Skyward/2023/FY/Annual report

Document info
Document ID	jfzbk7hb5k
Organization	Skyward
Year	2023
Period	FY
Period label	FY23
Document category	Annual report
Document type	Form 10-K
Document name	Skyward Specialty Insurance Group 2023 Form 10-K
Publication date	2024-04-01
Language	English
Pages	24
Source	original URL
Transcript	wiki page
Data	data page

This article summarizes Skyward's Annual report published on 2024-04-01 (24 pages).

Cover

[c. 1; p. 1]

Entity Common Stock, Shares Outstanding by 12 Months Ended

In USD million	12 Months Ended
	Dec. 31, 2023	Mar. 27, 2024	Jun. 30, 2023
Cover [Abstract]	—	—	—
Document Type	10-K	—	—
Document Annual Report	true	—	—
Document Period End Date	Dec. 31, 2023	—	—
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	—	—
Document Financial Statement Error Correction [Flag]	false	—	—
ICFR Auditor Attestation Flag	false	—	—
Entity Shell Company	false	—	—
Entity Common Stock, Shares Outstanding	—	39,995,027	—
Documents Incorporated by Reference	Portions of the Registrant’s Proxy Statement relating to the 2024 annual meeting of stockholders (the “2024 Proxy Statement”), which will be filed within 120 days of December 31, 2023, are incorporated by reference into Part III of this Form 10-K.	—	—
Entity Central Index Key	0001519449	—	—
Amendment Flag	false	—	—
Document Fiscal Year Focus	2023	—	—
Document Fiscal Period Focus	FY	—	—
Entity Public Float	—	—	600

Audit Information

[c. 2; p. 2]

Audit information by auditor name, auditor location, auditor firm ID

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

Business

Who We Are

[c. 3; p. 8] Company overview and business model

• Skyward Specialty was formed as a Delaware corporation on January 3, 2006, as an insurance holding company.
• The company operated under the name Houston International Insurance Group, Ltd. until rebranding as Skyward Specialty in November 2020.
• Skyward Specialty is a growing specialty insurance company providing commercial property and casualty (P&C) products and solutions on a non-admitted (E&S) and admitted basis, predominantly in the United States.
• The business focuses on underserved, dislocated, and/or markets where standard insurance coverages are insufficient.
• Customers typically require highly specialized, customized underwriting solutions and claims capabilities.
• The company develops and delivers tailored insurance products and services for niche markets.
• The portfolio of insured risks is highly diversified, covering a wide variety of industries and distributed through multiple channels.
• Lines of business include general liability, excess liability, professional liability (including cyber insurance), commercial auto, group accident and health, property, agriculture, surety, and workers’ compensation.
• The business insures both short and medium duration liabilities.
• The business mix is balanced between E&S and admitted markets.
• This diversification allows the company to respond to market opportunities and dislocations by deploying capital for attractive risk-adjusted returns.
• Diversification, combined with underwriting and claims expertise, is expected to produce strong growth and consistent profitability across P&C insurance pricing cycles.

[c. 4; p. 8] Management and financial strength

• The company is led by an entrepreneurial executive management team with decades of insurance leadership experience in the global P&C industry.
• The leadership is supported by an experienced team aligned with the company's strategy.
• High-quality leadership, underwriting and claims teams, technology DNA, advanced analytics capabilities, diversified book of business, and strong competitive position are expected to drive profitable business growth.
• The company aims to deliver long-term shareholder value by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles.
• All insurance company subsidiaries are group rated and have financial strength ratings of "A-" (Excellent) from A.M. Best Company ("A.M. Best") with a positive outlook.

Our Business and Our Strategy

[c. 5; p. 8] Business overview and underwriting divisions

• The company operates with one reportable segment, offering a broad array of insurance coverages across various market niches.
• It has eight distinct underwriting divisions, or "continuing business," each with dedicated underwriting leadership and technical staff.
• This structure aims to serve customer needs, be a value-add partner to distributors, and earn attractive risk-adjusted returns.
• For the year ended December 31, 2023, 43% of gross written premiums were admitted, and 57% were non-admitted.
• In 2023, each of the eight underwriting divisions wrote over USD 100.0m in gross written premiums.
• Accident & Health (A&H): provides medical stop loss solutions for organizations with less than 2,500 employees, and group/single-employer captive solutions.
  • Products are written on an admitted basis and distributed primarily through retail and wholesale brokers.
• Captives: offers group captive solutions by leveraging underwriting and claims expertise from other divisions.
  • Writes group A&H, property, general liability, commercial auto, excess liability, and workers’ compensation on E&S and admitted bases.
  • Business is often administered through partnerships with third-party captive managers.
• Global Property and Agriculture:
  • Global Property: provides property-only solutions to large multi-jurisdictional entities with complex property exposures, written entirely on an E&S basis.
  • Distributed through retail brokers and select wholesale brokers.
  • Global Agriculture: provides secondary and reinsurance solutions for crop, livestock, and other renewable resources.
• Industry Solutions: includes three underwriting units: Construction, Energy, and Specialty Trucking.
  • Construction and Energy: provide general liability, excess liability, commercial auto, workers’ compensation, and inland marine solutions, principally on an admitted basis.
  • Specialty Trucking: writes commercial auto and general liability solutions for mid-sized intermodal trucking companies on an E&S basis.
  • Products are distributed through retail agents/brokers and a select network of wholesalers.
• Professional Lines: includes Management Liability, Professional Liability (including cyber insurance), and Allied Health.
  • Professional Liability and Allied Health provide E&S primary and excess claims-made liability products, distributed exclusively through wholesale brokers.
  • Management Liability provides both E&S and admitted products, distributed through wholesale and retail brokers.
• Programs: partners with program administrators focused on specific markets.
  • Writes property, general liability, commercial auto liability, excess liability, and workers’ compensation on E&S and admitted bases.
• Surety: provides contract, commercial, and transactional surety solutions.
  • Focuses on small to medium-sized enterprises with aggregate bond programs up to USD 50.0m for contract and USD 75.0m for commercial and transactional.
  • Business is written on an admitted basis and distributed through retail agents and brokers.
• Transactional E&S: provides primary and excess non-catastrophe prone property and general liability solutions, emphasizing hard-to-place risks.
  • Accesses the market exclusively through wholesale brokers.

[c. 6; p. 8] Exited business

• The company has business units and lines of business previously exited and placed into run-off, referred to as "exited business".

[c. 7; p. 8] Strategy and principles

• The company's strategy is to lead in chosen market niches and establish sustainable competitive positions.
• Key elements of the strategy include:
  • Providing differentiated products, services, and solutions for target markets.
  • Attracting and retaining exceptional underwriting and claims talent, with aligned incentives.
  • Amplifying expertise with advanced technology and analytics for superior risk selection, pricing, and claims management.
  • Empowering underwriting and claims teams with significant decision-making authority.
  • Fostering a culture that promotes nimbleness and responsiveness to market opportunities and dislocation.
• This strategy is referred to as "Rule Our Niche".
• The principles of this strategy aim to build a strong, defensible market position, create a competitive moat, and achieve best-in-class underwriting results through P&C insurance pricing cycles.
• The company consistently strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics.

Our Competitive Strengths

[c. 8; p. 8] Competitive strengths overview

• Competitive strengths include a focus on profitable market niches requiring technical underwriting and claims management as barriers to entry.
• Niche areas of commercial lines P&C markets are considered an attractive subset of the P&C insurance market, offering opportunities for attractive risk-adjusted returns.
• The company targets underserved, dislocated, or complex markets where standard products are insufficient.
• Risks in core markets require efficient, individual underwriting to generate sustainable underwriting profit.
• The company builds underwriting divisions around deeply experienced underwriters with appropriate authority to make decisions.
• This structure enables innovative and unique product and solution offerings to distribution partners and customers, even for challenging risks.
• Underwriters' experience is augmented with data and predictive analytics to differentiate risk selection and pricing while enhancing efficiency.

[c. 9; p. 8] Underwriting and claims expertise

• The company focuses on hiring skilled underwriting and technical staff to differentiate through expertise and experience.
• Underwriting teams are knowledgeable, experienced, and empowered, which is critical for operating in markets where risks are difficult to automate.
• The company avoids strict underwriting rules, allowing professionals to use their expertise and judgment in evaluating and pricing risks.
• The company provides tools and authority to profitably underwrite complex risks.
• The company has a specialized team of claims professionals knowledgeable about served niches and lines of business.
• Claims professionals address first-party claims with fair solutions and third-party claims with holistic responses, aiming for consistent and early loss recognition of indemnity and loss adjustment expenses (LAE).
• The company responds quickly to claims with specialized adjusters using expertise, advanced technology, and analytics.
• Technology is embedded in the claims process, leveraging a technology-enabled platform from first notice of loss to settlement.
• Analytics capabilities provide real-time, detailed information on open claims and benchmarks against closed claims for senior leadership and claims teams.
• Industry expertise, nimble culture, and technology-embedded claims processes aim to achieve fair and appropriate claims outcomes.

[c. 10; p. 8] Technology and data platform

• SkyBI, the business intelligence platform, provides real-time intelligence to senior leadership and technical teams for decision-making.
• SkyBI incorporates best practices from the management team's experience in P&C insurance and technology sectors.
• SkyBI is a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities.
• It provides visualized information and performance metrics across the company, filterable by categories such as distributor, customer segment, line of business, industry, underwriter, and risk feature.
• SkyBI aids in establishing clear objectives and facilitating decision-making.
• The company believes every underwriting and claims decision can be augmented with new risk data and advanced technology.
• Underwriting decisions are backed by historical data and in-depth risk evaluation from intentional investment in data collection and processing.
• Underwriting and claims capabilities are amplified by combining historical data with new forms of risk data and predictive analytics.

[c. 11; p. 8] Business diversification

• The company has built a diversified group of underwriting divisions across multiple product lines, industries, geographies, and distribution channels.
• The strategy is to adapt to the market by growing certain lines in favorable conditions and limiting exposure in less favorable conditions.
• 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, leading to a durable insurance franchise.

[c. 12; p. 8] Company culture

• The company has a distinctive winning culture, evidenced by internal surveys, public information (e.g., Glassdoor, LinkedIn), and selection as a "Best Places to Work in Insurance".
• Key cultural elements include a flat communication and decision-making structure.
• Staff are trusted to make decisions that meet or exceed financial results and are supported by a clear performance measurement system.
• A hybrid work schedule offers employees remote working flexibility.
• The company maintains an entrepreneurial environment that encourages and rewards a proactive approach to capitalize on market disruption.
• This environment aligns with the company's identity as a specialty insurer and supports attracting talent and delivering best-in-class results.

[c. 13; p. 8] Leadership team and compensation

• The executive leadership team, led by CEO Andrew Robinson, is experienced, innovative, and entrepreneurial.
• The team has a track record of success in senior management roles at industry-leading P&C companies and in building new businesses.
• Senior leadership compensation is directly aligned with shareholders.
• A material portion of each leader's compensation is in long-term and short-term incentives tied to delivering sustainable, best-in-class underwriting returns.
• Executive leadership has additional long-term incentive targets directly tied to growth in book value per share.

Our Strategy in Action

[c. 14; p. 8] "Rule Our Niche" strategy tenets

• The "Rule Our Niche" strategy aims to achieve best-in-class underwriting profitability for niches and create superior long-term shareholder value through growth in book value per share.
• A core tenet is to attract and retain blue-chip underwriting and claims talent to expand and enhance market position.
• The company seeks to hire talented technical underwriting professionals with long-standing industry relationships with distribution partners and claims professionals with expertise in their niches.
• These relationships are key to steady access to preferred business.
• The company believes it has become a company of choice for top talent in the industry and will continue to grow its market position by bringing on world-class talent in chosen markets.

[c. 15; p. 8] Technology leverage

• The company leverages its technology DNA to further distance itself from competition.
• It has demonstrated a differentiated ability to utilize new forms of risk data and advanced technology within complex, higher severity risk categories of the specialty P&C insurance market.
• SkyBI provides the ability to promptly sense and quickly respond to market changes.
• Core operating platforms allow efficient movement into new markets without complex systems.
• This technological advantage positions the company for profitable growth and expansion into additional specialty market niches where a strong and defensible market position can be established.

[c. 16; p. 8] Business growth and market trends

• The company aims to profitably grow existing lines of business and expand with new underwriting divisions.
• It is positioned to take advantage of trends impacting customers in the United States and globally.
• Trends include rising demand for specialized insurance solutions due to increasing risks and complexity from climate change/severe weather events, supply chain uncertainty, financial inflation risk, cyber risk, novel health risks, increased litigation, attorney involvement, jury awards, and healthcare delivery and cost.
• Another market trend is the emergence of "micro cycles and micro dislocations" where different P&C insurance market pockets experience hardening and softening at different times.
• The company has reacted quickly to these trends by launching new underwriting units, entering underserved markets, partnering with advanced technology providers, and launching new captive solutions.
• Gross written premium growth and profitability indicate momentum and provide a reference for the company's positioning to expand and grow in target markets.

[c. 17; p. 8] Operational excellence and underwriting performance

• The company differentiates on daily excellence to drive best-in-class underwriting performance.
• Achieving long-term goals, including best-in-class underwriting returns and growth in book value per share, relies on day-to-day operational execution across all functional departments, including underwriting, product management, and claims management.
• SkyBI provides the foundation for senior management to monitor performance, including renewal rates, new business pricing, portfolio performance for individual underwriters, and claims aging and reserving practices and outcomes by claims adjusters.
• Focus on fundamentals driving underwriting excellence is central to the strategy.
• Cross-functional collaboration ensures underwriting, claims, actuarial, and product management teams regularly review performance and trends to implement portfolio, pricing, and coverage changes quickly.

[c. 18; p. 8] Balance sheet and reserving philosophy

• The company uses its balance sheet to capture a larger part of its served market.
• It is committed to establishing and maintaining a strong balance sheet, starting with conservative loss reserves and strong capitalization ratios.
• This is imperative to maintain confidence of customers, distribution partners, reinsurers, regulators, rating agencies, and shareholders.
• Claims case reserve practices have been strengthened to reserve to the expected ultimate loss within 90 days of the first notice of loss.
• The level of IBNR reserves held above claims case reserves is increased.
• The conservative reserve philosophy positions the company for consistently strong underwriting profitability in the future.

Marketing and Distribution

[c. 19; p. 8] Marketing and distribution strategy

• The company's marketing and distribution approach mirrors its underwriting strategy and is a key facet of its "Rule Our Niche" strategy.
• Underwriting teams and the company maintain strong relationships and reputations with distribution partners, which helps establish affiliations with new partners.
• The company believes it succeeds with distribution partners due to deep expertise in niche markets, high-caliber underwriters, a culture of innovation, thoughtful product lineup and design, and speed and quality of responsiveness.
• All underwriting divisions invest significant time and effort in sustaining and expanding distribution partner loyalty and long-term relationships.
• The company tailors its choice of distribution partners to access specific business, similar to how underwriting is tailored to insureds' individual needs.
• Products are distributed through retail agents, wholesale brokers, select program administrators, and captive managers.
• This distribution approach allows effective and efficient access to targeted business based on the needs and dynamics of particular market niches.

Underwriting

[c. 20; p. 8] Underwriting strategy and expertise

• Underwriting approach is deeply embedded in the "Rule Our Niche" strategy and is core to market success.
• Underwriting teams are specialized within eight divisions, focusing on specific niches.
• Kirby Hill, President of Industry Solutions, Captives and Programs underwriting divisions, has over 30 years of experience.
• John Burkhart, President of Specialty Lines (Professional Lines, Surety, Transactional E&S, A&H underwriting divisions), has approximately 30 years of underwriting experience.
• Doug Davies, Senior Vice President of the Global Property and Agriculture Underwriting Division, has approximately 20 years of underwriting experience.
• Underwriting approach is underpinned by hiring experienced, best-in-class, and diverse technical underwriters with established track records in specific specialty niche markets.
• Underwriters' skill sets are amplified with advanced technology and data analytics.
• Underwriters are empowered with appropriate authority to make decisions.
• This approach is believed to be key to superior risk selection, pricing, and sustainable best-in-class underwriting results across market cycles.
• Capabilities and experience of underwriting professionals are augmented using new forms of data and analytics for risk selection and pricing.
• Underwriting data is captured in the business intelligence platform, SkyBI.
• SkyBI forms the foundation of reporting, analytics, and other data capabilities.
• SkyBI is a key tool for senior management and business leaders.

[c. 21; p. 8] Risk selection and pricing

• The company is highly selective in the policies chosen to bind.
• Underwriters are encouraged to move on quickly from prospective opportunities if coverage cannot be bound at a combination of premium and coverage terms that meets standards.
• When accepting risks, terms and price are carefully established to suit the underlying exposure.
• In the admitted market, approved forms and filed rates are ensured to be appropriate and adequate for accepted risks, while allowing flexibility for specific/unique exposures.
• In the E&S market, freedom of rate and form is used to ensure risk and coverage are appropriate for unique needs and exposures.
• Policies are crafted to offer affordable and appropriate protection for insureds' exposures.
• Coverage is constructed to make potential losses more predictable and claims costs manageable.

[c. 22; p. 8] Underwriting support and controls

• Underwriting teams are supported by active engagement and collaboration with Claims, Actuarial, Product Management, Legal and Compliance, and Finance departments.
• Collaboration ensures trends in business, legal and tort developments, and competitor and regulatory actions are analyzed, shared, and acted upon timely.
• Underwriters are viewed as the center of the company, with all support functions incentivized and measured to support underwriting profitability targets.
• This structure helps surface opportunities and issues early, contributing to nimbleness and ability to take advantage of market disruptions.
• Underwriting controls and procedures are regularly reviewed to ensure underwriters act with clear line of sight to profitably underwrite each market served.

Claims Management

[c. 23; p. 8] Claims management principles and operations

• Skyward's claims department is guided by principles including prompt and comprehensive claim investigations using advanced analytics and technology for efficiency, accuracy, and speed.
• Other principles include providing quality claims handling service, engaging customers throughout the resolution process, and promptly establishing reserves reflecting the best estimate of ultimate loss.
• The department also focuses on effectively pursuing contribution and subrogation, detecting and preventing fraud using various tools, and disciplined litigation management for superior legal defense while monitoring costs.
• Continuous training is provided to claim staff on claim evaluation, strategy, litigation management, good-faith claims handling, and best practices to achieve timely and optimal claim outcomes.
• The majority of claims are handled in-house.
• Third Party Administrators (TPAs) are utilized in certain instances for programs, captives, occupational accident, workers compensation, and Loss Portfolio Transfer (LPT) runoff claims.
• TPAs are actively managed, overseen, and regularly audited to ensure compliance with Skyward's claims handling and reserving guidelines and general best practices.
• Independent legal counsel is retained for liability claims against an insured, selected based on geographical location and expertise.
• Carefully crafted litigation guidelines are developed for claims professionals and outside counsel to ensure appropriate defense for insureds.
• A legal spend management solution is employed to analyze legal invoices for adherence to case handling and billing practice standards, ensuring reasonable and customary legal costs.

[c. 24; p. 8] Claims technology and efficiency initiatives

• Skyward is leveraging technology to gain efficiencies in the claims-handling process.
• A technology solution was launched to speed up claims correspondence creation and automate routine tasks like vendor payments.
• Artificial intelligence is being piloted to route claims to the best-suited claims handler based on likely severity.
• A Large Language Model is under development to identify claims with early indicators for potential severity, unusual exposures, or propensity for legal representation by third-party claimants.
• A "quick strike" program has been implemented for commercial auto claims to respond to reported accidents.
• This program involves deploying experienced investigators and vendors to the accident scene, ideally within two hours, regardless of location.
• The quick response aids in evaluating accident facts and circumstances for rapid investigation and, if appropriate, resolving third-party claims quickly.

[c. 25; p. 8] Claims handler organization and collaboration

• Claims handlers and managers are organized by line of business to ensure appropriate expertise in handling claims.
• Managers and adjusters collaborate closely with underwriting partners to keep them informed of legal trends and emerging claims issues.
• The goal is to educate underwriters on emerging areas of loss experience to assist in their risk selection processes.

Technology

[c. 26; p. 8] Technology Strategy and Platforms

• Technology is central to Skyward's operations and decision-making, driving competitive advantages.
• Skyward deploys technology in three primary functional ways: Superior Business Intelligence Platform, Predictive Analytics Technology, and Core Transactional Platforms.
• Superior Business Intelligence Platform: SkyBI provides real-time intelligence to senior leadership and technical teams for decision-making.
• SkyBI incorporates best practices from management's experience in P&C insurance and technology sectors.
• SkyBI is a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities.
• SkyBI provides information and performance metrics across the Company in an easy-to-consume visualized format.
• Data in SkyBI can be filtered by distributor, customer segment, line of business, specific industry, individual underwriter, and specific risk feature.
• SkyBI helps establish clear line of sight to objectives and facilitates decision-making.
• Predictive Analytics Technology: Skyward augments employee capabilities using new forms of risk data and predictive analytics, including AI, for risk selection, pricing, and claims handling.
• Skyward's underwriting divisions focus on "Rule Our Niche" through constant innovation specific to each division/market.
• Core Transactional Platforms: Core operating platforms (policy administration, billing, claims systems) are designed for nimble scaling and business expansion.
• Skyward generally uses customized third-party vendor core operating applications.
• 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.
• Data from all divisions' core operating platforms flows to SkyBI with comparable data quality and granularity.
• Advanced technology for underwriting, claims, SkyBI, and core operating platforms creates a flywheel effect.
• This technology enables underwriters to better select risk, claims professionals to better adjudicate claims, unit leaders to better communicate with reinsurance and third-party partners, and senior leadership to better evaluate business trends.
• These tools also improve communication with distribution partners, reinsurers, and other third-party partners.

[c. 27; p. 8] Information Technology Security

• Skyward faces external threats to IT systems, including system failure, data theft attempts, and ransomware attacks.
• Technology infrastructure is designed to function through major disruptions.
• Data is replicated in real time to a third-party cloud disaster recovery site for use during major system failures.
• Data is backed up daily for system restoration.
• Actions to prevent system and data disruptions include: actively monitoring CISA cybersecurity directives and taking immediate action on identified vulnerabilities.
• Monthly vulnerability scans are conducted on all network-attached devices at all locations, with patching applied as needed.
• Two-factor authentication is required for system access.
• Monthly security training is conducted for all employees.
• Endpoint detection agents are implemented for threat detection and response.
• Desktop scenarios are performed to practice responses to breaches with cybersecurity insurance partners and retained security consultants.
• Annual penetration testing is performed.
• Skyward constantly reviews its security breach posture and regularly implements updated processes, best practices, and tools.

Reinsurance

[c. 28; p. 8] Reinsurance strategy and types

• The company strategically purchases reinsurance from third parties to protect capital from severity events (large single event losses or catastrophes) and reduce earnings volatility.
• Reinsurance contracts are predominantly one year in length and renew annually, primarily in January and June.
• Factors influencing reinsurance purchases at renewal include plans for underlying insurance coverage changes, updated loss activity, capital and surplus levels, risk appetite changes, and the cost/availability of treaties.
• The company purchases quota share, excess of loss, and facultative reinsurance coverage to limit exposure from losses on any one occurrence.
• The mix of reinsurance considers efficiency, cost, risk appetite, and specific factors of underlying risks.
• 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.
• Excess of loss reinsurance involves the reinsurer assuming all or a portion of losses for an individual claim or event above a specified amount, in exchange for a negotiated premium, including the catastrophe reinsurance program.
• Facultative coverage is a reinsurance contract on individual risks, used to supplement treaty limits or cover risks/perils excluded from treaty reinsurance.

[c. 29; p. 8] Property catastrophe reinsurance program

• As of December 31, 2023, property insurance represented 27% of gross written premiums.
• The company actively manages and monitors property writings by geographic area to limit loss aggregation from severe events like hurricanes, convective storms, and earthquakes.
• Catastrophe reinsurance is purchased to further mitigate property loss aggregation due to single or series of events.
• Third-party stochastic and internal deterministic models are used to analyze aggregation risk and inform catastrophe reinsurance purchases.
• These models provide a quantitative view of Probable Maximum Loss (PML) events, which estimate expected loss levels for a given return period.
• Based on modeling, an event beyond a 1 in 250-year PML would be required to exhaust the USD 28.0m property catastrophe coverage.
• 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.
• The current reinsurance program is believed to provide coverage well in excess of theoretical losses from any recorded historical event.

[c. 30; p. 8] Retroactive reinsurance agreement

• In 2020, the company entered into a Loss Portfolio Transfer (LPT) retroactive reinsurance agreement with a Bermuda-domiciled third-party reinsurer.
• This LPT covers liabilities (claim payments, allocated losses, LAE reserves, and certain extra-contractual obligations) related to policies issued or assumed for policy years 2017 and prior.
• The purpose of the LPT is to limit volatility associated with business written during those years.
• 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".

[c. 31; p. 8] Reinsurer credit quality and recoverables

• The company seeks to purchase reinsurance from reinsurers rated at least "A-" ("Excellent") or better by A.M. Best.
• As of December 31, 2023, 99% of reinsurance recoverables were from reinsurers rated "A-" (Excellent) or better by A.M. Best, or were collateralized.
• The company retains primary liability to policyholders if reinsurers are unable to pay claims.
• Failure of a reinsurer to honor obligations could result in losses, leading to the establishment of allowances for uncollectible amounts.
• Allowance for uncollectible reinsurance was USD 2.3m at December 31, 2023, compared to USD 0.0m at December 31, 2022.
• A table sets forth the most significant reinsurers by amount of reinsurance recoverables and their A.M. Best rating as of December 31, 2023.

[c. 32; p. 8]

Maximum Company Retention by Line of Business

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

(1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.

(2) Reinsurance is subject to a loss ratio cap or aggregate level of loss cover that exceeds a modeled 1:250-year PML event.

(3) Catastrophe loss protection is purchased up to $28.0 million in excess of $12.0 million retention, which provides cover for a 1:250-year PML event.

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

(1) This reinsurer facilitates our eMaxx captive; we hold collateral in a statutory trust of $150.8 million on our reinsurance recoverables.

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

Enterprise Risk Management

[c. 33; p. 8] Enterprise Risk Management framework

• Enterprise Risk Management (ERM) is embedded in company operations and guides day-to-day activities.
• The ERM approach ensures an acceptable risk-adjusted return for shareholders through intentional underwriting and asset portfolio construction.
• The company balances liability duration of its underwriting portfolio and uses reinsurance to manage volatility from single losses and cumulative losses from single or series of events.
• The investment strategy aims for a diversified target portfolio that balances portfolio yield, liquidity, volatility, and potential for principal loss.
• The Chief Risk Officer (CRO) oversees critical ERM processes and chairs the cross-functional corporate ERM Committee.
• The company formalizes its view of risk and solvency using an Economic Capital Model (ECM) to measure potential economic loss.
• ECM output measures potential earnings and capital loss for various scenarios against risk tolerances set and updated annually by the ERM Committee and discussed with the Board's Risk Committee.
• The ECM provides a probabilistic modeled view of earnings and capital loss, integrating potential losses from catastrophes, reserving, underwriting, market, credit, strategic, and operational risks.
• The CRO and ERM Committee maintain a comprehensive risk register with accountabilities for mitigations and monitor changes.
• The top 10 risks are identified, quantified by the CRO and ERM Committee, and reviewed quarterly.
• The CRO and ERM Committee submit these reports regularly to the Risk Committee.

[c. 34; p. 8] Operational risk management processes

• Operational processes and controls are designed to identify, assess, and manage key risks continuously.
• The Underwriting Committee oversees changes in risk appetite, product line, and division expansion.
• Claims diligently monitors handling practices via regular internal audits, conducts monthly large loss reviews, and maintains a watchlist for potential high severity claims.
• Actuarial performs quarterly reserve studies, and the Reserve Committee meets quarterly to review and respond to loss emergence trends.
• Key observations from Actuarial and Reserve Committee are discussed with the CEO.
• Underwriting divisions assess rate change and retention on existing business, new business quality and pricing adequacy, and loss emergence versus expectations on a monthly and quarterly basis.
• The SkyBI platform provides real-time portfolio, underwriting, claims, and actuarial analytics to support these processes.
• ERM is central to decision-making and daily activities.
• ERM is a core component of the strategy to achieve market-leading risk-adjusted returns for shareholders.

Reserves

[c. 35; p. 8] Reserve management and estimation

• Reserves are maintained for specific claims incurred and reported, IBNR reserves, and reserves for uncollectible reinsurance when appropriate.
• Ultimate liability may be greater or less than current reserves.
• There is always a risk that reserves may prove inadequate in the insurance industry.
• Reserves are continually monitored using new information on reported claims and statistical analyses.
• Anticipated inflation is implicitly reflected in the reserving process through analysis of cost trends and review of historical development.
• Reserves for losses and LAE are not discounted to reflect estimated present value.
• When a claim is reported, a case reserve is established for the estimated ultimate payment amount after assessment of coverage, damages, and investigation.
• Case estimates are based on reserving practices and the claims adjuster’s experience and knowledge of the claim type.
• Case reserves are revised periodically based on subsequent developments associated with each claim.
• IBNR reserves are established for the estimated amount of future loss payments on incurred claims not yet reported and potential development on reported claims.
• IBNR reserves are estimated using generally accepted actuarial reserving techniques that consider quantitative loss experience data and qualitative factors.
• Loss reserves are regularly reviewed using various actuarial techniques.
• Reserve estimates are updated as historical loss experience develops, additional claims are reported and/or settled, and new information becomes available.
• A reserve can be increased or decreased over time as claims move towards settlement, impacting earnings through adverse development or reserve releases.
• 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” and “Critical Accounting Policies”.

Investments

[c. 36; p. 8] Investment portfolio strategy and oversight

• The company aims to maintain a balanced investment portfolio with predictable and stable returns, augmented by strategic investments for attractive risk-adjusted returns.
• The investment allocation strategy uses an Enterprise Based Asset Allocation model, embedded in the Economic Capital Model, to understand the impact of investment decisions on capital, liquidity, and risk profile across various market scenarios.
• Investment risk is actively managed and monitored to balance stable growth and liquidity goals with compliance to insurance regulatory and rating agency frameworks.
• The portfolio primarily consists of cash and cash equivalents and investment-grade fixed-maturity securities, supplemented by additional investments within the company's risk appetite.
• The Investment Committee of the Board of Directors reviews and approves the investment policy and strategy.
• The committee meets regularly to review investment activities, tactics, and new investment opportunities.
• The portfolio is directed internally and includes both self-managed investments and portfolios managed by select third-party investment management firms.

[c. 37; p. 8] Opportunistic fixed income management

• The opportunistic fixed income portfolio is managed by Arena Investors, LP ("Arena").
• Arena is affiliated with The Westaim Corporation ("Westaim"), the Company’s largest shareholder.
• Additional discussion regarding investments, including market risks, can be found in Item 7 of Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments".

Competition

[c. 38; p. 8] Competition in specialty P&C insurance

• The specialty lines property & casualty insurance market comprises multiple markets and sub-markets, each with distinct customer needs, products, services, and specific economic/structural features.
• Competition in underwriting divisions comes from other specialty and standard insurers, as well as program administrators.
• 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.
• Due to the diversity of underwriting divisions, competition is broad, with some competitors specific to certain divisions.
• 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..

Our Structure

[c. 39; p. 8] Insurance subsidiaries and operations

• Operations are conducted principally through four insurance companies.
• Houston Specialty Insurance Company (HSIC), the largest insurance subsidiary, underwrites multiple lines of insurance on a surplus lines basis in 50 states, the District of Columbia, and select foreign countries.
• Imperium Insurance Company (IIC), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia.
• 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.
• Oklahoma Specialty Insurance Company (OSIC), a subsidiary of GMIC, is an approved surplus lines company in 49 states and the District of Columbia.

[c. 40; p. 8] Geographic distribution of premiums

• The geographic distribution of gross written premiums for the year ended December 31, 2023, is set forth in a table.

[c. 41; p. 8] Reinsurance and non-insurance operations

• Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands, was incorporated on January 7, 2020.
• Skyward Re was established to facilitate the LPT (Loss Portfolio Transfer).
• Additional information about 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 - Loss and LAE".
• Two non-insurance companies are also operated: Skyward Underwriters Agency, Inc. (a licensed agent, managing general agent, and reinsurance broker) and Skyward Service Company (provides administrative services to subsidiaries).

[c. 42; p. 8] Organizational structure

• The organizational structure is set forth below.
• Each entity is wholly-owned by its immediate parent.

[c. 43; p. 8]

Our Structure

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

[c. 44; p. 8] Our Structure

Our Structure

Chart / Image:

• Skyward Specialty Insurance Group, Inc. is a Delaware corporation.
• Skyward Specialty Insurance Group, Inc. owns Skyward Service Company.
• Skyward Service Company is a Delaware corporation.
• Skyward Specialty Insurance Group, Inc. owns Houston Specialty Insurance Company.
• Houston Specialty Insurance Company is a Texas stock insurance company.
• Skyward Specialty Insurance Group, Inc. owns Skyward Underwriters Agency, Inc.
• Skyward Underwriters Agency, Inc. is a Texas corporation.
• Skyward Specialty Insurance Group, Inc. owns Skyward Re.
• Skyward Re is a Cayman Islands corporation.
• Houston Specialty Insurance Company owns Imperium Insurance Company.
• Imperium Insurance Company is a Texas stock insurance company.
• Imperium Insurance Company owns Great Midwest Insurance Company.
• Great Midwest Insurance Company is a Texas stock insurance company.
• Great Midwest Insurance Company owns Oklahoma Specialty Insurance Company.
• Oklahoma Specialty Insurance Company is an Oklahoma insurance corporation.

Ratings

[c. 45; p. 8] A.M. Best rating

• Skyward Specialty Insurance Group, Inc. has an "A-" (Excellent) rating with a positive outlook from A.M. Best.
• A.M. Best rates insurance companies based on factors relevant to policyholders.
• A.M. Best assigns 16 ratings to insurance companies, ranging from "A++" (Superior) to "F" (In Liquidation).
• The "A-" (Excellent) rating is the fourth highest rating.
• A.M. Best evaluates a company's financial and operating performance by reviewing 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.
• A.M. Best's ratings reflect its opinion on an insurance company's financial strength, operating performance, and ability to meet policyholder obligations.
• 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.

Regulation

[c. 46; p. 8] State and federal insurance regulation

• The company is regulated by insurance regulatory authorities in the states where it conducts business.
• State insurance laws and regulations primarily protect policyholders, consumers, and claimants, not stockholders or investors.
• State regulation varies by jurisdiction, with regulators having broad administrative power over capital and surplus requirements, licensing, product forms and rates, reserve adequacy, statutory accounting, financial reports, affiliate transactions, and investments.
• Insurance company regulation is constantly changing due to governmental agencies and legislatures reacting to issues.
• The state insurance regulatory framework has faced increased federal scrutiny, leading some state legislatures to consider or enact laws that alter and often increase state authority over insurance companies and holding company systems.
• The National Association of Insurance Commissioners (NAIC) and some state insurance regulators are re-examining existing laws and regulations, focusing on insurer solvency, law interpretations, and new law development.
• Federal initiatives affect the insurance industry even though the federal government does not directly regulate the business of insurance.
• The Federal Insurance Office (FIO) was established within the U.S. Department of the Treasury in July 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
• The FIO monitors the insurance industry, identifying issues or gaps in regulation that could contribute to systemic crises in the insurance industry or the U.S. financial system.
• The FIO has no express regulatory authority over insurance companies or other insurance industry participants.

[c. 47; p. 8] Insurance holding company regulation

• The company operates as an insurance holding company system.
• The company is subject to insurance holding company laws in Texas, where its primary insurance companies are domiciled, and Oklahoma.
• These statutes require each insurance company in the system to register with its state of domicile's insurance department.
• Registration involves furnishing information on holding company system operations that may materially affect the operations, management, or financial condition of domiciled insurers.
• All transactions among holding company system members must be fair and reasonable.
• Transactions between insurance subsidiaries and their parents and affiliates generally require disclosure to state regulators.
• Notice to or prior approval from the applicable state insurance regulator is generally required for any material or extraordinary transaction.

Intellectual Property

[c. 48; p. 8] Trademark registrations and protection

• Various trademark registrations have been applied for in the United States at both federal and state levels.
• Additional trademark registrations and other intellectual property protection will be pursued if deemed beneficial and cost-effective.
• Trademarks and service marks are monitored and protected from unauthorized use as necessary.

Employees and Human Capital

[c. 49; p. 8] Employee overview and culture

• As of December 31, 2023, the company had approximately 515 employees.
• Employees are not subject to any collective bargaining agreement, and no current efforts to implement one are known.
• The company believes it has good working relations with its employees.
• The company aims to be an employer of choice, fostering a culture committed to diversity of thought, background, and perspective.

[c. 50; p. 8] Diversity, equity, and inclusion

• The company embraces diversity, equity, and inclusion initiatives to improve workplace culture and value employees.
• The goal is to cultivate an exceptional workforce to perpetuate an ownership culture and achieve superior business results.
• The company strives to attract, develop, and retain diverse talent, promoting a culture where different viewpoints are valued, and individuals feel respected, treated fairly, and have opportunities to excel.

[c. 51; p. 8] Compensation and benefits

• The company offers a competitive benefits package to support employee well-being.
• Benefits include medical, dental, and vision insurance, a 401(k) plan, paid time off, family leave, employee assistance programs, and an employee stock purchase plan available to all employees.
• The company emphasizes employee training and development, providing opportunities for education and professional development.

Risk Factors

[c. 52; p. 9] Investment risk disclosure

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

Summary of Material Risk Factors

[c. 53; p. 9] Business and operational risks

• Our business is subject to numerous risks and uncertainties.
• Financial condition and results of operations could be materially adversely affected by inaccurate assessment of underwriting risk.
• Competition for business in our industry is intense.
• Reliance on insurance retail agents and brokers, wholesalers, and program administrators exposes us to certain risks that could adversely affect results.
• Inability to purchase third-party reinsurance in desired amounts on commercially acceptable terms or terms that adequately protect us may materially adversely affect our business, financial condition, and results of operations.
• Losses and loss expense reserves may be inadequate to cover actual losses, which could materially adversely affect financial condition, results of operations, and cash flows.
• A decline in our financial strength rating may adversely affect the amount of business we write.
• Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in our policies could materially adversely affect financial condition and results of operations.
• Reinsurers may not reimburse us for claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations.
• Failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.

[c. 54; p. 9] Economic and market risks

• Adverse economic factors, including recession, inflation, high unemployment, or lower economic activity, could lead to fewer policy sales, increased claim frequency, premium defaults, or falsification of claims, affecting growth and profitability.
• The insurance business is historically cyclical, which may affect financial performance and cause operating results to vary quarter-to-quarter, not indicative of future performance.

[c. 55; p. 9] Regulatory, personnel, and public company risks

• We are subject to extensive regulation, which may adversely affect our ability to achieve business objectives; non-compliance could lead to penalties, including fines and suspensions, adversely affecting financial condition and results of operations.
• We could be adversely affected by the loss of key personnel or inability to attract and retain qualified personnel.
• Failure to achieve and maintain effective internal controls could impact operating results and financial condition, and negatively affect the market price of our common stock.
• Costs will increase significantly as a public company, and management will need to devote substantial time to complying with public company regulations.

Risks Related to Our Business and Industry

[c. 56; p. 9] Underwriting risk assessment

• Our financial condition and results of operations could be materially adversely affected if underwriting risk is not accurately assessed.
• Underwriting success depends on accurately assessing risks associated with the business written and retained.
• Reliance on underwriting staff experience for risk assessment.
• Misunderstanding the nature or extent of risks may lead to inappropriate premium rates, adversely affecting financial results.
• Employees, including management and underwriters, make decisions that expose the company to risk.

[c. 57; p. 9] Industry competition

• Competition in the insurance industry is intense.
• Competition comes from other specialty insurance companies, standard insurance companies, and underwriting agencies.
• Competition factors include price, reputation, financial strength, distribution partner relationships, product terms, rating agency assignments, claims payment speed, and underwriting team experience.
• Increasing consolidation in the insurance industry may further increase competition.
• Some competitors are larger with greater financial, marketing, and other resources, and can absorb large losses more easily.
• Other competitors have longer operating histories and more market recognition in certain lines of business.
• New, proposed, or potential industry or legislative developments could increase competition.
• Increased capital-raising by competitors could lead to new market entrants and excess capital in the industry.
• Federal regulatory reform of the insurance industry could increase competition from standard carriers.
• Inability to compete successfully in insurance markets could affect the ability to price products at risk-adequate rates, retain existing business, or underwrite new business on favorable terms.
• Increased competition limiting business transactions could adversely affect operating results.

[c. 58; p. 9] Distribution channel reliance

• Business depends on insurance retail agents, brokers, wholesalers, and program administrators, exposing the company to risks from reliance on these distribution channels.
• Substantially all products are distributed through independent retail agents and brokers who have principal relationships with policyholders.
• Retail agents and brokers generally own "renewal rights," making the business model dependent on relationships with them.
• Dependence on relationships wholesalers and program administrators maintain with agents and brokers from whom they source business.
• Relationships with retail agents, brokers, wholesalers, and program administrators may be discontinued at any time or may not be on profitable terms.
• Consolidation of insurance distribution firms may increase their influence on commission rates and concentrate business with particular brokers.
• Premiums from policyholders, where business is produced by brokers, are collected directly by brokers and remitted to the company.
• In certain jurisdictions, premium paid to a broker for an insurance subsidiary may be considered paid under applicable laws, making the insured no longer liable even if the company has not received the premium.
• The company assumes credit risk associated with brokers.
• Instances where brokers collect premiums but do not remit them may require the company to provide coverage despite unpaid premiums.
• Limitations on canceling policies for non-payment could lead to declining underwriting profits and adversely affect financial condition and results of operations.
• Financial condition of potential new brokers is reviewed before transacting business.
• Periodic reviews of agencies, brokers, wholesalers, and program administrators identify those not meeting profitability standards or not aligned with business objectives.
• Following reviews, access to certain products may be restricted or relationships terminated, subject to contractual and regulatory requirements.
• Deterioration in distributor relationships or failure to provide competitive compensation could lead distributors to place more premium with other carriers.
• Adverse effects could occur if distributors exceed granted authority, fail to transfer collected premiums, or breach obligations.
• Monitoring distribution relationships helps mitigate liability from distributor actions.
• Continued or increased consolidation of insurance distribution firms could materially affect sales channels, including loss of market access or market share.
• Negative impacts could arise from loss of talent knowledgeable about products following acquisitions or increased commission costs due to larger distributors gaining negotiating leverage.
• Any disruption materially affecting sales channels could negatively impact results of operations and financial condition.
• Risks associated with distributors' ability to keep pace with digitization.
• Distributors unable to provide a digital or technology-driven experience risk losing customers to more technology-driven distributors.

[c. 59; p. 9] Reinsurance availability and terms

• Inability to purchase third-party reinsurance in desired amounts on commercially acceptable terms or terms that adequately protect the company may materially adversely affect business, financial condition, and results of operations.
• Strategic purchase of third-party reinsurance enhances business by protecting capital from severity events (large single event losses or catastrophes) and reducing earnings volatility.
• Reinsurance involves transferring a portion of risk exposure to another insurer (reinsurer) for a cost.
• Failure to renew expiring contracts, enter new reinsurance arrangements on acceptable terms, or expand coverage could increase loss exposure.
• Increased loss exposure could lead to increased potential losses from loss events.
• Unwillingness to bear increased loss exposure may necessitate reducing underwriting commitments, which could materially adversely affect business, financial condition, and results of operations.
• Reinsurers may exclude certain coverages or alter terms in reinsurance contracts.
• Gaps in reinsurance protection expose the company to greater risk and potential losses.

[c. 60; p. 9] Loss and loss expense reserves adequacy

• Losses and loss expense (LAE) reserves may be inadequate to cover actual losses, materially adversely affecting financial condition, results of operations, and cash flows.
• Success depends on accurately assessing risks related to insured businesses and people.
• LAE reserves are established for the best estimate of ultimate payment of incurred or future claims and related adjustment costs as of financial statement date.
• Reserves are estimates, not exact calculations, and ultimate liability may differ from the estimate.
• The reserving process reviews historical data and considers factors such as claims inflation, claims development patterns, frequency and severity trends, product pricing, legislative activity, social and economic patterns, and litigation/judicial/regulatory trends.
• Variables are affected by internal and external events that could increase exposure to losses.
• Loss reserves are continually monitored using new information on reported claims, statistical techniques, and modeling simulations.
• The process assumes past experience, adjusted for current developments, trends, and market conditions, is an appropriate basis for predicting future events.
• No precise method exists for evaluating the impact of specific factors on reserve adequacy, and actual results may deviate substantially from estimates.
• Uncertainties impacting reserve adequacy include:
  • Time required to fully appreciate the extent of covered loss, leading to increasing loss estimates over time.
  • New theories of liability enforced retroactively by courts.
  • Failure of loss limitations or exclusions, or changes in claims/coverage issues, could materially adversely affect financial condition or results of operations.
  • Volatility in financial markets, economic events, and other external factors may increase claim numbers and/or severity.
  • Elevated inflationary conditions would increase loss costs.
  • Adverse economic factors (recession, inflation, high unemployment, lower economic activity) could result in fewer policy sales, increased claim frequency/severity, or premium defaults, affecting growth and profitability.
  • Increased cost due to "social inflation" (medical costs, technology in vehicles, supply chain disruptions, attorney involvement, litigation financing, lawsuit abuse) could increase claim frequency/severity and affect reserve adequacy.
  • Increased claim frequency, even without liability, could escalate evaluation costs beyond established reserves.
  • Entering new lines of business or new theories of claims may lead to increased claim frequency and higher handling costs than anticipated.
• Inadequate reserves would require an increase, reducing net income and stockholders’ equity in the period the deficiency is identified.
• Future loss experience substantially exceeding established reserves could materially adversely affect future earnings, liquidity, and financial rating.

[c. 61; p. 9] Financial strength rating decline

• A decline in financial strength rating may adversely affect the amount of business written.
• Independent rating agencies like A.M. Best are used to assess financial strength and quality of insurers.
• A.M. Best performs quantitative and qualitative analysis of balance sheet strength, operating performance, and business profile.
• A.M. Best financial strength ratings range from "A++" (Superior) to "F" (for publicly liquidated companies).
• As of the filing date, A.M. Best assigned an "A-" (Excellent) financial strength rating with a positive outlook.
• A.M. Best ratings provide an independent opinion of an insurer's ability to meet policyholder obligations, not an evaluation for investors or a recommendation to buy/sell/hold securities.
• A.M. Best's analysis includes comparisons to peers, industry standards, operating plans, philosophy, and management.
• A.M. Best periodically reviews and may revise ratings downward based on analyses of balance sheet strength, operating performance, and business profile.
• Specific building blocks A.M. Best reviews include capital adequacy, operating performance, operating profile, and ERM, plus other factors.
• Factors that could affect A.M. Best's analysis include:
  • Changes in business practices from the organizational business plan that no longer support the rating.
  • Unfavorable financial, regulatory, or market trends, including excess market capacity.
  • Losses exceeding loss reserves.
  • Unresolved issues with government regulators.
  • Inability to retain senior management or other key personnel.
  • Significant investment portfolio losses or limited liquidity.
  • Alterations to A.M. Best's capital adequacy assessment methodology that adversely affect the rating.
• These factors could result in a downgrade of the financial strength rating.
• A downgrade or withdrawal of rating could lead to:
  • Current and future distribution partners and insureds choosing more highly-rated competitors.
  • Increased cost or reduced availability of reinsurance.
  • Severely limiting or preventing the writing of new and renewal insurance contracts.
• Rating organizations may heighten scrutiny, increase frequency/scope of credit reviews, request additional information, or increase capital/other requirements for rating maintenance due to earnings and capital pressures on financial institutions.
• No assurance that the rating will remain at its current level.
• Adverse ratings consequences from reviews could materially adversely affect financial condition and results of operations.

[c. 62; p. 9] Policy coverage interpretation changes

• Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, could materially adversely affect financial condition and results of operations.
• No assurances that loss limitations or exclusions in policies will be enforceable as intended.
• Unexpected and unintended issues related to claims and coverage may emerge due to changes in industry practices, legal, judicial, social, and other conditions.
• Many policies limit the period for policyholders to bring a claim, which may be shorter than the statutory period for claims against policyholders.
• Limitations and exclusions help assess and mitigate loss exposure.
• A court or regulatory authority could nullify or void a limitation or exclusion, or legislation could be enacted modifying or barring their use.
• Governmental actions could result in higher than anticipated losses and LAE, materially adversely affecting financial condition or results of operations.
• Court decisions, such as the 1995 Montrose decision in California, could interpret policy exclusions narrowly, expanding coverage and requiring insurers to create new exclusions.
• These issues may adversely affect business by broadening coverage beyond underwriting intent or increasing claim frequency or severity.
• Changes may not become apparent until sometime after affected insurance contracts are issued.
• The full extent of liability under insurance contracts may not be known for many years after issuance.

[c. 63; p. 9] Reinsurer reimbursement risk

• Reinsurers may not reimburse claims on a timely basis, or at all, which may materially adversely affect business, financial condition, and results of operations.
• Reinsurance contracts require premium payments to reinsurers who reimburse a portion of covered policy claims.
• Reinsurers may be called upon to reimburse claims many years after premiums were paid.
• Reinsurance makes the reinsurer liable to the extent risk is transferred, but does not relieve the company of primary liability to policyholders.
• The current reinsurance program is designed to limit financial risk.
• Reinsurers may not pay claims timely or may not pay some or all claims.
• Reinsurers may default due to insolvency, lack of liquidity, operational failure, political/regulatory prohibitions, fraud, asserted defenses based on agreement wordings or utmost good faith, or documentation deficiencies.
• Disputes with reinsurers regarding coverage could be time-consuming, costly, and uncertain of success.
• These risks could lead to increased net losses and adversely affect financial condition.
• As of December 31, 2023, aggregate reinsurance recoverables were USD 596.3m.

[c. 64; p. 9] Claims payment accuracy and timeliness

• Failure to accurately and timely pay claims could materially and adversely affect business, financial condition, results of operations, and prospects.
• Accurate and timely evaluation and payment of claims under policies is required.
• Factors affecting ability to pay claims accurately and timely include training/experience of claims representatives (including TPAs), management effectiveness, and ability to develop/select/implement appropriate procedures and systems.
• Failure to pay claims accurately and timely could lead to regulatory/administrative actions or material litigation, undermine reputation, and materially adversely affect business, financial condition, results of operations, and prospects.
• Ineffective management of TPAs or their inability to handle claim volume could adversely affect the ability to handle increasing workload.
• This could require slowing growth in affected markets and lead to decreased quality of claims work, adversely affecting operating margins.

[c. 65; p. 9] Catastrophes and climate change

• Severe weather conditions, effects of climate change, catastrophes, pandemics, and man-made events may adversely affect business, results of operations, and financial condition.
• Business is exposed to risks from severe weather, earthquakes, and man-made catastrophes.
• Catastrophes can be caused by natural events (severe winter weather, convective storms/tornadoes, windstorms, earthquakes, hailstorms, thunderstorms, fires) or man-made events (explosions, war, terrorist attacks, riots).
• Changing weather patterns and climatic conditions (e.g., global warming) have increased unpredictability and frequency of natural disasters in operating markets.
• Climate change may increase frequency and severity of extreme weather events.
• This effect has led to ocean and atmospheric conditions (e.g., warmer sea-surface temperatures, low wind shear) that increase hurricane activity.
• A natural disaster or other catastrophe loss could materially adversely affect business, financial condition, and results of operations.
• Increased frequency and severity of weather events, including hurricanes, could materially adversely affect the ability to predict, quantify, reinsure, and manage catastrophe risk, and materially increase losses from such events.
• Extent of losses from catastrophes depends on frequency and severity of insured events and total insured exposure in affected areas.
• Incidence and severity of catastrophes and severe weather are inherently unpredictable.
• Exposure to losses is managed by analyzing probability and severity of loss events and their impact on underwriting and investment portfolio.
• Inability to obtain reinsurance coverage at reasonable rates and in adequate amounts for severe weather and other catastrophes could materially adversely affect business and results of operations.
• Business is exposed to risks from pandemics, outbreaks, public health crises, and geopolitical/social events.
• While policy terms are expected to preclude coverage for virus-related claims (like COVID-19), court decisions and governmental actions may challenge exclusions or interpretation of terms.

[c. 66; p. 9] Program administrator compliance

• If program administrators fail to comply with pre-established guidelines, results of operations could be adversely affected.
• Certain insurance products are marketed and distributed through program administrators with limited quoting and binding authority.
• Program administrators sell insurance products to insureds via retail agents and brokers.
• These program administrators can bind certain risks without initial approval.
• Failure of program administrators to comply with underwriting guidelines and appointment terms could bind the company to unanticipated risks, adversely affecting results of operations.

[c. 67; p. 9] Contract renewal expectations

• If actual renewals of existing contracts do not meet expectations, written premium in future years and future results of operations could be materially adversely affected.
• Most contracts are written for a one-year term.
• Financial forecasting includes assumptions about renewal rates of prior year contracts.
• Insurance and reinsurance industries are cyclical with intense, often price-based, competition.
• If actual renewals do not meet expectations or if renewals are not written due to pricing conditions, written premium and future operations would be materially adversely affected.

[c. 68; p. 9] ESG matters and reputational risk

• Increased public attention to environmental, social, and governance (ESG) matters may expose the company to negative public perception, reputational harm, additional costs, or impact stock price.
• Failure, or perceived failure, to respond to investor or customer expectations regarding ESG concerns could harm business and reputation.
• Insureds include a wide variety of industries, some potentially controversial.
• Damage to reputation from providing policies to certain insureds could decrease demand for insurance products and materially adversely affect business, operational results, and financial results.
• Reputational damage could also require additional resources to rebuild reputation, competitive position, and brand strength.

[c. 69; p. 9] Accounting practices and pronouncements

• Changes in accounting practices and future pronouncements may materially affect reported financial results.
• Developments in accounting practices may require considerable additional expenses for compliance, especially if prior period information is needed for comparison or retroactive application.
• The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect calculation of net income, shareholder’s equity, and other financial statement line items.
• Insurance subsidiaries must comply with statutory accounting principles (SAP).
• SAP and its components are subject to constant review by the NAIC, its task forces/committees, and state insurance departments to address emerging issues and improve financial reporting.
• Various proposals are pending before NAIC committees and task forces; if enacted and adopted at state level, some could negatively affect insurance industry participants.
• The NAIC continuously examines existing laws and regulations.
• It is unpredictable whether or in what form reforms will be enacted, or if they will positively or negatively affect the company.

Risks Related to the Market and Economic Conditions

[c. 70; p. 9] Economic factors and insurance demand

• Adverse economic factors like recession, inflation, high unemployment, or lower economic activity could lead to fewer policy sales, increased claim frequency, premium defaults, or claim falsification, affecting growth and profitability.
• Business revenue, economic conditions, capital market volatility and strength, and inflation affect the business and economic environment, impacting the ability to generate revenue and profits.
• An economic downturn with higher unemployment, declining spending, and reduced corporate revenue generally adversely affects demand for insurance products, impacting premium levels and profitability.
• Negative economic factors may affect the ability to charge appropriate rates for risk, reduce the number of policies written, and limit opportunities for profitable underwriting.
• In an economic downturn, customers may need less insurance, cancel policies, modify coverage, or not renew policies.
• Existing policyholders may exaggerate or falsify claims to obtain higher payments.
• Significant collapse in economic segments like construction or energy production/servicing could adversely affect results by reducing underwriting profit if not reflected in rates.

[c. 71; p. 9] Insurance market cyclicality

• The insurance business is historically cyclical, affecting financial performance and causing operating results to vary quarter-to-quarter, which may not indicate future performance.
• Insurance carriers have experienced significant fluctuations in operating results due to competition, catastrophic events, capacity levels, litigation trends, regulatory constraints, and general economic conditions.
• The supply of insurance relates to prevailing prices, insured losses, and industry capital, which fluctuate with investment returns in the insurance industry.
• The insurance business is historically cyclical, characterized by periods of intense price competition due to excessive underwriting capacity (soft market) and periods of capacity shortages increasing premium levels (hard market).
• 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&C insurance companies' profitability tends to follow cyclical market patterns, with higher gross written premium growth and improved profitability during hard market cycles.
• This cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market.
• When the standard insurance market hardens, the E&S market typically hardens, with growth potentially significantly more rapid.
• When conditions soften, customers previously in the E&S market may return to the admitted market, exacerbating rate decrease effects on financial results.
• 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.
• Operating results are subject to fluctuation and have historically varied quarter-to-quarter.
• Quarterly results are expected to continue fluctuating due to general economic conditions, frequency/severity of catastrophes, fluctuating interest rates, claims exceeding loss reserves, competition, deviations from expected premium retention, adverse investment performance, and reinsurance coverage costs.

[c. 72; p. 9] Investment portfolio performance and risks

• Performance of the investment portfolio is subject to various investment risks that may adversely affect financial results.
• Results of operations depend partly on the performance of the investment portfolio.
• The company seeks to hold a diversified investment portfolio managed by professional investment advisory firms according to its investment policy and reviewed by its Investment Committee.
• Investments are subject to general economic conditions, market risks, and risks inherent to specific securities.
• Primary market risk exposures are to changes in interest rates and equity prices.
• A significant amount of the investment portfolio is in fixed maturity securities, or separately managed accounts and limited partnerships primarily invested in fixed maturity securities.
• Interest rates rose materially during 2022 and 2023.
• A decline in recent rate increases, potentially due to federal government actions like the Inflation Reduction Act of 2022, would create a low interest rate environment, pressuring net investment income, especially for fixed maturity and short-term investments, adversely affecting operating results.
• Recent and future interest rate increases could cause values of fixed income securities portfolios to decline, with magnitude depending on security duration and rate increase amount.
• Some fixed income securities have call or prepayment options, creating reinvestment risk in declining rate environments.
• Other fixed income securities, like mortgage-backed and asset-backed securities, carry prepayment risk or may not prepay as quickly as expected in a rising interest rate environment.
• All fixed maturity securities, including those in separately managed accounts and limited partnerships, are subject to credit risk.
• Credit risk is the risk of investment default or impairment due to deterioration in the financial condition of issuers or guarantors.
• Downgrades in credit ratings of fixed maturity securities could significantly negatively affect their market valuation.
• The company also invests in marketable preferred and common equity securities and exchange traded funds, which are carried at fair market value and subject to potential losses and market value declines.
• Market and credit risks could reduce net investment income and result in realized investment losses.
• The investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid, as with fixed maturity securities held to maturity, separately managed accounts, and limited partnership investments.
• Valuation of investments is more subjective in illiquid markets, increasing the risk that estimated fair value does not reflect actual transaction prices.
• Risks for all security types are managed through an investment policy establishing parameters like maximum investment percentages in certain securities and minimum credit quality levels.
• These parameters are believed to be within applicable guidelines established by the NAIC, the Texas Department of Insurance, and the Oklahoma Department of Insurance.
• The Investment Committee periodically reviews Enterprise Based Asset Allocation models for overall risk management.
• While seeking to preserve capital, the company cannot be certain investment objectives will be achieved, and results may vary substantially over time.
• Although investment strategies are sought to be uncorrelated with insurance and reinsurance exposures, investment portfolio losses may occur simultaneously with underwriting losses, exacerbating adverse effects.

[c. 73; p. 9] Investment liquidity and claims funding

• The company could be forced to sell investments to meet liquidity requirements.
• Premiums received are invested until needed to pay policyholder claims.
• The company seeks to manage the duration of its investment portfolio based on the duration of losses and LAE reserves to provide sufficient liquidity and avoid liquidating investments to fund claims.
• Risks such as inadequate losses and LAE reserves or unfavorable litigation trends could necessitate selling investments to fund liabilities.
• Investments may not be sold at favorable prices or at all.
• Sales could result in significant realized losses depending on general market conditions, interest rates, and credit issues with individual securities.

Risks Related to the Regulatory Environment

[c. 74; p. 9] Regulatory Compliance and Penalties

• Extensive regulation may adversely affect the ability to achieve business objectives.
• Failure to comply with regulations may result in penalties, including fines and suspensions, adversely affecting financial condition and results of operations.
• Primary insurance subsidiaries (HSIC, IIC, and GMIC) are subject to extensive regulation in Texas and other states where they operate.
• Insurance regulations primarily protect policyholders, not investors or stockholders.
• Regulations are administered by state departments of insurance and cover capital and surplus, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency, and other financial/non-financial aspects.
• Significant changes in laws and regulations could limit discretion or increase business costs.
• State insurance regulators conduct periodic examinations and require financial and holding company reports.
• Regulatory requirements may impose timing and expense constraints, adversely affecting business objectives.
• Insurance subsidiaries are part of an "insurance holding company system" under Texas statutes and regulations.
• Certain transactions between insurance subsidiaries and affiliates require prior notice to the Texas Department of Insurance, potentially causing business delays and additional expenses.
• Failure to file required notifications or comply with other Texas insurance regulations may lead to significant fines, penalties, and impaired working relationships with the Texas Department of Insurance.
• State insurance regulators have broad discretion to deny or revoke licenses for regulation violations.
• Practices based on interpretations of regulations or industry norms may differ from regulatory authorities' interpretations.
• Lack of requisite licenses/approvals or non-compliance with regulatory requirements could lead to suspension of activities or penalties, adversely affecting business operations.
• Changes in insurance industry regulation, laws, or interpretations could interfere with operations and increase compliance costs.

[c. 75; p. 9] Capital Requirements and Regulatory Action

• Insurance subsidiaries are subject to risk-based capital requirements based on the NAIC model and minimum capital/surplus restrictions under Texas law.
• These requirements establish minimum risk-based capital for overall business operations.
• The model identifies inadequately capitalized property and casualty insurers by assessing inherent risks of assets, liabilities, and net written premium mix.
• Insurers below a calculated threshold may face regulatory actions like supervision, rehabilitation, or liquidation.
• Failure to maintain required risk-based capital levels could adversely affect the ability of insurance subsidiaries to maintain regulatory authority and A.M. Best Rating.
• Additional government or market regulation may have a material adverse impact on the business.
• Changes in state laws (asset/reserve valuation, surplus, investment/dividend limitations, enterprise risk, risk-based capital) and federal laws/regulations (preemptive federal regulation, tort reform, corporate governance, reinsurance taxation) could adversely affect the business.
• The U.S. federal government generally does not directly regulate insurance, except for flood, nuclear, and terrorism risks.

[c. 76; p. 9] Cannabis Industry Exposure

• Revenues are derived from customers in the cannabis industry.
• Risks related to the cannabis industry, including its status as a controlled substance under federal laws, may adversely impact clients and potential clients, affecting services.
• Reversal of cannabis legality in states could force customer businesses to cease operations.
• Changes in the legal status or enforcement of federal laws regarding the cannabis industry could negatively impact revenue through loss of current and potential customers.

[c. 77; p. 9] Net Operating Loss Carryforwards

• The ability to utilize net operating loss carryforwards (NOLs) and other tax attributes may be limited.
• As of December 31, 2023, gross federal income tax NOLs were approximately USD 49.4m, available to offset future taxable income.
• These NOLs are subject to annual limitations under Section 382 of the Internal Revenue Code of 1986 and begin to expire in 2030.
• An "ownership change" (greater than 50% change in equity ownership by certain stockholders over a rolling three-year period) under Section 382 could limit the use of pre-ownership change NOLs.
• Future ownership changes, some outside of control, may occur.
• Future regulatory changes could also limit NOL utilization.
• Inability to offset future taxable income with NOLs could adversely affect net income and cash flows.

[c. 78; p. 9] Holding Company Liquidity and Dividends

• As a holding company, liquidity, dividend payments, and debt service depend on cash dividends or permitted payments from insurance subsidiaries.
• Continued operation and growth require substantial capital.
• No intention to declare and pay cash dividends on common stock in the foreseeable future.
• Ability to pay dividends to stockholders and meet debt obligations largely depends on dividends and distributions from HSIC, IIC, and GMIC.
• State insurance laws, including Texas, restrict the ability of HSIC, IIC, and GMIC to declare stockholder dividends.
• State insurance regulators require specific levels of statutory capital and surplus.
• Dividend payments are limited to the portion of available policyholder surplus derived from net profits.
• State insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels.
• There is no assurance that maximum calculated dividends would be permitted.
• Future statutory provisions regarding dividends by insurance subsidiaries may be more restrictive.
• Future dividend payments are at the discretion of the Board of Directors, depending on operations, financial condition, contractual restrictions, indebtedness, applicable law, and other relevant factors.
• Investors may need to sell common stock after price appreciation, which may not occur, to realize gains.
• Investors seeking immediate cash dividends should not purchase common stock.

[c. 79; p. 9] Change of Control Regulations

• Applicable insurance laws may make a change of control difficult.
• Under Texas insurance laws, acquiring control of a domestic insurer requires written approval from the state insurance commissioner.
• Approval depends on factors including the acquiror's financial strength, plans for the insurer's future operations, and potential anti-competitive results.
• Texas laws apply to direct and indirect acquisition of 10% or more of the voting stock of a Texas-domiciled insurer.
• Acquisition of 10% or more of Skyward Specialty's common stock would be considered an indirect change of control, triggering filing requirements under Texas insurance laws, unless a disclaimer of control filing is accepted by the Texas Insurance Department.
• These requirements may discourage acquisition proposals and delay, deter, or prevent a change of control, even if desirable to stockholders.

Risks Related to Our Liquidity and Access to Capital

[c. 80; p. 9] Future capital requirements and availability

• The company may require additional capital in the future, which might not be available or only on unfavorable terms.
• Future capital requirements depend on factors including the ability to write new business successfully and establish sufficient premium rates and reserves to cover losses.
• If cash flows from operations are insufficient to fund future operating requirements and cover claim losses, or if capital is adversely impacted by a decline in investment portfolio fair value, catastrophe losses, or other events, the company may need to raise additional funds or curtail growth.
• Factors affecting the amount and timing of capital needs include growth rate, profitability, claims experience, reinsurance availability, market disruptions, and other unforeseeable developments.
• If additional capital is needed, equity or debt financing may not be available or only on unfavorable terms.
• Equity financings could result in dilution to stockholders.
• Debt financings may impose covenants restricting business operations.
• Such securities may have rights, preferences, and privileges senior to common stock.
• Inability to obtain adequate capital on favorable terms or at all could lead to insufficient funds for operating plans, materially adversely affecting business, financial condition, or results of operations.

Risks Related to Our Operations

[c. 81; p. 9] Key personnel and talent retention

• Loss of key personnel or inability to attract and retain qualified personnel could adversely affect the company.
• The company depends on experienced and seasoned personnel knowledgeable about its business.
• The talent pool is limited and fluctuates based on industry-specific market dynamics.
• Higher demand for skilled employees could increase compensation expectations, making it difficult to retain and recruit key personnel and maintain labor costs.
• Inability to retain and attract talented personnel could prevent the company from maintaining its competitive position and adversely affect results of operations.

[c. 82; p. 9] Information technology and cybersecurity risks

• Security breaches, data loss, cyberattacks, and IT failures could disrupt operations, damage reputation, and adversely affect business, operations, and financial results.
• The business is highly dependent on information technology and telecommunications systems, including underwriting systems.
• Systems are used for interacting with brokers and insureds, underwriting, policy preparation, premium processing, actuarial modeling, claims processing and payments, and financial statement preparation.
• Some systems may include or rely on third-party systems not on company premises or under its control.
• Events like natural catastrophes, terrorist attacks, industrial accidents, computer viruses, and cyberattacks can cause system failures or inaccessibility.
• Sustained or repeated system failures or service denials could limit the ability to write/process business, provide customer service, pay claims, or operate normally, despite business contingency plans and protections for internal and cloud-based systems.
• Computer viruses, hackers, employee misconduct, and external hazards expose systems to security breaches and disruptions.
• Security measures are in place, but systems and networks may still experience breaches or interference, and cybersecurity incidents of varying degrees are likely to continue.
• Such events can lead to operational disruptions, unauthorized access, disclosure or loss of proprietary or customer data, legal claims, regulatory scrutiny, liability, reputational damage, mitigation costs, and loss of customers or advisors.
• Public notification of incidents could exacerbate harm to business, financial condition, and results of operations.
• Advances in criminal capabilities, new vulnerabilities, exploitation attempts, data thefts, physical system break-ins, or inappropriate access could compromise technology or security measures.
• Third parties to whom functions are outsourced are also subject to these risks.
• While third-party provider cybersecurity controls are reviewed and assessed, and business processes are adjusted, confidentiality cannot be guaranteed.
• Increased use of third-party services (e.g., cloud technology, SaaS) can make identifying and responding to cyberattacks more difficult due to dynamic technologies.
• These risks could increase as vendors adopt more cloud-based software services over data center-run software.

[c. 83; p. 9] Growth management

• The company may not be able to manage its growth effectively.
• Future business growth may require additional capital, systems development, and skilled personnel.
• Failure to meet capital needs, expand systems and internal controls, allocate human resources optimally, identify/hire/train/develop qualified employees, and integrate acquired businesses could materially adversely affect business, financial condition, and results of operations.

[c. 84; p. 9] Litigation risks

• The effects of litigation are uncertain and could adversely affect the business.
• The company continually faces litigation risks typical in the industry, including disputes over insurance claims and general commercial/corporate litigation.
• While not currently involved in out-of-the-ordinary litigation, other insurance industry members face class action lawsuits and other litigation with substantial or indeterminate amounts and unpredictable outcomes.
• This litigation is based on issues like insurance and claim settlement practices.
• The company cannot predict future involvement in such litigation or its impact on the business.

[c. 85; p. 9] Vendor relationships and third-party software

• Loss of key vendor relationships or vendor failure to protect data could affect operations.
• The company relies on services and products from many vendors in the U.S. and abroad, including computer hardware/software, claim adjustment, HR benefits management, and investment management services.
• Vendor bankruptcy, inability to provide products/services, or failure to protect confidential/proprietary information could lead to operational impairments and financial losses.
• While vendor risk, security, and stability of critical vendors are generally monitored, failure to properly assess risks and costs in third-party relationships could materially and adversely affect financial condition and results of operations.
• The company anticipates continued reliance on third-party software.
• Although commercially reasonable alternatives to current licensed third-party software are believed to exist, this may not always be the case, or replacement could be difficult or costly.
• Integration of new third-party software may require significant work and substantial investment of time and resources.
• Use of additional or alternative third-party software would require license agreements that may not be available on commercially reasonable terms or at all.
• Many risks associated with third-party software cannot be eliminated and could negatively affect the business.

[c. 86; p. 9] Intellectual property rights

• The company may fail or be unable to protect its intellectual property rights for its proprietary technology platform and brand.
• The company may be sued by third parties for alleged infringement of their proprietary rights.
• Success and ability to compete depend partly on intellectual property, including brand rights and proprietary technology in certain product lines.
• Protection primarily relies on copyright and trade secret laws, and confidentiality agreements with employees, customers, service providers, and partners.
• Steps taken to protect intellectual property may be inadequate.
• Efforts to enforce intellectual property rights may face defenses, counterclaims, and countersuits attacking validity, enforceability, and scope.
• Failure to secure, protect, and enforce intellectual property rights could adversely affect the brand and business.
• Success also depends partly on not infringing on the intellectual property rights of others.
• Competitors and other entities/individuals may own or claim intellectual property related to the industry or the company.
• Third parties may claim infringement of their intellectual property rights in the future, and the company may be found to be infringing.
• Claims or litigation could incur significant expenses, require substantial damages or ongoing royalty payments, prevent service offerings, or impose unfavorable terms if successfully asserted.
• Even if the company prevails, litigation could be costly, time-consuming, and divert management and key personnel attention from business operations.

Risks Related to Ownership of Our Common Stock

[c. 87; p. 9] Public company operating costs and compliance

• Operating as a public company incurs increased costs and requires substantial management time for compliance initiatives.
• Financial reporting and other requirements may exceed the preparedness of accounting and management systems and resources.
• Significant legal, accounting, and other expenses are incurred as a public company, especially after ceasing to be an emerging growth company.
• Federal securities laws, including Sarbanes-Oxley Act, Dodd-Frank Act, and SEC/Nasdaq rules, impose requirements on public companies for filing reports, maintaining effective disclosure and financial controls, and corporate governance practices.
• These rules increase legal and financial compliance costs, make activities more time-consuming and costly, and require substantial management and personnel time.
• There is a risk of not producing reliable financial statements, not filing them timely with the SEC, or not complying with Nasdaq listing requirements.
• Obtaining director and officer liability insurance may become more difficult and expensive due to these rules and regulations.
• Beginning January 18, 2024, the company must furnish a management report on internal control over financial reporting, including an attestation report from its independent registered public accounting firm, as per Section 404 of the Sarbanes-Oxley Act.
• As an emerging growth company, the company is not required to include an attestation report on internal control over financial reporting from its independent registered public accounting firm.
• Achieving Section 404 compliance involves a costly and challenging process of documenting and evaluating internal control over financial reporting.
• This process requires dedicating internal resources, engaging outside consultants, adopting a detailed work plan, improving control processes, validating controls through testing, and implementing continuous reporting and improvement.
• 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, as required by Section 404 of the Sarbanes-Oxley Act.
• Failure to comply with Section 404 could lead to an adverse reaction in financial markets due to loss of confidence in financial statement reliability.
• The company could become subject to SEC or other regulatory investigations, requiring additional financial and management resources.
• As a public company, the company must maintain disclosure controls and procedures designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act.
• Disclosure controls and procedures or internal control over financial reporting may not prevent or detect all errors and fraud.
• A control system provides only reasonable, not absolute, assurance that objectives will be met due to inherent limitations.
• No evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues have been detected.
• Control system design is based on assumptions about future events and may not succeed under all potential future conditions.
• Controls may become inadequate over time due to changing conditions or deterioration in compliance.
• Misstatements due to error or fraud may occur and not be detected because of inherent limitations in the control system.
• Inability to achieve and maintain effective internal controls could harm operating results and financial condition, and negatively affect the market price of common stock.
• The company is required to document and test internal control procedures to satisfy Section 404(a) of the Sarbanes-Oxley Act, which mandates annual management assessments of internal control over financial reporting effectiveness.
• 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 such.

[c. 88; p. 9] Emerging growth company status and exemptions

• The company qualifies as an "emerging growth company".
• Relying on reduced reporting and disclosure requirements applicable to emerging growth companies could make common stock less attractive to investors.
• The company 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.
• Other exemptions include reduced disclosure obligations for executive compensation in registration statements, periodic reports, and proxy statements, and exemptions from nonbinding advisory votes on executive compensation and stockholder approval of golden parachute payments.
• The company will cease to be an emerging growth company upon the earliest of: (i) the last day of the fiscal year with total annual gross revenues of USD 1.235bn or more; (ii) the last day of the fiscal year following the fifth anniversary of the IPO date; (iii) the date of issuing more than USD 1bn in nonconvertible debt during the previous three years; and (iv) the date of being deemed a large accelerated filer under SEC rules.
• It is unpredictable whether investors will find the common stock less attractive if these exemptions are relied upon.
• Reduced future disclosure could lead to a less active trading market and more volatile common stock price.
• Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until they apply to private companies.
• The company has elected to use this extended transition period, meaning it will not adopt new or revised accounting standards on the same dates as other public companies.

[c. 89; p. 9] Stock price volatility and risk factors

• Operating results and stock price may be volatile or decline regardless of operating performance, potentially leading to loss of investment.
• The market price of common stock has been and is likely to remain highly volatile, fluctuating substantially due to many factors beyond the company's control.
• Securities markets worldwide have experienced and will likely continue to experience significant price and volume fluctuations.
• Market volatility and general economic, market, or political conditions could cause wide price fluctuations in the common stock regardless of operating performance.
• Investment in common stock is considered risky, suitable only for those who can withstand significant loss and wide fluctuation in market value.
• The market price of common stock could fluctuate significantly due to factors described in the "Risk Factors" section and other factors beyond control.
• Factors affecting stock price include: market conditions in the broader stock market; actual or anticipated fluctuations in quarterly financial and operating results; introduction of new products or services by the company or competitors; issuance of new or changed securities analysts’ reports or recommendations; operating results varying from expectations of securities analysts and investors; short sales, hedging, and other derivative transactions in common stock; company guidance, changes to it, or failure to meet it; strategic actions by the company or competitors; announcements by the company, competitors, or acquisition targets; sales, or anticipated sales, of large blocks of stock by directors, executive officers, and principal stockholders; additions or departures in the Board of Directors, senior management, or other key personnel; regulatory, legal, or political developments; public response to press releases or other public announcements; litigation and governmental investigations; changing economic conditions, including social inflation; changes in accounting principles; future indebtedness or securities issuance; default under indebtedness agreements; exposure to capital and credit market risks affecting investment portfolio or capital resources; changes in credit ratings; and other events or factors, including natural disasters, war, acts of terrorism, or responses to these events.
• Securities markets have experienced extreme price and volume fluctuations unrelated to company operating performance.
• Investors may not be able to resell shares at or above their purchase price due to these fluctuations.
• Broad market fluctuations, general market, economic, and political conditions (e.g., recessions, loss of investor confidence, interest rate changes) may negatively affect common stock price.
• Stock markets, including Nasdaq, have experienced extreme price and volume fluctuations affecting equity securities.
• Such occurrences could cause stock price to fall and expose the company to securities class action litigation, which could be costly, divert management attention, or harm the business.

[c. 90; p. 9] Future stock sales and market price

• Substantial future sales of common stock by existing stockholders, or the perception of such sales, could cause the market price of common stock to decline.
• Such sales could depress the market price and impair the ability to raise capital through additional equity securities.
• The effect of such sales on the prevailing market price of common stock is unpredictable.

[c. 91; p. 9] Underwriting guidelines and strategy changes

• Management can change underwriting guidelines or strategy without stockholder approval.
• This allows fundamental changes to operations without stockholder approval, potentially resulting in a strategy or underwriting guidelines materially different from those described in the "Business" section or elsewhere in the filing.

[c. 92; p. 9] Anti-takeover provisions

• Anti-takeover provisions in organizational documents could delay a change in management and limit share price.
• Provisions in the certificate of incorporation and bylaws could make it harder for a third party to acquire control, even if beneficial to common stock value, and prevent attempts by stockholders to replace the Board of Directors or management.
• These provisions could adversely affect the price of common stock.
• Charter documents permit the Board of Directors to establish the number of directors and fill vacancies/newly created directorships.
• The Board of Directors will be classified into three classes with staggered, three-year terms, and directors may only be removed for cause.
• Super-majority voting is required to amend provisions in the certificate of incorporation and bylaws.
• Blank-check preferred stock is included, whose preference rights and terms can be set by the Board of Directors, potentially delaying or preventing a transaction or change in control that might offer a premium price for common stock.
• Stockholders' ability to call special meetings is eliminated.
• Special meetings of stockholders can only be called by the Board of Directors, the chairman of the Board, or the chief executive officer.
• Stockholder consent action by other than unanimous written consent is prohibited.
• Vacancies on the Board of Directors may be filled only by a majority of directors then in office, even if less than a quorum.
• Cumulative voting in the election of directors is prohibited.
• Advance notice requirements are established for nominations to the Board of Directors or for proposing matters at annual stockholder meetings.
• As a Delaware corporation, the company is subject to Section 203 of the Delaware General Corporation Law.
• These provisions may prohibit large stockholders (owning 15% or more of outstanding voting stock) from merging or combining with the company for a period.

[c. 93; p. 9] Exclusive forum provisions

• 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.
• This could limit stockholders' ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, or employees.
• The exclusive forum applies to: any derivative action or proceeding on the company's behalf; any action asserting a claim of breach of fiduciary duty by directors, officers, employees, agents, or stockholders; any action arising under DGCL or the certificate of incorporation/bylaws where DGCL confers jurisdiction on the Court of Chancery; any action to interpret, apply, enforce, or determine the validity of the certificate of incorporation or bylaws; or any action governed by the internal affairs doctrine.
• Unless written consent is given for an alternative forum, federal district courts of the United States are the sole and exclusive forum for complaints asserting a cause of action under the Securities Act.
• This application to Securities Act claims and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over suits to enforce duties or liabilities created by the Securities Act.
• There is uncertainty whether a court would enforce such a provision, and stockholders will not be deemed to have waived compliance with federal securities laws.
• This exclusive forum provision would not apply to suits enforcing duties or liabilities created by the Exchange Act or other claims where federal courts have exclusive jurisdiction.
• If enforced, this choice of forum provision may limit a stockholder's ability to bring a claim in a preferred judicial forum, potentially discouraging lawsuits against the company and its personnel, though stockholders are not deemed to waive federal securities law compliance.
• If a court finds the choice of forum provision inapplicable or unenforceable, the company may incur additional costs resolving actions in other jurisdictions, which could materially adversely affect its business, financial condition, or results of operations.

Cybersecurity

[c. 94; p. 10] Cybersecurity risk management and strategy

• IT Systems are central to nearly all business operations, including internal/external communications, document/record management, and shared work environments.
• Efficient and effective response to cybersecurity incidents and threats is a key component of the overall ERM strategy.
• A Crisis Response Plan (CRP) has been implemented to respond to cybersecurity incidents and threats.
• Management and IT personnel have implemented processes for assessing, identifying, managing, and escalating material risks from cybersecurity threats, integrated into overall risk management processes.
• Cybersecurity-related risks are included in the risk universe evaluated annually by the enterprise risk management committee.
• Risk owners are assigned to develop and track mitigation plans for heightened cybersecurity risks identified by the ERM process.
• Security events and data incidents are evaluated, ranked by severity, prioritized for response and remediation, and reviewed for materiality, operational/business impact, and privacy impact.
• The cybersecurity risk management program leverages the National Institute of Standards and Technology framework, categorizing risks into identify, protect, detect, respond, and recover.
• Company-wide policies and procedures cover cybersecurity matters, including encryption standards, antivirus protection, remote access, multifactor authentication, confidential information, and internet/social media/email use.
• A detailed crisis response playbook is followed in the event of an incident.
• Investments in IT security have expanded, including end-user training, layered defenses, critical asset identification/protection, strengthened monitoring/alerting, and expert engagement.
• Defenses are regularly tested through simulations and drills at a technical level (e.g., penetration tests) and by reviewing operational policies/procedures with third-party experts.
• The IT security team monitors alerts, discusses threat levels, trends, and remediation, prepares a monthly cyber scorecard, collects data on cybersecurity threats and risk areas, and conducts an annual risk assessment.
• Periodic external penetration tests, red team testing, and maturity testing are conducted to assess processes, procedures, and the threat landscape.
• In the event of an incident, outside cybersecurity legal counsel consults and coordinates with other third parties, including communication/notification as required.
• Cybersecurity vendors perform investigation services and assist with recovery/restoration of impacted IT System services.
• Cybersecurity experts assist with incident validation and ransomware demands.
• Cybersecurity insurance providers are involved in incident response.
• Processes are implemented to oversee and identify risks from cybersecurity threats associated with key third-party service providers.
• Third-party service providers are required to provide SOC-1 or SOC-2 reports and their cybersecurity/disaster recovery plans.

[c. 95; p. 10] Cybersecurity governance

• Cybersecurity risk management and strategy processes are overseen by leaders from the Information Security Team, with assistance from Compliance and Legal teams.
• These individuals have decades of experience in IT roles, including security, auditing, compliance, systems, and programming.
• They monitor prevention, mitigation, detection, and remediation of cybersecurity incidents through their management and participation in cybersecurity risk management processes, including the crisis response plan.
• They report appropriate items to the Risk Committee.
• The Risk Committee of the Board of Directors oversees cybersecurity strategy, reviews cybersecurity and other IT risks, controls, and procedures, and receives periodic updates from management on the adequacy and effectiveness of cybersecurity measures.
• This review includes a thorough discussion of risks from cybersecurity threats and their potential operational impact.
• A separate process exists for communicating with the Risk Committee in the event of a specific cybersecurity incident.
• Members of the Crisis Management Team provide an initial awareness communication of an incident to the CEO/Chair of the Board, who then informs the Chair of the Risk Committee.
• Following an initial assessment by senior management and IT Systems personnel, a follow-up communication is provided to the CEO and Risk Committee Chair to determine if escalation to the full Board is warranted.

[c. 96; p. 10] Cybersecurity risk impact

• Risks from cybersecurity threats have not materially affected business strategy, results of operations, or financial condition.
• A cybersecurity incident resulting in a serious compromise of IT Systems or a demand for payment to restore IT Systems could have a material adverse effect.
• Such an incident could negatively impact the ability to operate the business effectively and divert management and financial resources.

Properties

[c. 97; p. 11] Office facilities

• Primary executive offices and insurance operations are leased in Houston, Texas.
• The Houston office occupies approximately 20,000 square feet of space.
• The lease for the Houston office space expires in 2029.
• Additional office space is leased where appropriate.
• Management considers current office facilities suitable and adequate for current operations.

Legal Proceedings

[c. 98; p. 12] Legal proceedings

• The company is periodically involved in legal proceedings that arise in the ordinary course of business.
• Currently, the company is not involved in any legal proceedings believed to have a material adverse effect on its business or results of operation.

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

[c. 99; p. 13] Common stock trading and holders

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

Securities Authorized for Issuance Under Equity Compensation Plans

[c. 100; p. 13] Equity compensation plans

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

Recent Sales of Unregistered Equity Securities

[c. 101; p. 13] Unregistered securities issuance overview

• 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 set forth.
• The information presented in Item 5 gives effect to a 4-for-1 reverse stock split, effective January 3, 2023.

[c. 102; p. 13] Conversion of preferred and Class B common stock

• Immediately prior to completing the IPO, all preferred stock converted into 16,305,113 shares of common stock.
• The issuance of these common shares was exempt from Securities Act registration requirements under Section 3(a)(9) of the Securities Act, as an exchange of securities by the issuer with existing security holders exclusively, with no commission or remuneration paid for soliciting the exchange.
• No underwriters were involved in this issuance of shares.

[c. 103; p. 13] Stock awards and share issuance

• During the period covered by this Annual Report on Form 10-K, 1,101,856 shares of restricted stock restricted stock units were granted at a weighted average price of USD 16.07 per share under the Company’s 2020 Long-Term Incentive Plan.
• During the same period, 759,990 stock options with a strike price of USD 15.00 were granted to certain employees and directors.
• No shares of common stock were issued upon the exercise of stock options during the period covered by this Annual Report on Form 10-K.
• No underwriters were involved in the foregoing issuance of securities.
• The issuances of the described securities were deemed exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 701 promulgated under the Securities Act, as transactions under compensatory benefit plans.
• Shares of common stock issued upon the exercise of stock options or warrants are considered restricted securities.
• All recipients either received adequate information about the company or had access to such information through employment or other relationships.

Use of Proceeds from Initial Public Offering

[c. 104; p. 13] IPO details and proceeds

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

Issuer Purchases of Equity Securities

[c. 105; p. 13] Equity securities purchases

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

Dividends

[c. 106; p. 13] Dividend policy

• The company does not currently intend to pay cash dividends on its common stock in the foreseeable future.
• Future dividend payments are at the discretion of the Board of Directors and depend on results of operations, financial condition, legal restrictions, and other relevant factors.
• Investors may need to sell common stock to realize future gains, as price appreciation is not guaranteed.
• Investors seeking immediate cash dividends should not purchase the company's common stock.

Performance Graph

[c. 107; p. 13] Shareholder return performance graph

• The performance graph compares cumulative total shareholder return for an investment in (1) the company's common stock, (2) the Nasdaq Composite Index, and (3) the Nasdaq Insurance Index.
• The comparison period is from January 13, 2023 (common stock trading start date on Nasdaq) through December 31, 2023.
• The graph assumes an initial investment of USD 100.
• Historical results are not indicative of future performance.
• The graph is not considered "soliciting material" or "filed" for purposes of Section 18 of the Exchange Act, nor subject to its liabilities.
• The graph is not incorporated by reference into any filings under the Securities Act.

[c. 108; p. 13]

Skyward Specialty Insurance Group, Inc. by Nasdaq Composite Index and Nasdaq Insurance Index

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

[c. 109; p. 13] Performance Graph

Performance Graph

Chart / Image:

• The y-axis represents values in dollars, ranging from $100.00 to $200.00.
• The x-axis represents dates: 01/13/23, 03/31/23, 06/30/23, 09/30/23, 12/31/23.
• The green line with green circular markers represents "Skyward Specialty Insurance Group, Inc.".
• The blue line with blue circular markers represents "Nasdaq Composite".
• The orange line with orange circular markers represents "Nasdaq Insurance".
• On 01/13/23, Skyward Specialty Insurance Group, Inc. value is approximately $100.00.
• On 01/13/23, Nasdaq Composite value is approximately $100.00.
• On 01/13/23, Nasdaq Insurance value is approximately $100.00.
• On 03/31/23, Skyward Specialty Insurance Group, Inc. value is approximately $115.00.
• On 03/31/23, Nasdaq Composite value is approximately $110.00.
• On 03/31/23, Nasdaq Insurance value is approximately $95.00.
• On 06/30/23, Skyward Specialty Insurance Group, Inc. value is approximately $135.00.
• On 06/30/23, Nasdaq Composite value is approximately $125.00.
• On 06/30/23, Nasdaq Insurance value is approximately $95.00.
• On 09/30/23, Skyward Specialty Insurance Group, Inc. value is approximately $145.00.
• On 09/30/23, Nasdaq Composite value is approximately $120.00.
• On 09/30/23, Nasdaq Insurance value is approximately $98.00.
• On 12/31/23, Skyward Specialty Insurance Group, Inc. value is approximately $175.00.
• On 12/31/23, Nasdaq Composite value is approximately $138.00.
• On 12/31/23, Nasdaq Insurance value is approximately $102.00.

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

Overview

[c. 110; p. 14] Business overview and strategy

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

Results of Operations

[c. 111; p. 14] Summary of results

• The table summarizes results for the years ended December 31, 2023 and 2022.

[c. 112; p. 14]

Results of Operations

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

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

Reconciliation of Non-GAAP Financial Measures

[c. 113; p. 14] Adjusted Operating Income reconciliation

• The table provides a reconciliation of adjusted operating income to net income for the years ended December 31, 2023 and 2022.

[c. 114; p. 14] Underwriting Income reconciliation

• The table provides a reconciliation of underwriting income to income before federal income tax for the years ended December 31, 2023 and 2022.

[c. 115; p. 14] Adjusted Loss Ratio and Combined Ratio reconciliation

• The table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the years ended December 31, 2023 and 2022.

[c. 116; p. 14] Tangible Stockholders’ Equity reconciliation

• The table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity as of December 31, 2023 and 2022.

[c. 117; p. 14] Adjusted Return on Equity reconciliation

• The table provides a reconciliation of adjusted return on equity to return on equity for the years ended December 31, 2023 and 2022.

[c. 118; p. 14] Return on Tangible Equity reconciliation

• Return on tangible equity for the years ended December 31, 2023 and 2022 reconciles to return on equity.

[c. 119; p. 14] Adjusted Return on Tangible Equity reconciliation

• Adjusted return on tangible equity for the years ended December 31, 2023 and 2022 reconciles to return on equity.

[c. 120; p. 14]

Adjusted operating income by Before Income Taxes and After Income Taxes

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

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

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

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

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

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

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

Underwriting Results

[c. 121; p. 14] Premiums

• Gross written premiums increased YoY in 2023, driven by double-digit premium growth in nearly all underwriting divisions, with five divisions growing over 30%.
• Gross written premium increases were primarily driven by new business, rate increases, and retention.
• In 2023, the company broadened its business portfolio by entering inland marine and global agriculture, adding an occupational accident offering in industry solutions, expanding the surety division to serve the SBA market and provide judicial and fiduciary bonds, and expanding accident & health coverages to include individual providers.
• Growth was also impacted by the addition of new underwriting teams and new tech-enabled partnerships.
• Net earned premiums were USD 829.1m for the year ended December 31, 2023, compared to USD 616.0m for the same 2022 period, an increase of USD 213.1m or 34.6%.
• The increase in net earned premiums was primarily driven by the same reasons as the increase in gross written premiums.

[c. 122; p. 14] Losses and LAE

• The loss ratio for the year ended 2023 improved 3.2 points compared to the same 2022 period.
• The non-cat loss and LAE ratio improved 1.9 points compared to the same 2022 period, driven by a shift in business mix and continued run-off of exited business.
• Catastrophe losses from Q2 and Q3 convective storms and Q1 wind and hail events (including tornadoes) added 1.4 points to the loss ratio in 2023.
• The 2022 loss ratio was impacted by 1.1 points of catastrophe losses from Hurricane Ian and Winter Storm Elliott.
• The loss ratio for the year ended 2022 included 1.4 points from the net impact of LPT reserve strengthening.

[c. 123; p. 14] Losses and LAE Development

• For the year ended December 31, 2023, the Company recognized favorable development of USD 9.2m in short tail/monoline specialty lines and adverse development of USD 11.9m in multi-line solutions related to prior years’ loss and loss expense reserves.
• Favorable development in short tail/monoline specialty lines was driven by property lines of business from the 2021 accident year.
• Adverse development in multi-line solutions was driven by higher than expected severity in general and auto liability lines of business primarily from the 2019 accident year.
• During the year ended December 31, 2022, net incurred losses for accident years 2021 and prior developed adversely by USD 14.4m, related to losses subject to the LPT.
• Within exited lines, adverse development of USD 14.5m was from the 2019 accident year, primarily driven by increased frequency and severity in general and professional liability.
• The remaining USD 8.4m of net adverse development was from other accident years.
• Within multi-line solutions, favorable development of USD 10.8m was from the 2020 through 2021 accident years, driven by a reduction in frequency of claims in commercial auto and general liability.
• The remaining USD 2.3m of net adverse development was from various other accident years.

[c. 124; p. 14] Loss Portfolio Transfer (LPT)

• On April 1, 2020 (Inception Date), with a valuation date of June 30, 2019 (Valuation Date), the company entered into a retroactive LPT reinsurance agreement with R&Q Bermuda (SAC) Limited.
• The LPT covers liabilities (including claim payments, allocated LAE, and certain extra-contractual obligations) related to certain policies issued or assumed for policy years 2017 and prior.
• The LPT agreement covers the majority of the company's exited business.
• The LPT reduces volatility associated with covered business from 2017 and prior, allowing management to focus on continuing business.
• As of the Valuation Date, USD 153.1m of Net LPT Reserves were ceded for certain lines of business (primarily 2017 and prior policy years), subject to an aggregate cash deductible of USD 105m withheld from the reinsurer.
• Subsequent to the Valuation Date but prior to the Inception Date, Net LPT Reserves were strengthened by USD 5.5m, increasing them to USD 158.6m.
• At the Inception Date, cash remitted to the third-party reinsurer for the cession of Net LPT reserves was USD 53.6m (USD 158.6m Net LPT Reserves less USD 105.0m cash deductible).
• As of the Inception Date, the LPT provided reinsurance protection of approximately USD 127.4m above the Net LPT Reserves, subject to co-participations.
• A premium of USD 43.5m was paid to the reinsurer for this protection.
• The total cash transfer on the Inception Date was USD 97.1m (USD 43.5m premium + USD 53.6m remitted).
• The LPT is structured into two distinct sections with separate and independent reinsurance structures.
• Section A represents USD 22.2m of ceded net reserves at LPT inception, covering claims from exited workers’ compensation and general liability lines primarily from policy years 2011 and prior.
• Section B represents USD 130.9m of ceded net reserves at LPT inception, covering claims from other exited business and certain continuing business related to policies written in years 2017 and prior, principally general liability and commercial auto lines.
• As of December 31, 2023, net loss reserves subject to the LPT were USD 44.8m, compared to USD 68.6m as of December 31, 2022.
• Reserves subject to the LPT were materially strengthened during 2022.
• Since the LPT inception, as of December 31, 2023, the number of open claims has been reduced by 79.5%.

[c. 125; p. 14] LPT Section A

• USD 22.2m of net reserves related to Section A were ceded based on the Valuation Date reserves, subject to the aggregate cash deductible.
• The LPT provides 100% reinsurance coverage on the first USD 2.8m of incurred losses and LAE above the ceded net reserves for Section A.
• Above the USD 2.8m coverage layer, there is a further USD 5.0m of reinsurance coverage for which the company retains 50% of incurred losses and LAE.
• As of December 31, 2023, total incurred losses and LAE (including claims paid, case reserves, and IBNR) were USD 38.2m, which is USD 8.2m in excess of reinsurance coverage under Section A.
• Should new claims arise or existing claims develop adversely, there would be no further reinsurance coverage on these policies subject to the LPT under Section A.
• As of December 31, 2023, paid losses and LAE on policies subject to Section A were USD 24.9m, which is USD 5.1m below total reinsurance coverage under Section A.
• The ratio of paid losses and LAE to total incurred losses and LAE for Section A was 65.1% as of December 31, 2023.
• The age of the policies (primarily 2011 and prior) and the declining number of open claims (reduced by 68.9% since the Valuation Date) support the strength of the reserve position on Section A.

[c. 126; p. 14] LPT Section B

• USD 130.9m of net reserves related to Section B were ceded based on the Valuation Date reserves, subject to the aggregate cash deductible.
• The LPT provides 100% reinsurance coverage on the first USD 19.1m of incurred losses and LAE above the ceded net reserves for Section B.
• Above the USD 19.1m layer, a further USD 70.0m of reinsurance coverage is provided with a 50% co-participation on incurred losses and LAE.
• There is an additional USD 36.0m of reinsurance that provides 100% coverage above the USD 70.0m layer.
• As of December 31, 2023, total incurred losses and LAE (including claims paid, case reserves, and IBNR) were USD 220.0m.
• The entire USD 36.0m of 100% coverage layer was available as of December 31, 2023, for new claims or adverse development.
• As of December 31, 2023, paid losses and LAE on policies subject to Section B were USD 188.5m, which is USD 67.5m below total reinsurance coverage under Section B (including co-participation amounts).
• The ratio of paid losses and LAE to total incurred losses and LAE for Section B was 85.7% as of December 31, 2023.
• The rapidly declining number of open claims (reduced by 81.9% since the Valuation Date) supports the strength of the reserve position on Section B.

[c. 127; p. 14] Expense Ratio

• The expense ratio was flat compared to the same 2022 period.
• The increase in the net policy and acquisition expense ratio was primarily driven by the shift in business mix.
• This increase was offset by an improved other operating and general expense ratio due to the increase in earned premiums.

[c. 128; p. 14] Investment Results

• The increase in income from the core fixed income portfolio for the year ended 2023 was due to a larger asset base and a higher book yield of 4.5% at December 31, 2023 (compared to 3.7% at December 31, 2022).
• The increase in income from short-term and money market investments for the year ended 2023 was due to a larger asset base and higher investment yields.
• The opportunistic fixed income portfolio continued to be impacted by a decline in the fair value of limited partnership investments for the year ended 2023.

[c. 129; p. 14]

Total gross written premiums by lines of business

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

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

(1) Current accident year.

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

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

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

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

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

[c. 130; p. 14] Underwriting Results

Underwriting Results

Chart / Image:

• The chart is titled "Section A Structure and Incurred Losses".
• The y-axis ranges from $0.0 to $40.0 in increments of $5.0.
• The first bar represents "Section A:".
• The total value for "Section A:" is "$30.0M cover".
• Within "Section A:", the "Net LPT Reserves" (dark blue) value is $22.2.
• Within "Section A:", the "100% Reinsurance Coverage" (dark purple) value is $2.8.
• Within "Section A:", the "50% Reinsurance Coverage Reserves" (teal) value is $5.0.
• The second bar represents "Total Incurred at December 31, 2023".
• The total value for "Total Incurred at December 31, 2023" is $38.2.
• Within "Total Incurred at December 31, 2023", the "Paid" (light blue) value is $24.9.
• Within "Total Incurred at December 31, 2023", the "Reserves" (grey-blue) value is $13.3.

[c. 131; p. 14] Underwriting Results

Underwriting Results

Chart / Image:

• Chart title: Open Claims
• Y-axis scale: 0 to 550, with major ticks at 50 unit intervals.
• Bar 1 label: Open Claims at the Valuation Date
• Bar 1 value: 508
• Bar 2 label: Open Claims at December 31, 2023
• Bar 2 value: 158

[c. 132; p. 14] Underwriting Results

Underwriting Results

Chart / Image:

• Chart title: Section B Structure and Incurred Losses
• Y-axis label: (currency in dollars)
• Y-axis range: $0.0 to $275.0, with increments of $25.0
• Bar 1: Section B
• Section B total cover: $256.0M
• Section B, bottom segment value: $130.9
• Section B, bottom segment color: dark blue
• Section B, second segment from bottom value: $19.1
• Section B, second segment from bottom color: dark purple
• Section B, third segment from bottom value: $70.0
• Section B, third segment from bottom color: light blue
• Section B, top segment value: $36.0
• Section B, top segment color: black
• Bar 2: Total Incurred at December 31, 2023
• Total Incurred at December 31, 2023 total value: $220.0
• Total Incurred at December 31, 2023, bottom segment value: $188.5
• Total Incurred at December 31, 2023, bottom segment color: very light blue
• Total Incurred at December 31, 2023, top segment value: $31.5
• Total Incurred at December 31, 2023, top segment color: grey
• Legend entry for dark blue: Net LPT Reserves
• Legend entry for light blue: 50% Reinsurance Coverage
• Legend entry for very light blue: Paid
• Legend entry for dark purple: 100% Reinsurance Coverage
• Legend entry for black: 100% Reinsurance Coverage
• Legend entry for grey: Reserves

[c. 133; p. 14] Underwriting Results

Underwriting Results

Chart / Image:

• Chart title: Open Claims at the Valuation Date
• Y-axis label: (unlabeled, represents number of claims)
• Y-axis scale: 0, 250, 500, 750, 1,000, 1,250, 1,500, 1,750, 2,000, 2,250, 2,500
• Bar 1: Open Claims at the Valuation Date, value: 2,260
• Bar 2: Open Claims at December 31, 2023, value: 410

Investments

[c. 134; p. 14] Investment portfolio composition

• Fixed maturity securities comprised 73.8% (2023) and 74.2% (2022) of the total investment portfolio.
• Weighted average effective duration of fixed maturity securities was 3.2 years (2023) and 3.1 years (2022).
• Average core fixed income credit rating was "AA-" (2023) and "AA" (2022) by Standard & Poor’s.

[c. 135; p. 14] Core fixed income portfolio

• The core fixed income portfolio consists primarily of investment grade fixed income securities.
• Objective is to earn attractive risk-adjusted returns with low risk of principal loss.
• Portfolio is managed by third-party managers.
• Average duration of the core fixed income portfolio was approximately 4.4 years (2023) and 4.3 years (2022).
• Weighted average credit rating of the core fixed income portfolio was "AA-" (2023) and "AA" (2022) by Standard & Poor’s.

[c. 136; p. 14] Opportunistic fixed income portfolio

• The opportunistic fixed income portfolio is managed by Arena, affiliated with Westaim.
• Portfolio consists of separately managed accounts, limited partnerships, promissory notes, and equity interests.
• Underlying securities are primarily floating rate senior secured loans, short duration, collateralized, asset-oriented credit investments.
• Investments contain strong covenants and are backed by significant collateral with a weighted average loan-to-value of 74%.
• As of December 31, 2023, the opportunistic fixed income portfolio consisted of:
  • diversified asset based lending: 55.1%
  • commercial mortgage loans: 29.0%
  • cash and cash equivalents: 15.9%
• Average duration of the opportunistic fixed income portfolio was approximately 1.3 years (2023) and 1.4 years (2022).

[c. 137; p. 14] Equities portfolio

• The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations, and other equity interests.
• 77.2% of the equities portfolio is publicly traded.
• A tail-risk management strategy was initiated in 2021 to protect the equity portfolio from significant S&P 500 declines within a 30-day period.
• This strategy continued in 2023, with an annual cost of approximately USD 1.0m as of December 31, 2023.
• The portfolio is directed internally and includes self-managed investments and portfolios managed by third-party firms.

[c. 138; p. 14] Market risk

• Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument from changes in interest rates, equity prices, foreign currency exchange rates, and commodity prices.
• Primary components of market risk affecting the company are credit risk and interest rate risk.
• The company does not have significant exposure to foreign currency exchange rate risk or commodity risk.

[c. 139; p. 14] Credit risk

• Credit risk is the potential loss from adverse changes in an issuer’s ability to repay debt obligations.
• Exposure to credit risk exists as a holder of debt instruments in core fixed income and opportunistic fixed income portfolios.
• Risk management strategy and investment policy is to invest primarily in high credit quality debt instruments and limit credit exposure by ratings categories and issuer.
• At December 31, 2023, the core fixed income portfolio had an average rating of "AA-".
• Approximately 82% of securities in the core fixed income portfolio were rated "A" or better by at least one nationally recognized rating organization.
• Policy is to invest in investment grade fixed income securities for stable income, supplemented by opportunistic fixed income and equity securities for diversification and risk-adjusted returns.
• At December 31, 2023, approximately 3.0% of the core fixed income portfolio was unrated or rated below investment-grade.
• Financial condition of issuers is monitored through investment managers.
• Credit risk also exists with third-party reinsurers, as the company is ultimately liable to policyholders for ceded risks.
• This risk is addressed by purchasing reinsurance from reinsurers rated at least "A-" (Excellent) or better by A.M. Best.
• Periodic credit reviews of reinsurers are performed with the reinsurance broker.
• At December 31, 2023, 99% of reinsurance recoverables were from reinsurers rated "A-" (Excellent) or better by A.M. Best, or were collateralized.
• Options to lessen asset impairment risk from reinsurer credit downgrades include commutation, novation, and letters of credit.

[c. 140; p. 14] Interest rate risk

• Interest rate risk is the risk of economic losses due to adverse changes in interest rates.
• Primary market risk to the investment portfolio is interest rate risk from fixed income securities.
• Fluctuations in interest rates directly affect the market valuation of these securities.
• Interest rate risk is managed by investing in securities with varied maturity dates and managing portfolio duration in relation to reserves duration.
• Duration is the weighted average payment period of cash flows, weighted by present value.
• Duration targets for the core fixed income investment portfolio are set considering estimated liability duration and other factors.
• Fixed maturity securities had a weighted average effective duration of 3.2 years as of December 31, 2023.
• Fixed income securities subject to interest rate risk had a fair value of USD 1,017.7m at December 31, 2023.
• Opportunistic fixed income securities are excluded from interest rate sensitivity analysis as they are primarily floating rate and treated as held to maturity.
• Changes in interest rates immediately affect comprehensive income and stockholders’ equity, but not ordinarily net income.
• Actual results may differ from hypothetical changes in market rates.
• Sensitivity analysis does not reflect actions taken to mitigate hypothetical fair value losses.

[c. 141; p. 14] Equity price risk

• Equity price risk represents potential economic losses due to adverse changes in equity security prices.
• At December 31, 2023, approximately 11.4% of the fair value of the investment portfolio (excluding cash and cash equivalents and short-term investments) was invested in equity securities.
• Equity price risk is managed through portfolio diversification.
• A tail-risk management strategy is maintained to provide protection for the equity portfolio if the S&P 500 declines significantly within a 30-day period.

[c. 142; p. 14]

Fair Value & % of Total by investment portfolio

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

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

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

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

(1) Other sectors primarily includes Aerospace & Defense, Business Services, Retail, Commercial & Industrial and Environmental.

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

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

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

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

Other Items

[c. 143; p. 14] Income taxes

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

Sources and Uses of Funds

[c. 144; p. 14] Holding company structure and funding sources

• 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).
• The holding company receives cash through: (1) corporate service fees from operating subsidiaries, (2) payments from the consolidated tax allocation agreement, (3) dividends from subsidiaries (subject to limitations), (4) loans from banks, (5) draws on a revolving loan agreement, and (6) issuance of equity and debt securities.
• Proceeds from these sources may be used to contribute funds to insurance subsidiaries to support premium growth, pay dividends and taxes, and for other business purposes.
• Skyward Service Company receives corporate service fees from operating subsidiaries to reimburse most incurred operating expenses.
• Reimbursement of expenses through corporate service fees is based on actual expected costs with no mark-up.
• The company files a consolidated U.S. federal income tax return with its subsidiaries.
• Under the corporate tax allocation agreement, each participant is charged or refunded taxes based on what they would have paid or received if filing on a separate return basis with the IRS.

[c. 145; p. 14] Subsidiary dividend restrictions

• Applicable state insurance laws restrict the ability of insurance subsidiaries to declare stockholder dividends without prior regulatory approval.
• State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus.
• Dividend payments are further limited to the portion of available policyholder surplus derived from net profits on an insurer’s business.
• Insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that maximum calculated dividends would be permitted.
• State insurance regulatory authorities may adopt more restrictive statutory provisions regarding dividend payments by insurance subsidiaries in the future.
• Insurance subsidiaries did not pay dividends to the holding company for the years ended December 31, 2023 or 2022.
• Additional information regarding insurance companies is available in Note 23, “Statutory Accounting Principles and Regulatory Matters” to the consolidated financial statements in Item 8 of Form 10-K.

[c. 146; p. 14] Holding company liquidity

• The holding company had USD 3.0m in cash and investments at December 31, 2023, compared to USD 8.9m at December 31, 2022.
• The company believes it has sufficient liquidity to meet operating cash needs, obligations, and committed capital expenditures for the next 12 months.

Cash Flows

[c. 147; p. 14] Cash flow sources and uses

• The most significant source of cash is premiums received from insureds, net of related commission, typically at the beginning of the coverage period.
• The most significant cash outflow is for claims when a policyholder incurs an insured loss.
• Cash is invested in various investment securities to earn interest and dividends, as claim payments occur after premium receipt, often years later.
• Cash is also used for operating expenses (salaries, rent, taxes) and capital expenditures (technology systems).
• Reinsurance is used to manage policy risk; part of premiums are ceded to reinsurers, and cash is collected back when losses subject to reinsurance coverage are paid.
• The timing of cash flows from operating activities can vary due to the timing of payments and receipts, including significant loss settlements and subsequent reinsurance receipts.
• Management believes cash receipts from premiums and investment income proceeds are sufficient to cover cash outflows in the foreseeable future.

[c. 148; p. 14] Cash flow summary

• A table sets forth cash flows for the years ended December 31, 2023 and 2022.

[c. 149; p. 14] Operating cash flow drivers

• The increase in cash provided by operating activities in 2023 and 2022 was primarily due to business growth, timing of premium receipts, claim payments, and reinsurance activity.
• Cash flows from operations in the past two years were primarily used to fund investing activities.

[c. 150; p. 14] Investing cash flow drivers

• The change in net cash used in investing activities from 2023 to 2022 was primarily driven by an increase in purchases of fixed maturity securities and short-term investments.

[c. 151; p. 14] Financing cash flow drivers

• The change in net cash provided by financing activities from 2023 to 2022 was primarily driven by proceeds received from the IPO and the November follow-on offering.
• Additional information regarding the IPO and November follow-on offering can be found in Note 12, "Stockholders' Equity", to the consolidated financial statements included in Item 8 of Form 10-K.

[c. 152; p. 14]

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

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

Credit Agreements

[c. 153; p. 14] Revolving Credit Facility

• On March 29, 2023, the company entered into an unsecured revolving credit facility (the "Revolving Credit Facility") with a syndicate of participating banks.
• The Revolving Credit Facility provides up to a USD 150.0m revolving credit facility, with an accordion to increase capacity by USD 50.0m, and a letter of credit sub-facility of up to USD 30.0m.
• During the year ended December 31, 2023, the company drew USD 50.0m on the Revolving Credit Facility and used the proceeds to pay off the principal on the Term Loan.
• The Term Loan and the Revolver were subsequently terminated.
• Interest on the Revolving Credit Facility is payable quarterly.
• The interest rate is the Secured Overnight Financing Rate ("SOFR") plus a margin of 150 to 190 basis points, based on the debt to total capital ratio, and a credit spread adjustment of 10 basis points.
• At December 31, 2023, the six-month SOFR on the Revolving Credit Facility was 5.47%, plus a margin of 1.60%.
• The company is subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating, and minimum liquidity.
• As of December 31, 2023, the company was in compliance with all covenants.
• On March 14, 2024, the company drew USD 50.0m on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption of the Debentures.
• After this draw, USD 100.0m was outstanding under the Revolving Credit Facility, with USD 50.0m of undrawn capacity remaining.

[c. 154; p. 14] Debentures

• In August 2006, the company received USD 58.0m in proceeds from a debenture offering through Delos Capital Trust (the "Trust").
• The Trust's sole asset consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Debentures") with a principal amount of USD 59.8m issued by the company, and USD 1.8m in cash from the issuance of Trust common shares purchased by the company (equal to 3% of Trust capitalization).
• The Debentures are an unsecured, redeemable obligation with a maturity date of September 15, 2036.
• Interest on the Trust Preferred is payable quarterly at an annual rate based on the three-month LIBOR plus 3.4%.
• The three-month LIBOR was 5.59% at December 31, 2023, and 4.77% at December 31, 2022.
• On March 15, 2024, the company redeemed the Debentures and paid USD 1.4m of accrued interest.

[c. 155; p. 14] Subordinated Debt

• In May 2019, the company issued unsecured subordinated notes (the "Notes") with an aggregate principal amount of USD 20.0m.
• Interest on the subordinated notes is 7.25% fixed for the first 8 years and 8.25% fixed thereafter.
• Early retirement of the debt before the 8-year commitment requires all interest payments to be paid in full, plus the return of all capital.
• Principal payment is due at maturity on May 24, 2039, and interest is payable quarterly.

[c. 156; p. 14] Term Loan and Revolver

• On December 11, 2019, the company entered into a credit agreement with Prosperity Bank for a USD 50.0m term loan (the "Term Loan") and a USD 50.0m revolving line of credit (the "Revolver"), with additional capacity up to USD 75.0m.
• At December 31, 2022, the interest rate on the Term Loan was the one-month LIBOR (4.39%) plus an "Applicable Margin" of 1.65%.
• The existing term loan and revolving line of credit were terminated in connection with the entry into the Revolving Credit Facility.

[c. 157; p. 14] Debt to Capitalization Ratio

• At December 31, 2023, the ratio of total debt outstanding (including the Revolving Credit Facility, Trust Preferred, and Notes) to total capitalization (defined as total debt plus stockholders’ equity) was 16.3%.
• At December 31, 2022, this ratio (including the Term Loan, Revolver, Trust Preferred, and Notes) was 23.4%.
• At March 15, 2024, capitalization remained unchanged due to the draw on the Revolving Credit Facility and subsequent redemption of the Debentures.

Contractual Obligations and Commitments

[c. 158; p. 14] Contractual Obligations and Commitments

• The table sets forth contractual obligations and commercial commitments by due date as of December 31, 2023.
• Reserves for losses and LAE are the best estimate of the ultimate cost of settling reported and unreported claims and related expenses.
• Estimating reserves for losses and LAE involves complex and subjective judgments.
• Actual losses and settlement expenses paid may deviate substantially from reserve estimates.
• The timing for payment of estimated losses is not fixed or determinable individually or in aggregate.
• Assumptions for estimating payments due by period are based on the company's, industry, and peer group claims payment experience.
• There is a risk that amounts paid in any period will differ significantly from disclosed amounts due to uncertainty in timing estimation.
• Disclosed amounts are gross of anticipated amounts recoverable from reinsurers.
• 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.
• Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled USD 596.3m at December 31, 2023, and USD 581.4m at December 31, 2022.

[c. 159; p. 14]

Payments due by period by contractual obligations and commitments

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

Critical Accounting Policies

[c. 160; p. 14] Critical accounting estimates overview

• Critical accounting estimates are important for understanding financial condition and results of operations and require significant judgment.
• These judgments and estimates affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of material contingent assets and liabilities.
• Actual results may differ materially from estimates and assumptions used in preparing consolidated financial statements.
• Estimates are evaluated regularly using relevant information.
• For detailed accounting policies, refer to Note 2, “Summary of Significant Accounting Policies” in Item 8 of Form 10-K.

[c. 161; p. 14] Reserves for unpaid losses and LAE

• Reserves for unpaid losses and LAE are the largest and most complex estimate in the consolidated balance sheet.
• These reserves represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust these losses as of or before the balance sheet date.
• Reserves for losses and LAE are not discounted to reflect estimated present value.
• Estimates are made using individual case-basis valuations of reported claims, statistical analyses, and various actuarial procedures.
• Estimates are based on historical information, industry and peer group information, and estimates of future trends in variable factors like loss severity, loss frequency, and inflation.
• Estimates are regularly reviewed and adjusted as experience develops or new information becomes known.
• During the loss settlement period, estimates of liability on a claim are often refined and adjusted.
• Ultimate settlement of losses and related LAE may vary significantly from the estimate included in financial statements.
• Reserves for unpaid losses and LAE are categorized into case reserves and IBNR.
• A table sets forth gross and net reserves for unpaid losses and LAE at December 31, 2023 and 2022.

[c. 162; p. 14] Case reserves

• Case reserves are established for individual claims reported to the company.
• Notification of losses comes from insureds, their agents, or brokers.
• Case reserves are established by estimating ultimate losses from the claim, including defense costs.
• Claims department personnel use their knowledge of specific claims and advice from internal and external experts (underwriters, legal counsel) to estimate expected ultimate losses.
• Third-Party Administrators (TPAs) are used in limited circumstances to assist in claim adjustment.
• Internal claims managers oversee TPA activities and monitor their claim handling to prescribed standards.

[c. 163; p. 14] IBNR reserves and estimation process

• IBNR reserves are developed according to Actuarial Standards of Practice promulgated by the American Academy of Actuaries.
• The Reserve Committee performs the reserve review, utilizing several accepted loss reserving methods to determine the best estimate of loss reserves.
• Consideration is given to the strengths and weaknesses of each method in deriving the actuarial best estimate.
• Industry and/or peer-group data are used in addition to internal data when there are limited years of loss experience compared to the expected reporting period.
• Loss emergence is monitored daily.
• Internal or external factors such as underwriting, claims handling, economic, or environmental changes are considered, and assumptions, methods, or procedures are adjusted as necessary.
• The duration of loss reserves was 2.3 years as of December 31, 2023.
• The Reserve Committee includes the Chief Actuary, Chief Risk Officer, Chief Financial Officer, and Chief Claims Officer.
• The Reserve Committee meets quarterly to review actuarial reserving recommendations from the Chief Actuary and determine the best estimate for losses and LAE on the balance sheet.
• The actuary estimates an initial expected ultimate loss ratio for each underwriting division when establishing quarterly actuarial recommendations.
• Input from underwriting and claims departments, including premium pricing assumptions and historical experience, is considered in estimating initial expected loss ratios.
• Multiple actuarial methods are used to estimate the reserve for losses and LAE.
• These methods utilize the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.
• Actuarial methods used include:
  • Reported and/or Paid Loss Development Methods: Ultimate losses are estimated based on historical reported and/or paid loss reporting patterns. Reported losses are the sum of paid and case losses. Industry development patterns are substituted when sufficient historical data is unavailable.
  • Reported Bornhuetter-Ferguson Methods: Ultimate losses are estimated as the sum of cumulative reported losses and estimated IBNR losses. IBNR losses are estimated based on historical development patterns and one or more of the following: expected average severity and estimated ultimate claims counts, expected pure premium, and expected loss ratios underlying loss cost multipliers.
  • Paid Bornhuetter-Ferguson Method: Ultimate losses are estimated as the sum of cumulative paid losses and estimated unpaid losses. Unpaid losses are estimated based on expected loss ratios underlying loss cost multipliers and selected industry development patterns of paid losses.
• Each method is utilized in the comprehensive review of reserves.
• For less mature policy years, the Bornhuetter-Ferguson Method is the primary method for ultimate loss indications.
• For more mature policy years, the Reported and/or Paid Loss Development Methods are used.
• Primary reliance is on reported methods where case reserving is consistently applied across policy years.
• When there is a change in reserving philosophy, both reported and paid methods are blended in the evaluation of ultimate loss indications.

[c. 164; p. 14] Factors influencing reserves and potential variations

• Reserves are driven by factors including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions.
• Reserve estimates reflect current inflation in legal claims’ settlements and assume no losses from significant new legal liability theories.
• Reserve estimates assume no significant changes in the regulatory and legislative environment.
• The impact of potential changes in the regulatory or legislative environment is difficult to quantify without specific new regulation or legislation.
• In the event of significant new regulation or legislation, the company will attempt to quantify its impact, but accuracy or success cannot be assured.
• While reserve estimates are believed to be reasonable, actual loss experience may not conform to assumptions.
• Actual ultimate loss ratio could differ from the initial expected loss ratio, or actual reporting and payment patterns could differ from expected patterns.
• Ultimate settlement of losses and related LAE may vary significantly from estimates in financial statements.
• Estimates are regularly reviewed and adjusted as experience develops or new information becomes known, with adjustments included in current operations.
• "Development" is the amount by which estimated losses differ from those originally reported.
• Development is unfavorable when losses settle for more than reserved or estimates indicate reserve increases.
• Development is favorable when losses settle for less than reserved or estimates indicate reserve reductions.
• Favorable or unfavorable development of loss reserves is reflected in the results of operations in the period estimates are changed.

[c. 165; p. 14] Sensitivity of IBNR reserves

• A 5% change in net IBNR would result in a USD 27.0m change in reserves for losses and LAE.
• This 5% change would also result in a USD 21.3m change in net income and stockholders’ equity.

[c. 166; p. 14]

Gross and Net by Case reserves and IBNR

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

Recent Accounting Pronouncements

[c. 167; p. 14] Emerging Growth Company Status

• The company qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (JOBS Act).
• 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.
• The company elected to use the extended transition period, meaning it is not required to adopt new or revised accounting standards on the same dates as other public companies.
• The company will remain an emerging growth company until the earliest of:
  • The last day of the fiscal year with total annual gross revenues of USD 1.235bn or more.
  • The last day of the fiscal year following the fifth anniversary of the completion of this offering.
  • The date on which more than USD 1bn in nonconvertible debt has been issued during the previous three years.
  • The date on which the company is deemed a large accelerated filer under SEC rules.

[c. 168; p. 14] ASU 2016-13 Adoption

• In June 2016, FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).
• ASU 2016-13 requires estimating credit losses on financial instruments, including receivables and available-for-sale debt securities, using an expected loss approach that incorporates historical information, current information, and reasonable and supportable forecasts.
• The company adopted ASU 2016-13 effective January 1, 2023, using the modified retrospective approach, with a cumulative-effect adjustment to retained earnings as of the adoption date.
• In connection with ASU 2016-13 adoption, the company elected the fair value option for mortgage loans effective January 1, 2023, as targeted transition relief.
• Adoption of ASU 2016-13 resulted in an increase of USD 2.3m in the allowance for uncollectible reinsurance.
• Adoption of ASU 2016-13 resulted in an increase, net of tax, of USD 2.3m in accumulated deficit.

[c. 169; p. 14] ASU 2023-07 Segment Disclosures

• In November 2023, FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280).
• ASU 2023-07 requires segment disclosures for:
  • Significant segment expenses regularly provided to the chief operating decision maker (CODM).
  • How the CODM uses reported segment profitability measures for performance assessment and resource allocation.
  • The title and position of the CODM.
• Entities with a single reportable segment must provide full segment disclosures.
• The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
• This update is applied retrospectively to all prior periods presented.
• The company is evaluating the effect of these amendments on its consolidated financial statements.

[c. 170; p. 14] ASU 2023-09 Income Tax Disclosures

• In December 2023, FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740).
• ASU 2023-09 requires public companies to provide enhanced annual rate reconciliation disclosures, including specific categories and additional information meeting a quantitative threshold.
• This update also requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes.
• The guidance is effective for fiscal years beginning after December 15, 2024.
• The company is evaluating the effect of these amendments on its consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

[c. 171; p. 15] Market risk disclosures

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

Financial Statements

Report of Independent Registered Public Accounting Firm

[c. 172; p. 16] Independent registered public accounting firm report

• The report is addressed to the Stockholders and the Board of Directors of Skyward Specialty Insurance Group, Inc.

Opinion on the Financial Statements

[c. 173; p. 16] Independent auditor's opinion

• The consolidated financial statements of Skyward Specialty Insurance Group, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, and for each of the two years in the period ended December 31, 2023, have been audited.
• The audited statements include the consolidated balance sheets, statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows, along with related notes and financial statement schedules listed in Item 15.
• The independent auditor's opinion is that the consolidated financial statements present fairly, in all material respects, the Company's financial position at December 31, 2023 and 2022, and its operations and cash flows for the two years ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

[c. 174; p. 16] Auditor responsibilities and scope

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

[c. 175; p. 16]

Auditor since 2021

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

Consolidated balance sheets

[c. 176; p. 16] Financial statement notes

• The accompanying notes are an integral part of these consolidated financial statements.

[c. 177; p. 16]

Assets, liabilities and stockholders’ equity by December 31

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

Consolidated statements of operations and comprehensive income (loss)

[c. 178; p. 16] Financial statement notes

• The accompanying notes are an integral part of these consolidated financial statements.

[c. 179; p. 16]

Consolidated statements of operations and comprehensive income (loss)

	Years Ended December 31,
	2023	2022
($ in thousands, except share and per share amounts)
Revenues:
Net earned premiums	829,143	615,994
Commission and fee income	6,064	5,199
Net investment income	40,322	36,931
Net investment gains (losses)	11,072	( 15,705 )
Other (loss) income	( 632 )	1
Total revenues	885,969	642,420
Expenses:	—	—
Losses and loss adjustment expenses	515,237	402,512
Underwriting, acquisition and insurance expenses	243,444	182,171
Interest expense	10,024	6,407
Amortization expense	1,798	1,547
Other expenses	5,364	—
Total expenses	775,867	592,637
Income before income taxes	110,102	49,783
Income tax expense	24,118	10,387
Net income	85,984	39,396
Net income attributable to participating securities	1,677	18,879
Net income attributable to common shareholders	84,307	20,517
Comprehensive income:	—	—
Net income	85,984	39,396
Other comprehensive income (loss):	—	—
Unrealized gains and losses on investments:	—	—
Net change in unrealized gains (losses) on investments, net of tax	25,516	( 48,545 )
Reclassification adjustment for (losses) gains on securities no longer held, net of tax	( 4,984 )	420
Total other comprehensive income (loss)	20,532	( 48,125 )
Comprehensive income (loss)	106,516	( 8,729 )
Per share data:	—	—
Basic earnings per share	2.34	1.24
Diluted earnings per share	2.24	1.21
Weighted-average common shares outstanding	—	—
Basic	36,031,907	16,568,393
Diluted	38,317,534	32,653,194

Consolidated statements of stockholders’ equity

[c. 180; p. 16] Financial statement notes

• The accompanying notes are an integral part of these consolidated financial statements.

[c. 181; p. 16]

Consolidated statements of stockholders’ equity

($ in thousands)	2023	2022
Preferred Stock:
Balance at beginning of year	20
Preferred stock conversion to common shares	( 20 )	—
Balance at end of year	—	20
Common Stock:
Balance at beginning of year	168
Issuance of common stock	22	—
Preferred stock conversion to common shares	161	—
Proceeds from equity offerings, net	48	—
Balance at end of year	399	168
Treasury Stock:
Balance at beginning of year	( 2 )
Preferred stock conversion to common shares	2	—
Balance at end of year	—	( 2 )
Additional Paid-In Capital:
Balance at beginning of year	577,289	575,159
Issuance of common stock	9,213	2,130
Preferred stock conversion to common shares	( 143 )	—
Proceeds from equity offerings, net	124,496	—
Balance at end of year	710,855	577,289
Stock Notes Receivable:	—	—
Balance at beginning of year	( 6,911 )	( 9,092 )
Employee equity transactions	1,349	2,181
Balance at end of year	( 5,562 )	( 6,911 )
Accumulated Other Comprehensive Loss:	—	—
Balance at beginning of year	( 43,485 )	4,640
Other comprehensive income (loss), net of tax	20,532	( 48,125 )
Balance at end of year	( 22,953 )	( 43,485 )
Accumulated Deficit:	—	—
Balance at beginning of year	( 105,417 )	( 144,813 )
Cumulative effect on adoption of ASU No. 2016-13	( 2,275 )	—
Net income	85,984	39,396
Balance at end of year	( 21,708 )	( 105,417 )
Total Stockholders’ Equity	661,031	421,662

Consolidated statements of cash flows

[c. 182; p. 16] Consolidated financial statements notes

• The accompanying notes are an integral part of these consolidated financial statements.

[c. 183; p. 16]

Cash flows from operating, investing, and financing activities by year

	Years Ended December 31,
($ in thousands)	2023	2022
Cash flows from operating activities:
Net income	85,984	39,396
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	—	—
Net investment (gains) losses	( 11,072 )	15,705
Depreciation and amortization expense	3,891	4,097
Stock-based compensation expense	8,525	2,287
Undistributed loss (earnings) from long-term investments	6,730	( 16,032 )
Deferred income tax, net	9,383	10,267
Changes in operating assets and liabilities:	—	—
Premiums receivable, net	( 40,020 )	( 27,057 )
Reinsurance recoverables, net	( 17,270 )	( 45,032 )
Ceded unearned premium	( 28,476 )	( 19,672 )
Deferred policy acquisition costs	( 23,017 )	( 9,482 )
Federal income taxes	( 1,892 )	—
Losses and loss adjustment expenses	172,744	162,208
Unearned premiums	110,023	79,221
Deferred ceding commission	7,208	( 651 )
Reinsurance and premium payables	36,460	( 6,223 )
Funds held for others	21,730	7,271
Accounts payable and accrued liabilities	2,285	7,583
Other, net	( 5,029 )	5,052
Net cash provided by operating activities	338,187	208,938
Cash flows from investing activities:	—	—
Purchase of fixed maturity securities, available-for-sale	( 459,672 )	( 268,781 )
Purchase of illiquid investments	( 1,675 )	( 4,873 )
Purchase of equity securities	( 26,009 )	( 53,548 )
Purchase of intangible assets	( 50 )	—
Investment in direct and indirect loans	2,984	( 9,767 )
Purchase of property and equipment	( 3,108 )	( 2,325 )
Sales and maturities of investment securities	127,228	95,641
Sales of and distributions from unconsolidated subsidiaries	3,572	3,421
Change in short-term investments	( 149,068 )	43,120
Payable for securities sold	76	529
Cash provided by deposit accounting	11,913	3,202
Net cash used in investing activities	( 493,809 )	( 193,381 )
Cash flows from financing activities:	—	—
Employee share purchases	1,350	2,180
Draw on revolving line of credit	50,000	—
Repayment of term loan	( 50,000 )	—
Proceeds from equity offerings	128,887	—
Proceeds from employee stock purchase plan	710	—
Net cash provided by financing activities	130,947	2,180
Net (decrease) increase in cash and cash equivalents and restricted cash	( 24,675 )	17,737
Cash and cash equivalents and restricted cash at beginning of year*	125,011	107,274
Cash and cash equivalents and restricted cash at end of year*	100,336	125,011
Supplemental disclosure of cash flow information:	—	—
Cash paid for interest	10,667	5,761
Cash paid for federal income taxes	15,800	—
*the sum of cash and cash equivalents and restricted cash from the consolidated balance sheets	—	—

A. Description of Business

[c. 184; p. 16] Company overview

• Skyward Specialty Insurance Group, Inc. (the "Company") is a Delaware corporation organized in 2006.
• The Company operates as a specialty insurance company in one segment, delivering commercial property and casualty products insurance coverages through its underwriting divisions.

[c. 185; p. 16] Wholly owned insurance subsidiaries

• The Company has four wholly owned insurance company subsidiaries based in the United States.
  • Houston Specialty Insurance Company ("HSIC") underwrites insurance on a non-admitted basis.
  • Imperium Insurance Company ("IIC"), a subsidiary of HSIC, underwrites insurance on an admitted basis.
  • Great Midwest Insurance Company ("GMIC"), a subsidiary of IIC, underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S. Department of the Treasury.
  • Oklahoma Specialty Insurance Company ("OSIC"), a subsidiary of GMIC, underwrites insurance on a non-admitted basis.

[c. 186; p. 16] Wholly owned captive reinsurance subsidiary

• The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, domiciled in the Cayman Islands.
• Skyward Re assumes net reserves for certain divisions related to a retroactive reinsurance contract from the Company’s insurance companies.
• Skyward Re retrocedes these net reserves to a third-party reinsurer.

[c. 187; p. 16] Wholly owned non-risk bearing subsidiaries

• The Company has two non-risk bearing wholly owned subsidiaries.
  • Skyward Underwriters Agency, Inc. ("SUA") is a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets.
  • Skyward Service Company provides various administrative services to the Company’s subsidiaries.

B. Basis of Presentation

[c. 188; p. 16] Basis of presentation

• Consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP").
• GAAP differs in some respects from principles followed in reports to insurance regulatory authorities.
• Consolidated financial statements include accounts of the holding company and its subsidiaries.
• All intercompany transactions and balances have been eliminated in consolidation.
• Preparation of consolidated financial statements in conformity with GAAP requires estimates and assumptions affecting reported amounts.
• Actual results could differ from those estimates.

C. Cash and Cash Equivalents

[c. 189; p. 16] Cash and cash equivalents definition

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

D. Restricted Cash

[c. 190; p. 16] Restricted cash definition and sources

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

E. Investments

[c. 191; p. 16] Available-for-sale investments

• Investments in fixed maturities classified as available-for-sale are carried at fair value.
• For available-for-sale fixed maturities with unrealized losses, the Company determines if there is an intent to sell or if it is more likely than not that the Company will be required to sell before maturity or recovery of cost basis.
• If either criterion is met, the amortized cost is written down to fair value, with losses recognized in net investment gains on the consolidated statements of operations.
• If neither criterion is met, the Company determines if unrealized losses are due to credit-related factors.
• If unrealized losses are credit-related, an allowance for credit losses is determined using a present value of cash flows compared to the amortized cost of the security.
• The allowance for credit losses is limited to the amount by which fair value is below amortized cost.
• Changes in the allowance for credit losses are recognized in net investment income on the consolidated statements of operations.
• Credit losses limited by the fair value of the security are recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive loss.
• Unrealized losses that are not credit-related continue to be recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive loss.

[c. 192; p. 16] Held-to-maturity investments

• Investments in fixed maturity securities held-to-maturity are carried at amortized cost net of an allowance for credit losses.
• The allowance for credit losses represents the current estimate of expected credit losses.
• The Company develops a historical loss rate from Moody’s multi-year cumulative loss rates for asset-backed securities, adjusted for current conditions and reasonable and supportable forecasts.
• Changes in the allowance for credit losses are recognized in net investment income on the consolidated statements of operations.

[c. 193; p. 16] Other-than-temporary impairments

• Prior to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), on January 1, 2023, the Company evaluated declines in market value of invested assets below amortized cost for other-than-temporary impairment losses on a quarterly basis.
• Impairment losses for declines in fixed maturity securities due to issuer-specific events were based on relevant facts and circumstances and recognized when appropriate.
• For investments with unrealized losses due to market conditions or industry-related events, where the Company did not intend to sell and had the ability to hold for market recovery or to maturity, declines in value below cost were not assumed to be other-than-temporary.
• When impairment was considered other-than-temporary, the decrease in value was reported in net income within the consolidated statements of operations and a corresponding reduction in carrying value on the consolidated balance sheet.

[c. 194; p. 16] Equity securities with readily determinable fair value

• Equity securities consist of common stock or preferred stock.
• Mutual funds, including those primarily investing in debt securities, are classified as equity securities.
• Investments in equity securities with a readily determinable fair value are carried on the balance sheet at fair value using quoted market prices.
• Changes in the carrying value of equity securities are included in net investment gains (losses) within the consolidated statements of operations.

[c. 195; p. 16] Mortgage loans

• Investments in mortgage loans are classified as held for investment and carried on the balance sheet at cost adjusted for unamortized premiums, discounts, and loan fees.
• Uncollectible amounts are written off in the period they are determined to be uncollectible.
• Interest on loans is recognized as interest receivable and included in other assets on the consolidated balance sheet.
• The Company elected the fair value option for mortgage loans effective January 1, 2023, as targeted transition relief from the adoption of ASU 2016-13.
• Under the fair value option, mortgage loans are measured at fair value, and changes in unrealized gains and losses are reported in net investment gains (losses) on the condensed consolidated statements of operations.
• Interest income and amortization continue to be recognized in net investment income on the consolidated statements of operations.

[c. 196; p. 16] Other long-term investments

• Other long-term investments include equity and equity securities of non-public entities and indirect investments in loans and loan collateral.
• The Company has equity investments in certain limited partnerships and corporations where it has significant influence but not control.
• Analysis of variable interest entities indicated the Company is not the primary beneficiary and would not have to consolidate these entities.
• The equity method is used to account for investments in unconsolidated subsidiaries.
• 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 equity method investee.
• The difference between the cost of an investment and its proportionate share of underlying equity in net assets is a component of investment income.
• The Company amortizes this difference as an adjustment to its pro-rata share of equity method income over the useful life of the underlying asset.
• The Company does not have significant influence in its investments in equity securities of non-public entities.
• When these securities lack a readily determinable fair value, they are carried at cost, minus impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.
• Investments in indirect collateralized loans and loan collateral are held through and accounted for as an ownership interest in an unconsolidated subsidiary.
• The Company’s ownership interests in unconsolidated subsidiaries include investments in partnerships, joint ventures, and special purpose investment vehicles.
• The Company has significant influence but not control over these unconsolidated subsidiaries and uses the equity method to account for these investments.

[c. 197; p. 16] Short-term investments

• Short-term investments consist primarily of money market funds.
• Short-term investments are carried at cost, which approximates fair value.

[c. 198; p. 16] Net investment income and realized gains/losses

• Net investment income consists of interest, dividends, and equity in earnings (losses) of unconsolidated subsidiaries, net of investment expenses such as investment management expenses.
• Interest income is recognized on the accrual basis.
• Dividends are recognized as earned at the ex-dividend date.
• Interest income on mortgage-backed and other asset-backed securities is recognized using the effective-yield method based on estimated principal repayments.
• Amortization of premium and accretion of discounts on debt securities are included in interest income.
• Net realized gains and losses on investments are recognized in net income based upon the specific identification method.

F. Reinsurance

[c. 199; p. 16] Reinsurance accounting principles

• The Company purchases prospective reinsurance for certain lines of business on a proportional, excess of loss, and facultative basis.
• Proportional reinsurance involves sharing losses and expenses with the reinsurer in exchange for a share of premiums.
• Excess of loss reinsurance shares losses, either proportionally or entirely, above a specific dollar threshold for a negotiated cost.
• Facultative reinsurance covers specific risks and/or policies on either a proportional or excess of loss basis.
• Ceded unearned premium and reinsurance balances recoverable (on paid and unpaid losses and settlement expenses) are reported separately as assets, not netted with related liabilities, because reinsurance does not relieve the Company of its legal liability to policyholders.
• Reinsurance on unpaid losses and settlement expenses are estimates of the portion recoverable from reinsurers.
• On the Consolidated Statements of Operations, net earned premiums, losses and loss adjustment expenses, net, and underwriting, acquisition and insurance expenses are presented net of reinsurance ceded.
• The Company purchases retroactive reinsurance for certain lines of business via loss portfolio transfers (LPT) and adverse development covers.
• Retroactive reinsurance contracts indemnify losses related to past loss events, with the reinsurer sharing losses based on dollar thresholds.
• Income from retroactive reinsurance contracts is deferred and amortized into net income over the settlement period.
• Losses from retroactive reinsurance contracts are charged to net income immediately.
• Subsequent changes in the measurement of retroactive reinsurance contracts are accounted for using a full retrospective method.

[c. 200; p. 16] Deposit accounting for reinsurance

• Certain ceded reinsurance contracts that management determines do not transfer significant insurance risk are accounted for using the deposit method.
• The evaluation of significant insurance risk transfer assesses both timing risk and underwriting risk.
• A reinsurance contract may not transfer significant insurance risk if either underwriting risk, timing risk, or both are not deemed transferred.
• For contracts transferring only significant timing risk but not sufficient underwriting risk, a deposit asset is recorded equal to the initial cash outflow, offset by cash inflows from reinsurers.
• 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 over the contract term.
• The accretion of the deposit is based on the expected rate of return implied from estimated cash inflows and outflows.
• The Company periodically reassesses the estimated ultimate receivable and the related expected rate of return on the deposit asset.
• Accretion of the deposit asset, including changes from estimated cash flow changes, is reflected as part of investment income in the Company’s results of operations.
• Several reinsurance contracts require deposit accounting due to not transferring sufficient underwriting risk.
• No reinsurance contracts required deposit accounting due to not transferring sufficient timing risk.

[c. 201; p. 16] Reinsurance recoverables and credit risk

• Reinsurance recoverables are carried net of an allowance for credit losses, which represents the current estimate of expected credit losses.
• The Company develops a historical loss rate using the A.M. Best impairment rate and rating transition study, which provides historical loss data for similarly rated reinsurance companies based on expected receivable duration.
• The historical loss rate is adjusted for current conditions, reasonable and supportable forecasts, and current economic conditions.
• Changes in the allowance for credit losses are recognized in underwriting, acquisition, and insurance expenses on the consolidated statements of operations.
• Reinsurance does not relieve the Company of its legal liability to policyholders.
• The Company continuously monitors the financial condition of its reinsurers by reviewing their annual financial statements and insurance industry developments.
• The Company analyzes credit risk of reinsurance recoverables by monitoring reinsurers' A.M. Best financial strength ratings and assessing collateral adequacy.
• If reinsurers fail to fulfill obligations, the Company has access to collateral.
• Reinsurance collateral from reinsurers was USD 257.5m as of December 31, 2023, and USD 253.9m as of December 31, 2022.
• Everest Reinsurance Co represented 20.4% of the Company’s reinsurance recoverable balances at December 31, 2023, and 28.2% at December 31, 2022.
• Everest Reinsurance Co was the only reinsurer representing 10% or more of the Company’s reinsurance recoverable balances.
• Everest Reinsurance Co's financial strength rating from A.M. Best was A+ at December 31, 2023, and 2022.

G. Concentration of Credit Risk

[c. 202; p. 16] Credit risk concentration

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

H. Deferred Policy Acquisition Costs

[c. 203; p. 16] Deferred Policy Acquisition Costs

• Policy acquisition costs include commissions and premium taxes that are directly related to new or renewal business production.
• 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.
• A premium deficiency is recognized if expected losses, loss adjustment expenses, and unamortized acquisition costs exceed related unearned premiums.
• The Company first addresses a premium deficiency by charging unamortized acquisition costs to expense to eliminate the deficiency.
• If the premium deficiency exceeds unamortized acquisition costs, a liability is accrued for the excess.
• Anticipated investment income is considered when determining premium deficiencies.
• Management determined no premium deficiency existed as of December 31, 2023, and 2022.

I. Goodwill and Intangible Assets

[c. 204; p. 16] Goodwill and intangible assets accounting

• Goodwill and intangible assets are recorded as a result of a business combination.
• Goodwill represents the excess of the purchase price over the fair value of acquired assets and assumed liabilities.
• The Company reviews its purchase price allocation for up to one year post-acquisition and may make adjustments within this period.
• Identifiable intangible assets with a finite useful life are amortized over the period they are expected to contribute to future cash flows.
• Indefinite-lived intangible assets are not amortized.
• The Company reviews goodwill and identifiable intangible assets for recoverability annually in Q4 or on an interim basis if circumstances indicate a carrying amount may not be recoverable.
• No goodwill impairment was recorded for the years ended December 31, 2023 and 2022.

J. Property and Equipment

[c. 205; p. 16] Property and equipment accounting

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

K. Leases

[c. 206; p. 16] Lease accounting policies

• Right-of-use (ROU) assets are categorized under other assets on the consolidated balance sheets.
• Lease liabilities are included in accounts payable and accrued liabilities on the consolidated balance sheets.
• For operating leases, the Company determines if a contract contains a lease at inception.
• Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments at the commencement date.
• 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.
• Lease agreements may contain options to extend or terminate, which are exercised at the Company’s discretion.
• Options are included in operating lease liabilities if their exercise is reasonably certain.
• Lease agreements combine lease and non-lease components, which are accounted for as a single lease component.
• Operating lease cost for future minimum lease payments is recognized on a straight-line basis over the lease term.
• Sublease income is recognized on a straight-line basis over the sublease term.

L. Reserves for Losses and Loss Adjustment Expenses

[c. 207; p. 16] 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 losses unpaid as of the balance sheet dates.
• Estimates are based on actuarial and other assumptions related to the ultimate cost to settle claims.
• Assumptions are subject to occasional changes due to evolving economic, social, and political conditions.
• Management believes the Company has limited exposure to environmental and other toxic tort type claim liabilities due to the nature of its historical business.
• All estimates are periodically reviewed, and reserves are adjusted as experience develops and new information becomes known.
• Adjustments to reserves are reflected in the results of operations in the period they are determined.
• Due to inherent uncertainty in estimating reserves, there is no assurance that ultimate liability will not exceed recorded amounts.
• If actual liabilities exceed recorded amounts, there will be an adverse effect.
• If recorded reserves are determined to be more than adequate, it would lead to a reduction in reserves.

M. Premiums

[c. 208; p. 16] Premium recognition and accounting

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

N. Commission and Fee Income

[c. 209; p. 16] SUA commission revenue

• SUA commission revenue is generated from placing insurance policies on reinsurance programs via a reinsurance broker.
• The Company's single performance obligation for SUA commission revenue is the placement of insurance policies.
• The transaction price for SUA commission revenue is fixed at contract inception and based on a percentage of premiums placed.
• The Company recognizes 100% of the transaction price as revenue when the policy is placed, as the performance obligation is satisfied at that point and there are no constraints on revenue.

[c. 210; p. 16] SUA fee income

• SUA fee income is generated from placing insurance policies with a third-party insurance company.
• The Company's single performance obligation for SUA fee income is the placement of the policy.
• 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 vary monthly (e.g., employee census data, worker roles).
• The Company estimates the transaction price over the life of the policy using the expected value method.
• Revenue from SUA fee income is recognized at the point in time the policy is placed.
• Changes in the estimate of variable consideration for SUA fee income are recognized in the month they occur.

O. Income Taxes

[c. 211; p. 16] Income tax accounting principles

• Income tax expense is accrued for tax effects of transactions reported on consolidated financial statements.
• Provision for income taxes includes currently due taxes plus deferred taxes from temporary differences between financial statement and income tax reporting.
• A valuation allowance is established for any deferred tax asset not expected to be realized.
• 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.
• The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of enactment.
• A liability for uncertain tax positions is recorded if it is more likely-than-not that the position will not be sustained by the tax authority.
• Changes in the liability for uncertain tax positions are reflected in income tax expense when a new uncertain position arises, judgment changes, the tax issue is settled, or the statute of limitation expires.
• Potential net interest income or expense and penalties related to uncertain tax positions are recorded on the Consolidated Statements of Operations.

[c. 212; p. 16] Tax filing and premium taxes

• The Company files a consolidated federal income tax return in the United States and certain other state tax returns.
• Admitted insurance subsidiaries pay premium taxes on gross written premiums in lieu of most state income or franchise taxes.
• Premium tax expense is recognized within underwriting, acquisition, and insurance expense on the Consolidated Statements of Operations.

P. Fair Value of Financial Instruments

[c. 213; p. 16] Fair value measurement framework

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

Q. Stock-Based Compensation

[c. 214; p. 16] Stock-based compensation accounting

• Estimated fair value of employee stock options and similar awards are expensed.
• Compensation cost for equity instrument awards to employees is measured based on grant-date fair value.
• Compensation expense is recognized over the service period during which awards are expected to vest.
• Tax effects related to share-based payments are made through net earnings.
• Further discussion and disclosures regarding stock-based compensation are in note 18.

[c. 215; p. 16] Employee Stock Purchase Plan (ESPP)

• The Company offers an Employee Stock Purchase Plan ("ESPP") allowing all employees to purchase common stock at a discount.
• Compensation cost for the ESPP is recognized on a straight-line basis over the offering period.

R. Earnings Per Share

[c. 216; p. 16] Basic EPS calculation methodology

• Basic earnings per share (EPS) is calculated using the two-class method.
• Undistributed earnings are allocated to participating securities as if all earnings for the period were distributed.
• Basic EPS is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.
• Common shares with unsatisfied contingencies, such as vesting requirements, are excluded from basic EPS.
• The Company's preferred shares are considered participating securities as they participate in dividends and distributions with common stock on an as-converted basis.
• Instruments awarded to employees that grant the right to purchase common stock at a fixed price are included as potential common shares, weighted for the portion of the period they were granted, if dilutive.
• Common and preferred shares financed by stock notes are contingently issuable instruments that require the holder to return shares if stock notes are not paid off.
• These contingently issuable instruments are excluded from basic and diluted EPS if specified conditions are not met, assuming the end of the period is the end of the contingency period.
• The impact of contingently issuable instruments on diluted EPS 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, 2023 and 2022.

[c. 217; p. 16] Diluted EPS calculation methodology

• 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.
• 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.
• 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.
• If common share adjustments increase EPS or reduce loss per share, the effect is anti-dilutive, and diluted net earnings or net loss per share is computed excluding these common share equivalents.

S. Recent Accounting Pronouncements

[c. 218; p. 16] Emerging growth company status

• The Company qualifies as an "emerging growth company" under the JOBS Act of 2012.
• 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.
• 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.

[c. 219; p. 16] Recent accounting standards adopted

• ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): issued by FASB in June 2016.
  • Requires organizations to estimate credit losses on financial instruments (receivables, available-for-sale debt securities) based on expected losses, incorporating historical information, current information, and forecasts.
  • The Company adopted ASU 2016-13 effective January 1, 2023, using the modified retrospective approach.
  • A cumulative-effect adjustment was made to retained earnings as of the adoption date.
  • The Company elected the fair value option for mortgage loans effective January 1, 2023, as targeted transition relief.
  • Adoption resulted in a USD 2.3m increase in the allowance for uncollectible reinsurance.
  • Adoption resulted in a USD 2.3m increase, net of tax, in accumulated deficit.

[c. 220; p. 16] Recent accounting standards not yet adopted

• ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280): issued by FASB in November 2023.
  • Requires segment disclosures for significant segment expenses regularly provided to the chief operating decision maker ("CODM").
  • Requires disclosure of how the CODM uses reported measure(s) of segment profitability for performance assessment and resource allocation.
  • Requires disclosure of the title and position of the CODM.
  • Entities with a single reportable segment must provide full segment disclosures.
  • Effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
  • Applied retrospectively to all prior periods presented.
  • The Company is evaluating the effect of these amendments on its consolidated financial statements.
• ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740): issued by FASB in December 2023.
  • Requires public companies to provide enhanced annual rate reconciliation disclosures, including specific categories and additional information meeting a quantitative threshold.
  • Requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes.
  • Effective for fiscal years beginning after December 15, 2024.
  • The Company is evaluating the effect of these amendments on its consolidated financial statements.

2. Goodwill and Intangible Assets

[c. 221; p. 16] Goodwill and intangible assets carrying amounts

• Tables present the carrying amount and changes in goodwill by reporting unit as of December 31, 2023 and 2022.
• Tables present the carrying amount and changes in other intangible assets as of December 31, 2023 and 2022.

[c. 222; p. 16] Intangible assets useful life

• The Company's indefinite-lived intangible assets relate to insurance licenses and trademarks.
• The Company's finite-lived intangible assets have a weighted average useful life of approximately 15 years as of December 31, 2023.
• Finite-lived intangible assets relate to policy renewals, agency relationships (within agent relationships), and non-compete/exclusivity agreements (within non-competes).

[c. 223; p. 16] Amortization expense

• The Company recognized USD 1.5m in amortization expense for the years ended December 31, 2023 and 2022.
• A table sets forth the estimated future net amortization expense of intangible assets.

[c. 224; p. 16]

Net balance of goodwill by Accident and Health, Surety, Industry Solutions, Other

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

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

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

($ 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

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

3. Investments

[c. 225; p. 16] Investment portfolio fair value and amortized cost

• The tables present the amortized cost and fair value of investments at December 31, 2023 and 2022.
• The amortized cost and estimated fair value of fixed maturity securities, available for sale, at December 31, 2023 are shown by contractual maturity.
• Expected maturities may differ from contractual maturities due to borrowers' rights to call or prepay obligations, and portfolio sales prior to maturity due to changing interest rates, tax considerations, or other factors.
• The Company’s fixed maturity securities, held to maturity, at December 31, 2023 consist entirely of asset-backed securities that do not have a single maturity date.

[c. 226; p. 16] Unrealized losses and impairment assessment

• Tables summarize gross unrealized losses and corresponding fair values of investments, aggregated by the length of time individual securities have been in a continuous unrealized loss position.
• The Company monitors available-for-sale fixed maturity securities with fair values less than cost or amortized cost for impairment, which requires significant management judgment regarding known evidence.
• Such judgments could change in the future, potentially impacting reported amounts negatively.
• Factors considered for fixed maturity securities include the issuer's financial condition (including receipt of scheduled principal and interest cash flows) and intent to sell (including the likelihood of being required to sell before recovery).
• As of December 31, 2023, the Company had 584 lots of fixed maturity securities in an unrealized loss position.
• The Company does not intend to sell these securities and is not likely to be required to sell them before maturity or recovery of its cost basis.
• The Company determined no credit impairment existed in the gross unrealized holding losses because credit ratings were consistent with purchase/origination, there were no adverse changes in issuer financial condition, and no adverse credit quality events in underlying assets.
• The unrealized losses were attributed to changes in interest rates.

[c. 227; p. 16] Net investment gains, sales proceeds, and income

• A table sets forth the components of net investment gains (losses) for the years ended December 31, 2023 and 2022.
• A table sets forth the proceeds from sales of debt and equity securities for the years ended December 31, 2023 and 2022.
• A table sets forth the components of net investment income for the years ended December 31, 2023 and 2022.

[c. 228; p. 16] Net unrealized gains/losses and regulatory deposits

• A table sets forth the change in net unrealized gains (losses) on the Company’s investment portfolio, net of deferred income taxes, included in other comprehensive income (loss) for the years ended December 31, 2023 and 2022.
• Various state regulations require the Company to maintain cash, investment securities, or letters of credit on deposit with the states in a depository account.
• At December 31, 2023, cash and investment securities on deposit had fair values of approximately USD 62.3m (prior: USD 60.2m).

[c. 229; p. 16]

3. Investments

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

($ 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
Other asset-backed securities	116,275	91	( 6,542 )	109,824
Total fixed maturity securities, available-for-sale	662,616	1,151	( 56,195 )	607,572
Fixed maturity securities, held-to-maturity:	—	—	—	—
Other asset-backed securities	52,467	—	( 5,696 )	46,771
Total fixed maturity securities, held-to-maturity	52,467	—	( 5,696 )	46,771

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

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

	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 )
Other asset-backed securities	74,684	( 3,351 )	25,820	( 3,191 )	100,504	( 6,542 )
Total fixed maturity securities, available-for-sale	408,939	( 32,893 )	143,730	( 23,302 )	552,669	( 56,195 )
Fixed maturity securities, held-to-maturity:	—	—	—	—	—	—
Other asset-backed securities	46,771	( 5,696 )	—	—	46,771	( 5,696 )
Total fixed maturity securities, held-to-maturity	46,771	( 5,696 )	—	—	46,771	( 5,696 )
Total	455,710	( 38,589 )	143,730	( 23,302 )	599,440	( 61,891 )

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

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

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

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

4. Fair Value Measurements

[c. 230; p. 16] Fair value measurement principles

• 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.
• Fair value is generally determined using the market approach, which uses prices and data from market transactions involving identical or comparable assets and liabilities.
• The Company primarily uses data from third-party investment managers or pricing vendors for fair value determination of investments.
• Periodic analyses are conducted on third-party prices to ensure they are reasonable estimates of fair value, including reviewing month-to-month price fluctuations and comparing valuations from different pricing services for identical securities.

[c. 231; p. 16] Fair value hierarchy levels

• The Company classifies financial instruments into a three-level hierarchy.
• Level 1 inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
• Level 2 inputs are observable for the asset or liability through corroboration with market data at the measurement date, other than quoted prices included in Level 1.
• Level 3 inputs are unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

[c. 232; p. 16] Fair value estimation methods for specific instruments

• U.S. government securities, mutual funds and common stock: Fair value is measured using unadjusted quoted prices for identical instruments in an active exchange, representing Level 1 inputs.
• Preferred stocks, municipal securities, corporate securities and miscellaneous: Fair value is determined using a pricing model that utilizes market-based inputs such as trades in illiquid markets for specific securities or active markets for securities with similar characteristics.
  • The model considers benchmark yields, issuer spreads, security terms and conditions, and other market data, representing Level 2 fair value inputs.
• Commercial mortgage-backed securities, residential mortgage-backed securities and other asset-backed securities: Fair value is determined using a pricing model that utilizes market-based inputs including dealer quotes, market spreads, and yield curves.
  • The model 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.
• Mortgage loans: Fair value is determined using the income approach with observable and unobservable (Level 3) inputs.
  • The unobservable input is the spread applied to a prime rate for discounting cash flows, which represents the incremental cost of capital based on borrower's ability to pay and collateral value relative to loan balance, and is subject to judgment and uncertainty.

[c. 233; p. 16] Fair value tables and nonrecurring measurements

• A table sets forth the range and weighted average of the spread for mortgage loans as of December 31, 2023.
• Tables set forth the Company’s investments within the fair value hierarchy at December 31, 2023 and December 31, 2022.
• A table sets forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the year ended December 31, 2023.
• Certain assets, including investments in indirect loans and loan collateral, equity method investments, and other invested assets, are measured at fair value on a nonrecurring basis only when impaired.

[c. 234; p. 16] Fair value disclosures for other financial instruments

• The Company is required to disclose fair values for certain other financial instruments where estimation is practicable, in addition to assets and liabilities recorded at fair value.
• Estimated fair value amounts are defined as the quoted market price of a financial instrument, determined using available market information and valuation methodologies.
• Significant judgments are required for fair value estimates when quoted market prices are unavailable, meaning estimates may not indicate amounts realizable in a current market exchange.
• Different market assumptions or estimation methodologies can affect estimated fair value amounts.
• Fixed maturity securities, held-to-maturity: Fair value as of December 31, 2023, was determined using the income approach with unobservable (Level 3) inputs.
• Notes payable: Carrying value approximates estimated fair value because notes accrue interest at current market rates plus a spread.
  • Fair value is determined using the income approach with observable (Level 2) inputs.
• Subordinated debt: Consists of Junior Subordinated Interest Debentures (due September 15, 2036) and Unsecured Subordinated Notes (due May 24, 2039).
  • Carrying value of Junior Subordinated Interest Debentures approximates estimated fair value as it accrues interest at current market rates plus a spread.
  • Unsecured Subordinated Notes have a fixed interest rate.
  • Fair value for these instruments is determined using the income approach with observable (Level 2) inputs.
• A table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of December 31, 2023 and December 31, 2022.
• Other financial instruments that qualify as insurance-related products are exempt from fair value disclosure requirements.

[c. 235; p. 16]

4. Fair Value Measurements

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

December 31, 2023
($ in thousands)	Level 1	Level 2	Level 3	Total
Fixed maturity securities, available-for-sale:
U.S. government securities	44,166	—	—	44,166
Corporate securities and miscellaneous	—	383,420	—	383,420
Municipal securities	—	92,778	—	92,778
Residential mortgage-backed securities	—	281,626	—	281,626
Commercial mortgage-backed securities	—	29,934	—	29,934
Other asset-backed securities	—	185,727	—	185,727
Total fixed maturity securities, available-for-sale	44,166	973,485	—	1,017,651
Fixed maturity securities, held-to-maturity:	—	—	—	—
Other asset-backed securities	—	—	41,017	41,017
Total fixed maturity securities, held-to-maturity	—	—	41,017	41,017
Common stocks:	—	—	—	—
Consumer discretionary	2,313	—	—	2,313
Consumer staples	14,015	—	—	14,015
Energy	3,187	—	—	3,187
Finance	24,267	—	—	24,267
Industrial	12,170	—	—	12,170
Information technology	5,192	—	—	5,192
Materials	3,782	—	—	3,782
Other	2,499	—	—	2,499
Total common stocks	67,425	—	—	67,425
Preferred stocks:	—	—	—	—
Consumer staples	—	433	—	433
Finance	—	5,061	—	5,061
Industrial	—	1,052	—	1,052
Other	—	812	—	812
Total preferred stocks	—	7,358	—	7,358
Mutual funds:	—	—	—	—
Fixed income	5,405	—	—	5,405
Equity	37,546	—	—	37,546
Commodity	515	—	—	515
Total mutual funds	43,466	—	—	43,466
Total equity securities	110,891	7,358	—	118,249
Mortgage loans	—	—	50,070	50,070
Short-term investments	270,226	—	—	270,226
Total investments	425,283	980,843	91,087	1,497,213

December 31, 2022
($ in thousands)	Level 1	Level 2	Level 3	Total
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
Other asset-backed securities	—	109,824	—	109,824
Total fixed maturity securities, available-for-sale	48,541	559,031	—	607,572
Fixed maturity securities, held-to-maturity:	—	—	—	—
Other asset-backed securities	—	—	46,771	46,771
Total fixed maturity securities, held-to-maturity	—	—	46,771	46,771
Common stocks:	—	—	—	—
Consumer discretionary	1,948	—	—	1,948
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 investments	281,097	567,802	99,613	948,512

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

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

5. Mortgage Loans

[c. 236; p. 16] Mortgage loan investments and characteristics

• The Company has invested in Separately Managed Accounts ("SMA1" and "SMA2"), managed by Arena Investors, LP ("Arena"), which is affiliated with The Westaim Corporation, the Company’s largest stockholder.
• As of December 31, 2023 and 2022, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2.
• The Company’s mortgage loan portfolios are primarily senior loans on real estate across the U.S..
• Loans earn interest at a fixed spread above a prime rate.
• Loans mature in approximately 1 to 3 years from loan origination.
• Principal amounts of the loans range between 61% to 90% of the property’s appraised value at the time the loans were made.
• Mortgage loan participations are carried at fair value as of December 31, 2023.
• Mortgage loan participations were carried at cost adjusted for unamortized premiums, discounts, and loan fees as of December 31, 2022.

[c. 237; p. 16] Mortgage loan carrying value and investment income

• The carrying value of the Company’s mortgage loans as of December 31, 2023 and 2022 were as follows:
• The Company’s gross investment income for the years ended December 31, 2023 and 2022 is as follows:

[c. 238; p. 16] Uncollectible mortgage loans and foreclosures

• Uncollectible amounts on loans are determined on an individual loan basis based on consultations with the Company’s specialized investment manager, consideration of adverse situations affecting borrower repayment ability, estimated value of underlying collateral, and other relevant factors.
• The Company writes off uncollectible amounts in the period they are determined to be uncollectible.
• There were no write-offs for uncollectible amounts for the years ended December 31, 2023 and 2022.
• As of December 31, 2023, approximately USD 7.1m of mortgage loans were in the process of foreclosure.
• As of December 31, 2022, approximately USD 6.4m of mortgage loans were in the process of foreclosure.
• As of December 31, 2023, USD 6.8m of mortgage loans were not producing income for the previous 12 months.

[c. 239; p. 16]

5. Mortgage Loans

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

	Years Ended December 31,
($ in thousands)	2023	2022
Retail	1,853	1,255
Commercial	2,340	1,242
Industrial	—	565
Multi-family	44	909
Office	203	385
Hospitality	1,034	411
—	5,474	4,767

6. Other Long-Term Investments

[c. 240; p. 16] Equity method investments overview

• The Company's ownership interests in most equity method investments range from approximately 3% to less than 50%, indicating significant influence but not control.
• The Company owns investment products issued by Arena Special Opportunities Partners (Feeder) I, LP ("Arena SOP"), managed by Arena, an affiliate of Westaim.
• Investment products include senior and junior notes issued by Arena SOP to raise capital for investments.
• Returns on investments pay interest on senior and junior notes based on target returns for each class.
• Senior and junior notes are debt securities classified as held to maturity and presented within fixed maturity securities, held to maturity, on the balance sheet.
• Income exceeding return targets on senior and junior notes is allocated to the investment in Arena SOP.

[c. 241; p. 16] Equity method investment transactions

• During 2022, the Company entered an agreement for limited partnership interests in Brewer Lane Ventures Fund II, L.P..
• Investments in Brewer Lane Ventures Fund II, L.P. were USD 0.4m in 2023 and USD 0.2m in 2022.
• Investments in Hudson Ventures Fund 2, LP were USD 0.9m in 2023 and USD 1.3m in 2022.

[c. 242; p. 16] Equity method investment carrying value and income

• The carrying value of equity method investments is reported as of December 31, 2023 and 2022.
• Equity in (loss) income from unconsolidated subsidiaries is summarized for the years ended December 31, 2023 and 2022.
• The unfunded commitment of equity method investments is reported as of December 31, 2023 and 2022.

[c. 243; p. 16] RISCOM investment

• The difference between the cost of an investment and its proportionate share of underlying equity in net assets is allocated to the various assets and liabilities of the equity method investment.
• The Company amortizes the difference in net assets over the useful life of a similar asset as the underlying equity method investment.
• For the investment in RISCOM, a similar asset is agent relationships, amortized over a 15-year useful life.
• A table summarizes the Company’s recorded investment in RISCOM compared to its share of underlying equity as of December 31, 2023 and 2022.

[c. 244; p. 16] JVM Funds LLC investment

• The Company amortizes the difference in net assets in JVM Funds LLC over the 7-year estimated useful life of the investment in rental properties.
• A table summarizes the Company’s recorded investment in JVM Funds LLC compared to its share of underlying equity as of December 31, 2023 and 2022.

[c. 245; p. 16] Investment in bank holding companies

• The Company carries a USD 2.0m investment in Captex Bancshares, a Texas bank holding company, at cost, less impairment or observable changes in price.
• The Company does not have significant influence over Captex Bancshares.
• Investments are reviewed for impairment or observable changes in price each reporting period.
• There was no impairment or observable change in price during the years ended December 31, 2023 and 2022.

[c. 246; p. 16] Investment in indirect loans and loan collateral

• As of December 31, 2023 and 2022, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2.
• The carrying value of SMA1 and SMA2 as of December 31, 2023 and 2022 is reported.

[c. 247; p. 16] Investment in Trust

• The Company carries its investment in the common stock of the Delos Capital Trust n/k/a HIIG Capital Trust I ("Trust") at cost.
• The Company does not have significant influence over the Trust.
• There was no impairment or observable change in price during the years ended December 31, 2023 and 2022.
• Further information on the Trust can be found in Note 10.

[c. 248; p. 16]

6. Other Long-Term Investments

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

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

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

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

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

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

7. Allowance for Credit Losses

[c. 249; p. 16] Premiums receivable allowance for credit losses

• The following table sets forth the changes in the allowance for expected credit losses on premiums receivable for the year ended December 31, 2023.

[c. 250; p. 16] Reinsurance recoverables credit risk and allowance

• The Company analyzes credit risk for reinsurance recoverables by monitoring reinsurer financial strength ratings from A.M. Best.
• Financial strength ratings are assessed annually and throughout the year as A.M. Best provides updates.
• The Company assesses the adequacy of credit enhancements like reinsurance payables, letters of credit, and funds held.
• The following table sets forth the Company’s reinsurance recoverables net of credit enhancements by A.M. Best as of December 31, 2023.
• Reinsurance balances are considered past due when they are 90 days past due.
• The following table sets forth the changes in the allowance for estimated uncollectible reinsurance for the year ended December 31, 2023.

[c. 251; p. 16]

Allowance for estimated uncollectible premiums by balance at December 31

($ in thousands)	Premiums Receivable, Net	Allowance for Estimated Uncollectible Premiums
Balance at December 31, 2022	139,215	629
Cumulative effect of adoption of ASU 2016-13 at January 1, 2023	—	—
Current period change for estimated uncollectible premiums	—	748
Write-offs of uncollectible premiums receivable	—	( 513 )
Recoveries of amounts previously written off	—	100
Balance at December 31, 2023	179,235	964

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

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

8. Property and Equipment

[c. 252; p. 16] Property and equipment components

• Property and equipment components are included within other assets on the consolidated balance sheets.
• Depreciation expense related to property and equipment was USD 3.2m for the year ended December 31, 2023.
• Depreciation expense related to property and equipment was USD 3.6m for the year ended December 31, 2022.

[c. 253; p. 16]

8. Property and Equipment

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

9. Leases

[c. 254; p. 16] Lease accounting and expense

• The Company determines if a contract contains a lease at inception and recognizes a right-of-use asset (within other assets) and lease liability (within accounts payable and accrued liabilities) based on the present value of future lease payments.
• If leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on inception date information to determine the lease liability.
• The Company's leases are primarily for office facilities, classified as operating leases.
• Leases have remaining terms ranging from 1 to 6 years, some with extension options.
• Lease expense for the year ended December 31, 2023, was USD 2.8m.
• Lease expense for the year ended December 31, 2022, was USD 2.6m.

[c. 255; p. 16] Lease information tables

• Tables provide information regarding the Company’s leases as of and for the years ended December 31, 2023 and 2022.
• A table sets forth the future minimum lease payment obligations of the Company’s operating leases at December 31, 2023.

[c. 256; p. 16]

9. Leases

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

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

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

10. Subordinated Debt

[c. 257; p. 16] Subordinated debt summary and 2019 Notes

• The table summarizes the Company's subordinated debt as of December 31, 2023 and 2022.
• In May 2019, the Company agreed to issue unsecured subordinated notes ("Notes") with an aggregate principal amount of USD 20.0m.
• Interest on the Notes is fixed at 7.25% for the first 8 years and 8.25% thereafter.
• 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.
• Principal is due at maturity on May 24, 2039, with interest payable quarterly.
• The Notes have junior priority to all previously issued debt.
• The Company reports debt related to the Notes in its December 31, 2023 and 2022 consolidated balance sheets, net of debt issuance costs of approximately USD 0.5m.
• These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

[c. 258; p. 16] 2006 Trust capital securities and Debentures

• On August 2, 2006, the Trust issued USD 58.0m of fixed/floating rate capital securities guaranteed by the Company.
• The Trust also issued the Company USD 1.8m of common stock, classified within other long-term investments.
• The Company has not consolidated the Trust as it does not meet consolidation criteria and the Company does not have significant influence over the investee.
• The Company carries its investment in the common stock of the Trust at cost.
• There was no impairment or observable change in price during the year ended December 31, 2023.
• The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures ("Debentures") with a principal amount of USD 59.8m issued by the Company.
• The Debentures are an unsecured obligation that are currently redeemable, with a maturity date of September 15, 2036.
• Interest on the Debentures is payable quarterly at an annual rate based on the three-month LIBOR plus 3.4%.
• The three-month LIBOR rate was 5.59% at December 31, 2023, and 4.77% at December 31, 2022.
• The Company reflects debt related to the Debentures in its December 31, 2023 and 2022 consolidated balance sheets, net of debt issuance costs of approximately USD 0.6m and USD 0.7m, respectively.
• These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

[c. 259; p. 16]

10. Subordinated Debt

($ in thousands)	2023	2022
Junior subordinated interest debentures, due September 15, 2036, payable quarterly
Principal	59,794	59,794
Less: Debt issuance costs	( 608 )	( 657 )
Unsecured subordinated notes, due May 24, 2039, interest payable quarterly	—	—
Principal	20,000	20,000
Less: Debt issuance costs	( 496 )	( 528 )
Subordinated debt, net of debt issuance costs	78,690	78,609

11. Notes Payable

[c. 260; p. 16] Revolving Credit Facility

• The Company entered into an agreement for a new unsecured revolving credit facility with a syndicate of participating banks in Q1 2023.
• The Revolving Credit Facility provided up to USD 150.0m, with an accordion to increase capacity by USD 50.0m, and a letter of credit sub-facility of up to USD 30.0m.
• During the year ended December 31, 2023, the Company drew USD 50.0m on the Revolving Credit Facility.
• The proceeds from the Revolving Credit Facility were used to pay off the principal on the existing term loan.
• The Company subsequently terminated the existing term loan and revolving line of credit.

[c. 261; p. 16] Revolving Credit Facility interest rates and covenants

• Interest on the Revolving Credit Facility is payable quarterly.
• The interest rate on the Revolving Credit Facility is SOFR plus a margin of 150 to 190 bps, based on the ratio of debt to total capital, and a credit spread adjustment of 10 bps.
• At December 31, 2023, the six-month SOFR on the Revolving Credit Facility was 5.47%, plus a margin of 1.60%.
• The interest rate on the previous term loan was one-month LIBOR (4.39% on December 31, 2022) plus an Applicable Margin of 1.65%.
• The previous revolving line of credit included a fee of 0.25% on the unused portion.
• The Company was subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating, and minimum liquidity.
• As of December 31, 2023, the Company was in compliance with all covenants.

[c. 262; p. 16] Notes payable interest payments

• The table following paragraph 6 sets forth the interest payments on the Company’s notes payable for the years ended December 31, 2023 and 2022.

[c. 263; p. 16]

11. Notes Payable

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

12. Stockholders’ Equity

[c. 264; p. 16] Reverse stock split

• The Board of Directors approved a 4-for-1 reverse stock split of the Company’s common stock on September 23, 2022.
• The reverse stock split became effective January 3, 2023.
• All share and per share information in the consolidated financial statements and notes has been retroactively adjusted to reflect the reverse stock split for all periods presented.

[c. 265; p. 16] Initial Public Offering (IPO)

• The Company completed its IPO on January 18, 2023.
• 4,750,000 shares were offered by the Company at a price of USD 15.00 per share.
• Net proceeds from the IPO were approximately USD 62.0m, after deducting underwriting discounts and specific incremental expenses directly attributable to the IPO.
• Upon closing of the IPO, the Company filed an amended and restated certificate of incorporation.
• The amended certificate increased the number of 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).

[c. 266; p. 16] Preferred Shares Conversion

• Preferred Shares had liquidation preference over common stock for USD 50.00 per share face value and any declared but unpaid dividends to related common shares at the applicable conversion rate.
• Preferred Shares holders had the option to convert them into common stock at any time based on the Option Conversion Rate.
• Preferred Shares were subject to mandatory conversion upon the closing of an IPO at the Mandatory Conversion Rate.
• As of December 31, 2022, the Mandatory Conversion Rate allowed conversion into common stock based on a conversion price of USD 6.04 per common share.
• On January 18, 2023, 1,969,660 Preferred Shares converted to 16,305,113 shares of common stock upon the Company’s IPO closing.

[c. 267; p. 16] Follow-On Offering

• The Company completed its follow-on offering on November 20, 2023.
• 2,150,000 shares were sold by the Company at a price of USD 30.50 per share.
• Net proceeds were approximately USD 62.5m, after deducting underwriting discounts and specific incremental expenses directly attributable to the offering.

13. Income Taxes

[c. 268; p. 16] Income tax expense and effective tax rate

• The Company's provision for income taxes generally does not deviate substantially from the statutory tax rate.
• The effective tax rate may vary slightly from the statutory rate due to tax adjustments for tax-exempt income, dividends-received deduction, and non-deductible expenses.
• The federal statutory income tax rate was 21% for the years ended December 31, 2023 and 2022.

[c. 269; p. 16] Deferred tax assets and liabilities

• The tax effects of temporary differences give rise to significant portions of deferred tax assets and deferred tax liabilities.

[c. 270; p. 16] Federal income tax payments and examinations

• The Company paid USD 15.8m in federal income taxes during the year ended December 31, 2023.
• The Company's federal income tax returns for tax years 2020 to 2022 are subject to examination by the Internal Revenue Service.
• The Company has no current U.S. federal or state and local income tax examinations ongoing at this time.

[c. 271; p. 16] Uncertain tax positions and accruals

• At December 31, 2023, the Company carried no balance for uncertain tax positions.
• The Company had no accrual for the payment of interest and penalties at December 31, 2023 or 2022.

[c. 272; p. 16] Net operating loss carryforwards

• The Company has federal net operating loss carryforwards of approximately USD 49.4m.
• These net operating losses are set to expire beginning in 2030.
• Utilization of USD 49.3m of the net operating losses is limited under Internal Revenue Code Section 382 ("Sec 382") due to an "ownership change" in 2014.
• The Sec 382 limitation is expected to result in an expiration of USD 2.8m (USD 0.6m tax effected) of net operating losses.
• A valuation allowance was established against the balance of net operating losses expected to expire without utilization.

[c. 273; p. 16] Capital loss carryforward

• The Company generated a capital loss carryforward in 2022, resulting in a deferred tax asset of USD 0.7m as of December 31, 2023.
• No valuation allowance is recorded against this deferred tax asset as the Company expects to utilize this carryforward before it expires in 2027.

[c. 274; p. 16] Deferred tax valuation allowance

• 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.
• The deferred tax valuation allowance at December 31, 2023 and 2022 was USD 0.6m.

[c. 275; p. 16]

13. Income Taxes

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

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

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

14. Reserves for Losses and Loss Adjustment Expenses

[c. 276; p. 16] Loss development categories

• The Company presents loss development on a consolidated basis.
• Net ultimate loss and LAE are evaluated under three sub-categories: multiline solutions, short tail/monoline specialty lines, and exited lines.
• These disaggregated groupings have more homogeneous risk characteristics, similar development patterns, and are generally subject to similar trends.
• Short tail/monoline specialty lines includes global property & agriculture, accident & health, surety, and professional lines underwriting divisions.
• These are market niches served with monoline solutions, generally having shorter durations for losses to fully develop.
• Losses for short tail/monoline specialty lines are generally reported within a short period from the date of loss, and claims are typically settled and paid within a relatively short timeframe.
• Short tail/monoline specialty lines can be impacted by larger, more complex losses due to factors like difficulty determining actual damages, and legal/regulatory impediments extending settlement times.
• Multi-line solutions includes industry solutions, programs, captives, and transactional E&S underwriting divisions.
• These are market niches where the Company provides multiple products, most frequently as an integrated solution.
• The multi-line solution subcategory predominantly consists of occurrence liability, including general liability, excess liability, and commercial auto.
• Multi-line solutions have a longer duration for losses to fully develop compared to short-tail/monoline specialty lines.
• 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.
• Exited lines includes all underwriting units placed in run-off and are presented separately from on-going lines of business.

[c. 277; p. 16] Reconciliation of unpaid losses and LAE

• The Company recognized favorable development related to prior years’ loss and loss expense reserves of USD 9.2m in short tail/monoline specialty lines for the year ended December 31, 2023.
• The Company recognized adverse development of USD 11.9m in multi-line solutions for the year ended December 31, 2023.
• Favorable development in short tail/monoline specialty lines was driven by property lines of business from the 2021 accident year.
• Adverse development in multi-line solutions was driven by higher than expected severity in general and auto liability lines of business, primarily from the 2019 accident year.
• For the year ended December 31, 2022, the Company’s net incurred losses for accident years 2021 and prior developed adversely by USD 14.4m, related to losses subject to the LPT.
• Within exited lines, adverse development of USD 14.5m was from the 2019 accident year, primarily driven by increased frequency and severity in general and professional liability.
• The remaining USD 8.4m of net adverse development in exited lines was from other accident years.
• Within multi-line solutions, favorable development of USD 10.8m was from the 2020 through 2021 accident years, driven by a reduction in frequency of claims in commercial auto and general liability.
• The remaining USD 2.3m of net adverse development in multi-line solutions was from various other accident years.

[c. 278; p. 16]

Reserves for losses and LAE, beginning of period, net of reinsurance by period

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

Short Duration Contract Disclosures

[c. 279; p. 16] Losses and LAE reserves estimation

• Losses and LAE reserves represent the Company's best estimate of the ultimate net cost of all reported and unreported losses that are unpaid as of the balance sheet dates.
• Estimated reserves for losses and LAE include:
  • Accumulation of estimates for claims reported and unpaid prior to the balance sheet dates.
  • Estimates (based on projections of relevant historical data) of increases in claims costs for claims already reported.
  • Estimates of claims incurred but not reported.
  • Estimates of expenses for investigating and adjusting all incurred and unpaid claims.
• The Company measures claim counts by incident when determining the cumulative number of reported claims.
• Claim counts include all reported claims, even if a liability (reserve for loss and loss adjustment expenses) is not established for the claim.

Short Tail/Monoline Specialty

[c. 280; p. 16]

Incurred Losses and LAE, Net of Reinsurance by Accident Year

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

($ in thousands)
Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands)
	Years Ended December 31,
Accident Year	2019*	2020*	2021*	2022*	2023
2019	36,013	42,528	43,784	47,330	47,255
2020	—	32,805	58,329	72,514	72,351
2021	—	—	17,554	52,326	66,902
2022	—	—	—	21,404	63,880
2023	—	—	—	—	32,896
Total	—	—	—	—	283,284
*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited

Multi-line Solutions

[c. 281; p. 16]

Incurred Losses and LAE, Net of Reinsurance by Accident Year

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

($ in thousands)
Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands)
	Years Ended December 31,
Accident Year	2014*	2015*	2016*	2017*	2018*	2019*	2020*	2021*	2022*	2023
2014	32,530	63,699	81,251	96,639	101,984	104,984	105,756	106,214	104,076	102,214
2015	—	44,152	72,137	88,833	99,401	108,291	114,098	117,295	118,166	123,268
2016	—	—	24,844	44,133	54,957	60,500	62,469	65,498	73,170	74,882
2017	—	—	—	27,088	45,263	56,411	67,553	70,562	72,415	74,770
2018	—	—	—	—	29,372	45,739	53,491	67,289	73,251	71,042
2019	—	—	—	—	—	36,512	63,022	82,296	100,094	113,207
2020	—	—	—	—	—	—	38,504	72,182	88,499	113,637
2021	—	—	—	—	—	—	—	44,996	84,530	105,853
2022	—	—	—	—	—	—	—	—	64,849	140,490
2023	—	—	—	—	—	—	—	—	—	75,051
Total	—	—	—	—	—	—	—	—	—	994,414
*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited

Exited Lines — all lines in runoff

[c. 282; p. 16] Loss development tables reconciliation

• The table presents the reconciliation of net incurred and paid loss development tables to balance sheet reserves for losses and loss adjustment expenses at December 31, 2023 and 2022.
• The table sets forth the historical average annual payout of incurred losses and allocated loss adjustment expenses (claims duration) for short-duration contracts.
• The claims duration is based on disaggregated information in the paid loss development tables, net of reinsurance.

[c. 283; p. 16]

Incurred losses and LAE, net of reinsurance by accident year

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

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

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

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	Years
	1*	2*	3*	4*	5*	6*	7*	8*	9*	10*
Short Tail/Monoline Specialty	54.0%	24.7%	12.1%	5.0%	2.2%	1.0%	0.5%	0.2%	0.2%	0.1%
Multi-line Solutions	37.7%	22.6%	16.6%	10.6%	5.3%	3.9%	2.0%	0.4%	0.4%	0.5%
Exited Lines	42.8%	22.0%	14.2%	8.4%	3.2%	3.2%	2.7%	1.0%	0.8%	1.7%
*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	*Supplementary information and unaudited	—	—	—	—	—	—

15. Commission and Fee Income

[c. 284; p. 16] Commission and Fee Income Tables

• The document presents a table detailing the Company’s disaggregated revenues from contracts with customers for the years ended December 31, 2023 and 2022.
• The document presents a table detailing the Company’s opening and closing balances of contract assets from commission and fee income for the years ended December 31, 2023 and 2022.

[c. 285; p. 16]

15. Commission and Fee Income

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

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

16. Underwriting, Acquisition and Insurance Expenses

[c. 286; p. 16] Underwriting, acquisition, and insurance expenses components

• The table sets forth the components of underwriting, acquisition, and insurance expenses for the years ended December 31, 2023 and 2022.

[c. 287; p. 16]

16. Underwriting, Acquisition and Insurance Expenses

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

17. Reinsurance

[c. 288; p. 16] Reinsurance overview and recoverables

• Premiums and benefits are assumed from and ceded to other insurance companies via reinsurance agreements.
• Reinsurance agreements provide increased capacity for larger risks and maintain loss exposure within capital resources.
• The Company remains obligated for ceded amounts if reinsurers fail to meet obligations.
• The Company entered agreements with several reinsurers where reinsurers established funded trust accounts with the Company as the sole beneficiary.
• These trust accounts provide additional security for collecting claim recoverables under reinsurance contracts.
• The Company does not carry these trust accounts on the balance sheet as it only gains custody upon reinsurer failure to pay.
• At December 31, 2023, the market value of these trust accounts was approximately USD 158.1m.
• Agreements stipulate that reinsurers will continue claim payment reimbursements without disturbing trust balances.
• The trust amount will be periodically adjusted by mutual agreement based on loss reserve recoverables.

[c. 289; p. 16] LPT retroactive reinsurance agreement

• During Q1 2020, the Company entered into an LPT retroactive reinsurance agreement.
• Under the LPT, the Company received approximately USD 127.4m in reinsurance protection above ceded losses and LAE reserves.
• The LPT is subject to co-participations at specified amounts.
• During the year ended December 31, 2022, the Company strengthened reserves for certain divisions covered by the LPT by USD 14.4m, increasing the ceded amount under the agreement.
• The increase in the ceded amount during 2022 was partially offset by USD 5.8m of recognized gain.

[c. 290; p. 16] Deposit method accounting for ceded reinsurance

• Certain ceded reinsurance contracts that transfer only significant timing risk and not sufficient underwriting risk are accounted for using the deposit method.
• The Company's deposit asset is included in other assets on the consolidated balance sheets.
• The Company’s deposit assets were USD 29.9m as of December 31, 2023, and USD 41.8m as of December 31, 2022.

[c. 291; p. 16]

17. Reinsurance

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

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

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

18. Stock-Based Compensation

[c. 292; p. 16] Long-Term Incentive Plans

• The Compensation Committee approved the 2022 Long-Term Incentive Plan (2022 Plan) on September 23, 2022, effective January 12, 2023.
• The 2022 Plan allows for granting restricted stock, restricted stock units, performance stock units, stock options, and cash-based performance awards to select employees and non-employee directors.
• The 2022 Plan made 3,200,656 shares of common stock available for issuance.
• The Compensation Committee approved the 2021 Plan in December 2020, which provides for granting restricted stock, restricted stock units, performance stock units, and cash-based performance awards.
• The Compensation Committee granted 1,101,856 shares of restricted stock and restricted stock units in 2023 under the 2022 Plan.
• The Compensation Committee granted 198,842 shares of restricted stock and restricted stock units in 2022 under the 2021 Plan.
• Board of Directors members were granted 23,482 shares of restricted stock in 2023 and 15,196 shares in 2022, with a one-year service period.
• The fair value of restricted stock and restricted stock units under the 2022 Plan granted at the IPO was USD 15.00 per share (IPO price).
• The fair value of subsequent grants was the closing stock price on the grant date.
• Expense for equity-based incentives is based on fair value at grant date and amortized over the vesting period.
• The Compensation Committee granted 759,990 stock options in 2023.
• The grant date fair value of options under the 2022 Plan was determined using the Black-Scholes model, with a contractual term of 10 years minus the weighted average service period.
• Volatility for option valuation was based on historical volatility of comparable publicly traded insurance companies.
• The fair value of restricted stock and restricted stock units granted to employees and the Board of Directors was approximately USD 17.7m in 2023 and USD 2.6m in 2022.
• The fair value of stock options granted to employees in 2023 was approximately USD 4.4m.

[c. 293; p. 16] Equity Award Activity and Valuation

• The intrinsic value of each option is the difference between the fair value of the underlying share and its exercise price.
• The aggregate intrinsic value of options outstanding was USD 14.3m as of December 31, 2023.
• The weighted-average remaining contractual life of options outstanding was 9.0 years as of December 31, 2023.
• The total fair value of shares vested was USD 0.5m in 2023 and USD 2.2m in 2022.
• As of December 31, 2023, total unrecognized compensation cost for non-vested, share-based awards was USD 15.9m.
• The weighted average period for recognizing unrecognized compensation cost is 1.5 years.
• Stock-based compensation expense recognized was USD 8.5m in 2023 and USD 2.3m in 2022.

[c. 294; p. 16] Employee Stock Purchase Plan (ESPP)

• The Compensation Committee approved the 2022 Employee Stock Purchase Plan (ESPP) on September 23, 2022, effective May 15, 2023.
• Under the ESPP, employees can elect to have a percentage of their annual base earnings withheld to purchase common stock at two specified intervals each year.
• The purchase price for common stock is 85% of the lower of its beginning-of-period or end-of-period market price.
• The company reserved 376,548 common shares under the ESPP.
• The grant date fair value of options under the ESPP was determined using the Black-Scholes model, with a term equal to the 6-month period between grant date and exercisable date.
• Volatility for ESPP option valuation was based on historical volatility of comparable publicly traded insurance companies.
• As of December 31, 2023, 35,430 shares had been purchased under the ESPP.
• The Company recognized USD 0.2m of expense for the ESPP in 2023.
• As of December 31, 2023, the fair value of unrecognized ESPP expense was USD 0.3m.

[c. 295; p. 16] Stock Notes Receivable

• The Company previously granted common stock to employees and non-employee directors under the Stock Purchase Program and Equity Incentive Program (Legacy Programs).
• Legacy Programs required employees to purchase a certain amount of stock, which the Company matched.
• Matching share awards were subject to vesting requirements.
• For the purchased portion, 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.

[c. 296; p. 16]

Authorized Target Common Shares by Award Payout Range, Requisite Service Period

	Award Payout Range	Requisite Service Period	Authorized Target Common Shares
Year ended December 31, 2023
Market condition awards	0 % — 150 %	3 years	37,622
Performance condition awards	0 % — 150 %	3 years	95,456
Service condition awards	N/A	1 to 4 years	968,778
Stock options	N/A	3 to 4 years	759,990
—	—	—	1,861,846
Year ended December 31, 2022	—	—	—
Market condition awards	0 % — 150 %	3 years	28,495
Performance condition awards	0 % — 150 %	3 years	26,210
Restricted stock unit awards	N/A	1 to 3 years	144,137
—	—	—	198,842

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

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

19. Earnings Per Share

[c. 297; p. 16] earnings per share calculation tables

• The table sets forth the compilation of basic and diluted net earnings per share for the years ended December 31, 2023 and 2022.
• The table presents anti-dilutive instruments excluded from the calculation of diluted weighted-average common share equivalents during the years ended December 31, 2023 and 2022.
• The table presents common share equivalents of contingently issuable instruments excluded from basic earnings per share in shares for the years ended December 31, 2023 and 2022.

[c. 298; p. 16]

19. Earnings Per Share

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

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

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

20. Employee Benefit Plans

[c. 299; p. 16] 401(k) Plan contributions

• The Company sponsors the 401(k) Plan (the "Plan"), which is available to substantially all its employees and is subject to the Employee Retirement Income Security Act of 1974.
• The Company makes discretionary matching contributions to the Plan.
• Matching contributions to the Plan were USD 2.9m in 2023 and USD 2.4m in 2022.

Westaim

[c. 300; p. 16] Westaim ownership and investment

• Westaim HIIG LP acquired a majority of the Company's common stock in 2014 and 2015.
• In July 2023, Westaim dissolved Westaim HIIG LP and directly owned the Company's common stock previously held by the partnership.
• Westaim owned 17.5% of the Company's common stock as of December 31, 2023.
• Westaim, including shares beneficially owned through Westaim HIIG LP, owned 44.5% of the Company's common stock as of December 31, 2022.
• Changes in Westaim HIIG LP's ownership percentage were primarily due to equity offerings, conversion of preferred common stock, and distribution of shares controlled by Westaim through a limited partnership.
• In 2015, the Company purchased 3,076,924 shares of Westaim common stock for USD 8.4m.
• The Company's investment in Westaim is included in equity securities on the consolidated balance sheets.
• The Company had an unrealized gain of USD 0.5m on this investment at December 31, 2023.
• The Company had an unrealized loss of USD 2.3m on this investment at December 31, 2022.

[c. 301; p. 16] Management services agreement

• Prior to the IPO closing, Westaim provided consulting and other services to the Company under a Management Services Agreement.
• The Management Services Agreement terminated upon the closing of the IPO.

RISCOM

[c. 302; p. 16] RISCOM relationship and financials

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

[c. 303; p. 16]

RISCOM

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

Reinsurance

[c. 304; p. 16] Reinsurance agreements and related transactions

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

Other

[c. 305; p. 16] Related party transactions

• Advisory and professional services fees and expense reimbursements paid to affiliated stockholders and directors were USD 3.6m in 2023 and USD 3.4m in 2022.
• Investments involving affiliated companies and additional related party transactions are detailed in Notes 5, 6, and 10.
• Related party transactions concerning the Company’s common and preferred shares are detailed in Note 12.

Litigation

[c. 306; p. 16] Litigation and contingencies

• The Company is a defendant in various legal actions from claims under insurance policies and contracts.
• These actions are considered when estimating losses and loss adjustment expense reserves.
• The Company is also a defendant in legal actions related to bad faith claims, disputes with third parties, or alleged errors and omissions.
• Accruals for these items are recorded when losses are probable and reasonably estimable.
• Management believes that the resolution of these matters 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 availability, and advice from legal counsel.
• During the years ended December 31, 2023 and 2022, the Company recorded no provision for various contingencies.

Indemnification

[c. 307; p. 16] Indemnification exposure

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

Contingent Consideration Related to Acquisitions

[c. 308; p. 16] Earn-out liabilities

• No earn-out liabilities existed as of December 31, 2023, or December 31, 2022.
• No earn-out payments were made to former owners during the years ended December 31, 2023, or December 31, 2022.

23. Statutory Accounting Principles and Regulatory Matters

[c. 309; p. 16] Statutory financial results and dividend restrictions

• The table presents statutory net income and statutory capital and surplus for the Company for the years ended and as of December 31, 2023 and 2022.
• Dividend payments to the Company from HSIC are restricted by Texas state law, requiring regulatory approval for amounts exceeding certain limits.
• The maximum amount of dividends HSIC can pay without prior approval is subject to restrictions related to policyholder surplus, net income, and dividends declared or distributed in the preceding 12 months.
• As of December 31, 2023, HSIC is not restricted from paying ordinary dividends.
• HSIC did not declare or pay any dividend during the years ended December 31, 2023 and 2022.

[c. 310; p. 16] Risk Based Capital requirements

• Property and casualty insurance companies are subject to Risk Based Capital ("RBC") requirements specified by the National Association of Insurance Commissioners ("NAIC").
• RBC requirements determine the amount of capital and surplus a property and casualty insurance company must maintain based on various risk factors.
• As of December 31, 2023 and 2022, HSIC’s statutory capital and surplus substantially exceeded the regulatory requirements.

[c. 311; p. 16]

23. Statutory Accounting Principles and Regulatory Matters

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

24. Subsequent Events

[c. 312; p. 16] Debenture redemption and Revolving Credit Facility

• On March 15, 2024, the Company redeemed the Debentures and paid USD 1.4m of accrued interest.
• The Company drew USD 50.0m on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption.
• After the draw, the Company had USD 100.0m outstanding under the Revolving Credit Facility with another USD 50.0m of undrawn capacity.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

[c. 313; p. 17] Disclosure Controls and Procedures Effectiveness

• Management, including the principal executive officer and principal financial officer, evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by the Annual Report on Form 10-K.
• Based on the evaluation, the principal executive officer and principal financial officer concluded that as of December 31, 2023, disclosure controls and procedures were effective at the reasonable assurance level.
• Management acknowledges that controls and procedures provide only reasonable assurance of achieving objectives, and judgment is applied in evaluating the cost-benefit relationship of controls and procedures.

Management’s Report on Internal Control over Financial Reporting

[c. 314; p. 17] Management responsibility for internal control over financial reporting

• Management is responsible for establishing and maintaining adequate internal control over financial reporting (ICFR) as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
• ICFR 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.
• ICFR policies and procedures pertain to maintaining records that accurately and fairly reflect transactions and asset dispositions in reasonable detail.
• ICFR 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.
• ICFR policies and procedures provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could materially affect financial statements.

[c. 315; p. 17] Limitations and assessment of internal control over financial reporting

• Due to inherent limitations, ICFR may not prevent or detect misstatements.
• Projections of effectiveness evaluations to future periods are subject to risks that controls may become inadequate due to changing conditions or that compliance with policies/procedures may deteriorate.
• Management assessed the effectiveness of ICFR as of December 31, 2023.
• The assessment used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
• Management's assessment included evaluating the design and testing the operational effectiveness of ICFR.
• Management reviewed the assessment results with the audit committee of the board of directors.
• Based on the assessment under the Internal Control-Integrated Framework (2013), management concluded that the company’s ICFR was effective as of December 31, 2023.

[c. 316; p. 17] Attestation report exclusion for emerging growth company

• This annual report on Form 10-K does not include an attestation report from the company’s registered public accounting firm regarding ICFR.
• This exclusion is due to the company being an emerging growth company as of December 31, 2023, as defined in the JOBS Act.

Changes in Internal Control over Financial Reporting

[c. 317; p. 17] Internal control over financial reporting

• No change in internal control over financial reporting was identified during the year ended December 31, 2023, in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act, that materially affected or are reasonably likely to materially affect internal control over financial reporting.

Other Information

[c. 318; p. 18] Andrew Robinson Rule 10b5-1 trading plan

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

Directors, Executive Officers and Corporate Governance

[c. 319; p. 19] Information incorporation by reference

• Information required by Item 10 of Form 10-K will be included in the 2024 Proxy Statement and is incorporated by reference.

Executive Compensation

[c. 320; p. 20] Executive compensation disclosure

• Information required by Item 11 of Form 10-K will be included in the 2024 Proxy Statement and is incorporated by reference.

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

[c. 321; p. 21] Proxy statement incorporation

• The information required by Item 12 of Form 10-K will be included in the 2024 Proxy Statement and is incorporated by reference.

Certain Relationships and Related Transactions, and Director Independence

[c. 322; p. 22] Information incorporation by reference

• Information required by Item 13 of Form 10-K will be included in the 2024 Proxy Statement and is incorporated herein by reference.

Principal Accounting Fees and Services

[c. 323; p. 23] Independent registered public accounting firm

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

Exhibits, Financial Statement Schedules.

[c. 324; p. 24] Financial statement listing

• The consolidated financial statements of the Company are filed as part of this Form 10-K and are included in Item 8.
• Report of Independent Registered Public Accounting Firm.
• Consolidated Balance Sheets as of December 31, 2023 and 2022.
• Consolidated Statements of Operations and Comprehensive Income (loss) for the two years in the period ended December 31, 2023 and 2022.
• Consolidated Statements of Stockholders’ Equity for the two years in the period ended December 31, 2023 and 2022.
• Consolidated Statements of Cash Flows for the two years in the period ended December 31, 2023 and 2022.

[c. 325; p. 24] Exhibit listing and notes

• Listing of Exhibits.
• Exhibits marked with an asterisk (*) are to be filed by amendment.
• Exhibits marked with a dagger (†) have portions omitted for confidentiality purposes.
• Management contract or compensatory plan or arrangement.

[c. 326; p. 24]

Schedule Description by Schedule Number

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

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

Exhibit Number	Exhibit Description
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).
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 (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.11+	Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.12+	Performance Unit Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.13+	Amended Form of Performance Share (GBVPS) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.14+	Amended Form of Performance Share (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.15+	Amended Form of Performance Share (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.16+	Amended Form of Performance Cash Units Agreement under the Company’s Long-Term Incentive Plan.
10.17+	Amended Form of the Restricted Stock Unit (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.18+	Amended Form of Restricted Stock Unit (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.19+	Amended Form of Long-Term Performance Cash Plan and Award Letter under the Company’s 2022 Long-Term Incentive Plan.
10.20+	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).
10.21+	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).
10.22+	Form of Promissory Note (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.23	Credit Agreement by and between Prosperity Bank and Houston International Insurance Group, Ltd., dated December 11, 2019 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.24*	Loss Portfolio Transfer and Adverse Development Retrocession Agreement by and among R&Q Bermuda (SAC) Limited acting in respect of the HIIG Segregated Account, HIIG Re, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company, dated April 1, 2020 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).

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

Schedule I — summary of investments — other than in related parties

[c. 327; p. 24]

Schedule I — summary of investments — other than in related parties

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

Balance sheets (parent company)

[c. 328; p. 24]

Assets, liabilities and stockholders’ equity by December 31

	December 31,
($ in thousands)	2023	2022
Assets
Investments:
Investment in subsidiaries	743,025	503,549
Short-term investments, at fair value	10,593	25
Total investments	753,618	503,574
Cash and cash equivalents	3,024	8,909
Deferred income taxes	5,899	19,655
Goodwill and intangible assets, net	12,641	12,641
Other assets	15,908	6,992
Total assets	791,090	551,771
Liabilities and Stockholders’ Equity	—	—
Liabilities:	—	—
Accounts payable and accrued liabilities	1,369	1,500
Notes payable	50,000	50,000
Subordinated debt, net of debt issuance costs	78,690	78,609
Total liabilities	130,059	130,109
Stockholders’ Equity:	—	—
Stockholders’ equity	661,031	421,662
Total liabilities and stockholders’ equity	791,090	551,771

(parent company)

[c. 329; p. 24]

(parent company)

	Years Ended December 31,
($ in thousands)	2023	2022
Revenues:
Net investment income	3,822	2,567
Net investment losses	( 963 )	( 6 )
Other losses	( 27 )	—
Total revenues	2,832	2,561
Expenses	—	—
Interest expense	9,815	6,407
Amortization expense	313	81
Other expenses	451	—
Total expenses	10,579	6,488
Loss before income tax expense	( 7,747 )	( 3,927 )
Income tax expense (benefit)	6,808	( 1,209 )
Net loss before equity in earnings of subsidiaries	( 14,555 )	( 2,718 )
Equity in undistributed earnings of subsidiaries	100,539	42,114
Net income	85,984	39,396

Schedule ii — condensed statements of cash flows (parent company)

[c. 330; p. 24]

Schedule ii — condensed statements of cash flows (parent company)

	Years Ended December 31,
($ in thousands)	2023	2022
Cash flows from operating activities:
Net income	85,984	39,396
Adjustments to reconcile net income to net cash used in operating activities	( 95,947 )	( 42,672 )
Net cash provided by operating activities	( 9,963 )	( 3,276 )
Cash flows from investing activities:	—	—
Capital contributions to subsidiaries	( 122,800 )	—
Distributions from investment in subsidiaries	6,500	4,000
Change in short-term investments	( 10,569 )	—
Net cash (used in) provided by investing activities	( 126,869 )	4,000
Cash flows from financing activities:	—	—
Employee share purchases	1,350	2,180
Draw on revolving line of credit	50,000	—
Repayment of term loan	( 50,000 )	—
Proceeds from equity offerings	128,887	—
Proceeds from employee stock purchase plan	710	—
Net cash provided by financing activities	130,947	2,180
Net (decrease) increase in cash and cash equivalents and restricted cash	( 5,885 )	2,904
Cash and cash equivalents and restricted cash at beginning of year	8,909	6,005
Cash and cash equivalents and restricted cash at end of year	3,024	8,909
Supplemental disclosure of cash flow information:	—	—
Cash paid for interest	10,667	5,761
Cash paid for federal income taxes	15,800	—

Schedule iv — reinsurance

[c. 331; p. 24]

Gross amount, Ceded to other companies, Assumed from other companies by Accident & Health, Property & Casualty

	Years Ended December 31,
	2023		2022
($ in thousands)	Accident & Health	Property & Casualty	Accident & Health	Property & Casualty
Gross amount	151,702	1,089,478	130,377	881,862
Ceded to other companies	( 79,091 )	( 470,047 )	( 70,291 )	( 398,118 )
Assumed from other companies	—	218,649	431	131,282
Net amount	72,611	838,080	60,517	615,026
Percentage of amount assumed to net	—%	26.1%	0.7%	21.3%

Schedule V — valuation and qualifying accounts

[c. 332; p. 24]

Schedule V — valuation and qualifying accounts

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

Insurance operations

[c. 333; p. 24]

Insurance operations

	As of and Years Ended December 31,
($ in thousands)	2023	2022
Deferred policy acquisition costs	91,955	68,938
Reserve for losses and loss adjustment expenses	1,314,501	1,141,757
Unearned premiums	552,532	442,509
Net earned premium (1)	829,143	615,994
Net investment income	40,322	36,931
Losses and loss adjustment expenses (current year) (1)	516,664	393,939
Losses and loss adjustment expenses (prior years) (1)(2)	—	14,385
Amortization of policy acquisition costs (1)	108,514	65,695
Paid claims and claim adjustment expenses (1)	363,418	300,764
Net premiums written (1)	910,691	675,543
Ceded unearned premium	186,121	157,645
Deferred ceding commission	37,057	29,849

(1) Amount is presented net of reinsurance.

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

SIGNATURES

[c. 334; p. 24] Report signing statement

• This report has been signed on behalf of the registrant by the undersigned, duly authorized, pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
• This report has been signed by the specified persons on behalf of the Registrant, in their indicated capacities and on the dates shown, pursuant to the requirements of the Securities Exchange Act of 1934.

[c. 335; p. 24]

SIGNATURES

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

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