Skyward/2023/FY/Annual report: Difference between revisions

| language = English

| source_url = https://www.sec.gov/Archives/edgar/data/1519449/000151944924000012/0001519449-24-000012-index.htm

| intro_sentence = This article presents Skyward's FY 2023 annual report — the narrative Items (each summarized into a factsheet), primary financial statements, and note schedules from its SEC Form 10-K.

}}

''This article presents Skyward's FY 2023 annual report — the narrative Items (each summarized into a factsheet), primary financial statements, and note schedules from its SEC Form 10-K.''

 

 

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== Business ==

 

 

* Skyward Specialty was formed as a Delaware corporation on January 3, 2006, as an insurance holding company ^{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}.

 

 

* The company operates with one reportable segment, offering a broad array of insurance coverages across various market niches ^{p. 2}.

* The company consistently strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics ^{p. 2}.

 

 

* ''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}.

* Executive leadership has additional long-term incentive targets tied to growth in book value per share ^{p. 3}.

 

 

* 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}.

* This conservative reserve philosophy is believed to position the company for consistently strong underwriting profitability ^{p. 4}.

 

 

* ''Marketing and distribution approach'' mirrors underwriting approach and is a key facet of the "Rule Our Niche" strategy ^{p. 5}.

* This distribution approach allows effective and efficient access to ''targeted business'' based on market niche needs and dynamics ^{p. 5}.

 

 

* The company's underwriting approach is central to its "Rule Our Niche" strategy and market success ^{p. 6}.

* Underwriting controls and procedures are regularly reviewed to ensure profitable underwriting across all served markets ^{p. 6}.

 

 

* 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}.

* 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 is central to Skyward Specialty Insurance Group's operations and decision-making, aiming for long-term success ^{p. 8}.

* The company constantly reviews its security breach posture and regularly implements updated processes, best practices, and tools ^{p. 8}.

 

 

* 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 ''allowance for uncollectible reinsurance'' was $2.3 million at December 31, 2023, compared to $0.0 million at December 31, 2022 ^{p. 9}.

 

 

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(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.

 

 

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(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 (ERM)'' is integrated into company operations and guides daily activities ^{p. 10}.

* ''ERM'' is a core component of the strategy to achieve market-leading risk-adjusted returns for shareholders ^{p. 10}.

 

 

* The company maintains reserves for specific claims incurred and reported, IBNR reserves, and reserves for uncollectible reinsurance when appropriate ^{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}.

 

 

* 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}.

* 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}.

 

 

* 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}.

* 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}.

 

 

* Operations are principally conducted through four insurance companies ^{p. 14}.

* Great Midwest Insurance Company has one direct subsidiary: Oklahoma Specialty Insurance Company (Oklahoma insurance corporation) ^{p. 14}.

 

 

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[[File:Skyward-2023-FY-Annual report-skwd-20231231_g1.jpg|thumb|Our Structure]]

 

 

* Skyward Specialty Insurance Group, Inc. holds an ''"A-" (Excellent) rating'' with a positive outlook from A.M. Best ^{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}.

 

 

* The company is regulated by insurance regulatory authorities in the states where it conducts business ^{p. 16}.

* Notice to or prior approval from the applicable state insurance regulator is generally required for any material or extraordinary transaction ^{p. 16}.

 

 

* The company has applied for various ''trademark registrations'' in the United States at both federal and state levels ^{p. 17}.

* The company monitors its ''trademarks and service marks'' and protects them from unauthorized use as necessary ^{p. 17}.

 

 

* ''Employees'': approximately 515 as of December 31, 2023 ^{p. 18}.

* 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}.

 

 

* ''Underwriting risk'': Financial condition and results of operations could be materially adversely affected if underwriting risk is not accurately assessed ^{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}.

 

 

* ''Underwriting success'' depends on accurately assessing risks and establishing appropriate premium rates ^{p. 21}.

* ''Pending proposals before NAIC committees'' could negatively affect insurance industry participants ^{p. 21}.

 

 

* 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}.

* Sales could result in significant realized losses depending on general market conditions, interest rates, and credit issues with individual securities ^{p. 22}.

 

 

* The company is subject to extensive regulation, which may adversely affect its ability to achieve business objectives ^{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}.

 

 

* 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}.

* Inability to obtain adequate capital on favorable terms could materially adversely affect operating plans, business, financial condition, or results of operations ^{p. 24}.

 

 

* The loss of key personnel or inability to attract and retain qualified personnel could adversely affect the company ^{p. 25}.

* Litigation, even if successful, could be costly, time-consuming, and divert management attention ^{p. 25}.

 

 

* The company expects to incur increased costs and management time due to operating as a public company ^{p. 26}.

* 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}.

 

 

* 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}.

 

 

* 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}.

* All recipients either received adequate information about the company or had access to such information through employment or other relationships ^{p. 32}.

 

 

* The company closed its ''IPO'' on January 18, 2023 ^{p. 33}.

* All ''proceeds from the IPO'' have been distributed to the company's insurance company subsidiaries ^{p. 33}.

 

 

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

 

 

* The company does not currently intend to pay any cash dividends on its common stock in the foreseeable future ^{p. 35}.

* Investors seeking immediate cash dividends should not purchase the company's common stock ^{p. 35}.

 

 

* 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}.

** December 31, 2023: Approximately $102.00 ^{p. 36}

 

 

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

 

 

* The company is a growing specialty insurance company providing commercial P&C products and solutions ^{p. 37}.

* Advanced technology and analytics are used to amplify critical functions ^{p. 37}.

 

 

* ''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}.

* ''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}.

 

 

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

 

 

* The provided tables offer reconciliations for ''Adjusted Operating Income'' to net income for the years ended December 31, 2023 and 2022 ^{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}.

 

 

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* ''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}.

* ''Section B Open Claims'': 2,260 at Valuation Date; 410 at December 31, 2023 ^{p. 40}.

 

 

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

 

 

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[[File:Skyward-2023-FY-Annual report-skwd-20231231_g6.jpg|thumb|Underwriting Results]]

 

 

* ''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}.

* ''Equity price risk management'' includes portfolio diversification and a tail-risk management strategy ^{p. 41}.

 

 

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(2) Includes cash on settlements that have not yet been redeployed.

 

 

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

 

 

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* ''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}.

* 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}.

 

 

* 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 company believes it has sufficient liquidity to meet operating cash needs, obligations, and committed capital expenditures for the next 12 months ^{p. 43}.

 

 

* ''Primary cash source'': premiums received from insureds, typically at the beginning of the coverage period, net of related commission ^{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}.

 

 

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* 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}.

* At March 15, 2024, ''capitalization remained unchanged'' due to the draw on the Revolving Credit Facility and subsequent redemption of the Debentures ^{p. 45}.

 

 

* ''Reserves for losses and LAE'' represent the best estimate of the ultimate cost of settling reported and unreported claims and related expenses ^{p. 46}.

* ''Reinsurance balances recoverable'' on reserves for paid and unpaid losses and LAE totaled $581.4 million at December 31, 2022 ^{p. 46}.

 

 

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* Critical accounting estimates are those important to financial condition and results of operations, requiring significant judgment ^{p. 47}.

* A ''5% change in net IBNR'' would result in a ''$21.3 million change'' in net income and stockholders’ equity ^{p. 47}.

 

 

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* The company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) ^{p. 48}.

== Financial Statements ==

 

 

* 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}.

* The audit was conducted by Ernst & Young LLP, located in Houston, Texas, and dated February 28, 2024 ^{p. 50}.

 

 

* 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 financial statements conform with U.S. generally accepted accounting principles ^{p. 51}.

 

 

* The ''Company's management'' is responsible for these financial statements ^{p. 52}.

| April 1, 2024 |

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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* Skyward Specialty Insurance Group, Inc. (the "Company") is a Delaware corporation organized in 2006 ^{p. 57}.

* Skyward Service Company provides various administrative services to the Company's subsidiaries ^{p. 57}.

 

 

* The Company's consolidated financial statements are prepared according to Generally Accepted Accounting Principles in the United States of America ("GAAP") ^{p. 58}.

* The Company's actual results may differ from these estimates ^{p. 58}.

 

 

* ''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}.

 

 

* ''Restricted cash'' is defined as cash with a legal restriction on withdrawal or use by the consolidated group ^{p. 60}.

* ''Cash held in a depository account'' for others or restricted by a state is recorded as restricted cash ^{p. 60}.

 

 

* ''Available for Sale fixed maturities'': carried at fair value ^{p. 61}.

* ''Net realized gains and losses on investments'': recognized in net income based upon the specific identification method ^{p. 61}.

 

 

* The Company purchases prospective reinsurance for certain lines of business on a proportional, excess of loss, and facultative basis ^{p. 62}.

* Everest Reinsurance Co's financial strength rating from A.M. Best was A+ at December 31, 2023, and 2022 ^{p. 62}.

 

 

* 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}.

* Failure by distribution sources to remit premiums could lead to premium write-offs and a loss of income ^{p. 63}.

 

 

* ''Policy acquisition costs'' include commissions and premium taxes that are directly related to new or renewal business production ^{p. 64}.

* Management determined that ''no premium deficiency'' existed as of December 31, 2023, and 2022 ^{p. 64}.

 

 

* ''Goodwill and intangible assets'' are recorded following a business combination ^{p. 65}.

* The Company reported ''no goodwill impairment'' for the years ended December 31, 2023, and 2022 ^{p. 65}.

 

 

* ''Property and equipment'' is recorded at cost less accumulated depreciation and is included in other assets on the consolidated balance sheets ^{p. 66}.

* ''Depreciation periods'' range from three to seven years ^{p. 66}.

 

 

* ''Right-of-use (ROU) assets'' are included in other assets on the consolidated balance sheets ^{p. 67}.

* ''Sublease income'' is recognized on a straight-line basis over the sublease term ^{p. 67}.

 

 

* ''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}.

* The Company may determine that recorded reserves are more than adequate, leading to a reduction in reserves ^{p. 68}.

 

 

* The Company recognizes property and casualty and surety premiums on a pro-rata basis over the policy terms ^{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}.

 

 

* ''SUA commission revenue'' is generated from placing insurance policies on reinsurance programs via a reinsurance broker ^{p. 70}.

* ''Changes in the estimate of variable consideration'' for SUA fee income are recognized in the month they occur ^{p. 70}.

 

 

* ''Income tax expense'' is accrued for tax effects of transactions reported on consolidated financial statements ^{p. 71}.

* ''Premium tax expense'' is recognized within underwriting, acquisition, and insurance expense on the Consolidated Statements of Operations ^{p. 71}.

 

 

* ''Fair value'' is estimated for each class of financial instrument using the framework from fair value accounting guidance ^{p. 72}.

* Further details on fair value disclosures are in Note 6 ^{p. 72}.

 

 

* The estimated fair value of employee stock options and similar awards is expensed ^{p. 73}.

* Compensation cost for the ESPP is recognized on a straight-line basis over the offering period ^{p. 73}.

 

 

* ''Basic earnings per share'' is calculated using the two-class method ^{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}.

 

 

* The Company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) ^{p. 75}.

* The Company is evaluating the effect of ASU 2023-09 on its consolidated financial statements ^{p. 75}.

 

 

* The Company's ''indefinite-lived intangible assets'' include insurance licenses and trademarks ^{p. 76}.

* The Company recognized ''amortization expense'' of USD 1.5 million for the years ended December 31, 2023 and 2022 ^{p. 76}.

 

 

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* ''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}.

* ''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}.

 

 

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* 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}.

* Other financial instruments that qualify as insurance-related products are exempt from fair value disclosure requirements ^{p. 78}.

 

 

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* The Company has invested in ''Separately Managed Accounts'' ("SMA1" and "SMA2") managed by Arena Investors, LP ("Arena") ^{p. 79}.

* As of December 31, 2023, ''USD 6.8m of mortgage loans'' were not producing income for the previous 12 months ^{p. 79}.

 

 

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* 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}.

* Further information on the Trust is provided in Note 10 ^{p. 80}.

 

 

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* 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 table following this text outlines changes in the ''allowance for estimated uncollectible reinsurance'' for the year ended December 31, 2023 ^{p. 81}.

 

 

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* ''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}.

 

 

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* The Company determines if a contract contains a lease at inception ^{p. 83}.

* ''Lease expense'' for the year ended December 31, 2022, was USD 2.6m ^{p. 83}.

 

 

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* In May 2019, the Company issued unsecured subordinated notes with an aggregate principal amount of USD 20.0m ^{p. 84}.

* These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt ^{p. 84}.

 

 

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* 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}.

* As of December 31, 2023, the Company was in ''compliance'' with all covenants ^{p. 85}.

 

 

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* 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 Company’s ''net proceeds from the follow-on offering'' were approximately $62.5 million, after deducting underwriting discounts and specific incremental expenses ^{p. 86}.

 

 

* The Company's provision for income taxes generally does not substantially deviate from the statutory tax rate ^{p. 87}.

* The Company's ''deferred tax valuation allowance'' at December 31, 2023 and 2022 was USD 0.6m ^{p. 87}.

 

 

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* The Company presents its loss development on a consolidated basis ^{p. 88}.

* An additional ''net adverse development'' of USD 2.3 million in multi-line solutions was from various other accident years ^{p. 88}.

 

 

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* ''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}.

* ''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}.

 

 

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* 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}.

* This claims duration information is based on disaggregated data from paid loss development tables, net of reinsurance ^{p. 90}.

 

 

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* ''Commission and fee income'' was USD 10.9m for the year ended December 31, 2023 ^{p. 91}.

* ''Contract assets'' closing balance was USD 0.3m for the year ended December 31, 2022 ^{p. 91}.

 

 

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* ''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}.

 

 

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* ''Reinsurance agreements'' provide increased capacity for larger risks and maintain exposure to loss within capital resources ^{p. 93}.

* ''Deposit assets'' were USD 41.8m as of December 31, 2022 ^{p. 93}.

 

 

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* 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}.

* 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}.

 

 

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* The tables present the compilation of basic and diluted net earnings per share 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}.

 

 

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* The Company sponsors the ''401(k) Plan'' (the "Plan"), which is available to substantially all its employees ^{p. 96}.

* ''Matching contributions'' to the Plan were USD 2.4 million for the year ended December 31, 2022 ^{p. 96}.

 

 

* ''Westaim HIIG LP'' acquired a majority of the Company's common stock in 2014 and 2015 ^{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 provides the Company with wholesale brokerage services ^{p. 98}.

* ''Premiums receivable'' from RISCOM as of December 31, 2022, were USD 9.9 million ^{p. 98}.

 

 

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* The Company has reinsurance agreements with Everest Re, an affiliate of Mt. Whitney Securities, LLC ^{p. 99}.

* ''Reinsurance recoverable'' from Everest Re, net of premium payables, was $177.5 million at December 31, 2022 ^{p. 99}.

 

 

* ''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}.

* See Note 12 for related party transactions concerning the Company’s common and preferred shares ^{p. 100}.

 

 

* The Company is a defendant in various legal actions related to claims under insurance policies and contracts ^{p. 101}.

* ''No provision for various contingencies'' was recorded during the years ended December 31, 2023 and 2022 ^{p. 101}.

 

 

* The Company has provided indemnifications to certain buyers in conjunction with the sale of business assets and subsidiaries ^{p. 102}.

* As of December 31, 2023, the Company does not believe any significant claims exist related to these indemnifications ^{p. 102}.

 

 

* ''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}.

 

 

* ''Dividend payments'' from HSIC to the Company are restricted by Texas state law, requiring regulatory approval for amounts exceeding certain limits ^{p. 104}.

* As of December 31, 2023 and 2022, ''HSIC’s statutory capital and surplus'' substantially exceeded regulatory requirements ^{p. 104}.

 

 

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* On March 15, 2024, the Company redeemed the Debentures ^{p. 105}.

== 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}.

* ''Management applies judgment'' in evaluating the cost-benefit relationship of possible controls and procedures ^{p. 106}.

 

 

* 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}.

* The company is an emerging growth company as of December 31, 2023, as defined in the JOBS Act ^{p. 107}.

 

 

* 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}.

* Exhibits marked with a dagger (†) have portions omitted for confidentiality purposes ^{p. 115}.

 

 

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(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.

 

 

* ''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}.

 

 

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