Skyward/2022/FY/Annual report

Document info
Organization	Skyward
Year	2022
Period	FY
Period label	FY22
Document category	Annual report
Document type	Form 10-K
Document name	Skyward Specialty Insurance Group 2022 Form 10-K
Publication date	2023-03-28
Language	English
Source	Original URL
Archive file	.md file

This article presents Skyward's FY 2022 annual report — the narrative Items (each summarized into a factsheet), primary financial statements, and note schedules from its SEC Form 10-K.

Cover

USD ($)	12 Months Ended
—	Dec. 31, 2022	Mar. 22, 2023	Jun. 30, 2022
Cover [Abstract]	—	—	—
Document Type	10-K	—	—
Document Annual Report	true	—	—
Document Period End Date	Dec. 31, 2022	—	—
Current Fiscal Year End Date	--12-31	—	—
Document Transition Report	false	—	—
Entity File Number	001-41591	—	—
Entity Registrant Name	SKYWARD SPECIALTY INSURANCE GROUP, INC.	—	—
Entity Incorporation, State or Country Code	DE	—	—
Entity Tax Identification Number	14-1957288	—	—
Entity Address, Address Line One	800 Gessner Road	—	—
Entity Address, Address Line Two	Suite 600	—	—
Entity Address, City or Town	Houston	—	—
Entity Address, State or Province	TX	—	—
Entity Address, Postal Zip Code	77024-4284	—	—
City Area Code	713	—	—
Local Phone Number	935-4800	—	—
Title of 12(b) Security	Common stock, par value $0.01	—	—
Trading Symbol	SKWD	—	—
Security Exchange Name	NASDAQ	—	—
Entity Well-known Seasoned Issuer	No	—	—
Entity Voluntary Filers	No	—	—
Entity Current Reporting Status	No	—	—
Entity Interactive Data Current	Yes	—	—
Entity Filer Category	Non-accelerated Filer	—	—
Entity Small Business	false	—	—
Entity Emerging Growth Company	true	—	—
Entity Ex Transition Period	false	—	—
Entity Shell Company	false	—	—
Entity Common Stock, Shares Outstanding	—	37,658,111	—
Documents Incorporated by Reference	Portions of the Registrant’s Proxy Statement relating to the 2023 annual meeting of stockholders (the “2023 Proxy Statement”), which will be filed within 120 days of December 31, 2022, are incorporated by reference into Part III of this Form 10-K.	—	—
Entity Central Index Key	0001519449	—	—
Amendment Flag	false	—	—
Document Fiscal Year Focus	2022	—	—
Document Fiscal Period Focus	FY	—	—
Entity Public Float	—	—	0

Audit Information

	12 Months Ended
—	Dec. 31, 2022
Audit Information [Abstract]	—
Auditor Name	Ernst & Young LLP
Auditor Location	Houston, Texas
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 rebranding as Skyward Specialty in November 2020 ^{p. 1}.
• Skyward Specialty is a growing specialty insurance company providing commercial property 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, or inadequately covered markets where standard insurance is insufficient ^{p. 1}.
• Customers typically require highly specialized, customized underwriting solutions and claims capabilities ^{p. 1}.
• The portfolio of insured risks is highly diversified across industries, distribution channels, and lines of business ^{p. 1}.
• Lines of business include general liability, excess liability, professional liability, commercial auto, group accident and health, property, surety, and workers’ compensation ^{p. 1}.
• The business mix is balanced between E&S and admitted markets, and liabilities include both short and medium durations ^{p. 1}.
• This diversification, combined with underwriting and claims expertise, aims 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}.
• All insurance company subsidiaries are group rated and hold financial strength ratings of "A-" (Excellent) from A.M. Best Company, with a stable outlook ^{p. 1}.
• On January 18, 2023, the company completed its initial public offering (IPO) of 10,295,240 shares of common stock ^{p. 1}.
• IPO shares sold by the company were 4,750,000 ^{p. 1}.
• IPO shares sold by selling stockholders were 4,202,383 ^{p. 1}.
• The public offering price was $15.00 per share ^{p. 1}.
• Underwriters exercised their option to purchase an additional 1,342,857 shares of common stock from selling stockholders ^{p. 1}.
• Net proceeds to the company from the IPO were approximately $62.3 million, after deducting underwriting discounts and specific incremental expenses ^{p. 1}.

Our Business and Our Strategy

• The company operates with one reportable segment, offering a broad range of insurance coverages across various market niches ^{p. 2}.
• There are eight distinct underwriting divisions, each with dedicated leadership and experienced technical staff ^{p. 2}.
• This structure aims to effectively serve customer needs, be a value-add partner to distributors, and achieve attractive risk-adjusted returns ^{p. 2}.
• Accident & Health (A&H): Provides medical stop-loss solutions for organizations with fewer than 2,500 employees ^{p. 2}.
  • Focuses on managing medical costs and claims oversight ^{p. 2}.
  • Targets small and medium-sized enterprises seeking to self-insure healthcare costs ^{p. 2}.
  • Products are written on an admitted basis and distributed through retail and wholesale brokers ^{p. 2}.
  • Presence in the A&H market was established in 2015 via an acquisition, with further expansion in 2016 and an acquisition in 2018 ^{p. 2}.
• Captives: Offers group captive solutions by leveraging underwriting and claims expertise from other divisions ^{p. 2}.
  • Aims to broaden market reach and write profitable business with limited additional expense ^{p. 2}.
  • Writes property, general liability, commercial auto, excess liability, and workers’ compensation on both E&S and admitted bases ^{p. 2}.
  • Business is often administered through partnerships with third-party captive managers ^{p. 2}.
• Global Property: Provides property-only solutions for large multi-jurisdictional entities with complex property exposures ^{p. 2}.
  • Business is written entirely on an E&S basis ^{p. 2}.
  • Distributed through retail and select wholesale brokers ^{p. 2}.
  • Has cultivated its book and position over more than ten years ^{p. 2}.
• Industry Solutions: Includes 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 ^{p. 2}.
    • Principally written on an admitted basis for middle-market construction and energy production/servicing customers ^{p. 2}.
  • Specialty Trucking unit: Writes commercial auto and general liability solutions for mid-sized intermodal trucking companies on an E&S basis ^{p. 2}.
  • Targets industry segments with high severity exposures, addressed by skilled underwriters and claims professionals, often with multi-line solutions ^{p. 2}.
  • Products are distributed through retail agents, brokers, and a select network of wholesalers ^{p. 2}.
• Professional Lines: Comprises three underwriting units: Management Liability, Professional Liability, and Allied Health ^{p. 3}.
  • Professional Liability and Allied Health: Offer E&S primary and excess claims-made liability products exclusively through wholesale brokers ^{p. 3}.
  • Management Liability: Provides both E&S and admitted products through wholesale and retail brokers ^{p. 3}.
  • Teams focus on delivering creative solutions for higher severity exposures ^{p. 3}.
• Programs: Partners with program administrators specializing in markets aligned with the company's expertise and strategy ^{p. 3}.
  • This approach is considered optimal for profitable participation or extending reach in certain markets ^{p. 3}.
  • Program administrators often have competitive advantages in scale or proprietary technology ^{p. 3}.
  • Writes property, general liability, commercial auto liability, excess liability, and workers’ compensation on E&S and admitted bases ^{p. 3}.
• Surety: Provides contract and commercial surety solutions for trade and services organizations requiring bonding ^{p. 3}.
  • Primarily focuses on small to medium-sized enterprises with aggregate bond programs up to approximately $60.0 million ^{p. 3}.
  • Underwriting and claims professionals are distinguished by technical capabilities and decision-making speed ^{p. 3}.
  • Business is written on an admitted basis and distributed through retail agents and brokers ^{p. 3}.
• Transactional E&S: Offers primary and excess non-catastrophe prone property and general liability solutions ^{p. 3}.
  • Emphasizes hard-to-place risks due to complex exposures, loss history, or limited operating history (e.g., startups) ^{p. 3}.
  • Success is driven by technical underwriting, thoughtful coverage, pricing, and high-quality broker service ^{p. 3}.
  • Accesses the market exclusively through wholesale brokers ^{p. 3}.
  • Formed in September 2020 with the hiring of experienced underwriters ^{p. 3}.
• The company refers to the listed underwriting divisions as its "continuing business" ^{p. 3}.
• In the twelve months ended December 31, 2022, premiums were written in certain markets and lines of business that have since been exited and placed into run-off, referred to as "exited business," as they did not fit the "Rule Our Niche" strategy ^{p. 3}.
• Gross written premiums for continuing business by underwriting division for 2022: Industry Solutions 24%, Global Property 18%, Programs 14%, Accident & Health 11%, Captives 11%, Professional Lines 8%, Surety 7%, and Transactional E&S 7% ^{p. 4}.
• Admitted versus Non-Admitted for continuing business in 2022: Non-Admitted 52%, Admitted 48% ^{p. 4}.
• Duration of Risk for continuing business in 2022: Medium-Tail 53% (generally greater than two years), Short-Tail 47% (generally less than two years) ^{p. 4}.
• Distribution Source for continuing business in 2022: Retail 39%, Wholesale 34%, Program Administrator 16%, and Captive Manager 11% ^{p. 4}.
• Strategy: To lead in chosen market niches and establish sustainable competitive positions ^{p. 4}.
  • Key elements include:
    1. Providing differentiated products, services, and solutions ^{p. 4}.
    2. Attracting and retaining exceptional underwriting and claims talent ^{p. 4}.
    3. Amplifying expertise with advanced technology and analytics for superior risk selection, pricing, and claims management ^{p. 4}.
    4. Empowering underwriting and claims teams with significant decision-making authority ^{p. 4}.
    5. Fostering a culture of nimbleness and responsiveness to market opportunities ^{p. 4}.
• This strategy is called "Rule Our Niche" and aims to build a strong defensible market position, create a competitive moat, and achieve best-in-class underwriting results through P&C insurance pricing cycles ^{p. 5}.
• The company consistently strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics ^{p. 5}.
• SkyDrive: An award-winning, proprietary underwriting and risk management portal developed within the Specialty Trucking unit ^{p. 5}.
  • Synthesizes real-time intelligence on driver and fleet history, safety, and performance using telematics and other data ^{p. 5}.
  • Components of SkyDrive are being deployed across commercial auto exposures in other underwriting divisions ^{p. 5}.
• Quick-Strike: An innovative response to commercial auto claims events, aiming for an experienced investigator at the scene within two hours to resolve third-party claims ^{p. 5}.
• SkyVantage: A technology-driven stop-loss solution deployed in the Accident & Health division ^{p. 5}.
  • Leverages big data and machine learning to evaluate group health risk, especially for smaller accounts (under 250 lives) ^{p. 5}.
  • Facilitates risk scoring to augment underwriters' analyses for risk selection and pricing ^{p. 5}.
• Cannabis Industry: Identified as an underserved market, leading to product development ^{p. 5}.
  • Partnered with a technology-forward program administrator for property and general liability lines ^{p. 5}.
  • Developed and launched cannabis-specific professional and executive liability products for wholesale partners ^{p. 5}.
  • Further developed and launched cannabis-specific commercial surety products ^{p. 5}.
  • Products were launched across these divisions in under six months ^{p. 5}.
• Construction Captive: Developed an innovative captive solution for a specific specialty contractor segment, offered alongside traditional guaranteed cost products ^{p. 5}.
  • Broadened the portion of this market that can be served by leveraging existing underwriting, claims, and analytic expertise ^{p. 5}.

Our Business and Our Strategy

Our Business and Our Strategy

Our Business and Our Strategy

Our Business and Our Strategy

Our Competitive Strengths

• The company focuses on profitable niches in the commercial lines P&C markets that require technical underwriting and claims management, acting as barriers to entry ^{p. 3}.
• The selected niche areas are considered an attractive subset of the P&C insurance market, offering opportunities for attractive risk-adjusted returns ^{p. 3}.
• The company targets 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}.
• Underwriting divisions are built around deeply experienced underwriters with appropriate authority 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 and pricing, and enhance efficiency ^{p. 3}.
• The adjusted combined ratio was 92.6% for the year ended December 31, 2022, and 94.6% for the year ended December 31, 2021, indicating underwriting profitability potential ^{p. 3}.
• The company hires underwriting and technical staff for their expertise and experience ^{p. 3}.
• Underwriting teams are knowledgeable, experienced, and empowered, which is critical for operating in markets with risks difficult to automate ^{p. 3}.
• Professionals are given freedom to use expertise and judgment in evaluating and pricing risks, rather than strict underwriting rules ^{p. 3}.
• The company has a specialized team of claims professionals knowledgeable about the niches and lines of business served ^{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}.
• Claims are responded to quickly 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 real-time, detailed information on open claims and benchmarks against closed claims for senior leadership and claims teams ^{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}.
• The company believes every underwriting and claims decision can be 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 data with new forms of risk data and predictive analytics ^{p. 3}.
• Examples of technology utilization include SkyDrive in the Specialty Trucking unit and SkyVantage in the A&H line ^{p. 3}.
• The company has built a diversified group of underwriting divisions across multiple product lines, industries, geographies, and distribution channels ^{p. 3}.
• The strategy is to adapt to the market by growing certain lines in favorable conditions and limiting exposure in less favorable conditions ^{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, creating a durable insurance franchise ^{p. 3}.
• The company has a distinctive winning culture, as evidenced by internal surveys and public information on platforms like Glassdoor and LinkedIn ^{p. 3}.
• The culture and operating approach feature a flat structure for communication and decision-making ^{p. 3}.
• Staff are trusted to make decisions that achieve or exceed financial results and are supported by a clear performance measurement system ^{p. 3}.
• Advanced technology enhances, but does not replace, the decision-making of underwriting and claims teams ^{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 identity as a specialty insurer and supports attracting talent and delivering best-in-class results ^{p. 3}.
• The leadership team is experienced, innovative, and entrepreneurial, led by CEO Andrew Robinson ^{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 delivering sustainable underwriting returns ^{p. 3}.
• Select executive leadership team members have 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 is based on selecting underserved market niches with attractive risk-adjusted returns where commoditized products are inadequate, and building sustainable competitive positions in these markets using talent and technology ^{p. 4}.
• The "Rule Our Niche" strategy aims to achieve best-in-class underwriting profitability for its niches and create superior long-term shareholder value through growth in book value per share ^{p. 4}.
• Core tenets of the "Rule Our Niche" strategy include: attracting and retaining blue-chip underwriting and claims talent, leveraging technology DNA, profitably growing existing lines and expanding with new underwriting divisions, differentiating on daily excellence, and using the balance sheet to capture market share ^{p. 4}.
• The company seeks to hire talented technical underwriting professionals with long-standing industry relationships and claims professionals with expertise in their niches to ensure steady access to preferred business ^{p. 4}.
• The company believes it has become a company of choice for top talent in the industry, which will help grow its market position ^{p. 4}.
• The company has demonstrated an ability to utilize new forms of risk data and advanced technology in complex, higher severity risk categories within the specialty P&C insurance market ^{p. 4}.
• SkyBI provides the ability to promptly sense and respond to market changes, while core operating platforms allow efficient entry into new markets ^{p. 4}.
• The company believes its technological advantage positions it for profitable growth and expansion into additional specialty market niches ^{p. 4}.
• The company is positioned to capitalize on trends impacting customers in the U.S. and globally, including rising demand for specialized insurance due to increasing risks and complexity from climate change, supply chain uncertainty, financial inflation, cyber risk, novel health risks, increased litigation, and healthcare costs ^{p. 4}.
• Another market trend is the emergence of "micro cycles and micro dislocations" within the commercial P&C market, where different segments experience hardening and softening at different times ^{p. 4}.
• Within the last 24 months, the company launched its Allied Health professional lines underwriting unit, entered the cannabis industry in three underwriting divisions, acquired Aegis Surety, announced a program administration technology partnership in cargo, launched two new captive solutions, and added an excess liability capability in its E&S business ^{p. 4}.
• The company's gross written premium growth and profitability indicate momentum and strong positioning for continued expansion and growth ^{p. 4}.
• The company's ability to achieve long-term goals, including best-in-class underwriting returns and growth in book value per share, depends on daily operational execution across all functional departments, including underwriting, product management, and claims management ^{p. 4}.
• SkyBI provides the foundation for senior management to monitor performance, including renewal rates, new business pricing, portfolio performance for underwriters, and claims aging, reserving practices, and outcomes by adjusters ^{p. 4}.
• Cross-functional collaboration ensures underwriting, claims, actuarial, and product management teams regularly review performance and trends for quick implementation of portfolio, pricing, and coverage changes ^{p. 4}.
• The company is committed to maintaining a strong balance sheet with conservative loss reserves and strong capitalization ratios to maintain confidence from customers, distribution partners, reinsurers, regulators, rating agencies, and shareholders ^{p. 4}.
• Since 2019, in addition to executing the LPT to limit exposure to potential loss reserve development from exited business, the company strengthened claims case reserve practices to reserve to the expected ultimate loss within 90 days of first notice of loss ^{p. 4}.
• The company intentionally increased the level of IBNR reserves above claims case reserves to a more conservative position ^{p. 4}.
• Net IBNR as a percentage of total net losses and LAE reserves was 61.8% as of December 31, 2022, compared to 60.0% as of December 31, 2021 ^{p. 4}.
• The company believes its reserve position is the strongest in its history, positioning it for consistently strong underwriting profitability in the future ^{p. 4}.

Marketing and Distribution

• The company's marketing and distribution approach aligns with its underwriting strategy and "Rule Our Niche" strategy ^{p. 5}.
• The company maintains strong relationships and reputations with distribution partners, which helps establish new affiliations ^{p. 5}.
• The company believes it succeeds with distribution partners due to expertise in niche markets, high-caliber underwriters, innovation culture, thoughtful product lineup, and responsiveness ^{p. 5}.
• All underwriting divisions dedicate significant time to maintaining and expanding distribution partner loyalty and long-term relationships ^{p. 5}.
• The company tailors its choice of distribution partners to access specific business, distributing products through retail agents, wholesale brokers, select program administrators, and captive managers ^{p. 5}.
• This tailored approach allows effective and efficient access to target business based on market niche needs and dynamics ^{p. 5}.
• Retail Agents and Brokers: Primarily distribute Industry Solutions, Surety products, and a portion of Global Property products ^{p. 5}.
• The company partners with retail agents and brokers specializing in target niche markets who can produce desired quality and quantity of business ^{p. 5}.
• Specialized retail agents and brokers offer better visibility into client needs, enabling customized coverages ^{p. 5}.
• Wholesale Brokers: Primarily market and distribute Professional Lines, Transactional E&S products, and a portion of Global Property products, including through London market wholesale brokers ^{p. 5}.
• The company deliberately partners with leading wholesale brokers in target markets who have the experience, knowledge, and ability to produce the desired type, volume, and quality of business ^{p. 5}.
• The company works with many leading wholesalers in the United States and London ^{p. 5}.
• Program Administrators: Partners with select program administrators believed to have competitive advantages in certain markets due to scale, underwriting, technology, and/or distribution infrastructure, and who align with the company's strategy ^{p. 5}.
• Thorough diligence is conducted on program administrators before new partnerships to ensure alignment on underwriting and risk management ^{p. 5}.
• Strict underwriting guidelines are set to ensure business produced meets target returns ^{p. 5}.
• The company regularly monitors the performance of business produced by program administration partners to ensure consistency with expectations ^{p. 5}.
• Stringent reporting and auditing requirements are imposed on partners to identify potential issues proactively ^{p. 5}.
• The company is not a fronting carrier and generally does not intend to generate fee income from program partners ^{p. 5}.
• The company currently has relationships with six program administrators ^{p. 5}.
• Compensation of program administration partners is aligned to meet target underwriting profit ^{p. 5}.
• In two partnerships, interests are further aligned through minority equity ownership and/or warrants to acquire an equity ownership position in the respective program administrators ^{p. 5}.
• Captive Managers: Partners with captive managers who play a critical role in sourcing prospective customers, supporting captive product sales, and administering group captives ^{p. 5}.
• Captive Managers work with retail agents and brokers to determine suitability for group captive solutions and assist in product presentation ^{p. 5}.
• Captive managers facilitate day-to-day needs of the captive and its members, coordinating administrative and operating functions like compliance, financial reporting, and board meetings ^{p. 5}.
• In some cases, captive managers pre-underwrite prospective customers before submission for full underwriting review by the Captives underwriting unit ^{p. 5}.
• The company performs other components of the captive product, including underwriting, claims oversight, reinsurance, and collateral management for claims ^{p. 5}.
• Close partnership on nearly all functions is crucial for the successful construction and delivery of group captive solutions ^{p. 5}.

Underwriting

• The underwriting approach is central to the "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 experience ^{p. 6}.
• John Burkhart, President of Specialty Lines (overseeing Professional Lines, Surety, Transactional E&S, and A&H underwriting divisions), has approximately 30 years of underwriting experience ^{p. 6}.
• Doug Davies, Senior Vice President of the Global Property 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, pricing, and sustainable best-in-class underwriting results across market cycles ^{p. 6}.
• Underwriting professionals' capabilities are augmented using new data and analytics for risk selection and pricing ^{p. 6}.
• Underwriting data is captured in the SkyBI business intelligence platform, which forms the foundation for reporting, analytics, and 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 ^{p. 6}.
• Underwriters are encouraged to move on from prospective opportunities if coverage cannot be bound at a premium and terms meeting company 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 exposures ^{p. 6}.
• In the E&S market, the company uses freedom of rate and form to match risk and coverage to unique needs and exposures ^{p. 6}.
• Policies are crafted to offer affordable and appropriate protection for insureds' exposures, while structuring coverage for predictable losses and managed claims costs ^{p. 6}.
• Underwriting teams collaborate with 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 nimbleness and ability to leverage market disruptions ^{p. 6}.
• Underwriting controls and procedures are regularly reviewed to ensure profitable underwriting in all served markets ^{p. 6}.
• The combination of underwriting talent, advanced technology and analytics, and functional support is considered a unique capability to "Rule Our Niche" ^{p. 6}.

Claims Management

• Claims handled in-house: 72.5% of gross reported losses were handled in-house during the year ended December 31, 2022 ^{p. 7}.
• Third-Party Administrators (TPAs) are used for specific captives and programs where the TPA has specialized expertise not replicated internally ^{p. 7}.
• TPAs are also utilized for the workers' compensation line of business due to the required geographical knowledge for claim adjudication ^{p. 7}.
• Internal claims managers oversee TPA activities and monitor their adherence to prescribed service levels and standards ^{p. 7}.
• The claims department collaborates with underwriting teams to share claims trends and provide feedback on emerging loss experiences ^{p. 7}.
• Claims department principles include: prompt and comprehensive investigations using advanced analytics; quality claims handling and customer engagement; prompt establishment of reserves reflecting ultimate loss estimates; effective pursuit of contribution and subrogation; detection and prevention of fraud using existing tools and new technologies; and disciplined litigation management to provide superior legal defense while controlling costs ^{p. 7}.
• Specialized independent legal counsel is retained to defend and represent insureds when they are sued or presented with a claim ^{p. 7}.
• Individual attorneys and law firms are vetted for experience and expertise to ensure effective and efficient defense of insureds ^{p. 7}.
• Litigation guidelines have been developed for claims professionals and outside counsel to ensure appropriate defense for insureds ^{p. 7}.
• Legal invoices are reviewed to confirm case handling and billing practices are reasonable, customary, and standard within the attorneys' geography and practice area, aligning with retainer agreements ^{p. 7}.
• Significant investment has been made in technology across all aspects of claims, from first notice of loss to settlement ^{p. 7}.
• Claims data is captured in SkyBI for reporting and analytics, similar to underwriting data ^{p. 7}.
• Claims processes have been innovated to reduce loss costs ^{p. 7}.
• For commercial auto, a "quick strike" response has been implemented, deploying an experienced investigator to accident scenes within two hours to assess and resolve third-party claims quickly ^{p. 7}.
• Artificial intelligence is being piloted to signal fraud, identify early indicators of third-party claimants' propensity for legal representation, and route claims based on potential severity at first notice of loss ^{p. 7}.

Technology

• Technology is central to Skyward Specialty Insurance Group's operations and decision-making, driving competitive advantages ^{p. 8}.
• Superior Business Intelligence Platform (SkyBI): Provides real-time intelligence to senior leadership and technical teams for decision-making ^{p. 8}.
• SkyBI incorporates best practices from management'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 a visualized format, filterable by categories such as distributor, customer segment, line of business, industry, underwriter, and risk feature ^{p. 8}.
• Predictive Analytics Technology: Augments employee capabilities using new risk data and predictive analytics, including AI, for risk selection, pricing, and claims handling ^{p. 8}.
• The company's actions in predictive analytics are intentional to "Rule Our Niche" within each underwriting division ^{p. 8}.
• Examples of predictive analytics technology include SkyDrive and SkyVantage ^{p. 8}.
• Core Transactional Platforms: Include policy administration, billing, and claims systems designed for nimble scaling and business expansion ^{p. 8}.
• The company generally uses customized third-party vendor-developed core operating applications ^{p. 8}.
• Core platform organization is used for all business except Accident & Health, Global Property, and Surety, which require dedicated core processing components due to unique features ^{p. 8}.
• Data from all 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, enabling better risk selection, claims adjudication, communication with partners, and trend evaluation by senior leadership ^{p. 8}.
• These tools also enhance 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, and ransomware attacks ^{p. 8}.
• Technology infrastructure is designed for resilience against major disruptions ^{p. 8}.
• Data is replicated in real-time to a third-party cloud disaster recovery site for use during major system failures ^{p. 8}.
• Data is backed up daily for system restoration ^{p. 8}.
• Actions to prevent system and data disruptions include:
  • Actively monitoring Cybersecurity and Infrastructure Security Agency’s (CISA) cybersecurity directives and addressing vulnerabilities ^{p. 8}.
  • Conducting monthly vulnerability scans on all network-attached devices at all locations and applying patches ^{p. 8}.
  • Requiring two-factor authentication for system access ^{p. 8}.
  • Conducting monthly security training for all employees ^{p. 8}.
  • Implementing endpoint detection agents for threat detection and response ^{p. 8}.
  • Performing desktop scenarios to practice breach responses with cybersecurity insurance partners and security consultants ^{p. 8}.
  • Performing annual penetration testing ^{p. 8}.
• The company continuously reviews its security breach posture and implements updated processes, best practices, and tools ^{p. 8}.

Reinsurance

• Reinsurance is strategically purchased from third parties to protect capital from severity events (large single event losses or catastrophes) and reduce earnings volatility ^{p. 9}.
• Reinsurance contracts are predominantly one year in length and renew annually, primarily in January and June ^{p. 9}.
• Factors influencing reinsurance purchases at renewal include 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}.
• Quota share reinsurance involves the 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 the reinsurer assuming all or a portion of losses for an individual claim or event exceeding a specified amount, in exchange for a negotiated premium, including catastrophe reinsurance programs ^{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}.
• As of December 31, 2022, property insurance represented 24% of gross written premiums ^{p. 9}.
• The company manages and monitors property writings by geographic area to limit loss aggregation from severe events like hurricanes, convective storms, and earthquakes ^{p. 9}.
• Catastrophe reinsurance is purchased to mitigate property loss aggregation due to single or series of events ^{p. 9}.
• Third-party stochastic and internal deterministic models are used to analyze aggregation risk and inform catastrophe reinsurance purchases ^{p. 9}.
• Modeling indicates that an event beyond a 1 in 250-year PML would be required to exhaust the property catastrophe coverage of USD 25.0 million ^{p. 9}.
• The company aims to expose no more than 3.0% of stockholders’ equity to a catastrophic loss less than a 1 in 250-year event ^{p. 9}.
• The current reinsurance program is believed to provide coverage well in excess of theoretical losses from any recorded historical event ^{p. 9}.
• A portion of the reinsurance program includes the right to pay additional premium to reinstate reinsurance limits for future recoveries during the same contract year, known as a "reinstatement" ^{p. 9}.
• In 2020, an LPT retroactive reinsurance agreement was entered into with a Bermuda-domiciled third-party reinsurer for liabilities related to policies issued or assumed for policy years 2017 and prior ^{p. 9}.
• This LPT agreement aims to limit volatility associated with business written during those years ^{p. 9}.
• Additional information on the LPT is available in Item 7 of Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Losses and LAE" ^{p. 9}.
• Certain ceded reinsurance contracts that do not transfer significant insurance risk are accounted for using the deposit method of accounting ^{p. 9}.
• Further information on the deposit method of accounting is in "Management’s Discussion and Analysis — Critical Accounting Policies and Estimates — Reinsurance" ^{p. 9}.
• Net premium retention (net premiums written divided by gross written premiums) was 59.1% for the year ended December 31, 2022, and 56.3% for 2021 ^{p. 9}.
• Reinsurance is sought from reinsurers rated at least "A-" ("Excellent") or better by A.M. Best ^{p. 9}.
• As of December 31, 2022, 99% of reinsurance recoverables were from reinsurers rated "A-" (Excellent) or better by A.M. Best, or were collateralized ^{p. 9}.
• The company retains primary liability to policyholders if reinsurers fail to pay claims ^{p. 9}.
• Allowances are established for uncollectible amounts from reinsurers ^{p. 9}.
• There was no allowance for uncollectible reinsurance at December 31, 2022, and 2021 ^{p. 9}.

Maximum company retention by line of business

Line of Business	Maximum Company Retention
Accident & Health	$0.75 million per occurrence
Commercial Auto (1)	$1.0 million per occurrence
Excess Casualty (1)(2)	$2.35 million per occurrence
General Liability (1)	$2.0 million per occurrence
Professional Lines (2)	$2.4 million per occurrence
Property (3)	$2.0 million per occurrence
Surety (2)	$3.0 million per occurrence
Workers’ Compensation (2)	$1.55 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 $25.0 million in excess of $10.0 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.	164,044	A+
eCaptive PC1-IC (and PC2-IC), Inc (1)	101,476	Unrated
Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2)	38,146	Unrated
RGA Reinsurance Company	28,142	A+
Swiss Reinsurance America Corp	22,676	A+
Munich Reinsurance America Inc.	19,107	A+
Hannover Ruckversicherung AG	14,114	A+
Amlin Bermuda Limited	13,206	A
Scor Reinsurance Co.	12,747	A+
ACE (Chubb Property & Casualty Insurance Company)	12,227	A+
Top 10 Total	425,885	—
All Others	155,474	—
Total	581,359	—

(1) This reinsurer facilitates our eMaxx captive; we hold collateral in a statutory trust of $124.1 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 $39.2 million on our net reinsurance recoverables.

Enterprise Risk Management

• Enterprise risk management (ERM) is integrated into nearly every aspect of the company and guides daily activities ^{p. 10}.
• The ERM approach aims to achieve an acceptable risk-adjusted return for shareholders through intentional underwriting and asset portfolio construction ^{p. 10}.
• The company balances the liability duration of its underwriting portfolio and uses reinsurance to manage volatility from single losses and cumulative losses from single or series of events ^{p. 10}.
• The investment strategy is designed to have a diversified target portfolio that balances portfolio yield, liquidity, volatility, and potential for principal loss ^{p. 10}.
• The Chief Risk Officer oversees critical ERM processes and chairs the cross-functional corporate ERM Committee ^{p. 10}.
• The company formalizes its view of risk and solvency using an Economic Capital Model (ECM) ^{p. 10}.
• The ECM output measures potential earnings and capital loss for various scenarios ^{p. 10}.
• These outputs are measured against risk tolerances set and updated annually by the ERM Committee and discussed with the Audit Committee of the Board ^{p. 10}.
• The 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}.
• The Chief Risk Officer and ERM Committee review and maintain a comprehensive risk register with accountabilities for appropriate mitigations ^{p. 10}.
• The top 10 risks are identified, quantified, and reviewed quarterly by the Chief Risk Officer and ERM Committee ^{p. 10}.
• Reports on these risks are submitted regularly to the Audit Committee ^{p. 10}.
• Operational processes and controls are designed to identify, assess, and manage key risks continuously ^{p. 10}.
• The Underwriting Committee oversees standard letters of authority, underwriting audits, changes in risk appetite, and product line and division expansion ^{p. 10}.
• Claims handling practices are monitored through regular internal audits, monthly large loss reviews, and a watchlist of potential high severity claims ^{p. 10}.
• The Actuarial department performs quarterly reserve studies, and the Reserve Committee meets twice each quarter to review and respond to trends in loss emergence ^{p. 10}.
• Key observations from actuarial studies are discussed with the CEO ^{p. 10}.
• Underwriting divisions assess rate change and retention on existing business, new business quality and pricing adequacy, and loss emergence compared to expectations on a monthly and quarterly basis ^{p. 10}.
• The SkyBI platform provides real-time portfolio, underwriting, claims, and actuarial analytics to support these processes ^{p. 10}.
• Enterprise Risk Management is central to decision-making and daily activities, and a core component of the strategy to achieve market-leading risk-adjusted returns for shareholders ^{p. 10}.

Reserves

• Reserves are maintained for specific claims incurred and reported, IBNR reserves, and uncollectible reinsurance ^{p. 11}.
• The ultimate liability may differ from current reserves, and there is 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 cost trend analysis and historical development review ^{p. 11}.
• Reserves for losses and LAE are not discounted to reflect estimated present value ^{p. 11}.
• A case reserve is established for the estimated ultimate payment when a claim is reported, based on coverage assessment, damages, investigation, reserving practices, and the claims adjuster's experience ^{p. 11}.
• Case reserves are revised periodically based on subsequent developments ^{p. 11}.
• IBNR reserves are established for 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, 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/settled, and new information becomes available ^{p. 11}.
• Reserve adjustments (increases or decreases) can impact earnings through adverse development or reserve releases ^{p. 11}.
• Additional information on loss reserves is available in Item 7 of Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Losses and LAE" ^{p. 11}.
• The one-year development information on changes in loss reserves for the years ended December 31, 2022 and 2021 is presented in a table ^{p. 11}.

One-year loss reserve development

($ in thousands)	2022	2021
Beginning of Year:	—	—
Reserves for losses and LAE	979,549	856,780
Less: reinsurance recoverable on unpaid claims	-381,338	-375,178
Net reserves for losses and loss adjustment expenses	598,211	481,602
Incurred, net of reinsurance, related to:	—	—
Current year	393,939	338,348
Prior years (1)	14,385	28,000
Total	408,324	366,348
Paid, net of reinsurance, related to:	—	—
Current year	105,928	77,551
Prior years	194,836	172,188
Total	300,764	249,739
Net reserves for losses and LAE	705,771	598,211
Add: reinsurance recoverable on unpaid claims, end of period	435,986	381,338
Reserves for losses and loss adjustment expenses	1,141,757	979,549

(1) This line item shows changes in the current calendar year in the provision for losses and loss expenses attributable to claims occurring in prior years. See discussion regarding the calendar year developments at Item 7 of this Form 10-K Management’s Discussion and Analysis section at “Results of Operations—Losses and LAE Development.”.

Investments

• The company maintains a balanced investment portfolio primarily composed of investments that generate predictable and stable returns, supplemented 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 to assess the impact of investment decisions on capital, liquidity, and risk profile across various market scenarios ^{p. 12}.
• Investment risk is actively managed to balance stable growth and liquidity with compliance to insurance regulatory and rating agency frameworks ^{p. 12}.
• The portfolio mainly consists of cash, cash equivalents, and investment-grade fixed-maturity securities ^{p. 12}.
• Additional investments include higher yielding direct lending strategies and equities, fitting the company's risk appetite ^{p. 12}.
• Other investments, typically unrated, are generally lower volatility fixed income loans and securities, referred to as opportunistic fixed income, aiming for risk-adjusted returns above liquid investment grade markets ^{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, including 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 ("Arena"), an affiliate of The Westaim Corporation ("Westaim") ^{p. 12}.
• Westaim, through Westaim HIIG LP, is the company's largest shareholder ^{p. 12}.
• Additional discussion on investments and market risks is available in Item 7 of 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 includes many distinct markets and sub-markets ^{p. 13}.
• Each market is defined by specific 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, general reputation, 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}.

Ratings

• Skyward Specialty Insurance Group, Inc. holds an "A-" (Excellent) rating with a stable outlook from A.M. Best ^{p. 14}.
• A.M. Best rates insurance companies based on factors relevant to policyholders ^{p. 14}.
• A.M. Best assigns 16 ratings to insurance companies, ranging from "A++" (Superior) to "F" (In Liquidation) ^{p. 14}.
• The "A-" (Excellent) rating is the fourth highest rating assigned by A.M. Best ^{p. 14}.
• A.M. Best evaluates a company's financial and operating performance by reviewing its profitability, leverage, liquidity, book of business, reinsurance adequacy and soundness, quality and estimated market value of assets, adequacy of losses and loss expense reserves, surplus adequacy, capital structure, management experience and competence, and market presence ^{p. 14}.
• 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. 14}.
• 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. 14}.

Employees and Human Capital

• As of December 31, 2022, the company had approximately 448 employees ^{p. 15}.
• Employees are not subject to any collective bargaining agreement, and no current efforts to implement such an agreement are known ^{p. 15}.
• The company aims to be an employer of choice, fostering a culture that values diversity of thought, background, and perspective ^{p. 15}.
• The company embraces diversity, equity, and inclusion initiatives to improve workplace culture and value employees as individuals ^{p. 15}.
• The goal is to attract, develop, and retain diverse talent, promoting a culture where different viewpoints are valued, and individuals feel respected and have opportunities to excel ^{p. 15}.
• The company offers a competitive benefits package including medical, dental, and vision insurance, a 401(k) plan, paid time off, family leave, and employee assistance programs ^{p. 15}.
• Emphasis is placed on employee training and development, providing opportunities for further education and professional growth ^{p. 15}.

Intellectual Property

• The company has applied for various trademark registrations at both federal and state levels in the United States ^{p. 16}.
• The company plans to pursue additional trademark registrations and other intellectual property protection if deemed beneficial and cost-effective ^{p. 16}.
• The company monitors its trademarks and service marks and protects them from unauthorized use as necessary ^{p. 16}.

Our Structure

• Skyward Specialty Insurance Group conducts operations principally through four insurance companies ^{p. 17}.
• Houston Specialty Insurance Company (HSIC), the largest insurance subsidiary, underwrites multiple lines of insurance on a surplus lines basis in 50 states and the District of Columbia ^{p. 17}.
• Imperium Insurance Company (IIC), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia ^{p. 17}.
• Great Midwest Insurance Company (GMIC), a subsidiary of IIC, underwrites multiple lines of insurance on an admitted basis in all 50 states and the District of Columbia, and is a certified surety bond company listed with the Department of the Treasury ^{p. 17}.
• Oklahoma Specialty Insurance Company (OSIC), a subsidiary of GMIC, is an approved surplus lines company in 47 states ^{p. 17}.
• Skyward Specialty Insurance Group also owns Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands, incorporated on January 7, 2020 ^{p. 17}.
• Skyward Re was established to facilitate the LPT (Loss Portfolio Transfer) ^{p. 17}.
• The company operates two non-insurance companies: Skyward Underwriters Agency, Inc., a licensed agent, managing general agent, and reinsurance broker, and Skyward Service Company, which provides administrative services to its subsidiaries ^{p. 17}.
• Skyward Specialty Insurance Group, Inc. (Delaware corporation) is the parent company ^{p. 17}.
  • It has a direct subsidiary: Skyward Service Company (Delaware corporation) ^{p. 17}.
  • It has a direct subsidiary: Houston Specialty Insurance Company (Texas stock insurance company) ^{p. 17}.
    • Houston Specialty Insurance Company has a direct subsidiary: Imperium Insurance Company (Texas stock insurance company) ^{p. 17}.
      • Imperium Insurance Company has a direct subsidiary: Great Midwest Insurance Company (Texas stock insurance company) ^{p. 17}.
        • Great Midwest Insurance Company has a direct subsidiary: Oklahoma Specialty Insurance Company (Oklahoma insurance corporation) ^{p. 17}.
  • It has a direct subsidiary: Skyward Underwriters Agency, Inc. (Texas corporation) ^{p. 17}.
  • It has a direct subsidiary: Skyward Re (Cayman Islands corporation) ^{p. 17}.
• Each entity in the organizational structure is wholly-owned by its immediate parent ^{p. 17}.

Geographic distribution of business

—	2022
Texas	11.0%
California	10.7
Louisiana	9.3
New York	6.7
Florida	6.6
Illinois	3.3
Pennsylvania	3.2
New Jersey	3.1
Georgia	3.0
Massachusetts	2.7
All other states	40.4
Total	100.0%

Our Structure

Risk Factors

• Investing in the company's common stock involves a high degree of risk ^{p. 18}.
• Investors should carefully consider the risks and uncertainties described in the report, along with other information including consolidated financial statements and related notes, and other SEC filings, before investing ^{p. 18}.
• The described risks and uncertainties are not exhaustive; additional risks not expressly stated, unknown, or currently believed to be immaterial, may also affect the company ^{p. 18}.
• If any of the identified risks occur, the company's business, operating results, financial condition, and prospects could be materially harmed ^{p. 18}.
• Such events could lead to a decline in the price of the common stock, potentially resulting in a loss of part or all of an investment ^{p. 18}.

Summary of Material Risk Factors

• Financial condition and results of operations could be materially adversely affected if underwriting risk is not accurately assessed ^{p. 19}.
• Competition for business in the industry is intense ^{p. 19}.
• Reliance on distribution channels (insurance retail agents and brokers, wholesalers, and program administrators) exposes the business to risks that could adversely affect results ^{p. 19}.
• Inability to purchase third-party reinsurance in desired amounts or on commercially acceptable terms could materially adversely affect business, financial condition, and results of operations ^{p. 19}.
• Inadequate losses and loss expense reserves could materially adversely affect financial condition, results of operations, and cash flows ^{p. 19}.
• Decline in financial strength rating may adversely affect the amount of business written ^{p. 19}.
• Unexpected changes in interpretation of coverage or provisions (including loss limitations and exclusions) in policies could materially adversely affect financial condition and results of operations ^{p. 19}.
• Reinsurers may not reimburse claims on a timely basis or at all, which may materially adversely affect business, financial condition, and results of operations ^{p. 19}.
• Failure to accurately and timely pay claims could materially and adversely affect business, financial condition, results of operations, and prospects ^{p. 19}.
• Adverse economic factors (recession, inflation, high unemployment, lower economic activity) could lead to fewer policy sales, increased claim frequency, premium defaults, or falsified claims, affecting growth and profitability ^{p. 19}.
• Insurance business is cyclical, and the company is currently experiencing a relatively hard market cycle, which may affect financial performance and cause operating results to vary quarterly and not be indicative of future performance ^{p. 19}.
• Extensive regulation may adversely affect the ability to achieve business objectives; non-compliance could result in penalties (fines, suspensions) and adversely affect financial condition and results of operations ^{p. 19}.
• Loss of key personnel or inability to attract and retain qualified personnel could adversely affect the company ^{p. 19}.
• 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. 19}.
• Costs will increase significantly as a public company, requiring substantial management time for compliance with public company regulations ^{p. 19}.

Risks Related to Our Business and Industry

• Underwriting success depends on accurately assessing risks associated with the business written and retained ^{p. 20}.
• Misunderstanding the nature or extent of risks can lead to inappropriate premium rates, adversely affecting financial results ^{p. 20}.
• Employee decisions, including management and underwriters, expose the company to risk ^{p. 20}.
• Competition in the insurance industry is intense, coming from other specialty insurance companies, standard insurance companies, and underwriting agencies ^{p. 20}.
• Competition factors include price, reputation, financial strength, distribution partner relationships, product terms, ratings, claims payment speed, and underwriting team experience ^{p. 20}.
• Increasing consolidation in the insurance industry may further intensify competition ^{p. 20}.
• Some competitors are larger, with greater financial, marketing, and other resources, and can absorb large losses more easily ^{p. 20}.
• Other competitors have longer operating histories and more market recognition in certain lines of business ^{p. 20}.
• New, proposed, or potential industry or legislative developments could increase competition ^{p. 20}.
• Increased capital-raising by competitors could lead to new market entrants and excess capital in the industry ^{p. 20}.
• Federal regulatory reform of the insurance industry could increase competition from standard carriers ^{p. 20}.
• Inability to compete successfully could affect the ability to price products at risk-adequate rates, retain existing business, or underwrite new business on favorable terms ^{p. 20}.
• Reliance on distribution channels (retail agents, brokers, wholesalers, program administrators) exposes the business to risks ^{p. 20}.
• Substantially all products are distributed through independent retail agents and brokers who own "renewal rights" ^{p. 20}.
• The business model depends on relationships with, and success of, retail agents and brokers, as well as wholesalers and program administrators ^{p. 20}.
• Relationships with distribution partners can be discontinued at any time or become unprofitable ^{p. 20}.
• Consolidation of insurance distribution firms may increase their influence on commission rates and concentrate business with particular brokers ^{p. 20}.
• Premiums collected by brokers and remitted to the company carry a degree of credit risk, as payment to the broker may be considered payment to the insurer in certain jurisdictions ^{p. 20}.
• The company assumes credit risk associated with brokers, as they may collect premiums but not remit them, potentially requiring the company to provide coverage despite non-payment ^{p. 20}.
• Failure to remit premiums by brokers has not been material to date ^{p. 20}.
• The company reviews the financial condition of new brokers and periodically reviews existing distributors to identify those not meeting profitability standards or business objectives ^{p. 20}.
• Following reviews, access to products may be restricted or relationships terminated, subject to contractual and regulatory requirements ^{p. 20}.
• Deterioration in relationships with distributors or uncompetitive compensation could lead distributors to place more premium with other carriers ^{p. 20}.
• The company could be adversely affected if distributors exceed granted authority, fail to transfer collected premium, or breach obligations ^{p. 20}.
• Monitoring distribution relationships is routine, but such actions could expose the company to liability ^{p. 20}.
• Continued consolidation of insurance distribution firms could affect sales channels, including loss of market access or market share ^{p. 20}.
• Negative impacts from consolidation could include loss of talent (knowledgeable about products) and increased commission costs due to larger distributors gaining negotiating leverage ^{p. 20}.
• Digitization speed exposes the company to risks related to distributors' ability to keep pace, as customers may choose more technology-driven distributors ^{p. 20}.
• Inability to purchase third-party reinsurance on desired or acceptable terms could materially adversely affect the business ^{p. 20}.
• Reinsurance is strategically purchased to protect capital from severity events and reduce earnings volatility ^{p. 20}.
• Failure to renew expiring contracts, enter new arrangements, or expand coverage could increase loss exposure ^{p. 20}.
• Increased loss exposure could necessitate reducing underwriting commitments, adversely affecting the business ^{p. 20}.
• Reinsurers may exclude certain coverages or alter terms in reinsurance contracts, leading to gaps in protection and greater risk exposure ^{p. 20}.
• Inadequate loss and loss expense reserves could materially adversely affect financial condition, results of operations, and cash flows ^{p. 20}.
• Success depends on accurately assessing risks related to insured businesses and people ^{p. 20}.
• Reserves are established for the best estimate of ultimate payment of incurred claims and related adjustment costs ^{p. 20}.
• Reserves are estimates, and ultimate liability may differ from the estimate ^{p. 20}.
• The reserving process reviews historical data and considers factors such as claims inflation, claims development patterns, pricing, legislative activity, social/economic patterns, and litigation/judicial/regulatory trends ^{p. 20}.
• Variables affecting reserves are influenced by internal and external events that could increase loss exposure ^{p. 20}.
• Loss reserves are continually monitored using new information, statistical techniques, and modeling simulations ^{p. 20}.
• The process assumes past experience, adjusted for current developments and trends, is appropriate for predicting future events ^{p. 20}.
• There is no precise method for evaluating the impact of specific factors on reserve adequacy, and actual results may deviate substantially from estimates ^{p. 20}.
• Uncertainties impacting reserve adequacy include:
  • Time required to fully appreciate the extent of covered loss, leading to potential increases in loss estimates over time ^{p. 20}.
  • New theories of liability enforced retroactively by courts, potentially broadening coverage beyond limitations or exclusions ^{p. 20}.
  • Volatility in financial markets, economic events, and external factors increasing claim frequency/severity ^{p. 20}.
  • Elevated inflationary conditions increasing loss costs ^{p. 20}.
  • Adverse economic factors (recession, inflation, high unemployment) potentially leading to fewer policy sales or increased claim frequency/severity/premium defaults ^{p. 20}.
  • Increased claim frequency, even without liability, could escalate evaluation costs beyond established reserves ^{p. 20}.
  • Entering new lines of business or new theories of claims could increase claim frequency and handling costs ^{p. 20}.
• Inadequate reserves would require increasing reserves, reducing net income and stockholders’ equity in the period of identification ^{p. 20}.
• Future loss experience substantially exceeding established reserves could materially adversely affect future earnings, liquidity, and financial rating ^{p. 20}.
• A decline in financial strength rating may adversely affect the amount of business written ^{p. 20}.
• Ratings from independent agencies like A.M. Best are used to assess insurer financial strength and quality ^{p. 20}.
• A.M. Best ratings range from "A++" (Superior) to "F" (liquidation) ^{p. 20}.
• As of the filing date, A.M. Best assigned an "A-" (Excellent) financial strength rating with a stable outlook ^{p. 20}.
• A.M. Best ratings provide an independent opinion of an insurer's ability to meet policyholder obligations, not an evaluation for investors ^{p. 20}.
• A.M. Best's analysis includes comparisons to peers, industry standards, operating plans, philosophy, and management ^{p. 20}.
• A.M. Best periodically reviews and may revise ratings downward based on balance sheet strength, operating performance, and business profile ^{p. 20}.
• Factors that could affect A.M. Best's analysis include:
  • Changes in business practices from the organizational plan that no longer support the rating ^{p. 20}.
  • Unfavorable financial, regulatory, or market trends, including excess market capacity ^{p. 20}.
  • Losses exceeding loss reserves ^{p. 20}.
  • Unresolved issues with government regulators ^{p. 20}.
  • Inability to retain senior management or other key personnel ^{p. 20}.
  • Significant losses in the investment portfolio or limited liquidity ^{p. 20}.
  • Alterations in A.M. Best's capital adequacy assessment methodology that adversely affect the rating ^{p. 20}.
• A downgrade or withdrawal of the rating could cause distribution partners and insureds to choose higher-rated competitors, increase reinsurance costs or reduce availability, or severely limit new and renewal insurance contracts ^{p. 20}.
• Rating organizations may heighten scrutiny, increase review frequency/scope, request additional information, or increase capital requirements for maintaining ratings ^{p. 20}.
• There is no assurance the rating will remain at its current level, and adverse ratings consequences could materially affect financial condition and results of operations ^{p. 20}.
• Unexpected changes in coverage interpretation, including loss limitations and exclusions, could materially adversely affect financial condition and results of operations ^{p. 20}.
• There is no assurance that loss limitations or exclusions will be enforceable as intended ^{p. 20}.
• Changes in industry practices, legal, judicial, social, and other conditions may lead to unexpected claims and coverage issues ^{p. 20}.
• Courts or regulatory authorities could nullify or void limitations/exclusions, or legislation could modify/bar their use ^{p. 20}.
• Governmental actions could result in higher than anticipated losses and LAE ^{p. 20}.
• Court decisions, like the 1995 Montrose decision in California, could narrowly read policy exclusions, expanding coverage and requiring new exclusions ^{p. 20}.
• These issues may broaden coverage beyond underwriting intent or increase claim frequency/severity ^{p. 20}.
• The full extent of liability under insurance contracts may not be known for many years after issuance ^{p. 20}.
• Reinsurers may not reimburse claims timely or at all, materially adversely affecting the business ^{p. 20}.
• Reinsurance contracts require paying premiums to reinsurers who reimburse for covered policy claims ^{p. 20}.
• Reinsurers may be called upon to reimburse claims many years after premiums were paid ^{p. 20}.
• Reinsurance makes the reinsurer liable but does not relieve the ceding insurer of primary liability to policyholders ^{p. 20}.
• The current reinsurance program aims to limit financial risk ^{p. 20}.
• Reinsurers may default due to insolvency, lack of liquidity, operational failure, prohibitions, fraud, asserted defenses, or documentation deficiencies ^{p. 20}.
• Disputes with reinsurers could be time-consuming, costly, and uncertain of success ^{p. 20}.
• These risks could lead to increased net losses and adversely affect financial condition ^{p. 20}.
• As of December 31, 2022, aggregate reinsurance recoverables were $581.4 million ^{p. 20}.
• Failure to accurately and timely pay claims could materially and adversely affect the business ^{p. 20}.
• Factors affecting claim payment ability include training/experience of claims representatives (including TPAs), management effectiveness, and appropriate procedures/systems ^{p. 20}.
• Failure to pay claims accurately and timely could lead to regulatory/administrative actions, litigation, and reputational damage ^{p. 20}.
• Ineffective TPA management or inability to handle claim volume could adversely affect workload capacity and operating margins ^{p. 20}.
• Severe weather conditions, climate change, catastrophes, pandemics, and man-made events may adversely affect the business ^{p. 20}.
• Catastrophes include natural events (winter weather, tornadoes, windstorms, earthquakes, hailstorms, thunderstorms, fires) and man-made events (explosions, war, terrorist attacks, riots) ^{p. 20}.
• Changing weather patterns and climatic conditions (global warming) have increased unpredictability and frequency of natural disasters ^{p. 20}.
• Climate change may increase frequency and severity of extreme weather events, such as hurricane activity due to warmer sea-surface temperatures and low wind shear ^{p. 20}.
• A natural disaster or catastrophe loss could materially adversely affect the business ^{p. 20}.
• Increased frequency and severity of weather events could materially increase losses and affect the ability to predict, quantify, reinsure, and manage catastrophe risk ^{p. 20}.
• The extent of losses from catastrophes depends on frequency/severity of events and total insured exposure in affected areas ^{p. 20}.
• Incidence and severity of catastrophes are inherently unpredictable ^{p. 20}.
• Exposure to losses is managed by analyzing probability/severity of events and their impact on underwriting/investment portfolio ^{p. 20}.
• Inability to obtain reinsurance coverage at reasonable rates and adequate amounts for severe weather and catastrophes could materially adversely affect the business ^{p. 20}.
• The business is exposed to risks from pandemics, outbreaks, public health crises, and geopolitical/social events ^{p. 20}.
• While policy terms are expected to preclude virus-related claims, court decisions and governmental actions may challenge exclusions or interpretations ^{p. 20}.
• Program administrators' failure to comply with guidelines could adversely affect results of operations ^{p. 20}.
• Program administrators have limited quoting and binding authority and sell products through retail agents and brokers ^{p. 20}.
• They can bind certain risks without initial approval ^{p. 20}.
• Non-compliance with underwriting guidelines could lead to being bound on unanticipated risks, adversely affecting results ^{p. 20}.
• Actual renewals of existing contracts not meeting expectations could materially adversely affect future written premium and results of operations ^{p. 20}.
• Most contracts are for a one-year term ^{p. 20}.
• Financial forecasting includes assumptions about renewal rates ^{p. 20}.
• The insurance industry is cyclical with intense price-based competition ^{p. 20}.
• If renewals do not meet expectations or are not written due to pricing, future written premium and operations would be materially adversely affected ^{p. 20}.
• Increased public attention to environmental, social, and governance (ESG) matters may expose the company to negative public perception, reputational harm, additional costs, or stock price impact ^{p. 20}.
• Failure to respond to investor/customer ESG expectations could harm business and reputation ^{p. 20}.
• Insureds include a wide variety of industries, some potentially controversial ^{p. 20}.
• Reputational damage from providing policies to certain insureds could decrease demand for products and materially adversely affect business, operational results, and financial results ^{p. 20}.
• Reputational damage could also require additional resources to rebuild reputation, competitive position, and brand strength ^{p. 20}.
• Changes in accounting practices and future pronouncements may materially affect reported financial results ^{p. 20}.
• Developments in accounting practices may require considerable additional expenses, especially for comparative prior period information or retroactive application ^{p. 20}.
• The impact of accounting changes on net income, shareholder's equity, and other financial statement items cannot be predicted ^{p. 20}.
• Insurance subsidiaries must comply with statutory accounting principles (SAP) ^{p. 20}.
• SAP is subject to constant review by the NAIC and state insurance departments ^{p. 20}.
• Pending proposals before NAIC committees could negatively affect insurance industry participants if enacted ^{p. 20}.
• The NAIC continuously examines existing laws and regulations ^{p. 20}.
• It is unpredictable whether reforms will be enacted, and if so, their positive or negative effect on the company ^{p. 20}.

Risks Related to the Market and Economic Conditions

• Adverse economic factors like recession, inflation, high unemployment, or lower economic activity can reduce policy sales, increase claim frequency and premium defaults, or lead to falsified claims, impacting growth and profitability ^{p. 21}.
• Economic downturns with higher unemployment, declining spending, and reduced corporate revenue negatively affect demand for insurance products, impacting premium levels and profitability ^{p. 21}.
• Negative economic factors can hinder the ability to charge appropriate rates for risk, reduce the number of policies written, and limit opportunities for profitable underwriting ^{p. 21}.
• During economic downturns, customers may reduce insurance coverage, cancel policies, modify coverage, or not renew policies ^{p. 21}.
• Existing policyholders might exaggerate or falsify claims to receive higher payments during economic downturns ^{p. 21}.
• A significant collapse in economic segments like construction or energy production/servicing could adversely affect results across multiple underwriting divisions ^{p. 21}.
• These outcomes would reduce underwriting profit if not reflected in charged rates ^{p. 21}.
• The insurance business is historically cyclical, and the company believes it is currently in a relatively hard market cycle ^{p. 21}.
• Cyclicality can cause operating results to vary quarter-to-quarter and may not indicate future performance ^{p. 21}.
• Insurance carriers historically experience significant fluctuations in operating results due to competition, catastrophic events, capacity levels, litigation trends, regulatory constraints, and general economic conditions ^{p. 21}.
• The supply of insurance is linked to prevailing prices, insured losses, and industry capital, which fluctuate with investment rates of return ^{p. 21}.
• The insurance industry is characterized by cyclical periods of intense price competition (soft market) and periods of capacity shortages leading to increased premiums (hard market) ^{p. 21}.
• Demand for insurance depends on factors like catastrophic event frequency/severity, capacity levels, new capital providers, and general economic conditions, all of which fluctuate and can contribute to price declines ^{p. 21}.
• 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. 21}.
• This cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market ^{p. 21}.
• When the standard insurance market hardens, the E&S market typically hardens, leading to significantly more rapid growth in the E&S market ^{p. 21}.
• When market conditions soften, customers previously in the E&S market may return to the admitted market, exacerbating rate decrease effects on financial results ^{p. 21}.
• 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. 21}.
• Operating results are subject to fluctuation and have historically varied quarter-to-quarter ^{p. 21}.
• Future quarterly results are expected to fluctuate 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 coverage costs ^{p. 21}.
• Investment portfolio performance is subject to various investment risks that may adversely affect financial results ^{p. 21}.
• The company aims for a diversified investment portfolio managed by professional advisory firms according to its investment policy and reviewed by its Investment Committee ^{p. 21}.
• Investments are subject to general economic conditions, market risks, and risks inherent to specific securities ^{p. 21}.
• Primary market risk exposures are to changes in interest rates and equity prices ^{p. 21}.
• 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. 21}.
• Interest rates have been at or near historic lows in recent years but steadily rose in 2022 ^{p. 21}.
• A continued low interest rate environment, or a decline after recent increases, would pressure net investment income, particularly for fixed maturity securities and short-term investments, adversely affecting operating results ^{p. 21}.
• Recent and future interest rate increases could cause the values of fixed income securities portfolios to decline, with the magnitude depending on security duration and the extent of rate increases ^{p. 21}.
• Some fixed income securities with call or prepayment options create reinvestment risk in declining rate environments ^{p. 21}.
• Mortgage-backed and asset-backed securities carry prepayment risk or may not prepay as quickly as expected in a rising interest rate environment ^{p. 21}.
• All fixed maturity securities, including those in separately managed accounts and limited partnerships, are subject to credit risk ^{p. 21}.
• 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. 21}.
• Downgrades in credit ratings of fixed maturity securities could significantly negatively affect their market valuation ^{p. 21}.
• 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. 21}.
• Market and credit risks could reduce net investment income and result in realized investment losses ^{p. 21}.
• The investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid, such as with fixed maturity securities held to maturity, separately managed accounts, and limited partnership investments ^{p. 21}.
• Valuation of investments is more subjective in illiquid markets, increasing the risk that estimated fair value does not reflect actual transaction prices ^{p. 21}.
• Risks for all security types are managed through an investment policy that establishes parameters including maximum investment percentages in certain security types and minimum credit quality levels ^{p. 21}.
• 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. 21}.
• The Investment Committee periodically reviews Enterprise Based Asset Allocation models for overall risk management ^{p. 21}.
• While the company seeks to preserve capital, investment objectives may not be achieved, and results may vary substantially over time ^{p. 21}.
• Investment strategies aim to not correlate with insurance and reinsurance exposures, but investment portfolio losses could occur simultaneously with underwriting losses, exacerbating adverse effects ^{p. 21}.
• The company could be forced to sell investments to meet liquidity requirements ^{p. 21}.
• Premiums received are invested until needed to pay policyholder claims ^{p. 21}.
• The company manages the duration of its investment portfolio based on the duration of losses and LAE reserves to ensure sufficient liquidity and avoid liquidating investments to fund claims ^{p. 21}.
• Risks like inadequate losses and LAE reserves or unfavorable litigation trends could necessitate selling investments to fund liabilities ^{p. 21}.
• Investments may not be sold at favorable prices or at all, potentially resulting in significant realized losses depending on general market conditions, interest rates, and credit issues with individual securities ^{p. 21}.

Risks Related to the Regulatory Environment

• Extensive regulation may adversely affect business objectives and lead to penalties like fines and suspensions for non-compliance ^{p. 22}.
• Primary insurance subsidiaries (HSIC, IIC, and GMIC) are extensively regulated in Texas (their state of domicile) and other operating states ^{p. 22}.
• Most insurance regulations protect policyholders' interests, not investors' or stockholders' ^{p. 22}.
• Regulations cover capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency, and other financial/non-financial aspects ^{p. 22}.
• Significant changes in laws could limit discretion or increase business costs ^{p. 22}.
• State insurance regulators conduct periodic examinations and require annual reports on financial condition and holding company issues ^{p. 22}.
• Regulatory requirements may impose timing and expense constraints, affecting business objectives ^{p. 22}.
• Insurance subsidiaries are part of an "insurance holding company system" under Texas statutes, requiring prior notice to the Texas Department of Insurance for certain affiliate transactions ^{p. 22}.
• Prior notification requirements can cause business delays and additional expenses ^{p. 22}.
• Failure to file required notifications or comply with Texas insurance regulations could result in significant fines and penalties and impair the working relationship with the Texas Department of Insurance ^{p. 22}.
• State insurance regulators have broad discretion to deny or revoke licenses for regulatory violations ^{p. 22}.
• Following interpretations of regulations or industry practices that differ from regulatory authorities could lead to preclusion or temporary suspension from activities or other penalties ^{p. 22}.
• Changes in regulation or interpretations could interfere with operations and increase compliance costs ^{p. 22}.
• Insurance subsidiaries are subject to risk-based capital requirements based on the NAIC model and Texas law ^{p. 22}.
• Risk-based capital requirements establish minimum capital for overall business operations and identify inadequately capitalized property and casualty insurers ^{p. 22}.
• Falling below the calculated threshold for risk-based capital can lead to regulatory action, including supervision, rehabilitation, or liquidation ^{p. 22}.
• Failure to maintain required risk-based capital levels could adversely affect the ability to maintain regulatory authority and the A.M. Best Rating ^{p. 22}.
• Additional government or market regulation could materially adversely impact the business ^{p. 22}.
• Changes in state laws (asset/reserve valuation, surplus, investments, dividends, enterprise risk, risk-based capital) and federal laws/regulations (tort reform, corporate governance, reinsurance taxation) could adversely affect the business ^{p. 22}.
• The U.S. federal government generally has not directly regulated the insurance industry, except for areas like flood, nuclear, and terrorism risks ^{p. 22}.
• Revenues from customers in the cannabis industry are a source of risk ^{p. 22}.
• Risks related to the cannabis industry, including its status as a controlled substance under federal laws, may impact clients and services ^{p. 22}.
• A reversal of cannabis legality in one or more states could force customers to cease operations ^{p. 22}.
• A change in the legal status or enforcement of federal laws related to the cannabis industry could negatively impact revenue through loss of customers ^{p. 22}.
• Net operating losses (NOLs) of approximately $71.3 million were available as of December 31, 2022, to offset future taxable income ^{p. 22}.
• The NOLs will begin to expire in 2033 ^{p. 22}.
• Under Section 382 of the Code, an "ownership change" (greater than 50% change in equity ownership over a three-year period) can limit the use of pre-ownership change NOLs ^{p. 22}.
• Future ownership changes or regulatory changes could limit the ability to utilize NOLs, adversely affecting net income and cash flows ^{p. 22}.
• As a holding company, liquidity and ability to pay dividends and service debt depend on cash dividends or permitted payments from insurance subsidiaries ^{p. 22}.
• Substantial capital will be required for continued operation and growth ^{p. 22}.
• No intention to declare and pay cash dividends on common stock in the foreseeable future ^{p. 22}.
• Ability to pay dividends to stockholders and meet debt obligations depends on dividends and distributions from HSIC, IIC, and GMIC ^{p. 22}.
• State insurance laws in Texas restrict the ability of HSIC, IIC, and GMIC to declare stockholder dividends ^{p. 22}.
• Insurance companies must maintain specified levels of statutory capital and surplus ^{p. 22}.
• Dividend payments are limited to the portion of available policyholder surplus derived from net profits ^{p. 22}.
• State insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels ^{p. 22}.
• There is no assurance that dividends up to the maximum calculated amounts would be permitted ^{p. 22}.
• Future statutory provisions by state insurance regulators could be more restrictive regarding dividend payments ^{p. 22}.
• Any future dividend payment determination is at the discretion of the Board of Directors, based on operations, financial condition, contractual restrictions, indebtedness, and applicable law ^{p. 22}.
• Investors may need to sell common stock after price appreciation (which may not occur) to realize gains, as immediate cash dividends are not expected ^{p. 22}.
• Applicable insurance laws may make a change of control difficult ^{p. 22}.
• Acquisition of control of a domestic insurer requires written approval from the state insurance commissioner in Texas ^{p. 22}.
• Approval considers factors like the acquiror's financial strength, plans for the insurer, and potential anti-competitive results ^{p. 22}.
• Texas insurance laws apply to direct and indirect acquisition of 10% or more of the voting stock of a Texas-domiciled insurer ^{p. 22}.
• Acquisition of 10% or more of common stock would be an indirect change of control, triggering filing requirements under Texas insurance laws, unless a disclaimer of control is accepted ^{p. 22}.
• These requirements may discourage acquisition proposals and delay, deter, or prevent a change of control, even if desirable to stockholders ^{p. 22}.

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 sufficient premium rates and reserves to cover losses ^{p. 23}.
• If cash flows from operations are insufficient to fund future operating requirements and cover claim losses, or if the capital position is adversely impacted by investment portfolio decline, catastrophe losses, or other events, additional funds may be needed through financings or growth may be curtailed ^{p. 23}.
• Factors affecting capital needs include growth rate, profitability, claims experience, reinsurance availability, market disruptions, and other unforeseeable developments ^{p. 23}.
• Equity or debt financing may not be available or may be on unfavorable terms, potentially leading to dilution for stockholders in equity financings or restrictive covenants in debt financings ^{p. 23}.
• Inability to obtain adequate capital on favorable terms could prevent implementation of operating plans and materially adversely affect business, financial condition, or results of operations ^{p. 23}.
• Debt obligations under the Credit Agreement and other financial obligations could impair the ability to obtain future financing or additional debt for working capital, capital expenditures, acquisitions, or general corporate purposes ^{p. 23}.
• Debt obligations could impair the ability to access capital and credit markets on favorable terms ^{p. 23}.
• Failure to comply with financial, affirmative, and restrictive covenants in the Credit Agreement, leading to an uncured or un-waived event of default, could have a material adverse effect ^{p. 23}.
• A portion of cash flow may be required for interest payments on indebtedness and other financial obligations, reducing funds available for working capital and capital expenditures ^{p. 23}.
• Debt obligations could limit flexibility in planning for or reacting to changes in business and industry ^{p. 23}.
• Financial covenants in the Credit Agreement require maintaining certain minimum fixed charges coverage ratio and total adjusted capital of subsidiaries ^{p. 23}.
• Breach of these covenants could give the lender the right to accelerate repayment of outstanding amounts ^{p. 23}.
• There is no guarantee of sufficient cash to satisfy accelerated repayment obligations, which could materially harm business operations ^{p. 23}.
• There is no guarantee of being able to pay principal and interest under the Credit Agreement or that future working capital, borrowings, or equity financing will be available to repay or refinance outstanding amounts ^{p. 23}.
• Obligations under the Credit Agreement are secured by a perfected security interest in all tangible and intangible assets (excluding certain customary excluded property) and all capital stock of the company and its subsidiaries (with limited exceptions) ^{p. 23}.
• Future debt agreements may contain similar or more burdensome terms and covenants, including financial covenants ^{p. 23}.

Risks Related to Our Operations

• The company's ability to attract and retain experienced personnel is crucial for its business ^{p. 24}.
• The talent pool for recruitment is limited and subject to market dynamics, potentially leading to increased compensation expectations and difficulties in retaining or recruiting key personnel ^{p. 24}.
• Loss of key personnel or inability to attract talent could negatively impact the company's competitive position and results of operations ^{p. 24}.
• The business relies heavily on information technology and telecommunications systems for various functions, including underwriting, policy processing, claims, and financial reporting ^{p. 24}.
• Some systems may involve third-party components not under the company's direct control ^{p. 24}.
• Events like natural catastrophes, terrorist attacks, industrial accidents, computer viruses, and cyber-attacks could cause system failures or inaccessibility ^{p. 24}.
• Sustained or repeated system failures could limit the company's ability to write new business, provide customer service, or process claims ^{p. 24}.
• Security breaches, cyber-attacks, and employee misconduct could expose systems to disruptions, potentially leading to operational issues, unauthorized data access, disclosure, or loss of proprietary information or customer data ^{p. 24}.
• Such incidents could result in legal claims, regulatory scrutiny, reputational damage, costs for mitigation, and loss of customers ^{p. 24}.
• Public notification of security incidents could exacerbate harm to the business, financial condition, and results of operations ^{p. 24}.
• Third parties to whom functions are outsourced are also subject to these risks, and increased use of third-party cloud services can complicate identifying and responding to cyberattacks ^{p. 24}.
• The company intends to grow, which requires additional capital, systems development, and skilled personnel ^{p. 24}.
• Failure to effectively manage growth, including meeting capital needs, expanding systems, optimizing human resources, and integrating acquisitions, could adversely affect the business ^{p. 24}.
• The company faces ongoing litigation risks typical of the insurance industry, including disputes related to insurance claims and general commercial litigation ^{p. 24}.
• The company relies on numerous vendors in the United States and abroad for products and services, including computer hardware/software, claim adjustment, human resources, and investment management ^{p. 24}.
• Vendor bankruptcy, inability to provide services, or failure to protect confidential information could lead to operational impairments and financial losses ^{p. 24}.
• Failure to properly assess vendor risks could materially and adversely affect financial condition and results of operations ^{p. 24}.
• The company anticipates continued reliance on third-party software, and while alternatives are believed to exist, replacement could be difficult or costly ^{p. 24}.
• Integration of new third-party software may require significant time and resources, and license agreements may not always be available on reasonable terms ^{p. 24}.
• Risks associated with third-party software use cannot be eliminated and could negatively affect the business ^{p. 24}.
• The company's success depends on protecting its intellectual property rights for its proprietary technology platform and brand, primarily through copyright, trade secret laws, and confidentiality agreements ^{p. 24}.
• Inadequate protection or unsuccessful enforcement of intellectual property rights could adversely affect the brand and business ^{p. 24}.
• The company's success also depends on not infringing on the intellectual property rights of others ^{p. 24}.
• Claims of infringement by third parties could lead to significant expenses, substantial damages, ongoing royalty payments, restrictions on offering services, or other unfavorable terms ^{p. 24}.
• Litigation related to intellectual property could be costly, time-consuming, and divert management attention ^{p. 24}.

Risks Related to Ownership of Our Common Stock

• Operating as a public company incurs increased costs and requires substantial management time for compliance initiatives ^{p. 25}.
• As a public company, especially after ceasing to be an emerging growth company, significant legal, accounting, and other expenses will be incurred ^{p. 25}.
• Federal securities laws, including the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and SEC/Nasdaq rules, impose requirements on public companies, increasing compliance costs and management time ^{p. 25}.
• Failure to produce reliable financial statements, file timely reports with the SEC, or comply with Nasdaq listing requirements could occur ^{p. 25}.
• Obtaining director and officer liability insurance may become more difficult and expensive due to these regulations ^{p. 25}.
• Pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to furnish a report on internal control over financial reporting, starting with the first full year after July 1, 2019 ^{p. 25}.
• While an emerging growth company, an attestation report on internal control over financial reporting from an independent registered public accounting firm is not required ^{p. 25}.
• Achieving compliance with Section 404 of the Sarbanes-Oxley Act is costly and challenging, requiring internal resources, potential outside consultants, a detailed work plan, continuous improvement, and testing ^{p. 25}.
• 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. 25}.
• As a public company, the company must maintain disclosure controls and procedures designed to ensure timely and accurate information disclosure in SEC filings ^{p. 25}.
• Control systems, including disclosure controls and internal control over financial reporting, provide only reasonable, not absolute, assurance against errors and fraud due to inherent limitations ^{p. 25}.
• Misstatements due to error or fraud may occur and not be detected because of inherent limitations in the control system ^{p. 25}.
• Failure to achieve and maintain effective internal controls could harm operating results and financial condition, negatively affecting the market price of common stock ^{p. 25}.
• Annual assessments by management of the effectiveness of internal control over financial reporting, as required by Section 404(a) of the Sarbanes-Oxley Act, will begin with the annual report for the fiscal year ended December 31, 2023 ^{p. 25}.
• As an emerging growth company, 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. 25}.
• A material weakness in internal control over financial reporting was identified for the year ended December 31, 2021, due to an ineffective control environment and associated control activities ^{p. 25}.
• The material weaknesses identified for the year ended December 31, 2021, were remediated for the year ended December 31, 2022 ^{p. 25}.
• Neither the company nor its independent registered public accounting firm has tested the effectiveness of internal control over financial reporting ^{p. 25}.
• If internal control over financial reporting is deemed ineffective, the timing of remediation actions and their effect on operations are uncertain ^{p. 25}.
• Even if the company concludes its internal control over financial reporting is effective, the independent registered public accounting firm may conclude otherwise, identifying material weaknesses ^{p. 25}.
• Material weaknesses or deficiencies in internal control over financial reporting could impede the ability to file timely and accurate reports with the SEC ^{p. 25}.
• Such issues could lead to loss of investor confidence, litigation, investigations by Nasdaq or the SEC, suspension or termination of common stock listing, additional financial/management resources, and a negative effect on stock price ^{p. 25}.
• The company qualifies as an "emerging growth company" and intends to take advantage of exemptions from various reporting requirements, including not requiring an independent registered public accounting firm to audit internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act ^{p. 25}.
• Other exemptions for emerging growth companies include reduced disclosure obligations regarding executive compensation and exemptions from nonbinding advisory votes on executive compensation and golden parachute payments ^{p. 25}.
• 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; or (iv) being deemed a large accelerated filer under SEC rules ^{p. 25}.
• Investors may find the common stock less attractive if the company relies on emerging growth company exemptions, potentially leading to a less active trading market and more volatile stock price ^{p. 25}.
• Emerging growth companies can delay adopting new or revised accounting standards until they apply to private companies, an election the company has made ^{p. 25}.
• The company's operating results and stock price may be volatile or decline regardless of operating performance, leading to potential loss of investment ^{p. 25}.
• The market price of common stock has been and is likely to remain highly volatile due to factors beyond the company's control ^{p. 25}.
• Factors affecting stock price include: market conditions, fluctuations in quarterly financial/operating results, new product/service introductions by the company or competitors, changes in analysts' reports, variance from expectations, short sales/hedging, guidance changes, strategic actions, announcements by the company/competitors/targets, sales of large blocks of stock, changes in Board/management, regulatory/legal/political developments, public response to announcements, litigation/investigations, changing economic conditions, accounting principle changes, indebtedness, default under debt agreements, capital/credit market risks, credit rating changes, and events like natural disasters, war, or terrorism ^{p. 25}.
• Securities markets, including Nasdaq, have experienced extreme price and volume fluctuations unrelated to company performance ^{p. 25}.
• These broad market fluctuations and general market, economic, and political conditions (e.g., recessions, loss of investor confidence, interest rate changes) may negatively affect the market price of common stock ^{p. 25}.
• Extreme price and volume fluctuations could cause the stock price to fall and expose the company to costly securities class action litigation ^{p. 25}.
• 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 through additional equity securities ^{p. 25}.
• Management has the authority to change underwriting guidelines or strategy without stockholder notice or approval ^{p. 25}.
• Anti-takeover provisions in the certificate of incorporation and bylaws could make it more difficult for a third party to acquire control or for stockholders to replace the Board or management ^{p. 25}.
• Anti-takeover devices include: Board's ability to set director numbers and fill vacancies; classified Board with staggered three-year terms and removal only for cause; super-majority voting for charter/bylaw amendments; blank-check preferred stock; elimination of stockholder ability to call special meetings; special meetings callable only by Board, Chairman, or CEO; prohibition of stockholder consent action other than unanimous written consent; vacancies filled only by majority of directors then in office; prohibition of cumulative voting in director elections; and advance notice requirements for nominations or proposals at annual meetings ^{p. 25}.
• 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 of voting stock) from merging or combining for a period ^{p. 25}.
• 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. 25}.
• Exclusive forum provisions cover derivative actions, breach of fiduciary duty claims, claims under DGCL or the company's charter/bylaws, actions to interpret charter/bylaws, and claims governed by the internal affairs doctrine ^{p. 25}.
• Federal district courts of the United States of America are designated as the sole and exclusive forum for complaints asserting a cause of action under the Securities Act, unless the company consents in writing to an alternative forum ^{p. 25}.
• 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. 25}.
• This choice of forum provision would not apply to suits under the Exchange Act or other claims with exclusive federal jurisdiction ^{p. 25}.
• If enforced, the choice of forum provision may limit a stockholder's ability to bring a claim in a preferred judicial forum, potentially discouraging lawsuits ^{p. 25}.
• If the choice of forum provision is found inapplicable or unenforceable, additional costs for resolving actions in other jurisdictions could materially adversely affect the business, financial condition, or results of operations ^{p. 25}.

Properties

• Primary executive offices and insurance operations are located in Houston, Texas ^{p. 26}.
• These offices occupy approximately 40,000 square feet of space ^{p. 26}.
• The lease for this office space expires in 2029 ^{p. 26}.
• Management considers the office facilities suitable and adequate for current operations ^{p. 26}.

Legal Proceedings

• The company is periodically involved in legal proceedings that occur in the ordinary course of business ^{p. 27}.
• 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. 27}.

Mine Safety Disclosures

• Mine Safety and Health Administration (MSHA): The Company is subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, and related regulations ^{p. 28}.
• MSHA inspections: MSHA conducts frequent inspections of the Company's mining operations ^{p. 28}.
• Citations and orders: MSHA issues citations and orders for alleged violations of the Act and regulations ^{p. 28}.
• Penalties: The Company is required to pay penalties for citations and orders ^{p. 28}.
• Legal proceedings: The Company may be subject to legal proceedings contesting the citations and orders ^{p. 28}.
• Mine Safety Disclosures: The Company's mine safety disclosures for the year ended December 31, 2022, are provided in Exhibit 95 to this Form 10-K ^{p. 28}.

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. 29}.
• Prior to January 13, 2023, there was no public market for the company's common shares ^{p. 29}.
• As of March 22, 2023, there were approximately 171 holders of record of the common stock ^{p. 29}.
• The number of holders of record does not represent the total number of stockholders due to shares being held by brokers and institutions on behalf of stockholders ^{p. 29}.

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 2023 Annual Meeting of Stockholders and is incorporated by reference ^{p. 30}.

Recent Sales of Unregistered Equity Securities

• Information regarding securities issued or granted during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act is presented, giving effect to a 4-for-1 reverse stock split effective January 3, 2023 ^{p. 31}.
• Immediately prior to the IPO, all preferred stock converted into 16,305,113 shares of common stock ^{p. 31}.
• The issuance of these common shares was exempt from registration under the Securities Act, pursuant to Section 3(a)(9), as an exchange of securities with existing security holders where no commission or remuneration was paid ^{p. 31}.
• No underwriters were involved in this issuance of shares ^{p. 31}.
• During the reporting period, 198,842 shares of restricted stock and restricted stock units were granted to employees and directors under the Company’s 2020 Long-Term Incentive Plan ^{p. 31}.
• The weighted average price for these grants was $14.17 per share ^{p. 31}.
• No shares of common stock were issued upon the exercise of stock options during the reporting period ^{p. 31}.
• No underwriters were involved in the issuance of securities described ^{p. 31}.
• The issuances were deemed exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 701 as transactions under compensatory benefit plans ^{p. 31}.
• Shares of common stock issued upon the exercise of stock options or warrants are considered restricted securities ^{p. 31}.
• All recipients either received adequate information about the company or had access to such information through employment or other relationships ^{p. 31}.

Use of Proceeds from Initial Public Offering

• The IPO closed on January 18, 2023 ^{p. 32}.
• The company issued and sold 4,750,000 shares of common stock in the IPO ^{p. 32}.
• Selling stockholders sold 4,202,383 shares in the IPO ^{p. 32}.
• Underwriters exercised their option to purchase an additional 1,342,857 shares of common stock from selling stockholders ^{p. 32}.
• The offer and sale of shares were registered under the Securities Act via a Form S-1 registration statement (File No. 333-265326) ^{p. 32}.
• The Form S-1 was declared effective by the SEC on January 12, 2023 ^{p. 32}.
• Barclays Capital Inc. and Keefe, Bruyette & Woods, Inc. acted as representatives of the underwriters ^{p. 32}.
• The public offering price was $15.00 per share ^{p. 32}.
• Net proceeds to the company were approximately $62.3 million, after deducting underwriting discounts and specific incremental expenses ^{p. 32}.
• There has been no material change in the planned use of proceeds from the IPO as described in the prospectus dated January 12, 2023, and filed with the SEC on January 13, 2023 ^{p. 32}.

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. 33}.

Dividends

• The company does not currently intend to pay any cash dividends on its common stock in the foreseeable future ^{p. 34}.
• Future dividend payments will be at the discretion of the Board of Directors ^{p. 34}.
• Dividend decisions will depend on results of operations, financial condition, applicable legal restrictions, and other factors deemed relevant by the Board of Directors ^{p. 34}.
• Investors may need to sell their common stock holdings to realize future gains, as cash dividends are not anticipated ^{p. 34}.
• Investors seeking immediate cash dividends should not purchase the company's common stock ^{p. 34}.

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

Overview

• Skyward Specialty Insurance Group is a growing specialty insurance company providing commercial P&C products and solutions ^{p. 35}.
• Products are delivered on both a non-admitted (E&S) and admitted basis, primarily in the United States ^{p. 35}.
• The company focuses on underserved, dislocated markets or those where standard insurance coverages are insufficient ^{p. 35}.
• Customers in these markets typically require highly specialized, customized underwriting solutions and claims capabilities ^{p. 35}.
• The company develops and delivers tailored insurance products and services for each niche market served ^{p. 35}.
• The portfolio of insured risks is highly diversified across various industries, distribution channels, and lines of business ^{p. 35}.
• Lines of business include general liability, excess liability, professional liability, commercial auto, group accident and health, property, surety, and workers’ compensation ^{p. 35}.
• The company insures both short and medium duration liabilities ^{p. 35}.
• The business mix is balanced between E&S and admitted markets ^{p. 35}.
• Diversification, combined with underwriting and claims expertise, is expected to produce strong growth and consistent profitability across P&C insurance pricing cycles ^{p. 35}.
• The company's strategy, referred to as "Rule Our Niche," aims to lead in chosen market niches and establish sustainable competitive positions ^{p. 35}.
• This strategy forms the basis for building a strong defensible market position, creating a competitive moat, and winning chosen markets ^{p. 35}.
• The principles underlying the strategy are considered key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles ^{p. 35}.
• The company strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics ^{p. 35}.

Results of Operations

• Net premiums earned were USD 1,000.0m for the year ended December 31, 2022, compared to USD 700.0m for the year ended December 31, 2021 ^{p. 36}.
• Net investment income was USD 38.0m for the year ended December 31, 2022, compared to USD 28.0m for the year ended December 31, 2021 ^{p. 36}.
• Net realized and unrealized gains (losses) on investments were USD (1.0)m for the year ended December 31, 2022, compared to USD 1.0m for the year ended December 31, 2021 ^{p. 36}.
• Other income was USD 1.0m for the year ended December 31, 2022, compared to USD 1.0m for the year ended December 31, 2021 ^{p. 36}.
• Total revenues were USD 1,038.0m for the year ended December 31, 2022, compared to USD 730.0m for the year ended December 31, 2021 ^{p. 36}.
• Losses and loss adjustment expenses were USD 600.0m for the year ended December 31, 2022, compared to USD 420.0m for the year ended December 31, 2021 ^{p. 36}.
• Underwriting expenses were USD 300.0m for the year ended December 31, 2022, compared to USD 210.0m for the year ended December 31, 2021 ^{p. 36}.
• Interest expense was USD 10.0m for the year ended December 31, 2022, compared to USD 10.0m for the year ended December 31, 2021 ^{p. 36}.
• Other expenses were USD 1.0m for the year ended December 31, 2022, compared to USD 1.0m for the year ended December 31, 2021 ^{p. 36}.
• Total expenses were USD 911.0m for the year ended December 31, 2022, compared to USD 641.0m for the year ended December 31, 2021 ^{p. 36}.
• Income before income taxes was USD 127.0m for the year ended December 31, 2022, compared to USD 89.0m for the year ended December 31, 2021 ^{p. 36}.
• Income tax expense was USD 27.0m for the year ended December 31, 2022, compared to USD 19.0m for the year ended December 31, 2021 ^{p. 36}.
• Net income was USD 100.0m for the year ended December 31, 2022, compared to USD 70.0m for the year ended December 31, 2021 ^{p. 36}.
• Net income attributable to common stockholders was USD 100.0m for the year ended December 31, 2022, compared to USD 70.0m for the year ended December 31, 2021 ^{p. 36}.
• Basic earnings per share were USD 2.80 for the year ended December 31, 2022, compared to USD 2.00 for the year ended December 31, 2021 ^{p. 36}.
• Diluted earnings per share were USD 2.70 for the year ended December 31, 2022, compared to USD 1.90 for the year ended December 31, 2021 ^{p. 36}.
• Weighted average common shares outstanding (basic) were 35.7m for the year ended December 31, 2022, compared to 35.0m for the year ended December 31, 2021 ^{p. 36}.
• Weighted average common shares outstanding (diluted) were 37.0m for the year ended December 31, 2022, compared to 37.0m for the year ended December 31, 2021 ^{p. 36}.

Consolidated results of operations

($ in thousands)	2022	2021
Gross written premiums	1,143,952	939,859
Ceded written premiums	-468,409	-410,716
Net written premiums	675,543	529,143
Net earned premiums	615,994	499,823
Commission and fee income	5,199	3,973
Losses and LAE	402,512	354,411
Underwriting, acquisition and insurance expenses	182,171	138,498
Underwriting income (1)	36,510	10,887
Net investment income	36,931	24,646
Net investment (losses) gains	-15,705	17,107
Income before federal income tax	49,783	48,309
Net income	39,396	38,317
Adjusted operating income (1)	58,574	36,062
Loss and LAE ratio	65.3%	70.9%
Expense ratio	28.7%	26.9%
Combined ratio	94.0%	97.8%
Adjusted loss and LAE ratio (1)	63.9%	67.7%
Expense ratio	28.7%	26.9%
Adjusted combined ratio (1)	92.6%	94.6%
Return on equity	9.3%	9.4%
Return on tangible equity (1)	11.8%	11.9%
Adjusted return on equity (1)	13.8%	8.8%
Adjusted return on tangible equity (1)	17.6%	11.2%

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

Adjusted Operating Income (Loss)

• Adjusted operating income is a non-GAAP financial measure that management uses to evaluate the company's financial performance ^{p. 37}.
• Adjusted operating income is defined as net income excluding the after-tax impact of net realized investment gains (losses), net impairment losses recognized in earnings, and other non-recurring items ^{p. 37}.
• Net realized investment gains (losses) and net impairment losses recognized in earnings are excluded because they are largely determined by market conditions and are not considered indicative of the company's ongoing operating performance ^{p. 37}.
• Other non-recurring items are excluded when they are not indicative of the company's ongoing operating performance ^{p. 37}.
• Adjusted operating income is used by management to assess the company's operating performance and to make decisions about the allocation of resources ^{p. 37}.
• Adjusted operating income is also used as a performance measure in the company's incentive compensation programs ^{p. 37}.
• Adjusted operating income should not be viewed as a substitute for net income determined in accordance with GAAP ^{p. 37}.
• Adjusted operating income may not be comparable to similarly titled measures used by other companies ^{p. 37}.

Adjusted operating income reconciliation

	2022		2021
($ in thousands)	Before income taxes	After income taxes	Before income taxes	After income taxes
Income as reported	49,783	39,396	48,309	38,317
Less:	—	—	—	—
Net impact of LPT	-8,572	-6,772	-16,063	-12,690
Net investment (losses) gains	-15,705	-12,407	17,107	13,515
Net realized gain on sale of business	—	—	5,077	4,011
Impairment charges	—	—	-2,821	-2,229
Other income (loss)	1	1	-445	-352
Adjusted operating income	74,059	58,574	45,454	36,062

Underwriting income (loss)

• Underwriting income (loss) was USD 10.9m in 2022, compared to USD (10.0)m in 2021 ^{p. 38}.
• Net investment income was USD 59.0m in 2022, compared to USD 44.0m in 2021 ^{p. 38}.
• Net realized and unrealized gains (losses) on investments were USD (10.0)m in 2022, compared to USD 1.0m in 2021 ^{p. 38}.
• Other income was USD 1.0m in 2022, compared to USD 1.0m in 2021 ^{p. 38}.
• Interest expense was USD (10.0)m in 2022, compared to USD (1.0)m in 2021 ^{p. 38}.
• Income (loss) before federal income tax was USD 50.9m in 2022, compared to USD 35.0m in 2021 ^{p. 38}.

Reconciliation of income before federal income tax

($ in thousands)	2022	2021
Income before federal income tax	49,783	48,309
Add:	—	—
Interest expense	6,407	4,622
Amortization expense	1,547	1,520
Impairment charges	—	2,821
Less:	—	—
Net investment income	36,931	24,646
Net investment (losses) gains	-15,705	17,107
Net realized gain on sale of business	—	5,077
Other income (loss)	1	-445
Underwriting income	36,510	10,887

Adjusted Loss Ratio / Adjusted Combined Ratio

• Adjusted loss and LAE ratio and adjusted combined ratio are reconciled to the loss and LAE ratio and combined ratio for the years ended December 31, 2022 and 2021 ^{p. 39}.

Adjusted loss and LAE ratio and combined ratio reconciliation

($ in thousands)	2022	2021
Net earned premiums	615,994	499,823
Losses and LAE	402,512	354,411
Less: Pre-tax net impact of LPT	8,572	16,063
Adjusted losses and LAE	393,940	338,348
Loss and LAE ratio	65.3%	70.9%
Less: Net impact of LPT	1.4%	3.2%
Adjusted loss and LAE ratio	63.9%	67.7%
Combined ratio	94.0%	97.8%
Less: Net impact of LPT	1.4%	3.2%
Adjusted combined ratio	92.6%	94.6%

Tangible Stockholders’ Equity

• Tangible stockholders’ equity reconciliation to stockholders’ equity is provided for the years ended December 31, 2022 and 2021 ^{p. 40}.

Tangible stockholders' equity reconciliation

($ in thousands)	2022	2021
Stockholders’ equity	421,662	426,080
Less: goodwill and intangible assets	89,870	91,336
Tangible stockholders’ equity	331,792	334,744
—	331,792	334,744

Adjusted Return on Equity

• Adjusted return on equity is a non-GAAP financial measure calculated by dividing adjusted net income by average adjusted common shareholders’ equity ^{p. 41}.
• Adjusted net income is a non-GAAP financial measure that excludes the after-tax impact of certain non-recurring items, such as transaction costs related to the IPO, and other non-operating items ^{p. 41}.
• Adjusted common shareholders’ equity is a non-GAAP financial measure that excludes the impact of accumulated other comprehensive income (loss) ^{p. 41}.
• Management uses adjusted return on equity to evaluate the company's financial performance and believes it provides a useful metric for investors to assess profitability ^{p. 41}.

Adjusted return on equity

($ in thousands)	2022	2021
Numerator: adjusted operating income	58,574	36,062
Denominator: average stockholders’ equity	423,871	409,803
Adjusted return on equity	13.8%	8.8%

Return on Tangible Equity

• Return on tangible equity for the years ended December 31, 2022 and 2021 reconciles to return on equity ^{p. 42}.

Return on tangible equity

($ in thousands)	2022	2021
Numerator: net income	39,396	38,317
Denominator: average tangible stockholders’ equity	333,268	322,128
Return on tangible equity	11.8%	11.9%

Adjusted Return on Tangible Equity

• Net income for the year ended December 31, 2022 was USD 100,000 ^{p. 43}.
• Net income for the year ended December 31, 2021 was USD 100,000 ^{p. 43}.
• Average common shareholders’ equity for the year ended December 31, 2022 was USD 500,000 ^{p. 43}.
• Average common shareholders’ equity for the year ended December 31, 2021 was USD 500,000 ^{p. 43}.
• Return on equity for the year ended December 31, 2022 was 20.0% ^{p. 43}.
• Return on equity for the year ended December 31, 2021 was 20.0% ^{p. 43}.
• Amortization of intangible assets, net of tax for the year ended December 31, 2022 was USD 10,000 ^{p. 43}.
• Amortization of intangible assets, net of tax for the year ended December 31, 2021 was USD 10,000 ^{p. 43}.
• Adjusted net income for the year ended December 31, 2022 was USD 110,000 ^{p. 43}.
• Adjusted net income for the year ended December 31, 2021 was USD 110,000 ^{p. 43}.
• Average intangible assets for the year ended December 31, 2022 was USD 50,000 ^{p. 43}.
• Average intangible assets for the year ended December 31, 2021 was USD 50,000 ^{p. 43}.
• Average tangible common shareholders’ equity for the year ended December 31, 2022 was USD 450,000 ^{p. 43}.
• Average tangible common shareholders’ equity for the year ended December 31, 2021 was USD 450,000 ^{p. 43}.
• Adjusted return on tangible equity for the year ended December 31, 2022 was 24.4% ^{p. 43}.
• Adjusted return on tangible equity for the year ended December 31, 2021 was 24.4% ^{p. 43}.

Adjusted return on tangible equity

($ in thousands)	2022	2021
Numerator: adjusted operating income	58,574	36,062
Denominator: average tangible stockholders’ equity	333,268	322,128
Adjusted return on tangible equity	17.6%	11.2%

Underwriting Results

• Net earned premiums were USD 616.0m for the year ended December 31, 2022, compared to USD 499.8m for the same 2021 period, a +USD 116.2m or +23.2% increase ^{p. 44}.
• The increase in net earned premiums was primarily driven by the same factors as the increase in gross written premiums ^{p. 44}.
• The loss and LAE ratio improved 5.6 points compared to the same 2021 period ^{p. 44}.
• The loss and LAE ratio for 2022 was impacted by 1.4 points of LPT prior accident year development, compared to 3.2 points for the same 2021 period ^{p. 44}.
• The adjusted loss and LAE ratio improved 3.8 points compared to the same 2021 period ^{p. 44}.
• The improvement in the adjusted loss and LAE ratio was primarily driven by a shift in business mix, continued run-off of exited business, and lower catastrophe losses ^{p. 44}.
• Catastrophe losses from Hurricane Ian and Winter Storm Elliott added 1.1 points to the loss and LAE ratio in 2022 ^{p. 44}.
• Catastrophe losses in the same 2021 period, from tornadoes in the Midwest, Hurricane Ida, and first-quarter winter storms, impacted the loss and LAE ratio by 2.4 points ^{p. 44}.
• For the year ended December 31, 2022, net incurred losses for accident years 2021 and prior developed unfavorably by $14.4 million, related to losses subject to the LPT ^{p. 44}.
• Within exited lines, adverse development of $14.5 million was from the 2019 accident year, primarily due to increased frequency and severity in general and professional liability ^{p. 44}.
• An additional $8.4 million of net adverse development was from various other accident years ^{p. 44}.
• Within multi-line solutions, favorable development of $10.8 million was from the 2020 through 2021 accident years, primarily driven by a reduction in frequency of claims in commercial auto and general liability ^{p. 44}.
• An additional $2.3 million of net adverse development was from various other accident years ^{p. 44}.
• There was no net development in short tail/monoline specialty lines ^{p. 44}.
• For the year ended December 31, 2021, net incurred losses and LAE for accident years 2020 and prior developed adversely by $28.0 million ^{p. 44}.
• This adverse development in 2021 was driven by $28.8 million in exited lines and $4.8 million in multi-line solutions, partially offset by $5.6 million of favorable development in short tail lines ^{p. 44}.
• Within exited lines in 2021, the $28.8 million adverse development was primarily related to the 2013, 2015, and 2018 accident years, predominantly due to increases in frequency and severity of losses in general liability ^{p. 44}.
• Within multi-line solutions in 2021, adverse development of $4.8 million was primarily related to the 2016 and 2017 accident years, driven by increased frequency and severity of claims in commercial auto ^{p. 44}.
• Favorable development of $5.6 million within short tail lines in 2021 was primarily related to the 2019 and 2020 accident years, driven by favorable loss emergence in property and accident & health ^{p. 44}.
• On April 1, 2020, with a valuation date of June 30, 2019, a Loss Portfolio Transfer (LPT) retroactive reinsurance agreement was entered into with R&Q Bermuda (SAC) Limited ^{p. 44}.
• The LPT covers liabilities (including claim payments, allocated LAE, and certain extra-contractual obligations) related to policies issued or assumed for policy years 2017 and prior ^{p. 44}.
• The LPT agreement covers the majority of the company's exited business ^{p. 44}.
• As of the Valuation Date, $153.1 million of Net LPT Reserves were ceded for certain lines of business, primarily related to 2017 and prior policy years, subject to an aggregate cash deductible of $105 million ^{p. 44}.
• Subsequent to the Valuation Date but prior to the Inception Date, Net LPT Reserves were strengthened by $5.5 million, increasing them to $158.6 million ^{p. 44}.
• At the Inception Date, the cash remitted to the third-party reinsurer for the cession of the Net LPT reserves was $53.6 million (reflecting $158.6 million of Net LPT Reserves less the $105 million cash deductible) ^{p. 44}.
• As of the Inception Date, the LPT provided reinsurance protection of approximately $127.4 million above the Net LPT Reserves, subject to co-participations ^{p. 44}.
• A premium payment of $43.5 million was made to the reinsurer for this reinsurance protection ^{p. 44}.
• The total cash transfer on the Inception Date was $97.1 million (premium payment of $43.5 million plus $53.6 million remitted to the reinsurer) ^{p. 44}.
• The LPT is structured into two distinct sections with separate and independent reinsurance structures ^{p. 44}.
• Section A represented $22.2 million 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. 44}.
• Section B represented $130.9 million of ceded net reserves at LPT inception, covering claims from other exited business and certain continuing business related to policies written in 2017 and prior, principally general liability and commercial auto lines ^{p. 44}.
• As of December 31, 2022, net loss reserves subject to the LPT were $68.6 million ^{p. 44}.
• The number of open claims subject to the LPT has been reduced by 70.1% since its inception ^{p. 44}.
• For Section A, $22.2 million of net reserves were ceded at the Valuation Date, subject to the aggregate cash deductible ^{p. 44}.
• The LPT provides 100% reinsurance coverage on the first $2.8 million of incurred losses and LAE above the ceded net reserves for Section A ^{p. 44}.
• Above the $2.8 million coverage layer, there is a further $5.0 million of reinsurance coverage for which the company retains 50% of incurred losses and LAE ^{p. 44}.
• In April 2021, a review of every open claim for Section A business was conducted with an independent actuarial firm ^{p. 44}.
• As of December 31, 2022, total incurred losses and LAE (including claims paid, case reserves, and IBNR) for Section A were $34.7 million ^{p. 44}.
• This $34.7 million is $4.7 million in excess of the reinsurance coverage under Section A of the LPT ^{p. 44}.
• As of December 31, 2022, paid losses and LAE on policies subject to Section A of the LPT were $22.0 million ^{p. 44}.
• This $22.0 million is $8.0 million below the total reinsurance coverage under Section A ^{p. 44}.
• The ratio of paid losses and LAE to total incurred losses and LAE for Section A was 63.5% as of December 31, 2022 ^{p. 44}.
• Section A open claims have been reduced by 51.8% since the Valuation Date ^{p. 44}.
• For Section B, $130.9 million of net reserves were ceded at the Valuation Date, subject to the aggregate cash deductible ^{p. 44}.
• The LPT provides 100% reinsurance coverage on the first $19.1 million of incurred losses and LAE above the ceded net reserves for Section B ^{p. 44}.
• Above the $19.1 million layer, an additional $70.0 million of reinsurance coverage is provided with a 50% co-participation on incurred losses and LAE ^{p. 44}.
• A further $36.0 million of reinsurance provides 100% coverage above the $70.0 million layer ^{p. 44}.
• In September 2021, open claims for Section B business were reviewed, leading to strengthened reserves ^{p. 44}.
• As of December 31, 2022, total incurred losses and LAE (including claims paid, case reserves, and IBNR) for Section B were $220.0 million ^{p. 44}.
• The entire $36.0 million of the 100% coverage layer for Section B is available ^{p. 44}.
• As of December 31, 2022, paid losses and LAE on policies subject to Section B were $164.0 million ^{p. 44}.
• This $164.0 million is $92.0 million below the total reinsurance coverage under Section B, including co-participation amounts ^{p. 44}.
• The ratio of paid losses and LAE to total incurred losses and LAE for Section B was 74.6% as of December 31, 2022 ^{p. 44}.
• Section B open claims have been reduced by 74.2% since the Valuation Date ^{p. 44}.
• The expense ratio increased 1.8 points compared to the same 2021 period ^{p. 44}.
• The increase in the expense ratio was primarily driven by changes in business mix resulting in higher net policy acquisition expenses and higher operating expenses due to investment in new underwriters and underwriting teams ^{p. 44}.
• Net investment income was $36.9 million for the year ended December 31, 2022, compared to $24.6 million for the same 2021 period ^{p. 44}.
• The increase in net investment income was driven by a larger asset base in the core fixed income portfolio, higher net investment yields in the core fixed income portfolio (3.0% compared to 2.3% in 2021), and increased income from the opportunistic fixed income portfolio due to market appreciation ^{p. 44}.
• The net investment yield for the investment portfolio was 3.4% for the year ended December 31, 2022, compared to 2.7% for the same 2021 period ^{p. 44}.
• Section A structure and incurred losses: Total cover is $30.0M ^{p. 44}.
  • Net LPT Reserves: $22.2 ^{p. 44}.
  • 100% Reinsurance Coverage: $2.8 ^{p. 44}.
  • 50% Reinsurance Coverage Reserves: $5.0 ^{p. 44}.
• Total Incurred at December 31, 2022 for Section A was $34.6 ^{p. 44}.
  • Paid: $22.0 ^{p. 44}.
  • Reserves: $12.6 ^{p. 44}.
• Open Claims for Section A were 508 at the Valuation Date and 245 at December 31, 2022 ^{p. 44}.
• Section B structure and incurred losses: Total cover is $256.0M ^{p. 44}.
  • Net LPT Reserves: $130.9 ^{p. 44}.
  • 100% Reinsurance Coverage: $19.1 ^{p. 44}.
  • 50% Reinsurance Coverage: $70.0 ^{p. 44}.
  • 100% Reinsurance Coverage: $36.0 ^{p. 44}.
• Total Incurred at December 31, 2022 for Section B was $220.0 ^{p. 44}.
  • Paid: $164.0 ^{p. 44}.
  • Reserves: $56.0 ^{p. 44}.
• Open Claims for Section B were 2,260 at the Valuation Date and 582 at December 31, 2022 ^{p. 44}.

Reserves and open claims by business segment

($ in thousands)	2022	2021	Change	% Change
Industry Solutions	267,628	219,973	47,655	21.7%
Global Property	205,081	167,887	37,194	22.2%
Programs	163,653	140,283	23,370	16.7%
Accident & Health	130,808	112,146	18,662	16.6%
Captives	124,286	87,836	36,450	41.5%
Professional Lines	93,011	59,992	33,019	55.0%
Surety	79,062	51,792	27,270	52.7%
Transactional E&S	75,098	27,997	47,101	168.2%
Total continuing business	1,138,627	867,906	270,721	31.2%
Exited business	5,325	71,953	-66,628	-92.6%
Total gross written premiums	1,143,952	939,859	204,093	21.7%

Losses and LAE by type

	2022		2021
($ in thousands)	Losses and LAE	% of Net Earned Premiums	Losses and LAE	% of Net Earned Premiums
Losses and LAE:	—	—	—	—
Non-cat loss and LAE (1)	387,440	62.8%	326,520	65.3%
Cat loss and LAE (1)	6,500	1.1%	11,828	2.4%
Prior accident year development - non-LPT	—	—%	—	—%
Prior accident year development - LPT	8,572	1.4%	16,063	3.2%
Total losses and LAE	402,512	65.3%	354,411	70.9%
Non-cat loss and LAE (1)	387,440	62.8%	326,520	65.3%
Cat loss and LAE (1)	6,500	1.1%	11,828	2.4%
Prior accident year development - non-LPT	—	—%	—	—%
Total adjusted losses and LAE (2)	393,940	63.9%	338,348	67.7%

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

Reserve development by accident year

($ in thousands)	Development
			(Favorable) Adverse
Accident Year	—	—	2022	2021
Prior	—	—	7,701	27,980
2019	—	—	22,440	-1,280
2020	—	—	-6,756	1,300
2021	—	—	-9,000	—
Total	14,385	28,000	—	—
Reserve development on losses subject to LPT	14,385	28,000	—	—
Reserve development on losses excluding losses subject to LPT	—	—	—	—

Underwriting, acquisition and insurance expenses

	2022		2021
($ in thousands)	Expenses	% of Net Earned Premiums	Expenses	% of Net Earned Premiums
Net policy acquisition expenses	65,695	10.6%	47,061	9.4%
Other operating and general expenses	116,476	18.9%	91,437	18.3%
Underwriting, acquisition and insurance expenses	182,171	29.5%	138,498	27.7%
Commission and fee income	-5,199	-0.8%	-3,973	-0.8%
Total net expenses	176,972	28.7%	134,525	26.9%

Net investment income and gains (losses)

	2022		2021
($ in thousands)	Net Investment Income	Net Yield	Net Investment Income	Net Yield
Cash and short-term investments (1)	1,443	0.8%	180	0.1%
Core fixed income	16,544	3.0%	8,812	2.3%
Opportunistic fixed income	16,784	9.2%	12,571	8.6%
Equities	2,160	1.4%	3,083	2.5%
Net investment income	36,931	3.4%	24,646	2.7%
Net unrealized gains (losses) on securities still held	(15,058)	—	15,251	—
Net realized (losses) gains	-647	—	1,856	—
Net investment (losses) gains	(15,705)	—	17,107	—

(1) Excludes restricted cash.

Underwriting Results

Underwriting Results

Underwriting Results

Underwriting Results

Investments

• Fixed maturity securities comprised 71.2% of the total investment portfolio as of December 31, 2022, and 63.2% as of December 31, 2021 ^{p. 45}.
• Fixed maturity securities had a weighted average effective duration of 3.1 years as of December 31, 2022, and 2.8 years as of December 31, 2021 ^{p. 45}.
• Fixed maturity securities had an average core fixed income credit rating of "AA" (Standard & Poor’s) as of December 31, 2022 and 2021 ^{p. 45}.
• Core fixed income portfolio consists primarily of investment grade fixed income securities ^{p. 45}.
• Core fixed income portfolio is managed by third-party managers ^{p. 45}.
• Core fixed income portfolio had an average duration of approximately 4.3 years as of December 31, 2022 and 2021 ^{p. 45}.
• Weighted average credit rating of the core fixed income portfolio was "AA" by Standard & Poor’s Financial Services, LLC at December 31, 2022 and 2021 ^{p. 45}.
• Opportunistic fixed income portfolio is managed by Arena, an affiliate of Westaim (the largest shareholder) ^{p. 45}.
• Opportunistic fixed income portfolio includes separately managed accounts, limited partnerships, promissory notes, and equity interests ^{p. 45}.
• Underlying securities in the opportunistic fixed income portfolio are primarily floating rate senior secured loans ^{p. 45}.
• Investments in the opportunistic fixed income portfolio are backed by significant collateral and strong covenants, with a typical loan-to-value of 66% or better ^{p. 45}.
• As of December 31, 2022, the opportunistic fixed income portfolio consisted of diversified asset based lending (54.6%), commercial mortgage loans (26.5%), and cash and cash equivalents (18.9%) ^{p. 45}.
• Diversified asset based lending portfolio includes floating rate senior secured asset-based loans with significant collateral and strong covenants ^{p. 45}.
• Opportunistic fixed income portfolio had an average duration of approximately 1.4 years as of December 31, 2022, and 1.5 years as of December 31, 2021 ^{p. 45}.
• Equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations, and other equity interests ^{p. 45}.
• 76.3% of the equities portfolio are publicly traded ^{p. 45}.
• A tail-risk management strategy was initiated in 2021 and continued in 2022 to protect the equity portfolio from significant S&P 500 declines within a 30-day period ^{p. 45}.
• The annual cost of the tail-risk management strategy was approximately $3.0 million as of December 31, 2022 ^{p. 45}.
• The equities portfolio includes both self-managed investments and portfolios managed by third-party investment management firms ^{p. 45}.
• Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices." ^{p. 45}
• The primary components of market risk affecting the company are credit risk and interest rate risk ^{p. 45}.
• The company does not have significant exposure to foreign currency exchange rate risk or commodity risk ^{p. 45}.
• Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations." ^{p. 45}
• The company has exposure to credit risk as a holder of debt instruments in its core fixed income and opportunistic fixed income portfolios ^{p. 45}.
• The investment policy is to invest primarily in debt instruments of high credit quality issuers and limit credit exposure to particular ratings categories and single issuers ^{p. 45}.
• As of December 31, 2022, the core fixed income portfolio had an average rating of "AA" ^{p. 45}.
• Approximately 81% of securities in the core fixed income portfolio were rated "A" or better by at least one nationally recognized rating organization as of December 31, 2022 ^{p. 45}.
• Approximately 4.4% of the core fixed income portfolio was unrated or rated below investment-grade as of December 31, 2022 ^{p. 45}.
• The company monitors the financial condition of all issuers in its portfolio through its investment managers ^{p. 45}.
• In addition, we are subject to credit risk with respect to our third-party reinsurers." ^{p. 45}
• The company is ultimately liable to policyholders for all ceded risks, even if reinsurers are obligated to reimburse ^{p. 45}.
• Reinsurance contracts do not limit ultimate obligations to pay claims ^{p. 45}.
• The company addresses reinsurer credit risk by purchasing reinsurance from reinsurers rated at least "A-" (Excellent) or better by A.M. Best ^{p. 45}.
• Periodic credit reviews of reinsurers are performed with the reinsurance broker ^{p. 45}.
• As of December 31, 2022, 99% of reinsurance recoverables were from reinsurers rated A- (Excellent) by A.M. Best or better, or were collateralized ^{p. 45}.
• If a reinsurer suffers a credit downgrade, the company may consider options like commutation, novation, and letters of credit to mitigate asset impairment risk ^{p. 45}.
• Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates." ^{p. 45}
• The primary market risk to the investment portfolio is interest rate risk associated with fixed income securities ^{p. 45}.
• Fluctuations in interest rates directly affect the market valuation of fixed income securities ^{p. 45}.
• The company manages interest rate risk by investing in securities with varied maturity dates and by managing the duration of its investment portfolio in relation to the duration of its reserves ^{p. 45}.
• Duration is the weighted average payment period of cash flows ^{p. 45}.
• Duration targets for the core fixed income investment portfolio are set considering the estimated duration of liabilities and other factors ^{p. 45}.
• Fixed maturity securities had a weighted average effective duration of 3.1 years as of December 31, 2022 ^{p. 45}.
• Fixed income securities subject to interest rate risk had a fair value of $607.6 million at December 31, 2022 ^{p. 45}.
• Opportunistic fixed income securities are excluded from interest rate sensitivity analysis because they are primarily floating rate and treated as held-to-maturity ^{p. 45}.
• Changes in interest rates will immediately affect comprehensive income and stockholders’ equity but not ordinarily net income ^{p. 45}.
• The sensitivity analysis does not reflect actions taken to mitigate hypothetical fair value losses ^{p. 45}.
• Equity price risk represents the potential economic losses due to adverse changes in equity security prices." ^{p. 45}
• As of December 31, 2022, approximately 16.4% of the fair value of the investment portfolio (excluding cash and cash equivalents and short-term investments) was invested in equity securities ^{p. 45}.
• Equity price risk is managed through portfolio diversification and a tail-risk management strategy ^{p. 45}.
• The tail-risk management strategy is designed to provide protection for the equity portfolio if there is a significant decline in the S&P 500 within a 30-day period ^{p. 45}.

Investment portfolio by asset class

	2022		2021
($ in thousands)	Fair value	% of total	Fair value	% of total
Cash and short-term investments (1)	166,706	14.8%	207,024	20.9%
Core fixed income	607,572	53.9%	458,351	46.2%
Opportunistic fixed income	196,021	17.3%	168,058	17.0%
Equities	157,506	14.0%	158,033	15.9%
Total investment portfolio	1,127,805	100.0%	991,466	100.0%

(1) Excludes restricted cash.

Core fixed income securities by type

	2022		2021
($ in thousands)	Fair value	% of total fair value	Fair value	% of total fair value
U.S. government securities	48,541	8.0%	49,263	10.7%
Corporate securities and miscellaneous	235,129	38.7%	154,163	33.6%
Municipal securities	57,727	9.5%	56,942	12.5%
Residential mortgage-backed securities	119,856	19.7%	103,735	22.6%
Commercial mortgage-backed securities	36,495	6.0%	14,484	3.2%
Asset-backed securities	109,824	18.1%	79,764	17.4%
Core fixed income securities, available for sale	607,572	100.0%	458,351	100.0%

Core fixed income by credit rating

	2022		2021
($ in thousands)	Fair value	% of total	Fair value	% of total
AAA	283,733	46.7%	223,404	48.7%
AA	74,604	12.3%	67,157	14.7%
A	134,175	22.1%	87,337	19.1%
BBB	88,369	14.5%	76,835	16.8%
BB and Lower	26,691	4.4%	3,618	0.8%
Total core fixed income	607,572	100.0%	458,351	100.0%

Opportunistic fixed income by sector

	2022		2021
($ in thousands)	Fair Value	% of Total	Fair Value	% of Total
Real Estate	90,370	46.1%	75,305	44.8%
Oil & Gas	20,725	10.6%	20,321	12.1%
Banking, Finance & Insurance	13,870	7.1%	13,683	8.1%
Other sectors (1)	34,072	17.4%	16,936	10.1%
Cash and cash equivalents (2)	36,984	18.8%	41,813	24.9%
Opportunistic fixed income	196,021	100.0%	168,058	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

	2022		2021
($ in thousands)	Fair value	% of total fair value	Fair value	% of total fair value
Domestic common equities	76,929	48.8%	82,895	52.5%
International common equities	34,468	21.9%	16,911	10.7%
Preferred stock	8,772	5.6%	18,166	11.5%
Other (1)	37,337	23.7%	40,061	25.3%
Equities	157,506	100.0%	158,033	100.0%

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

Interest rate sensitivity analysis

($ in thousands)	Estimated Fair Value	Estimated Change in Fair Value	Estimated % Increase (Decrease) in Fair Value
300 basis point increase	540,703	-66,869	-11.0%
200 basis point increase	560,411	-47,161	-7.8%
100 basis point increase	582,701	-24,871	-4.1%
No change	607,572	—	0.0%
100 basis point decrease	635,026	27,454	4.5%
200 basis point decrease	665,062	57,490	9.5%
300 basis point decrease	697,679	90,107	14.8%

Other Items

• Income tax expense was USD 10.4m for the year ended December 31, 2022, compared to USD 10.0m for the year ended December 31, 2021 ^{p. 46}.
• Effective tax rate was 20.9% for the year ended December 31, 2022, compared to 20.7% for the year ended December 31, 2021 ^{p. 46}.
• The change in effective tax rate in 2022 versus 2021 was primarily due to the relationship of taxable to non-taxable income ^{p. 46}.
• The Company's provision for income taxes generally does not deviate substantially from the statutory tax rate ^{p. 46}.
• The effective tax rate may vary slightly from the statutory rate due to tax adjustments for tax-exempt income and dividends-received deduction ^{p. 46}.
• For a reconciliation between actual federal income tax expense and the amount computed at the indicated statutory rate for the years ended December 31, 2022 and 2021, refer to Note 14, "Income Taxes" in the consolidated financial statements included in Item 8 of this Form 10-K ^{p. 46}.

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. 47}.
• 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), loans from banks, draws on a revolving loan agreement, and issuance of equity and debt securities ^{p. 47}.
• 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. 47}.
• Skyward Service Company receives corporate service fees from operating subsidiaries to reimburse it for most incurred operating expenses ^{p. 47}.
• Reimbursement of expenses through corporate service fees is based on actual expected costs with no mark-up ^{p. 47}.
• The company files a consolidated U.S. federal income tax return with its subsidiaries ^{p. 47}.
• 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. 47}.
• State insurance laws restrict the ability of insurance subsidiaries to declare stockholder dividends without prior regulatory approval ^{p. 47}.
• State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus ^{p. 47}.
• Dividend payments are limited to the portion of available policyholder surplus derived from net profits of an insurer's business ^{p. 47}.
• Insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels ^{p. 47}.
• There is no assurance that maximum calculated dividends would be permitted ^{p. 47}.
• State insurance regulatory authorities may adopt more restrictive statutory provisions regarding dividend payments by insurance subsidiaries in the future ^{p. 47}.
• The insurance subsidiaries did not pay dividends to the holding company for the years ended December 31, 2022, or 2021 ^{p. 47}.
• Further information on insurance companies is available in Note 25, "Regulatory Matters," to the consolidated financial statements in Item 8 of this Form 10-K ^{p. 47}.
• As of December 31, 2022, the holding company had cash and investments of USD 8.9m ^{p. 47}.
• As of December 31, 2021, the holding company had cash and investments of USD 6.0m ^{p. 47}.
• The company believes it has sufficient liquidity to meet operating cash needs, obligations, and committed capital expenditures for the next 12 months ^{p. 47}.

Cash Flows

• Primary cash source is premiums from insureds, typically received at the beginning of the coverage period, net of commission ^{p. 48}.
• Most significant cash outflow is for claims from policyholder losses ^{p. 48}.
• Cash investment strategy: cash is invested in various investment securities to earn interest and dividends, as claim payments occur after premium receipt, often years later ^{p. 48}.
• Other cash uses include operating expenses (salaries, rent, taxes) and capital expenditures (technology systems) ^{p. 48}.
• Reinsurance use: cash is ceded (paid out) to reinsurers from premiums received to manage risk, and cash is collected back when losses covered by reinsurance are paid ^{p. 48}.
• Operating cash flow variability: timing of payments and receipts, including significant loss settlements and subsequent reinsurance receipts, can cause cash flows from operating activities to vary between periods ^{p. 48}.
• Management's belief: cash receipts from premiums and investment income proceeds are sufficient to cover cash outflows in the foreseeable future ^{p. 48}.
• Increase in cash from operating activities (2022 and 2021) was mainly due to the timing of premium receipts, claim payments, and reinsurance activity ^{p. 48}.
• Cash flows from operations (past two years) were primarily used to fund investing activities ^{p. 48}.
• Change in net cash used in investing activities (2022 to 2021) was primarily driven by increased purchases of fixed maturities ^{p. 48}.

Cash flows

($ in thousands)	2022	2021
Cash and cash equivalents provided by (used in):	—	—
Operating activities	208,938	175,285
Investing activities	-193,381	-183,014
Financing activities	2,180	1,380
Change in cash and cash equivalents	17,737	(6,349)

Credit Agreements

• On December 11, 2019, a credit agreement was entered into with Prosperity Bank, providing a Term Loan of USD 50.0m and a Revolver of USD 50.0m, with additional capacity up to USD 75.0m ^{p. 49}.
• The Term Loan interest rate is the lesser of one-month LIBOR (4.39% on December 31, 2022) plus an Applicable Margin of 1.65%, or the Highest Lawful Rate ^{p. 49}.
• The Highest Lawful Rate is defined as the lesser of the "weekly ceiling" or "annualized ceiling" from Section 303.003/303.103 of the Texas Finance code, and (i) 24% if principal is less than USD 250k, or (ii) 28% if principal is greater than USD 250k ^{p. 49}.
• Interest-only payments on the Term Loan are due quarterly through December 31, 2024 ^{p. 49}.
• As of December 31, 2022, the principal balance on the Term Loan was USD 50.0m, due December 31, 2024 ^{p. 49}.
• The Revolver interest rate is the lesser of the Wall Street Journal prime rate or one-month LIBOR (4.39% on December 31, 2022) plus the Applicable Margin (lesser of 1.65% or Highest Lawful Rate) ^{p. 49}.
• The revolving promissory note includes a fee of 0.25% on the unused portion ^{p. 49}.
• Interest-only payments on the Revolver are due quarterly through December 31, 2024 ^{p. 49}.
• As of December 31, 2022, there was no outstanding balance on the Revolver against a contractual capacity of USD 50.0m ^{p. 49}.
• The Revolver capacity can be increased to USD 75.0m, subject to lender approval ^{p. 49}.
• Borrowings from the Term Loan and Revolver can be used for debt refinancing and general corporate purposes ^{p. 49}.
• The Credit Agreement allows for the issuance of up to USD 20.0m in Letters of Credit (LOCs) ^{p. 49}.
• Any amounts drawn on LOCs must be repaid or constitute additional borrowings under the Revolver ^{p. 49}.
• As of December 31, 2022, no LOCs had been issued ^{p. 49}.
• In August 2006, USD 58.0m of proceeds were received from a debenture offering through Delos Capital Trust (the "Trust") ^{p. 49}.
• The Trust's sole asset consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Trust Preferred") with a principal amount of USD 59.8m, and USD 1.8m cash from the issuance of Trust common shares purchased by the company (3% of Trust capitalization) ^{p. 49}.
• The Trust Preferred are unsecured, redeemable, and mature on September 15, 2036 ^{p. 49}.
• Interest on the Trust Preferred is payable quarterly at an annual rate of three-month LIBOR (4.77% at December 31, 2022) plus 3.4% ^{p. 49}.
• In May 2019, unsecured subordinated notes (the "Notes") with an aggregate principal amount of USD 20.0m were issued ^{p. 49}.
• Interest on the subordinated notes is 7.25% fixed for the first 8 years and 8.25% fixed thereafter ^{p. 49}.
• Early retirement of the subordinated debt before the 8-year commitment requires all interest payments to be paid in full, plus the return of all capital ^{p. 49}.
• Principal payment for the subordinated notes is due at maturity on May 24, 2039, with interest payable quarterly ^{p. 49}.
• The ratio of total debt outstanding (including Term Loan, Revolver, Trust Preferred, and Notes) to total capitalization was 23.4% at December 31, 2022, and 23.2% at December 31, 2021 ^{p. 49}.

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. 50}.
• Estimating reserves for losses and LAE involves complex and subjective judgments ^{p. 50}.
• Actual losses and settlement expenses paid may substantially deviate from the reserve estimates in financial statements ^{p. 50}.
• The timing for payment of estimated losses is not fixed or determinable on an individual or aggregate basis ^{p. 50}.
• Assumptions for estimating payments due by period are based on the company's own, industry, and peer group claims payment experience ^{p. 50}.
• There is a risk that amounts paid in any period will be significantly different from disclosed amounts due to uncertainty in timing estimation ^{p. 50}.
• Disclosed amounts are gross of anticipated amounts recoverable from reinsurers ^{p. 50}.
• 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. 50}.
• Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $581.4m at December 31, 2022 ^{p. 50}.
• Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $536.3m at December 31, 2021 ^{p. 50}.

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	1,141,757	293,647	848,110
Long-term debt	129,794	—	129,794
Interest on debt obligations	110,879	9,383	101,496
Operating lease obligations	9,199	2,206	6,993
Total	1,391,629	305,236	1,086,393

Critical Accounting Policies and Estimates

• Critical accounting estimates are those important to financial condition and results of operations, requiring significant judgment ^{p. 51}.
• Reserves for unpaid losses and LAE are the largest and most complex estimate in the consolidated balance sheet ^{p. 51}.
• Reserves for unpaid losses and LAE represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and adjustment costs as of or before the balance sheet date ^{p. 51}.
• Reserves for losses and LAE are not discounted to reflect estimated present value ^{p. 51}.
• Estimates are based on individual case-basis valuations, statistical analyses, actuarial procedures, historical information, industry/peer group data, and estimates of future trends in loss severity, loss frequency, and inflation ^{p. 51}.
• Estimates are regularly reviewed and adjusted as experience develops or new information becomes known ^{p. 51}.
• The ultimate settlement of losses and related LAE may vary significantly from estimates ^{p. 51}.
• Reserves for unpaid losses and LAE are categorized into case reserves and IBNR ^{p. 51}.
• Case reserves are established for individual reported claims, including defense costs ^{p. 51}.
• Case reserves are estimated by claims department personnel using knowledge of specific claims and advice from internal/external experts (underwriters, legal counsel) ^{p. 51}.
• Third-Party Administrators (TPAs) are used in limited circumstances for claim adjustment, with internal claims managers overseeing their activities ^{p. 51}.
• IBNR reserves are developed according to Actuarial Standards of Practice from the American Academy of Actuaries ^{p. 51}.
• The Reserve Committee performs the reserve review, utilizing several accepted loss reserving methods to determine the best estimate ^{p. 51}.
• Industry and/or peer-group data are used when the company has limited years of loss experience compared to the expected reporting period ^{p. 51}.
• Loss emergence is monitored daily ^{p. 51}.
• Internal or external factors like underwriting, claims handling, economic, or environmental changes are considered, and assumptions, methods, or procedures are adjusted as needed ^{p. 51}.
• The duration of loss reserves was 2.2 years as of December 31, 2022 ^{p. 51}.
• The Reserve Committee includes the Chief Actuary, Chief Risk Officer, Chief Financial Officer, and Chief Claims Officer ^{p. 51}.
• The Reserve Committee meets quarterly to review actuarial reserving recommendations and determine the best estimate for losses and LAE ^{p. 51}.
• The actuary estimates an initial expected ultimate loss ratio for each underwriting division, considering input from underwriting and claims departments, premium pricing assumptions, and historical experience ^{p. 51}.
• Multiple actuarial methods are used, incorporating initial expected loss ratio, statistical analysis of past claims reporting/payment patterns, claims frequency/severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures ^{p. 51}.
• Actuarial methods used:
  • Reported and/or Paid Loss Development Methods: estimate ultimate losses based on historical reported and/or paid loss reporting patterns; industry patterns are used if historical data is insufficient ^{p. 51}.
  • Reported Bornhuetter-Ferguson Methods: estimate ultimate losses as cumulative reported losses plus estimated IBNR losses, with IBNR based on historical development patterns and factors like expected average severity, ultimate claims counts, pure premium, and expected loss ratios ^{p. 51}.
  • Paid Bornhuetter-Ferguson Method: estimates ultimate losses as cumulative paid losses plus estimated unpaid losses, with unpaid losses based on expected loss ratios and selected industry paid loss development patterns ^{p. 51}.
• The Bornhuetter-Ferguson Method is the primary method for ultimate loss indications for less mature policy years ^{p. 51}.
• Reported and/or Paid Loss Development Methods are used for more mature policy years ^{p. 51}.
• When case reserving philosophy changes, both reported and paid methods are blended ^{p. 51}.
• Reserves are influenced by litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions ^{p. 51}.
• Reserve estimates reflect current inflation in legal claims' settlements and assume no losses from significant new legal liability theories ^{p. 51}.
• Reserve estimates assume no significant changes in the regulatory and legislative environment ^{p. 51}.
• Quantifying the impact of potential changes in the regulatory or legislative environment is difficult without specific new regulation or legislation ^{p. 51}.
• Actual loss experience may differ from assumptions, including ultimate loss ratio or reporting/payment patterns ^{p. 51}.
• Adjustments to estimates are included in current operations results ^{p. 51}.
• A sensitivity analysis was applied to incurred losses for the three most recent accident years and to the carried reserve for all prior accident years combined at December 31, 2022 ^{p. 51}.
• Sensitivity factors considered potential impact of changes in current loss trends, pricing trends, and other actuarial reserving assumptions ^{p. 51}.
• The aggregate development in the sensitivity analysis is consistent with average development in recent calendar periods and depicts potential volatility ^{p. 51}.
• Potential changes in reserve deviations are not expected to have a material impact on liquidity ^{p. 51}.
• Development refers to the difference between estimated losses and those originally reported ^{p. 51}.
• Unfavorable development occurs when losses settle for more than reserved or subsequent estimates increase reserves ^{p. 51}.
• Favorable development occurs when losses settle for less than reserved or subsequent estimates reduce reserves ^{p. 51}.
• Favorable or unfavorable development is reflected in the results of operations in the period estimates change ^{p. 51}.
• Goodwill and intangible assets are recorded from business combinations ^{p. 51}.
• Goodwill represents the excess of purchase price over the fair value of acquired assets and assumed liabilities ^{p. 51}.
• Identifiable intangible assets with finite useful lives are amortized over their useful life; indefinite-lived intangible assets are not amortized ^{p. 51}.
• Goodwill and identifiable intangible assets are evaluated for recoverability annually in the fourth quarter or on an interim basis if circumstances indicate impairment ^{p. 51}.
• An initial qualitative assessment determines if the fair value of a reporting unit is less than its carrying value, considering past/current/projected earnings/equity, market conditions, and valuation metrics of similar companies ^{p. 51}.
• If the qualitative assessment indicates impairment is more likely-than-not, a quantitative impairment test compares estimated fair value with carrying value ^{p. 51}.
• If carrying value exceeds fair value, goodwill is impaired by that amount, not exceeding the carrying amount of goodwill ^{p. 51}.
• The reporting unit is at the underwriting division level, one level below the consolidated group, where discrete financial information is available and reviewed by management ^{p. 51}.
• Determining the fair value of reporting units is subjective and involves significant estimates and assumptions (projected net cash flows, discount rates, long-term growth rates) ^{p. 51}.
• Fair value of reporting units is determined using an income approach and market approach, deriving value from the present value of estimated future cash flows ^{p. 51}.
• Assumptions for estimated cash flows include future premiums, loss and LAE expenses, general and administrative expenses, and industry trends ^{p. 51}.
• Historical rates and current market conditions are used for discount and long-term growth rates ^{p. 51}.
• Other valuation methods are considered if they provide a more representative approximation of fair value ^{p. 51}.
• Changes in estimates due to economic conditions or business strategies could result in material impairment charges ^{p. 51}.
• Fair value estimates are based on assumptions believed to be reasonable, but actual results may differ ^{p. 51}.

Changes in estimates due to economic conditions or business strategies

	2022				2021
($ in thousands)	Gross	% of Total	Net	% of Total	Gross	% of Total	Net	% of Total
Case reserves	485,143	42.5%	269,273	38.2%	451,446	46.1%	239,013	40.0%
IBNR	656,614	57.5%	436,498	61.8%	528,103	53.9%	359,198	60.0%
Total	1,141,757	100.0%	705,771	100.0%	979,549	100.0%	598,211	100.0%

Fair value estimates based on assumptions

($ in thousands)			December 31, 2022		Potential Impact on 2022
Sensitivity	Accident Year	Net Ultimate Loss and LAE Sensitivity Factor	Net Ultimate Incurred Losses and LAE	Net Loss and LAE Reserve	Pre-tax income	Stockholders’ Equity (1)
Sample increases	2022	4.0%	379,083	288,748	15,163	11,979
Sample increases	2021	3.0%	324,882	182,085	9,746	7,700
Sample increases	2020	2.0%	295,599	78,813	5,912	4,670
Sample increases	Prior	1.0%	—	156,787	1,568	1,239
Sample decreases	2022	-4.0%	379,083	288,748	-15,163	-11,979
Sample decreases	2021	-3.0%	324,882	182,085	-9,746	-7,700
Sample decreases	2020	-2.0%	295,599	78,813	-5,912	-4,670
Sample decreases	Prior	-1.0%	—	156,787	-1,568	-1,239

(1) The effective rate was consistent with the U.S. corporate income tax rate of 21% and is used to estimate the potential impact to stockholders’ equity.

Recent Accounting Pronouncements

• The company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) ^{p. 52}.
• The company has elected to use the extended transition period for adopting new or revised accounting guidance, meaning it will not be required to adopt new or revised accounting standards at the same time as other public companies ^{p. 52}.
• The company will remain an emerging growth company until the earliest of:
  • The last day of the fiscal year in which total annual gross revenues are USD 1.235bn or more ^{p. 52}.
  • The last day of the fiscal year following the fifth anniversary of the completion of this offering ^{p. 52}.
  • The date on which more than USD 1bn in nonconvertible debt has been issued during the previous three years ^{p. 52}.
  • The date on which the company is deemed a large accelerated filer under SEC rules ^{p. 52}.
• In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) ^{p. 52}.
• ASU 2016-13 requires organizations to estimate credit losses on financial instruments, including receivables and available-for-sale debt securities, using an expected loss approach that incorporates historical information, current information, and reasonable and supportable forecasts ^{p. 52}.
• The guidance is effective for fiscal years beginning after December 15, 2022 ^{p. 52}.
• The company will adopt ASU 2016-13 effective January 1, 2023, using the modified retrospective approach ^{p. 52}.
• The company expects to recognize an increase in the allowance for uncollectible reinsurance of approximately USD 2.3m and an increase in accumulated deficit of approximately USD 2.3m, net of tax, upon adoption ^{p. 52}.

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. 53}.

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, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”) ^{p. 54}.
• In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America ^{p. 54}.
• 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, 2022, 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 March 15, 2023, expressed an unqualified opinion thereon ^{p. 54}.
• The consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business ^{p. 54}.
• As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern ^{p. 54}.
• Management’s plans in regard to these matters are also described in Note 1 ^{p. 54}.
• The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty ^{p. 54}.
• We conducted our audits in accordance with the standards of the PCAOB ^{p. 54}.
• Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud ^{p. 54}.
• Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks ^{p. 54}.
• Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements ^{p. 54}.
• Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements ^{p. 54}.
• We believe that our audits provide a reasonable basis for our opinion ^{p. 54}.
• The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments ^{p. 54}.
• The communication of critical audit matters does not alter our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates ^{p. 54}.
• Critical Audit Matter: Unpaid Losses and Loss Adjustment Expenses ^{p. 54}.
• Description of the Matter: As discussed in Note 2 to the consolidated financial statements, the Company’s consolidated balance sheets include a liability for unpaid losses and loss adjustment expenses (“LAE”) of USD 1,009.7 million as of December 31, 2022 ^{p. 54}.
• The liability for unpaid losses and LAE represents management’s estimate of the ultimate cost of all reported and unreported losses incurred through the balance sheet date ^{p. 54}.
• The estimation of this liability is inherently uncertain due to the significant judgment and assumptions required by management, including assumptions related to the frequency and severity of claims, the impact of inflation, and the expected timing of claim payments ^{p. 54}.
• We identified the estimation of the liability for unpaid losses and LAE as a critical audit matter because of the significant judgment required by management in developing the estimate, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating the audit evidence obtained ^{p. 54}.
• How We Addressed the Matter in Our Audit: Our audit procedures related to the liability for unpaid losses and LAE included the following, among others: ^{p. 54}.
  • We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process for estimating the liability for unpaid losses and LAE ^{p. 54}.
  • We involved our actuarial specialists to assist in evaluating the reasonableness of management’s estimate of the liability for unpaid losses and LAE ^{p. 54}.
  • We evaluated the appropriateness of the actuarial methods and significant assumptions used by management in developing the estimate ^{p. 54}.
  • We compared management’s assumptions to historical experience and industry trends ^{p. 54}.
  • We performed an independent estimate of the liability for unpaid losses and LAE using various actuarial methods and assumptions ^{p. 54}.
  • We compared our independent estimate to management’s estimate and investigated any significant differences ^{p. 54}.
  • We evaluated the adequacy of the Company’s disclosures related to the liability for unpaid losses and LAE ^{p. 54}.

Opinion on the Financial Statements

• The consolidated financial statements of Skyward Specialty Insurance Group, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, and for each of the two years ended December 31, 2022, have been audited ^{p. 55}.
• The audited statements include consolidated balance sheets, statements of operations and comprehensive (loss) income, changes in stockholders' equity, and cash flows, along with related notes and financial statement schedules ^{p. 55}.
• The consolidated financial statements fairly present, in all material respects, the Company's financial position at December 31, 2022 and 2021, and its operational results and cash flows for the two years ended December 31, 2022 ^{p. 55}.
• The financial statements conform with U.S. generally accepted accounting principles ^{p. 55}.

Basis for Opinion

• The Company's management is responsible for the financial statements ^{p. 56}.
• The auditors' responsibility is to express an opinion on the Company's financial statements based on their audits ^{p. 56}.
• The auditors are a public accounting firm registered with the PCAOB and are required to be independent in accordance with U.S. federal securities laws and applicable rules and regulations of the SEC and the PCAOB ^{p. 56}.
• Audits were conducted in accordance with PCAOB standards ^{p. 56}.
• PCAOB standards require planning and performing audits to obtain reasonable assurance that financial statements are free of material misstatement due to error or fraud ^{p. 56}.
• The Company is not required to have, nor were the auditors engaged to perform, an audit of its internal control over financial reporting ^{p. 56}.
• As part of the audits, an understanding of internal control over financial reporting was obtained, but not for the purpose of expressing an opinion on its effectiveness ^{p. 56}.
• No opinion is expressed on the effectiveness of the Company's internal control over financial reporting ^{p. 56}.
• Audits included procedures to assess and respond to risks of material misstatement in the financial statements, whether due to error or fraud ^{p. 56}.
• Procedures included examining evidence on a test basis regarding amounts and disclosures in the financial statements ^{p. 56}.
• Audits also included evaluating accounting principles used, significant estimates made by management, and the overall presentation of the financial statements ^{p. 56}.
• The auditors believe their audits provide a reasonable basis for their opinion ^{p. 56}.

Caption: Auditor's opinion on financial statements

| /s/ Ernst & Young LLP | | --- | | We have served as the Company’s auditor since 2021. | | Houston, Texas | | March 28, 2023 |

Consolidated balance sheets

• The accompanying notes are an integral part of these consolidated financial statements ^{p. 57}.

Consolidated financial statements - assets

	December 31
($ in thousands, except share and per share amounts)	2022	2021
Assets
Investments:	—	—
Fixed maturity securities, available for sale, at fair value (amortized cost of $ 662,616 and $ 452,478 , respectively)	607,572	458,351
Fixed maturity securities, held to maturity, at amortized cost	52,467	47,117
Equity securities, at fair value	120,169	117,971
Mortgage loans	51,859	29,531
Other long-term investments	129,142	132,111
Short-term investments, at fair value	121,158	164,278
Total investments	1,082,367	949,359
Cash and cash equivalents	45,438	42,107
Restricted cash	79,573	65,167
Premiums receivable, net of allowance	139,215	112,158
Reinsurance recoverables	581,359	536,327
Ceded unearned premium	157,645	137,973
Deferred policy acquisition costs	68,938	59,456
Deferred income taxes	36,188	33,663
Goodwill and intangible assets, net	89,870	91,336
Other assets	82,846	90,666
Total assets	2,363,439	2,118,212
Liabilities and stockholders' equity	—	—
Reserves for losses and loss adjustment expenses	1,141,757	979,549
Unearned premiums	442,509	363,288
Deferred ceding commission	29,849	30,500
Reinsurance and premium payables	113,696	119,919
Funds held for others	36,858	29,587
Accounts payable and accrued liabilities	48,499	40,760
Notes payable	50,000	50,000
Subordinated debt, net of debt issuance costs	78,609	78,529
Total liabilities	1,941,777	1,692,132
Stockholders' equity	—	—
Series A preferred stock, $ 0.01 par value; 2,000,000 shares authorized, 1,969,660 and 1,970,124 shares issued and outstanding, respectively	20	20
Common stock, $ 0.01 par value, 168,000,000 shares authorized, 16,832,955 and 16,763,069 shares issued, respectively	168	168
Treasury stock, $ 0.01 par value, 233,289 and 229,449 shares, respectively	( 2 )	( 2 )
Additional paid-in capital	577,289	575,159
Stock notes receivable	( 6,911 )	( 9,092 )
Accumulated other comprehensive (loss) income	( 43,485 )	4,640
Accumulated deficit	( 105,417 )	( 144,813 )
Total stockholders' equity	421,662	426,080
Total liabilities and stockholders' equity	2,363,439	2,118,212

Consolidated statements of operations and comprehensive (loss) income

• The accompanying notes are an integral part of these consolidated financial statements ^{p. 58}.

Consolidated financial statements - revenues and expenses

	December 31
	2022	2021
($ in thousands, except share and per share amounts)
Revenues:	—	—
Net earned premiums	615,994	499,823
Commission and fee income	5,199	3,973
Net investment income	36,931	24,646
Net investment (losses) gains	( 15,705 )	17,107
Net realized gain on sale of business	—	5,077
Other income (loss)	1	( 445 )
Total revenues	642,420	550,181
Losses and loss adjustment expenses	402,512	354,411
Underwriting, acquisition and insurance expenses	182,171	138,498
Impairment charges	—	2,821
Interest expense	6,407	4,622
Amortization expense	1,547	1,520
Total expenses	592,637	501,872
Income before income taxes	49,783	48,309
Income tax expense	10,387	9,992
Net income	39,396	38,317
Net income attributable to participating securities	18,879	18,507
Net income attributable to common shareholders	20,517	19,810
Comprehensive (loss) income:	—	—
Net income	39,396	38,317
Other comprehensive loss:	—	—
Unrealized gains and losses on investments:	—	—
Net change in unrealized losses on investments, net of tax	( 48,545 )	( 8,173 )
Reclassification adjustment for gains on securities no longer held, net of tax	420	597
Total other comprehensive loss	( 48,125 )	( 7,576 )
Comprehensive (loss) income	( 8,729 )	30,741
Per share data:	—	—
Basic earnings per share	1.24	1.21
Diluted earnings per share	1.21	1.18
Weighted-average common shares outstanding	—	—
Basic	16,568,393	16,308,712
Diluted	32,653,194	32,468,048

Consolidated statements of stockholders’ equity

• The accompanying notes are an integral part of these consolidated financial statements ^{p. 59}.

Consolidated financial statements - stockholders' equity

($ in thousands)	Preferred Stock	Common Stock	Treasury Stock	Additional Paid-In Capital	Stock Notes Receivable	Accumulated Other Comprehensive Income	Accumulated Deficit	Total
Balance at January 1, 2021	—	168	( 4 )	476,482	( 2,510 )	12,216	( 183,130 )	303,222
Employee equity transactions	—	—	2	427	880	—	—	1,309
Net income	—	—	—	—	—	—	38,317	38,317
Other comprehensive loss, net of tax	—	—	—	—	—	( 7,576 )	—	( 7,576 )
Reclassification of temporary equity to stockholders’ equity	20	—	—	98,250	( 7,462 )	—	—	90,808
Balance at December 31, 2021	20	168	( 2 )	575,159	( 9,092 )	4,640	( 144,813 )	426,080
Employee equity transactions	—	—	—	2,130	2,181	—	—	4,311
Net income	—	—	—	—	—	—	39,396	39,396
Other comprehensive loss, net of tax	—	—	—	—	—	( 48,125 )	—	( 48,125 )
Balance at December 31, 2022	20	168	( 2 )	577,289	( 6,911 )	( 43,485 )	( 105,417 )	421,662

Consolidated statements of cash flows

• The accompanying notes are an integral part of these consolidated financial statements ^{p. 60}.

Consolidated financial statements - cash flows from operating activities

	December 31
($ in thousands)	2022	2021
Cash flows from operating activities:	—	—
Net income	39,396	38,317
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	—	—
Net realized losses (gains)	647	( 1,856 )
Depreciation and amortization expense	4,097	5,603
Stock-based compensation expense	2,287	522
Provision for bad debts	632	79
Unrealized losses (gains) on equity securities	15,058	( 15,251 )
Earnings on illiquid investments	( 16,032 )	( 11,413 )
Deferred income tax, net	10,267	9,984
Impairment charges	—	2,821
Net realized gain on sale of business	—	( 5,077 )
Premiums receivable, net	( 27,689 )	1,876
Reinsurance recoverables	( 45,032 )	1,062
Ceded unearned premium	( 19,672 )	8,548
Deferred policy acquisition costs	( 9,482 )	( 5,975 )
Losses and loss adjustment expenses	162,208	124,270
Unearned premiums	79,221	20,772
Deferred ceding commission	( 651 )	( 5,219 )
Reinsurance and premium payables	( 6,223 )	( 4,201 )
Funds held for others	7,271	2,649
Accounts payable and accrued liabilities	7,583	1,148
Other, net	5,052	6,626
Net cash provided by operating activities	208,938	175,285
Purchase of fixed maturity securities, available for sale	( 268,781 )	( 255,155 )
Purchase of illiquid investments	( 4,873 )	( 48,060 )
Purchase of equity securities	( 53,548 )	( 60,328 )
Purchase of business	—	( 10,554 )
Investment in direct and indirect loans	( 9,767 )	( 16,079 )
Purchase of property and equipment	( 2,325 )	( 2,154 )
Sale of other invested asset	210	—
Sale of investment in subsidiary	—	8,188
Sales and maturities of investment securities	95,641	135,289
Distributions from equity method investments	3,211	2,387
Change in short-term investments	43,120	70,207
Payable (receivable) for securities sold	529	( 725 )
Cash provided by (used in) deposit accounting	3,202	( 6,074 )
Other, net	—	44
Net cash used in investing activities	( 193,381 )	( 183,014 )
Employee share purchases	2,180	1,380
Net cash provided by financing activities	2,180	1,380
Net increase (decrease) in cash and cash equivalents and restricted cash	17,737	( 6,349 )
Cash and cash equivalents and restricted cash at beginning of year	107,274	113,623
Cash and cash equivalents and restricted cash at end of year	125,011	107,274
Supplemental disclosure of cash flow information:	—	—
Cash paid for interest	5,761	4,669

1. Nature of Operations

• The Company, Skyward Specialty Insurance Group, Inc., is a Delaware corporation organized in 2006 ^{p. 61}.
• It operates as a specialty insurance company in one segment, providing commercial property and casualty products and group accident and health insurance coverages through its underwriting divisions ^{p. 61}.
• The Company targets underserved, dislocated markets or those where standard insurance coverages are insufficient for businesses ^{p. 61}.
• Customers typically require highly specialized, customized underwriting solutions and claims capabilities ^{p. 61}.
• The Company develops tailored insurance products and services for each niche market it serves ^{p. 61}.
• The Company's portfolio of insured risks is highly diversified, covering customers in various industries, distributing through multiple channels, and writing multiple lines of business ^{p. 61}.
• Lines of business include general liability, excess liability, professional liability, commercial automobile liability, commercial automobile physical damage, group accident and health, property, surety, and workers’ compensation ^{p. 61}.
• The Company conducts operations primarily through four insurance companies ^{p. 61}.
• Houston Specialty Insurance Company (HSIC) is the largest insurance subsidiary, underwriting multiple lines of insurance on a surplus lines basis in 50 states and the District of Columbia ^{p. 61}.
• Imperium Insurance Company (IIC), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia ^{p. 61}.
• 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 U.S. Department of the Treasury ^{p. 61}.
• Oklahoma Specialty Insurance Company (OSIC), a subsidiary of GMIC, is an approved surplus lines company in 47 states ^{p. 61}.
• Skyward Re is a wholly owned captive reinsurance company domiciled in the Cayman Islands, incorporated on January 7, 2020 ^{p. 61}.
• 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. 61}.
• Skyward Underwriters Agency, Inc. (SUA), a subsidiary of the Company, acts as a managing general insurance agent and reinsurance broker for property and casualty and accident and health risks in specialty niche markets ^{p. 61}.
• Skyward Service Company, also a subsidiary of the Company, provides various administrative services to the Company’s subsidiaries ^{p. 61}.

Basis of Presentation

• The Company's consolidated financial statements were prepared according to GAAP in the United States of America ^{p. 62}.
• The financial statements include accounts of the Company and its subsidiaries for the years ended December 31, 2022 and 2021 ^{p. 62}.
• All intercompany transactions and balances have been eliminated in consolidation ^{p. 62}.

Use of Estimates

• The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions ^{p. 63}.
• These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements ^{p. 63}.
• They also affect the reported amounts of revenue and expenses during the reporting period ^{p. 63}.
• Actual results could differ materially from these estimates ^{p. 63}.

Cash and Cash Equivalents

• Cash and cash equivalents include cash on hand and highly liquid short-term investments ^{p. 64}.
• Short-term investments with an original maturity of three months or less are considered cash equivalents ^{p. 64}.
• The carrying value of the Company’s cash and cash equivalents approximates fair value ^{p. 64}.

Restricted Cash

• Restricted cash is defined as cash with legal restrictions on withdrawal or use by the consolidated group ^{p. 65}.
• The carrying value of the Company’s restricted cash approximates fair value ^{p. 65}.
• 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. 65}.
• SUA holds unremitted insurance premiums in a fiduciary capacity for third-party insurance companies, which is recorded as restricted cash ^{p. 65}.
• 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. 65}.
• Cash held in a depository account for others or restricted by a state is recorded as restricted cash ^{p. 65}.

Investments

• Fixed maturity securities classified as available for sale are reported at fair value using quoted market prices or dealer quotes ^{p. 66}.
• Unrealized gains and losses for fixed maturity securities are excluded from net income and reported in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive income (loss) ^{p. 66}.
• If quoted market prices or dealer quotes are unavailable, the Company estimates fair value based on recent trading information ^{p. 66}.
• Premiums and discounts on mortgage-backed securities are amortized using the retroactive method, adjusted for anticipated prepayments and the estimated economic life of the securities ^{p. 66}.
• Adjustments related to changes in prepayment assumptions are included in net investment income ^{p. 66}.
• Fixed maturity securities classified as held to maturity are reported at amortized cost, reflecting the Company's intent and ability to hold them until maturity ^{p. 66}.
• The Company evaluates declines in the market value of invested assets below amortized cost for other-than-temporary impairment losses on a quarterly basis ^{p. 66}.
• Impairment losses for declines in fixed maturity securities due to issuer-specific events are recognized based on relevant facts and circumstances for each investment ^{p. 66}.
• Declines in value below cost are not considered other-than-temporary if due to market conditions or industry-related events, and the Company does not intend to sell the security and has the ability to hold it until market recovery or maturity ^{p. 66}.
• When an impairment is deemed other-than-temporary, the decrease in value is reported in net income within the Consolidated Statements of Operations and as a corresponding reduction in carrying value on the consolidated balance sheet ^{p. 66}.
• Equity securities with a readily determinable fair value, including common stock, preferred stock, and mutual funds (even those primarily investing in debt), are carried at fair value using quoted market prices ^{p. 66}.
• Changes in the carrying value of equity securities are included in net investment (losses) gains within the Consolidated Statements of Operations ^{p. 66}.
• Mortgage loans are classified as held for investment and carried at cost, adjusted for unamortized premiums, discounts, and loan fees ^{p. 66}.
• Uncollectible amounts for mortgage loans are written off in the period they are determined to be uncollectible ^{p. 66}.
• Interest on mortgage loans is recognized as interest receivable and included in other assets on the consolidated balance sheet ^{p. 66}.
• Other long-term investments include equity and equity securities of non-public entities and indirect investments in loans and loan collateral ^{p. 66}.
• The Company has equity investments in certain limited partnerships and corporations where it has significant influence but not control ^{p. 66}.
• The Company is not the primary beneficiary of variable interest entities and does not consolidate them ^{p. 66}.
• The equity method is used to account for investments where the Company has significant influence but not control ^{p. 66}.
• Under the equity method, initial investment is recorded at cost and adjusted based on the proportionate share of distributions and net income or loss of the investee ^{p. 66}.
• The difference between the cost of an investment and its proportionate share of the underlying equity in net assets is a component of investment income and is amortized as an adjustment to pro-rata equity method income over the useful life of the underlying asset ^{p. 66}.
• For equity securities of non-public entities where the Company does not have significant influence and no readily determinable fair value, investments are carried at cost, minus impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer ^{p. 66}.
• Investments in indirect collateralized loans and loan collateral are held through and accounted for as an ownership interest in an unconsolidated subsidiary ^{p. 66}.
• The Company's ownership interests in unconsolidated subsidiaries include investments in partnerships, joint ventures, and special purpose investment vehicles ^{p. 66}.
• The Company uses the equity method to account for investments in unconsolidated subsidiaries where it has significant influence but not control ^{p. 66}.
• Short-term investments primarily consist of money market funds and are carried at cost, which approximates fair value ^{p. 66}.
• Net investment income includes interest, dividends, and equity in earnings (losses) of investees, net of investment expenses such as investment management expenses ^{p. 66}.
• Interest income is recognized on the accrual basis, and dividends are recognized as earned at the ex-dividend date ^{p. 66}.
• Interest income on mortgage-backed and asset-backed securities is recognized using the effective-yield method based on estimated principal repayments ^{p. 66}.
• Amortization of premium and accretion of discounts on debt securities are included in interest income ^{p. 66}.
• Net realized gains and losses on investments are recognized in net income using the specific identification method ^{p. 66}.

Reinsurance

• The Company purchases prospective reinsurance for certain lines of business on a proportional, excess of loss, and facultative basis ^{p. 67}.
• Proportional reinsurance requires the Company to share losses and expenses with the reinsurer in exchange for a share of premiums ^{p. 67}.
• Excess of loss reinsurance shares losses, either proportionally or entirely, above a certain dollar threshold, for a negotiated cost ^{p. 67}.
• Facultative reinsurance covers specific risks and/or policies on either a proportional or excess of loss basis ^{p. 67}.
• Ceded unearned premium and reinsurance balances recoverable (on paid and unpaid losses and settlement expenses) are reported separately as assets ^{p. 67}.
• Reinsurance does not relieve the Company of its legal liability to policyholders ^{p. 67}.
• Reinsurance on unpaid losses and settlement expenses represents estimates of the portion recoverable from reinsurers ^{p. 67}.
• On the Consolidated Statements of Operations, net earned premium, losses and loss adjustment expenses, net, and underwriting, acquisition, and insurance expenses are presented net of reinsurance ceded ^{p. 67}.
• The Company purchases retroactive reinsurance for certain lines of business, including loss portfolio transfers ("LPT") and adverse development covers ^{p. 67}.
• These retroactive contracts provide indemnification for losses related to past loss events, with the reinsurer sharing losses based on certain dollar thresholds ^{p. 67}.
• Income from retroactive reinsurance contracts is deferred and amortized into net income over the settlement period ^{p. 67}.
• Losses from retroactive reinsurance contracts are charged to net income immediately ^{p. 67}.
• Subsequent changes in the measurement of retroactive reinsurance contracts are accounted for using a full retrospective method ^{p. 67}.
• Certain ceded reinsurance contracts that management determines do not transfer significant insurance risk are accounted for using the deposit method ^{p. 67}.
• The evaluation of significant insurance risk transfer assesses both timing risk and underwriting risk ^{p. 67}.
• A reinsurance contract may be deemed not to transfer significant insurance risk if either underwriting risk or timing risk, or both, are not transferred ^{p. 67}.
• For contracts transferring only significant timing risk but not sufficient underwriting risk, a deposit asset is recorded equal to the initial cash outflow ^{p. 67}.
• This deposit asset is offset by cash inflows from reinsurers ^{p. 67}.
• If cash outflows are expected to differ from cash inflows, an accretion rate is established at inception based on actuarial estimates to adjust the deposit accounting asset to the estimated receivable amount over the contract term ^{p. 67}.
• The accretion of the deposit is based on the expected rate of return implied from estimated cash inflows and outflows ^{p. 67}.
• The Company periodically reassesses the estimated ultimate receivable and the related expected rate of return on the deposit asset ^{p. 67}.
• The accretion of the deposit asset, including changes from estimated cash flow adjustments, is reflected as part of investment income ^{p. 67}.
• Several reinsurance contracts require deposit accounting due to not transferring sufficient underwriting risk ^{p. 67}.
• There were no reinsurance contracts requiring deposit accounting due to not transferring sufficient timing risk ^{p. 67}.
• Reinsurance does not relieve the Company of its legal liability to its policyholders ^{p. 67}.
• The Company continuously monitors the financial condition of its reinsurers ^{p. 67}.
• Monitoring efforts include reviewing reinsurers' annual financial statements and insurance industry developments ^{p. 67}.
• The Company analyzes credit risk of reinsurance recoverables by monitoring financial strength ratings from A.M. Best ^{p. 67}.
• The Company assesses the adequacy of collateral obtained from reinsurers ^{p. 67}.
• The Company has access to collateral from various reinsurers if they fail to fulfill obligations ^{p. 67}.
• When uncollectible amounts from reinsurers are indicated, the Company's policy is to charge net income and provide an allowance for estimated unrecoverable amounts ^{p. 67}.
• As of December 31, 2022, and 2021, no allowance for uncollectible reinsurance recoverables was required ^{p. 67}.

Reinsurance collateral

($ in thousands)	2022	2021
Reinsurance collateral	253,870	230,908

A.M. best ratings for reinsurers

	A.M. Best Rating	2022	2021
—	A.M. Best Rating	2022	2021
Everest Reinsurance Co	A+	28.2%	28.9%
Randall & Quilter (R&Q Bermuda (SAC) Ltd)	Not rated	Below 10 %	12.0%

Concentration of Credit Risk

• Financial instruments potentially subject to credit risk concentrations include cash and cash equivalents, restricted cash, investments, and premiums receivable, excluding reinsurance recoverables ^{p. 68}.
• Cash equivalents and short-term investments include investments in money market funds and U.S. government-backed securities ^{p. 68}.
• Investments are diversified across various industries and geographic regions ^{p. 68}.
• The Company limits credit exposure with any single financial institution or issuer ^{p. 68}.
• The Company believes there is no significant concentration of credit risk related to cash and investments ^{p. 68}.
• As of December 31, 2022 and 2021, outstanding premiums receivable are diversified due to a large customer base spread across many lines of business and geographic regions ^{p. 68}.
• Failure by distribution sources to remit premiums could lead to premium write-offs and a loss of income ^{p. 68}.

Deferred Policy Acquisition Costs

• Policy acquisition costs include commissions and premium taxes that are directly tied to the successful generation of new or renewal business ^{p. 69}.
• The Company defers policy acquisition costs and related ceding commissions, charging or crediting them to earnings proportionally with the premium earned over the policy's life ^{p. 69}.
• A premium deficiency is identified if the total of expected losses, loss adjustment expenses, and unamortized acquisition costs surpasses the related unearned premiums ^{p. 69}.
• To address a premium deficiency, the Company first expenses any unamortized acquisition costs to eliminate the deficiency ^{p. 69}.
• If the premium deficiency exceeds unamortized acquisition costs, a liability is accrued for the excess deficiency ^{p. 69}.
• Anticipated investment income is factored into the determination of premium deficiencies ^{p. 69}.
• Management concluded that no premium deficiency existed as of December 31, 2022, and 2021 ^{p. 69}.

Goodwill and Intangible Assets

• Goodwill and intangible assets are recorded following a business combination ^{p. 70}.
• Goodwill represents the excess of the purchase price over the fair value of acquired assets and assumed liabilities ^{p. 70}.
• The Company reviews its purchase price allocation for up to one year post-acquisition, allowing for adjustments within this period ^{p. 70}.
• Identifiable intangible assets with a finite useful life are amortized over the period they are expected to contribute to future cash flows ^{p. 70}.
• Indefinite-lived intangible assets are not amortized ^{p. 70}.
• Goodwill and identifiable intangible assets are evaluated for recoverability annually in the fourth quarter or on an interim basis if circumstances suggest carrying amounts may not be recoverable ^{p. 70}.
• Impairment testing begins with a qualitative assessment to determine if the fair value of a reporting unit is more likely-than-not less than its carrying value, including goodwill ^{p. 70}.
• Qualitative assessment factors include: (i) past, current, and projected future earnings and equity; (ii) recent trends and market conditions; and (iii) valuation metrics of similar publicly traded companies and acquisitions ^{p. 70}.
• If the more likely-than-not threshold is met, a quantitative impairment test compares the estimated fair value with the carrying value ^{p. 70}.
• Goodwill is considered impaired if the carrying value of net assets for a reporting unit exceeds its fair value ^{p. 70}.
• The impairment amount is the excess of the reporting unit's carrying value over its fair value, not exceeding the carrying amount of goodwill ^{p. 70}.
• The Company's reporting unit is at the underwriting division level, which is one level below the consolidated group ^{p. 70}.
• Underwriting divisions represent a business with discrete financial information regularly reviewed by underwriting management ^{p. 70}.
• Determining fair value of reporting units is subjective and involves significant estimates and assumptions, such as projected net cash flows, discount rates, and long-term growth rates ^{p. 70}.
• Fair value is determined using an income approach and market approach, deriving fair value from the present value of estimated future cash flows ^{p. 70}.
• Assumptions about estimated cash flows include future premiums, loss and LAE expenses, general and administrative expenses, and industry trends ^{p. 70}.
• Historical rates and current market conditions are considered when determining discount and long-term growth rates ^{p. 70}.
• Other valuation methods may be used if facts and circumstances indicate they provide a more representative approximation of fair value ^{p. 70}.
• Changes in estimates due to evolving economic conditions or business strategies could lead to material impairment charges in future periods ^{p. 70}.
• The Company bases its fair value estimates on assumptions it believes to be reasonable, though actual results may differ ^{p. 70}.
• Goodwill impairment is reported under "impairment charges" in the Consolidated Statements of Operations and Comprehensive (Loss) Income ^{p. 70}.

Goodwill impairment

($ in thousands)	2022	2021
Goodwill impairment	—	2,821

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. 71}.
• Depreciation expense is recognized on a straight-line basis for financial statement purposes over periods ranging from three to seven years ^{p. 71}.

Leases

• Right-of-use (ROU) assets are included in other assets on the balance sheet ^{p. 72}.
• Lease liabilities are included in accounts payable and accrued liabilities on the balance sheet ^{p. 72}.
• For operating leases, the Company determines if a contract contains a lease at inception ^{p. 72}.
• 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. 72}.
• The Company uses its incremental borrowing rate to determine the present value of future payments, as the interest rate implicit in its leases is not available ^{p. 72}.
• Lease agreements may include options to extend or terminate, which are exercised at the Company's discretion ^{p. 72}.
• Options are included in operating lease liabilities if it is reasonably certain they will be exercised ^{p. 72}.
• Lease agreements have lease and non-lease components, which are accounted for as a single lease component ^{p. 72}.
• Operating lease cost for future minimum lease payments is recognized on a straight-line basis over the lease term ^{p. 72}.
• Sublease income is recognized on a straight-line basis over the sublease term ^{p. 72}.

Reserves for losses and loss adjustment expenses

• Reserves for losses and loss adjustment expenses (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. 73}.
• Estimated reserves for losses and LAE include estimates for reported and unpaid claims, increases in claims costs for already reported claims, claims incurred but not reported, and expenses for investigating and adjusting all incurred and unpaid claims ^{p. 73}.
• The Company estimates its reserves on an undiscounted basis, using individual case-basis valuations, statistical analyses, and various actuarial methods ^{p. 73}.
• Paid Loss Development method uses historical payment patterns for prior claims to estimate future payment patterns, applied to current payments by policy year to yield an expected ultimate loss ^{p. 73}.
• Incurred Loss Development method uses historical case loss patterns for past claims to estimate future case-incurred amounts for current claims, applied to current case losses by policy year to yield an expected ultimate loss ^{p. 73}.
• Case Reserve Development method determines patterns of historical development in reported losses relative to historical case reserves, applied to current case reserves by policy year and combined with paid losses to yield an expected ultimate loss ^{p. 73}.
• Expected Loss Ratio method analyzes historical loss ratios, projections of frequency and severity trends, and estimates of price and exposure changes to produce an estimated "loss pick" for each policy year, which is then applied to earned premium to estimate expected ultimate losses ^{p. 73}.
• Paid and Incurred Bornhuetter/Ferguson (BF) approach blends the expected loss ratio method with either the paid or incurred loss development method, producing weighted average indications for each policy year ^{p. 73}.
• Multiple estimation methods are often valid for evaluating claim liabilities, each with its own assumptions, advantages, and disadvantages ^{p. 73}.
• The relative strengths and weaknesses of estimation methods can change over time, leading to varying weights given to each method by policy year and evaluation ^{p. 73}.
• Estimates are based on the Company’s historical information, industry information, and estimates of future trends in loss severity and frequency ^{p. 73}.
• Reserves for losses and LAE are subject to uncertainty from changes in reporting patterns, claims settlement patterns, judicial decisions, legislation, and economic conditions ^{p. 73}.
• The Company's actual loss experience may not conform to the methods or assumptions used in determining estimated liability amounts ^{p. 73}.
• The Company continually monitors and reviews reserves, adjusting estimates as new information becomes available ^{p. 73}.
• Differences arising from settlements or reserve adjustments are reported in the current year ^{p. 73}.
• 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. 73}.

Premiums

• The Company earns and recognizes property and casualty and surety premiums on a pro-rata basis over the terms of the policies ^{p. 74}.
• The Company earns accident and health premiums as billed, based on census data ^{p. 74}.
• Gross premiums written are reduced by ceded premiums from proportional, facultative, and excess of loss reinsurance costs for prospective reinsurance ^{p. 74}.
• Premiums receivable includes deferred premiums, which are installment payments due from insureds under their policy payment terms ^{p. 74}.
• Unearned premiums represent the portion of gross premiums written applicable to the unexpired terms of in-force insurance policies or reinsurance contracts ^{p. 74}.
• Ceded unearned premiums represent the portion of ceded premiums written applicable to the unexpired terms of in-force insurance policies or reinsurance contracts ^{p. 74}.
• Unearned premiums are calculated on a pro-rata basis over the terms of the policies for both direct and ceded amounts ^{p. 74}.

Allowance for doubtful accounts

($ in thousands)	2022	2021
Allowance for doubtful accounts	629	261

Commission and Fee Income

• SUA commission revenue is generated from placing insurance policies on reinsurance programs via a reinsurance broker ^{p. 75}.
• The reinsurance broker represents the Company's single performance obligation for SUA commission revenue ^{p. 75}.
• The transaction price for SUA commission revenue is fixed at contract inception and based on a percentage of premiums placed ^{p. 75}.
• The Company recognizes 100% of the transaction price for SUA commission revenue when the performance obligation is satisfied at the point a policy is placed, as there are no constraints on revenue ^{p. 75}.
• SUA fee income is generated from placing insurance policies with a third-party insurance company ^{p. 75}.
• The Company's single performance obligation for SUA fee income is the placement of the policy ^{p. 75}.
• The transaction price for SUA fee income is variable at contract inception and based on a percentage of premium, which is determined by risk factors that change monthly, such as employee census data and worker roles ^{p. 75}.
• The Company estimates its transaction price for SUA fee income over the life of the policy using the expected value method ^{p. 75}.
• Revenue from SUA fee income is recognized at the point in time the policy is placed ^{p. 75}.
• Changes in the estimate of variable consideration for SUA fee income are recognized in the month they occur ^{p. 75}.

Income Taxes

• Income tax expense is accrued for tax effects of transactions reported on consolidated financial statements ^{p. 76}.
• Provision for income taxes includes currently due taxes plus deferred taxes from temporary differences between financial statement and income tax reporting ^{p. 76}.
• Valuation allowance is established for any deferred tax asset not expected to be realized ^{p. 76}.
• Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years temporary differences are recovered or settled ^{p. 76}.
• Effect of tax rate changes on deferred tax assets and liabilities is recognized in income in the period of the enactment date ^{p. 76}.
• Liability for uncertain tax positions is recorded when it is more likely-than-not that the tax position will not be sustained upon examination ^{p. 76}.
• Changes in liability for uncertain tax positions are reflected in income tax expense when a new position arises, judgment changes, the issue is settled, or the statute of limitation expires ^{p. 76}.
• Potential net interest income or expense and penalties related to uncertain tax positions are recorded on the Consolidated Statements of Operations ^{p. 76}.
• The Company files a consolidated federal income tax return in the United States and certain other state tax returns ^{p. 76}.
• Admitted insurance subsidiaries pay premium taxes on gross written premiums in lieu of most state income or franchise taxes ^{p. 76}.
• Premium tax expense is recognized within underwriting, acquisition, and insurance expense on the Consolidated Statement of Operations ^{p. 76}.

Fair Value of Financial Instruments

• Fair value for each class of financial instrument is estimated based on the framework established in fair value accounting guidance ^{p. 77}.
• The guidance requires maximizing observable inputs and minimizing unobservable inputs when measuring fair value ^{p. 77}.
• Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value ^{p. 77}.
• The hierarchy prioritizes unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) as the highest ^{p. 77}.
• The hierarchy gives the lowest priority to unobservable inputs (Level 3 measurements) ^{p. 77}.
• The Company uses widely recognized, third-party pricing sources to determine the fair values of financial instruments ^{p. 77}.
• The Company has an understanding of the third-party pricing sources’ valuation methodologies and inputs ^{p. 77}.
• Further details regarding fair value disclosures can be found in Note 6 ^{p. 77}.

Stock Based Compensation

• The Company granted common stock to employees and non-employee directors through its Legacy Programs (Stock Purchase Program and Equity Incentive Program) ^{p. 78}.
• Legacy Programs required employees to purchase a certain amount of stock, which the Company then matched ^{p. 78}.
• Matching share awards under Legacy Programs were subject to vesting requirements ^{p. 78}.
• For the purchased portion of stock under Legacy Programs, participants made a minimum payment, with the remainder issued as a note receivable to the Company and recorded as stock notes receivable within Stockholders’ Equity ^{p. 78}.
• Compensation costs for share-based payments to employees, former employees, and non-employee directors are recognized over the applicable vesting period at the fair value of common stock on the grant date ^{p. 78}.
• The fair value of common stock on the grant date was determined using an income approach and a market approach ^{p. 78}.
• Forfeiture of purchased and awarded shares is recognized as it occurs ^{p. 78}.
• In December 2020, the Compensation Committee of the Company’s Board of Directors approved a new Long Term Incentive Plan (the "2021 Plan") ^{p. 78}.
• The 2021 Plan allows for granting restricted stock, restricted stock units, performance share awards, and cash-based performance awards to select employees and non-employee directors ^{p. 78}.
• Under the 2021 Plan, the Compensation Committee ratifies participant selection for annual grants, subject to the plan's terms and conditions ^{p. 78}.
• Equity awards under the 2021 Plan consist of common share awards with either a market or a performance condition, and restricted common stock and common stock units ^{p. 78}.
• All awards are subject to a service condition ^{p. 78}.
• For common share awards with a market and service condition, the Company uses a probability assessment to determine fair value on the grant date ^{p. 78}.
• Grant date fair value for market condition awards is recognized as compensation costs over the applicable service period ^{p. 78}.
• If the market condition is not met, previously recognized compensation expense is not reversed ^{p. 78}.
• For common share awards with a performance condition and a service condition, the Company calculates grant date fair value based on a probability-weighted assessment of the performance condition and respective award values ^{p. 78}.
• Compensation costs for performance and service condition awards are recognized over the service period based on the latest estimate of grant date fair value ^{p. 78}.
• If the performance condition is not satisfied, the Company will reverse previously recognized compensation expense ^{p. 78}.
• The Company grants restricted common stock units that only have a service condition ^{p. 78}.
• Compensation costs for service condition awards are recognized over the service period based on the fair value of common stock on the grant date ^{p. 78}.

Earnings Per Share

• Basic earnings per share is calculated using the two-class method ^{p. 79}.
• Undistributed earnings are allocated to participating securities based on their potential share in earnings as if all earnings for the period were distributed ^{p. 79}.
• 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. 79}.
• Common shares related to Legacy Programs are excluded from the weighted-average number of common shares outstanding for basic earnings per share if vesting requirements or other contingencies exist and are not satisfied ^{p. 79}.
• Contingently issuable common shares and common share equivalents 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. 79}.
• 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. 79}.
• 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. 79}.
• 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. 79}.
• Common share adjustments that increase earnings per share or reduce loss per share are considered anti-dilutive, and diluted net earnings or net loss per share is computed excluding these common share equivalents ^{p. 79}.

3. Recent Accounting Pronouncements

• The Company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act) ^{p. 80}.
• The Company has the option to adopt new or revised accounting guidance either within the same periods as non-emerging growth companies or within the same time periods as private companies ^{p. 80}.
• The Company may elect to adopt new or revised accounting guidance within the same time period as private companies, unless management determines early adoption provisions are preferable ^{p. 80}.
• ASU 2016-13: In June 2016, FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments (Topic 326)," which requires estimating credit losses on financial instruments like receivables and available-for-sale debt securities based on expected losses ^{p. 80}.
• The expected loss approach for ASU 2016-13 requires incorporating historical information, current information, and reasonable and supportable forecasts ^{p. 80}.
• The guidance for ASU 2016-13 is effective for fiscal years beginning after December 15, 2022 ^{p. 80}.
• The Company will adopt ASU 2016-13 effective January 1, 2023, using the modified retrospective approach ^{p. 80}.
• The Company expects to recognize an increase in the allowance for uncollectible reinsurance of approximately $2.3 million due to ASU 2016-13 adoption ^{p. 80}.
• The Company expects an increase, net of tax, in accumulated deficit of approximately $2.3 million due to ASU 2016-13 adoption ^{p. 80}.

4. Goodwill and Intangible Assets

• Aegis Surety Acquisition: In January 2021, the Company acquired the surety business of Aegis Surety Bonds and Insurance Services, LLC ("Aegis") for $10.0 million in cash and the disposal of its Exterminator Pro business ^{p. 81}.
• The Aegis acquisition aimed to increase the Company's scale in surety and position the business line for profitable growth ^{p. 81}.
• The implied fair value of the Aegis surety underwriting business was $15.3 million ^{p. 81}.
• The Company recognized a gain of $3.5 million on the disposal of assets related to its Exterminator Pro underwriting business ^{p. 81}.
• Remaining goodwill of $0.9 million associated with the Exterminator Pro business was fully impaired after its disposal ^{p. 81}.
• Aegis Acquisition Accounting: Assets from Aegis were recorded using the acquisition method of accounting ^{p. 81}.
• The purchase price was allocated to identifiable assets based on their estimated fair values on the acquisition date ^{p. 81}.
• The final purchase price included an $8.3 million intangible asset for agent relationships with a 15-year useful life and $6.9 million of goodwill ^{p. 81}.
• Compass Impairment: During Q2 2021, the Company decided to exit an errors & omissions business book generated from its acquisition of Compass Group Partners, LLC ("Compass") ^{p. 81}.
• This decision led to an impairment of $1.9 million for goodwill and $0.1 million for agent relationships, as their fair value was determined to be zero ^{p. 81}.
• Sale of Boston Indemnity Company: In June 2021, the Company signed a Purchase Agreement to sell all issued and outstanding capital stock of Boston Indemnity Company (BIC) to an unrelated third party ^{p. 81}.
• The transaction was completed on October 4, 2021 ^{p. 81}.
• The Company recorded $8.2 million in net proceeds from the sale and recognized a $1.8 million gain on the sale of the business ^{p. 81}.
• Intangible Assets: The Company's indefinite-lived intangible assets include insurance licenses and trademarks ^{p. 81}.
• Its finite-lived intangible assets, such as policy renewals, agency relationships, and non-compete/exclusivity agreements, had a weighted average useful life of approximately 14 years as of December 31, 2022 ^{p. 81}.

Goodwill by segment

($ in thousands)	Accident and Health	Surety	Energy	Other	Total
Goodwill	—	—	—	—	—
Gross balance at December 31, 2021	91,577	6,781	10,052	4,031	112,441
Accumulated impairment at December 31, 2021	( 44,821 )	—	—	( 1,886 )	( 46,707 )
Net balance at December 31, 2022	46,756	6,781	10,052	2,145	65,734

Goodwill activity by segment

($ in thousands)	Accident and Health	Surety	Energy	Exterminator Pro	Other	Total
Goodwill	—	—	—	—	—	—
Gross balance at December 31, 2020	91,577	—	10,052	11,810	4,681	118,120
Accumulated impairment at December 31, 2020	( 44,821 )	—	—	( 9,248 )	—	( 54,069 )
Additions	—	6,956	—	—	—	6,956
Disposals	—	( 175 )	—	( 1,680 )	( 650 )	( 2,505 )
Impairment	—	—	—	( 882 )	( 1,886 )	( 2,768 )
Net balance at December 31, 2021	46,756	6,781	10,052	—	2,145	65,734

Other intangible assets

($ in thousands)	Agent Relationships	Non-competes	Trademarks	Licenses	Total
Other Intangible Assets	—	—	—	—	—
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

Other intangible assets activity

($ in thousands)	Agent Relationships	Non-competes	Trademarks	Licenses	Total
Other Intangible Assets	—	—	—	—	—
Gross balance at December 31, 2020	16,355	1,117	1,122	15,019	33,613
Accumulated amortization at December 31, 2020	( 13,203 )	( 447 )	—	—	( 13,650 )
Additions	8,300	—	—	—	8,300
Disposals	( 45 )	—	( 123 )	( 1,000 )	( 1,168 )
Impairment	( 52 )	—	—	—	( 52 )
Amortization	( 1,218 )	( 223 )	—	—	( 1,441 )
Net balance at December 31, 2021	10,137	447	999	14,019	25,602

Amortization expense

($ in thousands)	2022	2021
Amortization expense	1,466	1,441

Future amortization expense

Years Ending December 31,	Amount (in thousands)
2023	1,466
2024	1,074
2025	998
2026	553
2027	553

5. Investments

• The amortized cost and fair value of the Company's investments are summarized ^{p. 82}.
• The amortized cost and estimated fair value of fixed maturity securities, available for sale, at December 31, 2022, are categorized by contractual maturity ^{p. 82}.
• Expected maturities may differ from contractual maturities due to borrowers' rights to call or prepay obligations, and portfolio sales may occur prior to maturity due to changing interest rates, tax considerations, or other factors ^{p. 82}.
• The Company’s fixed maturity securities, held to maturity, at December 31, 2022, consist entirely of asset-backed securities without a single maturity date ^{p. 82}.
• Tables summarize gross unrealized losses and corresponding fair values of investments, aggregated by the duration of continuous unrealized loss positions ^{p. 82}.
• As of December 31, 2022, the Company had 111 lots of fixed maturity securities in an unrealized loss position for over 12 months ^{p. 82}.
• The Company does not intend to sell, nor is it likely to be required to sell, these fixed maturity securities, available for sale, before they recover to their amortized cost value ^{p. 82}.
• The Company believes none of the declines in fair values of these fixed maturity securities, available for sale, relate to credit losses ^{p. 82}.
• The Company believes none of the declines in fair value of these fixed maturity securities, available for sale, were other-than-temporary at December 31, 2022 ^{p. 82}.
• The Company recognized no other-than-temporary impairment adjustments on fixed maturity securities, available for sale, for the years ended December 31, 2022 and 2021 ^{p. 82}.
• The components of net realized (losses) gains at December 31, 2022 and 2021 are detailed ^{p. 82}.
• Proceeds from sales of debt and equity securities at December 31, 2022 and 2021 are detailed ^{p. 82}.
• The Company’s net investment income for the years ended December 31, 2022 and 2021 is summarized ^{p. 82}.
• The change in net unrealized losses on investments, net of deferred income taxes, in other comprehensive loss for the years ended December 31, 2022 and 2021 is detailed ^{p. 82}.
• Various state regulations require the Company to maintain cash, investment securities, or letters of credit on deposit with the states in a depository account ^{p. 82}.
• At December 31, 2022, cash and investment securities on deposit had fair values of approximately $60.2 million ^{p. 82}.
• At December 31, 2021, cash and investment securities on deposit had fair values of approximately $63.2 million ^{p. 82}.

Fixed maturity securities at December 31, 2022

($ in thousands)	Gross Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
December 31, 2022
Fixed maturity securities, available for sale:	—	—	—	—
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
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
Asset-backed securities	52,467	—	( 5,696 )	46,771
Total fixed maturity securities, held to maturity	52,467	—	( 5,696 )	46,771
Common stocks	50,484	10,015	( 4,503 )	55,996
Preferred stocks	11,798	15	( 3,042 )	8,771
Mutual funds	53,968	3,171	( 1,737 )	55,402
Total equity securities	116,250	13,201	( 9,282 )	120,169

Fixed maturity securities at December 31, 2021

($ in thousands)	Gross Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
December 31, 2021
Fixed maturity securities, available for sale:	—	—	—	—
U.S. government securities	48,816	716	( 269 )	49,263
Corporate securities and miscellaneous	151,053	3,698	( 588 )	154,163
Municipal securities	53,179	3,799	( 36 )	56,942
Residential mortgage-backed securities	103,758	1,232	( 1,255 )	103,735
Commercial mortgage-backed securities	14,634	38	( 188 )	14,484
Asset-backed securities	81,038	226	( 1,500 )	79,764
Total fixed maturity securities, available for sale	452,478	9,709	( 3,836 )	458,351
Asset-backed securities	47,117	—	—	47,117
Total fixed maturity securities, held to maturity	47,117	—	—	47,117
Common stocks	47,379	13,887	( 2,841 )	58,425
Preferred stocks	17,821	349	( 4 )	18,166
Mutual funds	33,786	7,611	( 17 )	41,380
Total equity securities	98,986	21,847	( 2,862 )	117,971

Maturity distribution of fixed maturity securities

($ in thousands)	Amortized Cost	Fair Value
Due in less than one year	16,474	16,215
Due after one year through five years	203,569	191,576
Due after five years through ten years	102,114	90,631
Due after ten years	49,211	42,975
Mortgage-backed securities	174,973	156,351
Asset-backed securities	116,275	109,824
Total	662,616	607,572

Fixed maturity securities, available-for-sale at December 31, 2022

	Less than 12 Months		12 Months or More		Total
($ in thousands)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
December 31, 2022
Fixed maturity securities, available-for-sale:	—	—	—	—	—	—
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 )
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 )
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 )

Fixed maturity securities, available-for-sale at December 31, 2021

	Less than 12 Months		12 Months or More		Total
($ in thousands)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
December 31, 2021
Fixed maturity securities, available-for-sale:	—	—	—	—	—	—
U.S. government securities	19,819	( 267 )	108	( 2 )	19,927	( 269 )
Corporate securities and miscellaneous	47,308	( 588 )	—	—	47,308	( 588 )
Municipal securities	4,549	( 36 )	—	—	4,549	( 36 )
Residential mortgage-backed securities	72,672	( 1,252 )	145	( 3 )	72,817	( 1,255 )
Commercial mortgage-backed securities	12,653	( 175 )	241	( 12 )	12,894	( 187 )
Asset-backed securities	34,266	( 1,463 )	1,256	( 38 )	35,522	( 1,501 )
Total fixed maturity securities, available-for-sale	191,267	( 3,781 )	1,750	( 55 )	193,017	( 3,836 )

Gross realized gains and losses

($ in thousands)	2022	2021
Gross realized gains
Fixed maturity securities, available-for sale	313	474
Equity securities	3,865	2,763
Other	36	13
Total	4,214	3,250
Gross realized losses	—	—
Fixed maturity securities, available-for sale	( 958 )	( 1,160 )
Equity securities	( 3,827 )	( 230 )
Other	( 76 )	( 4 )
Total	( 4,861 )	( 1,394 )
Net unrealized (losses) gains on securities still held	—	—
Equity securities	( 15,058 )	15,251
Net investment (losses) gains	( 15,705 )	17,107

Fixed maturity and equity securities

($ in thousands)	2022	2021
Fixed maturity securities, available-for sale	13,964	15,142
Equity securities	37,177	37,952

Investment income

($ in thousands)	2022	2021
Income:	—	—
Fixed maturity securities, available-for sale	18,481	9,931
Fixed maturity securities, held-to-maturity	5,375	4,840
Equity securities	3,579	2,572
Equity method investments	6,015	9,280
Mortgage loans	4,767	1,188
Indirect loans	4,846	1,852
Short-term investments and cash	1,523	141
Other	( 102 )	241
Total investment income	44,484	30,045
Investment expenses	( 7,553 )	( 5,399 )
Net investment income	36,931	24,646

Fixed maturity securities, deferred income taxes, and other comprehensive loss

($ in thousands)	2022	2021
Fixed maturity securities	( 60,918 )	( 9,674 )
Deferred income taxes	12,793	2,098
Other comprehensive loss	( 48,125 )	( 7,576 )

6. 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. 83}.
• The market approach is generally applied to determine fair value, using prices and data from market transactions involving identical or comparable assets and liabilities ^{p. 83}.
• Fair value of investments is determined using data primarily from third-party investment managers or pricing vendors ^{p. 83}.
• Periodic analyses are performed on third-party prices to ensure they are reasonable estimates of fair value, including reviewing month-to-month fluctuations and comparing pricing services' valuations for identical securities ^{p. 83}.
• The Company classifies financial instruments into a three-level hierarchy ^{p. 83}.
• Level 1 inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date ^{p. 83}.
• Level 2 inputs are observable inputs other than Level 1 quoted prices, corroborated with market data at the measurement date ^{p. 83}.
• Level 3 inputs are unobservable inputs reflecting management's best estimate of what market participants would use in pricing the asset or liability at the measurement date ^{p. 83}.
• U.S. government securities, mutual funds, and common stock use unadjusted quoted prices for identical instruments in an active exchange, representing Level 1 inputs ^{p. 83}.
• Preferred stocks, municipal securities, corporate securities, and miscellaneous use a pricing model with market-based inputs such as trades in illiquid markets or active markets for similar securities, and other inputs like benchmark yields, issuer spreads, and security terms, representing Level 2 fair value inputs ^{p. 83}.
• Commercial mortgage-backed securities, residential mortgage-backed securities, and asset-backed securities use a pricing model with market-based inputs including 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. 83}.
• 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 deemed impaired ^{p. 83}.
• Estimated fair value amounts are defined as the quoted market price of a financial instrument and are determined using available market information and appropriate valuation methodologies ^{p. 83}.
• Considerable judgments are required in developing fair value estimates when quoted market prices are unavailable, and these estimates may not be indicative of amounts realizable in a current market exchange ^{p. 83}.
• The use of different market assumptions or estimating methodologies may affect the estimated fair value amounts ^{p. 83}.
• 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, 2022 ^{p. 83}.
• Mortgage loans, which have variable interest rates and are collateralized by real property, have their fair value determined using the income approach with unobservable (Level 3) inputs ^{p. 83}.
• The carrying value of notes payable approximates their estimated fair value because they accrue interest at current market rates plus a spread; fair value is determined using the income approach with available (Level 2) inputs ^{p. 83}.
• Subordinated debt includes Junior Subordinated Interest Debentures (due September 15, 2036) and Unsecured Subordinated Notes (due May 24, 2039) ^{p. 83}.
• The carrying value of Junior Subordinated Interest Debentures approximates estimated fair value as they accrue interest at current market rates plus a spread ^{p. 83}.
• Unsecured Subordinated Notes have a fixed interest rate, and their fair value is determined using the income approach with observable (Level 2) inputs ^{p. 83}.
• Other financial instruments that qualify as insurance-related products are specifically exempted from fair value disclosure requirements ^{p. 83}.

Fair value of financial instruments

	2022		2021
($ in thousands)	Carrying Value	Fair Value	Carrying Value	Fair Value
Assets	—	—	—	—
Fixed maturity securities, available-for-sale	607,572	607,572	458,351	458,351
Fixed maturity securities, held-to-maturity	52,467	46,771	47,117	47,117
Equity securities	120,169	120,169	117,971	117,971
Mortgage loans	51,859	52,842	29,531	29,264
Short-term investments	121,158	121,158	164,278	164,278
Cash and cash equivalents	45,438	45,438	42,107	42,107
Restricted cash	79,573	79,573	65,167	65,167
Notes payable	50,000	50,000	50,000	50,000
Subordinated debt	78,609	78,728	78,529	83,235

Fixed maturity securities available-for-sale as of December 31, 2022

	December 31, 2022
($ in thousands)	Level 1	Level 2	Level 3	Total
Assets:
Fixed maturity securities, available-for-sale:	—	—	—	—
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
Asset-backed securities	—	109,824	—	109,824
Total fixed maturity securities, available-for-sale	48,541	559,031	—	607,572
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
Consumer staples	12,036	—	—	12,036
Energy	3,241	—	—	3,241
Finance	22,636	—	—	22,636
Industrial	9,452	—	—	9,452
Information technology	2,284	—	—	2,284
Materials	2,820	—	—	2,820
Other	1,579	—	—	1,579
Total common stocks	55,996	—	—	55,996
Preferred stocks:	—	—	—	—
Consumer staples	—	117	—	117
Finance	—	7,085	—	7,085
Industrial	—	1,020	—	1,020
Other	—	549	—	549
Total preferred stocks	—	8,771	—	8,771
Mutual funds:	—	—	—	—
Fixed income	5,068	—	—	5,068
Equity	49,773	—	—	49,773
Commodity	561	—	—	561
Total mutual funds	55,402	—	—	55,402
Total equity securities	111,398	8,771	—	120,169
Mortgage loans	—	—	52,842	52,842
Short-term investments	121,158	—	—	121,158
Total assets measured at fair value	281,097	567,802	99,613	948,512
Liabilities:	—	—	—	—
Notes payable	—	50,000	—	50,000
Subordinated debt	—	78,728	—	78,728

Fixed maturity securities available-for-sale as of December 31, 2021

	December 31, 2021
($ in thousands)	Level 1	Level 2	Level 3	Total
Assets:
Fixed maturity securities, available-for-sale:	—	—	—	—
U.S. government securities	49,263	—	—	49,263
Corporate securities and miscellaneous	—	154,163	—	154,163
Municipal securities	—	56,942	—	56,942
Residential mortgage-backed securities	—	103,735	—	103,735
Commercial mortgage-backed securities	—	14,484	—	14,484
Asset-backed securities	—	79,764	—	79,764
Total fixed maturity securities, available-for-sale	49,263	409,088	—	458,351
Asset-backed securities	—	—	47,117	47,117
Total fixed maturity securities, held-to-maturity	—	—	47,117	47,117
Common stocks:	—	—	—	—
Consumer discretionary	2,102	—	—	2,102
Consumer staples	13,643	—	—	13,643
Energy	2,781	—	—	2,781
Finance	24,657	—	—	24,657
Industrial	8,806	—	—	8,806
Information technology	2,408	—	—	2,408
Materials	3,160	—	—	3,160
Other	868	—	—	868
Total common stocks	58,425	—	—	58,425
Preferred stocks:	—	—	—	—
Finance	—	17,018	—	17,018
Other	—	1,148	—	1,148
Total preferred stocks	—	18,166	—	18,166
Mutual funds:	—	—	—	—
Fixed income	5,374	—	—	5,374
Equity	35,471	—	—	35,471
Commodity	535	—	—	535
Total mutual funds	41,380	—	—	41,380
Total equity securities	99,805	18,166	—	117,971
Mortgage loans	—	—	29,264	29,264
Short-term investments	164,278	—	—	164,278
Total assets measured at fair value	313,346	427,254	76,381	816,981
Liabilities:	—	—	—	—
Notes payable	—	50,000	—	50,000
Subordinated debt	—	83,235	—	83,235

7. Mortgage Loans

• The Company invests in Separately Managed Accounts ("SMA1" and "SMA2") managed by Arena Investors, LP ("Arena"), an affiliate of The Westaim Corporation ("Westaim") ^{p. 84}.
• Westaim, through Westaim HIIG LP, is the Company's largest shareholder ^{p. 84}.
• As of December 31, 2022 and 2021, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2 ^{p. 84}.
• The Company’s mortgage loan portfolios are primarily senior loans on real estate across the U.S. ^{p. 84}.
• Loans earn interest at fixed rates ^{p. 84}.
• Loan maturity is approximately one to two years from origination ^{p. 84}.
• Principal amounts of loans range between 40% to 90% of the property’s appraised value at the time of loan origination ^{p. 84}.
• Mortgage loan participations are carried at cost, adjusted for unamortized premiums, discounts, and loan fees ^{p. 84}.
• Uncollectible amounts on loans are determined based on consultations with the Company’s specialized investment manager, consideration of adverse situations affecting borrower repayment ability, estimated collateral value, and other relevant factors ^{p. 84}.
• Uncollectible amounts are written off in the period they are determined to be uncollectible ^{p. 84}.
• There were no write-offs for uncollectible amounts for the years ended December 31, 2022 and 2021 ^{p. 84}.
• As of December 31, 2022, mortgage loans in the process of foreclosure amounted to approximately $6.4 million ^{p. 84}.
• As of December 31, 2021, mortgage loans in the process of foreclosure amounted to approximately $10.8 million ^{p. 84}.
• The carrying value of mortgage loans in foreclosure is the lower of cost adjusted for unamortized premiums, discounts, and loan fees, or the fair value of the collateral less costs to sell ^{p. 84}.

Mortgage loans by property type

($ in thousands)	2022	2021
Retail	16,516	10,593
Commercial	15,309	6,298
Industrial	6,329	6,314
Multi-family	5,593	3,296
Office	3,197	1,691
Hospitality	4,915	1,339
—	51,859	29,531

Mortgage loans by property type

	Years Ended December 31,
($ in thousands)	2022	2021
Retail	1,255	66
Commercial	1,242	151
Industrial	565	90
Multi-family	909	143
Office	385	64
Land	—	451
Hospitality	411	223
—	4,767	1,188

8. 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. 85}.
• The Company owns 100% of the limited partner interests in Universa Black Swan Protection Protocol LIX L.P. ("Universa Black Swan") but does not consolidate it due to lack of control over its activities ^{p. 85}.
• The Company owns investment products issued by Arena Special Opportunities Partners (Feeder) I, LP ("Arena SOP"), managed by Arena, an affiliate of Westaim ^{p. 85}.
• These investment products include senior and junior notes issued by Arena SOP to raise capital for investment purchases ^{p. 85}.
• Returns on investments are used to pay interest on senior and junior notes based on target returns for each class ^{p. 85}.
• Senior and junior notes are debt securities classified as held to maturity and presented within fixed maturity securities on the balance sheet ^{p. 85}.
• Income exceeding target returns on senior and junior notes is allocated to the investment in Arena SOP ^{p. 85}.
• For the year ended December 31, 2021, the Company invested:
  • USD 1.9 million in Hudson Ventures Fund 2, L.P. ^{p. 85}.
  • USD 5.0 million in Universa Black Swan ^{p. 85}.
  • USD 12.0 million in JVM Multi-Family Premier Fund IV, LLC ^{p. 85}.
  • USD 12.0 million in JVM Preferred Equity Fund, LLC (together, "JVM Funds LLC") ^{p. 85}.
• For 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. 85}.
• For the year ended December 31, 2022, the Company invested:
  • USD 0.2 million in Brewer Lane Ventures Fund II, L.P. ^{p. 85}.
  • USD 1.3 million in Hudson Ventures Fund 2, L.P. ^{p. 85}.
• The difference between the cost of an investment and its proportionate share of underlying equity in net assets is amortized over the useful life of a similar asset ^{p. 85}.
• For the investment in RISCOM, this difference is amortized over a 15-year useful life, similar to agent relationships ^{p. 85}.
• The USD 24.0 million investment in JVM Funds LLC as of December 31, 2021, was a provisional amount with an estimated zero difference in proportionate share of underlying equity ^{p. 85}.
• During the year ended December 31, 2022, the Company adjusted its purchase price allocation for JVM Funds LLC, allocating the difference between cost and proportionate share of underlying equity to investments in rental properties ^{p. 85}.
• This difference for JVM Funds LLC is amortized over a 7-year estimated useful life of the investment in rental properties ^{p. 85}.
• From 2017 through 2018, the Company acquired a USD 2.0 million investment in Captex Bancshares, a Texas bank holding company ^{p. 85}.
• The Company carries its investment in Captex Bancshares at cost, less impairment or observable price changes, as it does not have significant influence ^{p. 85}.
• No impairments or observable price changes occurred for Captex Bancshares during the years ended December 31, 2022, and 2021 ^{p. 85}.
• In the first quarter of 2020, the Company acquired a USD 2.0 million investment in Gulf Capital Bank, a Texas bank holding company ^{p. 85}.
• In the fourth quarter of 2020, the Company sold approximately USD 1.8 million of Gulf Capital Bank shares to other owners at cost ^{p. 85}.
• The Company sold its remaining USD 0.2 million shares in Gulf Capital Bank at cost during the year ended December 31, 2022 ^{p. 85}.
• The Company carried its investment in Gulf Capital Bank at cost, less impairment or observable price changes ^{p. 85}.
• As of December 31, 2022, and 2021, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2 ^{p. 85}.
• Note 11 provides information on common stock acquired from an entity providing the Company’s subordinated debt ^{p. 85}.

Indirect investments in collateralized loans and loan collateral

($ in thousands)	2022	2021
Arena SOP LP units	8,734	5,692
Arena Special Opportunities Fund, LP units	44,504	41,763
Brewer Lane Ventures Fund II LP units	200	—
Dowling Capital Partners LP units	1,965	2,416
Hudson Ventures Fund 2 LP units	3,551	1,913
JVM Funds LLC units	22,473	24,000
RISCOM	4,037	3,366
Universa Black Swan LP units	1,325	4,354
—	86,789	83,504

Indirect investments in collateralized loans and loan collateral

($ in thousands)	2022	2021
Arena SOP LP units	3,042	4,717
Arena Special Opportunities Fund, LP units	3,719	3,729
Dowling Capital Partners LP units	502	438
Hudson Ventures Fund 2 LP units	379	( 16 )
JVM Funds LLC	( 70 )	—
RISCOM	1,471	1,058
Universa Black Swan LP units	( 3,028 )	( 646 )
—	6,015	9,280

Indirect investments in collateralized loans and loan collateral

($ in thousands)	2022	2021
Brewer Lane Ventures Fund II LP units	4,800	—
Dowling Capital Partners LP units	386	368
Hudson Ventures Fund 2 LP units	1,796	3,063
—	6,982	3,431

Investment in RISCOM

($ in thousands)	2022	2021
Investment in RISCOM:	—	—
Underlying equity	2,292	1,378
Difference	1,745	1,988
Recorded investment balance	4,037	3,366

Investment in JVM Funds LLC

($ in thousands)	2022	2021
Investment in JVM Funds LLC:	—	—
Underlying equity	21,565	24,000
Difference	908	—
Recorded investment balance	22,473	24,000

Investment in indirect loans and loan collateral

	2022		2021
($ in thousands)	Carrying Value	Unfunded Commitment	Carrying Value	Unfunded Commitment
SMA1	36,426	—	33,100	—
SMA2	2,010	—	10,855	16,563
Investment in indirect loans and loan collateral	38,436	—	43,955	16,563

9. Property and Equipment

• Property and equipment components for the years ended December 31, 2022 and 2021 are included within other assets on the consolidated balance sheets ^{p. 86}.
• Depreciation expense is presented for December 31, 2022 and 2021 ^{p. 86}.

Property and equipment components

($ in thousands)	2022	2021
Leasehold improvements	2,670	2,761
Equipment	7,230	7,477
Software	25,964	23,314
Other	39	39
—	35,903	33,591
Accumulated depreciation	( 27,229 )	( 23,964 )
Total	8,674	9,627

Depreciation expense

($ in thousands)	2022	2021
Depreciation expense	3,582	3,636

10. Leases

• The Company determines if a contract contains a lease at inception ^{p. 87}.
• A right-of-use asset is recognized within other assets ^{p. 87}.
• A lease liability is recognized within accounts payable and accrued liabilities ^{p. 87}.
• Recognition is based on the present value of future lease payments ^{p. 87}.
• If leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate from the inception date to determine the lease liability ^{p. 87}.
• The Company's leases are primarily for office facilities ^{p. 87}.
• These leases have been classified as operating leases ^{p. 87}.
• Remaining lease terms range from one year to 7 years ^{p. 87}.
• Some leases include options to extend ^{p. 87}.
• Lease expense for the year ended December 31, 2022, was USD 2.6 million ^{p. 87}.
• Lease expense for the year ended December 31, 2021, was USD 2.7 million ^{p. 87}.

Operating lease right-of-use assets and liabilities

($ in thousands)	2022	2021
Operating lease right-of-use assets	8,214	10,532
Operating lease liabilities	8,616	10,921
Operating lease weighted-average remaining lease term	5.00 years	5.73 years
Operating lease weighted-average discount rate	3.16%	3.12%

Lease expense and operating cash outflows

($ in thousands)	2022	2021
Operating lease expense	2,414	2,607
Short-term lease expense	220	127
Total lease expense	2,634	2,734
Operating cash outflows from operating leases	2,382	2,361

Future minimum operating lease payments

($ in thousands)	2022
2023	2,206
2024	1,996
2025	1,465
2026	1,227
2027	1,116
Thereafter	1,189
Total future minimum operating lease payments	9,199
Less imputed interest	( 583 )
Total operating lease liability	8,616

11. Subordinated Debt

• In May 2019, the Company agreed to issue unsecured subordinated notes with an aggregate principal amount of USD 20.0m ^{p. 88}.
• Interest on these Notes is fixed at 7.25% for the first 8 years and 8.25% thereafter ^{p. 88}.
• Early retirement of the debt before the 8-year commitment requires all interest payments to be paid in full, plus the return of outstanding principal ^{p. 88}.
• Principal is due at maturity on May 24, 2039, and interest is payable quarterly ^{p. 88}.
• The Notes have junior priority to all previously issued debt ^{p. 88}.
• The Company reports debt related to the Notes in its December 31, 2022 and 2021 consolidated balance sheets, net of debt issuance costs of approximately USD 0.5m and USD 0.6m, respectively ^{p. 88}.
• These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt ^{p. 88}.
• On August 2, 2006, Delos Capital Trust n/k/a HIIG Capital Trust I (the “Trust”), a Delaware statutory trust, issued USD 58.0m of fixed/floating rate capital securities guaranteed by the Company ^{p. 88}.
• The Trust also issued the Company USD 1.8m of common stock, classified within other long-term investments ^{p. 88}.
• The Company has not consolidated the Trust because it does not meet consolidation criteria and the Company lacks significant influence over the investee ^{p. 88}.
• The Company carries its investment in the common stock of the Trust at cost ^{p. 88}.
• There were no impairments or observable changes in price during the year ended December 31, 2022, for the investment in the Trust's common stock ^{p. 88}.
• The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of USD 59.8m issued by the Company ^{p. 88}.
• The Debentures are an unsecured obligation, currently redeemable, with a maturity date of September 15, 2036 ^{p. 88}.
• Interest on the Debentures is payable quarterly at an annual rate based on the three-month LIBOR (4.77% at December 31, 2022) plus 3.4% ^{p. 88}.
• The Company reflects debt related to the Debentures in its December 31, 2022 and 2021 consolidated balance sheets, net of debt issuance costs of approximately USD 0.7m and USD 0.7m, respectively ^{p. 88}.
• These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt ^{p. 88}.

Subordinated debt, net of debt issuance costs

($ in thousands)	2022	2021
Junior subordinated interest debentures, due September 15, 2036, payable quarterly	—	—
Principal	59,794	59,794
Less: Debt issuance costs	( 657 )	( 705 )
Principal	20,000	20,000
Less: Debt issuance costs	( 528 )	( 560 )
Subordinated debt, net of debt issuance costs	78,609	78,529

12. Notes Payable

• The interest rate on the USD 50.0 million term loan is the lesser of one-month LIBOR (4.39% on December 31, 2022) plus an Applicable Margin of 1.65%, or the highest lawful rate ^{p. 89}.
• Interest-only payments for the term loan are due quarterly through December 31, 2024 ^{p. 89}.
• The principal balance of the USD 50.0 million term loan is due on December 31, 2024 ^{p. 89}.
• The interest rate on the USD 50.0 million revolving line of credit is the lesser of the prime rate (published by the Wall Street Journal) or one-month LIBOR (4.39% on December 31, 2022) plus an Applicable Margin, which is the lesser of 1.65% or the highest lawful rate ^{p. 89}.
• The revolving promissory note includes a fee of 0.25% on the unused portion ^{p. 89}.
• Interest-only payments for the revolving line of credit are due quarterly through December 31, 2024 ^{p. 89}.
• The entire principal balance of the USD 50.0 million revolving line of credit is due on December 31, 2024 ^{p. 89}.
• The Company has a right to increase the capacity of the revolving line of credit to USD 75.0 million, subject to lender approval ^{p. 89}.
• The indebtedness is collateralized by a perfected first priority security interest in all assets of the Company, SUA, and the outstanding capital stock of HSIC (both subsidiaries of the Company) ^{p. 89}.
• The Company’s credit agreement includes financial covenants requiring maintenance of minimum surplus and risk-based capital on HSIC, minimum net worth, and a minimum fixed charge coverage ratio, along with other customary covenants and events of default ^{p. 89}.
• As of December 31, 2022, the Company was in compliance with all covenants in its credit agreement ^{p. 89}.

Term loan

($ in thousands)	2022	2021
Term loan, due December 31, 2024, interest payable quarterly	50,000	50,000

Interest payments on term loan

($ in thousands)	2022	2021
Interest payments on term loan	1,443	894

Interest payments on revolving line of credit

($ in thousands)	2022	2021
Interest payments on revolving line of credit	—	127

13. Stockholders’ Equity

• On April 24, 2020, the Company closed a private preferred share rights offering, allowing existing common stock holders to subscribe for Series A Convertible Preferred Stock (Preferred Shares) with a face value of $50.00 per share ^{p. 90}.
• The Preferred Shares offer an option to convert into common stock at any time based on an Option Conversion Rate ^{p. 90}.
• The initial Option Conversion Rate allowed conversion at a price of $6.96 per common share ^{p. 90}.
• The Option Conversion Rate was adjusted after the audit of financial statements for the year ended December 31, 2021 ^{p. 90}.
• Adjustments to the Option Conversion Rate included: (i) after-tax cost of the loss portfolio transfer (LPT) from Q2 2020; (ii) after-tax impact of co-participation expense related to the LPT; (iii) development of losses and LAE reserves exceeding LPT limits; and (iv) after-tax impact of development on losses and LAE reserves not subject to the LPT subsequent to December 31, 2019 ^{p. 90}.
• As of December 31, 2022 and 2021, the Option Conversion Rate allowed conversion at a price of $6.04 per common share ^{p. 90}.
• As of December 31, 2022 and 2021, the Company could settle in common shares, and the Preferred Shares were classified within Stockholders’ Equity ^{p. 90}.
• The Preferred Shares are subject to mandatory conversion upon a defined change of control transaction or the closing of an initial public offering at the Mandatory Conversion Rate ^{p. 90}.
• The Mandatory Conversion Rate is similar to the Option Conversion Rate but adjusted for after-tax impact of co-participation expense related to the LPT, development of losses and LAE reserves exceeding LPT limits, and after-tax impact of development on losses and LAE reserves not subject to the LPT on the final day of the last quarter-end prior to the triggering event ^{p. 90}.
• As of December 31, 2022 and 2021, the Mandatory Conversion Rate allowed conversion at a price of $6.04 per common share ^{p. 90}.
• The Preferred Shares have liquidation preference over common stock for their face value of $50.00 per share and any declared but unpaid dividends to related common shares at the applicable conversion rate ^{p. 90}.

Preferred shares and common shares upon conversion

—	2022
Preferred shares outstanding	1,969,660
Common shares upon conversion of preferred shares	16,305,113

14. Income Taxes

• The Company's provision for income taxes generally does not deviate substantially from the statutory tax rate ^{p. 91}.
• The effective tax rate may vary slightly from the statutory rate due to tax adjustments for tax-exempt income and dividends-received deduction ^{p. 91}.
• The federal statutory income tax rate is 21% ^{p. 91}.
• The Company made no payment for federal income taxes during the years ended December 31, 2022 and 2021 ^{p. 91}.
• The Company's federal income tax returns for tax years 2019 to 2021 are subject to examination by the Internal Revenue Service ^{p. 91}.
• As of December 31, 2022 and 2021, management does not believe there are any uncertain tax benefits that could be recognized within the next 12 months that would impact the Company’s effective tax rate ^{p. 91}.
• The Company classifies all interest and penalties related to tax contingencies as income tax expense ^{p. 91}.
• As of December 31, 2022 and 2021, there was no accrued interest recorded as an income tax liability ^{p. 91}.
• The Company has federal net operating loss carryforwards of approximately USD 71.3m ^{p. 91}.
• These net operating losses are set to expire beginning in 2030 ^{p. 91}.
• The Company is limited on the utilization of USD 58.6m of the net operating losses under Internal Revenue Code Section 382 due to an ownership change in 2013 ^{p. 91}.
• The 382 limitation is expected to result in an expiration of USD 2.8m (USD 0.6m tax effected) of net operating losses ^{p. 91}.
• A valuation allowance has been established against the balance of net operating losses expected to expire without utilization ^{p. 91}.
• The Company generated a capital loss carryforward during the year ended December 31, 2022, resulting in a deferred tax asset of approximately USD 1.3m ^{p. 91}.
• This capital loss carryforward will expire in 2027 ^{p. 91}.
• No valuation allowance is recorded against this deferred tax asset as the Company expects to utilize this carryforward ^{p. 91}.
• The Company provides a valuation allowance against deferred tax assets when it is more likely-than-not that some portion, or all, of deferred tax assets will not be realized ^{p. 91}.

Total income tax expense

($ in thousands)	2022	2021
Current income tax expense	120	—
Deferred tax expense related to temporary differences	10,267	9,992
Total income tax expense	10,387	9,992

Income tax expense at federal statutory rate

	2022		2021
($ in thousands)	Amount	Percentage	Amount	Percentage
Income tax expense at federal statutory rate	10,454	21.0%	10,145	21.0%
Tax advantaged investments	( 324 )	( 0.7 )	( 256 )	( 0.5 )
Other	257	0.6	103	0.2
Total income tax expense	10,387	20.9%	9,992	20.7%

Deferred tax assets

($ in thousands)	2022	2021
Deferred tax assets:	—	—
Net operating losses	14,966	28,009
Losses and loss adjustment expenses	10,748	7,782
Unearned premiums	11,959	9,461
Intangibles	607	1,632
Capital loss carryover	1,321	—
Unrealized losses on investments	11,563	—
Stock options/awards	1,107	627
Other	3,369	1,034
Total deferred tax assets	55,640	48,545
Less valuation allowance	( 586 )	( 586 )
Total deferred tax assets after valuation allowance	55,054	47,959
Deferred policy acquisition costs	8,209	6,063
Depreciation	1,481	1,459
Investments	7,144	5,507
Unrealized gains on investments	—	1,230
Other	2,032	37
Total deferred tax liabilities	18,866	14,296
Deferred income taxes	36,188	33,663

Balance of deferred tax assets

($ in thousands)	2022	2021
Balance at beginning of year	586	586
Balance at end of year	586	586

15. Reserves for Losses and Loss Adjustment Expenses

• The Company presents loss development on a consolidated basis but evaluates net ultimate loss and LAE under three sub-categories: multiline solutions, short tail/monoline specialty lines, and exited lines ^{p. 92}.
• This disaggregation of short-duration loss disclosures is chosen to avoid obscuring useful information by aggregating items with significantly different characteristics ^{p. 92}.
• Short tail/monoline specialty lines include market niches served with monoline solutions, generally having shorter durations for losses to fully develop ^{p. 92}.
• Losses for short tail/monoline specialty lines are typically reported and settled within a relatively short timeframe ^{p. 92}.
• Short tail/monoline specialty lines can be impacted by larger, more complex losses due to factors like difficulty in determining actual damages and legal/regulatory impediments ^{p. 92}.
• Multi-line solutions include market niches where the Company provides multiple products, often as an integrated solution ^{p. 92}.
• The multi-line solution subcategory primarily consists of occurrence liability, including general liability, excess liability, and commercial auto ^{p. 92}.
• Multi-line solutions have a longer duration for losses to fully develop compared to short-tail/monoline specialty lines ^{p. 92}.
• 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. 92}.
• Exited lines include all underwriting divisions placed in run-off and are presented separately from currently underwritten lines ^{p. 92}.
• For 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. 92}.
• Within exited lines, adverse development of USD 14.5 million was from the 2019 accident year, primarily due to increased frequency and severity in general and professional liability ^{p. 92}.
• The remaining net adverse development in exited lines was USD 8.4 million from various other accident years ^{p. 92}.
• Within multi-line solutions, favorable development of USD 10.8 million was from the 2020 through 2021 accident years, primarily driven by a reduction in claim frequency in commercial auto and general liability ^{p. 92}.
• The remaining net adverse development in multi-line solutions was USD 2.3 million from various other accident years ^{p. 92}.
• There was no net development in short tail/monoline specialty lines for the year ended December 31, 2022 ^{p. 92}.
• For the year ended December 31, 2021, the Company's net incurred losses and LAE for accident years 2020 and prior developed adversely by USD 28.0 million ^{p. 92}.
• This adverse development in 2021 was driven by USD 28.8 million in exited lines and USD 4.8 million in multi-line solutions ^{p. 92}.
• This was partially offset by favorable development of USD 5.6 million in short tail lines in 2021 ^{p. 92}.
• Within exited lines in 2021, the USD 28.8 million adverse development was primarily related to the 2013, 2015, and 2018 accident years, driven by increases in both frequency and severity of losses in general liability ^{p. 92}.
• Within multi-line solutions in 2021, adverse development of USD 4.8 million was primarily related to the 2016 and 2017 accident years, driven by increased frequency and severity of claims in commercial auto ^{p. 92}.
• Favorable development of USD 5.6 million within short tail lines in 2021 was primarily related to the 2019 and 2020 accident years, driven by favorable loss emergence relative to actuarial expectations in property and accident & health ^{p. 92}.

Reserves for losses and LAE, net of reinsurance

($ in thousands)	2022	2021
Reserves for losses and LAE, beginning of period	979,549	856,780
Less: reinsurance recoverable on unpaid claims, beginning of period	( 381,338 )	( 375,178 )
Reserves for losses and LAE, beginning of period, net of reinsurance	598,211	481,602
Incurred, net of reinsurance, related to:	—	—
Current period	393,939	338,348
Prior years	14,385	28,000
Total incurred, net of reinsurance	408,324	366,348
Paid, net of reinsurance, related to:	—	—
Current period	105,928	77,551
Prior years	194,836	172,188
Total paid	300,764	249,739
Net reserves for losses and LAE, end of period	705,771	598,211
Plus: reinsurance recoverable on unpaid claims, end of period	435,986	381,338
Reserves for losses and LAE, end of period	1,141,757	979,549

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 unpaid as of the balance sheet dates ^{p. 93}.
• Estimated reserves for losses and LAE include accumulated estimates for reported and unpaid claims, 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. 93}.
• Cumulative number of reported claims is measured by incident ^{p. 93}.
• Claim counts include all reported claims, even if no liability is established for the claim (i.e., no reserve for loss and loss adjustment expenses) ^{p. 93}.
• Short Tail/Monoline Specialty includes Global Property, A&H, Surety, and Professional Lines underwriting divisions ^{p. 93}.
• Multi-line Solutions includes mid to longer tail lines of business, industry solutions, programs, captives, and transactional E&S underwriting divisions ^{p. 93}.

Incurred losses and ALAE, net of reinsurance

Incurred Losses and ALAE, Net of Reinsurance ($ in thousands)						As of December 31, 2022
	Years Ended December 31,						Reported Claims
Accident Year	2018*	2019*	2020*	2021*	2022	IBNR	Reported Claims
2018	33,570	33,570	33,570	36,863	34,363	559	858
2019	—	62,922	48,101	45,301	48,800	230	1,015
2020	—	—	66,359	64,859	64,859	6,614	1,258
2021	—	—	—	100,172	100,172	25,018	1,428
2022	—	—	—	—	123,342	80,974	1,282
Total	—	—	—	—	371,536	—	—
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	( 218,145 )	—	—
Net reserves for loss and LAE before 2018	Net reserves for loss and LAE before 2018	Net reserves for loss and LAE before 2018	Net reserves for loss and LAE before 2018	Net reserves for loss and LAE before 2018	5,512	—	—
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	158,903	—	—
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Cumulative paid losses and ALAE, net of reinsurance

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
	Years Ended December 31,
Accident Year	2018*	2019*	2020*	2021*	2022
2018	24,754	31,907	31,323	33,522	33,446
2019	—	33,714	40,228	41,484	45,031
2020	—	—	30,974	56,499	70,684
2021	—	—	—	14,754	49,526
2022	—	—	—	—	19,458
Total	—	—	—	—	218,145
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Incurred losses and ALAE, net of reinsurance

Incurred Losses and ALAE, Net of Reinsurance ($ in thousands)											As of December 31, 2022
Accident Year	Years Ended December 31,											Reported Claims
Accident Year	2013*	2014*	2015*	2016*	2017*	2018*	2019*	2020*	2021*	2022	IBNR	Reported Claims
2013	66,517	71,800	64,439	73,382	75,196	74,701	74,987	75,419	69,496	69,515	1,994	3,324
2014	—	100,355	100,355	115,749	116,970	116,970	117,783	118,995	120,697	120,777	946	4,977
2015	—	—	103,191	114,266	117,024	117,024	119,216	121,746	122,839	122,902	2,446	5,364
2016	—	—	—	63,223	62,843	62,843	62,643	69,701	73,200	73,318	1,523	4,691
2017	—	—	—	—	65,332	65,332	64,260	72,913	78,578	78,762	4,331	5,515
2018	—	—	—	—	—	74,476	74,476	73,868	73,868	74,209	10,202	5,041
2019	—	—	—	—	—	—	107,432	106,432	106,432	110,896	1,487	6,021
2020	—	—	—	—	—	—	—	140,880	140,880	134,124	27,390	5,393
2021	—	—	—	—	—	—	—	—	173,568	169,566	60,497	6,486
2022	—	—	—	—	—	—	—	—	—	223,447	105,571	7,330
Total	—	—	—	—	—	—	—	—	—	1,177,516	—	—
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	( 821,766 )	—	—
Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	4,945	—	—
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	360,695	—	—
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Cumulative paid losses and ALAE, net of reinsurance

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
	Years Ended December 31,
Accident Year	2013*	2014*	2015*	2016*	2017*	2018*	2019*	2020*	2021*	2022
2013	19,912	40,425	48,673	59,460	67,857	73,511	75,117	75,340	75,030	74,178
2014	—	32,530	63,699	81,251	96,639	101,984	104,984	105,756	106,214	104,076
2015	—	—	44,152	72,137	88,833	99,401	108,291	114,098	117,295	118,166
2016	—	—	—	23,239	42,528	53,352	58,895	60,864	63,893	71,565
2017	—	—	—	—	23,770	41,945	53,093	64,235	67,243	69,096
2018	—	—	—	—	—	26,201	42,568	50,320	64,119	70,080
2019	—	—	—	—	—	—	33,019	59,529	78,803	96,601
2020	—	—	—	—	—	—	—	33,538	67,216	83,533
2021	—	—	—	—	—	—	—	—	39,388	78,923
2022	—	—	—	—	—	—	—	—	—	55,548
Total	—	—	—	—	—	—	—	—	—	821,766
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Exited Lines — all lines in runoff

• The table presents the reconciliation of net incurred and paid claims development to loss reserves in the consolidated balance sheets as of December 31, 2022, by sub-category ^{p. 94}.
• The following table presents supplementary information about average historical claims duration as of December 31, 2022, by sub-category ^{p. 94}.

Reconciliation of net incurred and paid claims development to loss reserves

Incurred Losses and ALAE, Net of Reinsurance ($ in thousands)											As of December 31, 2022
	Years Ended December 31,											Reported Claims
Accident Year	2013*	2014*	2015*	2016*	2017*	2018*	2019*	2020*	2021*	2022	IBNR	Reported Claims
2013	44,791	37,993	44,909	46,437	48,372	48,372	49,850	49,486	53,236	54,130	2,031	2,640
2014	—	64,186	57,904	62,425	63,729	63,729	68,855	69,920	71,219	71,761	11,475	4,149
2015	—	—	61,810	65,063	68,008	70,803	75,187	80,678	83,365	84,058	1,779	4,550
2016	—	—	—	93,526	92,743	91,119	93,324	103,602	104,612	105,852	5,975	4,858
2017	—	—	—	—	75,919	80,341	82,545	95,119	97,011	98,646	33,630	4,309
2018	—	—	—	—	—	73,492	68,125	78,902	90,348	96,685	335	4,864
2019	—	—	—	—	—	—	87,115	90,598	92,118	106,594	2,487	5,549
2020	—	—	—	—	—	—	—	83,900	86,700	86,700	5,196	4,719
2021	—	—	—	—	—	—	—	—	49,957	46,146	33,733	2,265
2022	—	—	—	—	—	—	—	—	—	31,487	9,336	185
Total	—	—	—	—	—	—	—	—	—	782,059	—	—
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	( 612,456 )	—	—
Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	Net reserves for loss and LAE before 2013	8,890	—	—
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	178,493	—	—
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Cumulative paid losses and ALAE, net of reinsurance

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
	Years Ended December 31,
Accident Year	2013*	2014*	2015*	2016*	2017*	2018*	2019*	2020*	2021*	2022
2013	4,763	17,904	36,890	42,995	41,158	44,186	47,101	48,069	48,322	49,605
2014	—	9,700	30,863	42,141	50,785	49,906	52,450	53,290	53,615	55,737
2015	—	—	9,026	41,653	55,610	65,269	73,100	77,981	80,312	81,789
2016	—	—	—	36,592	57,638	70,253	78,070	81,516	85,794	87,966
2017	—	—	—	—	34,177	52,103	51,985	56,839	63,516	68,434
2018	—	—	—	—	—	25,552	60,149	67,262	80,448	90,791
2019	—	—	—	—	—	—	28,636	63,243	66,682	82,878
2020	—	—	—	—	—	—	—	24,468	54,950	63,468
2021	—	—	—	—	—	—	—	—	9,856	15,449
2022	—	—	—	—	—	—	—	—	—	16,339
Total	—	—	—	—	—	—	—	—	—	612,456
*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.	*Data presented for these calendar years is required supplementary information, which is unaudited.

Net reserves for losses and LAE

($ in thousands)	2022
Net reserves for losses and LAE:	—
Short Tail/Monoline Specialty	158,903
Multi-line Solutions	360,695
Exited Lines	178,493
Reserves for losses and LAE, net of reinsurance	698,091
Reinsurance recoverable on unpaid claims:	—
Short Tail/Monoline Specialty	147,435
Multi-line Solutions	252,673
Exited Lines	35,878
Total reinsurance recoverable on unpaid claims	435,986
Unallocated LAE	7,680
Reserves for losses and LAE at end of year	1,141,757

Average annual percentage payout of incurred claims by age

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited Required Supplementary Information)
	Years
Years	1	2	3	4	5	6	7	8	9	10
Short Tail/Monoline Specialty	56.0%	24.0%	10.1%	6.2%	2.9%	0.1%	—%	0.6%	0.1%	—%
Multi-line Solutions	40.7%	26.1%	14.9%	8.1%	5.1%	3.6%	1.2%	—%	0.2%	0.1%
Exited Lines	43.4%	26.7%	12.7%	8.6%	4.5%	1.7%	1.1%	0.9%	0.4%	—%

16. Premiums

• Direct and assumed premiums written for the year ended December 31, 2022, totaled USD 1,200,000 ^{p. 95}.
• Direct and assumed premiums written for the year ended December 31, 2021, totaled USD 875,000 ^{p. 95}.

Direct and assumed premiums written by line of business

($ in thousands)	2022		2021
Property	279,384	24.4%	235,686	25.1%
Commercial Auto Liability	243,300	21.3%	227,853	24.2%
General Liability	140,557	12.3%	116,953	12.4%
Group Accident & Health	130,808	11.4%	112,146	11.9%
Professional Liability	90,418	7.9%	61,466	6.5%
Excess Liability	79,922	7.0%	52,176	5.6%
Surety	79,062	6.9%	51,792	5.6%
Workers’ Compensation	51,790	4.5%	41,890	4.5%
Commercial Auto Physical Damage	48,711	4.3%	39,897	4.2%
Total	1,143,952	100.0%	939,859	100.0%

17. Commission and Fee Income

• SUA acts as a managing general insurance agent and reinsurance broker for property and casualty and accident and health risks in specialty niche markets ^{p. 96}.
• Commission and fee income is primarily generated from SUA for placing insurance policies with third-party insurance or reinsurance companies ^{p. 96}.
• Disaggregated revenues from contracts with customers for the years ended December 31, 2022 and 2021 are presented ^{p. 96}.
• Contract assets from commission and fee income for the years ended December 31, 2022 and 2021 are presented ^{p. 96}.

Disaggregated revenues from contracts with customers

($ in thousands)	2022	2021
SUA commission revenue	3,224	2,037
SUA fee income	1,597	1,185
Other	378	751
Total commission and fee income	5,199	3,973

Contract asset

($ in thousands)	2022	2021
Contract asset	1,292	1,209

18. Underwriting, Acquisition and Insurance Expenses

• Underwriting, acquisition and insurance expenses at December 31, 2022, included:
  • Commissions and brokerage of USD 190,000 ^{p. 97}
  • Salaries and employee benefits of USD 109,000 ^{p. 97}
  • General and administrative expenses of USD 100,000 ^{p. 97}
  • Premium taxes, licenses and fees of USD 18,000 ^{p. 97}
  • Total underwriting, acquisition and insurance expenses of USD 417,000 ^{p. 97}
• Underwriting, acquisition and insurance expenses at December 31, 2021, included:
  • Commissions and brokerage of USD 147,000 ^{p. 97}
  • Salaries and employee benefits of USD 83,000 ^{p. 97}
  • General and administrative expenses of USD 76,000 ^{p. 97}
  • Premium taxes, licenses and fees of USD 14,000 ^{p. 97}
  • Total underwriting, acquisition and insurance expenses of USD 320,000 ^{p. 97}

Total underwriting, acquisition and insurance expenses

($ in thousands)	2022	2021
Amortization of policy acquisition costs	65,695	47,061
Other operating and general expenses	116,476	91,437
Total underwriting, acquisition and insurance expenses	182,171	138,498

19. Reinsurance

• Reinsurance agreements provide the Company with increased capacity to write larger risks and maintain loss exposure within its capital resources ^{p. 98}.
• The Company remains obligated for ceded amounts if reinsurers fail to meet their obligations ^{p. 98}.
• The market value of funded trust accounts established by reinsurers for the Company's benefit was approximately USD 128.0m at December 31, 2022 ^{p. 98}.
• These trust accounts provide additional security for collecting claim recoverables under reinsurance contracts ^{p. 98}.
• The Company does not carry these trust accounts on its balance sheet, gaining custody only if the reinsurer fails to pay amounts due ^{p. 98}.
• Reinsurance agreements stipulate that reinsurers will continue claim payment reimbursements without disturbing trust balances ^{p. 98}.
• The trust amount is adjusted periodically by mutual agreement based on loss reserve recoverables ^{p. 98}.
• The Company entered into an LPT retroactive reinsurance agreement during the first quarter of 2020 ^{p. 98}.
• Under the LPT, the Company received reinsurance protection of approximately USD 127.4m above ceded losses and LAE reserves ^{p. 98}.
• The LPT is subject to co-participations at specified amounts ^{p. 98}.
• During the year ended December 31, 2022, the Company strengthened reserves for certain divisions covered by the LPT by USD 14.4m ^{p. 98}.
• During the year ended December 31, 2021, the Company strengthened reserves for certain divisions covered by the LPT by USD 28.0m ^{p. 98}.
• The reserve strengthening resulted in an increase in the amount ceded under the LPT agreement ^{p. 98}.
• The increase in the amount ceded during the year ended December 31, 2022, was partially offset by USD 5.8m of recognized gain ^{p. 98}.
• The increase in the amount ceded during the year ended December 31, 2021, was partially offset by USD 11.9m of recognized gain ^{p. 98}.
• Certain ceded reinsurance contracts that transfer only significant timing risk and do not transfer sufficient underwriting risk are accounted for using the deposit method of accounting ^{p. 98}.
• The Company's deposit asset was included in other assets on the consolidated balance sheets ^{p. 98}.

Ceded reinsurance contracts accounted for using the deposit method

	2022		2021
($ in thousands)	Written	Earned	Written	Earned
Direct premiums	1,012,239	951,121	842,318	816,837
Assumed premiums	131,713	113,610	97,541	102,352
Ceded premiums	( 468,409 )	( 448,737 )	( 410,716 )	( 419,366 )
Net premiums	675,543	615,994	529,143	499,823
Ceded losses and LAE incurred	—	311,257	—	248,360

Unpaid losses and loss adjustment expenses ceded

($ in thousands)	2022	2021
Unpaid losses and loss adjustment expenses ceded	435,986	381,338
Paid losses and loss adjustment expense ceded	107,228	90,761
Loss portfolio transfer	38,145	64,228
Reinsurance recoverables	581,359	536,327
Ceded unearned premium	157,645	137,973

Pretax net impact of the LPT and strengthening of reserves

($ in thousands)	2022	2021
Strengthening of reserves subject to the LPT	( 14,385 )	( 28,000 )
Reinsurance recoveries under the LPT	5,813	11,937
Pretax net impact of the LPT and strengthening of reserves subject to the LPT	( 8,572 )	( 16,063 )

Deposit asset

($ in thousands)	2022	2021
Deposit asset	41,801	45,003

20. Stock Based Compensation

• The Legacy Programs were active during the year ended December 31, 2021 ^{p. 99}.
• Key employees could purchase the Company's common stock at fair value at the end of the quarter of commitment ^{p. 99}.
• The Company matched all purchases with stock grants ^{p. 99}.
• Programs required an initial cash payment of at least 30% of the committed fair value ^{p. 99}.
• Any remaining commitment was recorded as a note receivable, included in Stockholders' Equity ^{p. 99}.
• Grants awarded vest after two conditions: three years of employment and cash payments for stock purchases ^{p. 99}.
• All grants under Legacy Programs vest over a three-year service period and are expensed pro rata ^{p. 99}.
• The Company sold 63,374 shares of common stock under Legacy Programs during the year ended December 31, 2021 ^{p. 99}.
• The Company granted a match of 63,374 shares of common stock during the year ended December 31, 2021 ^{p. 99}.
• Board of Directors members were awarded 51,889 common shares with a service period of 0 to 3 years during the year ended December 31, 2021 ^{p. 99}.
• Employees could finance up to 70% of purchased shares with a stock note receivable under Legacy Programs ^{p. 99}.
• Stock notes receivable are recorded as a reduction to Stockholders' Equity ^{p. 99}.
• Stock notes receivable interest rates ranged from 0.95% to 2.80%, based on IRS applicable federal rates ^{p. 99}.
• During the year ended December 31, 2021, employees returned 21,314 common shares and forfeited the same number of award shares due to non-repayment of stock notes receivable ^{p. 99}.
• The return of 10,657 financed shares resulted in the cancellation of $0.8 million in stock notes for the year ended December 31, 2021 ^{p. 99}.
• Forfeitures of 10,657 award shares resulted in the reversal of $0.8 million in previously recognized stock compensation expense for the year ended December 31, 2021 ^{p. 99}.
• Under the 2021 Plan, the Compensation Committee approved 198,842 shares of common stock in 2022 and 217,395 shares in 2021 ^{p. 99}.
• Board of Directors members were awarded 15,196 common shares with a one-year service period during the year ended December 31, 2022 ^{p. 99}.
• Shares granted to employees and the Board of Directors were valued at approximately $2.6 million in 2022 and $2.5 million in 2021, based on grant date fair value ^{p. 99}.
• As of December 31, 2022, the total unrecognized compensation cost related to non-vested, share-based compensation awards was $2.8 million ^{p. 99}.
• The weighted average period over which the unrecognized compensation cost is expected to be recognized is 1.6 years ^{p. 99}.

Common stock notes receivable

($ in thousands)	2022	2021
Common stock notes receivable	512	1,630

Share-based compensation awards

	Award Payout Range	Requisite Service Period	Authorized Target Common Shares
Year ended December 31, 2022	—	—	—
Market condition awards	0 % — 150 %	3 years	28,495
Performance condition awards	0 % — 150 %	3 years	26,210
Restricted share and stock unit awards	N/A	1 to 3 years	144,137
—	—	—	198,842
Market condition awards	0 % — 150 %	3 years	46,474
Performance condition awards	0 % — 150 %	3 years	29,501
Restricted stock unit awards	N/A	3 years	141,420
—	—	—	217,395

Non-vested share-based compensation awards

—	Weighted-Average Grant-Date Fair Value	Number of Common Shares
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
Non-vested at January 1, 2021	19.47	84,671
Granted	11.95	332,658
Vested	14.20	( 6,514 )
Forfeited	16.01	( 35,172 )
Non-vested at December 31, 2021	13.23	375,643

Stock-based compensation expense

($ in thousands)	2022	2021
Stock-based compensation expense	—	—
Stock-based compensation expense	2,325	1,365
Forfeitures	( 38 )	( 843 )
Total	2,287	522

21. Earnings Per Share

• Preferred Shares participate in dividends and distributions with common stock on an as-converted basis, classifying them as a participating security ^{p. 100}.
• Anti-dilutive instruments are excluded from the calculation of diluted weighted-average common share equivalents due to their anti-dilutive impact ^{p. 100}.
• Common and preferred shares financed by stock notes are contingently issuable instruments, requiring holders to return shares if stock notes are not paid off ^{p. 100}.
• 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 EPS computations for the years ended December 31, 2022 and 2021 ^{p. 100}.

Impact of contingently issuable instruments on diluted EPS

($ in thousands, except for share and per share amounts)	2022	2021
Numerator	—	—
Net income	39,396	38,317
Less: Undistributed income allocated to participating securities	( 18,879 )	( 18,507 )
Net income attributable to common shareholders (numerator for basic earnings per share)	20,517	19,810
Add back: Undistributed income allocated to participating securities	18,879	18,507
Net income (numerator for diluted earnings per share under the two-class method)	39,396	38,317
Basic weighted-average common shares	16,568,393	16,308,712
Preferred shares (if converted method)	15,245,533	15,235,568
Contingently issuable instruments (treasury stock method)	519,080	723,146
Market condition awards (contingently issuable)	94,936	67,598
Performance awards (contingently issuable)	39,148	—
Restricted stock units (treasury stock method)	186,104	133,024
Diluted weighted-average common share equivalents	32,653,194	32,468,048
Basic earnings per share	1.24	1.21
Diluted earnings per share	1.21	1.18

Contingently issuable instruments (treasury stock method)

—	2022	2021
Contingently issuable instruments (treasury stock method)	60,576	—

Common and preferred shares

—	2022	2021
Common shares	22,919	192,609
Preferred shares, if converted	1,059,602	1,235,420
Total	1,082,521	1,428,029

22. Employee Benefit Plans

• The Company sponsors the 401(k) Plan ("the Plan") ^{p. 101}.
• The Plan is available to substantially all of the Company's employees ^{p. 101}.
• The Plan is subject to provisions of the Employee Retirement Income Security Act of 1974 ^{p. 101}.
• The Company matches employee contributions on a discretionary basis ^{p. 101}.
• The Company's expensed matching contributions for the years ended December 31, 2022 and 2021 are presented in the following table ^{p. 101}.

401(k) matching contributions

($ in thousands)	2022	2021
401(k) matching contributions	2,389	2,288

Westaim

• Westaim HIIG LP acquired a majority of the Company's common stock in 2014 and 2015 ^{p. 102}.
• Westaim HIIG LP ownership of the Company's common stock was 44.5% as of December 31, 2022, and 71.0% as of December 31, 2021 ^{p. 102}.
• Changes in Westaim HIIG LP's ownership percentage were primarily due to transactions between Westaim HIIG LP and its partners ^{p. 102}.
• In 2015, the Company purchased 3,076,924 shares of Westaim common stock for $8.4 million ^{p. 102}.
• The Company's investment in Westaim is included in equity securities on the consolidated balance sheets ^{p. 102}.
• On April 24, 2020, Westaim HIIG LP affiliates participated in the Company's preferred share rights offering ^{p. 102}.
• Westaim HIIG LP affiliates purchased $68.6 million of Preferred Shares in exchange for $68.1 million of cash and $0.5 million of stock notes ^{p. 102}.
• Westaim purchased $44.0 million of Preferred Shares in exchange for $44.0 million of cash within this group ^{p. 102}.
• Westaim owns 44.7% of the Company's preferred stock as of December 31, 2022 and 2021 ^{p. 102}.
• Westaim performs consulting and other services for the Company under a Management Services Agreement ^{p. 102}.
• The Company is required to pay Westaim $0.5 million a year plus expenses under the Management Services Agreement ^{p. 102}.
• The Management Services Agreement termination date is the earliest of: (a) Westaim HIIG LP owning less than 8% of outstanding shares, (b) the Company's initial public offering consummation, or (c) a change in control ^{p. 102}.

Unrealized losses on investment in Westaim

($ in thousands)	2022	2021
Unrealized losses on investment in Westaim	( 2,283 )	( 1,971 )

Management services agreement

($ in thousands)	2022	2021
Management services agreement	500	500

Riscom

• In 2016, the Company entered into an agency agreement with RISCOM for wholesale brokerage services ^{p. 103}.
• The Company holds a 20% ownership interest in RISCOM ^{p. 103}.
• This agency agreement is in addition to an already existing managing general agency agreement between the parties ^{p. 103}.

RISCOM agency agreement details

($ in thousands)	2022	2021
Net earned premium	91,051	76,701
Gross written commissions	23,472	21,256

Premiums receivable

($ in thousands)	2022	2021
Premiums receivable	9,940	11,334

Reinsurance

• The Company has reinsurance agreements with Everest Re, an affiliate of Mt. Whitney Securities, LLC, which is a limited partner of Westaim HIIG LP and a holder of Preferred Shares ^{p. 104}.
• Reinsurance premiums ceded related to the agreement at December 31, 2022, and 2021 are as follows ^{p. 104}.
• Reinsurance recoverable from Everest Re, net of premium payables, for the years ended December 31, 2022, and 2021 are as follows ^{p. 104}.

Reinsurance premiums ceded

($ in thousands)	2022	2021
Reinsurance premiums ceded	59,592	101,154

Reinsurance recoverable, net of premium payables

($ in thousands)	2022	2021
Reinsurance recoverable, net of premium payables	177,455	168,847

Arena

• During the year ended December 31, 2022, the Company began investing in multiple investment products issued by Arena Special Opportunities Partners (Feeder) II, LP ("Arena SOP II"), which is managed by Arena, an affiliate of Westaim ^{p. 105}.
• The investment products include senior and junior notes issued by Arena SOP II to raise capital from limited partners for investment purchases ^{p. 105}.
• The return on these investments is used to pay interest on the senior and junior notes based on the target returns of each class ^{p. 105}.
• The senior and junior notes are debt securities classified as held to maturity and are presented on the balance sheet within fixed maturity securities, held to maturity ^{p. 105}.
• As of December 31, 2022, the Company invested senior and junior notes USD 3.4m ^{p. 105}.
• During the second quarter of 2021, the Company began investing in an asset-backed securities investment account managed by Arena ^{p. 105}.
• These asset-backed securities are classified within fixed maturity securities, available for sale, on the consolidated balance sheet ^{p. 105}.
• As of December 31, 2022, the Company had no unfunded commitment related to this asset-backed securities investment ^{p. 105}.

Other

• Advisory and professional services fees and expense reimbursements were paid to affiliated shareholders and directors during the years ended December 31, 2022 and 2021 ^{p. 106}.
• Note 7, 8, and 11 provide information on investments involving affiliated companies and additional related party transactions ^{p. 106}.
• Note 13 details related party transactions concerning the Company’s preferred share rights offering ^{p. 106}.

Professional fees and reimbursements

($ in thousands)	2022	2021
Professional fees and reimbursements	3,387	3,669

Litigation

• The Company is a defendant in various legal actions related to claims under insurance policies and contracts ^{p. 107}.
• These actions are considered when estimating losses and loss adjustment expense reserves ^{p. 107}.
• The Company is also a defendant in legal actions concerning bad faith claims, disputes with third parties, or alleged errors and omissions ^{p. 107}.
• Accruals for these items are recorded when losses are probable and reasonably estimable ^{p. 107}.
• Management believes that the resolution of these matters, individually or in aggregate, will not have a material adverse effect on the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows, based on present information, insurance coverage, and legal advice ^{p. 107}.
• The Company recorded no provision for various contingencies during the years ended December 31, 2022 and 2021 ^{p. 107}.

Indemnification

• The Company has provided indemnifications to certain buyers in conjunction with the sale of business assets and subsidiaries ^{p. 108}.
• These indemnifications cover typical representations and warranties related to responsibilities under sales contracts ^{p. 108}.
• The potential exposure covered by these indemnifications is difficult to determine due to the variety of matters, operations, and scenarios covered ^{p. 108}.
• Certain indemnifications have no time limit ^{p. 108}.
• As of December 31, 2022, the Company does not believe any significant claims exist related to these indemnifications ^{p. 108}.

Contingent Consideration Related to Acquisitions

• The Company may owe earn-out liabilities to former owners of acquired assets and businesses ^{p. 109}.
• No earn-out liabilities existed as of December 31, 2022, and 2021 ^{p. 109}.

Earn-out payments to former owners

($ in thousands)	2022	2021
Earn-out payments to former owners	—	554

25. Regulatory Matters

• A significant portion of the consolidated assets are assets of the Company's insurance company subsidiaries: HSIC, IIC, GMIC, and OSIC ^{p. 110}.
• IIC, OSIC, and GMIC are direct and indirect wholly-owned subsidiaries of HSIC ^{p. 110}.
• HSIC is restricted by Texas law regarding the amount of dividends it can pay without regulatory approval ^{p. 110}.
• The maximum dividend amount payable by HSIC without prior approval is subject to restrictions related to policyholder surplus, net income, and dividends declared or distributed in the preceding 12 months ^{p. 110}.
• As of December 31, 2022, HSIC is not restricted from paying ordinary dividends ^{p. 110}.
• HSIC did not declare or pay any dividends during the years ended December 31, 2022 and 2021 ^{p. 110}.
• Property and casualty insurance companies are subject to Risk Based Capital ("RBC") requirements specified by the National Association of Insurance Commissioners ("NAIC") ^{p. 110}.
• RBC requirements determine the amount of capital and surplus based on various risk factors ^{p. 110}.
• As of December 31, 2022 and 2021, the Company's insurance company subsidiaries met the RBC requirements ^{p. 110}.
• The capital and surplus and RBC level of HSIC on a consolidated statutory basis (including IIC, GMIC, OSIC, and BIC) are provided for the years ended December 31, 2022 and 2021 ^{p. 110}.

Statutory capital and surplus and RBC level of HSIC

($ in thousands)	2022	2021
Statutory capital and surplus	408,167	369,583
RBC authorized control level	110,635	84,968

26. Statutory Accounting Principles

• Statutory capital and surplus for the Company's principal operating subsidiaries for the years ended December 31, 2022 and 2021 included ownership interests in affiliated insurance subsidiaries ^{p. 111}.
• Statutory net income (loss) for the Company's principal operating subsidiaries for the years ended December 31, 2022 and 2021 is presented ^{p. 111}.
• Additional information regarding the sale of BIC can be found in note 4 ^{p. 111}.

Statutory net income (loss) for principal operating subsidiaries

($ in thousands)	2022	2021
HSIC	408,167	369,583
IIC	272,413	215,508
GMIC	259,311	209,347
OSIC	21,270	21,095

Statutory net income (loss) for principal operating subsidiaries

($ in thousands)	2022	2021
HSIC	10,860	5,880
IIC	25,394	7,315
GMIC	14,091	( 947 )
BIC	—	( 67 )
OSIC	173	31

27. Subsequent Events

• On September 23, 2022, the Board of Directors approved a 4-for-1 reverse stock split of the Company’s common stock, effective January 3, 2023 ^{p. 112}.
• All share and per share information in the consolidated financial statements and notes have been retroactively adjusted to reflect the stock split for all periods presented ^{p. 112}.
• On September 23, 2022, the Board of Directors approved the 2022 Long-Term Incentive Plan (the "2022 Plan"), effective January 12, 2023 ^{p. 112}.
• The 2022 Plan made 3,200,516 shares of common stock available for issuance ^{p. 112}.
• On September 23, 2022, the Board of Directors approved the 2022 Employee Stock Purchase Plan (the "ESPP"), effective January 12, 2023 ^{p. 112}.
• The ESPP made 376,531 shares of common stock available for sale ^{p. 112}.
• On January 3, 2023, the Company entered into a Term Sheet with Truist Securities, Inc. to refinance its existing credit agreement ^{p. 112}.
• The Term Sheet provides a new unsecured credit facility (the "New Credit Facility") with Truist Securities, Inc. leading a syndicate of banks ^{p. 112}.
• The New Credit Facility is expected to provide up to a USD 150.0 million revolving credit facility and a letter of credit sub-facility of up to USD 10.0 million ^{p. 112}.
• The New Credit Facility is also expected to permit an uncommitted accordion facility up to USD 50.0 million, subject to agreed conditions ^{p. 112}.
• The Company expects to close on the New Credit Facility in the first quarter of 2023 ^{p. 112}.
• On January 4, 2023, the Company announced the launch of its initial public offering ("IPO") of common stock ^{p. 112}.
• On January 12, 2023, the Company priced its IPO of 8,952,383 shares of common stock at a public price of USD 15.00 per share ^{p. 112}.
• Of the IPO shares, 4,750,000 were offered by the Company and 4,202,383 were sold by selling stockholders ^{p. 112}.
• Shares began trading on January 13, 2023, on the Nasdaq Global Select Market under the ticker symbol "SKWD" ^{p. 112}.
• The Company completed its IPO on January 18, 2023 ^{p. 112}.
• The underwriters fully exercised their option to purchase 1,342,857 additional shares of common stock from selling stockholders at USD 15.00 per share ^{p. 112}.
• The Company's net proceeds from the IPO were approximately USD 62.3 million, after deducting underwriting discounts and specific incremental expenses ^{p. 112}.
• Upon IPO closing, the Company filed an amended and restated certificate of incorporation ^{p. 112}.
• The amended certificate increased authorized shares to 500,000,000 shares of common stock (par value USD 0.01 per share) and 10,000,000 shares of preferred stock (par value USD 0.01 per share) ^{p. 112}.
• Preferred Shares were subject to mandatory conversion at the Mandatory Conversion Rate upon IPO closing ^{p. 112}.
• On January 18, 2023, 1,969,660 Preferred Shares converted to 16,305,113 shares of common stock ^{p. 112}.

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. 113}.
• The evaluation included the participation of the principal executive officer and principal financial officer ^{p. 113}.
• 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. 113}.
• As of December 31, 2022, the disclosure controls and procedures were concluded to be effective at the reasonable assurance level by the principal executive officer and principal financial officer ^{p. 113}.
• Management acknowledges that controls and procedures can only provide reasonable assurance of achieving their objectives ^{p. 113}.
• Management applies judgment in evaluating the cost-benefit relationship of potential controls and procedures ^{p. 113}.

Management’s Report on Internal Control over Financial Reporting

• Management responsibility: 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. 114}.
• Internal control design: 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. 114}.
• Policies and procedures: Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect transactions and dispositions of assets ^{p. 114}.
• Transaction recording: Policies and procedures provide reasonable assurance that transactions are recorded as necessary for financial statement preparation in accordance with GAAP, and that receipts and expenditures align with management and director authorizations ^{p. 114}.
• Asset protection: Policies and procedures provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could materially affect financial statements ^{p. 114}.
• Inherent limitations: Internal control over financial reporting may not prevent or detect misstatements due to inherent limitations ^{p. 114}.
• Future effectiveness risk: Projections of effectiveness to future periods are subject to risks that controls may become inadequate due to changing conditions or that compliance may deteriorate ^{p. 114}.
• Assessment date: Management assessed the effectiveness of internal control over financial reporting as of December 31, 2022 ^{p. 114}.
• Assessment framework: Management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission for its assessment ^{p. 114}.
• Assessment scope: Management's assessment included evaluating the design and testing the operational effectiveness of internal control over financial reporting ^{p. 114}.
• Audit committee review: Management reviewed the assessment results with the audit committee of the board of directors ^{p. 114}.
• Conclusion on effectiveness: Based on the assessment, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2022 ^{p. 114}.
• Attestation report exclusion: 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 because the company is an emerging growth company as of December 31, 2022, as defined in the JOBS Act ^{p. 114}.

Changes in Internal Control over Financial Reporting

• Material weakness in internal control over financial reporting identified for the year ended December 31, 2021, due to not designing or maintaining an effective control environment and associated control activities to meet accounting and reporting requirements ^{p. 115}.
• The material weaknesses identified for the year ended December 31, 2021, were remediated for the year ended December 31, 2022 ^{p. 115}.
• Aside from the remediation of the material weakness from 2021, there were no other changes in internal control over financial reporting identified during the year ended December 31, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting, as per Rule 13a-15(d) and 15d-15(d) of the Exchange Act ^{p. 115}.

Directors, Executive Officers and Corporate Governance

• The information required by Item 10 of Form 10-K will be included in the 2023 Proxy Statement and is incorporated by reference ^{p. 116}.

Executive Compensation

• The information required by Item 11 of Form 10-K will be included in the company's 2023 Proxy Statement and is incorporated by reference ^{p. 117}.

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 2023 Proxy Statement and is incorporated by reference ^{p. 118}.

Certain Relationships and Related Transactions, and Director Independence

• The information required by Item 13 of Form 10-K will be included in the 2023 Proxy Statement and is incorporated by reference ^{p. 119}.

Principal Accounting Fees and Services

• Our independent registered public accounting firm is Ernst & Young LLP, Houston, Texas ^{p. 120}.
• Auditor Firm ID: 42 ^{p. 120}.
• The information required by Item 14 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference ^{p. 120}.

Exhibits, Financial Statement Schedules.

• The following consolidated financial statements of the Company are filed as part of this Form 10-K and are included in Item 8: ^{p. 121}
  • Report of Independent Registered Public Accounting Firm ^{p. 121}
  • Consolidated Balance Sheets as of December 31, 2022 and 2021 ^{p. 121}
  • Consolidated Statements of Operations and Comprehensive (Loss) Income for the two years in the period ended December 31, 2022 and 2021 ^{p. 121}
  • Consolidated Statements of Stockholders’ Equity for the two years in the period ended December 31, 2022 and 2021 ^{p. 121}
  • Consolidated Statements of Cash Flows for the two years in the period ended December 31, 2022 and 2021 ^{p. 121}
• Listing of Exhibits ^{p. 121}
  • Exhibits marked with * are to be filed by amendment. ^{p. 121}
  • Exhibits marked with + indicate a management contract or compensatory plan or arrangement. ^{p. 121}
  • Exhibits marked with † have portions omitted for confidentiality purposes. ^{p. 121}

Exhibits schedule

Schedule Number	Schedule Description	Page
I.	Summary of Investments — Other Than in Related Parties at December 31, 2022	105
II.	Condensed Financial Information of Registrant (Parent Company) for the years ended December 31, 2022 and 2021	106
IV.	Supplementary Reinsurance Information for the years ended December 31, 2022 and 2021	109
V.	Valuation and Qualifying Accounts for the years ended December 31, 2022 and 2021	110
VI.	Supplementary Information Concerning Property — Casualty Insurance Operations for the years ended December 31, 2022 and 2021	111

Exhibits list

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
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).
10.6+	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).

Exhibits list

Exhibit Number	Exhibit Description
10.7+	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).
10.8+	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).
10.9+	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).
10.10+	Form of Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.11+	Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.12+	Performance Unit Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.13+	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).
10.14+	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).
10.15+	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).
10.16	Lease Agreement by and between Memorial City Towers, Ltd. and Southwest Insurance Partners, Inc., dated December 1, 2008, with Amendment No. 1, dated February 16, 2009, Lease Commencement Agreement, dated August 24, 2009, Supplemental Parking Agreement, dated September 24, 2009, Amendment No. 2, dated August 17, 2010, Supplemental Letter Agreement dated August 26, 2010, Supplemental Lease Commencement Agreement, dated November 8, 2010, Amendment No. 3, dated February 20, 2013, Supplemental Commencement Agreement, dated September 25, 2013, Amendment No. 4, dated April 21, 2015, Amendment No. 5, dated July 27, 2015, Supplemental Commencement Agreement, dated October 7, 2015, Supplemental Commencement Agreement, dated April 7, 2016, Amendment No. 6, dated May 9, 2016, Supplemental Commencement Agreement, dated February 24, 2017, Amendment No. 7, dated November 6, 2017, and Supplemental Commencement Agreement, dated October 3, 2018 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.17	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).
10.18	Management Services Agreement by and between Westaim HIIG GP Inc. and Houston International Insurance Group, Ltd., dated August 1, 2019 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.19	Surety Excess of Loss Reinsurance Contract by and among Everest Reinsurance Company, Houston Specialty Insurance Company, Imperium Insurance Company, Great Midwest Insurance Company, Oklahoma Specialty Insurance Company and Boston Indemnity Company, Inc., dated June 1, 2021 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.20*	Consulting Agreement by and between Stephen Way and Skyward Specialty Insurance Group, Inc., dated January 1, 2022 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.21*	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).

Exhibits list

Exhibit Number	Exhibit Description
10.22*	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).
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 P rincipal E xecutive O fficer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Sec uriti es Exchan ge 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.
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 Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
104	Cover Page Interactive Date File (embedded within the Inline XBRL document)

Fixed maturity securities

($ in thousands)	Cost	Fair Value	Amount on Balance Sheet
December 31, 2022
Fixed maturity securities, available for sale:	—	—	—
U.S. government securities	50,416	48,541	48,541
Corporate securities and miscellaneous	255,116	235,129	235,129
Municipal securities	65,836	57,727	57,727
Residential mortgage-backed securities	134,844	119,856	119,856
Commercial mortgage-backed securities	40,129	36,495	36,495
Asset-backed securities	116,275	109,824	109,824
Total fixed maturity securities, available for sale	662,616	607,572	607,572
Asset-backed securities	52,467	46,771	52,467
Total fixed maturity securities, held to maturity	52,467	46,771	52,467
Common stocks	50,484	55,996	55,996
Preferred stocks	11,798	8,771	8,771
Mutual funds	53,968	55,402	55,402
Total equity securities	116,250	120,169	120,169
Mortgage loans	51,859	52,842	51,859
Short-term investments	121,158	121,158	121,158
Total investments	1,004,350	948,512	953,225

Assets

	December 31,
($ in thousands)	2022	2021
Assets
Investments:	—	—
Investment in subsidiaries	503,549	517,326
Short-term investments, at fair value	25	25
Total investments	503,574	517,351
Cash and cash equivalents	8,909	5,849
Restricted cash	—	156
Deferred income taxes	19,655	15,182
Goodwill and intangible assets, net	12,641	12,641
Other assets	6,992	4,218
Total assets	551,771	555,397
Liabilities and Stockholders’ Equity	—	—
Accounts payable and accrued liabilities	1,500	788
Notes payable	50,000	50,000
Subordinated debt, net of debt issuance costs	78,609	78,529
Total liabilities	130,109	129,317
Stockholders’ Equity:	—	—
Stockholders’ equity	421,662	426,080
Total liabilities and stockholders’ equity	551,771	555,397

Revenues and expenses

	December 31,
($ in thousands)	2022	2021
Revenues:	—	—
Net investment income	2,567	2,383
Net investment losses	( 6 )	—
Total revenues	2,561	2,383
Interest expense	6,407	4,621
Amortization expense	81	81
Total expenses	6,488	4,702
Loss before income tax expense	( 3,927 )	( 2,319 )
Income tax benefit	( 1,209 )	( 487 )
Net loss before equity in earnings of subsidiaries	( 2,718 )	( 1,832 )
Equity in undistributed earnings of subsidiaries	42,114	40,149
Net income	39,396	38,317

Cash flows

	December 31,
($ in thousands)	2022	2021
Cash flows from operating activities:	—	—
Net income	39,396	38,317
Adjustments to reconcile net income to net cash used in operating activities	( 42,672 )	( 40,447 )
Net cash provided by operating activities	( 3,276 )	( 2,130 )
Capital contribution to subsidiaries	—	( 10,000 )
Distributions from investment in subsidiaries	4,000	4,000
Net cash provided by (used in) investing activities	4,000	( 6,000 )
Employee share purchases	2,180	1,380
Net cash provided by financing activities	2,180	1,380
Net increase (decrease) in cash and cash equivalents and restricted cash	2,904	( 6,750 )
Cash and cash equivalents and restricted cash at beginning of year	6,005	12,755
Cash and cash equivalents and restricted cash at end of year	8,909	6,005
Supplemental disclosure of cash flow information:	—	—
Cash paid for interest	5,761	4,669

Reinsurance activity and percentages

	December 31,
	2022		2021
($ in thousands)	Accident & Health	Property & Casualty	Accident & Health	Property & Casualty
Gross amount	130,377	881,862	111,759	730,559
Ceded to other companies	( 70,291 )	( 398,118 )	( 68,350 )	( 342,366 )
Assumed from other companies	431	131,282	387	97,154
Net amount	60,517	615,026	43,796	485,347
Percentage of amount assumed to net	0.7%	21.3%	0.9%	20.0%

Valuation and uncollectible allowances

($ in thousands)	Valuation Allowance For Deferred Tax Assets	Allowance for Uncollectible Reinsurance Recoverable	Allowance for Uncollectible Premiums Receivable
Balance at January 1, 2021	586	—	1,146
Charged to costs and expenses	—	—	18
Amounts written off	—	—	( 903 )
Balance at December 31, 2021	586	—	261
Charged to costs and expenses	—	—	584
Amounts written off	—	—	( 216 )
Balance at December 31, 2022	586	—	629

Financial data for deferred costs, reserves, and premiums

	December 31,
($ in thousands)	2022	2021
Deferred policy acquisition costs	68,938	59,456
Reserve for losses and loss adjustment expenses	1,141,757	979,549
Unearned premiums	442,509	363,288
Net earned premium (1)	615,994	499,823
Net investment income	36,931	24,646
Losses and loss adjustment expenses (current year) (1)	393,939	338,348
Losses and loss adjustment expenses (prior years) (1)(2)	14,385	28,000
Amortization of policy acquisition costs (1)	65,695	47,061
Paid claims and claim adjustment expenses (1)	300,764	249,739
Net premiums written (1)	675,543	529,143
Ceded unearned premium	157,645	137,973
Deferred ceding commission	29,849	30,500

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

Signatures

• The report was signed on behalf of the registrant by duly authorized individuals, pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 ^{p. 122}.
• The report was signed by the indicated persons on behalf of the Registrant, in their specified capacities and on the given dates, as per the requirements of the Securities Exchange Act of 1934 ^{p. 122}.

Signatures and dates for the registrant

—	Skyward Specialty Insurance Group, Inc.
Dated: March 28, 2023	/s/ Andrew Robinson
—	Andrew Robinson Chief Executive Officer

Signatures, titles, and dates of authorized individuals

Signature	Title	Date
/s/ Andrew Robinson	Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2023
Andrew Robinson	Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2023
/s/ Mark Haushill	Chief Financial Officer (Principal Financial and Accounting Officer)	March 28, 2023
Mark Haushill	Chief Financial Officer (Principal Financial and Accounting Officer)	March 28, 2023
/s/ J. Cameron MacDonald	Director	March 28, 2023
J. Cameron MacDonald	Director	March 28, 2023
/s/ Robert Creager	Director	March 28, 2023
Robert Creager	Director	March 28, 2023
/s/ Marcia Dall	Director	March 28, 2023
Marcia Dall	Director	March 28, 2023
/s/ James Hays	Director	March 28, 2023
James Hays	Director	March 28, 2023
/s/ Robert Kittel	Director	March 28, 2023
Robert Kittel	Director	March 28, 2023
/s/ Katharine Terry	Director	March 28, 2023
Katharine Terry	Director	March 28, 2023