products p. 21.
* *Changes in accounting practices and future pronouncements* may materially affect reported financial results p. 21.
* *Compliance with new accounting practices* may incur considerable additional expenses p. 21.
* *Impact of accounting changes* cannot be predicted but may affect net income, shareholder's equity, and other financial statement items p. 21.
* *Insurance subsidiaries must comply with statutory accounting principles (SAP)* p. 21.
* *SAP and its components* are subject to constant review by the NAIC and state insurance departments p. 21.
* *Pending proposals before NAIC committees* could negatively affect insurance industry participants p. 21.

###### Risks Related to the Market and Economic Conditions

* Adverse economic factors like recession, inflation, high unemployment, or lower economic activity could lead to fewer policy sales, increased claim frequency, premium defaults, or falsified claims, impacting growth and profitability p. 22.
* Business revenue, economic conditions, capital market volatility and strength, and inflation affect the business and economic environment, influencing the ability to generate revenue and profits p. 22.
* An economic downturn with higher unemployment, declining spending, and reduced corporate revenue generally negatively affects demand for insurance products, impacting premium levels and profitability p. 22.
* Negative economic factors may hinder the ability to secure appropriate rates for insured risks, reduce the number of policies written, and limit opportunities for profitable underwriting p. 22.
* During an economic downturn, customers may reduce insurance coverage needs, cancel policies, modify coverage, or not renew policies p. 22.
* Existing policyholders might exaggerate or falsify claims to receive higher payments during an economic downturn p. 22.
* A significant collapse in economic segments like construction or energy production/servicing could adversely affect results across multiple underwriting divisions p. 22.
* These outcomes would reduce underwriting profit if not reflected in the rates charged p. 22.
* The insurance business is historically cyclical, which can affect financial performance and cause operating results to vary quarter-to-quarter, not necessarily indicating future performance p. 22.
* Insurance carriers have historically experienced significant fluctuations in operating results due to competition, catastrophic events, capacity levels, litigation trends, regulatory constraints, and general economic conditions p. 22.
* The supply of insurance is linked to prevailing prices, insured losses, and available industry capital, which fluctuate with investment rates of return in the insurance industry p. 22.
* The insurance industry is cyclical, characterized by periods of intense price competition due to excessive underwriting capacity (soft market) and periods of increased premiums due to capacity shortages (hard market) p. 22.
* Demand for insurance depends on factors such as catastrophic event frequency and severity, capacity levels, new capital providers, and general economic conditions, all of which fluctuate and can contribute to price declines p. 22.
* The profitability of most P&C insurance companies tends to follow cyclical market patterns, with higher gross written premium growth and improved profitability during hard market cycles p. 22.
* The cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market p. 22.
* When the standard insurance market hardens, the E&S market typically hardens, and E&S market growth can be significantly more rapid p. 22.
* When market conditions soften, customers previously in the E&S market may return to the admitted market, exacerbating the effects of rate decreases on financial results p. 22.
* The company believes it is currently experiencing a relatively hard market cycle, but cannot predict the timing or duration of market cycle changes due to competitor actions and general economic factors p. 22.
* Operating results are subject to fluctuation and have historically varied quarter-to-quarter p. 22.
* Quarterly results are expected to continue fluctuating due to general economic conditions, frequency/severity of catastrophes, fluctuating interest rates, claims exceeding loss reserves, competition, deviations from expected premium retention, adverse investment performance, and reinsurance costs p. 22.
* *Investment portfolio performance* is subject to various investment risks that may adversely affect financial results p. 22.
* Results of operations depend partly on the performance of the investment portfolio p. 22.
* The company aims to hold a diversified investment portfolio managed by professional investment advisory firms according to its investment policy and reviewed by its Investment Committee p. 22.
* Investments are subject to general economic conditions, market risks, and inherent risks of specific securities p. 22.
* Primary market risk exposures are to changes in interest rates and equity prices p. 22.
* A significant portion of the investment portfolio is in fixed maturity securities, or separately managed accounts and limited partnerships primarily invested in fixed maturity securities p. 22.
* Interest rates rose materially in 2022 and 2023 p. 22.
* A low interest rate environment, potentially resulting from federal actions to slow inflation (e.g., Inflation Reduction Act of 2022), would pressure net investment income, especially for fixed maturity and short-term investments, adversely affecting operating results p. 22.
* Recent and future interest rate increases could cause fixed income securities portfolios to decline in value, with the magnitude depending on security duration and the extent of rate increases p. 22.
* Some fixed income securities with call or prepayment options create reinvestment risk in declining rate environments p. 22.
* Mortgage-backed and other asset-backed securities carry prepayment risk or may not prepay as quickly as expected in a rising interest rate environment p. 22.
* All fixed maturity securities, including those in separately managed accounts and limited partnerships, are subject to *credit risk* p. 22.
* Credit risk is the risk of investment default or impairment due to deterioration in the financial condition of issuers or guarantors of securities held p. 22.
* Downgrades in credit ratings of fixed maturity securities could significantly negatively affect their market valuation p. 22.
* The company also invests in marketable preferred and common equity securities and exchange-traded funds, which are carried at fair market value and are subject to potential losses and market value declines p. 22.
* Market and credit risks could reduce net investment income and result in realized investment losses p. 22.
* The investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid, as with fixed maturity securities held to maturity, separately managed accounts, and limited partnership investments p. 22.
* Valuation of investments is more subjective in illiquid markets, increasing the risk that estimated fair value does not reflect actual transaction prices p. 22.
* Risks for all security types are managed through an investment policy that sets parameters, including maximum investment percentages in certain security types and minimum credit quality levels p. 22.
* These investment parameters are believed to be within applicable guidelines established by the NAIC, the Texas Department of Insurance, and the Oklahoma Department of Insurance p. 22.
* The Investment Committee periodically reviews Enterprise Based Asset Allocation models for overall risk management p. 22.
* While seeking to preserve capital, the company cannot guarantee investment objectives will be achieved, and results may vary substantially over time p. 22.
* Investment strategies aim to be uncorrelated with insurance and reinsurance exposures, but investment losses may coincide with underwriting losses, exacerbating adverse effects p. 22.
* The company could be forced to sell investments to meet liquidity requirements p. 22.
* Premiums received are invested until needed to pay policyholder claims p. 22.
* The duration of the investment portfolio is managed based on the duration of losses and LAE reserves to provide sufficient liquidity and avoid liquidating investments to fund claims p. 22.
* Inadequate losses and LAE reserves or unfavorable litigation trends could necessitate selling investments to fund liabilities p. 22.
* Investments may not be sold at favorable prices or at all p. 22.
* Sales could result in significant realized losses depending on general market conditions, interest rates, and credit issues with individual securities p. 22.

###### Risks Related to the Regulatory Environment

* The company is subject to extensive regulation, which may adversely affect its ability to achieve business objectives p. 23.
* Failure to comply with regulations may result in penalties, including fines and suspensions, adversely affecting financial condition and results of operations p. 23.
* The primary insurance subsidiaries, HSIC, IIC, and GMIC, are extensively regulated in Texas, their state of domicile, and to a lesser degree in other operating states p. 23.
* Most insurance regulations are designed to protect policyholders' interests, not investors' or stockholders' interests p. 23.
* Regulations are administered by state departments of insurance and cover capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency, and other financial and non-financial aspects of the business p. 23.
* Significant changes in laws and regulations could limit discretion or increase business costs p. 23.
* State insurance regulators conduct periodic examinations and require annual and other reports on financial condition, holding company issues, and other matters p. 23.
* Regulatory requirements may impose timing and expense constraints that could adversely affect business objectives p. 23.
* The insurance subsidiaries are part of an "insurance holding company system" under Texas statutes and regulations p. 23.
* Certain transactions between insurance subsidiaries and affiliates require prior notice to the Texas Department of Insurance, potentially causing business delays and additional expenses p. 23.
* Failure to file required notifications or comply with other Texas insurance regulations could lead to significant fines, penalties, and impaired working relationships with the Texas Department of Insurance p. 23.
* State insurance regulators have broad discretion to deny or revoke licenses for reasons including regulation violations p. 23.
* The company follows practices based on its interpretations of regulations or industry practices where applicability is uncertain p. 23.
* These practices may differ from regulatory authorities' interpretations p. 23.
* Lack of requisite licenses/approvals or non-compliance with regulatory requirements could lead to regulators precluding or temporarily suspending activities in a state or imposing other penalties p. 23.
* Changes in insurance industry regulation, laws, or regulatory interpretations could interfere with operations and incur additional compliance costs p. 23.
* Insurance subsidiaries are subject to risk-based capital requirements based on the NAIC's "risk based capital model" and minimum capital/surplus restrictions under Texas law p. 23.
* These requirements establish minimum risk-based capital to support overall business operations p. 23.
* The model identifies inadequately capitalized property and casualty insurers by assessing risks of assets, liabilities, and net written premium mix p. 23.
* Insurers below a calculated threshold may face regulatory action, including supervision, rehabilitation, or liquidation p. 23.
* Failure to maintain required risk-based capital levels could adversely affect the insurance subsidiary's regulatory authority and A.M. Best Rating p. 23.
* The company may become subject to additional government or market regulation, potentially having a material adverse impact on its business p. 23.
* Business could be adversely affected by changes in state laws regarding asset/reserve valuation, surplus requirements, investment/dividend limitations, enterprise risk, and risk-based capital p. 23.
* Federal laws and regulations may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation p. 23.
* The U.S. federal government generally has not directly regulated the insurance industry, except for areas like flood, nuclear, and terrorism risks p. 23.
* Federal initiatives or legislation in areas like tort reform, corporate governance, and reinsurance company taxation may affect the insurance industry p. 23.
* The company currently derives revenues from customers in the cannabis industry p. 23.
* Risks related to the cannabis industry, such as cannabis being deemed a controlled substance under federal laws, may adversely impact clients and potential clients, affecting services p. 23.
* Reversal of cannabis legality in one or more states could force businesses, including customers, to cease operations p. 23.
* A change in the legal status or federal enforcement related to the cannabis industry could negatively impact the company and decrease revenue through loss of customers p. 23.
* The ability to utilize net operating loss carryforwards (NOLs) and other tax attributes may be limited p. 23.
* As of December 31, 2023, the company had gross federal income tax NOLs of approximately $49.4 million available to offset future taxable income p. 23.
* These NOLs are subject to annual limitations under Section 382 of the Internal Revenue Code of 1986 (the Code) or otherwise p. 23.
* The NOLs are set to expire beginning in 2030 p. 23.
* Under Section 382 of the Code, an "ownership change" (greater than 50% change in equity ownership by certain stockholders over a rolling three-year period) can limit the use of pre-ownership change NOLs to offset post-ownership change income p. 23.
* Future ownership changes may occur due to shifts in stock ownership, some outside of company control p. 23.
* Future regulatory changes could also limit the ability to utilize NOLs p. 23.
* Inability to offset future taxable income with NOLs could adversely affect net income and cash flows p. 23.
* As a holding company with substantially all operations conducted by insurance subsidiaries, liquidity at the holding company level, including dividend payments and debt service, depends on cash dividends or other permitted payments from insurance subsidiaries p. 23.
* Continued operation and growth require substantial capital p. 23.
* The company does not intend to declare and pay cash dividends on common stock in the foreseeable future p. 23.
* The ability to pay dividends to stockholders and meet debt obligations largely depends on dividends and distributions from primary insurance subsidiaries: HSIC, IIC, and GMIC p. 23.
* State insurance laws, including Texas laws, restrict the ability of HSIC, IIC, and GMIC to declare stockholder dividends p. 23.
* State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus p. 23.
* Dividend payments are further limited to the portion of available policyholder surplus derived from net profits p. 23.
* State insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels, and there is no assurance that maximum calculated dividends would be permitted p. 23.
* State insurance regulators with jurisdiction over dividend payments by insurance subsidiaries may adopt more restrictive statutory provisions in the future p. 23.
* Any future dividend determination will be at the discretion of the Board of Directors, depending on results of operations, financial condition, contractual restrictions, indebtedness, applicable law, and other relevant factors p. 23.
* Investors may need to sell common stock after price appreciation, which may never occur, as the only way to realize future gains p. 23.
* Investors seeking immediate cash dividends should not purchase the common stock p. 23.
* Applicable insurance laws may make it difficult to effect a change of control p. 23.
* Under Texas insurance laws and regulations, acquiring control of a domestic insurer requires written approval from the state insurance commissioner p. 23.
* Approval is contingent on factors including the acquiror's financial strength, plans for future operations, and potential anti-competitive results p. 23.
* Texas insurance laws and regulations regarding changes of control apply to direct and indirect acquisition of 10% or more of the voting stock of a Texas-domiciled insurer p. 23.
* Acquisition of 10% or more of the company's common stock would be considered an indirect change of control, triggering applicable filing requirements under Texas insurance laws and regulations, unless a disclaimer of control filing is accepted by the Texas Insurance Department p. 23.
* These requirements may discourage potential acquisition proposals and may delay, deter, or prevent a change of control of Skyward Specialty, even if desirable to stockholders p. 23.

###### Risks Related to Our Liquidity and Access to Capital

* Future capital requirements depend on factors such as the ability to write new business successfully and establish premium rates and reserves sufficient to cover losses p. 24.
* If operational cash flows are insufficient for future operating requirements and claim losses, or if the capital position is negatively impacted by investment portfolio declines or catastrophe events, additional funds may be needed through financings or growth curtailment p. 24.
* The amount and timing of capital needs are affected by growth rate, profitability, claims experience, reinsurance availability, market disruptions, and other unforeseeable developments p. 24.
* Equity or debt financing may not be available or may be available only on unfavorable terms p. 24.
* Equity financings could result in dilution to stockholders p. 24.
* Debt financings may impose covenants restricting business operations p. 24.
* Any new securities may have rights, preferences, and privileges senior to common stock p. 24.
* Inability to obtain adequate capital on favorable terms could materially adversely affect operating plans, business, financial condition, or results of operations p. 24.

###### Risks Related to Our Operations

* The loss of key personnel or inability to attract and retain qualified personnel could adversely affect the company p. 25.
* The pool of talent for recruitment is limited and fluctuates based on market dynamics specific to the insurance industry p. 25.
* Higher demand for skilled employees could increase compensation expectations, making it difficult to retain and recruit key personnel and maintain labor costs p. 25.
* Inability to retain and attract talented personnel could prevent the company from maintaining its competitive position in specialized markets, adversely affecting results of operations p. 25.
* Security breaches, data loss, cyberattacks, and IT failures could disrupt operations, damage reputation, and adversely affect business and financial results p. 25.
* The business is highly dependent on information technology and telecommunications systems, including underwriting systems p. 25.
* Systems are used for interacting with brokers and insureds, underwriting, policy preparation, premium processing, actuarial modeling, claims processing and payments, and financial statement preparation p. 25.
* Some systems may include or rely on third-party systems not on company premises or under its control p. 25.
* Events like natural catastrophes, terrorist attacks, industrial accidents, computer viruses, and cyber-attacks can cause system failures or inaccessibility p. 25.
* Sustained or repeated system failures could limit the ability to write and process business, provide customer service, pay claims, or operate normally p. 25.
* Computer viruses, hackers, employee misconduct, and external hazards can expose systems to security breaches and cyber-attacks p. 25.
* Despite security measures, systems and networks may experience breaches or interference, and cybersecurity incidents are likely to continue p. 25.
* Such events can lead to operational disruptions, unauthorized access, disclosure or loss of proprietary or customer data, legal claims, regulatory scrutiny, reputational damage, and increased costs p. 25.
* Public notification of security incidents could exacerbate harm to the business, financial condition, and results of operations p. 25.
* Advances in criminal capabilities, new vulnerabilities, and other developments could compromise or breach technology and security measures p. 25.
* Third parties to whom functions are outsourced are also subject to these risks p. 25.
* While vendor cybersecurity controls are reviewed, the company cannot ensure confidentiality of information p. 25.
* Increased use of third-party services (e.g., cloud technology, SaaS) can complicate identification and response to cyberattacks p. 25.
* These risks could increase as vendors adopt more cloud-based software services p. 25.
* The company may not be able to manage its growth effectively p. 25.
* Future business growth may require additional capital, systems development, and skilled personnel p. 25.
* Failure to meet capital needs, expand systems, improve internal controls, allocate human resources, hire and train qualified employees, or integrate acquired businesses could adversely affect the company p. 25.
* The effects of litigation are uncertain and could adversely affect the business p. 25.
* The company continually faces litigation risks, including disputes related to insurance claims and general commercial/corporate litigation p. 25.
* Other insurance industry members face class action lawsuits and other litigation with substantial or indeterminate amounts, and unpredictable outcomes p. 25.
* Litigation issues include insurance and claim settlement practices p. 25.
* The company cannot predict future involvement in such litigation or its impact p. 25.
* Loss of key vendor relationships or vendor failure to protect data could affect operations p. 25.
* The company relies on many vendors in the United States and abroad for computer hardware/software, claim adjustment, human resource benefits management, and investment management services p. 25.
* Vendor bankruptcy, inability to provide services, or failure to protect confidential information could result in operational impairments and financial losses p. 25.
* Failure to properly assess vendor risks, including security and stability, could materially and adversely affect financial condition and results of operations p. 25.
* The company anticipates continued reliance on third-party software p. 25.
* Replacing third-party software may be difficult or costly, even if commercially reasonable alternatives exist p. 25.
* Integration of new third-party software may require significant work, time, and resources p. 25.
* License agreements for additional or alternative third-party software may not be available on commercially reasonable terms p. 25.
* Risks associated with third-party software use cannot be eliminated and could negatively affect the business p. 25.
* Failure to protect intellectual property rights for its proprietary technology platform and brand, or being sued for infringement, could occur p. 25.
* Success and ability to compete depend partly on intellectual property, including brand rights and proprietary technology in certain product lines p. 25.
* The company primarily relies on copyright and trade secret laws, and confidentiality agreements to protect intellectual property p. 25.
* Steps taken to protect intellectual property may be inadequate p. 25.
* Efforts to enforce intellectual property rights may face defenses, counterclaims, and countersuits challenging validity, enforceability, and scope p. 25.
* Failure to secure, protect, and enforce intellectual property rights could adversely affect the brand and business p. 25.
* Success also depends on not infringing on the intellectual property rights of others p. 25.
* Third parties may claim infringement of their intellectual property rights, and the company may be found to be infringing p. 25.
* Claims or litigation could incur significant expenses, require substantial damages or royalty payments, prevent service offerings, or impose unfavorable terms p. 25.
* Litigation, even if successful, could be costly, time-consuming, and divert management attention p. 25.

###### Risks Related to Ownership of Our Common Stock

* The company expects to incur increased costs and management time due to operating as a public company p. 26.
* Financial reporting and other requirements may exceed the preparedness of the company's accounting and management systems and resources p. 26.
* Significant legal, accounting, and other expenses will continue to be incurred as a public company, especially after ceasing to be an emerging growth company p. 26.
* Federal securities laws, including the Sarbanes-Oxley Act, Dodd-Frank Act, and SEC/Nasdaq regulations, impose requirements on public companies, increasing compliance costs and management time p. 26.
* There is a risk that the company may not produce reliable financial statements, file them timely with the SEC, or comply with Nasdaq listing requirements p. 26.
* These rules and regulations may make director and officer liability insurance more difficult and expensive to obtain p. 26.
* Beginning January 18, 2024, the company will be required to furnish a management report on internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act p. 26.
* As an emerging growth company, the company is not required to include an attestation report on internal control over financial reporting from its independent registered public accounting firm p. 26.
* Compliance with Section 404 involves a costly and challenging process of documenting and evaluating internal control over financial reporting, requiring dedicated internal resources, external consultants, and a detailed work plan p. 26.
* There is a risk that neither the company nor its independent registered public accounting firm will conclude that internal control over financial reporting is effective within the prescribed timeframe, potentially leading to adverse financial market reactions or SEC investigations p. 26.
* The company is required to maintain disclosure controls and procedures designed to ensure timely and accurate reporting of information under the Exchange Act p. 26.
* Disclosure controls and internal control over financial reporting may not prevent or detect all errors and fraud, as control systems provide reasonable, not absolute, assurance p. 26.
* Inherent limitations in control systems mean that misstatements due to error or fraud may occur and not be detected p. 26.
* Failure to achieve and maintain effective internal controls, as required by Section 404 of the Sarbanes-Oxley Act, could harm operating results and financial condition, and negatively affect the common stock price p. 26.
* The company is exempt from the auditor attestation requirement of Section 404(b) of Sarbanes-Oxley until it no longer qualifies as an emerging growth company p. 26.
* The company qualifies as an emerging growth company, and its decision to comply with reduced reporting and disclosure requirements could make its common stock less attractive to investors p. 26.
* As an emerging growth company, the company intends to take advantage of exemptions from various reporting requirements, including not being required to have its independent registered public accounting firm audit internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act p. 26.
* Other exemptions include reduced disclosure obligations regarding executive compensation and exemptions from nonbinding advisory votes on executive compensation and golden parachute payments p. 26.
* The company will cease to be an emerging growth company upon the earliest of: (i) the last day of the fiscal year with total annual gross revenues of USD 1.235bn or more; (ii) the last day of the fiscal year following the fifth anniversary of the IPO date; (iii) the date of issuing more than USD 1bn in nonconvertible debt during the previous three years; and (iv) the date it is deemed a large accelerated filer under SEC rules p. 26.
* Reliance on emerging growth company exemptions could lead to a less active trading market and more volatile stock price if investors find the common stock less attractive p. 26.
* Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until they apply to private companies p. 26.
* The company has elected to use this extended transition period for accounting standards p. 26.
* The market price of the company's common stock has been and is likely to remain highly volatile due to factors beyond its control p. 26.
* Investment in the company's common stock is considered risky, with potential for significant loss and wide fluctuations in market value p. 26.
* Factors that could affect the stock price include: market conditions, fluctuations in quarterly financial results, new products/services, analyst reports, varying results from expectations, short sales/hedging, guidance changes, strategic actions, announcements by the company or competitors, sales of large blocks of stock, changes in Board/management, regulatory/legal/political developments, public response to announcements, litigation/investigations, changing economic conditions (including social inflation), accounting principle changes, indebtedness, default under debt agreements, capital/credit market risks, changes in credit ratings, and other events like natural disasters or terrorism p. 26.
* Securities markets have experienced extreme price and volume fluctuations unrelated to operating performance, potentially leading to investors being unable to resell shares at or above purchase price p. 26.
* Broad market fluctuations, economic, and political conditions can negatively affect the market price of common stock p. 26.
* Extreme price and volume fluctuations in stock markets, including Nasdaq, could cause the stock price to fall and expose the company to costly securities class action litigation p. 26.
* Substantial future sales of common stock by existing stockholders, or the perception of such sales, could depress the market price and impair the ability to raise capital p. 26.
* Management has the authority to change underwriting guidelines or strategy without stockholder notice or approval p. 26.
* Anti-takeover provisions in organizational documents could delay a change in management and limit share price p. 26.
* Charter documents permit the Board to establish the number of directors and fill vacancies p. 26.
* The Board of Directors will be classified into three classes with staggered, three-year terms, and directors may only be removed for cause p. 26.
* Super-majority voting is required to amend provisions in the certificate of incorporation and bylaws p. 26.
* Blank-check preferred stock, with terms set by the Board, could delay or prevent transactions or changes in control p. 26.
* Stockholders' ability to call special meetings is eliminated; such meetings can only be called by the Board, Chairman, or CEO p. 26.
* Stockholder consent action is prohibited unless by unanimous written consent p. 26.
* Vacancies on the Board may only be filled by a majority of directors then in office, even if less than a quorum p. 26.
* Cumulative voting in the election of directors is prohibited p. 26.
* Advance notice requirements are established for director nominations or proposing matters at annual stockholder meetings p. 26.
* As a Delaware corporation, the company is subject to Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders (15% or more) from merging or combining for a period p. 26.
* The certificate of incorporation and bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for substantially all disputes between the company and its stockholders p. 26.
* This exclusive forum provision applies to derivative actions, breach of fiduciary duty claims, claims under DGCL or charter/bylaws, actions to interpret charter/bylaws, and claims governed by the internal affairs doctrine p. 26.
* Unless written consent is given for an alternative forum, federal district courts of the U.S. are the sole and exclusive forum for causes of action arising under the Securities Act p. 26.
* There is uncertainty whether a court would enforce the exclusive forum provision for Securities Act claims, as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts p. 26.
* This choice of forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or other claims with exclusive federal jurisdiction p. 26.
* If the choice of forum provision is found inapplicable or unenforceable, the company may incur additional costs resolving actions in other jurisdictions, potentially harming business, financial condition, or results of operations p. 26.

## Cybersecurity

* *IT Systems* are central to nearly all business operations, including internal/external communications, document/record management, and shared work environments p. 27.
* *Efficient and effective response* to cybersecurity incidents and threats is a key component of the overall Enterprise Risk Management (ERM) strategy p. 27.
* A *Crisis Response Plan (CRP)* has been implemented to address cybersecurity incidents and threats p. 27.
* *Management and IT personnel* have established processes for assessing, identifying, managing, and escalating material cybersecurity risks, integrated into overall risk management p. 27.
* *Cybersecurity risks* are part of the risk universe evaluated annually by the enterprise risk management committee p. 27.
* *Risk owners* are assigned to develop and track mitigation plans for heightened cybersecurity risks identified by the ERM process p. 27.
* *Security events and data incidents* are evaluated, ranked by severity, prioritized for response and remediation, and assessed for materiality, operational/business impact, and privacy impact p. 27.
* The *cybersecurity risk management program* utilizes the National Institute of Standards and Technology framework, categorizing risks into identify, protect, detect, respond, and recover p. 27.
* *Company-wide policies and procedures* cover cybersecurity matters such as encryption standards, antivirus protection, remote access, multifactor authentication, confidential information, and internet/social media/email use p. 27.
* A *detailed crisis response playbook* is followed in the event of an incident p. 27.
* *Investments in IT security* have been expanded, including additional end-user training, layered defenses, critical asset identification and protection, strengthened monitoring and alerting, and expert engagement p. 27.
* *Defenses are regularly tested* through simulations and drills at a technical level (e.g., penetration tests) and operational policy/procedure reviews with third-party experts p. 27.
* The *IT security team* monitors alerts, discusses threat levels, trends, and remediation, prepares a monthly cyber scorecard, collects data on cybersecurity threats and risk areas, and conducts an annual risk assessment p. 27.
* *Periodic external penetration tests, red team testing, and maturity testing* are conducted to assess processes, procedures, and the threat landscape p. 27.
* In case of an incident, *outside cybersecurity legal counsel* would coordinate with other third parties, including communication and notification as required p. 27.
* *Cybersecurity vendors* would perform investigation services and assist with recovery/restoration of impacted IT System services p. 27.
* *Cybersecurity experts* would assist with incident validation and ransomware demands p. 27.
* *Cybersecurity insurance providers* are also involved in incident response p. 27.
* *Processes are implemented* to oversee and identify cybersecurity risks from key third-party service providers, requiring SOC-1 or SOC-2 reports and cybersecurity/disaster recovery plans p. 27.
* *Cybersecurity risk management and strategy processes* are overseen by the Information Security Team, with assistance from Compliance and Legal teams p. 27.
* These individuals have *decades of experience* in IT roles, including security, auditing, compliance, systems, and programming p. 27.
* They are informed about and monitor cybersecurity incident prevention, mitigation, detection, and remediation through their management and participation in risk management processes and crisis response plan operation p. 27.
* They *report to the Risk Committee* on appropriate items p. 27.
* The *Risk Committee of the Board of Directors* oversees cybersecurity strategy, reviews cybersecurity and other IT risks, controls, and procedures, and receives periodic updates from management on cybersecurity measure adequacy and effectiveness p. 27.
* This review includes a *thorough discussion of cybersecurity threat risks* and their potential operational impact p. 27.
* A *separate process* is in place for communicating with the Risk Committee during a specific cybersecurity incident p. 27.
* Members of the *Crisis Management Team* would provide an initial awareness communication to the CEO/Chair of the Board, who would then inform the Chair of the Risk Committee p. 27.
* Following an initial assessment by senior management and IT Systems personnel, a *follow-up communication* would be provided to the CEO and Risk Committee Chair to determine if escalation to the full Board is warranted p. 27.
* While *cybersecurity threats have not materially affected* business strategy, results of operations, or financial condition, a serious compromise of IT Systems or a demand for payment could have a material adverse effect p. 27.
* Such an event could negatively impact the ability to operate effectively and divert management and financial resources p. 27.

## Properties

* *Primary executive offices* and insurance operations are leased in Houston, Texas p. 28.
* The Houston office space occupies approximately *20,000 square feet* p. 28.
* The *lease* for the Houston office space expires in *2029* p. 28.
* Additional office space is leased as needed p. 28.
* Management considers current office facilities suitable and adequate for current operations p. 28.

## Legal Proceedings

* The company is periodically involved in legal proceedings as part of its ordinary course of business p. 29.
* Currently, the company is not involved in any legal proceedings that are believed to have a material adverse effect on its business or results of operation p. 29.

## Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

* *Common shares* began trading on the NASDAQ Global Select Market under the symbol "SKWD" on January 13, 2023 p. 30.
* Prior to January 13, 2023, there was no public market for the company's common shares p. 30.
* As of March 27, 2024, there were approximately *15 holders of record* of the company's common stock p. 30.
* The number of record holders does not represent the total number of stockholders due to shares being held by brokers and other institutions on behalf of stockholders p. 30.

###### Securities Authorized for Issuance Under Equity Compensation Plans

* Information regarding equity compensation plans will be included in the definitive proxy statement filed with the SEC for the 2024 Annual Meeting of Stockholders ("2024 Proxy Statement") and is incorporated by reference p. 31.

###### Recent Sales of Unregistered Equity Securities

* Information regarding securities issued or granted during the period covered by this Annual Report on Form 10-K, which were not registered under the Securities Act, is presented with effect to a 4-for-1 reverse stock split that became effective on January 3, 2023 p. 32.
* Immediately before the IPO, all preferred stock converted into *16,305,113 shares* of common stock p. 32.
* The issuance of these common shares was exempt from Securities Act registration requirements under *Section 3(a)(9)*, as an exchange of securities with existing security holders without commission or remuneration for soliciting the exchange p. 32.
* No underwriters were involved in the issuance of these shares p. 32.
* During the reporting period, *1,101,856 shares* of restricted stock restricted stock units were granted under the Company’s 2020 Long-Term Incentive Plan at a weighted average price of *$16.07 per share* p. 32.
* Also, *759,990 stock options* were granted with a strike price of *$15.00* to certain employees and directors p. 32.
* No shares of common stock were issued upon the exercise of stock options during the reporting period p. 32.
* No underwriters were involved in the issuance of these securities p. 32.
* The issuances of these securities were exempt from registration under *Section 4(a)(2)* of the Securities Act or *Rule 701* promulgated under the Securities Act, as transactions pursuant to compensatory benefit plans p. 32.
* Shares of common stock issued upon the exercise of stock options or warrants are considered restricted securities p. 32.
* All recipients either received adequate information about the company or had access to such information through employment or other relationships p. 32.

###### Use of Proceeds from Initial Public Offering

* The company closed its *IPO* on January 18, 2023 p. 33.
* In the IPO, the company issued and sold *4,750,000 shares* of common stock p. 33.
* *Selling stockholders* sold 4,202,383 shares in the IPO p. 33.
* Underwriters fully exercised their option to purchase an *additional 1,342,857 shares* of common stock from selling stockholders p. 33.
* The offer and sale of shares were registered under the Securities Act via *Form S-1* (File No. 333-265326) p. 33.
* The *registration statement* was declared effective by the SEC on January 12, 2023 p. 33.
* *Barclays Capital Inc.* and *Keefe, Bruyette & Woods, Inc.* were representatives of the underwriters p. 33.
* The *public offering price* was $15.00 per share p. 33.
* *Net proceeds* to the company were approximately $62.3 million, after deducting underwriting discounts and specific incremental IPO expenses p. 33.
* All *proceeds from the IPO* have been distributed to the company's insurance company subsidiaries p. 33.

###### Issuer Purchases of Equity Securities

* The company did not purchase any of its equity securities during the period covered by this Annual Report on Form 10-K p. 34.

###### Dividends

* The company does not currently intend to pay any cash dividends on its common stock in the foreseeable future p. 35.
* Any future determination to pay dividends will be at the discretion of the Board of Directors p. 35.
* Dividend payment will depend on results of operations, financial condition, restrictions by applicable law, and other factors deemed relevant by the Board of Directors p. 35.
* Investors may need to sell all or part of their common stock holdings after price appreciation to realize future gains, as this may be the only way p. 35.
* Investors seeking immediate cash dividends should not purchase the company's common stock p. 35.

###### Performance Graph

* A performance graph compares the cumulative total shareholder return of an investment in Skyward Specialty Insurance Group's common stock, the Nasdaq Composite Index, and the Nasdaq Insurance Index p. 36.
* The comparison period is from January 13, 2023 (the date common stock began trading on Nasdaq) through December 31, 2023 p. 36.
* The graph assumes an initial investment of $100 p. 36.
* Historical returns are not indicative of future performance p. 36.
* The graph is not considered "soliciting material" or "filed" for purposes of Section 18 of the Exchange Act p. 36.
* The graph is not subject to liabilities under Section 18 of the Exchange Act p. 36.
* The graph is not incorporated by reference into any filings under the Securities Act p. 36.
* *Skyward Specialty Insurance Group, Inc. performance*:
  + January 13, 2023: $100.00 p. 36
  + March 31, 2023: Approximately $112.00 p. 36
  + June 30, 2023: Approximately $135.00 p. 36
  + September 30, 2023: Approximately $145.00 p. 36
  + December 31, 2023: Approximately $175.00 p. 36
* *Nasdaq Composite performance*:
  + January 13, 2023: $100.00 p. 36
  + March 31, 2023: Approximately $108.00 p. 36
  + June 30, 2023: Approximately $125.00 p. 36
  + September 30, 2023: Approximately $118.00 p. 36
  + December 31, 2023: Approximately $138.00 p. 36
* *Nasdaq Insurance performance*:
  + January 13, 2023: $100.00 p. 36
  + March 31, 2023: Approximately $95.00 p. 36
  + June 30, 2023: Approximately $95.00 p. 36
  + September 30, 2023: Approximately $98.00 p. 36
  + December 31, 2023: Approximately $102.00 p. 36

###### Skyward Specialty Insurance Group stock performance

| — | January 13, 2023 | December 31, 2023 |
| --- | --- | --- |
| Skyward Specialty Insurance Group, Inc. | 100.00 | 177.38 |
| Nasdaq Composite Index | 100.00 | 135.49 |
| Nasdaq Insurance Index | 100.00 | 103.37 |

Performance Graph

## Management's Discussion and Analysis of Financial Condition and Results of Operations

###### Overview

* The company is a growing specialty insurance company providing commercial P&C products and solutions p. 37.
* Products are offered on both a non-admitted (E&S) and admitted basis p. 37.
* Operations are predominantly in the United States p. 37.
* The company focuses on markets that are underserved, dislocated, or where standard insurance coverages are insufficient p. 37.
* Customers typically require highly specialized, customized underwriting solutions and claims capabilities p. 37.
* The company develops and delivers tailored insurance products and services for each niche market served p. 37.
* The portfolio of insured risks is highly diversified p. 37.
* Customers operate in a wide variety of industries p. 37.
* Distribution occurs through multiple channels p. 37.
* Multiple lines of business are written, including general liability, excess liability, professional liability (which includes cyber insurance), commercial auto, group accident and health, property, agriculture, surety, and workers’ compensation p. 37.
* The company insures both short and medium duration liabilities p. 37.
* The business mix is balanced between E&S and admitted markets p. 37.
* These factors enable the company to respond to market opportunities and dislocations by deploying capital with attractive risk-adjusted returns p. 37.
* Diversification, combined with underwriting and claims expertise, is expected to produce strong growth and consistent profitability across P&C insurance pricing cycles p. 37.
* The company aims to lead in chosen market niches and establish sustainable competitive positions p. 37.
* This strategy is referred to as “Rule Our Niche” p. 37.
* The “Rule Our Niche” strategy forms the basis for building a strong defensible market position, creating a competitive moat, and winning chosen markets p. 37.
* The principles underlying this strategy are considered key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles p. 37.
* The company consistently strives for excellence in risk selection, pricing, and claims outcomes p. 37.
* Advanced technology and analytics are used to amplify critical functions p. 37.

###### Results of Operations

* *Net income* was USD 100.0m for the year ended December 31, 2023, compared to USD 10.0m for the year ended December 31, 2022 p. 38.
* *Net income attributable to common stockholders* was USD 99.9m for the year ended December 31, 2023, compared to USD 9.9m for the year ended December 31, 2022 p. 38.
* *Diluted earnings per share* was USD 2.50 for the year ended December 31, 2023, compared to USD 0.25 for the year ended December 31, 2022 p. 38.
* *Gross written premiums* were USD 1,470.0m for the year ended December 31, 2023, compared to USD 1,200.0m for the year ended December 31, 2022 p. 38.
* *Net earned premiums* were USD 1,090.0m for the year ended December 31, 2023, compared to USD 890.0m for the year ended December 31, 2022 p. 38.
* *Net investment income* was USD 70.0m for the year ended December 31, 2023, compared to USD 40.0m for the year ended December 31, 2022 p. 38.
* *Net realized and unrealized gains on investments* were USD 10.0m for the year ended December 31, 2023, compared to USD -10.0m for the year ended December 31, 2022 p. 38.
* *Other income* was USD 10.0m for the year ended December 31, 2023, compared to USD 10.0m for the year ended December 31, 2022 p. 38.
* *Total revenues* were USD 1,180.0m for the year ended December 31, 2023, compared to USD 930.0m for the year ended December 31, 2022 p. 38.
* *Losses and loss adjustment expenses* were USD 660.0m for the year ended December 31, 2023, compared to USD 560.0m for the year ended December 31, 2022 p. 38.
* *Underwriting expenses* were USD 360.0m for the year ended December 31, 2023, compared to USD 300.0m for the year ended December 31, 2022 p. 38.
* *Interest expense* was USD 20.0m for the year ended December 31, 2023, compared to USD 10.0m for the year ended December 31, 2022 p. 38.
* *Other expenses* were USD 10.0m for the year ended December 31, 2023, compared to USD 10.0m for the year ended December 31, 2022 p. 38.
* *Total expenses* were USD 1,050.0m for the year ended December 31, 2023, compared to USD 880.0m for the year ended December 31, 2022 p. 38.
* *Income before income taxes* was USD 130.0m for the year ended December 31, 2023, compared to USD 50.0m for the year ended December 31, 2022 p. 38.
* *Income tax expense* was USD 30.0m for the year ended December 31, 2023, compared to USD 40.0m for the year ended December 31, 2022 p. 38.
* *Net income* was USD 100.0m for the year ended December 31, 2023, compared to USD 10.0m for the year ended December 31, 2022 p. 38.
* *Net income attributable to noncontrolling interests* was USD 0.1m for the year ended December 31, 2023, compared to USD 0.1m for the year ended December 31, 2022 p. 38.
* *Net income attributable to common stockholders* was USD 99.9m for the year ended December 31, 2023, compared to USD 9.9m for the year ended December 31, 2022 p. 38.
* *Weighted average common shares outstanding - diluted* were 40.0m for the year ended December 31, 2023, compared to 40.0m for the year ended December 31, 2022 p. 38.
* *Combined ratio* was 93.0% for the year ended December 31, 2023, compared to 97.0% for the year ended December 31, 2022 p. 38.
* *Loss ratio* was 60.0% for the year ended December 31, 2023, compared to 63.0% for the year ended December 31, 2022 p. 38.
* *Expense ratio* was 33.0% for the year ended December 31, 2023, compared to 34.0% for the year ended December 31, 2022 p. 38.

###### Loss and expense ratios

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Gross written premiums | 1,459,829 | 1,143,952 |
| Ceded written premiums | -549,138 | -468,409 |
| **Net written premiums** | 910,691 | 675,543 |
| **Net earned premiums** | 829,143 | 615,994 |
| Commission and fee income | 6,064 | 5,199 |
| Losses and LAE | 515,237 | 402,512 |
| Underwriting, acquisition and insurance expenses | 243,444 | 182,171 |
| **Underwriting income (1)** | 76,526 | 36,510 |
| Net investment income | 40,322 | 36,931 |
| Net investment gains (losses) | 11,072 | -15,705 |
| Income before income taxes | 110,102 | 49,783 |
| Net income | 85,984 | 39,396 |
| Adjusted operating income (1) | 80,847 | 58,574 |
| Loss and LAE ratio | 62.1% | 65.3% |
| Expense ratio | 28.6% | 28.7% |
| **Combined ratio** | 90.7% | 94.0% |
| Adjusted loss and LAE ratio (1) | 62.3% | 63.9% |
| Expense ratio | 28.6% | 28.7% |
| **Adjusted combined ratio (1)** | 90.9% | 92.6% |
| Return on equity | 15.9% | 9.3% |
| Return on tangible equity (1) | 19.0% | 11.8% |
| Adjusted return on equity (1) | 14.9% | 13.8% |
| Adjusted return on tangible equity (1) | 17.9% | 17.6% |

(1) See “Reconciliation of Non-GAAP Financial Measures” in this Item 7.

###### Reconciliation of Non-GAAP Financial Measures

* The provided tables offer reconciliations for *Adjusted Operating Income* to net income for the years ended December 31, 2023 and 2022 p. 39.
* The tables provide a reconciliation of *Underwriting income (loss)* to income before federal income tax for the years ended December 31, 2023 and 2022 p. 39.
* The tables provide a reconciliation of the *Adjusted Loss Ratio / Adjusted Combined Ratio* to the loss and LAE ratio and combined ratio for the years ended December 31, 2023 and 2022 p. 39.
* The tables provide a reconciliation of *Tangible Stockholders’ Equity* to stockholders’ equity as of December 31, 2023 and 2022 p. 39.
* The tables provide a reconciliation of *Adjusted Return on Equity* to return on equity for the years ended December 31, 2023 and 2022 p. 39.
* *Return on Tangible Equity* for the years ended December 31, 2023 and 2022 reconciles to return on equity as presented in the tables p. 39.
* *Adjusted Return on Tangible Equity* for the years ended December 31, 2023 and 2022 reconciles to return on equity as presented in the tables p. 39.

###### Reconciliation of return on tangible equity to return on equity

| ($ in thousands) | 2023 Before Income Taxes | 2023 After Income Taxes | 2022 Before Income Taxes | 2022 After Income Taxes |
| --- | --- | --- | --- | --- |
| Income as reported | 110,102 | 85,984 | 49,783 | 39,396 |
| Less (Add): — Net impact of LPT | 1,427 | 1,127 | -8,572 | -6,772 |
| Less (Add): — Net investment gains (losses) | 11,072 | 8,747 | -15,705 | -12,407 |
| Less (Add): — Other (loss) income | -632 | -499 | 1 | 1 |
| Less (Add): — Other expenses | -5,364 | -4,238 | — | — |
| **Less (Add): — Adjusted operating income** | 103,599 | 80,847 | 74,059 | 58,574 |

###### Reconciliation of income before federal income tax to underwriting income

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Income before federal income tax | 110,102 | 49,783 |
| Add: — Interest expense | 10,024 | 6,407 |
| Add: — Amortization expense | 1,798 | 1,547 |
| Add: — Other expenses | 5,364 | — |
| Less (Add): — Net investment income | 40,322 | 36,931 |
| Less (Add): — Net investment gains (losses) | 11,072 | -15,705 |
| Less (Add): — Other (loss) income | -632 | 1 |
| **Less (Add): — Underwriting income** | 76,526 | 36,510 |

###### Loss and combined ratios

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Net earned premiums | 829,143 | 615,994 |
| Losses and LAE | 515,237 | 402,512 |
| Pre-tax net impact of loss portfolio transfer | -1,427 | 8,572 |
| **Adjusted losses and LAE** | 516,664 | 393,940 |
| Loss ratio | 62.1% | 65.3% |
| Net impact of LPT | -0.2% | 1.4% |
| **Adjusted loss ratio** | 62.3% | 63.9% |
| Combined ratio | 90.7% | 94.0% |
| Net impact of LPT | -0.2% | 1.4% |
| **Adjusted combined ratio** | 90.9% | 92.6% |

###### Stockholders’ equity and tangible stockholders’ equity

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Stockholders’ equity | 661,031 | 421,662 |
| Less: goodwill and intangible assets | 88,435 | 89,870 |
| **Tangible stockholders’ equity** | 572,596 | 331,792 |

###### Adjusted return on equity

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Numerator: adjusted operating income | 80,847 | 58,574 |
| **Denominator: average stockholders’ equity** | 541,347 | 423,871 |
| Adjusted return on equity | 14.9% | 13.8% |

###### Return on tangible equity

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Numerator: net income | 85,984 | 39,396 |
| **Denominator: average tangible stockholders’ equity** | 452,194 | 333,268 |
| Return on tangible equity | 19.0% | 11.8% |

###### Adjusted return on tangible equity

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Numerator: adjusted operating income | 80,847 | 58,574 |
| **Denominator: average tangible stockholders’ equity** | 452,194 | 333,268 |
| Adjusted return on tangible equity | 17.9% | 17.6% |

###### Underwriting Results

* *Net earned premiums* were USD 829.1m for the year ended December 31, 2023, compared to USD 616.0m for the same 2022 period, an increase of USD 213.1m or +34.6% p. 40.
* The increase in net earned premiums was primarily driven by the same reasons as the increase in gross written premiums p. 40.
* The *loss ratio* for the year ended 2023 improved 3.2 points compared to the same 2022 period p. 40.
* The *non-cat loss and LAE ratio* improved 1.9 points compared to the same 2022 period, driven by a shift in business mix and continued run-off of exited business p. 40.
* *Catastrophe losses* from Q2 and Q3 convective storms and Q1 wind and hail events (including tornadoes) added 1.4 points to the loss ratio in 2023 p. 40.
* The 2022 loss ratio was impacted by 1.1 points of catastrophe losses from Hurricane Ian and Winter Storm Elliott p. 40.
* The *loss ratio for 2022* included 1.4 points from the net impact of LPT reserve strengthening p. 40.
* For the year ended December 31, 2023, the Company recognized *favorable development* of USD 9.2m in short tail/monoline specialty lines p. 40.
* For the year ended December 31, 2023, the Company recognized *adverse development* of USD 11.9m in multi-line solutions p. 40.
* The *favorable development in short tail/monoline specialty lines* was driven by property lines of business from the 2021 accident year p. 40.
* The *adverse development in multi-line solutions* was driven by higher than expected severity in general and auto liability lines, primarily from the 2019 accident year p. 40.
* During the year ended December 31, 2022, *net incurred losses for accident years 2021 and prior* developed adversely by USD 14.4m, related to losses subject to the LPT p. 40.
* Within *exited lines*, adverse development of USD 14.5m was from the 2019 accident year, primarily due to increased frequency and severity in general and professional liability p. 40.
* The *remaining net adverse development* was USD 8.4m from other accident years p. 40.
* Within *multi-line solutions*, favorable development of USD 10.8m was from the 2020 through 2021 accident years, driven by a reduction in frequency of claims in commercial auto and general liability p. 40.
* The *remaining net adverse development* was USD 2.3m from various other accident years p. 40.
* On *April 1, 2020* ("Inception Date"), with a valuation date of June 30, 2019 ("Valuation Date"), the Company entered into an LPT retroactive reinsurance agreement with R&Q Bermuda (SAC) Limited p. 40.
* The *LPT covers liabilities* (including claim payments, allocated LAE, and certain extra-contractual obligations) related to certain policies issued or assumed for policy years 2017 and prior p. 40.
* The *LPT agreement* covers the majority of the Company's exited business p. 40.
* As of the *Valuation Date*, the Company agreed to cede USD 153.1m of Net LPT Reserves for certain lines of business, primarily related to 2017 and prior policy years, subject to an aggregate cash deductible of USD 105m p. 40.
* Subsequent to the Valuation Date but prior to the Inception Date, the *Net LPT Reserves* were strengthened by USD 5.5m, increasing them to USD 158.6m p. 40.
* At the *Inception Date*, the cash remitted to the third-party reinsurer for the cession of the Net LPT reserves was USD 53.6m (USD 158.6m Net LPT Reserves less USD 105.0m cash deductible) p. 40.
* As of the *Inception Date*, the LPT provided reinsurance protection of approximately USD 127.4m above the Net LPT Reserves, subject to co-participations p. 40.
* The Company paid *USD 43.5m in premium* to the reinsurer for this reinsurance protection p. 40.
* The *total cash transfer* on the Inception Date was USD 97.1m (USD 43.5m premium + USD 53.6m remitted cash) p. 40.
* The *LPT is structured into two sections*: Section A and Section B, with separate and independent reinsurance structures p. 40.
* *Section A* represented USD 22.2m of ceded net reserves at LPT inception, covering claims from exited workers’ compensation and general liability lines primarily from policy years 2011 and prior p. 40.
* *Section B* represented USD 130.9m of ceded net reserves at LPT inception, covering claims from other exited business and certain continuing business related to policies written in years 2017 and prior, principally general liability and commercial auto lines p. 40.
* As of December 31, 2023, *net loss reserves subject to the LPT* were USD 44.8m, compared to USD 68.6m as of December 31, 2022 p. 40.
* Since the inception of the LPT, as of December 31, 2023, the *number of open claims* has been reduced by 79.5% p. 40.
* For *Section A*, USD 22.2m of net reserves were ceded based on the Valuation Date p. 40.
* *Section A* provides 100% reinsurance coverage on the first USD 2.8m of incurred losses and LAE above the ceded net reserves p. 40.
* Above the USD 2.8m coverage layer, there is a further *USD 5.0m of reinsurance coverage* for which the Company retains 50% of incurred losses and LAE p. 40.
* As of December 31, 2023, *total incurred losses and LAE for Section A* were USD 38.2m, which is USD 8.2m in excess of the reinsurance coverage under Section A of the LPT p. 40.
* As of December 31, 2023, *paid losses and LAE on policies subject to Section A* were USD 24.9m, which is USD 5.1m below the total reinsurance coverage under Section A p. 40.
* The *ratio of paid losses and LAE to total incurred losses and LAE for Section A* was 65.1% as of December 31, 2023 p. 40.
* *Section A open claims* have been reduced by 68.9% since the Valuation Date p. 40.
* For *Section B*, USD 130.9m of net reserves were ceded based on the Valuation Date p. 40.
* *Section B* provides 100% reinsurance coverage on the first USD 19.1m of incurred losses and LAE above the ceded net reserves p. 40.
* Above the USD 19.1m layer, a further *USD 70.0m of reinsurance coverage* is provided with a 50% co-participation on incurred losses and LAE p. 40.
* There is an additional *USD 36.0m of reinsurance* that provides 100% coverage above the USD 70.0m layer p. 40.
* As of December 31, 2023, *total incurred losses and LAE for Section B* were USD 220.0m, with the entire USD 36.0m of 100% coverage layer still available p. 40.
* As of December 31, 2023, *paid losses and LAE on policies subject to Section B* were USD 188.5m, which is USD 67.5m below the total reinsurance coverage under Section B (including co-participation amounts) p. 40.
* The *ratio of paid losses and LAE to total incurred losses and LAE for Section B* was 85.7% as of December 31, 2023 p. 40.
* *Section B open claims* have been reduced by 81.9% since the Valuation Date p. 40.
* The *expense ratio* was flat compared to the same 2022 period p. 40.
* The *net policy and acquisition expense ratio* increased compared to the same 2022 period, primarily driven by a shift in business mix p. 40.
* The *other operating and general expense ratio* improved compared to the same 2022 period, due to the increase in earned premiums p. 40.
* The *increase in income from the core fixed income portfolio* for 2023 was due to a larger asset base and a higher book yield of 4.5% at December 31, 2023 (compared to 3.7% at December 31, 2022) p. 40.
* The *increase in income from short-term and money market investments* for 2023 was due to a larger asset base and higher investment yields p. 40.
* The *opportunistic fixed income portfolio* continued to be impacted by a decline in the fair value of limited partnership investments for 2023 p. 40.
* *Section A LPT structure*: Net LPT Reserves USD 22.2m; 100% Reinsurance Coverage USD 2.8m; 50% Reinsurance Coverage USD 5.0m, totaling USD 30.0m cover p. 40.
* *Section A Total Incurred at December 31, 2023*: Paid USD 24.9m; Reserves USD 13.3m, totaling USD 38.2m p. 40.
* *Section A Open Claims*: 508 at Valuation Date; 158 at December 31, 2023 p. 40.
* *Section B LPT structure*: Net LPT Reserves USD 130.9m; 100% Reinsurance Coverage USD 19.1m; 50% Reinsurance Coverage USD 70.0m; 100% Reinsurance Coverage USD 36.0m, totaling USD 256.0m cover p. 40.
* *Section B Total Incurred at December 31, 2023*: Paid USD 188.5m; Reserves USD 31.5m, totaling USD 220.0m p. 40.
* *Section B Open Claims*: 2,260 at Valuation Date; 410 at December 31, 2023 p. 40.

###### Total incurred and open claims by business segment

| ($ in thousands) | 2023 | 2022 | % Change |
| --- | --- | --- | --- |
| Industry Solutions | 305,476 | 267,628 | 14.1% |
| Global Property & Agriculture | 273,191 | 205,081 | 33.2% |
| Programs | 178,726 | 163,653 | 9.2% |
| Captives | 167,624 | 124,286 | 34.9% |
| Professional Lines | 154,565 | 93,011 | 66.2% |
| Accident & Health | 151,701 | 130,808 | 16.0% |
| Transactional E&S | 122,508 | 75,098 | 63.1% |
| Surety | 106,056 | 79,062 | 34.1% |
| **Total continuing business** | 1,459,847 | 1,138,627 | 28.2% |
| Exited business | -18 | 5,325 | -100.3% |
| **Total gross written premiums** | 1,459,829 | 1,143,952 | 27.6% |

###### Losses and LAE by type

**—**

| ($ in thousands) Losses and LAE: | 2023 Losses and LAE | 2023 % of Net Earned Premiums | 2022 Losses and LAE | 2022 % of Net Earned Premiums |
| --- | --- | --- | --- | --- |
| Non-cat loss and LAE (1) | 504,664 | 60.9% | 387,440 | 62.8% |
| Cat loss and LAE (1) | 12,000 | 1.4% | 6,500 | 1.1% |
| Prior accident year development - LPT | -1,427 | -0.2% | 8,572 | 1.4% |
| **Total losses and LAE** | 515,237 | 62.1% | 402,512 | 65.3% |
| Non-cat loss and LAE (1) | 504,664 | 60.9% | 387,440 | 62.8% |
| Cat loss and LAE (1) | 12,000 | 1.4% | 6,500 | 1.1% |
| **Total adjusted losses and LAE (2)** | 516,664 | 62.3% | 393,940 | 63.9% |

(1) Current accident year.
(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 7.

###### Reserve development on losses

**Development (Favorable) Adverse**

| ($ in thousands) Accident Year | — | — | 2023 | 2022 |
| --- | --- | --- | --- | --- |
| Prior | — | — | 10,132 | 30,141 |
| 2020 | — | — | 7,903 | -6,756 |
| 2021 | — | — | -27,312 | -9,000 |
| 2022 | — | — | 9,277 | — |
| **Total** | — | 14,385 | — | — |
| **Reserve development on losses subject to LPT** | — | 14,385 | — | — |

###### Underwriting, acquisition, and insurance expenses

| ($ in thousands) | 2023 Expenses | 2023 % of Net Earned Premiums | 2022 Expenses | 2022 % of Net Earned Premiums |
| --- | --- | --- | --- | --- |
| Net policy acquisition expenses | 108,514 | 13.0% | 65,695 | 10.6% |
| Other operating and general expenses | 134,930 | 16.3% | 116,476 | 18.9% |
| **Underwriting, acquisition and insurance expenses** | 243,444 | 29.3% | 182,171 | 29.5% |
| Less: commission and fee income | -6,064 | -0.7% | -5,199 | -0.8% |
| **Total net expenses** | 237,380 | 28.6% | 176,972 | 28.7% |

###### Net investment income and gains (losses)

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Cash and short-term investments (1) | 11,353 | 1,427 |
| Core fixed income | 32,572 | 16,544 |
| Opportunistic fixed income | -6,844 | 16,784 |
| Equities | 2,682 | 2,160 |
| **Net investment income (1)** | 39,763 | 36,915 |
| **Net unrealized gains (losses) on securities still held** | 11,130 | (15,058) |
| Net realized losses | -58 | -647 |
| **Net investment gains (losses)** | 11,072 | (15,705) |

(1) Excludes income from operating cash for the years ended December, 31, 2023 and 2022.

Underwriting Results

Underwriting Results

Underwriting Results

Underwriting Results

###### Investments

* *Fixed maturity securities* comprised 73.8% of the total investment portfolio as of December 31, 2023, and 74.2% as of December 31, 2022 p. 41.
* *Weighted average effective duration* for fixed maturity securities was 3.2 years as of December 31, 2023, and 3.1 years as of December 31, 2022 p. 41.
* *Average core fixed income credit rating* was "AA-" (Standard & Poor’s) as of December 31, 2023, and "AA" as of December 31, 2022 p. 41.
* *Core fixed income portfolio* consists primarily of investment grade fixed income securities p. 41.
* *Objective* for the core fixed income portfolio is to earn attractive risk-adjusted returns with a low risk of loss of principal p. 41.
* *Core fixed income portfolio* is managed by third-party managers p. 41.
* *Average duration* of the core fixed income portfolio was approximately 4.4 years as of December 31, 2023, and 4.3 years as of December 31, 2022 p. 41.
* *Weighted average credit rating* of the core fixed income portfolio was "AA-" by Standard & Poor’s at December 31, 2023, and "AA" by Standard & Poor’s at December 31, 2022 p. 41.
* *Opportunistic fixed income portfolio* is managed by Arena, an affiliate of Westaim, the largest shareholder p. 41.
* *Opportunistic fixed income portfolio* includes separately managed accounts, limited partnerships, promissory notes, and equity interests p. 41.
* *Underlying securities* in the opportunistic fixed income portfolio are primarily floating rate senior secured loans, which are short duration, collateralized, asset-oriented credit investments p. 41.
* *Investments* in the opportunistic fixed income portfolio have strong covenants and are backed by significant collateral with a weighted average loan-to-value of 74% p. 41.
* *Opportunistic fixed income portfolio* as of December 31, 2023, consisted of:
  + Diversified asset based lending: 55.1% p. 41.
  + Commercial mortgage loans: 29.0% p. 41.
  + Cash and cash equivalents: 15.9% p. 41.
* *Average duration* of the opportunistic fixed income portfolio was approximately 1.3 years as of December 31, 2023, and 1.4 years as of December 31, 2022 p. 41.
* *Equities portfolio* primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations, and other equity interests p. 41.
* *Publicly traded equities* comprised 77.2% of the equities portfolio p. 41.
* *Tail-risk management strategy* was initiated in 2021 to protect the equity portfolio from significant S&P 500 declines within a 30-day period p. 41.
* *Annual cost* of the tail-risk management strategy was approximately $1.0 million as of December 31, 2023 p. 41.
* *Equities portfolio* is directed internally and includes both self-managed investments and portfolios managed by third-party firms p. 41.
* *Market risk* is the risk of economic losses due to adverse changes in the fair value of a financial instrument from changes in interest rates, equity prices, foreign currency exchange rates, and commodity prices p. 41.
* *Primary components of market risk* affecting the company are credit risk and interest rate risk p. 41.
* *No significant exposure* to foreign currency exchange rate risk or commodity risk p. 41.
* *Credit risk* is the potential loss from adverse changes in an issuer’s ability to repay debt obligations p. 41.
* *Exposure to credit risk* exists as a holder of debt instruments in core fixed income and opportunistic fixed income portfolios p. 41.
* *Risk management strategy* and investment policy prioritize debt instruments of high credit quality issuers and limit credit exposure by ratings categories and per issuer p. 41.
* *Core fixed income portfolio* had an average rating of "AA-" at December 31, 2023 p. 41.
* *Approximately 82%* of securities in the core fixed income portfolio were rated "A" or better by at least one nationally recognized rating organization at December 31, 2023 p. 41.
* *Investment policy* is to invest in high-quality, liquid investment grade fixed income securities for stable income, supplemented by opportunistic fixed income and equity securities for diversification and risk-adjusted returns p. 41.
* *Approximately 3.0%* of the core fixed income portfolio was unrated or rated below investment-grade at December 31, 2023 p. 41.
* *Investment managers* monitor the financial condition of all issuers in the portfolio p. 41.
* *Credit risk* also exists with third-party reinsurers p. 41.
* *Ultimate liability* to policyholders remains with the company even for ceded risks p. 41.
* *Credit risk mitigation* for reinsurers involves purchasing reinsurance from those rated at least "A-" (Excellent) or better by A.M. Best p. 41.
* *Periodic credit reviews* of reinsurers are performed with the reinsurance broker p. 41.
* *99% of reinsurance recoverables* were from reinsurers rated "A-" (Excellent) by A.M. Best or better, or were collateralized, at December 31, 2023 p. 41.
* *Options to lessen risk* from reinsurer credit downgrades include commutation, novation, and letters of credit p. 41.
* *Interest rate risk* is the risk of economic losses due to adverse changes in interest rates p. 41.
* *Primary market risk* to the investment portfolio is interest rate risk from fixed income securities p. 41.
* *Interest rate fluctuations* directly affect the market valuation of fixed income securities p. 41.
* *Interest rate risk management* involves investing in securities with varied maturity dates and managing portfolio duration in relation to liability duration p. 41.
* *Duration targets* for the core fixed income investment portfolio are set considering estimated liability duration and other factors p. 41.
* *Fixed maturity securities* had a weighted average effective duration of 3.2 years as of December 31, 2023 p. 41.
* *Fixed income securities* subject to interest rate risk had a fair value of $1,017.7 million at December 31, 2023 p. 41.
* *Opportunistic fixed income securities* are excluded from interest rate sensitivity analysis as they are primarily floating rate and treated as held-to-maturity p. 41.
* *Changes in interest rates* immediately affect comprehensive income and stockholders’ equity, but not ordinarily net income p. 41.
* *Equity price risk* is the potential economic losses due to adverse changes in equity security prices p. 41.
* *Approximately 11.4%* of the fair value of the investment portfolio (excluding cash and cash equivalents and short-term investments) was invested in equity securities at December 31, 2023 p. 41.
* *Equity price risk management* includes portfolio diversification and a tail-risk management strategy p. 41.

###### Investment portfolio by type

| ($ in thousands) | 2023 Fair Value | 2023 % of Total | 2022 Fair Value | 2022 % of Total |
| --- | --- | --- | --- | --- |
| Short-term and money market investments | 270,259 | 16.7% | 121,268 | 11.2% |
| Core fixed income | 1,017,651 | 63.1% | 607,572 | 56.1% |
| Opportunistic fixed income | 172,645 | 10.7% | 196,021 | 18.1% |
| Equities | 153,132 | 9.5% | 157,506 | 14.6% |
| **Total investment portfolio** | 1,613,687 | 100.0% | 1,082,367 | 100.0% |

###### Core fixed income securities by type

| ($ in thousands) | 2023 Fair Value | 2023 % of Total Fair Value | 2022 Fair Value | 2022 % of Total Fair Value |
| --- | --- | --- | --- | --- |
| U.S. government securities | 44,166 | 4.3% | 48,541 | 8.0% |
| Corporate securities and miscellaneous | 383,420 | 37.7% | 235,129 | 38.7% |
| Municipal securities | 92,778 | 9.1% | 57,727 | 9.5% |
| Residential mortgage-backed securities | 281,626 | 27.7% | 119,856 | 19.7% |
| Commercial mortgage-backed securities | 29,934 | 2.9% | 36,495 | 6.0% |
| Other asset-backed securities | 185,727 | 18.3% | 109,824 | 18.1% |
| **Core fixed income securities, available for sale** | 1,017,651 | 100.0% | 607,572 | 100.0% |

###### Core fixed income by credit rating

| ($ in thousands) | 2023 Fair Value | 2023 % of Total | 2022 Fair Value | 2022 % of Total |
| --- | --- | --- | --- | --- |
| AAA | 493,252 | 48.6% | 283,733 | 46.7% |
| AA | 105,906 | 10.4% | 74,604 | 12.3% |
| A | 233,487 | 22.9% | 134,175 | 22.1% |
| BBB | 154,096 | 15.1% | 88,369 | 14.5% |
| BB and Lower | 30,910 | 3.0% | 26,691 | 4.4% |
| **Total core fixed income** | 1,017,651 | 100.0% | 607,572 | 100.0% |

###### Opportunistic fixed income by sector

| ($ in thousands) | 2023 Fair Value | 2023 % of Total | 2022 Fair Value | 2022 % of Total |
| --- | --- | --- | --- | --- |
| Real Estate | 88,964 | 51.5% | 90,370 | 46.1% |
| Oil & Gas | 15,991 | 9.3% | 20,725 | 10.6% |
| Banking, Finance & Insurance | 11,425 | 6.6% | 13,870 | 7.1% |
| Other sectors (1) | 28,747 | 16.7% | 34,072 | 17.4% |
| Cash and cash equivalents (2) | 27,518 | 15.9% | 36,984 | 18.8% |
| **Opportunistic fixed income** | 172,645 | 100.0% | 196,021 | 100.0% |

(1) Other sectors primarily includes Aerospace & Defense, Business Services, Retail, Commercial & Industrial and Environmental.
(2) Includes cash on settlements that have not yet been redeployed.

###### Equities by type

| ($ in thousands) | 2023 Fair Value | 2023 % of Total Fair Value | 2022 Fair Value | 2022 % of Total Fair Value |
| --- | --- | --- | --- | --- |
| Domestic common equities | 71,502 | 46.7% | 76,929 | 48.8% |
| International common equities | 39,389 | 25.7% | 34,468 | 21.9% |
| Preferred stock | 7,358 | 4.8% | 8,772 | 5.6% |
| Other (1) | 34,883 | 22.8% | 37,337 | 23.7% |
| **Equities** | 153,132 | 100.0% | 157,506 | 100.0% |

(1) Other includes limited partnerships, limited liability companies and other equity interests.

###### Estimated change in fair value due to interest rate changes

| ($ in thousands) | Estimated Fair Value | Estimated Change in Fair Value | Estimated % Increase (Decrease) in Fair Value |
| --- | --- | --- | --- |
| 300 basis point increase | 887,124 | -130,527 | -12.8% |
| 200 basis point increase | 929,996 | -87,655 | -8.6% |
| 100 basis point increase | 973,505 | -44,146 | -4.3% |
| No change | 1,017,651 | — | 0.0% |
| 100 basis point decrease | 1,062,433 | 44,782 | 4.4% |
| 200 basis point decrease | 1,107,852 | 90,201 | 8.9% |
| 300 basis point decrease | 1,153,908 | 136,257 | 13.4% |

###### Other Items

* *Income tax expense* was USD 24.1m for the year ended December 31, 2023, compared to USD 10.4m for the year ended December 31, 2022 p. 42.
* *Effective tax rate* was 21.9% for the year ended December 31, 2023, compared to 20.9% for the year ended December 31, 2022 p. 42.
* The *change in effective tax rate* in 2023 compared to 2022 was primarily due to the relationship of taxable to non-taxable income p. 42.
* The Company's *provision for income taxes* generally does not deviate substantially from the statutory tax rate p. 42.
* The *effective tax rate* may vary slightly from the statutory rate due to tax adjustments for tax-exempt income and dividends-received deduction p. 42.
* For a reconciliation between actual federal income tax expense and the amount computed at the indicated statutory rate for 2023 and 2022, refer to Note 13, "Income Taxes," in the consolidated financial statements included in Item 8 of this Form 10-K p. 42.

###### Sources and Uses of Funds

* The company is organized as a holding company, with operations primarily conducted by wholly-owned insurance subsidiaries: HSIC, IIC, and GMIC (domiciled in Texas), and OSIC (domiciled in Oklahoma) p. 43.
* The holding company receives cash through: corporate service fees from operating subsidiaries, payments from a consolidated tax allocation agreement, dividends from subsidiaries (subject to limitations), bank loans, draws on a revolving loan agreement, and issuance of equity and debt securities p. 43.
* Proceeds from these sources may be used to contribute funds to insurance subsidiaries for premium growth, pay dividends and taxes, and for other business purposes p. 43.
* Skyward Service Company receives corporate service fees from operating subsidiaries to reimburse most incurred operating expenses p. 43.
* Reimbursement of expenses through corporate service fees is based on actual expected costs, with no mark-up p. 43.
* The company files a consolidated U.S. federal income tax return with its subsidiaries p. 43.
* Under the corporate tax allocation agreement, each participant is charged or refunded taxes as if they filed on a separate return basis with the IRS p. 43.
* Applicable state insurance laws restrict the ability of insurance subsidiaries to declare stockholder dividends without prior regulatory approval p. 43.
* State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus p. 43.
* Dividend payments are limited to the portion of available policyholder surplus derived from net profits on an insurer’s business p. 43.
* Insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels p. 43.
* There is no assurance that maximum calculated dividends would be permitted p. 43.
* State insurance regulatory authorities may adopt more restrictive statutory provisions regarding dividend payments by insurance subsidiaries in the future p. 43.
* The insurance subsidiaries did not pay dividends to the holding company for the years ended December 31, 2023, or 2022 p. 43.
* For additional information on statutory accounting principles and regulatory matters, refer to Note 23 in the consolidated financial statements in Item 8 of the Form 10-K p. 43.
* *Holding company cash and investments* were USD 3.0m at December 31, 2023, compared to USD 8.9m at December 31, 2022 p. 43.
* The company believes it has sufficient liquidity to meet operating cash needs, obligations, and committed capital expenditures for the next 12 months p. 43.

###### Cash Flows

* *Primary cash source*: premiums received from insureds, typically at the beginning of the coverage period, net of related commission p. 44.
* *Primary cash outflow*: claims incurred by policyholders p. 44.
* *Investment strategy*: cash is invested in various investment securities (earning interest and dividends) due to the time lag between premium receipt and claim payment p. 44.
* *Other cash uses*: operating expenses (salaries, rent, taxes) and capital expenditures (technology systems) p. 44.
* *Risk management*: reinsurance is used to manage policy risk p. 44.
* *Reinsurance cash flow*: part of premiums are ceded to reinsurers, and cash is collected back when covered losses are paid p. 44.
* *Operating cash flow timing*: can vary between periods due to the timing of payments and receipts, including significant loss settlements and reinsurance receipts p. 44.
* *Management belief*: cash receipts from premiums and investment income proceeds are sufficient to cover foreseeable cash outflows p. 44.
* *Operating activities cash flow increase (2023, 2022)*: primarily due to business growth, timing of premium receipts, claim payments, and reinsurance activity p. 44.
* *Operating cash flow usage (past two years)*: primarily funded investing activities p. 44.
* *Investing activities cash flow change (2023 to 2022)*: primarily driven by increased purchases of fixed maturity securities and short-term investments p. 44.
* *Financing activities cash flow change (2023 to 2022)*: primarily driven by proceeds from the IPO and the November follow-on offering p. 44.
* *Additional information*: regarding the IPO and November follow-on offering can be found in note 12, "Stockholders’ Equity", in Item 8 of Form 10-K p. 44.

###### Cash and cash equivalents provided by (used in) activities

**—**

| ($ in thousands) Cash and cash equivalents provided by (used in): | 2023 | 2022 |
| --- | --- | --- |
| Operating activities | 338,187 | 208,938 |
| Investing activities | -493,809 | -193,381 |
| Financing activities | 130,947 | 2,180 |
| **Change in cash and cash equivalents** | (24,675) | 17,737 |

###### Credit Agreements

* On March 29, 2023, the company entered into an unsecured revolving credit facility (the "Revolving Credit Facility") with a syndicate of participating banks p. 45.
* The *Revolving Credit Facility* provides up to a USD 150.0 million revolving credit facility, with an accordion to increase capacity by USD 50.0 million, and a letter of credit sub-facility of up to USD 30.0 million p. 45.
* During the year ended December 31, 2023, the company drew *USD 50.0 million* on the Revolving Credit Facility to pay off the principal on its Term Loan p. 45.
* The Term Loan and the Revolver were subsequently terminated p. 45.
* *Interest on the Revolving Credit Facility* is payable quarterly p. 45.
* The *interest rate* is the Secured Overnight Financing Rate ("SOFR") plus a margin of 150 to 190 basis points, based on the debt-to-total-capital ratio, and a credit spread adjustment of 10 basis points p. 45.
* At December 31, 2023, the *six-month SOFR* on the Revolving Credit Facility was 5.47%, plus a margin of 1.60% p. 45.
* The company is subject to *covenants* on the Revolving Credit Facility, including minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating, and minimum liquidity p. 45.
* As of December 31, 2023, the company was in compliance with all covenants p. 45.
* On March 14, 2024, the company drew *USD 50.0 million* on the Revolving Credit Facility to fund the redemption of the Debentures p. 45.
* After the March 14, 2024 draw, *USD 100.0 million* was outstanding under the Revolving Credit Facility, with an additional USD 50.0 million of undrawn capacity p. 45.
* In August 2006, the company received *USD 58.0 million* from a debenture offering through Delos Capital Trust (the "Trust") p. 45.
* The *Trust's sole asset* is Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Debentures") with a principal amount of USD 59.8 million issued by the company, and USD 1.8 million in cash from Trust common shares purchased by the company (3% of Trust capitalization) p. 45.
* The *Debentures* are an unsecured, redeemable obligation with a maturity date of September 15, 2036 p. 45.
* *Interest on the Trust Preferred* is payable quarterly at an annual rate based on the three-month LIBOR plus 3.4% p. 45.
* The *three-month LIBOR* was 5.59% at December 31, 2023, and 4.77% at December 31, 2022 p. 45.
* On March 15, 2024, the company redeemed the Debentures and paid *USD 1.4 million* in accrued interest p. 45.
* In May 2019, the company issued unsecured subordinated notes (the "Notes") with an aggregate principal amount of *USD 20.0 million* p. 45.
* *Interest on the subordinated notes* is 7.25% fixed for the first 8 years and 8.25% fixed thereafter p. 45.
* Early retirement of the debt before the eight-year commitment requires all interest payments to be paid in full, plus the return of all capital p. 45.
* *Principal payment* is due at maturity on May 24, 2039, and interest is payable quarterly p. 45.
* On December 11, 2019, the company entered into a credit agreement with Prosperity Bank, providing a *USD 50.0 million term loan* (the "Term Loan") and a *USD 50.0 million revolving line of credit* (the "Revolver") with additional capacity up to USD 75.0 million p. 45.
* At December 31, 2022, the *interest rate on the Term Loan* was the one-month LIBOR (4.39% on December 31, 2022) plus an "Applicable Margin" of 1.65% p. 45.
* The existing term loan and revolving line of credit were terminated upon entry into the Revolving Credit Facility p. 45.
* At December 31, 2023, the *ratio of total debt outstanding* (Revolving Credit Facility, Trust Preferred, Notes) to total capitalization was 16.3% p. 45.
* At December 31, 2022, the *ratio of total debt outstanding* (Term Loan, Revolver, Trust Preferred, Notes) to total capitalization was 23.4% p. 45.
* At March 15, 2024, *capitalization remained unchanged* due to the draw on the Revolving Credit Facility and subsequent redemption of the Debentures p. 45.

###### Contractual Obligations and Commitments

* *Reserves for losses and LAE* represent the best estimate of the ultimate cost of settling reported and unreported claims and related expenses p. 46.
* Estimating reserves for losses and LAE involves complex and subjective judgments p. 46.
* Actual losses and settlement expenses paid may substantially deviate from the reserve estimates in financial statements p. 46.
* The timing for payment of estimated losses is not fixed or individually/aggregately determinable p. 46.
* Assumptions for estimating periodic payments are based on the company's, industry's, and peer group's claims payment experience p. 46.
* There is a risk that actual payments in any period will differ significantly from disclosed amounts due to uncertainty in timing estimation p. 46.
* Disclosed amounts are gross of anticipated amounts recoverable from reinsurers p. 46.
* *Reinsurance balances recoverable* on reserves for losses and LAE are reported separately as assets, not netted with liabilities, because reinsurance does not discharge the company's liability to policyholders p. 46.
* *Reinsurance balances recoverable* on reserves for paid and unpaid losses and LAE totaled $596.3 million at December 31, 2023 p. 46.
* *Reinsurance balances recoverable* on reserves for paid and unpaid losses and LAE totaled $581.4 million at December 31, 2022 p. 46.

###### Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE

**Payments due by period**

| ($ in thousands) | Total | Less Than One Year | One Year or More |
| --- | --- | --- | --- |
| Reserves for losses and LAE | 1,314,501 | 579,852 | 734,649 |
| Long-term debt | 129,794 | 59,794 | 70,000 |
| Interest on debt obligations | 109,196 | 10,408 | 98,788 |
| Operating lease obligations | 5,784 | 1,671 | 4,113 |
| **Total** | 1,559,275 | 651,725 | 907,550 |

###### Critical Accounting Policies

* Critical accounting estimates are those important to financial condition and results of operations, requiring significant judgment p. 47.
* Significant judgment is used concerning future results and developments in applying critical accounting estimates and preparing consolidated financial statements p. 47.
* Judgments and estimates affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of material contingent assets and liabilities p. 47.
* Actual results may differ materially from the estimates and assumptions used in preparing consolidated financial statements p. 47.
* Estimates are evaluated regularly using relevant information p. 47.
* For a detailed discussion of accounting policies, refer to Note 2, “Summary of Significant Accounting Policies” in Item 8 of Form 10-K p. 47.
* *Reserves for unpaid losses and LAE* is the largest and most complex estimate on the consolidated balance sheet p. 47.
* *Reserves for unpaid losses and LAE* represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust these losses as of or before the balance sheet date p. 47.
* Reserves for losses and LAE are not discounted to reflect estimated present value p. 47.
* Reserves are estimated using individual case-basis valuations of reported claims, statistical analyses, and various actuarial procedures p. 47.
* Estimates are based on historical information, industry and peer group information, and estimates of future trends in variable factors like loss severity, loss frequency, and inflation p. 47.
* Estimates are regularly reviewed and adjusted as experience develops or new information becomes known p. 47.
* During the loss settlement period, estimates of liability on a claim may be refined and adjusted upward or downward p. 47.
* The ultimate liability may exceed or be less than revised estimates p. 47.
* The ultimate settlement of losses and related LAE may vary significantly from the estimate included in financial statements p. 47.
* Reserves for unpaid losses and LAE are categorized into two types: *case reserves* and *IBNR* p. 47.
* *Case reserves* are established for individual claims reported by insureds, agents, or brokers p. 47.
* *Case reserves* estimate ultimate losses from a claim, including defense costs p. 47.
* Claims department personnel, with advice from internal and external experts (underwriters, legal counsel), estimate expected ultimate losses for case reserves p. 47.
* Third-Party Administrators (TPAs) are used in limited circumstances to assist in claims adjustment p. 47.
* Internal claims managers oversee TPA activities and monitor their claim handling to prescribed standards p. 47.
* *IBNR reserves* are developed in accordance with Actuarial Standards of Practice promulgated by the American Academy of Actuaries p. 47.
* The *Reserve Committee* performs the reserve review and utilizes several accepted loss reserving methods to determine the best estimate of loss reserves p. 47.
* The relative strengths and weaknesses of each method are considered in deriving the actuarial best estimate of liabilities p. 47.
* Industry and/or peer-group data are used in addition to own data when there are limited years of loss experience compared to the expected reporting period p. 47.
* Loss emergence is monitored daily p. 47.
* Internal or external factors such as underwriting, claims handling, economic, or environmental changes are considered, and assumptions, methods, or procedures are adjusted as necessary p. 47.
* The *duration of loss reserves* was 2.3 years as of December 31, 2023 p. 47.
* The *Reserve Committee* includes the Chief Actuary, Chief Risk Officer, Chief Financial Officer, and Chief Claims Officer p. 47.
* The *Reserve Committee* meets quarterly to review actuarial reserving recommendations and determine the best estimate for losses and LAE on the balance sheet p. 47.
* The actuary estimates an initial expected ultimate loss ratio for each underwriting division when establishing quarterly actuarial recommendations p. 47.
* Input from underwriting and claims departments, including premium pricing assumptions and historical experience, is considered in estimating initial expected loss ratios p. 47.
* Multiple actuarial methods are used to estimate losses and LAE reserves p. 47.
* These methods utilize initial expected loss ratio, statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures p. 47.
* *Actuarial methods used*:
  + *Reported and/or Paid Loss Development Methods*: Ultimate losses are estimated based on historical reported and/or paid loss reporting patterns p. 47. Reported losses are the sum of paid and case losses p. 47. Industry development patterns are substituted when sufficient historical data is unavailable p. 47.
  + *Reported Bornhuetter-Ferguson Methods*: Ultimate losses are estimated as the sum of cumulative reported losses and estimated IBNR losses p. 47. IBNR losses are estimated based on historical development patterns and factors like expected average severity, estimated ultimate claims counts, expected pure premium, and expected loss ratios underlying loss cost multipliers p. 47.
  + *Paid Bornhuetter-Ferguson Method*: Ultimate losses are estimated as the sum of cumulative paid losses and estimated unpaid losses p. 47. Unpaid losses are estimated based on expected loss ratios underlying loss cost multipliers and selected industry development patterns of paid losses p. 47.
* All methods are utilized in the comprehensive review of reserves p. 47.
* The *Bornhuetter-Ferguson Method* is the primary method for ultimate loss indications for less mature policy years p. 47.
* *Reported and/or Paid Loss Development Methods* are used for more mature policy years p. 47.
* Reported methods are primarily relied upon where case reserving is consistently applied across policy years p. 47.
* When there is a change in reserving philosophy, both reported and paid methods are blended in the evaluation of ultimate loss indications p. 47.
* *Reserves* are driven by factors including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions p. 47.
* *Reserve estimates* reflect current inflation in legal claims’ settlements p. 47.
* *Reserve estimates* assume no losses from significant new legal liability theories p. 47.
* *Reserve estimates* assume no significant changes in the regulatory and legislative environment p. 47.
* The impact of potential changes in the regulatory or legislative environment is difficult to quantify without specific, significant new regulation or legislation p. 47.
* In the event of significant new regulation or legislation, the company will attempt to quantify its impact, but accuracy or success cannot be assured p. 47.
* Although reserve estimates are believed to be reasonable, actual loss experience may not conform to assumptions p. 47.
* Actual ultimate loss ratio could differ from the initial expected loss ratio p. 47.
* Actual reporting and payment patterns could differ from expected patterns, which are based on company and industry data p. 47.
* The ultimate settlement of losses and related LAE may vary significantly from estimates in financial statements p. 47.
* Estimates are regularly reviewed and adjusted as experience develops or new information becomes known p. 47.
* Adjustments are included in the results of current operations p. 47.
* *Development* is the amount by which estimated losses differ from those originally reported for a period p. 47.
* *Unfavorable development* occurs when losses settle for more than reserved or subsequent estimates indicate reserve increases on unresolved claims p. 47.
* *Favorable development* occurs when losses settle for less than reserved or subsequent estimates indicate reserve reductions on unresolved claims p. 47.
* Favorable or unfavorable development of loss reserves is reflected in the results of operations in the period the estimates are changed p. 47.
* A *5% change in net IBNR* would result in a *$27.0 million change* in reserves for losses and LAE p. 47.
* A *5% change in net IBNR* would result in a *$21.3 million change* in net income and stockholders’ equity p. 47.

###### Impact of a 5% change in net IBNR on reserves and net income

| ($ in thousands) | 2023 Gross | 2023 % of Total | 2023 Net | 2023 % of Total | 2022 Gross | 2022 % of Total | 2022 Net | 2022 % of Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Case reserves | 561,474 | 42.7% | 318,863 | 37.1% | 485,143 | 42.5% | 269,273 | 38.2% |
| IBNR | 753,027 | 57.3% | 540,154 | 62.9% | 656,614 | 57.5% | 436,498 | 61.8% |
| **Total** | 1,314,501 | 100.0% | 859,017 | 100.0% | 1,141,757 | 100.0% | 705,771 | 100.0% |

###### Recent Accounting Pronouncements

* The company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) p. 48.
* The company has elected to use the extended transition period for adopting new or revised accounting guidance, aligning with private companies' timelines p. 48.
* The company will remain an emerging growth company until the earliest of:
  + The last day of the fiscal year with total annual gross revenues of USD 1.235 billion or more p. 48.
  + The last day of the fiscal year following the fifth anniversary of the offering completion date p. 48.
  + The date when more than USD 1 billion in nonconvertible debt has been issued during the previous three years p. 48.
  + The date when the company is deemed a large accelerated filer under SEC rules p. 48.
* The company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), effective January 1, 2023 p. 48.
* ASU 2016-13 requires estimating credit losses on financial instruments, including receivables and available-for-sale debt securities, using an expected loss approach that incorporates historical, current, and forecasted information p. 48.
* The adoption of ASU 2016-13 used the modified retrospective approach, with a cumulative-effect adjustment to retained earnings on the adoption date p. 48.
* In connection with ASU 2016-13 adoption, the company elected the fair value option for mortgage loans, effective January 1, 2023, as targeted transition relief p. 48.
* The adoption of ASU 2016-13 resulted in a USD 2.3 million increase in the allowance for uncollectible reinsurance p. 48.
* The adoption of ASU 2016-13 resulted in a USD 2.3 million increase, net of tax, in accumulated deficit p. 48.
* In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280) p. 48.
* ASU 2023-07 requires segment disclosures for:
  + Significant segment expenses regularly provided to the chief operating decision maker (CODM) p. 48.
  + How the CODM uses reported segment profitability measures for performance assessment and resource allocation p. 48.
  + The title and position of the CODM p. 48.
* Entities with a single reportable segment must provide full segment disclosures under ASU 2023-07 p. 48.
* The guidance in ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 p. 48.
* ASU 2023-07 is applied retrospectively to all prior periods presented p. 48.
* The company is evaluating the effect of ASU 2023-07 amendments on its consolidated financial statements p. 48.
* In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) p. 48.
* ASU 2023-09 requires public companies to provide enhanced annual rate reconciliation disclosures, including specific categories and additional information meeting a quantitative threshold p. 48.
* ASU 2023-09 also requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes p. 48.
* The guidance in ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 p. 48.
* The company is evaluating the effect of ASU 2023-09 amendments on its consolidated financial statements p. 48.

## Quantitative and Qualitative Disclosures About Market Risk

* Qualitative and Quantitative Disclosures about Market Risk are included in Item 7 of this Form 10-K under "Investments—Market Risk" p. 49.

## Financial Statements

###### Report of Independent Registered Public Accounting Firm

* We have audited the accompanying consolidated financial statements of Skyward Specialty Insurance Group, Inc. and its subsidiaries, which include the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, along with the related notes p. 50.
* We believe that the consolidated financial statements present fairly, in all material respects, the financial position of Skyward Specialty Insurance Group, Inc. and its subsidiaries as of December 31, 2023 and 2022, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America p. 50.
* We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2024, expressed an unqualified opinion thereon p. 50.
* The audit was conducted by Ernst & Young LLP, located in Houston, Texas, and dated February 28, 2024 p. 50.

###### Opinion on the Financial Statements

* The consolidated financial statements of Skyward Specialty Insurance Group, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, have been audited p. 51.
* The audit included the consolidated balance sheets, consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years ended December 31, 2023 p. 51.
* The related notes and financial statement schedules listed in the Index at Item 15 were also part of the audit p. 51.
* The consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022 p. 51.
* The consolidated financial statements also present fairly the results of the Company's operations and its cash flows for each of the two years ended December 31, 2023 p. 51.
* The financial statements conform with U.S. generally accepted accounting principles p. 51.

###### Basis for Opinion

* The *Company's management* is responsible for these financial statements p. 52.
* The auditor's responsibility is to express an opinion on the *Company’s financial statements* based on their audits p. 52.
* The auditor is a *public accounting firm* registered with the Public Company Accounting Oversight Board (United States) (PCAOB) p. 52.
* The auditor is required to be *independent* in accordance with U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB p. 52.
* Audits were conducted in accordance with *PCAOB standards* p. 52.
* PCAOB standards require planning and performing the audit to obtain *reasonable assurance* about whether financial statements are free of material misstatement, whether due to error or fraud p. 52.
* The Company is *not required* to have an audit of its internal control over financial reporting, nor was the auditor engaged to perform one p. 52.
* As part of the audits, the auditor is required to obtain an *understanding of internal control over financial reporting*, but not for expressing an opinion on its effectiveness p. 52.
* The auditor expresses *no opinion* on the effectiveness of the Company’s internal control over financial reporting p. 52.
* Audits included procedures to assess *risks of material misstatement* of the financial statements, whether due to error or fraud, and procedures to respond to those risks p. 52.
* Such procedures included examining, on a *test basis*, evidence regarding amounts and disclosures in the financial statements p. 52.
* Audits also included evaluating *accounting principles* used, significant estimates made by management, and the overall presentation of the financial statements p. 52.
* The auditor believes their audits provide a *reasonable basis* for their opinion p. 52.

Caption: Auditor's opinion on financial statements

| /s/ Ernst & Young LLP |
| --- |
| We have served as the Company’s auditor since 2021. |
| Houston, Texas |
| April 1, 2024 |

###### Consolidated balance sheets

* The accompanying notes are an integral part of these consolidated financial statements p. 53.

###### Consolidated balance sheets - assets

**December 31, —**

| ($ in thousands, except share and per share amounts) Assets Investments: | 2023 | 2022 |
| --- | --- | --- |
| Fixed maturity securities, available-for-sale, at fair value (amortized cost of $ 1,047,713 and $ 662,616 , respectively) | 1,017,651 | 607,572 |
| Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 329 as of December 31, 2023) | 42,986 | 52,467 |
| Equity securities, at fair value | 118,249 | 120,169 |
| Mortgage loans (at fair value as of December 31, 2023; at amortized cost as of December 31, 2022) | 50,070 | 51,859 |
| Other long-term investments | 114,505 | 129,142 |
| Short-term investments, at fair value | 270,226 | 121,158 |
| **Total investments** | 1,613,687 | 1,082,367 |
| Cash and cash equivalents | 65,891 | 45,438 |
| Restricted cash | 34,445 | 79,573 |
| Premiums receivable, net | 179,235 | 139,215 |
| Reinsurance recoverables, net | 596,334 | 581,359 |
| Ceded unearned premium | 186,121 | 157,645 |
| Deferred policy acquisition costs | 91,955 | 68,938 |
| Deferred income taxes, net | 21,991 | 36,188 |
| Goodwill and intangible assets, net | 88,435 | 89,870 |
| Other assets | 75,341 | 82,846 |
| **Total assets** | 2,953,435 | 2,363,439 |
| Liabilities and stockholders’ equity — Reserves for losses and loss adjustment expenses | 1,314,501 | 1,141,757 |
| Liabilities and stockholders’ equity — Unearned premiums | 552,532 | 442,509 |
| Liabilities and stockholders’ equity — Deferred ceding commission | 37,057 | 29,849 |
| Liabilities and stockholders’ equity — Reinsurance and premium payables | 150,156 | 113,696 |
| Liabilities and stockholders’ equity — Funds held for others | 58,588 | 36,858 |
| Liabilities and stockholders’ equity — Accounts payable and accrued liabilities | 50,880 | 48,499 |
| Liabilities and stockholders’ equity — Notes payable | 50,000 | 50,000 |
| Liabilities and stockholders’ equity — Subordinated debt, net of debt issuance costs | 78,690 | 78,609 |
| **Liabilities and stockholders’ equity — Total liabilities** | 2,292,404 | 1,941,777 |
| Stockholders’ equity: — Series A preferred stock, $ 0.01 par value; 10,000,000 and 2,000,000 shares authorized, 0 and 1,969,660 shares issued and outstanding, respectively | — | 20 |
| Stockholders’ equity: — Common stock, $ 0.01 par value, 500,000,000 and 168,000,000 shares authorized, 39,863,756 and 16,832,955 shares issued, respectively | 399 | 168 |
| Stockholders’ equity: — Treasury stock, $ 0.01 par value, 0 and 233,289 shares, respectively | — | ( 2 ) |
| Stockholders’ equity: — Additional paid-in capital | 710,855 | 577,289 |
| Stockholders’ equity: — Stock notes receivable | ( 5,562 ) | ( 6,911 ) |
| Stockholders’ equity: — Accumulated other comprehensive loss | ( 22,953 ) | ( 43,485 ) |
| Stockholders’ equity: — Accumulated deficit | ( 21,708 ) | ( 105,417 ) |
| **Stockholders’ equity: — Total stockholders’ equity** | 661,031 | 421,662 |
| **Stockholders’ equity: — Total liabilities and stockholders’ equity** | 2,953,435 | 2,363,439 |

###### Consolidated statements of operations and comprehensive income (loss)

* The accompanying notes are an integral part of these consolidated financial statements p. 54.

###### Consolidated statements of operations - revenues and expenses

**Years Ended December 31, —**

| ($ in thousands, except share and per share amounts) Revenues: | 2023 | 2022 |
| --- | --- | --- |
| Net earned premiums | 829,143 | 615,994 |
| Commission and fee income | 6,064 | 5,199 |
| Net investment income | 40,322 | 36,931 |
| Net investment gains (losses) | 11,072 | ( 15,705 ) |
| Other (loss) income | ( 632 ) | 1 |
| **Total revenues** | 885,969 | 642,420 |
| Losses and loss adjustment expenses | 515,237 | 402,512 |
| Underwriting, acquisition and insurance expenses | 243,444 | 182,171 |
| Interest expense | 10,024 | 6,407 |
| Amortization expense | 1,798 | 1,547 |
| Other expenses | 5,364 | — |
| **Total expenses** | 775,867 | 592,637 |
| **Income before income taxes** | 110,102 | 49,783 |
| Income tax expense | 24,118 | 10,387 |
| **Net income** | 85,984 | 39,396 |
| **Net income attributable to participating securities** | 1,677 | 18,879 |
| **Net income attributable to common shareholders** | 84,307 | 20,517 |
| **Net income** | 85,984 | 39,396 |
| Unrealized gains and losses on investments: — Net change in unrealized gains (losses) on investments, net of tax | 25,516 | ( 48,545 ) |
| Unrealized gains and losses on investments: — Reclassification adjustment for (losses) gains on securities no longer held, net of tax | ( 4,984 ) | 420 |
| **Unrealized gains and losses on investments: — Total other comprehensive income (loss)** | 20,532 | ( 48,125 ) |
| **Unrealized gains and losses on investments: — Comprehensive income (loss)** | 106,516 | ( 8,729 ) |
| Per share data: — Basic earnings per share | 2.34 | 1.24 |
| **Per share data: — Diluted earnings per share** | 2.24 | 1.21 |
| Weighted-average common shares outstanding — Basic | 36,031,907 | 16,568,393 |
| **Weighted-average common shares outstanding — Diluted** | 38,317,534 | 32,653,194 |

###### Consolidated statements of stockholders’ equity

* The accompanying notes are an integral part of these consolidated financial statements p. 55.

###### Consolidated statements of changes in stockholders' equity

**20 168 ( 2 ) —**

| ($ in thousands) Preferred Stock: Balance at beginning of year Preferred stock conversion to common shares Balance at end of year Common Stock: Issuance of common stock Proceeds from equity offerings, net Treasury Stock: Additional Paid-In Capital: | 2023 ( 20 ) 22 161 48 399 2 | 2022 |
| --- | --- | --- |
| Balance at beginning of year | 577,289 | 575,159 |
| Issuance of common stock | 9,213 | 2,130 |
| Preferred stock conversion to common shares | ( 143 ) | — |
| Proceeds from equity offerings, net | 124,496 | — |
| **Balance at end of year** | 710,855 | 577,289 |
| Stock Notes Receivable: — Balance at beginning of year | ( 6,911 ) | ( 9,092 ) |
| Stock Notes Receivable: — Employee equity transactions | 1,349 | 2,181 |
| **Stock Notes Receivable: — Balance at end of year** | ( 5,562 ) | ( 6,911 ) |
| Accumulated Other Comprehensive Loss: — Balance at beginning of year | ( 43,485 ) | 4,640 |
| Accumulated Other Comprehensive Loss: — Other comprehensive income (loss), net of tax | 20,532 | ( 48,125 ) |
| **Accumulated Other Comprehensive Loss: — Balance at end of year** | ( 22,953 ) | ( 43,485 ) |
| Accumulated Deficit: — Balance at beginning of year | ( 105,417 ) | ( 144,813 ) |
| Accumulated Deficit: — Cumulative effect on adoption of ASU No. 2016-13 | ( 2,275 ) | — |
| Accumulated Deficit: — Net income | 85,984 | 39,396 |
| **Accumulated Deficit: — Balance at end of year** | ( 21,708 ) | ( 105,417 ) |
| **Accumulated Deficit: — Total Stockholders’ Equity** | 661,031 | 421,662 |

###### Consolidated statements of cash flows

* The accompanying notes are an integral part of these consolidated financial statements p. 56.

###### Consolidated statements of cash flows - operating activities

**Years Ended December 31, —**

| ($ in thousands) Cash flows from operating activities: | 2023 | 2022 |
| --- | --- | --- |
| Net income | 85,984 | 39,396 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Net investment (gains) losses | ( 11,072 ) | 15,705 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Depreciation and amortization expense | 3,891 | 4,097 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Stock-based compensation expense | 8,525 | 2,287 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Undistributed loss (earnings) from long-term investments | 6,730 | ( 16,032 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Deferred income tax, net | 9,383 | 10,267 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Premiums receivable, net | ( 40,020 ) | ( 27,057 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Reinsurance recoverables, net | ( 17,270 ) | ( 45,032 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Ceded unearned premium | ( 28,476 ) | ( 19,672 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Deferred policy acquisition costs | ( 23,017 ) | ( 9,482 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Federal income taxes | ( 1,892 ) | — |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Losses and loss adjustment expenses | 172,744 | 162,208 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Unearned premiums | 110,023 | 79,221 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Deferred ceding commission | 7,208 | ( 651 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Reinsurance and premium payables | 36,460 | ( 6,223 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Funds held for others | 21,730 | 7,271 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Accounts payable and accrued liabilities | 2,285 | 7,583 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Other, net | ( 5,029 ) | 5,052 |
| **Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Net cash provided by operating activities** | 338,187 | 208,938 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Purchase of fixed maturity securities, available-for-sale | ( 459,672 ) | ( 268,781 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Purchase of illiquid investments | ( 1,675 ) | ( 4,873 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Purchase of equity securities | ( 26,009 ) | ( 53,548 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Purchase of intangible assets | ( 50 ) | — |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Investment in direct and indirect loans | 2,984 | ( 9,767 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Purchase of property and equipment | ( 3,108 ) | ( 2,325 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Sales and maturities of investment securities | 127,228 | 95,641 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Sales of and distributions from unconsolidated subsidiaries | 3,572 | 3,421 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Change in short-term investments | ( 149,068 ) | 43,120 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Payable for securities sold | 76 | 529 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Cash provided by deposit accounting | 11,913 | 3,202 |
| **Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Net cash used in investing activities** | ( 493,809 ) | ( 193,381 ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Employee share purchases | 1,350 | 2,180 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Draw on revolving line of credit | 50,000 | — |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Repayment of term loan | ( 50,000 ) | — |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Proceeds from equity offerings | 128,887 | — |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Proceeds from employee stock purchase plan | 710 | — |
| **Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Net cash provided by financing activities** | 130,947 | 2,180 |
| **Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Net (decrease) increase in cash and cash equivalents and restricted cash** | ( 24,675 ) | 17,737 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Cash and cash equivalents and restricted cash at beginning of year* | 125,011 | 107,274 |
| **Adjustments to reconcile net income to net cash provided by (used in) operating activities: — Cash and cash equivalents and restricted cash at end of year*** | 100,336 | 125,011 |
| Supplemental disclosure of cash flow information: — Cash paid for interest | 10,667 | 5,761 |
| Supplemental disclosure of cash flow information: — Cash paid for federal income taxes | 15,800 | — |

###### A. Description of Business

* Skyward Specialty Insurance Group, Inc. (the "Company") is a Delaware corporation organized in 2006 p. 57.
* The Company operates as a specialty insurance company in one segment, providing commercial property and casualty insurance products through its underwriting divisions p. 57.
* The Company has four wholly owned insurance company subsidiaries in the United States p. 57.
* Houston Specialty Insurance Company ("HSIC") underwrites insurance on a non-admitted basis p. 57.
* Imperium Insurance Company ("IIC"), a subsidiary of HSIC, underwrites insurance on an admitted basis p. 57.
* Great Midwest Insurance Company ("GMIC"), a subsidiary of IIC, underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S. Department of the Treasury p. 57.
* Oklahoma Specialty Insurance Company ("OSIC"), a subsidiary of GMIC, underwrites insurance on a non-admitted basis p. 57.
* The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, domiciled in the Cayman Islands p. 57.
* Skyward Re assumes net reserves for certain divisions related to a retroactive reinsurance contract from the Company's insurance companies and retrocedes these net reserves to a third-party reinsurer p. 57.
* The Company has two non-risk bearing wholly owned subsidiaries p. 57.
* Skyward Underwriters Agency, Inc. ("SUA") is a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets p. 57.
* Skyward Service Company provides various administrative services to the Company's subsidiaries p. 57.

###### B. Basis of Presentation

* The Company's consolidated financial statements are prepared according to Generally Accepted Accounting Principles in the United States of America ("GAAP") p. 58.
* GAAP differs in some aspects from the principles followed in reports to insurance regulatory authorities p. 58.
* The consolidated financial statements include the accounts of the holding company and its subsidiaries p. 58.
* All intercompany transactions and balances have been eliminated during consolidation p. 58.
* The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect reported amounts and accompanying notes p. 58.
* The Company's actual results may differ from these estimates p. 58.

###### C. Cash and Cash Equivalents

* *Cash and cash equivalents* include cash on hand and fixed maturity securities with original maturities of three months or less p. 59.
* The *carrying value* of the Company’s cash and cash equivalents approximates fair value p. 59.

###### D. Restricted Cash

* *Restricted cash* is defined as cash with a legal restriction on withdrawal or use by the consolidated group p. 60.
* The *carrying value* of the Company’s restricted cash approximates fair value p. 60.
* *SUA* collects premiums from clients, deducts commissions and fees, and remits the remaining premiums to the Company’s insurance companies or third-party insurance companies p. 60.
* *SUA* holds unremitted insurance premiums in a fiduciary capacity for third-party insurance companies, which is recorded as restricted cash p. 60.
* The Company is required by *state regulations* to maintain assets on deposit with certain states and hold cash as collateral for certain reinsurance balances p. 60.
* *Cash held in a depository account* for others or restricted by a state is recorded as restricted cash p. 60.

###### E. Investments

* *Available for Sale fixed maturities*: carried at fair value p. 61.
* For *available-for-sale fixed maturities in an unrealized loss position*, the Company first determines intent to sell or likelihood of being required to sell before maturity or recovery of cost basis p. 61.
* If intent to sell or likelihood of required sale is met, the *amortized cost* is written down to fair value, with losses recognized in net investment gains on consolidated statements of operations p. 61.
* If neither criterion is met, the Company determines if *unrealized losses* are due to credit-related factors p. 61.
* If unrealized losses are credit-related, an *allowance for credit losses* is determined using a present value of cash flows compared to the amortized cost p. 61.
* The *allowance for credit losses* is limited to the amount by which fair value is below amortized cost p. 61.
* *Changes in the allowance for credit losses* are recognized in net investment income on the consolidated statements of operations p. 61.
* *Credit losses limited by fair value* are recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive loss p. 61.
* *Unrealized losses not credit-related* continue to be recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive loss p. 61.
* *Held to maturity fixed maturity securities*: carried at amortized cost net of an allowance for credit losses p. 61.
* The *allowance for credit losses* represents the current estimate of expected credit losses p. 61.
* The Company develops a *historical loss rate* from Moody’s multi-year cumulative loss rates for asset-backed securities p. 61.
* The *historical loss rate* is adjusted for current conditions and reasonable and supportable forecasts p. 61.
* *Changes in the allowance for credit losses* for held-to-maturity securities are recognized in net investment income on the consolidated statements of operations p. 61.
* Prior to the adoption of *ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326)*, on January 1, 2023, the Company evaluated declines in market value of invested assets below amortized cost for other-than-temporary impairment losses quarterly p. 61.
* *Impairment losses* for declines in fixed maturity securities due to issuer-specific events were based on relevant facts and circumstances and recognized when appropriate p. 61.
* For investments with *unrealized losses due to market conditions or industry-related events*, where the Company did not intend to sell and had the ability to hold for market recovery or to maturity, declines in value below cost were not assumed to be other-than-temporary p. 61.
* When impairment was considered *other-than-temporary*, the decrease in value was reported in net income within the consolidated statements of operations and a corresponding reduction in carrying value on the consolidated balance sheet p. 61.
* *Equity securities with a readily determinable fair value*: consist of common stock or preferred stock p. 61.
* *Mutual funds*, including those investing mostly in debt securities, are classified as equity securities p. 61.
* *Investments in equity securities with a readily determinable fair value*: carried on the balance sheet at fair value using quoted market prices p. 61.
* *Changes in the carrying value of equity securities*: included in net investment gains (losses) within the consolidated statements of operations p. 61.
* *Mortgage loans*: classified as held for investment and carried at cost adjusted for unamortized premiums, discounts, and loan fees p. 61.
* *Uncollectible amounts* on mortgage loans are written off in the period they are determined to be uncollectible p. 61.
* *Interest on mortgage loans*: recognized as interest receivable and included in other assets on the consolidated balance sheet p. 61.
* The Company elected the *fair value option* for mortgage loans effective January 1, 2023, as targeted transition relief from ASU 2016-13 adoption p. 61.
* Under the *fair value option*, mortgage loans are measured at fair value, and changes in unrealized gains and losses are reported in net investment gains (losses) on the condensed consolidated statements of operations p. 61.
* *Interest income and amortization* for mortgage loans continue to be recognized in net investment income on the consolidated statements of operations p. 61.
* *Other long-term investments*: include equity and equity securities of non-public entities and indirect investments in loans and loan collateral p. 61.
* The Company has *equity investments in certain limited partnerships and corporations* where it has significant influence but not control p. 61.
* The Company is not the *primary beneficiary* of these variable interest entities and does not consolidate them p. 61.
* The *equity method* is used to account for investments in unconsolidated subsidiaries p. 61.
* Under the *equity method*, initial investment is recorded at cost and adjusted based on proportionate share of distributions and net income or loss p. 61.
* The *difference between investment cost and proportionate share of underlying equity* in net assets is a component of investment income p. 61.
* The Company amortizes this difference as an *adjustment to pro-rata share of equity method income* over the useful life based on the underlying asset p. 61.
* For *equity securities of non-public entities without a readily determinable fair value*, the Company carries these investments at cost, minus impairment, and changes from observable price changes in orderly transactions p. 61.
* *Investments in indirect collateralized loans and loan collateral*: held through and accounted for as an ownership interest in an unconsolidated subsidiary p. 61.
* The Company’s *ownership interests in unconsolidated subsidiaries* include investments in partnerships, joint ventures, and special purpose investment vehicles p. 61.
* The Company has *significant influence but not control* over these unconsolidated subsidiaries and uses the equity method for these investments p. 61.
* *Short-term investments*: consist primarily of money market funds and are carried at cost, which approximates fair value p. 61.
* *Net investment income*: consists of interest, dividends, and equity in earnings (losses) of unconsolidated subsidiaries, net of investment expenses p. 61.
* *Interest income*: recognized on the accrual basis p. 61.
* *Dividends*: recognized as earned at the ex-dividend date p. 61.
* *Interest income on mortgage-backed and other asset-backed securities*: recognized using the effective-yield method based on estimated principal repayments p. 61.
* *Amortization of premium and accretion of discounts on debt securities*: included in interest income p. 61.
* *Net realized gains and losses on investments*: recognized in net income based upon the specific identification method p. 61.

###### F. Reinsurance

* The Company purchases prospective reinsurance for certain lines of business on a proportional, excess of loss, and facultative basis p. 62.
* *Proportional reinsurance* requires sharing losses and expenses with the reinsurer in exchange for a share of premiums p. 62.
* *Excess of loss reinsurance* shares losses above a certain dollar threshold for a negotiated cost p. 62.
* *Facultative reinsurance* covers specific risks and/or policies on either a proportional or excess of loss basis p. 62.
* Ceded unearned premium and reinsurance balances recoverable are reported as assets, not netted with liabilities, because reinsurance does not relieve the Company of its legal liability to policyholders p. 62.
* Reinsurance on unpaid losses and settlement expenses are estimates of the portion recoverable from reinsurers p. 62.
* On the Consolidated Statements of Operations, net earned premiums, losses and loss adjustment expenses, and underwriting, acquisition, and insurance expenses are presented net of reinsurance ceded p. 62.
* The Company purchases retroactive reinsurance for certain lines of business, including loss portfolio transfers (LPT) and adverse development covers p. 62.
* Retroactive reinsurance contracts indemnify losses related to past events, with the reinsurer sharing losses based on dollar thresholds p. 62.
* Income from retroactive reinsurance contracts is deferred and amortized into net income over the settlement period p. 62.
* Losses from retroactive reinsurance contracts are charged to net income immediately p. 62.
* Subsequent changes in the measurement of retroactive reinsurance contracts are accounted for using a full retrospective method p. 62.
* Ceded reinsurance contracts that management determines do not transfer significant insurance risk are accounted for using the deposit method p. 62.
* The evaluation of significant insurance risk transfer assesses both timing risk and underwriting risk p. 62.
* If a reinsurance contract transfers only significant timing risk but not sufficient underwriting risk, a deposit asset is recorded equal to the initial cash outflow p. 62.
* An accretion rate is established at contract inception based on actuarial estimates to adjust the deposit accounting asset to the estimated receivable amount over the contract term p. 62.
* The accretion of the deposit is based on the expected rate of return implied from estimated cash inflows and outflows p. 62.
* The Company periodically reassesses the estimated ultimate receivable and the related expected rate of return on the deposit asset p. 62.
* Accretion of the deposit asset, including changes from estimated cash flow changes, is reflected as part of investment income p. 62.
* Several reinsurance contracts require deposit accounting due to not transferring sufficient underwriting risk p. 62.
* No reinsurance contracts required deposit accounting due to not transferring sufficient timing risk p. 62.
* *Reinsurance recoverables* are carried net of an allowance for credit losses, representing the current estimate of expected credit losses p. 62.
* The Company develops a historical loss rate using the A.M. Best impairment rate and rating transition study, adjusted for current conditions and forecasts p. 62.
* Changes in the allowance for credit losses are recognized in underwriting, acquisition, and insurance expenses p. 62.
* Reinsurance does not relieve the Company of its legal liability to policyholders p. 62.
* The Company continuously monitors the financial condition of its reinsurers, including reviewing annual financial statements and industry developments p. 62.
* The Company analyzes credit risk by monitoring reinsurer financial strength ratings from A.M. Best and assessing collateral adequacy p. 62.
* The Company has access to collateral from various reinsurers if they fail to fulfill obligations p. 62.
* *Reinsurance collateral* from reinsurers was $257.5 million as of December 31, 2023, and $253.9 million as of December 31, 2022 p. 62.
* *Everest Reinsurance Co* represented 20.4% of the Company’s reinsurance recoverable balances at December 31, 2023, and 28.2% at December 31, 2022 p. 62.
* Everest Reinsurance Co was the only reinsurer representing 10% or more of the Company’s reinsurance recoverable balances p. 62.
* Everest Reinsurance Co's financial strength rating from A.M. Best was A+ at December 31, 2023, and 2022 p. 62.

###### G. Concentration of Credit Risk

* Financial instruments that could lead to concentrations of credit risk include cash and cash equivalents, restricted cash, investments, and premiums receivable, in addition to reinsurance recoverables p. 63.
* *Cash equivalents* and *short-term investments* consist of U.S. government securities and money market funds p. 63.
* *Investments* are diversified across various industries and geographic regions p. 63.
* The Company restricts its credit exposure to any single financial institution or issuer p. 63.
* The Company believes there is no significant concentration of credit risk related to cash and investments p. 63.
* As of December 31, 2023, and 2022, *outstanding premiums receivable* are diversified due to the large number of customers and their spread across different lines of business and geographic regions p. 63.
* Failure by distribution sources to remit premiums could lead to premium write-offs and a loss of income p. 63.

###### H. Deferred Policy Acquisition Costs

* *Policy acquisition costs* include commissions and premium taxes that are directly related to new or renewal business production p. 64.
* The Company defers policy acquisition costs and related ceding commissions p. 64.
* Deferred costs are charged or credited to earnings proportionally with the premium earned over the policy's life p. 64.
* A *premium deficiency* is recognized if expected losses, loss adjustment expenses, and unamortized acquisition costs exceed related unearned premiums p. 64.
* The Company first addresses a premium deficiency by charging unamortized acquisition costs to expense to eliminate the deficiency p. 64.
* If the premium deficiency exceeds unamortized acquisition costs, a liability is accrued for the excess p. 64.
* *Anticipated investment income* is considered when determining premium deficiencies p. 64.
* Management determined that *no premium deficiency* existed as of December 31, 2023, and 2022 p. 64.

###### I. Goodwill and Intangible Assets

* *Goodwill and intangible assets* are recorded following a business combination p. 65.
* *Goodwill* represents the excess of the purchase price over the fair value of acquired assets and assumed liabilities p. 65.
* The Company reviews its *purchase price allocation* for up to one year post-acquisition and can make adjustments within this period p. 65.
* The Company amortizes identifiable *intangible assets with a finite useful life* over the period they are expected to contribute to future cash flows p. 65.
* The Company does not amortize *indefinite-lived intangible assets* p. 65.
* The Company reviews *goodwill and identifiable intangible assets* for recoverability annually in the fourth quarter or on an interim basis if circumstances suggest a carrying amount may not be recoverable p. 65.
* The Company reported *no goodwill impairment* for the years ended December 31, 2023, and 2022 p. 65.

###### J. Property and Equipment

* *Property and equipment* is recorded at cost less accumulated depreciation and is included in other assets on the consolidated balance sheets p. 66.
* *Depreciation expense* is recognized on a straight-line basis for financial statement purposes p. 66.
* *Depreciation periods* range from three to seven years p. 66.

###### K. Leases

* *Right-of-use (ROU) assets* are included in other assets on the consolidated balance sheets p. 67.
* *Lease liabilities* are included in accounts payable and accrued liabilities on the consolidated balance sheets p. 67.
* For operating leases, the Company determines if a contract contains a lease at inception p. 67.
* The Company recognizes operating lease ROU assets and lease liabilities based on the present value of future minimum lease payments at the commencement date p. 67.
* The Company uses its incremental borrowing rate, based on information available at the commencement date, to determine the present value of future payments, as the interest rate implicit in its leases is not available p. 67.
* Lease agreements may include options to extend or terminate, which are exercised at the Company's discretion p. 67.
* Options to extend or terminate are included in operating lease liabilities if it is reasonably certain they will be exercised p. 67.
* Lease agreements have lease and non-lease components, which are accounted for as a single lease component p. 67.
* *Operating lease cost* for future minimum lease payments is recognized on a straight-line basis over the lease term p. 67.
* *Sublease income* is recognized on a straight-line basis over the sublease term p. 67.

###### L. Reserves for Losses and Loss Adjustment Expenses

* *Reserves for losses and LAE* represent the Company's best estimate of the ultimate net cost of all reported and unreported unpaid losses as of the balance sheet dates p. 68.
* Estimates for reserves are based on actuarial and other assumptions related to the ultimate cost to settle claims p. 68.
* Assumptions are subject to occasional changes due to evolving economic, social, and political conditions p. 68.
* Management believes the Company has limited exposure to environmental and other toxic tort type claim liabilities due to the nature of its historically written business p. 68.
* All estimates are periodically reviewed and adjusted as necessary based on developing experience and new information p. 68.
* Adjustments to reserves are reflected in the results of operations in the period they are determined p. 68.
* Due to the inherent uncertainty in estimating reserves, there is no assurance that the ultimate liability will not exceed recorded amounts p. 68.
* If actual liabilities exceed recorded amounts, there will be an adverse effect p. 68.
* The Company may determine that recorded reserves are more than adequate, leading to a reduction in reserves p. 68.

###### M. Premiums

* The Company recognizes property and casualty and surety premiums on a pro-rata basis over the policy terms p. 69.
* Accident and health premiums are earned as billed, based on census data p. 69.
* Gross premiums written are reduced by ceded premiums from proportional, facultative, and excess of loss reinsurance costs for prospective reinsurance p. 69.
* *Premiums receivable* include deferred premiums, which are installment payments due from insureds under policy payment terms p. 69.
* Premiums receivable are carried net of an allowance for credit losses p. 69.
* The *allowance for credit losses* represents the current estimate of expected credit losses p. 69.
* The Company develops a historical loss rate using historical write-offs and aging of receivables p. 69.
* This historical loss rate is adjusted for current conditions, reasonable and supportable forecasts, and the ability to cancel coverage on a policy after premium is past due p. 69.
* Changes in the allowance for credit losses are recognized in underwriting, acquisition, and insurance expenses on the consolidated statements of operations p. 69.
* *Unearned premiums* represent the portion of gross premiums written applicable to the unexpired terms of insurance policies or reinsurance contracts in force p. 69.
* *Ceded unearned premiums* represent the portion of ceded premiums written applicable to the unexpired terms of insurance policies or reinsurance contracts in force p. 69.
* These unearned premiums are calculated on a pro-rata basis over the terms of the policies for both direct and ceded amounts p. 69.

###### N. Commission and Fee Income

* *SUA commission revenue* is generated from placing insurance policies on reinsurance programs via a reinsurance broker p. 70.
* The *Company's single performance obligation* for SUA commission revenue is the placement of insurance policies p. 70.
* The *transaction price* for SUA commission revenue is fixed at contract inception and based on a percentage of premiums placed p. 70.
* The *Company recognizes 100% of the transaction price* for SUA commission revenue when the performance obligation is satisfied at the point of policy placement, as there are no constraints on revenue p. 70.
* *SUA fee income* is generated from placing insurance policies with a third-party insurance company p. 70.
* The *Company’s single performance obligation* for SUA fee income is the placement of the policy p. 70.
* The *transaction price* for SUA fee income is variable at contract inception and based on a percentage of premium, which varies monthly due to risk factors like employee census data and worker roles p. 70.
* The *Company estimates its transaction price* for SUA fee income over the policy's life using the expected value method p. 70.
* *Revenue for SUA fee income* is recognized at the point in time the policy is placed p. 70.
* *Changes in the estimate of variable consideration* for SUA fee income are recognized in the month they occur p. 70.

###### O. Income Taxes

* *Income tax expense* is accrued for tax effects of transactions reported on consolidated financial statements p. 71.
* *Provision for income taxes* includes currently due taxes plus deferred taxes from temporary differences between financial statement and income tax reporting p. 71.
* *Valuation allowance* is established for any deferred tax asset not expected to be realized p. 71.
* *Deferred tax assets and liabilities* are measured using enacted tax rates expected to apply to taxable income in the years of recovery or settlement p. 71.
* *Effect of tax rate changes* on deferred tax assets and liabilities is recognized in income in the period of enactment p. 71.
* *Liability for uncertain tax positions* is recorded if it is more likely-than-not that the position will not be sustained upon examination p. 71.
* *Changes in uncertain tax position liability* are reflected in income tax expense when a new position arises, judgment changes, the issue is settled, or the statute of limitation expires p. 71.
* *Potential net interest income or expense and penalties* related to uncertain tax positions are recorded on the Consolidated Statements of Operations p. 71.
* The Company files a *consolidated federal income tax return* in the United States and certain state tax returns p. 71.
* *Admitted insurance subsidiaries* pay premium taxes on gross written premiums instead of most state income or franchise taxes p. 71.
* *Premium tax expense* is recognized within underwriting, acquisition, and insurance expense on the Consolidated Statements of Operations p. 71.

###### P. Fair Value of Financial Instruments

* *Fair value* is estimated for each class of financial instrument using the framework from fair value accounting guidance p. 72.
* The guidance prioritizes maximizing observable inputs and minimizing unobservable inputs when measuring fair value p. 72.
* *Fair value hierarchy disclosures* are based on the quality of inputs used for measurement p. 72.
* The hierarchy assigns the highest priority to *Level 1 measurements*, which are unadjusted quoted prices in active markets for identical assets or liabilities p. 72.
* The hierarchy assigns the lowest priority to *Level 3 measurements*, which are unobservable inputs p. 72.
* The Company uses widely recognized, third-party pricing sources to determine fair values of financial instruments p. 72.
* The Company understands the valuation methodologies and inputs of these third-party pricing sources p. 72.
* Further details on fair value disclosures are in Note 6 p. 72.

###### Q. Stock-Based Compensation

* The estimated fair value of employee stock options and similar awards is expensed p. 73.
* Compensation cost for awards of equity instruments to employees is measured based on the grant-date fair value of those awards p. 73.
* Compensation expense is recognized over the service period during which the awards are expected to vest p. 73.
* Tax effects related to share-based payments are made through net earnings p. 73.
* Further discussion and related disclosures regarding stock-based compensation are provided in note 18 p. 73.
* The Company's *employee stock purchase plan* ("ESPP") allows all employees to purchase common stock at a discount p. 73.
* Compensation cost for the ESPP is recognized on a straight-line basis over the offering period p. 73.

###### R. Earnings Per Share

* *Basic earnings per share* is calculated using the two-class method p. 74.
* Undistributed earnings are allocated to participating securities based on their potential share in earnings, assuming all earnings for the period have been distributed p. 74.
* *Basic earnings per share* is determined by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period p. 74.
* Common shares with unsatisfied contingencies, such as vesting requirements, are excluded from basic earnings per share p. 74.
* The Company's preferred shares are considered participating securities as they participate in dividends and distributions with common stock on an as-converted basis p. 74.
* Instruments awarded to employees that grant the right to purchase common stock at a fixed price are included as potential common shares, weighted for the portion of the period they were granted, if dilutive p. 74.
* The Company's common and preferred shares financed by stock notes are contingently issuable instruments that require the holder to return shares if the stock notes are not paid off p. 74.
* These contingently issuable instruments are excluded from basic and diluted earnings per share if specified conditions are not met, assuming the end of the period is the end of the contingency period p. 74.
* The impact of contingently issuable instruments on diluted earnings per share was calculated using the treasury stock method and included in the reconciliation of the denominator for basic and diluted earnings per share computations for the years ended December 31, 2023 and 2022 p. 74.
* Instruments convertible into common shares are included in diluted weighted-average common shares outstanding on an if-converted basis, using the legal conversion rate for the respective period, if dilutive p. 74.
* Share-based awards to employees with only service conditions are included as potential common shares, weighted for the unvested portion of the period, if dilutive p. 74.
* Share-based awards to employees with performance and service or market conditions are included as potential common shares, assuming the end of the period is the end of the contingency period, if dilutive p. 74.
* If common share adjustments increase earnings per share or reduce loss per share, the effect is anti-dilutive, and diluted net earnings or net loss per share is computed excluding these common share equivalents p. 74.

###### S. Recent Accounting Pronouncements

* The Company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) p. 75.
* The Company has the option to adopt new or revised accounting guidance either within the same periods as non-emerging growth companies or private companies p. 75.
* The Company may elect to adopt new or revised accounting guidance within the same time period as private companies, unless early adoption provisions are preferable p. 75.
* *ASU 2016-13 (Measurement of Credit Losses on Financial Instruments)* was issued by FASB in June 2016 p. 75.
* ASU 2016-13 requires estimating credit losses on financial instruments using an expected loss approach, incorporating historical, current, and forecasted information p. 75.
* The Company adopted ASU 2016-13 effective January 1, 2023, using the modified retrospective approach p. 75.
* A cumulative-effect adjustment was made to retained earnings upon adoption of ASU 2016-13 p. 75.
* In connection with ASU 2016-13 adoption, the Company elected the fair value option for mortgage loans effective January 1, 2023, as targeted transition relief p. 75.
* Adoption of ASU 2016-13 resulted in a *$2.3 million increase* in the allowance for uncollectible reinsurance p. 75.
* Adoption of ASU 2016-13 resulted in a *$2.3 million increase*, net of tax, in accumulated deficit p. 75.
* *ASU 2023-07 (Improvements to Reportable Segment Disclosures)* was issued by FASB in November 2023 p. 75.
* ASU 2023-07 requires segment disclosures for significant segment expenses provided to the CODM, how the CODM uses profitability measures, and the CODM's title and position p. 75.
* Entities with a single reportable segment must provide full segment disclosures under ASU 2023-07 p. 75.
* The guidance for ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 p. 75.
* ASU 2023-07 is applied retrospectively to all prior periods presented p. 75.
* The Company is evaluating the effect of ASU 2023-07 on its consolidated financial statements p. 75.
* *ASU 2023-09 (Improvements to Income Tax Disclosures)* was issued by FASB in December 2023 p. 75.
* ASU 2023-09 requires public companies to provide enhanced annual rate reconciliation disclosures, including specific categories and additional information meeting a quantitative threshold p. 75.
* ASU 2023-09 also requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes p. 75.
* The guidance for ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 p. 75.
* The Company is evaluating the effect of ASU 2023-09 on its consolidated financial statements p. 75.

###### 2. Goodwill and Intangible Assets

* The Company's *indefinite-lived intangible assets* include insurance licenses and trademarks p. 76.
* The Company's *finite-lived intangible assets* relate to policy renewals, agency relationships (within agent relationships), and non-compete/exclusivity agreements (within non-competes) p. 76.
* *Finite-lived intangible assets* had a weighted average useful life of approximately 15 years as of December 31, 2023 p. 76.
* The Company recognized *amortization expense* of USD 1.5 million for the years ended December 31, 2023 and 2022 p. 76.

###### Goodwill by segment for 2023

**—**

| ($ in thousands) Goodwill | Accident and Health | Surety | Industry Solutions | Other | Total |
| --- | --- | --- | --- | --- | --- |
| Gross balance at December 31, 2022 | 91,577 | 6,781 | 10,204 | 3,879 | 112,441 |
| Accumulated impairment at December 31, 2022 | ( 44,821 ) | — | — | ( 1,886 ) | ( 46,707 ) |
| **Net balance at December 31, 2023** | 46,756 | 6,781 | 10,204 | 1,993 | 65,734 |

###### Goodwill by segment for 2022

**—**

| ($ in thousands) Goodwill | Accident and Health | Surety | Industry Solutions | Other | Total |
| --- | --- | --- | --- | --- | --- |
| Gross balance at December 31, 2021 | 91,577 | 6,781 | 10,204 | 3,879 | 112,441 |
| Accumulated impairment at December 31, 2021 | ( 44,821 ) | — | — | ( 1,886 ) | ( 46,707 ) |
| **Net balance at December 31, 2022** | 46,756 | 6,781 | 10,204 | 1,993 | 65,734 |

###### Other intangible assets for 2023

**—**

| ($ in thousands) Other Intangible Assets | Agent Relationships | Non-competes | Trademarks | Licenses | Total |
| --- | --- | --- | --- | --- | --- |
| Gross balance at December 31, 2022 | 24,558 | 1,117 | 999 | 14,019 | 40,693 |
| Accumulated amortization at December 31, 2022 | ( 15,664 ) | ( 893 ) | — | — | ( 16,557 ) |
| Additions | 50 | — | — | — | 50 |
| Amortization | ( 1,261 ) | ( 224 ) | — | — | ( 1,485 ) |
| **Net balance at December 31, 2023** | 7,683 | — | 999 | 14,019 | 22,701 |

###### Other intangible assets for 2022

**—**

| ($ in thousands) Other Intangible Assets | Agent Relationships | Non-competes | Trademarks | Licenses | Total |
| --- | --- | --- | --- | --- | --- |
| Gross balance at December 31, 2021 | 24,558 | 1,117 | 999 | 14,019 | 40,693 |
| Accumulated amortization at December 31, 2021 | ( 14,421 ) | ( 670 ) | — | — | ( 15,091 ) |
| Amortization | ( 1,243 ) | ( 223 ) | — | — | ( 1,466 ) |
| **Net balance at December 31, 2022** | 8,894 | 224 | 999 | 14,019 | 24,136 |

###### Future payments by year

| ($ in thousands) Years Ending December 31, | Amount |
| --- | --- |
| 2024 | 1,099 |
| 2025 | 998 |
| 2026 | 553 |
| 2027 | 553 |
| 2028 | 553 |

###### 3. Investments

* *Fixed maturity securities, held to maturity*, at December 31, 2023, consist entirely of asset-backed securities not due at a single maturity date p. 77.
* The Company monitors available-for-sale fixed maturity securities with fair values less than cost or amortized cost for impairment p. 77.
* Management judgment is required for impairment assessment, considering factors like issuer financial condition, receipt of principal and interest, and intent to sell p. 77.
* As of December 31, 2023, the Company had *584 lots of fixed maturity securities* in an unrealized loss position p. 77.
* The Company does not intend to sell these securities and is not likely to be required to sell them before maturity or recovery of cost basis p. 77.
* No credit impairment was determined for gross unrealized holding losses due to consistent credit ratings, no adverse changes in issuer financial condition, and no adverse credit quality events in underlying assets p. 77.
* The unrealized losses were attributed to *changes in interest rates* p. 77.
* *Cash and investment securities on deposit* with states had fair values of approximately *$62.3 million* at December 31, 2023, and *$60.2 million* at December 31, 2022 p. 77.

###### Fixed maturity securities at December 31, 2023

**—**

| ($ in thousands) December 31, 2023 Fixed maturity securities, available-for-sale: | Gross Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Fair Value |
| --- | --- | --- | --- | --- | --- |
| U.S. government securities | 44,685 | 202 | ( 721 ) | — | 44,166 |
| Corporate securities and miscellaneous | 392,773 | 6,408 | ( 15,761 ) | — | 383,420 |
| Municipal securities | 98,266 | 655 | ( 6,143 ) | — | 92,778 |
| Residential mortgage-backed securities | 292,568 | 3,556 | ( 14,498 ) | — | 281,626 |
| Commercial mortgage-backed securities | 31,411 | 449 | ( 1,926 ) | — | 29,934 |
| Other asset-backed securities | 188,010 | 1,221 | ( 3,504 ) | — | 185,727 |
| **Total fixed maturity securities, available-for-sale** | 1,047,713 | 12,491 | ( 42,553 ) | — | 1,017,651 |
| Other asset-backed securities | 43,315 | — | ( 1,969 ) | ( 329 ) | 41,017 |
| **Total fixed maturity securities, held-to-maturity** | 43,315 | — | ( 1,969 ) | ( 329 ) | 41,017 |

###### Fixed maturity securities at December 31, 2022

**—**

| ($ in thousands) December 31, 2022 Fixed maturity securities, available-for-sale: | Gross Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- | --- |
| U.S. government securities | 50,416 | 1 | ( 1,876 ) | 48,541 |
| Corporate securities and miscellaneous | 255,116 | 767 | ( 20,754 ) | 235,129 |
| Municipal securities | 65,836 | 24 | ( 8,133 ) | 57,727 |
| Residential mortgage-backed securities | 134,844 | 218 | ( 15,206 ) | 119,856 |
| Commercial mortgage-backed securities | 40,129 | 50 | ( 3,684 ) | 36,495 |
| Other asset-backed securities | 116,275 | 91 | ( 6,542 ) | 109,824 |
| **Total fixed maturity securities, available-for-sale** | 662,616 | 1,151 | ( 56,195 ) | 607,572 |
| Other asset-backed securities | 52,467 | — | ( 5,696 ) | 46,771 |
| **Total fixed maturity securities, held-to-maturity** | 52,467 | — | ( 5,696 ) | 46,771 |

###### Maturity distribution of fixed maturity securities

| ($ in thousands) | Amortized Cost | Fair Value |
| --- | --- | --- |
| Due in less than one year | 30,918 | 30,518 |
| Due after one year through five years | 289,151 | 280,212 |
| Due after five years through ten years | 162,380 | 159,863 |
| Due after ten years | 53,275 | 49,771 |
| Mortgage-backed securities | 323,979 | 311,560 |
| Other asset-backed securities | 188,010 | 185,727 |
| **Total** | 1,047,713 | 1,017,651 |

###### Unrealized losses by duration at December 31, 2023

**—**

| ($ in thousands) December 31, 2023 Fixed maturity securities, available-for-sale: | Less than 12 Months Fair Value | Less than 12 Months Gross Unrealized Losses | 12 Months or More Fair Value | 12 Months or More Gross Unrealized Losses | Total Fair Value | Total Gross Unrealized Losses |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. government securities | 7,342 | ( 25 ) | 25,604 | ( 696 ) | 32,946 | ( 721 ) |
| Corporate securities and miscellaneous | 26,742 | ( 570 ) | 174,947 | ( 15,191 ) | 201,689 | ( 15,761 ) |
| Municipal securities | 16,815 | ( 290 ) | 47,269 | ( 5,853 ) | 64,084 | ( 6,143 ) |
| Residential mortgage-backed securities | 37,634 | ( 602 ) | 103,495 | ( 13,896 ) | 141,129 | ( 14,498 ) |
| Commercial mortgage-backed securities | 4,942 | ( 74 ) | 15,290 | ( 1,852 ) | 20,232 | ( 1,926 ) |
| Other asset-backed securities | 27,887 | ( 106 ) | 75,253 | ( 3,398 ) | 103,140 | ( 3,504 ) |
| **Total fixed maturity securities, available-for-sale** | 121,362 | ( 1,667 ) | 441,858 | ( 40,886 ) | 563,220 | ( 42,553 ) |
| Other asset-backed securities | — | — | 41,017 | ( 1,969 ) | 41,017 | ( 1,969 ) |
| **Total fixed maturity securities, held-to-maturity** | — | — | 41,017 | ( 1,969 ) | 41,017 | ( 1,969 ) |
| **Total** | 121,362 | ( 1,667 ) | 482,875 | ( 42,855 ) | 604,237 | ( 44,522 ) |

###### Unrealized losses by duration at December 31, 2022

**—**

| ($ in thousands) December 31, 2022 Fixed maturity securities, available-for-sale: | Less than 12 Months Fair Value | Less than 12 Months Gross Unrealized Losses | 12 Months or More Fair Value | 12 Months or More Gross Unrealized Losses | Total Fair Value | Total Gross Unrealized Losses |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. government securities | 28,966 | ( 603 ) | 18,577 | ( 1,273 ) | 47,543 | ( 1,876 ) |
| Corporate securities and miscellaneous | 171,506 | ( 16,063 ) | 34,283 | ( 4,691 ) | 205,789 | ( 20,754 ) |
| Municipal securities | 51,701 | ( 7,236 ) | 3,689 | ( 897 ) | 55,390 | ( 8,133 ) |
| Residential mortgage-backed securities | 56,246 | ( 4,152 ) | 52,778 | ( 11,054 ) | 109,024 | ( 15,206 ) |
| Commercial mortgage-backed securities | 25,836 | ( 1,488 ) | 8,583 | ( 2,196 ) | 34,419 | ( 3,684 ) |
| Other asset-backed securities | 74,684 | ( 3,351 ) | 25,820 | ( 3,191 ) | 100,504 | ( 6,542 ) |
| **Total fixed maturity securities, available-for-sale** | 408,939 | ( 32,893 ) | 143,730 | ( 23,302 ) | 552,669 | ( 56,195 ) |
| Other asset-backed securities | 46,771 | ( 5,696 ) | — | — | 46,771 | ( 5,696 ) |
| **Total fixed maturity securities, held-to-maturity** | 46,771 | ( 5,696 ) | — | — | 46,771 | ( 5,696 ) |
| **Total** | 455,710 | ( 38,589 ) | 143,730 | ( 23,302 ) | 599,440 | ( 61,891 ) |

###### Gross realized gains and losses on investments

**—**

| ($ in thousands) Gross realized gains | 2023 | 2022 |
| --- | --- | --- |
| Fixed maturity securities, available-for-sale | 1,042 | 313 |
| Equity securities | 6,035 | 3,865 |
| Other | 2 | 36 |
| **Total** | 7,079 | 4,214 |
| Fixed maturity securities, available-for-sale | ( 1,879 ) | ( 958 ) |
| Equity securities | ( 5,256 ) | ( 3,827 ) |
| Other | ( 2 ) | ( 76 ) |
| **Total** | ( 7,137 ) | ( 4,861 ) |
| Net unrealized gains (losses) on investments — Equity securities | 11,516 | ( 15,058 ) |
| Net unrealized gains (losses) on investments — Mortgage loans | ( 386 ) | — |
| **Net unrealized gains (losses) on investments — Net investment gains (losses)** | 11,072 | ( 15,705 ) |

###### Proceeds from sales of investments

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Fixed maturity securities, available-for-sale | 26,626 | 13,964 |
| Equity securities | 40,201 | 37,177 |

###### Net investment income by source

**—**

| ($ in thousands) Income: | 2023 | 2022 |
| --- | --- | --- |
| Fixed maturity securities, available-for-sale | 34,703 | 18,481 |
| Fixed maturity securities, held-to-maturity | 4,163 | 5,375 |
| Equity securities | 3,418 | 3,579 |
| Equity method investments | ( 9,434 ) | 6,015 |
| Mortgage loans | 5,474 | 4,767 |
| Indirect loans | ( 4,155 ) | 4,846 |
| Short-term investments | 11,392 | 1,498 |
| Other | 318 | ( 77 ) |
| **Investment income** | 45,879 | 44,484 |
| Investment expenses | ( 5,557 ) | ( 7,553 ) |
| **Net investment income** | 40,322 | 36,931 |

###### Deferred income taxes

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Fixed maturity securities | 25,952 | ( 60,918 ) |
| Deferred income taxes | ( 5,420 ) | 12,793 |
| **Total** | 20,532 | ( 48,125 ) |

###### 4. Fair Value Measurements

* The Company's financial instruments include assets and liabilities carried at fair value, and those carried at cost or amortized cost but disclosed at fair value in consolidated financial statements p. 78.
* *Fair value* is generally determined using the market approach, which relies on prices and data from market transactions of identical or comparable assets and liabilities p. 78.
* *Fair value of investments* is primarily determined using data from third-party investment managers or pricing vendors p. 78.
* *Periodic analyses* are conducted on third-party prices to ensure they are reasonable estimates of fair value, including reviewing month-to-month fluctuations and comparing valuations from different pricing services for the same security p. 78.
* The Company classifies financial instruments into a three-level hierarchy: p. 78.
  + *Level 1*: Unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date p. 78.
  + *Level 2*: Inputs other than Level 1 quoted prices that are observable for the asset or liability through corroboration with market data at the measurement date p. 78.
  + *Level 3*: Unobservable inputs reflecting management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date p. 78.
* *U.S. government securities, mutual funds, and common stock* are measured at fair value using unadjusted quoted prices for identical instruments in an active exchange, representing Level 1 inputs p. 78.
* *Preferred stocks, municipal securities, corporate securities, and miscellaneous* use a pricing model with market-based inputs like trades in illiquid markets or active markets for similar securities, considering benchmark yields, issuer spreads, security terms, and other market data, representing Level 2 fair value inputs p. 78.
* *Commercial mortgage-backed securities, residential mortgage-backed securities, and other asset-backed securities* use a pricing model with market-based inputs such as dealer quotes, market spreads, and yield curves, and may evaluate individual tranches by determining cash flows using security terms, collateral performance, credit information, benchmark yields, and estimated prepayments, representing Level 2 fair value inputs p. 78.
* *Mortgage loans* have variable interest rates and are collateralized by real property p. 78.
* The *fair value of mortgage loans* is determined using the income approach with observable and unobservable (Level 3) inputs p. 78.
* The *unobservable input for mortgage loans* is the spread applied to a prime rate for discounting cash flows, which represents the incremental cost of capital based on borrower's ability to pay and collateral value relative to the loan balance, and is subject to judgment and uncertainty p. 78.
* The Company measures certain assets, including investments in indirect loans and loan collateral, equity method investments, and other invested assets, at fair value on a nonrecurring basis only when impaired p. 78.
* *Estimated fair value amounts* for other financial instruments are defined as the quoted market price, determined using available market information and valuation methodologies p. 78.
* *Considerable judgments* are required for fair value estimates when quoted market prices are unavailable, and these estimates may not indicate amounts realizable in a current market exchange p. 78.
* Different market assumptions or estimation methodologies can affect estimated fair value amounts p. 78.
* *Fixed maturity securities, held-to-maturity*, consisting of senior and junior notes with target rates of return, had their fair value determined using the income approach with unobservable (Level 3) inputs as of December 31, 2023 p. 78.
* The *carrying value of notes payable* approximates estimated fair value because they accrue interest at current market rates plus a spread p. 78.
* The *fair value of notes payable* is determined using the income approach with observable (Level 2) inputs p. 78.
* *Subordinated debt* includes Junior Subordinated Interest Debentures due September 15, 2036, and Unsecured Subordinated Notes due May 24, 2039 p. 78.
* The *carrying value of Junior Subordinated Interest Debentures* approximates estimated fair value as they accrue interest at current market rates plus a spread p. 78.
* *Unsecured Subordinated Notes* have a fixed interest rate p. 78.
* The *fair value of subordinated debt instruments* is determined using the income approach with observable (Level 2) inputs p. 78.
* Other financial instruments that qualify as insurance-related products are exempt from fair value disclosure requirements p. 78.

###### Weighted average interest rates on subordinated debt

| — | December 31, 2023 |
| --- | --- |
| High | 9.50% |
| Low | 3.25% |
| Weighted average | 7.05% |

###### Fair value hierarchy for investments at December 31, 2023

**December 31, 2023 —**

| ($ in thousands) Fixed maturity securities, available-for-sale: | Level 1 | Level 2 | Level 3 | Total |
| --- | --- | --- | --- | --- |
| U.S. government securities | 44,166 | — | — | 44,166 |
| Corporate securities and miscellaneous | — | 383,420 | — | 383,420 |
| Municipal securities | — | 92,778 | — | 92,778 |
| Residential mortgage-backed securities | — | 281,626 | — | 281,626 |
| Commercial mortgage-backed securities | — | 29,934 | — | 29,934 |
| Other asset-backed securities | — | 185,727 | — | 185,727 |
| **Total fixed maturity securities, available-for-sale** | 44,166 | 973,485 | — | 1,017,651 |
| Other asset-backed securities | — | — | 41,017 | 41,017 |
| **Total fixed maturity securities, held-to-maturity** | — | — | 41,017 | 41,017 |
| Common stocks: — Consumer discretionary | 2,313 | — | — | 2,313 |
| Common stocks: — Consumer staples | 14,015 | — | — | 14,015 |
| Common stocks: — Energy | 3,187 | — | — | 3,187 |
| Common stocks: — Finance | 24,267 | — | — | 24,267 |
| Common stocks: — Industrial | 12,170 | — | — | 12,170 |
| Common stocks: — Information technology | 5,192 | — | — | 5,192 |
| Common stocks: — Materials | 3,782 | — | — | 3,782 |
| Common stocks: — Other | 2,499 | — | — | 2,499 |
| **Common stocks: — Total common stocks** | 67,425 | — | — | 67,425 |
| Preferred stocks: — Consumer staples | — | 433 | — | 433 |
| Preferred stocks: — Finance | — | 5,061 | — | 5,061 |
| Preferred stocks: — Industrial | — | 1,052 | — | 1,052 |
| Preferred stocks: — Other | — | 812 | — | 812 |
| **Preferred stocks: — Total preferred stocks** | — | 7,358 | — | 7,358 |
| Mutual funds: — Fixed income | 5,405 | — | — | 5,405 |
| Mutual funds: — Equity | 37,546 | — | — | 37,546 |
| Mutual funds: — Commodity | 515 | — | — | 515 |
| **Mutual funds: — Total mutual funds** | 43,466 | — | — | 43,466 |
| **Mutual funds: — Total equity securities** | 110,891 | 7,358 | — | 118,249 |
| **Mutual funds: — Mortgage loans** | — | — | 50,070 | 50,070 |
| **Mutual funds: — Short-term investments** | 270,226 | — | — | 270,226 |
| **Mutual funds: — Total investments** | 425,283 | 980,843 | 91,087 | 1,497,213 |

###### Fair value hierarchy for investments at December 31, 2022

**December 31, 2022 —**

| ($ in thousands) Fixed maturity securities, available-for-sale: | Level 1 | Level 2 | Level 3 | Total |
| --- | --- | --- | --- | --- |
| U.S. government securities | 48,541 | — | — | 48,541 |
| Corporate securities and miscellaneous | — | 235,129 | — | 235,129 |
| Municipal securities | — | 57,727 | — | 57,727 |
| Residential mortgage-backed securities | — | 119,856 | — | 119,856 |
| Commercial mortgage-backed securities | — | 36,495 | — | 36,495 |
| Other asset-backed securities | — | 109,824 | — | 109,824 |
| **Total fixed maturity securities, available-for-sale** | 48,541 | 559,031 | — | 607,572 |
| Other asset-backed securities | — | — | 46,771 | 46,771 |
| **Total fixed maturity securities, held-to-maturity** | — | — | 46,771 | 46,771 |
| Common stocks: — Consumer discretionary | 1,948 | — | — | 1,948 |
| Common stocks: — Consumer staples | 12,036 | — | — | 12,036 |
| Common stocks: — Energy | 3,241 | — | — | 3,241 |
| Common stocks: — Finance | 22,636 | — | — | 22,636 |
| Common stocks: — Industrial | 9,452 | — | — | 9,452 |
| Common stocks: — Information technology | 2,284 | — | — | 2,284 |
| Common stocks: — Materials | 2,820 | — | — | 2,820 |
| Common stocks: — Other | 1,579 | — | — | 1,579 |
| **Common stocks: — Total common stocks** | 55,996 | — | — | 55,996 |
| Preferred stocks: — Consumer staples | — | 117 | — | 117 |
| Preferred stocks: — Finance | — | 7,085 | — | 7,085 |
| Preferred stocks: — Industrial | — | 1,020 | — | 1,020 |
| Preferred stocks: — Other | — | 549 | — | 549 |
| **Preferred stocks: — Total preferred stocks** | — | 8,771 | — | 8,771 |
| Mutual funds: — Fixed income | 5,068 | — | — | 5,068 |
| Mutual funds: — Equity | 49,773 | — | — | 49,773 |
| Mutual funds: — Commodity | 561 | — | — | 561 |
| **Mutual funds: — Total mutual funds** | 55,402 | — | — | 55,402 |
| **Mutual funds: — Total equity securities** | 111,398 | 8,771 | — | 120,169 |
| **Mutual funds: — Mortgage loans** | — | — | 52,842 | 52,842 |
| **Mutual funds: — Short-term investments** | 121,158 | — | — | 121,158 |
| **Mutual funds: — Total investments** | 281,097 | 567,802 | 99,613 | 948,512 |

###### Mortgage loans activity

| ($ in thousands) | Mortgage Loans |
| --- | --- |
| Balance at December 31, 2022 | 52,842 |
| **Total losses for the period recognized in net investment gains (losses)** | ( 385 ) |
| Issuances | 27,642 |
| Settlements | ( 30,029 ) |
| **Balance at December 31, 2023** | 50,070 |
| **Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end** | ( 426 ) |

###### Notes payable and subordinated debt

**—**

| ($ in thousands) Notes payable | December 31, 2023 Carrying Value | December 31, 2023 Fair Value | December 31, 2022 Carrying Value | December 31, 2022 Fair Value |
| --- | --- | --- | --- | --- |
| Term loan | — | — | 50,000 | 50,000 |
| Revolving credit facility | 50,000 | 50,000 | — | — |
| **Notes payable** | 50,000 | 50,000 | 50,000 | 50,000 |
| Junior subordinated interest debentures | 59,186 | 59,794 | 59,137 | 59,794 |
| Unsecured subordinated notes | 19,504 | 21,378 | 19,472 | 18,934 |
| **Subordinated debt, net of debt issuance costs** | 78,690 | 81,172 | 78,609 | 78,728 |

###### 5. Mortgage Loans

* The Company has invested in *Separately Managed Accounts* ("SMA1" and "SMA2") managed by Arena Investors, LP ("Arena") p. 79.
* Arena is affiliated with *The Westaim Corporation*, the Company's largest stockholder p. 79.
* As of December 31, 2023 and 2022, the Company held *direct investments in mortgage loans* from various creditors through SMA1 and SMA2 p. 79.
* The Company’s *mortgage loan portfolios* are primarily senior loans on real estate across the U.S. p. 79.
* These loans earn *interest at a fixed spread* above a prime rate p. 79.
* The loans mature in approximately *1 to 3 years* from loan origination p. 79.
* The *principal amounts of the loans* range between 61% to 90% of the property’s appraised value at the time the loans were made p. 79.
* *Mortgage loan participations* were carried at fair value as of December 31, 2023 p. 79.
* *Mortgage loan participations* were carried at cost adjusted for unamortized premiums, discounts, and loan fees as of December 31, 2022 p. 79.
* *Uncollectible amounts on loans* are determined based on consultations with the Company’s specialized investment manager and consideration of adverse situations affecting borrower repayment ability, estimated collateral value, and other relevant factors p. 79.
* The Company *writes off uncollectible amounts* in the period they are determined to be uncollectible p. 79.
* There was *no write-off for uncollectible amounts* for the years ended December 31, 2023 and 2022 p. 79.
* As of December 31, 2023, *mortgage loans in the process of foreclosure* amounted to approximately USD 7.1m p. 79.
* As of December 31, 2022, *mortgage loans in the process of foreclosure* amounted to approximately USD 6.4m p. 79.
* As of December 31, 2023, *USD 6.8m of mortgage loans* were not producing income for the previous 12 months p. 79.

###### Mortgage loans by property type

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Retail | 16,072 | 16,516 |
| Commercial | 14,469 | 15,309 |
| Industrial | 6,785 | 6,329 |
| Multi-family | — | 5,593 |
| Office | — | 3,197 |
| Hospitality | 12,744 | 4,915 |
| — | 50,070 | 51,859 |

###### Mortgage loans by property type

**Years Ended December 31,**

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Retail | 1,853 | 1,255 |
| Commercial | 2,340 | 1,242 |
| Industrial | — | 565 |
| Multi-family | 44 | 909 |
| Office | 203 | 385 |
| Hospitality | 1,034 | 411 |
| — | 5,474 | 4,767 |

###### 6. Other Long-Term Investments

* The Company's ownership interests in most equity method investments range from approximately 3% to less than 50%, indicating significant influence but not control p. 80.
* The Company owns investment products issued by Arena Special Opportunities Partners (Feeder) I, LP ("Arena SOP"), managed by Arena, which is affiliated with Westaim p. 80.
* *Investment products* include senior and junior notes issued by Arena SOP to raise capital for investments p. 80.
* *Return on investments* is used to pay interest on senior and junior notes based on target returns for each class p. 80.
* *Senior and junior notes* are debt securities classified as held to maturity and presented within fixed maturity securities on the balance sheet p. 80.
* *Income in excess of return targets* on the senior and junior notes is allocated to the investment in Arena SOP p. 80.
* During the year ended December 31, 2022, the Company entered into an agreement for limited partnership interests in Brewer Lane Ventures Fund II, L.P. p. 80.
* *Investments in Brewer Lane Ventures Fund II, L.P.* were USD 0.4m in 2023 and USD 0.2m in 2022 p. 80.
* *Investments in Hudson Ventures Fund 2, LP* were USD 0.9m in 2023 and USD 1.3m in 2022 p. 80.
* The difference between the cost of an investment and its proportionate share of underlying equity in net assets is allocated to the various assets and liabilities of the equity method investment p. 80.
* The Company amortizes the difference in net assets over the useful life of a similar asset as the underlying equity method investment p. 80.
* For *investment in RISCOM*, a similar asset (agent relationships) is amortized over a 15-year useful life p. 80.
* The Company amortizes the difference in net assets in *JVM Funds LLC* over the 7-year estimated useful life of the investment in rental properties p. 80.
* The Company carries a *USD 2.0m investment* in Captex Bancshares, a Texas bank holding company, at cost, less impairment or observable changes in price p. 80.
* The Company does not have significant influence over Captex Bancshares p. 80.
* *No impairment or observable change in price* for Captex Bancshares occurred during the years ended December 31, 2023 and 2022 p. 80.
* As of December 31, 2023 and 2022, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2 p. 80.
* The Company carries its investment in the common stock of the Delos Capital Trust n/k/a HIIG Capital Trust I ("Trust") at cost p. 80.
* The Company does not have significant influence over the Trust p. 80.
* *No impairment or observable change in price* for the Trust occurred during the years ended December 31, 2023 and 2022 p. 80.
* Further information on the Trust is provided in Note 10 p. 80.

###### Investments in limited partnerships

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Arena SOP LP units | 2,463 | 8,734 |
| Arena Special Opportunities Fund, LP units | 41,046 | 44,504 |
| Brewer Lane Ventures Fund II LP units | 560 | 200 |
| Dowling Capital Partners LP units | 1,708 | 1,965 |
| Hudson Ventures Fund 2 LP units | 4,669 | 3,551 |
| JVM Funds LLC units | 20,061 | 22,473 |
| RISCOM | 4,121 | 4,037 |
| Universa Black Swan LP units | — | 1,325 |
| — | 74,628 | 86,789 |

###### Investments in limited partnerships

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Arena SOP LP units | ( 6,271 ) | 3,042 |
| Arena Special Opportunities Fund, LP units | ( 2,880 ) | 3,719 |
| Dowling Capital Partners LP units | 927 | 502 |
| Hudson Ventures Fund 2 LP units | 170 | 379 |
| JVM Funds LLC | ( 1,198 ) | ( 70 ) |
| RISCOM | 884 | 1,471 |
| Brewer Lane Ventures Fund II LP | ( 78 ) | — |
| Universa Black Swan LP units | ( 988 ) | ( 3,028 ) |
| — | ( 9,434 ) | 6,015 |

###### Investments in limited partnerships

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Brewer Lane Ventures Fund II LP units | 4,610 | 4,800 |
| Dowling Capital Partners LP units | 386 | 386 |
| Hudson Ventures Fund 2 LP units | 848 | 1,796 |
| — | 5,844 | 6,982 |

###### Investment in RISCOM

**—**

| ($ in thousands) Investment in RISCOM: | 2023 | 2022 |
| --- | --- | --- |
| Underlying equity | 2,620 | 2,292 |
| Difference | 1,501 | 1,745 |
| **Recorded investment balance** | 4,121 | 4,037 |

###### Investment in JVM Funds LLC

**—**

| ($ in thousands) Investment in JVM Funds LLC: | 2023 | 2022 |
| --- | --- | --- |
| Underlying equity | 19,304 | 21,565 |
| Difference | 757 | 908 |
| **Recorded investment balance** | 20,061 | 22,473 |

###### Investments in indirect loans and loan collateral

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| SMA1 | 30,816 | 36,426 |
| SMA2 | 5,209 | 2,010 |
| **Investment in indirect loans and loan collateral** | 36,025 | 38,436 |

###### 7. Allowance for Credit Losses

* The table following this text details changes in the *allowance for expected credit losses on premiums receivable* for the year ended December 31, 2023 p. 81.
* The Company monitors the *credit risk of reinsurance recoverables* by analyzing the financial strength rating of its reinsurers from A.M. Best p. 81.
* *A.M. Best* is a widely recognized rating agency focused exclusively on the insurance industry p. 81.
* The Company assesses the *financial strength rating* annually and throughout the year as A.M. Best provides updates p. 81.
* The Company assesses the *adequacy of credit enhancements* such as reinsurance payables, letters of credit, and funds held p. 81.
* The table following this text presents the Company’s *reinsurance recoverables net of credit enhancements by A.M. Best* as of December 31, 2023 p. 81.
* The Company considers *reinsurance balances past due* when they are 90 days past due p. 81.
* The table following this text outlines changes in the *allowance for estimated uncollectible reinsurance* for the year ended December 31, 2023 p. 81.

###### Changes in allowance for estimated uncollectible premiums

| ($ in thousands) | Premiums Receivable, Net | Allowance for Estimated Uncollectible Premiums |
| --- | --- | --- |
| Balance at December 31, 2022 | 139,215 | 629 |
| Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 — Write-offs of uncollectible premiums receivable | — | ( 513 ) |
| Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 — Recoveries of amounts previously written off | — | 100 |
| **Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 — Balance at December 31, 2023** | 179,235 | 964 |

###### Reinsurance recoverables by A.M. Best rating

| A.M. Best Rating | December 31, 2023 |
| --- | --- |
| A- and above | 98.5% |
| B++ to B+ | 0.7 |
| B to B - — Not rated | 0.8 |

###### Changes in allowance for estimated uncollectible reinsurance

| ($ in thousands) | Reinsurance Recoverables, Net | Allowance for Estimated Uncollectible Reinsurance |
| --- | --- | --- |
| Balance at December 31, 2022 | 581,359 | — |
| Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 | — | 2,295 |
| **Write-offs of uncollectible reinsurance recoverables — Balance at December 31, 2023** | 596,334 | 2,295 |

###### 8. Property and Equipment

* *Depreciation expense* was USD 3.2m for the year ended December 31, 2023 p. 82.
* *Depreciation expense* was USD 3.6m for the year ended December 31, 2022 p. 82.

###### Property and equipment, net

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Leasehold improvements | 1,892 | 2,670 |
| Equipment | 5,033 | 7,230 |
| Software | 29,189 | 25,964 |
| Other | — | 39 |
| — | 36,114 | 35,903 |
| Accumulated depreciation | ( 27,044 ) | ( 27,229 ) |
| **Total** | 9,070 | 8,674 |

###### 9. Leases

* The Company determines if a contract contains a lease at inception p. 83.
* A *right-of-use asset* is recognized within other assets p. 83.
* A *lease liability* is recognized within accounts payable and accrued liabilities p. 83.
* Recognition is based on the present value of future lease payments p. 83.
* If leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on information available on the inception date to determine the lease liability p. 83.
* The Company's leases are primarily for *office facilities* p. 83.
* Leases for office facilities have been classified as *operating leases* p. 83.
* Lease terms range from *1 to 6 years* p. 83.
* Some leases include *options to extend* p. 83.
* *Lease expense* for the year ended December 31, 2023, was USD 2.8m p. 83.
* *Lease expense* for the year ended December 31, 2022, was USD 2.6m p. 83.

###### Operating lease assets and liabilities

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Operating lease right-of-use assets | 4,905 | 8,214 |
| Operating lease liabilities | 5,228 | 8,616 |
| Operating lease weighted-average remaining lease term | 4.55 years | 5.00 years |
| Operating lease weighted-average discount rate | 3.95% | 3.16% |

###### Lease expense and cash outflows

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Operating lease expense | 2,583 | 2,414 |
| Short-term lease expense | 184 | 220 |
| **Total lease expense** | 2,767 | 2,634 |
| **Operating cash outflows from operating leases** | 2,636 | 2,382 |

###### Future minimum operating lease payments

| ($ in thousands) | 2023 |
| --- | --- |
| 2024 | 1,671 |
| 2025 | 1,204 |
| 2026 | 992 |
| 2027 | 903 |
| 2028 | 661 |
| Thereafter | 353 |
| **Total future minimum operating lease payments** | 5,784 |
| Less imputed interest | ( 556 ) |
| **Total operating lease liability** | 5,228 |

###### 10. Subordinated Debt

* In May 2019, the Company issued unsecured subordinated notes with an aggregate principal amount of USD 20.0m p. 84.
* *Interest* on these Notes is fixed at 7.25% for the first 8 years and 8.25% thereafter p. 84.
* Early retirement of the debt before the 8-year commitment requires full interest payments and return of outstanding principal p. 84.
* *Principal* for these Notes is due at maturity on May 24, 2039, with interest payable quarterly p. 84.
* The Notes have junior priority to all previously issued debt p. 84.
* *Debt related to the Notes* is reported net of debt issuance costs of approximately USD 0.5m in the December 31, 2023 and 2022 consolidated balance sheets p. 84.
* These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt p. 84.
* On August 2, 2006, the Trust issued USD 58.0m of fixed/floating rate capital securities guaranteed by the Company p. 84.
* The Trust also issued the Company USD 1.8m of common stock, classified within other long-term investments p. 84.
* The Company has not consolidated the Trust as it does not meet consolidation criteria and the Company lacks significant influence over the investee p. 84.
* The Company carries its investment in the common stock of the Trust at cost p. 84.
* There was no impairment or observable change in price for this investment during the year ended December 31, 2023 p. 84.
* The sole asset of the Trust is Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of USD 59.8m issued by the Company p. 84.
* The Debentures are an unsecured obligation, currently redeemable, with a maturity date of September 15, 2036 p. 84.
* *Interest on the Debentures* is payable quarterly at an annual rate based on the three-month LIBOR plus 3.4% p. 84.
* The three-month LIBOR rates were 5.59% and 4.77% at December 31, 2023 and 2022, respectively p. 84.
* *Debt related to the Debentures* is reflected in the December 31, 2023 and 2022 consolidated balance sheets, net of debt issuance costs of approximately USD 0.6m and USD 0.7m, respectively p. 84.
* These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt p. 84.

###### Subordinated debt, net of debt issuance costs

**—**

| ($ in thousands) Junior subordinated interest debentures, due September 15, 2036, payable quarterly | 2023 | 2022 |
| --- | --- | --- |
| Principal | 59,794 | 59,794 |
| Less: Debt issuance costs | ( 608 ) | ( 657 ) |
| Principal | 20,000 | 20,000 |
| Less: Debt issuance costs | ( 496 ) | ( 528 ) |
| **Subordinated debt, net of debt issuance costs** | 78,690 | 78,609 |

###### 11. Notes Payable

* The Company entered into an agreement for a new unsecured revolving credit facility (the "Revolving Credit Facility") with a syndicate of participating banks during Q1 2023 p. 85.
* The *Revolving Credit Facility* provides up to USD 150.0m, with an accordion feature to increase capacity by USD 50.0m, and a letter of credit sub-facility of up to USD 30.0m p. 85.
* During the year ended December 31, 2023, the Company *drew USD 50.0m* on the Revolving Credit Facility p. 85.
* The proceeds from the Revolving Credit Facility were used to pay off the principal on the existing term loan p. 85.
* The Company subsequently terminated the existing term loan and revolving line of credit p. 85.
* *Interest* on the Revolving Credit Facility is payable quarterly p. 85.
* The *interest rate* on the Revolving Credit Facility is the Secured Overnight Financing Rate ("SOFR") plus a margin of between 150 and 190 basis points, based on the ratio of debt to total capital, and a credit spread adjustment of 10 basis points p. 85.
* As of December 31, 2023, the *six-month SOFR* on the Revolving Credit Facility was 5.47%, plus a margin of 1.60% p. 85.
* The *interest rate* on the previous term loan was the one-month LIBOR (4.39% on December 31, 2022) plus an "Applicable Margin" of 1.65% p. 85.
* The previous *revolving line of credit* included a fee of 0.25% on the unused portion p. 85.
* The Company was subject to *covenants* on the Revolving Credit Facility, including minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating, and minimum liquidity p. 85.
* As of December 31, 2023, the Company was in *compliance* with all covenants p. 85.

###### Interest payments on debt

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Interest payments on terminated term loan | 1,396 | 1,443 |
| Interest payments on revolving credit facility | 2,598 | — |

###### 12. Stockholders’ Equity

* The Board of Directors approved a *4-for-1 reverse stock split* of the Company’s common stock on September 23, 2022 p. 86.
* The *reverse stock split* became effective on January 3, 2023 p. 86.
* All share and per share information in the consolidated financial statements and notes have been *retroactively adjusted* to reflect the reverse stock split for all periods presented p. 86.
* The Company completed its *initial public offering (IPO)* on January 18, 2023 p. 86.
* *4,750,000 shares* were offered by the Company in the IPO at a price of $15.00 per share p. 86.
* The Company’s *net proceeds from the IPO* were approximately $62.0 million, after deducting underwriting discounts and specific incremental expenses p. 86.
* Upon the closing of its IPO, the Company filed an amended and restated certificate of incorporation, which increased the number of *authorized shares* to 500,000,000 shares of common stock (par value $0.01 per share) and 10,000,000 shares of preferred stock (par value $0.01 per share) p. 86.
* *Preferred Shares* had liquidation preference over common stock for the face value of $50.00 per share and any declared but unpaid dividends p. 86.
* Preferred Shares provided holders the option to convert them into common stock based on the *Option Conversion Rate* p. 86.
* Preferred Shares were subject to *mandatory conversion* upon the closing of an IPO at the Mandatory Conversion Rate p. 86.
* As of December 31, 2022, the *Mandatory Conversion Rate* allowed conversion into common stock based on a conversion price of $6.04 per common share p. 86.
* On January 18, 2023, *1,969,660 Preferred Shares converted* to 16,305,113 shares of common stock upon the Company’s IPO closing p. 86.
* The Company completed its *follow-on offering* on November 20, 2023 p. 86.
* *2,150,000 shares* were sold by the Company in the follow-on offering at a price of $30.50 per share p. 86.
* The Company’s *net proceeds from the follow-on offering* were approximately $62.5 million, after deducting underwriting discounts and specific incremental expenses p. 86.

###### 13. Income Taxes

* The Company's provision for income taxes generally does not substantially deviate from the statutory tax rate p. 87.
* The effective tax rate may vary from the statutory rate due to tax adjustments for tax-exempt income, dividends-received deduction, and non-deductible expenses p. 87.
* The federal statutory income tax rate is 21% p. 87.
* The Company paid *federal income taxes* of USD 15.8m during the year ended December 31, 2023 p. 87.
* The Company’s federal income tax returns for tax years 2020 to 2022 are subject to examination by the Internal Revenue Service p. 87.
* The Company has no current U.S. federal or state and local income tax examinations ongoing p. 87.
* At December 31, 2023, the Company carried no balance for uncertain tax positions p. 87.
* The Company had no accrual for the payment of interest and penalties at December 31, 2023 or 2022 p. 87.
* The Company has *federal net operating loss carryforwards* of approximately USD 49.4m p. 87.
* These net operating losses are set to expire beginning in 2030 p. 87.
* The Company is limited on the utilization of USD 49.3m of the net operating losses under Internal Revenue Code Section 382 ("Sec 382") due to an "ownership change" in 2014 p. 87.
* The Sec 382 limitation is expected to result in an expiration of USD 2.8m (USD 0.6m tax effected) of net operating losses p. 87.
* A valuation allowance was established against the balance of net operating losses expected to expire without utilization p. 87.
* The Company generated a *capital loss carryforward* in 2022, resulting in a deferred tax asset of USD 0.7m as of December 31, 2023 p. 87.
* No valuation allowance is recorded against this capital loss deferred tax asset as the Company expects to utilize it before it expires in 2027 p. 87.
* The Company's *deferred tax valuation allowance* at December 31, 2023 and 2022 was USD 0.6m p. 87.

###### Income tax expense

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Current income tax expense | 14,736 | 120 |
| Deferred tax expense | 9,382 | 10,267 |
| **Income tax expense** | 24,118 | 10,387 |

###### Reconciliation of income tax expense

| ($ in thousands) | 2023 Amount | 2023 Percentage | 2022 Amount | 2022 Percentage |
| --- | --- | --- | --- | --- |
| Income tax expense at federal statutory rate | 23,121 | 21.0% | 10,454 | 21.0% |
| Tax advantaged investments | ( 295 ) | ( 0.3 ) | ( 324 ) | ( 0.7 ) |
| Other | 1,292 | 1.2 | 257 | 0.6 |
| **Total income tax expense** | 24,118 | 21.9% | 10,387 | 20.9% |

###### Deferred tax assets

**—**

| ($ in thousands) Deferred tax assets: | 2023 | 2022 |
| --- | --- | --- |
| Net operating losses | 10,655 | 14,966 |
| Losses and loss adjustment expenses | 11,581 | 10,748 |
| Unearned premiums | 15,365 | 11,959 |
| Unrealized losses on fixed maturity securities, available-for-sale | 6,113 | 11,563 |
| Stock options/awards | 1,714 | 1,107 |
| Other | 4,237 | 5,297 |
| **Total deferred tax assets** | 49,665 | 55,640 |
| Less valuation allowance | ( 586 ) | ( 586 ) |
| **Total deferred tax assets after valuation allowance** | 49,079 | 55,054 |
| Deferred policy acquisition costs | 11,528 | 8,209 |
| Other long-term investments | 6,460 | 6,055 |
| Section 481(a) adjustment | 3,477 | 1,405 |
| Unrealized gains on equity securities | 3,243 | 825 |
| Depreciation | 1,260 | 1,481 |
| Other | 1,120 | 891 |
| **Total deferred tax liabilities** | 27,088 | 18,866 |
| **Deferred income taxes** | 21,991 | 36,188 |

###### 14. Reserves for Losses and Loss Adjustment Expenses

* The Company presents its loss development on a consolidated basis p. 88.
* Net ultimate loss and LAE are evaluated under three sub-categories: multiline solutions, short tail/monoline specialty lines, and exited lines p. 88.
* These disaggregated groupings have homogeneous risk characteristics, similar development patterns, and are subject to similar trends p. 88.
* *Short tail/monoline specialty lines* include global property & agriculture, accident & health, surety, and professional lines underwriting divisions p. 88.
* These lines serve market niches with monoline solutions and generally have shorter durations for losses to fully develop p. 88.
* Losses for short tail/monoline specialty lines are generally reported within a short period from the date of loss, and claims are often settled and paid quickly p. 88.
* Short tail/monoline specialty lines can be impacted by larger, more complex losses due to factors like difficulty determining actual damages, and legal/regulatory impediments extending settlement times p. 88.
* *Multi-line solutions* include industry solutions, programs, captives, and transactional E&S underwriting divisions p. 88.
* These lines serve market niches by providing multiple products, most frequently as an integrated solution p. 88.
* The multi-line solution subcategory is predominantly composed of occurrence liability, including general liability, excess liability, and commercial auto p. 88.
* Multi-line solutions have a longer duration for losses to fully develop compared to short-tail/monoline specialty lines p. 88.
* The unique claim characteristics and longer-tail nature of multi-line solutions introduce more uncertainty, as claims can be impacted by changes in regulation, inflation, and other unforeseen factors over time p. 88.
* *Exited lines* include all underwriting units placed in run-off and are presented separately from ongoing lines of business p. 88.
* For the year ended December 31, 2023, the Company recognized *favorable development* of USD 9.2 million in short tail/monoline specialty lines p. 88.
* For the year ended December 31, 2023, the Company recognized *adverse development* of USD 11.9 million in multi-line solutions p. 88.
* The *favorable development* in short tail/monoline specialty lines was driven by property lines of business from the 2021 accident year p. 88.
* The *adverse development* in multi-line solutions was driven by higher than expected severity in general and auto liability lines, primarily from the 2019 accident year p. 88.
* During the year ended December 31, 2022, the Company’s *net incurred losses* for accident years 2021 and prior developed adversely by USD 14.4 million, related to losses subject to the LPT p. 88.
* Within exited lines, *adverse development* of USD 14.5 million was from the 2019 accident year, primarily driven by increased frequency and severity in general and professional liability p. 88.
* An additional *net adverse development* of USD 8.4 million in exited lines was from other accident years p. 88.
* Within multi-line solutions, *favorable development* of USD 10.8 million was from the 2020 through 2021 accident years, driven by a reduction in claim frequency in commercial auto and general liability p. 88.
* An additional *net adverse development* of USD 2.3 million in multi-line solutions was from various other accident years p. 88.

###### Activity in reserves for losses and LAE

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Reserves for losses and LAE, beginning of period | 1,141,757 | 979,549 |
| Less: reinsurance recoverable on unpaid claims, beginning of period | ( 435,986 ) | ( 381,338 ) |
| **Reserves for losses and LAE, beginning of period, net of reinsurance** | 705,771 | 598,211 |
| Incurred, net of reinsurance, related to: — Current period | 516,664 | 393,939 |
| Incurred, net of reinsurance, related to: — Prior years | — | 14,385 |
| **Incurred, net of reinsurance, related to: — Total incurred, net of reinsurance** | 516,664 | 408,324 |
| Paid, net of reinsurance, related to: — Current period | 109,937 | 105,928 |
| Paid, net of reinsurance, related to: — Prior years | 253,481 | 194,836 |
| **Paid, net of reinsurance, related to: — Total paid** | 363,418 | 300,764 |
| **Paid, net of reinsurance, related to: — Net reserves for losses and LAE, end of period** | 859,017 | 705,771 |
| Paid, net of reinsurance, related to: — Plus: reinsurance recoverable on unpaid claims, end of period | 455,484 | 435,986 |
| **Paid, net of reinsurance, related to: — Reserves for losses and LAE, end of period** | 1,314,501 | 1,141,757 |

###### Short Duration Contract Disclosures

* *Losses and LAE reserves* represent the Company's best estimate of the ultimate net cost of all reported and unreported losses that are unpaid as of the balance sheet dates p. 89.
* *Estimated reserves* for losses and LAE include accumulated estimates for claims reported and unpaid, projected increases in claims costs for reported claims, claims incurred but not reported, and expenses for investigating and adjusting all incurred and unpaid claims p. 89.
* The Company measures *claim counts* by incident to determine the cumulative number of reported claims p. 89.
* *Claim counts* include all reported claims, even if no liability is established for them (i.e., no reserve for loss and loss adjustment expenses) p. 89.

###### Incurred losses and LAE, net of reinsurance

**($ in thousands except number of claims)**

| Incurred Losses and LAE, Net of Reinsurance Accident Year | Incurred Losses and LAE, Net of Reinsurance Years Ended December 31, 2019* | Incurred Losses and LAE, Net of Reinsurance Years Ended December 31, 2020* | Incurred Losses and LAE, Net of Reinsurance Years Ended December 31, 2021* | Incurred Losses and LAE, Net of Reinsurance Years Ended December 31, 2022* | Incurred Losses and LAE, Net of Reinsurance Years Ended December 31, 2023 | As of December 31, 2023 IBNR | As of December 31, 2023 Reported Claims |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2019 | 65,221 | 50,400 | 47,600 | 51,100 | 53,100 | 2,832 | 1,034 |
| 2020 | — | 68,190 | 66,690 | 66,690 | 66,690 | 1,877 | 1,288 |
| 2021 | — | — | 102,970 | 102,970 | 91,757 | 5,496 | 1,556 |
| 2022 | — | — | — | 125,288 | 125,288 | 57,026 | 2,151 |
| 2023 | — | — | — | — | 205,189 | 110,310 | 3,175 |
| **Total** | — | — | — | — | 542,024 | — | — |
| Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | ( 283,284 ) | — | — |
| Net reserves for loss and LAE before 2019 | Net reserves for loss and LAE before 2019 | Net reserves for loss and LAE before 2019 | Net reserves for loss and LAE before 2019 | Net reserves for loss and LAE before 2019 | 17,964 | — | — |
| **Total net reserves for loss and LAE** | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | 276,704 | — | — |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Cumulative paid losses and LAE, net of reinsurance by accident year

**($ in thousands) Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31,**

| Accident Year | 2019* | 2020* | 2021* | 2022* | 2023 |
| --- | --- | --- | --- | --- | --- |
| 2019 | 36,013 | 42,528 | 43,784 | 47,330 | 47,255 |
| 2020 | — | 32,805 | 58,329 | 72,514 | 72,351 |
| 2021 | — | — | 17,554 | 52,326 | 66,902 |
| 2022 | — | — | — | 21,404 | 63,880 |
| 2023 | — | — | — | — | 32,896 |
| **Total** | — | — | — | — | 283,284 |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Incurred losses and LAE, net of reinsurance by accident year

**($ in thousands except number of claims)**

| Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Accident Year | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2014* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2015* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2016* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2017* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2018* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2019* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2020* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2021* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2022* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2023 | As of December 31, 2023 Years Ended December 31, IBNR | As of December 31, 2023 Reported Claims |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2014 | 100,355 | 100,355 | 115,749 | 116,970 | 116,970 | 117,783 | 118,995 | 120,731 | 120,777 | 118,277 | 1,016 | 4,979 |
| 2015 | — | 103,191 | 114,266 | 117,024 | 117,024 | 119,216 | 121,746 | 122,881 | 122,902 | 127,102 | 910 | 5,369 |
| 2016 | — | — | 64,828 | 64,448 | 64,448 | 64,248 | 71,306 | 74,794 | 74,923 | 75,923 | 2,741 | 4,695 |
| 2017 | — | — | — | 68,650 | 68,650 | 67,578 | 76,231 | 81,807 | 82,080 | 84,580 | 4,803 | 5,524 |
| 2018 | — | — | — | — | 77,647 | 77,647 | 77,039 | 77,039 | 77,379 | 73,179 | 8,983 | 5,048 |
| 2019 | — | — | — | — | — | 110,925 | 109,925 | 109,925 | 114,389 | 125,337 | 5,623 | 6,042 |
| 2020 | — | — | — | — | — | — | 145,846 | 145,846 | 139,090 | 139,090 | 6,933 | 5,453 |
| 2021 | — | — | — | — | — | — | — | 179,174 | 175,173 | 175,173 | 48,993 | 6,611 |
| 2022 | — | — | — | — | — | — | — | — | 232,748 | 232,748 | 35,167 | 8,360 |
| 2023 | — | — | — | — | — | — | — | — | — | 308,497 | 168,794 | 7,370 |
| **Total** | — | — | — | — | — | — | — | — | — | 1,459,906 | — | — |
| Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | ( 994,414 ) | — | — |
| Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | ( 2,346 ) | — | — |
| **Total net reserves for loss and LAE** | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | 463,146 | — | — |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Cumulative paid losses and LAE, net of reinsurance by accident year

**($ in thousands) Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31,**

| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2014 | 32,530 | 63,699 | 81,251 | 96,639 | 101,984 | 104,984 | 105,756 | 106,214 | 104,076 | 102,214 |
| 2015 | — | 44,152 | 72,137 | 88,833 | 99,401 | 108,291 | 114,098 | 117,295 | 118,166 | 123,268 |
| 2016 | — | — | 24,844 | 44,133 | 54,957 | 60,500 | 62,469 | 65,498 | 73,170 | 74,882 |
| 2017 | — | — | — | 27,088 | 45,263 | 56,411 | 67,553 | 70,562 | 72,415 | 74,770 |
| 2018 | — | — | — | — | 29,372 | 45,739 | 53,491 | 67,289 | 73,251 | 71,042 |
| 2019 | — | — | — | — | — | 36,512 | 63,022 | 82,296 | 100,094 | 113,207 |
| 2020 | — | — | — | — | — | — | 38,504 | 72,182 | 88,499 | 113,637 |
| 2021 | — | — | — | — | — | — | — | 44,996 | 84,530 | 105,853 |
| 2022 | — | — | — | — | — | — | — | — | 64,849 | 140,490 |
| 2023 | — | — | — | — | — | — | — | — | — | 75,051 |
| **Total** | — | — | — | — | — | — | — | — | — | 994,414 |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Exited Lines — all lines in runoff

* The table reconciles net incurred and paid loss development tables to balance sheet reserves for losses and loss adjustment expenses as of December 31, 2023 and 2022 p. 90.
* The subsequent table details the historical average annual payout of incurred losses and allocated loss adjustment expenses (claims duration) for short-duration contracts p. 90.
* This claims duration information is based on disaggregated data from paid loss development tables, net of reinsurance p. 90.

###### Historical average annual payout of incurred losses and LAE for short-duration contracts

**($ in thousands except number of claims)**

| Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Accident Year | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2014* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2015* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2016* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2017* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2018* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2019* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2020* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2021* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2022* | Incurred Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31, 2023 | As of December 31, 2023 Years Ended December 31, IBNR | As of December 31, 2023 Reported Claims |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2014 | 64,186 | 58,170 | 62,691 | 63,995 | 63,994 | 69,120 | 70,186 | 71,451 | 72,027 | 69,027 | 7,650 | 4,170 |
| 2015 | — | 61,920 | 65,173 | 68,118 | 70,912 | 75,296 | 80,787 | 83,432 | 84,167 | 87,167 | 3,985 | 4,565 |
| 2016 | — | — | 95,914 | 95,509 | 93,885 | 96,090 | 106,368 | 107,390 | 108,366 | 108,366 | 4,946 | 4,879 |
| 2017 | — | — | — | 78,246 | 82,668 | 84,872 | 97,578 | 99,559 | 101,865 | 82,865 | 13,081 | 4,318 |
| 2018 | — | — | — | — | 76,956 | 71,589 | 82,366 | 93,812 | 100,150 | 105,150 | 1,571 | 4,886 |
| 2019 | — | — | — | — | — | 91,067 | 94,550 | 96,070 | 110,546 | 117,302 | 2,425 | 5,580 |
| 2020 | — | — | — | — | — | — | 87,809 | 90,609 | 90,609 | 98,512 | 5,637 | 4,756 |
| 2021 | — | — | — | — | — | — | — | 57,392 | 52,392 | 36,294 | 9,014 | 2,337 |
| 2022 | — | — | — | — | — | — | — | — | 35,834 | 45,111 | 12,913 | 215 |
| 2023 | — | — | — | — | — | — | — | — | — | 2,930 | 8,478 | 31 |
| **Total** | — | — | — | — | — | — | — | — | — | 752,724 | — | — |
| Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | Cumulative net paid loss and LAE from the table below | ( 637,997 ) | — | — |
| Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | Net reserves for loss and LAE before 2014 | 4,440 | — | — |
| **Total net reserves for loss and LAE** | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | Total net reserves for loss and LAE | 119,167 | — | — |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Cumulative paid losses and LAE, net of reinsurance by accident year

**($ in thousands) Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands) Years Ended December 31,**

| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2014 | 9,700 | 30,863 | 42,141 | 50,785 | 49,906 | 52,450 | 53,290 | 53,615 | 55,737 | 56,594 |
| 2015 | — | 9,026 | 41,653 | 55,610 | 65,269 | 73,100 | 77,981 | 80,312 | 81,789 | 83,706 |
| 2016 | — | — | 38,191 | 59,237 | 71,852 | 79,669 | 83,115 | 87,393 | 89,565 | 92,867 |
| 2017 | — | — | — | 35,962 | 53,888 | 53,770 | 58,625 | 65,301 | 70,219 | 68,747 |
| 2018 | — | — | — | — | 27,985 | 62,582 | 69,695 | 82,881 | 93,224 | 103,432 |
| 2019 | — | — | — | — | — | 31,556 | 66,163 | 69,602 | 85,798 | 98,392 |
| 2020 | — | — | — | — | — | — | 27,476 | 57,959 | 66,477 | 80,744 |
| 2021 | — | — | — | — | — | — | — | 15,002 | 20,594 | 29,317 |
| 2022 | — | — | — | — | — | — | — | — | 19,676 | 22,208 |
| 2023 | — | — | — | — | — | — | — | — | — | 1,990 |
| **Total** | — | — | — | — | — | — | — | — | — | 637,997 |
| *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited |

###### Net reserves for losses and LAE and reinsurance recoverable on unpaid claims

| ($ in thousands) Net reserves for losses and LAE: | 2023 — |
| --- | --- |
| Short Tail/Monoline Specialty | 276,704 |
| Multi-line Solutions | 463,146 |
| Exited Lines | 119,167 |
| **Reserves for losses and LAE, net of reinsurance** | 859,017 |
| Reinsurance recoverable on unpaid claims: — Short Tail/Monoline Specialty | 199,044 |
| Reinsurance recoverable on unpaid claims: — Multi-line Solutions | 252,146 |
| Reinsurance recoverable on unpaid claims: — Exited Lines | 4,294 |
| **Reinsurance recoverable on unpaid claims: — Total reinsurance recoverable on unpaid claims** | 455,484 |
| **Reinsurance recoverable on unpaid claims: — Reserves for losses and LAE at end of year** | 1,314,501 |

###### Average annual percentage payout of incurred claims by age, net of reinsurance

**Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Years**

| — | 1* | 2* | 3* | 4* | 5* | 6* | 7* | 8* | 9* | 10* |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Short Tail/Monoline Specialty | 54.0% | 24.7% | 12.1% | 5.0% | 2.2% | 1.0% | 0.5% | 0.2% | 0.2% | 0.1% |
| Multi-line Solutions | 37.7% | 22.6% | 16.6% | 10.6% | 5.3% | 3.9% | 2.0% | 0.4% | 0.4% | 0.5% |
| Exited Lines | 42.8% | 22.0% | 14.2% | 8.4% | 3.2% | 3.2% | 2.7% | 1.0% | 0.8% | 1.7% |
| ***Supplementary information and unaudited** | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | *Supplementary information and unaudited | — | — | — | — | — | — |

###### 15. Commission and Fee Income

* *Commission and fee income* was USD 10.9m for the year ended December 31, 2023 p. 91.
* *Commission and fee income* was USD 10.2m for the year ended December 31, 2022 p. 91.
* *Contract assets* opening balance was USD 0.3m for the year ended December 31, 2023 p. 91.
* *Contract assets* closing balance was USD 0.3m for the year ended December 31, 2023 p. 91.
* *Contract assets* opening balance was USD 0.3m for the year ended December 31, 2022 p. 91.
* *Contract assets* closing balance was USD 0.3m for the year ended December 31, 2022 p. 91.

###### Commission and fee income

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| SUA commission revenue | 2,864 | 3,224 |
| SUA fee income | 2,732 | 1,597 |
| Other | 468 | 378 |
| **Total commission and fee income** | 6,064 | 5,199 |

###### Contract assets

| ($ in thousands) | Contract Assets |
| --- | --- |
| Balance at December 31, 2021 | 1,209 |
| Balance at December 31, 2022 | 1,292 |
| Balance at December 31, 2023 | 976 |

###### 16. Underwriting, Acquisition and Insurance Expenses

* *Underwriting, acquisition and insurance expenses* were USD 309,000 for the year ended December 31, 2023 p. 92.
* *Underwriting, acquisition and insurance expenses* were USD 230,000 for the year ended December 31, 2022 p. 92.

###### Underwriting, acquisition and insurance expenses

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Amortization of policy acquisition costs | 108,514 | 65,695 |
| Other operating and general expenses | 134,930 | 116,476 |
| **Total underwriting, acquisition and insurance expenses** | 243,444 | 182,171 |

###### 17. Reinsurance

* *Reinsurance agreements* provide increased capacity for larger risks and maintain exposure to loss within capital resources p. 93.
* The Company remains obligated for ceded amounts if reinsurers fail to meet their obligations p. 93.
* *Funded trust accounts* were established by reinsurers with the Company as the sole beneficiary, providing additional security for claim recoverables p. 93.
* The Company does not carry these trust accounts on the balance sheet, as it gains custody only if the reinsurer fails to pay p. 93.
* *Market value of trust accounts* was approximately USD 158.1m at December 31, 2023 p. 93.
* Agreements stipulate that reinsurers continue claim payment reimbursements without disturbing trust balances p. 93.
* *Trust amounts* are adjusted periodically by mutual agreement based on loss reserve recoverables p. 93.
* An *LPT retroactive reinsurance agreement* was entered into during the first quarter of 2020 p. 93.
* Under the LPT, the Company received *reinsurance protection* of approximately USD 127.4m above ceded losses and LAE reserves p. 93.
* The LPT is subject to *co-participations* at specified amounts p. 93.
* During the year ended December 31, 2022, *reserves for certain divisions* covered by the LPT were strengthened by USD 14.4m, increasing the ceded amount p. 93.
* The increase in the ceded amount in 2022 was partially offset by a *recognized gain* of USD 5.8m p. 93.
* Certain ceded reinsurance contracts that transfer only significant timing risk and insufficient underwriting risk are accounted for using the *deposit method of accounting* p. 93.
* The Company’s *deposit asset* was included in other assets on the consolidated balance sheets p. 93.
* *Deposit assets* were USD 29.9m as of December 31, 2023 p. 93.
* *Deposit assets* were USD 41.8m as of December 31, 2022 p. 93.

###### Deposit assets

| ($ in thousands) | 2023 Written | 2023 Earned | 2022 Written | 2022 Earned |
| --- | --- | --- | --- | --- |
| Direct premiums | 1,241,180 | 1,155,835 | 1,012,239 | 951,121 |
| Assumed premiums | 218,649 | 193,971 | 131,713 | 113,610 |
| Ceded premiums | ( 549,138 ) | ( 520,663 ) | ( 468,409 ) | ( 448,737 ) |
| **Net premiums** | 910,691 | 829,143 | 675,543 | 615,994 |
| **Ceded losses and LAE incurred** | — | 337,011 | — | 311,257 |

###### Ceded unpaid losses and LAE and reinsurance recoverables

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Ceded unpaid losses and LAE | 455,484 | 435,986 |
| Ceded paid losses and LAE | 122,287 | 107,228 |
| Loss portfolio transfer | 20,858 | 38,145 |
| Allowance for credit losses | ( 2,295 ) | — |
| **Reinsurance recoverables** | 596,334 | 581,359 |
| **Ceded unearned premium** | 186,121 | 157,645 |

###### Impact of loss portfolio transfer

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Strengthening of reserves subject to the LPT | — | ( 14,385 ) |
| Reinsurance recoveries under the LPT | 1,427 | 5,813 |
| **Pretax net impact of the LPT** | 1,427 | ( 8,572 ) |

###### 18. Stock-Based Compensation

* The *2022 Long-Term Incentive Plan* (2022 Plan) was approved by the Compensation Committee on September 23, 2022, and became effective on January 12, 2023 p. 94.
* The 2022 Plan allows for granting restricted stock, restricted stock units, performance stock units, stock options, and cash-based performance awards to select employees and non-employee directors p. 94.
* *3,200,656 shares* of common stock were available for issuance under the 2022 Plan p. 94.
* The *2021 Long Term Incentive Plan* (2021 Plan) was approved by the Compensation Committee in December 2020 p. 94.
* The 2021 Plan provides for granting restricted stock, restricted stock units, performance stock units, and cash-based performance awards to select employees and non-employee directors p. 94.
* *1,101,856 shares* of restricted stock and restricted stock units were granted in 2023 under the 2022 Plan p. 94.
* *198,842 shares* of restricted stock and restricted stock units were granted in 2022 under the 2021 Plan p. 94.
* *23,482 shares* of restricted stock were granted to Board of Directors members in 2023, with a one-year service period p. 94.
* *15,196 shares* of restricted stock were granted to Board of Directors members in 2022, with a one-year service period p. 94.
* The *fair value of restricted stock and restricted stock units* under the 2022 Plan for awards granted at the time of the Company’s IPO was USD 15.00 per share p. 94.
* The fair value of subsequent grants was equal to the closing stock price on the grant date p. 94.
* *759,990 stock options* were granted in 2023 p. 94.
* The *grant date fair value of options* under the 2022 Plan was determined using the Black-Scholes model, with a contractual term of 10 years minus the weighted average service period p. 94.
* Volatility for option valuation was based on historical volatility of comparable publicly traded insurance companies p. 94.
* The *restricted stock and restricted stock units* granted to employees and the Board of Directors were valued at approximately USD 17.7 million in 2023 and USD 2.6 million in 2022, based on grant date fair value p. 94.
* The *stock options* granted to employees in 2023 were valued at approximately USD 4.4 million based on grant date fair value p. 94.
* The *aggregate intrinsic value of options outstanding* was USD 14.3 million as of December 31, 2023 p. 94.
* The *weighted-average remaining contractual life of options outstanding* was 9.0 years as of December 31, 2023 p. 94.
* The *total fair value of shares vested* was USD 0.5 million in 2023 and USD 2.2 million in 2022 p. 94.
* As of December 31, 2023, the *total unrecognized compensation cost* related to non-vested, share-based compensation awards was USD 15.9 million p. 94.
* The *weighted average period* over which the unrecognized compensation cost is expected to be recognized is 1.5 years p. 94.
* The Company recognized *stock-based compensation expense* of USD 8.5 million in 2023 and USD 2.3 million in 2022 p. 94.
* The *2022 Employee Stock Purchase Plan* (ESPP) was approved by the Compensation Committee on September 23, 2022, and became effective on May 15, 2023 p. 94.
* Under the ESPP, employees can elect to have a percentage of their annual base earnings withheld to purchase common stock at two specified intervals each year p. 94.
* The *purchase price* for common stock under the ESPP is 85% of the lower of its beginning-of-period or end-of-period market price p. 94.
* *376,548 common shares* have been reserved under the ESPP p. 94.
* The *grant date fair value of options* under the ESPP was determined using the Black-Scholes model, with a term equal to the 6-month period between the grant date and the exercisable date p. 94.
* Volatility for ESPP option valuation was based on historical volatility of comparable publicly traded insurance companies p. 94.
* *35,430 shares* had been purchased under the ESPP as of December 31, 2023 p. 94.
* The Company recognized *ESPP expense* of USD 0.2 million in 2023 p. 94.
* As of December 31, 2023, the *fair value of unrecognized ESPP expense* was USD 0.3 million p. 94.
* The *Legacy Programs* (Stock Purchase Program and Equity Incentive Program) previously granted common stock to employees and non-employee directors p. 94.
* Under Legacy Programs, employees were required to purchase a certain amount of stock, which the Company matched, with matching shares subject to vesting p. 94.
* For the purchased portion, participants made a minimum payment, and the remaining balance was issued as a note receivable to the Company and recorded as stock notes receivable within stockholders’ equity p. 94.

###### Equity incentive plan awards

**—**

| Year ended December 31, 2023 | Award Payout Range | Requisite Service Period | Authorized Target Common Shares |
| --- | --- | --- | --- |
| Market condition awards | 0 % — 150 % | 3 years | 37,622 |
| Performance condition awards | 0 % — 150 % | 3 years | 95,456 |
| Service condition awards | N/A | 1 to 4 years | 968,778 |
| Stock options | N/A | 3 to 4 years | 759,990 |
| — | — | — | 1,861,846 |
| Market condition awards | 0 % — 150 % | 3 years | 28,495 |
| Performance condition awards | 0 % — 150 % | 3 years | 26,210 |
| Restricted stock unit awards | N/A | 1 to 3 years | 144,137 |
| — | — | — | 198,842 |

###### Stock option activity

**—**

| Outstanding at January 1, 2023 | Weighted-Average Exercise Price | Stock |
| --- | --- | --- |
| Granted | 15.00 | 759,990 |
| **Outstanding at December 31, 2023** | — | 759,990 |

###### Non-vested stock and stock units activity

| — | Weighted-Average Grant-Date Fair Value | Stock and Stock Units |
| --- | --- | --- |
| Non-vested at January 1, 2023 | 12.55 | 419,896 |
| Granted | 16.07 | 1,101,856 |
| Vested | 13.39 | ( 40,645 ) |
| Forfeited | 15.29 | ( 35,658 ) |
| **Non-vested at December 31, 2023** | 15.13 | 1,445,449 |
| Non-vested at January 1, 2022 | 13.23 | 375,643 |
| Granted | 14.17 | 198,842 |
| Vested | 15.16 | ( 144,042 ) |
| Forfeited | 12.51 | ( 10,547 ) |
| **Non-vested at December 31, 2022** | 12.55 | 419,896 |

###### 19. Earnings Per Share

* The tables present the compilation of basic and diluted net earnings per share for the years ended December 31, 2023 and 2022 p. 95.
* The tables also present anti-dilutive instruments excluded from the calculation of diluted weighted-average common share equivalents for the years ended December 31, 2023 and 2022 p. 95.
* Common share equivalents of contingently issuable instruments excluded from basic earnings per share in shares for the years ended December 31, 2023 and 2022 are also presented p. 95.

###### Earnings per share

**—**

| ($ in thousands, except for share and per share amounts) Numerator | 2023 | 2022 |
| --- | --- | --- |
| Net income | 85,984 | 39,396 |
| Less: Undistributed income allocated to participating securities | ( 1,677 ) | ( 18,879 ) |
| Net income attributable to common shareholders (numerator for basic earnings per share) | 84,307 | 20,517 |
| Add back: Undistributed income allocated to participating securities | 1,677 | 18,879 |
| **Net income (numerator for diluted earnings per share under the two-class method)** | 85,984 | 39,396 |
| Basic weighted-average common shares | 36,031,907 | 16,568,393 |
| Dilutive effect of preferred shares | 716,708 | 15,245,533 |
| Dilutive effect of stock notes | 696,110 | 519,080 |
| Dilutive effect of awarded stock units | 736,837 | 320,188 |
| Dilutive effect of awarded options | 135,972 | — |
| **Diluted weighted-average common share equivalents** | 38,317,534 | 32,653,194 |
| **Basic earnings per share** | 2.34 | 1.24 |
| Diluted earnings per share | 2.24 | 1.21 |

###### Anti-dilutive instruments excluded from diluted weighted-average common share equivalents

| — | 2023 | 2022 |
| --- | --- | --- |
| Stock notes | — | 60,576 |
| Awarded stock units | 3,931 | — |
| Awarded options | 914 | — |

###### Common share equivalents of contingently issuable instruments

| — | 2023 | 2022 |
| --- | --- | --- |
| Common shares | 920,864 | 22,919 |
| Preferred shares, if converted | — | 1,059,602 |
| **Total** | 920,864 | 1,082,521 |

###### 20. Employee Benefit Plans

* The Company sponsors the *401(k) Plan* (the "Plan"), which is available to substantially all its employees p. 96.
* The Plan is subject to provisions of the *Employee Retirement Income Security Act of 1974* p. 96.
* The Company matches employee contributions on a *discretionary basis* p. 96.
* *Matching contributions* to the Plan were USD 2.9 million for the year ended December 31, 2023 p. 96.
* *Matching contributions* to the Plan were USD 2.4 million for the year ended December 31, 2022 p. 96.

###### Westaim

* *Westaim HIIG LP* acquired a majority of the Company's common stock in 2014 and 2015 p. 97.
* *Westaim* dissolved Westaim HIIG LP in July 2023, gaining direct ownership of the Company's common stock previously held by the partnership p. 97.
* *Westaim* owned 17.5% of the Company's common stock as of December 31, 2023 p. 97.
* *Westaim* (including shares beneficially owned through Westaim HIIG LP) owned 44.5% of the Company's common stock as of December 31, 2022 p. 97.
* *Changes in Westaim HIIG LP's ownership percentage* were primarily due to equity offerings, conversion of preferred common stock, and distribution of shares controlled by Westaim through a limited partnership p. 97.
* The *Company purchased 3,076,924 shares of Westaim common stock* for $8.4 million in 2015 p. 97.
* The *Company's investment in Westaim* is recorded as equity securities on the consolidated balance sheets p. 97.
* The *Company had an unrealized gain* of $0.5 million on its Westaim investment at December 31, 2023 p. 97.
* The *Company had an unrealized loss* of $2.3 million on its Westaim investment at December 31, 2022 p. 97.
* A *Management Services Agreement* between Westaim and the Company for consulting and other services terminated upon the closing of the IPO p. 97.

###### Riscom

* RISCOM provides the Company with wholesale brokerage services p. 98.
* RISCOM and the Company have a managing general agency agreement p. 98.
* The Company holds a *20% ownership interest* in RISCOM p. 98.
* *Premiums receivable* from RISCOM as of December 31, 2023, were USD 10.6 million p. 98.
* *Premiums receivable* from RISCOM as of December 31, 2022, were USD 9.9 million p. 98.

###### Premiums receivable from RISCOM

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Net earned premium | 99,736 | 91,051 |
| Gross written commissions | 24,177 | 23,472 |

###### Reinsurance

* The Company has reinsurance agreements with Everest Re, an affiliate of Mt. Whitney Securities, LLC p. 99.
* Mt. Whitney Securities, LLC was a limited partner of Westaim HIIG LP through November 30, 2022, and a holder of preferred shares p. 99.
* During the year ended December 31, 2023, Mt. Whitney Securities divested its entire ownership of the Company’s equity securities p. 99.
* *Reinsurance premiums ceded* related to the agreement were $59.6 million for the year ended December 31, 2022 p. 99.
* *Reinsurance recoverable* from Everest Re, net of premium payables, was $177.5 million at December 31, 2022 p. 99.

###### Other

* *Advisory and professional services fees and expense reimbursements* paid to affiliated stockholders and directors were $3.6 million for the year ended December 31, 2023 p. 100.
* *Advisory and professional services fees and expense reimbursements* paid to affiliated stockholders and directors were $3.4 million for the year ended December 31, 2022 p. 100.
* See Notes 5, 6, and 10 for investments involving affiliated companies and additional related party transactions p. 100.
* See Note 12 for related party transactions concerning the Company’s common and preferred shares p. 100.

###### Litigation

* The Company is a defendant in various legal actions related to claims under insurance policies and contracts p. 101.
* These actions are considered when estimating losses and loss adjustment expense reserves p. 101.
* The Company is also a defendant in legal actions concerning bad faith claims, disputes with third parties, or alleged errors and omissions p. 101.
* Accruals for these items are recorded when losses are probable and reasonably estimable p. 101.
* Based on present information, available insurance coverage, and advice from outside legal counsel, management believes the resolution of these matters will not have a material adverse effect on the Company’s consolidated balance sheets, statements of operations, or cash flows, individually or in the aggregate p. 101.
* *No provision for various contingencies* was recorded during the years ended December 31, 2023 and 2022 p. 101.

###### Indemnification

* The Company has provided indemnifications to certain buyers in conjunction with the sale of business assets and subsidiaries p. 102.
* Certain indemnifications cover typical representations and warranties related to performance responsibilities under sales contracts p. 102.
* The potential exposure covered by these indemnifications is difficult to determine due to the variety of matters, operations, and scenarios covered p. 102.
* Some of these indemnifications have no time limit p. 102.
* As of December 31, 2023, the Company does not believe any significant claims exist related to these indemnifications p. 102.

###### Contingent Consideration Related to Acquisitions

* *Earn-out liabilities* to former owners of acquired assets and businesses were not present as of December 31, 2023, and 2022 p. 103.
* *No earn-out payments* were made to former owners during the years ended December 31, 2023, and 2022 p. 103.

###### 23. Statutory Accounting Principles and Regulatory Matters

* *Dividend payments* from HSIC to the Company are restricted by Texas state law, requiring regulatory approval for amounts exceeding certain limits p. 104.
* The maximum amount of dividends HSIC can pay without prior approval is subject to restrictions related to policyholder surplus, net income, and dividends declared or distributed in the preceding 12 months p. 104.
* As of December 31, 2023, HSIC is not restricted from paying ordinary dividends p. 104.
* HSIC did not declare or pay any dividend during the years ended December 31, 2023 and 2022 p. 104.
* Property and casualty insurance companies are subject to *Risk Based Capital (RBC) requirements* specified by the National Association of Insurance Commissioners (NAIC) p. 104.
* RBC requirements dictate that the amount of capital and surplus maintained by a property and casualty insurance company is determined by various risk factors p. 104.
* As of December 31, 2023 and 2022, *HSIC’s statutory capital and surplus* substantially exceeded regulatory requirements p. 104.

###### Statutory net income and capital and surplus

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Statutory net income | 46,884 | 10,860 |
| Statutory capital and surplus | 602,916 | 408,167 |

###### 24. Subsequent Events

* On March 15, 2024, the Company redeemed the Debentures p. 105.
* The Company paid *accrued interest* of $1.4 million for the Debentures p. 105.
* The Company drew *$50.0 million* on the Revolving Credit Facility to fund the redemption p. 105.
* The redemption was funded using proceeds from the Revolving Credit Facility draw and existing cash p. 105.
* After the draw, the Company had *$100.0 million outstanding* under the Revolving Credit Facility p. 105.
* The Company had *$50.0 million of undrawn capacity* remaining on the Revolving Credit Facility after the draw p. 105.

## Controls and Procedures

###### Evaluation of Disclosure Controls and Procedures

* *Management evaluation* of disclosure controls and procedures was conducted as of the end of the period covered by the Annual Report on Form 10-K p. 106.
* *Principal executive officer and principal financial officer* participated in the evaluation p. 106.
* *Disclosure controls and procedures* are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) p. 106.
* *Conclusion*: as of December 31, 2023, disclosure controls and procedures were effective at the reasonable assurance level p. 106.
* *Management recognizes* that controls and procedures can only provide reasonable assurance of achieving their objectives p. 106.
* *Management applies judgment* in evaluating the cost-benefit relationship of possible controls and procedures p. 106.

###### Management’s Report on Internal Control over Financial Reporting

* Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended p. 107.
* Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America p. 107.
* Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets p. 107.
* Internal control over financial reporting provides reasonable assurance that transactions are recorded as necessary for financial statement preparation in accordance with GAAP, and that receipts and expenditures are made only with management and director authorizations p. 107.
* Internal control over financial reporting provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could materially affect financial statements p. 107.
* Internal control over financial reporting may not prevent or detect misstatements due to its inherent limitations p. 107.
* Projections of effectiveness evaluations to future periods are subject to risks that controls may become inadequate due to changing conditions or that compliance may deteriorate p. 107.
* Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023 p. 107.
* The assessment used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission p. 107.
* Management's assessment included evaluating the design and testing the operational effectiveness of internal control over financial reporting p. 107.
* Management reviewed the assessment results with the audit committee of the board of directors p. 107.
* Based on the assessment under the Internal Control-Integrated Framework (2013), management concluded that the company’s internal control over financial reporting was effective as of December 31, 2023 p. 107.
* This annual report on Form 10-K does not include an attestation report from the company’s registered public accounting firm regarding internal control over financial reporting p. 107.
* The company is an emerging growth company as of December 31, 2023, as defined in the JOBS Act p. 107.

###### Changes in Internal Control over Financial Reporting

* No change in internal control over financial reporting was identified during the year ended December 31, 2023, in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act p. 108.
* These identified changes have not materially affected, nor are they reasonably likely to materially affect, the company's internal control over financial reporting p. 108.

## Other Information

* *Andrew Robinson*, Chief Executive Officer, adopted a Rule 10b5-1 trading plan on November 30, 2023 p. 109.
* Mr. Robinson's plan allows for the sale of up to *126,748 shares* of common stock by December 31, 2024 p. 109.
* The plan was established during an open insider trading window p. 109.
* The plan is designed to meet the affirmative defense of Rule 10b5-1(c) under the Exchange Act and the company's policies for securities transactions p. 109.

## Directors, Executive Officers and Corporate Governance

* The information required by Item 10 of Form 10-K will be included in the company's 2024 Proxy Statement and is incorporated by reference p. 110.

## Executive Compensation

* The information required by Item 11 of Form 10-K will be included in the 2024 Proxy Statement and is incorporated by reference p. 111.

## Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters

* The information required by Item 12 of Form 10-K will be included in the company's 2024 Proxy Statement and is incorporated herein by reference p. 112.

## Certain Relationships and Related Transactions, and Director Independence

* The information required by Item 13 of Form 10-K will be included in the company's 2024 Proxy Statement and is incorporated by reference p. 113.

## Principal Accounting Fees and Services

* Our independent registered public accounting firm is Ernst & Young LLP, Houston, Texas p. 114.
* The *Auditor Firm ID* is 42 p. 114.
* The information required by Item 14 of Form 10-K will be included in our 2024 Proxy Statement and is incorporated herein by reference p. 114.

## Exhibits, Financial Statement Schedules.

* *Consolidated financial statements* of the Company are filed as part of this Form 10-K and included in Item 8 p. 115.
* *Report of Independent Registered Public Accounting Firm* is included p. 115.
* *Consolidated Balance Sheets* as of December 31, 2023 and 2022 are included p. 115.
* *Consolidated Statements of Operations and Comprehensive Income (loss)* for the two years ended December 31, 2023 and 2022 are included p. 115.
* *Consolidated Statements of Stockholders’ Equity* for the two years ended December 31, 2023 and 2022 are included p. 115.
* *Consolidated Statements of Cash Flows* for the two years ended December 31, 2023 and 2022 are included p. 115.
* Exhibits marked with an asterisk (\*) are to be filed by amendment p. 115.
* Exhibits marked with a plus (+) indicate a management contract or compensatory plan or arrangement p. 115.
* Exhibits marked with a dagger (†) have portions omitted for confidentiality purposes p. 115.

###### Financial statement schedules

| Schedule Number | Schedule Description | Page |
| --- | --- | --- |
| I. | Summary of Investments — Other Than in Related Parties at December 31, 202 3 | 101 |
| II. | Condensed Financial Information of Registrant (Parent Company) for the years ended December 31, 202 3 and 202 2 | 102 |
| IV. | Supplementary Reinsurance Information for the years ended December 31, 202 3 and 202 2 | 105 |
| V. | Valuation and Qualifying Accounts for the years ended December 31, 202 3 and 202 2 | 106 |
| VI. | Supplementary Information Concerning Property — Casualty Insurance Operations for the years ended December 31, 202 3 and 202 2 | 107 |

###### Exhibits

| Exhibit Number | Exhibit Description |
| --- | --- |
| 3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on January 18, 2023). |
| 3.2 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the Commission on January 18, 2023). |
| 4.1 | Amended and Restated Stockholders’ Agreement, dated March 12, 2014, by and among the Company and the stockholders listed therein (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 4.2 | Description of Capital Stock (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023). |
| 10.1+ | Share Purchase and Award Agreement and form of agreements thereunder in use before 2016 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 10.2+ | 2016 Equity Incentive Program and form of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 10.3+ | 2020 Long Term Incentive Plan and form of award agreements thereunder (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 10.4+ | Skyward Specialty Insurance Group, Inc. 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 10.5+ | Skyward Specialty Insurance Group, Inc. 2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |

###### Exhibits

| Exhibit Number 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14+ 10.15+ 10.16+ 10.17+ 10.18+ 10.19+ 10.20+ 10.21+ 10.22+ | Exhibit Description Form of Restricted Stock Units Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.6 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023). Form of Restricted Stock Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.7 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023). Form of Nonstatutory Stock Option Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.8 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023). Form of Incentive Stock Option Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.9 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023). Form of Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023). Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023). Performance Unit Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023). Amended Form of Performance Share (GBVPS) Agreement under the Company’s 2022 Long-Term Incentive Plan. Amended Form of Performance Share (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan. Amended Form of Performance Share (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan. Amended Form of Performance Cash Units Agreement under the Company’s Long-Term Incentive Plan. Amended Form of the Restricted Stock Unit (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan. Amended Form of Restricted Stock Unit (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan. Amended Form of Long-Term Performance Cash Plan and Award Letter under the Company’s 2022 Long-Term Incentive Plan. Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). Employment Agreement, dated May 22, 2020, by and between the Registrant and Andrew Robinson, with Amendment No. 1 dated January 1, 2022 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). Form of Promissory Note (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| --- | --- |
| 10.23 | Credit Agreement by and between Prosperity Bank and Houston International Insurance Group, Ltd., dated December 11, 2019 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 10.24* | Loss Portfolio Transfer and Adverse Development Retrocession Agreement by and among R&Q Bermuda (SAC) Limited acting in respect of the HIIG Segregated Account, HIIG Re, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company, dated April 1, 2020 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |

###### List of exhibits

| Exhibit Number 10.25* | Exhibit Description Investment Management Agreement by and among Arena Investors, LP, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company, dated November 6, 2015, with a Supplemental Acknowledgement dated January 13, 2016, a Supplemental Acknowledgement dated May 17, 2021, Supplemental Acknowledgement B dated May 17, 2021, an Amendment Agreement effective March 15, 2022, and a Supplemental Acknowledgement dated March 23, 2022 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| --- | --- |
| 10.26 | Second Amendment Agreement effective as of December 8, 2023, to that certain Investment Management Agreement dated November 6, 2015, by and among Arena Investors, LP, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company. |
| 10.27 | Credit Agreement, dated March 29, 2023, by and among Skyward Specialty Insurance Group, Inc., the lenders from time to time party thereto and Truist Bank, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on April 3, 2023). |
| 10.28 | First Amendment dated as of February 26, 2024, to that certain Credit Agreement, dated March 29, 2023, by and among Skyward Specialty Inc., the lenders from time to time party thereto and Truist Bank, as administrative agent. |
| 10.29 | Guaranty Agreement, dated March 29, 2023, by and among Skyward Service Company, Skyward Underwriters Agency, Inc., the loan parties identified on the signature pages thereto and Truist Bank. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on April 3, 2023). |
| 21.1 | List of Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022). |
| 23.1 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Principal Financial and Accounting Officer pursuant to Rule 13a 14(a) or Rule 15d 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 97 | Policy for Recovery of Erroneously Awarded Incentive Compensation (“Clawback Policy”) adopted November 9, 2023. |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
| 104 | Cover Page Interactive Date File (embedded within the Inline XBRL document) |

###### Fixed maturity securities

**—**

| ($ in thousands) December 31, 2023 Fixed maturity securities, available for sale: | Cost | Fair Value (if applicable) | Amount on Balance Sheet |
| --- | --- | --- | --- |
| U.S. government securities | 44,685 | 44,166 | 44,166 |
| Corporate securities and miscellaneous | 392,773 | 383,420 | 383,420 |
| Municipal securities | 98,266 | 92,778 | 92,778 |
| Residential mortgage-backed securities | 292,568 | 281,626 | 281,626 |
| Commercial mortgage-backed securities | 31,411 | 29,934 | 29,934 |
| Other asset-backed securities | 188,010 | 185,727 | 185,727 |
| **Total fixed maturity securities, available for sale** | 1,047,713 | 1,017,651 | 1,017,651 |
| Other asset-backed securities | 43,315 | 41,017 | 42,986 |
| **Total fixed maturity securities, held to maturity** | 43,315 | 41,017 | 42,986 |
| Common stocks | 54,672 | 67,425 | 67,425 |
| Preferred stocks | 8,736 | 7,358 | 7,358 |
| Mutual funds | 39,429 | 43,466 | 43,466 |
| **Total equity securities** | 102,837 | 118,249 | 118,249 |
| **Mortgage loans** | 50,542 | 50,070 | 50,070 |
| **Other long-term investments** | 3,798 | 3,798 | 3,798 |
| **Short-term investments** | 270,226 | 270,226 | 270,226 |
| **Total** | 1,518,431 | 1,501,011 | 1,502,980 |

###### Assets

**December 31, —**

| ($ in thousands) Assets Investments: | 2023 | 2022 |
| --- | --- | --- |
| Investment in subsidiaries | 743,025 | 503,549 |
| Short-term investments, at fair value | 10,593 | 25 |
| **Total investments** | 753,618 | 503,574 |
| Cash and cash equivalents | 3,024 | 8,909 |
| Deferred income taxes | 5,899 | 19,655 |
| Goodwill and intangible assets, net | 12,641 | 12,641 |
| Other assets | 15,908 | 6,992 |
| **Total assets** | 791,090 | 551,771 |
| Liabilities and Stockholders’ Equity — Accounts payable and accrued liabilities | 1,369 | 1,500 |
| Liabilities and Stockholders’ Equity — Notes payable | 50,000 | 50,000 |
| Liabilities and Stockholders’ Equity — Subordinated debt, net of debt issuance costs | 78,690 | 78,609 |
| **Liabilities and Stockholders’ Equity — Total liabilities** | 130,059 | 130,109 |
| **Stockholders’ Equity: — Stockholders’ equity** | 661,031 | 421,662 |
| **Stockholders’ Equity: — Total liabilities and stockholders’ equity** | 791,090 | 551,771 |

###### Revenues and expenses

**Years Ended December 31, —**

| ($ in thousands) Revenues: | 2023 | 2022 |
| --- | --- | --- |
| Net investment income | 3,822 | 2,567 |
| Net investment losses | ( 963 ) | ( 6 ) |
| Other losses | ( 27 ) | — |
| **Total revenues** | 2,832 | 2,561 |
| Interest expense | 9,815 | 6,407 |
| Amortization expense | 313 | 81 |
| Other expenses | 451 | — |
| **Total expenses** | 10,579 | 6,488 |
| **Loss before income tax expense** | ( 7,747 ) | ( 3,927 ) |
| Income tax expense (benefit) | 6,808 | ( 1,209 ) |
| **Net loss before equity in earnings of subsidiaries** | ( 14,555 ) | ( 2,718 ) |
| **Equity in undistributed earnings of subsidiaries** | 100,539 | 42,114 |
| **Net income** | 85,984 | 39,396 |

###### Cash flows

**Years Ended December 31, —**

| ($ in thousands) Cash flows from operating activities: | 2023 | 2022 |
| --- | --- | --- |
| Net income | 85,984 | 39,396 |
| Adjustments to reconcile net income to net cash used in operating activities | ( 95,947 ) | ( 42,672 ) |
| **Net cash provided by operating activities** | ( 9,963 ) | ( 3,276 ) |
| Capital contributions to subsidiaries | ( 122,800 ) | — |
| Distributions from investment in subsidiaries | 6,500 | 4,000 |
| Change in short-term investments | ( 10,569 ) | — |
| **Net cash (used in) provided by investing activities** | ( 126,869 ) | 4,000 |
| Employee share purchases | 1,350 | 2,180 |
| Draw on revolving line of credit | 50,000 | — |
| Repayment of term loan | ( 50,000 ) | — |
| Proceeds from equity offerings | 128,887 | — |
| Proceeds from employee stock purchase plan | 710 | — |
| **Net cash provided by financing activities** | 130,947 | 2,180 |
| **Net (decrease) increase in cash and cash equivalents and restricted cash** | ( 5,885 ) | 2,904 |
| Cash and cash equivalents and restricted cash at beginning of year | 8,909 | 6,005 |
| **Cash and cash equivalents and restricted cash at end of year** | 3,024 | 8,909 |
| Supplemental disclosure of cash flow information: — Cash paid for interest | 10,667 | 5,761 |
| Supplemental disclosure of cash flow information: — Cash paid for federal income taxes | 15,800 | — |

###### Reinsurance activity

**Years Ended December 31,**

| ($ in thousands) | 2023 Accident & Health | 2023 Property & Casualty | 2022 Accident & Health | 2022 Property & Casualty |
| --- | --- | --- | --- | --- |
| Gross amount | 151,702 | 1,089,478 | 130,377 | 881,862 |
| Ceded to other companies | ( 79,091 ) | ( 470,047 ) | ( 70,291 ) | ( 398,118 ) |
| Assumed from other companies | — | 218,649 | 431 | 131,282 |
| **Net amount** | 72,611 | 838,080 | 60,517 | 615,026 |
| **Percentage of amount assumed to net** | —% | 26.1% | 0.7% | 21.3% |

###### Valuation allowances

| ($ in thousands) Balance at January 1, 2022 Charged to costs and expenses Amounts written off Balance at December 31, 2022 | Valuation Allowance For Deferred Tax Assets 586 — | Allowance for Uncollectible Reinsurance Recoverable — | Allowance for Uncollectible Premiums Receivable 261 584 ( 216 ) 629 |
| --- | --- | --- | --- |
| Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 | — | 2,295 | — |
| Charged to costs and expenses | — | — | 748 |
| Amounts written off | — | — | ( 513 ) |
| Recoveries of amounts previously written off | — | — | 100 |
| **Balance at December 31, 2023** | 586 | 2,295 | 964 |

###### Financial data

**As of and Years Ended December 31,**

| ($ in thousands) | 2023 | 2022 |
| --- | --- | --- |
| Deferred policy acquisition costs | 91,955 | 68,938 |
| Reserve for losses and loss adjustment expenses | 1,314,501 | 1,141,757 |
| Unearned premiums | 552,532 | 442,509 |
| Net earned premium (1) | 829,143 | 615,994 |
| Net investment income | 40,322 | 36,931 |
| Losses and loss adjustment expenses (current year) (1) | 516,664 | 393,939 |
| Losses and loss adjustment expenses (prior years) (1)(2) | — | 14,385 |
| Amortization of policy acquisition costs (1) | 108,514 | 65,695 |
| Paid claims and claim adjustment expenses (1) | 363,418 | 300,764 |
| Net premiums written (1) | 910,691 | 675,543 |
| Ceded unearned premium | 186,121 | 157,645 |
| Deferred ceding commission | 37,057 | 29,849 |

(1) Amount is presented net of reinsurance.
(2) Amount does not include gain on retroactive reinsurance which is included in losses and loss adjustment expenses presented on the Consolidated Statements of Operations.

###### Signatures

* *Registrant* duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 p. 116.
* This report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated, pursuant to the requirements of the Securities Exchange Act of 1934 p. 116.

###### Signatures for the report

| — | Skyward Specialty Insurance Group, Inc. |
| --- | --- |
| Dated: April 1, 2024 | /s/ Andrew Robinson |
| — | Andrew Robinson Chairman and Chief Executive Officer |

###### Signatures, titles, and dates

| Signature | Title | Date |
| --- | --- | --- |
| /s/ Andrew Robinson | Chairman and Chief Executive Officer | April 1, 2024 |
| **Andrew Robinson** | (Principal Executive Officer) | April 1, 2024 |
| /s/ Mark Haushill | Chief Financial Officer | April 1, 2024 |
| **Mark Haushill** | (Principal Financial and Accounting Officer) | April 1, 2024 |
| /s/ Gena Ashe | Director | April 1, 2024 |
| **Gena Ashe** | Director | April 1, 2024 |
| /s/ Robert Creager | Director | April 1, 2024 |
| **Robert Creager** | Director | April 1, 2024 |
| /s/ Marcia Dall | Director | April 1, 2024 |
| **Marcia Dall** | Director | April 1, 2024 |
| /s/ James Hays | Director | April 1, 2024 |
| **James Hays** | Director | April 1, 2024 |
| /s/ Anthony J. Kuczinski | Director | April 1, 2024 |
| **Anthony J. Kuczinski** | Director | April 1, 2024 |
| /s/ Michael Morrissey | Director | April 1, 2024 |
| **Michael Morrissey** | Director | April 1, 2024 |
| /s/ Katharine Terry | Director | April 1, 2024 |
| **Katharine Terry** | Director | April 1, 2024 |