This article presents Skyward's FY 2024 annual report — the narrative Items (each summarized into a factsheet), primary financial statements, and note schedules from its SEC Form 10-K.
Portions of the Registrant’s Proxy Statement relating to the 2025 annual meeting of stockholders (the “2025 Proxy Statement”), which will be filed within 120 days of December 31, 2024, are incorporated by reference into Part III of this Form 10-K.
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Entity Central Index Key
0001519449
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Amendment Flag
false
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Document Fiscal Year Focus
2024
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Document Fiscal Period Focus
FY
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Audit Information
12 Months Ended
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Dec. 31, 2024
Audit Information [Abstract]
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Auditor Name
Ernst & Young LLP
Auditor Location
Houston, Texas
Auditor Firm ID
42
Business
Who We Are
Key facts & figures
Year founded
2006
Former name(s)
Houston International Insurance Group, Ltd.
Primary segments
commercial property and casualty (P&C)
Principal lines
general liability, excess liability, professional liability, commercial auto, group accident and health, property, agriculture, credit, surety, and workers’ compensation
Skyward Specialty was formed as a Delaware corporation on January 3, 2006, as an insurance holding company p. 1.
The company operated under the name Houston International Insurance Group, Ltd. until rebranding as Skyward Specialty in November 2020 p. 1.
Skyward Specialty is a growing specialty insurance company providing commercial property and casualty (P&C) products and solutions p. 1.
Products are delivered on both a non-admitted (E&S) and admitted basis, primarily in the United States p. 1.
The company focuses on underserved, dislocated, and markets where standard insurance coverages are insufficient p. 1.
Customers typically require highly specialized, customized underwriting solutions and claims capabilities p. 1.
The portfolio of insured risks is highly diversified, covering customers in various industries and distributed through multiple channels p. 1.
Lines of business include general liability, excess liability, professional liability (including cyber and media liability insurance), commercial auto, group accident and health, property, agriculture, credit, surety, and workers’ compensation p. 1.
The company insures both short and medium duration liabilities p. 1.
The business mix is principally primary insurance and balanced between E&S and admitted markets p. 1.
A small portion of the business is specialty reinsurance, primarily in agriculture and credit, focused on attractive specialty classes p. 1.
This diversification, including businesses not typically aligned with traditional P&C pricing cycles, combined with underwriting and claims expertise, aims to produce consistent growth and profitability across all insurance pricing cycles p. 1.
The company is led by an entrepreneurial executive management team with decades of insurance leadership experience in the global P&C industry p. 1.
The leadership is supported by an experienced team aligned with the company's strategy p. 1.
The company believes its leadership, underwriting and claims teams, technology DNA, advanced analytics capabilities, diversified book of business, and strong competitive position enable continued profitable growth p. 1.
The aim is to deliver long-term shareholder value by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles p. 1.
All insurance company subsidiaries are group rated and hold financial strength ratings of "A" (Excellent) from A.M. Best Company, with a stable outlook p. 1.
Our Business and Our Strategy
Key facts & figures
Number of segments
one
Reportable segments
one
Gross written premiums
44% admitted and 56% non-admitted
The company operates with one reportable segment offering a broad array of insurance coverages across various market niches p. 2.
Each of the eight distinct underwriting divisions has dedicated underwriting leadership and technical staff with deep experience p. 2.
This structure and expertise aim to serve customer needs effectively, be a value-add partner to distributors, and earn attractive risk-adjusted returns p. 2.
For the year ended December 31, 2024, gross written premiums were 44% admitted and 56% non-admitted p. 2.
Accident & Health (A&H) underwriting division provides medical stop loss to self-insured employers and covers group and single-employer captives p. 2.
The A&H division targets small and medium-sized enterprise market segments seeking to control healthcare costs by self-insuring a portion of their healthcare insurance p. 2.
A&H products are written on an admitted basis and distributed primarily through retail and wholesale brokers p. 2.
Captives underwriting division provides group captive solutions by leveraging underwriting and claims expertise from other divisions p. 2.
The Captives division writes property, general liability, commercial auto, excess liability, and workers’ compensation lines on both E&S and admitted bases p. 2.
This business is often administered through partnerships with third-party captive managers p. 2.
Global Property underwriting unit provides property-only solutions to large multi-jurisdictional entities with complex property exposures p. 2.
Global Property business is written entirely on an E&S basis and distributed through retail and select wholesale brokers p. 2.
The company's position in Global Property has been curated over more than ten years p. 2.
Global Agriculture underwriting unit provides secondary and reinsurance solutions for crop, livestock, and other renewable resources p. 2.
Industry Solutions underwriting division includes three units: construction, energy, and inland marine p. 2.
Construction and energy underwriting units provide general liability, excess liability, commercial auto, workers’ compensation, and adjacent inland marine solutions p. 2.
These solutions are written principally on an admitted basis for middle market construction and energy production/servicing customers, including alternative/renewable energy fields p. 2.
The inland marine underwriting unit focuses on logistics and other specialty property risk for assets constantly in motion p. 2.
Industry Solutions products are distributed through retail agents and brokers and a select network of wholesalers p. 2.
Professional Lines underwriting division includes three units: management liability, professional liability (including cyber and media liability), and allied health (including life sciences) p. 2.
Professional liability and allied health provide primary and excess claims-made liability products on E&S and admitted bases p. 2.
These products are distributed through both wholesale and retail brokers, depending on the product p. 2.
Programs underwriting division partners with program administrators focused on specific markets aligned with the company's expertise and strategy p. 2.
Programs division writes property, general liability, commercial auto liability, excess liability, and workers’ compensation lines on E&S and admitted bases p. 2.
Surety underwriting division provides contract, commercial, and transactional surety solutions for trade and services organizations p. 2.
The Surety division focuses on small to medium-sized enterprises with aggregate bond programs up to approximately $75.0 million for contract and $100.0 million for commercial and transactional p. 2.
Surety business is written on an admitted basis and distributed through retail agents and brokers p. 2.
Transactional E&S underwriting division provides primary and excess non-catastrophe prone property and general liability solutions p. 2.
This division emphasizes risks considered hard to place due to complexity, loss history, or limited operating history (e.g., startups) p. 2.
The Transactional E&S division accesses the market exclusively through wholesale brokers p. 2.
The company has business units and lines of business previously exited and placed into run-off, referred to as "exited business" p. 2.
The company's strategy, referred to as "Rule Our Niche," aims to lead in chosen market niches and establish sustainable competitive positions p. 2.
Key elements of the strategy include: providing differentiated products, attracting and retaining talent, amplifying expertise with technology and analytics, empowering underwriting and claims teams, and fostering a nimble culture p. 2.
The strategy forms the basis for building a strong defensible market position, creating a competitive moat, and winning in chosen markets p. 2.
The principles of the strategy are considered key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles p. 2.
The company strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics p. 2.
Our Competitive Strengths
Key facts & figures
Competitive advantages
focus on profitable niches, highly skilled underwriters, superior claims staff and operations, superior business intelligence platform, advanced technology and new risk data, diversified business, attractive and winning culture, high-quality, experienced leadership team
Competitive strengths include a focus on profitable niches, highly skilled underwriters, superior claims staff and operations, a superior business intelligence platform, advanced technology and new risk data for underwriting and claims, a diversified business, an attractive and winning culture, and a high-quality, experienced leadership team p. 3.
Niche market focus: The company targets underserved, dislocated, or complex commercial lines P&C markets that require technical underwriting and claims management, aiming for attractive risk-adjusted returns p. 3.
Underwriting approach: The company empowers deeply experienced underwriters with authority to make decisions, enabling innovative products and solutions for challenging risks, augmented by data and predictive analytics for risk selection and pricing p. 3.
Underwriting staff: The company hires underwriting and technical staff with expertise and experience, allowing them freedom to use judgment in evaluating and pricing complex risks rather than adhering to strict underwriting rules p. 3.
Claims team: The company has a specialized team of claims professionals knowledgeable in their niches, addressing first-party claims with fair solutions and third-party claims with comprehensive responses, focusing on early loss recognition of indemnity and loss adjustment expenses (LAE) p. 3.
Claims process: The company uses specialized adjusters, advanced technology, and analytics for quick claim resolution, embedding technology from first notice of loss to settlement, and providing real-time detailed information on open and closed claims p. 3.
SkyBI platform: SkyBI is the company's business intelligence platform, providing real-time intelligence to senior leadership and technical teams for decision-making, built on best practices from P&C insurance and technology sectors p. 3.
Data repository: SkyBI serves as a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities, offering visualized information and performance metrics filterable by categories like distributor, customer segment, line of business, industry, underwriter, and risk feature p. 3.
Technology and data in decisions: The company believes in augmenting underwriting and claims decisions with new risk data and advanced technology, combining historical data with new forms of risk data and predictive analytics p. 3.
Generative AI: Generative artificial intelligence is utilized in underwriting and claims handling to enhance effectiveness and efficiency without sacrificing employee expertise p. 3.
Diversified business: The company has built diversified underwriting divisions across product lines, industries, geographies, and distribution channels, including business not typically aligned with traditional P&C cycles p. 3.
Market adaptability: The company aims to adapt to market conditions by growing certain lines when favorable and limiting exposure when less favorable, believing this diversity allows it to capitalize on market opportunities and dislocations p. 3.
Company culture: The company has a distinctive culture, evidenced by internal surveys, public information (Glassdoor, LinkedIn), and recognition as a "Best Places to Work in Insurance" p. 3.
Culture characteristics: Key aspects include a flat communication and decision-making structure, trust in staff decisions, a clear performance measurement system, and a hybrid work schedule p. 3.
Entrepreneurial environment: The company maintains an entrepreneurial environment that encourages and rewards proactive approaches to market disruption, consistent with its identity as a specialty insurer and foundational for attracting talent and delivering results p. 3.
Leadership team: The executive leadership team, led by CEO Andrew Robinson, is experienced, innovative, and entrepreneurial, with a track record in senior management roles at industry-leading P&C companies and in building new businesses p. 3.
Leadership compensation: Senior leadership compensation is aligned with shareholders, with a material portion in long-term and short-term incentives tied to delivering sustainable underwriting returns p. 3.
Executive incentives: Executive leadership has additional long-term incentive targets directly tied to growth in book value per share p. 3.
Our Strategy in Action
Key facts & figures
Strategic priorities
'Rule Our Niche' strategy
The "Rule Our Niche" strategy guides all activities from recruiting to claims resolution p. 4.
The goal of the "Rule Our Niche" strategy is to generate best-in-class underwriting profitability for niches and create superior long-term shareholder value through growth in book value per share p. 4.
Core tenets of the "Rule Our Niche" strategy include attracting and retaining blue-chip underwriting and claims talent to expand and enhance market position p. 4.
The company seeks to hire talented technical underwriting professionals with long-standing industry relationships with distribution partners and claims professionals with expertise in specific niches p. 4.
These relationships are crucial for consistent access to preferred business p. 4.
The company aims to grow its market position by recruiting world-class talent in chosen markets p. 4.
Another core tenet is leveraging technology DNA to differentiate from competitors p. 4.
The company has demonstrated an ability to use new forms of risk data and advanced technology in complex, higher severity risk categories within the specialty P&C insurance market p. 4.
SkyBI enables prompt sensing and quick response to market changes p. 4.
Core operating platforms allow efficient entry into new markets without complex systems p. 4.
The technological advantage positions the company for profitable growth and expansion into additional specialty market niches p. 4.
The strategy also includes profitably growing existing lines of business and expanding with new underwriting divisions p. 4.
The company is positioned to capitalize on trends impacting customers in the United States and globally p. 4.
One trend is the rising demand for specialized insurance due to increasing risk complexity from climate change, severe weather events, supply chain uncertainty, financial inflation, cyber risk, novel health risks, increased litigation, attorney involvement, jury awards, and healthcare delivery/cost p. 4.
Another market trend is the emergence of "micro cycles and micro dislocations" where different P&C market segments experience hardening and softening at varying times p. 4.
The company has reacted quickly to these trends by launching new underwriting units (some not aligned with P&C cycles), entering underserved markets, partnering on advanced technology, and launching new captive solutions p. 4.
Gross written premium growth and profitability indicate momentum and position the company for continued expansion and growth p. 4.
Differentiating on daily excellence to drive best-in-class underwriting performance is also a core tenet p. 4.
Achieving long-term goals, including best-in-class underwriting returns and growth in book value per share, depends on execution across all functional departments, including underwriting, product management, and claims management p. 4.
SkyBI provides a foundation for senior management to monitor performance, including renewal rates, new business pricing, portfolio performance for individual underwriters, and claims aging, reserving practices, and outcomes by claims adjusters p. 4.
The strategy centers on fundamentals that drive underwriting excellence p. 4.
Cross-functional collaboration ensures underwriting, claims, actuarial, and product management teams regularly review performance and trends to implement portfolio, pricing, and coverage changes quickly p. 4.
The company uses its balance sheet to capture a larger market share p. 4.
The company is committed to maintaining a strong balance sheet, starting with conservative loss reserves and strong capitalization ratios p. 4.
This commitment is considered imperative to maintain confidence from customers, distribution partners, reinsurers, regulators, rating agencies, and shareholders p. 4.
Claims case reserve practices aim to reserve to the expected ultimate loss within 90 days of the first notice of loss p. 4.
The company's practice is to maintain incurred but not reported reserves ("IBNR") that, combined with case reserves, exceed the actuarial central estimate p. 4.
Loss reserves represent the company's best estimate of ultimate losses p. 4.
Marketing and Distribution
Key facts & figures
Distribution channels
retail agents, wholesale brokers, select program administrators, and captive managers
Marketing and distribution approach mirrors underwriting and is a key facet of the "Rule Our Niche" strategy p. 5.
Underwriting teams and the Company have strong relationships with distribution partners and reputations that help establish new affiliations p. 5.
Distribution partners are won over by deep expertise in niche markets, high-caliber underwriters, culture of innovation, thoughtful product line-up and design, and speed and quality of responsiveness p. 5.
Underwriting divisions invest time and effort in sustaining and expanding distribution partner loyalty and long-term relationships p. 5.
Distribution partners are chosen to access specific business, similar to how underwriting is tailored to insureds' needs p. 5.
Products are distributed through retail agents, wholesale brokers, select program administrators, and captive managers p. 5.
Distribution approach allows effective and efficient access to targeted business based on market niche needs and dynamics p. 5.
Underwriting
The underwriting approach is central to the "Rule Our Niche" strategy and market success p. 6.
Underwriting teams are specialized within eight divisions, focusing on specific niches p. 6.
The underwriting approach is built on hiring experienced, best-in-class, and diverse technical underwriters with proven track records in specialty niche markets p. 6.
Underwriters' skills are enhanced with advanced technology and data analytics, and they are given authority to make decisions p. 6.
This approach aims for superior risk selection and pricing, leading to sustainable best-in-class underwriting results across market cycles p. 6.
The company augments underwriting professionals' capabilities and experience using new forms of data and analytics for risk selection and pricing p. 6.
Underwriting data is captured in the business intelligence platform, SkyBI p. 6.
SkyBI is a comprehensive data repository that forms the foundation for reporting, analytics, and other data capabilities, serving as a key tool for senior management and business leaders p. 6.
The company is highly selective in binding policies p. 6.
Underwriters are encouraged to move on from prospective opportunities if they cannot bind coverage at a premium and terms meeting company standards p. 6.
When accepting risks, terms and prices are carefully established to suit the underlying exposure p. 6.
In the admitted market, the company ensures approved forms and filed rates are appropriate and adequate for accepted risks, while allowing flexibility for specific/unique exposures p. 6.
In the E&S market, freedom of rate and form is used to match risk and coverage to unique needs and exposures p. 6.
Policies are crafted to offer affordable and appropriate protection for insureds' exposures, and to construct coverage for predictable losses and managed claims costs p. 6.
Underwriting teams receive support and collaboration from Claims, Actuarial, Product Management, Legal and Compliance, and Finance departments p. 6.
This collaboration ensures timely analysis and action on business trends, legal and tort developments, and competitor and regulatory actions p. 6.
Underwriters are considered central to the company, with all support functions incentivized and measured to help achieve underwriting profitability targets p. 6.
This structure helps identify opportunities and issues early, contributing to nimbleness and the ability to leverage market disruptions p. 6.
Underwriting controls and procedures are regularly reviewed to ensure profitable underwriting in each market served p. 6.
Claims Management
Skyward's claims department operates on principles including prompt and comprehensive investigations using advanced analytics and technology, quality customer service, timely reserve establishment, effective pursuit of contribution and subrogation, fraud detection and prevention, and disciplined litigation management p. 7.
Continuous training is provided to claims staff on claim evaluation, strategy, litigation management, good-faith claims handling, and best practices to achieve timely and optimal claim outcomes p. 7.
The majority of claims are handled in-house, but Third Party Administrators (TPAs) are utilized for specific instances such as programs, captives, occupational accident, workers compensation, and runoff claims p. 7.
TPAs are actively managed, overseen, and regularly audited to ensure compliance with Skyward's claims handling and reserving guidelines and general best practices p. 7.
For liability claims against an insured, independent legal counsel is retained based on geographical location and expertise to ensure effective and efficient defense p. 7.
Litigation guidelines have been developed for claims professionals and outside counsel to ensure appropriate defense for insureds p. 7.
A legal spend management solution is used to analyze legal invoices for adherence to case handling and billing practice standards, ensuring reasonable and customary legal costs p. 7.
Technology is leveraged to gain efficiencies in claims handling, including the development and implementation of a Claims Development Severity Predictor p. 7.
The Claims Development Severity Predictor is a predictive model that identifies claims likely to lead to large loss development, enabling early identification, proactive management, and integration into the claims review and management workflow p. 7.
A "quick strike" program has been implemented for commercial auto claims, deploying experienced investigators and vendors to accident scenes, ideally within two hours, to evaluate facts and circumstances and resolve third-party claims quickly p. 7.
Claims handlers and managers are organized by line of business to ensure specialized expertise in claims handling p. 7.
Claims managers and adjusters collaborate with underwriting partners to inform them of legal trends and emerging claims issues, educating underwriters on loss experience for risk selection p. 7.
Technology
Technology is central to Skyward Specialty Insurance Group's operations and decision-making, aiming for long-term competitive advantage p. 8.
SkyBI is a business intelligence platform providing real-time intelligence to senior leadership and technical teams for decision-making p. 8.
SkyBI incorporates best practices from management's experience in P&C insurance and technology sectors p. 8.
SkyBI is a single, comprehensive enterprise-wide data repository for reporting, business intelligence, analytics, and advanced data capabilities p. 8.
SkyBI provides information and performance metrics across the Company in a visualized format p. 8.
Data in SkyBI can be filtered by categories such as distributor, customer segment, line of business, industry, underwriter, and risk feature p. 8.
Predictive analytics technology augments employee capabilities using new risk data and predictive analytics, including AI, for risk selection, pricing, and claims handling p. 8.
Underwriting divisions intentionally "Rule Our Niche" by innovating specifically for each division/market served p. 8.
Core transactional platforms include policy administration, underwriting workbench, billing, and claims systems, designed for nimble scaling and business expansion p. 8.
The Company generally uses customized third-party vendor core operating applications p. 8.
The core platform organization is used for all business except accident & health, global property, agriculture, and surety, which require dedicated core processing components due to unique features p. 8.
Data from all divisions' core operating platforms flows to the SkyBI platform with comparable data quality and granularity p. 8.
Advanced technology for underwriting and claims, SkyBI, and core operating platforms create a flywheel effect, improving risk selection, claims adjudication, communication with partners, and trend evaluation by senior leadership p. 8.
These tools also enhance communication with distribution partners, reinsurers, and other third-party partners p. 8.
The Company faces external threats to its information technology systems, including system failure, data theft attempts, and ransomware attacks p. 8.
Technology infrastructure is designed to function through major disruptions p. 8.
Data is replicated in real-time to a third-party cloud disaster recovery site for major system failures p. 8.
Data is backed up daily for system restoration p. 8.
Actions to prevent system disruptions and data breaches include:
Actively monitoring Cybersecurity and Infrastructure Security Agency’s (“CISA”) cybersecurity directives and taking immediate action on identified vulnerabilities p. 8.
Conducting monthly vulnerability scans on all network-attached devices at all locations, with patching as needed p. 8.
Requiring two-factor authentication for system access p. 8.
Conducting monthly security training for all employees p. 8.
Implementing endpoint detection agents for threat detection and response p. 8.
Performing desktop scenarios to practice responses to breaches with cybersecurity insurance partners and security consultants p. 8.
Performing annual penetration testing p. 8.
The Company continuously reviews its security breach posture and implements updated processes, best practices, and tools p. 8.
Reinsurance
Key facts & figures
Reinsurance types
quota share, excess of loss, and facultative coverage
Property insurance GWP
29% of gross written premiums
Reinsurance is strategically purchased from third parties to protect capital from severity events (large single event losses or catastrophes) and reduce earnings volatility p. 9.
Reinsurance contracts are predominantly one year in length and renew annually, primarily in January and June p. 9.
Factors influencing reinsurance purchases at renewal include changes to underlying insurance coverage, updated loss activity, capital and surplus levels, risk appetite changes, and the cost and availability of treaties p. 9.
Reinsurance types purchased include quota share, excess of loss, and facultative coverage to limit exposure from losses on any one occurrence p. 9.
The mix of reinsurance considers efficiency, cost, risk appetite, and specific factors of underlying risks p. 9.
Quota share reinsurance involves a reinsurer assuming a specified percentage of losses from a defined business class in exchange for a corresponding percentage of premiums, net of a ceding commission p. 9.
Excess of loss reinsurance involves a reinsurer assuming all or a portion of losses for an individual claim or event above a specified amount, in exchange for a negotiated premium, including catastrophe reinsurance p. 9.
Facultative coverage is for individual risks, used to supplement treaty limits or cover risks/perils excluded from treaty reinsurance p. 9.
As of December 31, 2024, property insurance represented 29% of gross written premiumsp. 9.
Aggregation of property writings by geographic area is actively managed and monitored to limit potential loss from severe events like hurricanes, convective storms, and earthquakes p. 9.
Catastrophe reinsurance is purchased to further mitigate aggregated property losses from single or series of events p. 9.
Third-party stochastic and internal deterministic models are used to analyze aggregation risk and inform catastrophe reinsurance purchases p. 9.
These models provide a quantitative view of Probable Maximum Loss (PML) events, which estimate expected loss levels for a given return period p. 9.
Based on modeling, an event beyond a 1 in 250-year PML would be required to exhaust the $36.0 million property catastrophe coveragep. 9.
The company aims to expose no more than 3.0% of stockholders’ equity to a catastrophic loss less than a 1 in 250-year event p. 9.
The current reinsurance program is believed to provide coverage well in excess of theoretical losses from any recorded historical event p. 9.
Reinsurance is sought from reinsurers rated at least "A-" ("Excellent") or better by A.M. Bestp. 9.
As of December 31, 2024, 99% of reinsurance recoverables were from reinsurers rated "A-" (Excellent) or better by A.M. Best, or were collateralized p. 9.
Primary liability to policyholders is retained if reinsurers fail to pay claims, potentially resulting in losses p. 9.
An allowance for uncollectible reinsurance is established for reinsurers unable to honor obligations p. 9.
The allowance for uncollectible reinsurance was $2.3 million at December 31, 2024, and December 31, 2023 p. 9.
Maximum company retention by line of business
Line of Business
Maximum Company Retention
Accident & Health
$0.90 million per occurrence
Commercial Auto (1)
$1.00 million per occurrence
Excess Casualty (1)(2)
$1.25 million per occurrence
General Liability (1)
$1.50 million per occurrence
Professional Lines (2)
$5.21 million per occurrence
Property (3)
$3.50 million per occurrence
Representation and Warranty
$3.25 million per occurrence
Surety (2)
$4.00 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 $36.0 million in excess of $12.0 million retention, which provides cover for a 1:250-year PML event.
Reinsurance by company
($ in thousands)
Reinsurer
Reinsurance Recoverables
AM Best Rating
Everest Reinsurance Co.
154,181
A+
eMaxx Captives (1)
144,196
n/r
Partner Reinsurance Co. of the US
52,442
A+
General Reinsurance Corp
48,234
A++
Swiss Reinsurance America Corp
37,789
A+
ACE (Chubb Property & Casualty Ins Company)
36,527
A+
RGA Reinsurance Company
24,945
A+
Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2)
22,663
n/r
Aspen Insurance UK Limited
19,998
A
Insurance Company of the West
18,112
A
Top 10 Total
559,087
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All Others
298,789
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Total
857,876
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(1) This reinsurer facilitates our eMaxx captive. At December 31, 2024, we held collateral in a statutory trust of $188.9 million on our net reinsurance recoverables.
(2) This reinsurer facilitated our LPT reinsurance agreement which was commuted effective January 31, 2025. At December 31, 2024, we held collateral in a statutory trust of $22.7 million on our net reinsurance recoverables.
Enterprise Risk Management
Our enterprise risk management (ERM) is integrated into nearly every aspect of the company and guides daily activities p. 10.
The ERM approach aims to achieve an acceptable risk-adjusted return for shareholders while maintaining trust and reliability for those served p. 10.
The company is intentional in its underwriting and asset portfolio construction p. 10.
The company balances liability duration and market cyclicality of its underwriting portfolio p. 10.
Reinsurance is used to manage volatility outside of risk tolerances p. 10.
The investment strategy targets a diversified portfolio that balances yield, liquidity, volatility, and potential for principal loss p. 10.
The Senior Vice President (SVP) of Finance & ERM oversees critical ERM processes and chairs the cross-functional corporate ERM Committee p. 10.
The company formalizes its view of risk and solvency using an Economic Capital Model (ECM) to quantify potential economic loss p. 10.
ECM output measures potential earnings and capital loss for various scenarios p. 10.
These outputs are measured against risk tolerances set and updated annually by the ERM Committee and discussed with the Board's Risk Committee p. 10.
The ECM provides a probabilistic modeled view of earnings and capital loss, incorporating potential losses from catastrophes, reserving, underwriting, market, credit risk, strategic, and operational risks p. 10.
The SVP of Finance & ERM, with the ERM Committee, maintains a comprehensive risk register with accountabilities for mitigation and monitoring p. 10.
The top 10 risks are identified, quantified by the SVP of Finance & ERM and the ERM Committee, and reviewed quarterly p. 10.
Reports on these risks are submitted to the Risk Committee regularly by the SVP of Finance & ERM and the ERM Committee p. 10.
Operational processes and controls are designed to identify, assess, and manage key risks continuously p. 10.
The Underwriting Committee oversees changes in risk appetite, product line, and division expansion p. 10.
Claims handling practices are monitored through regular internal audits, monthly large loss reviews, and a watchlist for potential high severity claims p. 10.
Actuarial performs quarterly reserve studies, and the Reserve Committee meets quarterly to review and respond to loss emergence trends p. 10.
Key observations from reserve studies are discussed with the CEO p. 10.
Underwriting divisions assess rate change and retention on existing business, new business quality and pricing adequacy, and loss emergence versus expectations on a monthly and quarterly basis p. 10.
The SkyBI platform provides real-time portfolio, underwriting, claims, and actuarial analytics to support these processes p. 10.
ERM is central to decision-making and daily activities p. 10.
ERM is a core component of the strategy to achieve market-leading risk-adjusted returns for shareholders p. 10.
Reserves
The company maintains reserves for specific claims incurred and reported, IBNR reserves, and reserves for uncollectible reinsurance when appropriate p. 11.
The ultimate liability may be greater or less than current reserves, and there is a risk of reserves proving inadequate in the insurance industry p. 11.
Reserves are continually monitored using new information on reported claims and statistical analyses p. 11.
Anticipated inflation is implicitly reflected in the reserving process through analysis of cost trends and review of historical development p. 11.
The company does not discount its reserves for losses and LAE to reflect estimated present value p. 11.
When a claim is reported, a case reserve is established for the estimated ultimate payment amount after assessing coverage, damages, and other investigations p. 11.
Case reserve estimates are based on the company's reserving practices and the claims adjuster’s experience and knowledge of the claim type and value p. 11.
Case reserves are revised periodically based on subsequent developments for each claim p. 11.
For more information on claims management, refer to the section "Claims Management" in Item 1 p. 11.
IBNR reserves are established in accordance with industry practice to cover estimated future loss payments on incurred claims not yet reported and potential development on reported claims p. 11.
IBNR reserves are estimated using generally accepted actuarial reserving techniques that consider quantitative loss experience data and qualitative factors p. 11.
Loss reserves are regularly reviewed using various actuarial techniques p. 11.
Reserve estimates are updated as historical loss experience develops, additional claims are reported and/or settled, and new information becomes available p. 11.
Reserves can be increased or decreased over time as claims move towards settlement, impacting earnings through adverse development or reserve releases p. 11.
For additional information on loss reserves, refer to Item 7 of Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Results of Operations - Losses and LAE” and “Critical Accounting Policies” p. 11.
Investments
The company aims to maintain a balanced investment portfolio primarily consisting of investments that yield predictable and stable returns p. 12.
The portfolio is augmented by strategic investments designed for attractive risk-adjusted returns p. 12.
An Enterprise Based Asset Allocation model is used for investment allocation strategy p. 12.
This model is integrated into the Economic Capital Model, allowing for an understanding of investment allocation impact on capital, liquidity, and risk profile across various market scenarios p. 12.
The company actively manages and monitors investment risk to balance stable growth and liquidity with compliance to insurance regulatory and rating agency frameworks p. 12.
The investment portfolio mainly includes cash and cash equivalents and investment-grade fixed-maturity securities p. 12.
Additional investments are included if they align with the company's risk appetite p. 12.
The Investment Committee of the Board of Directors reviews and approves the investment policy and strategy p. 12.
This committee meets quarterly to review investment activities, tactics, and new investment opportunities p. 12.
The portfolio is directed internally and includes both self-managed investments and portfolios managed by select third-party investment management firms p. 12.
For further discussion on investments and related market risks, refer to Item 7 of this Form 10-K, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments" p. 12.
Competition
Key facts & figures
Key competitors
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.
The specialty lines property & casualty insurance market includes many markets and sub-markets, each with distinct customer needs, products, services, and specific economic and structural features p. 13.
Competition in underwriting divisions comes from other specialty and standard insurers and program administrators p. 13.
Competition factors include pricing, company reputation and financial strength, broker relationships, product terms and conditions, independent rating agency ratings, speed and reputation of claims payment, and the experience and reputation of underwriting and claims teams p. 13.
Due to the diversity of underwriting divisions, competition is broad, with some competitors specific to only a subset of divisions p. 13.
Notable competitors include Markel Corporation, W.R. Berkley Corporation, American Financial Group Inc., Tokio Marine Holdings, Inc., CNA Financial Corporation, Hiscox, Ltd., RLI Corp., Intact Finance Corporation, and Kinsale Capital Group, Inc. p. 13.
Our Structure
Key facts & figures
Legal name
Skyward Specialty Insurance Group, Inc.
Holding-company structure
GMIC, HSIC, IIC, OSIC, Skyward Re, Skyward Underwriters Agency, Inc., Skyward Service Company, Skyward Specialty No. 1 Limited Company
State of incorporation
Delaware (for parent)
Operations are conducted principally through four insurance companies: Great Midwest Insurance Company (GMIC), Houston Specialty Company (HSIC), Imperium Insurance Company (IIC), and Oklahoma Specialty Insurance Company (OSIC) p. 14.
GMIC is the largest insurance subsidiary, underwriting multiple lines of insurance on an admitted basis in all 50 states and the District of Columbia, and is a certified surety bond company listed with the Department of the Treasury p. 14.
HSIC is a subsidiary of GMIC, underwriting multiple lines of insurance on a surplus lines basis in 50 states, the District of Columbia, and select foreign countries p. 14.
IIC is a subsidiary of HSIC, underwriting on an admitted basis in all 50 states and the District of Columbia p. 14.
OSIC is a subsidiary of IIC, and is an approved surplus lines company in 49 states and the District of Columbia p. 14.
The insurance company subsidiaries were restacked into the current organizational structure effective December 31, 2024, to provide the growing surety business with necessary capital for the surety T-listing market p. 14.
Skyward Re is a wholly-owned captive reinsurance company domiciled in the Cayman Islands, incorporated on January 7, 2020 p. 14.
Skyward Re was established to facilitate an LPT, which was commuted effective January 31, 2025 p. 14.
Three non-insurance companies are also operated: Skyward Underwriters Agency, Inc., Skyward Service Company, and Skyward Specialty No. 1 Limited Company p. 14.
Skyward Underwriters Agency, Inc. is a licensed agent, managing general agent, and reinsurance broker p. 14.
Skyward Service Company provides various administrative services to the subsidiaries p. 14.
Skyward Specialty No. 1 Limited Company is a UK company and an authorized Lloyd’s corporate member p. 14.
Skyward Specialty Insurance Group, Inc. (Delaware corporation) is the parent company p. 14.
Skyward Specialty Insurance Group, Inc. has direct relationships with Skyward Service Company (Delaware corporation), Great Midwest Insurance Company (Texas stock insurance company), Skyward Underwriters Agency, Inc. (Texas corporation), Skyward Specialty No. 1 Limited (United Kingdom company), and Skyward Re (Cayman Islands corporation) p. 14.
Each entity in the organizational structure is wholly-owned by its immediate parent p. 14.
Geographic distribution of premiums
—
2024
Texas
11.2%
California
8.8
Florida
8.3
Louisiana
6.8
New York
6.5
Georgia
4.4
Pennsylvania
3.9
New Jersey
3.2
Illinois
2.9
Massachusetts
2.5
All other states
41.5
Total
100.0%
Our Structure
Ratings
Key facts & figures
Financial strength rating
A (Excellent)
Rating outlook
stable
Rating agencies
A.M. Best
Skyward Specialty Insurance Group, Inc. has an "A" (Excellent) rating with a stable outlook from A.M. Best p. 15.
A.M. Best rates insurance companies based on factors relevant to policyholders p. 15.
A.M. Best assigns 13 ratings to insurance companies, ranging from "A++" (Superior) to "D" (Poor) p. 15.
The "A" (Excellent) rating is the third highest rating assigned by A.M. Best p. 15.
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 p. 15.
A.M. Best's ratings reflect its opinion on an insurance company's financial strength, operating performance, and ability to meet obligations to policyholders p. 15.
A.M. Best ratings are based on factors relevant to policyholders, agents, insurance brokers, and intermediaries, and are not specifically related to securities issued by the company p. 15.
Regulation
We are regulated by insurance regulatory authorities in the states where we conduct business p. 16.
State insurance laws and regulations are designed to protect policyholders, consumers, and claimants, not stockholders or other investors p. 16.
The nature and extent of state regulation varies by jurisdiction p. 16.
State insurance regulators have broad administrative power over matters such as capital and surplus requirements, licensing, product form and rate review, reserve adequacy standards, statutory accounting methods, financial report content, affiliate transactions, and investment types and amounts p. 16.
Insurance company regulation is constantly changing due to governmental agencies and legislatures reacting to issues p. 16.
Some state legislatures have considered or enacted laws that alter and increase state authority to regulate insurance companies and holding company systems as a protection against federal involvement p. 16.
The National Association of Insurance Commissioners ("NAIC") and some state insurance regulators are re-examining existing laws and regulations, focusing on solvency issues, interpretations of existing laws, and the development of new laws p. 16.
The federal government does not directly regulate the business of insurance, but federal initiatives often affect the industry through treatment of federal subsidiaries, regulation of quasi-governmental entities, and regulations from federal governmental departments p. 16.
We operate as an insurance holding company system p. 16.
We are subject to the insurance holding company laws of Texas, where our primary insurance companies are domiciled, and Oklahoma p. 16.
These statutes require each insurance company in the system to register with the insurance department of its state of domicile p. 16.
Registration involves furnishing information about operations within the holding company system that may materially affect the operations, management, or financial condition of domiciled insurers p. 16.
All transactions among members of a holding company system must be fair and reasonable p. 16.
Transactions between insurance subsidiaries and their parents and affiliates generally must be disclosed to state regulators p. 16.
Notice to or prior approval from the applicable state insurance regulator is generally required for any material or extraordinary transaction p. 16.
Intellectual Property
The company has applied for various trademark registrations in the United States at both federal and state levels p. 17.
The company will pursue additional trademark registrations and other intellectual property protection if deemed beneficial and cost-effective p. 17.
The company monitors its trademarks and service marks and protects them from unauthorized use as necessary p. 17.
Employees and Human Capital
Key facts & figures
Employees
approximately 580 as of December 31, 2024
Employees: approximately 580 as of December 31, 2024 p. 18.
Employees are not subject to any collective bargaining agreement p. 18.
The company is not aware of any current efforts to implement a collective bargaining agreement p. 18.
The company believes it has good working relations with its employees p. 18.
The company aims to be an employer of choice, including outside of the insurance sector p. 18.
The company strives to create a culture fostering diversity of thought, background, and perspective p. 18.
The company cultivates an exceptional workforce to perpetuate its ownership culture and achieve superior business results p. 18.
The company's goal is 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 p. 18.
The company offers a competitive benefits package including medical, dental, and vision insurance, a 401(k) plan, paid time off, family leave, employee assistance programs, and an employee stock purchase plan available to all employees p. 18.
The company emphasizes employee training and development, providing opportunities for further education and professional development p. 18.
Risk Factors
Investing in the company's common stock involves a high degree of risk p. 19.
Investors should carefully consider the risks and uncertainties described in the report, including consolidated financial statements and related notes, and other SEC filings, before investing p. 19.
The listed risks and uncertainties are not exhaustive; additional unstated, unknown, or currently immaterial risks may also affect the company p. 19.
If any of the described risks occur, the company's business, operating results, financial condition, and prospects could be materially harmed p. 19.
Such events could lead to a decline in the price of the common stock, potentially resulting in a loss of part or all of an investment p. 19.
Summary of Material Risk Factors
Underwriting risk: financial condition and results of operations could be materially adversely affected if underwriting risk is not accurately assessed p. 20.
Competition: intense competition for business in the industry p. 20.
Distribution channels: reliance on insurance retail agents and brokers, wholesalers, and program administrators exposes the business to risks that could adversely affect results p. 20.
Reinsurance: inability to purchase third-party reinsurance in desired amounts on commercially acceptable terms or terms that adequately protect the company may materially adversely affect business, financial condition, and results of operations p. 20.
Loss reserves: losses and loss expense reserves may be inadequate to cover actual losses, which could materially adversely affect financial condition, results of operations, and cash flows p. 20.
Financial strength rating: a decline in financial strength rating may adversely affect the amount of business written p. 20.
Coverage interpretation: unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in policies could materially adversely affect financial condition and results of operations p. 20.
Reinsurer reimbursement: reinsurers may not reimburse for claims on a timely basis, or at all, which may materially adversely affect business, financial condition, and results of operations p. 20.
Claims payment: failure to accurately and timely pay claims could materially and adversely affect business, financial condition, results of operations, and prospects p. 20.
Economic factors: adverse economic factors, including recession, inflation, high unemployment, or lower economic activity, could lead to fewer policy sales, increased claim frequency, premium defaults, or falsified claims, affecting growth and profitability p. 20.
Industry cyclicality: the insurance business is historically cyclical, which may affect financial performance and cause operating results to vary quarter-to-quarter, and may not be indicative of future performance p. 20.
Regulation: extensive regulation may adversely affect the ability to achieve business objectives; non-compliance could result in penalties, including fines and suspensions, adversely affecting financial condition and results of operations p. 20.
Key personnel: adverse effects could result from the loss of one or more key personnel or an inability to attract and retain qualified personnel p. 20.
Internal control: ability to maintain effective internal control over financial and management systems and remediate material weaknesses p. 20.
Public company costs: costs will increase significantly as a public company, and management will need to devote substantial time to complying with public company regulations p. 20.
Risks Related to Our Business and Industry
Underwriting success depends on accurately assessing risks and establishing appropriate premium rates p. 21.
Competition in the insurance industry is intense, based on factors like price, reputation, financial strength, distribution relationships, product terms, ratings, claims payment speed, and underwriting team experience p. 21.
Increased competition could affect the ability to price products at risk-adequate rates, retain existing business, or underwrite new business on favorable terms p. 21.
Reliance on distribution channels (retail agents, brokers, wholesalers, program administrators) exposes the business to risks p. 21.
Products are primarily distributed through independent retail agents and brokers who own "renewal rights" p. 21.
Relationships with distributors can be discontinued or become unprofitable p. 21.
Consolidation of insurance distribution firms may increase their influence on commission rates and concentrate business with particular brokers p. 21.
Credit risk is assumed when brokers collect premiums directly from policyholders, as the insured may not be liable if the broker fails to remit funds p. 21.
Failure of brokers to remit premiums has not been material to date, but could require providing coverage without receiving payment p. 21.
Financial condition of new brokers is reviewed before transacting business p. 21.
Periodic reviews of distributors identify those not meeting profitability standards or business objectives, potentially leading to restricted access or termination p. 21.
Deterioration in distributor relationships or uncompetitive compensation could lead distributors to place business with other carriers p. 21.
Distributors exceeding authority, failing to transfer premiums, or breaching obligations could expose the company to liability p. 21.
Continued consolidation of insurance distribution firms could affect sales channels, leading to loss of market access or share, loss of talent, or increased commission costs p. 21.
Digitization risks include distributors' ability to keep pace with technology, potentially losing customers to more technology-driven competitors p. 21.
Inability to purchase third-party reinsurance on desired or adequate terms could materially adversely affect the business p. 21.
Reinsurance is strategically purchased to protect capital from severity events and reduce earnings volatility p. 21.
Failure to renew or expand reinsurance could increase loss exposure, potentially requiring a reduction in underwriting commitments p. 21.
Reinsurers may exclude coverages or alter terms, leading to gaps in reinsurance protection and greater risk exposure p. 21.
Losses and loss expense (LAE) reserves may be inadequate, impacting financial condition, results of operations, and cash flows p. 21.
Reserves are estimates of ultimate claim settlement and administration costs, not exact calculations p. 21.
Reserving process considers historical data and factors such as claims inflation, claims development patterns, pricing, legislative activity, social/economic patterns, and litigation/judicial/regulatory trends p. 21.
Internal and external events can increase exposure to losses, and loss reserves are continually monitored p. 21.
Uncertainties impacting reserve adequacy include the time to fully appreciate covered losses, new theories of liability enforced retroactively, volatility in financial markets, economic events, and increased costs due to "social inflation" p. 21.
New theories of liability enforced retroactively or changes in claims/coverage issues could materially adversely affect financial condition or results p. 21.
Volatility in financial markets, economic events, and elevated inflationary conditions could increase claims frequency/severity and loss costs p. 21.
Increased costs due to "social inflation" (medical/material costs, technology in vehicles, supply chain disruptions, attorney involvement, litigation financing, lawsuit abuse) could increase claims frequency/severity and affect reserve adequacy p. 21.
Increased claims frequency could escalate evaluation and handling costs beyond established reserves p. 21.
Inadequate reserves would require increases, reducing net income and stockholders' equity p. 21.
Future loss experience substantially exceeding reserves could materially adversely affect future earnings, liquidity, and financial rating p. 21.
A decline in financial strength rating may adversely affect the amount of business written p. 21.
A.M. Best assigns financial strength ratings based on quantitative and qualitative analysis of balance sheet strength, operating performance, and business profile p. 21.
A.M. Best rating as of the filing date is "A" (Excellent) with a stable outlook p. 21.
Factors that could lead to a rating downgrade include changes in business practices, unfavorable financial/regulatory/market trends, losses exceeding reserves, unresolved issues with regulators, inability to retain key personnel, investment losses, limited liquidity, or changes in A.M. Best's capital adequacy methodology p. 21.
A rating downgrade or withdrawal could cause distribution partners and insureds to choose competitors, increase reinsurance costs or reduce availability, or limit/prevent writing new and renewal insurance contracts p. 21.
Increased scrutiny by rating organizations due to earnings and capital pressures in the financial industry could lead to adverse ratings consequences p. 21.
Unexpected changes in interpretation of coverage or policy provisions (loss limitations, exclusions) could materially adversely affect financial condition and results p. 21.
Loss limitations or exclusions in policies may not be enforceable as intended due to changing industry practices, legal, judicial, social, and other conditions p. 21.
Court or regulatory actions could nullify limitations/exclusions or legislation could modify their use, leading to higher than anticipated losses and LAE p. 21.
Court decisions may interpret policy exclusions narrowly, expanding coverage and requiring new exclusions p. 21.
Changes in coverage interpretation may broaden coverage beyond underwriting intent or increase claims frequency/severity, with full liability potentially unknown for years p. 21.
Reinsurers may not reimburse claims on a timely basis or at all, materially adversely affecting the business p. 21.
Reinsurance contracts require premium payments to reinsurers who reimburse for covered policy claims, often many years later p. 21.
Reinsurance does not relieve the ceding insurer of primary liability to policyholders p. 21.
Reinsurers may default due to insolvency, lack of liquidity, operational failure, political/regulatory prohibitions, fraud, or disputes over agreement wordings p. 21.
Disputes with reinsurers can be time-consuming, costly, and uncertain p. 21.
Reinsurance recoverables totaled $857.9 million as of December 31, 2024 p. 21.
Failure to accurately and timely pay claims could lead to regulatory/administrative actions, litigation, reputational damage, and adversely affect the business p. 21.
Effective management of Third-Party Administrators (TPAs) and internal staff is crucial for handling claims volume p. 21.
Ineffective TPA management or inability to handle claims volume could adversely affect growth and operating margins p. 21.
Severe weather conditions, earthquakes, man-made catastrophes, and the effects of climate change may adversely affect the business p. 21.
Catastrophes include natural events (winter weather, storms, earthquakes, fires) and man-made events (explosions, war, terrorist attacks) p. 21.
Changing weather patterns and climatic conditions increase unpredictability and frequency of natural disasters p. 21.
Climate change may increase frequency and severity of extreme weather events, such as hurricane activity and wildfire risks p. 21.
Catastrophe losses could materially adversely affect the business, even indirectly if insured businesses are impacted by events not directly covered p. 21.
Inability to obtain reinsurance coverage at reasonable rates for severe weather and catastrophes could materially adversely affect the business p. 21.
Pandemics, outbreaks, public health crises, and geopolitical/social events pose risks, with potential challenges to policy exclusions for virus-related claims p. 21.
Changes to law and regulation related to climate change could directly affect the business p. 21.
The current administration's stance on clean energy programs and withdrawal from the Paris Agreement could impact future legislative and regulatory actions p. 21.
Unpredictable changes in federal, state, and local legislation based on climate change concerns could materially adversely affect business, operational, and financial results p. 21.
Program administrators with quoting and binding authority could adversely affect results if they fail to comply with guidelines p. 21.
Program administrators sell insurance products through retail agents and brokers and can bind certain risks without initial approval p. 21.
Non-compliance by program administrators could lead to being bound on unanticipated risks, affecting estimated losses and LAE p. 21.
Failure of renewals or new business from repeat insureds to meet expectations could materially adversely affect future written premium and results p. 21.
Most contracts are one-year term and renewable, with some insureds being repeat customers for new contracts p. 21.
Assumptions about renewal rates and repeat business are made in financial forecasting p. 21.
Cyclical nature of insurance industry with intense price-based competition p. 21.
Increased public attention to ESG matters may expose the company to negative public perception, reputational harm, additional costs, or stock price impact p. 21.
Failure to respond to ESG expectations or backlash related to ESG topics could harm business and reputation p. 21.
Damage to reputation from providing policies to certain insureds could decrease demand for products p. 21.
Changes in accounting practices and future pronouncements may materially affect reported financial results and require additional expenses p. 21.
Insurance subsidiaries must comply with Statutory Accounting Principles (SAP) p. 21.
SAP and its components are subject to constant review by the NAIC and state insurance departments p. 21.
Pending proposals before NAIC committees could negatively affect insurance industry participants if enacted p. 21.
Risks Related to the Market and Economic Conditions
Adverse economic factors like recession, inflation, high unemployment, or lower economic activity can lead to fewer policy sales, increased claim frequency, premium defaults, or claim falsification, impacting growth and profitability p. 22.
Economic downturns characterized by higher unemployment, declining spending, and reduced corporate revenue generally affect demand for insurance products, impacting premium levels and profitability p. 22.
Negative economic factors may hinder the ability to charge appropriate rates for risk, reduce the number of policies written, and limit opportunities for profitable underwriting p. 22.
In an economic downturn, customers may reduce insurance needs, cancel policies, modify coverage, or not renew policies p. 22.
Existing policyholders might exaggerate or falsify claims to obtain higher payments during an economic downturn p. 22.
A significant collapse in economic segments such as construction, credit markets, or energy production and servicing could adversely affect results across multiple underwriting divisions p. 22.
These outcomes would reduce underwriting profit if not reflected in charged rates p. 22.
The insurance business is historically cyclical, which can cause operating results to vary quarterly and may not indicate future performance p. 22.
Insurance carriers have experienced significant fluctuations in operating results due to competition, catastrophic events, capacity levels, litigation trends, regulatory constraints, and general economic conditions p. 22.
The supply of insurance is linked to prevailing prices, insured losses, and industry capital levels, which fluctuate with investment rates of return p. 22.
The insurance industry is cyclical, characterized by periods of intense price competition due to excessive underwriting capacity (soft market) and periods of increased premium levels due to capacity shortages (hard market) p. 22.
Demand for insurance depends on factors like catastrophic event frequency and severity, capacity levels, new capital providers, and general economic conditions, all of which can contribute to price declines p. 22.
The financial performance of most P&C insurance companies tends to follow cyclical market patterns, with higher gross written premium growth and improved profitability during hard market cycles p. 22.
This cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market p. 22.
When the standard insurance market hardens, the E&S market typically hardens, and growth in the E&S market can be significantly more rapid p. 22.
When conditions soften, customers previously in the E&S market may return to the admitted market, exacerbating rate decrease effects on financial results p. 22.
The market may experience "micro cycles" where specific areas harden or soften independently and potentially more drastically than the overall market p. 22.
Operating results are subject to fluctuation and have historically varied quarter-to-quarter p. 22.
Quarterly results are expected to continue fluctuating due to general economic conditions, frequency/severity of catastrophe or insured events, fluctuating interest rates, claims exceeding loss reserves, competition, deviations from expected premium retention, adverse investment performance, and reinsurance coverage costs p. 22.
Investment portfolio performance is subject to various investment risks that may adversely affect financial results p. 22.
The company maintains a diversified investment portfolio managed by professional advisory firms and reviewed by its Investment Committee p. 22.
Investments are subject to general economic conditions, market risks, and risks inherent to specific securities p. 22.
Primary market risk exposures are to changes in interest rates and equity prices p. 22.
A significant portion of the investment portfolio is in fixed maturity securities, or accounts/partnerships primarily invested in them p. 22.
Interest rates rose materially during 2022 and 2023 p. 22.
A low interest rate environment, potentially resulting from federal actions to slow inflation (e.g., recent rate cuts, Inflation Reduction Act of 2022), would pressure net investment income, especially for fixed maturity and short-term investments, adversely affecting operating results p. 22.
Recent and future interest rate increases could cause values of fixed income securities portfolios to decline, with the magnitude depending on security duration and the extent of rate increases p. 22.
Some fixed income securities with call or prepayment options create reinvestment risk in declining rate environments p. 22.
Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or may not prepay as quickly as expected in a rising interest rate environment p. 22.
All fixed maturity securities, including those in separately managed accounts and limited partnerships, are subject to credit riskp. 22.
Credit risk involves potential investment default or impairment due to deterioration in the financial condition of issuers or guarantors of securities held p. 22.
Downgrades in credit ratings of fixed maturity securities could significantly negatively affect their market valuation p. 22.
The company also invests in marketable preferred and common equity securities and exchange-traded funds, which are carried at fair market value and subject to potential losses and market value declines p. 22.
Market and credit risks could reduce net investment income and result in realized investment losses p. 22.
The investment portfolio faces increased valuation uncertainties when investment markets are illiquid, as with fixed maturity securities held to maturity, separately managed accounts, and limited partnership investments p. 22.
Valuation of investments is more subjective in illiquid markets, increasing the risk that estimated fair value does not reflect actual transaction prices p. 22.
Risks for all security types are managed through an investment policy that sets parameters including maximum investment percentages in certain securities and minimum credit quality levels p. 22.
These investment parameters are believed to be within applicable guidelines established by the NAIC, the Texas Department of Insurance, and the Oklahoma Department of Insurance p. 22.
The Investment Committee periodically reviews Enterprise Based Asset Allocation models for overall risk management p. 22.
While seeking to preserve capital, the company cannot guarantee investment objectives will be achieved, and results may vary substantially p. 22.
Investment strategies aim to not correlate with insurance and reinsurance exposures, but investment losses may occur concurrently with underwriting losses, exacerbating adverse effects p. 22.
The company could be forced to sell investments to meet liquidity requirements p. 22.
Premiums received are invested until needed for policyholder claims p. 22.
The company manages the duration of its investment portfolio based on the duration of losses and LAE reserves to ensure sufficient liquidity and avoid liquidating investments to fund claims p. 22.
Risks like inadequate losses and LAE reserves or unfavorable litigation trends could necessitate selling investments to fund liabilities p. 22.
Investments may not be sold at favorable prices or at all, potentially resulting in significant realized losses depending on general market conditions, interest rates, and credit issues with individual securities p. 22.
Risks Related to the Regulatory Environment
Extensive regulation may adversely affect the company's ability to achieve business objectives p. 23.
Failure to comply with regulations may result in penalties, including fines and suspensions, adversely affecting financial condition and results of operations p. 23.
Primary insurance subsidiaries (GMIC, HSIC, IIC) are extensively regulated in Texas and other operating states p. 23.
Most insurance regulations protect policyholders' interests, not investors' or stockholders' p. 23.
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 p. 23.
Significant changes in laws and regulations could limit discretion or increase business costs p. 23.
State insurance regulators conduct periodic examinations and require annual/other reports on financial condition and holding company issues p. 23.
Regulatory requirements may impose timing and expense constraints, affecting business objectives p. 23.
Insurance subsidiaries are part of an "insurance holding company system" under Texas statutes and regulations p. 23.
Certain transactions between insurance subsidiaries and affiliates require prior notice to the Texas Department of Insurance, potentially causing business delays and additional expenses p. 23.
Failure to file required notifications or comply with Texas insurance regulations could lead to significant fines, penalties, and impaired working relationships with the Texas Department of Insurance p. 23.
State insurance regulators have broad discretion to deny or revoke licenses for regulation violations p. 23.
The company's practices, based on interpretations of regulations or industry norms, may differ from regulatory authorities' interpretations p. 23.
Lack of requisite licenses/approvals or non-compliance could lead to temporary suspension or preclusion from activities in a state, or other penalties p. 23.
Changes in insurance industry regulation, laws, or interpretations could interfere with operations and increase compliance costs p. 23.
Insurance subsidiaries are subject to risk-based capital requirements based on the NAIC model and Texas law p. 23.
These requirements establish minimum risk-based capital for overall business operations and identify inadequately capitalized property and casualty insurers p. 23.
Insurers below a calculated threshold may face regulatory action, including supervision, rehabilitation, or liquidation p. 23.
Failure to maintain required risk-based capital levels could adversely affect regulatory authority to conduct business and the company's A.M. Best Rating p. 23.
The company may become subject to additional government or market regulation, potentially having a material adverse impact on the business p. 23.
Changes in laws related to asset/reserve valuation, surplus, investment/dividend limitations, enterprise risk, and risk-based capital could adversely affect the business p. 23.
The U.S. federal government generally does not directly regulate the insurance industry, except for flood, nuclear, and terrorism risks p. 23.
Potential federal legislation could affect the insurance industry in areas like privatization of Freddie Mac/Fannie Mae, reduction in federal subsidies for agriculture, tort reform, corporate governance, and taxation of reinsurance companies p. 23.
Changes to U.S. tax laws and new tax policies could significantly negatively impact the overall economy and the company's business p. 23.
Legislative or other actions related to taxes could negatively affect the company, its investments, or stockholders p. 23.
Rules for U.S. federal income taxation are constantly under review by legislators, the IRS, and the U.S. Department of the Treasury p. 23.
The company cannot predict the impact of tax law changes on itself, stockholders, or portfolio investments p. 23.
New legislation, U.S. Treasury regulations, administrative interpretations, or court decisions could have adverse consequences p. 23.
Stockholders are advised to consult tax advisors regarding tax legislative, regulatory, or administrative developments p. 23.
The current administration's agenda includes potential U.S. tax law reform, with outlined intentions such as reducing the corporate tax rate, extending Tax Cuts and Jobs Act of 2017 (TCJA) provisions, and imposing new tariffs p. 23.
The combined impact of extending TCJA tax benefits and new tariffs could lead to increases in the U.S. deficit, inflation, and interest rates p. 23.
These factors could contribute to increased market interest rates and decreased U.S. economic growth, potentially leading to a recession, all of which could negatively impact the business p. 23.
The company's ability to utilize net operating loss carryforwards (NOLs) and other tax attributes may be limited p. 23.
As of December 31, 2024, the company had gross federal income tax NOLs of approximately $44.7 million p. 23.
These NOLs are available to offset future taxable income, subject to annual limitations under Section 382 of the Internal Revenue Code of 1986 (the Code) p. 23.
The NOLs are set to expire beginning in 2032 p. 23.
Under Section 382 of the Code, an "ownership change" (greater than 50% change in equity ownership by certain stockholders over a rolling three-year period) can limit the use of pre-ownership change NOLs p. 23.
Future ownership changes, some outside the company's control, may occur p. 23.
Future regulatory changes could also limit the ability to utilize NOLs p. 23.
Inability to offset future taxable income with NOLs could adversely affect net income and cash flows p. 23.
As a holding company with operations primarily conducted by insurance subsidiaries, liquidity at the holding company level depends on cash dividends or permitted payments from insurance subsidiaries p. 23.
Continued operation and growth require substantial capital p. 23.
The company does not intend to declare and pay cash dividends on common stock in the foreseeable future p. 23.
Ability to pay dividends to stockholders and meet debt obligations depends on dividends and distributions from primary insurance subsidiaries (GMIC, HSIC, IIC) p. 23.
State insurance laws, including Texas laws, restrict the ability of GMIC, HSIC, and IIC to determine stockholder dividends p. 23.
Insurance companies are required to maintain specified levels of statutory capital and surplus p. 23.
Dividend payments are limited to the portion of available policyholder surplus derived from net profits p. 23.
State insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels p. 23.
There is no assurance that dividends up to maximum calculated amounts would be permitted p. 23.
State insurance regulators may adopt more restrictive statutory provisions regarding dividend payments in the future p. 23.
Any future dividend determination will be at the discretion of the Board of Directors, based on results, financial condition, contractual restrictions, indebtedness, applicable law, and other relevant factors p. 23.
Investors may need to sell common stock for gains, as immediate cash dividends are not expected p. 23.
Applicable insurance laws may make a change of control difficult p. 23.
Under Texas insurance laws, acquiring control of a domestic insurer requires written approval from the state insurance commissioner p. 23.
Approval depends on factors including the acquirer's financial strength, plans for the insurer's future operations, and potential anti-competitive results p. 23.
Texas insurance laws apply to direct and indirect acquisition of 10% or more of the voting stock of a Texas-domiciled insurer p. 23.
Acquisition of 10% or more of the company's common stock would be considered an indirect change of control, triggering filing requirements under Texas insurance laws, unless a disclaimer of control is accepted p. 23.
These requirements may discourage acquisition proposals and delay, deter, or prevent a change of control, even if stockholders consider it desirable p. 23.
Risks Related to Our Liquidity and Access to Capital
Future capital requirements depend on factors such as the ability to write new business successfully and establish premium rates and reserves sufficient to cover losses p. 24.
If operational cash flows are insufficient to fund future operating requirements and cover claim losses, or if the capital position is adversely impacted by a decline in the fair value of the investment portfolio, catastrophe losses, or other events, additional funds may be needed through financings or growth may be curtailed p. 24.
Factors affecting the amount and timing of capital needs include growth rate, profitability, claims experience, availability of reinsurance, market disruptions, and other unforeseeable developments p. 24.
If additional capital is needed, equity or debt financing may not be available or may only be available on unfavorable terms p. 24.
Equity financings could result in dilution to stockholders p. 24.
Debt financings may impose covenants restricting business operations p. 24.
Securities issued for capital raising may have rights, preferences, and privileges senior to common stock p. 24.
Inability to obtain adequate capital on favorable terms could materially adversely affect operating plans, business, financial condition, or results of operations p. 24.
Risks Related to Our Operations
The company could be adversely affected by the loss of key personnel or an inability to attract and retain qualified personnel p. 25.
The company depends on attracting and retaining experienced personnel knowledgeable about its business p. 25.
The talent pool for recruitment is limited and can fluctuate based on market dynamics specific to the industry p. 25.
Higher demand for skilled employees could increase compensation expectations, making it difficult to retain and recruit key personnel and manage labor costs p. 25.
Loss of key personnel or inability to attract talent could hinder the company's competitive position in specialized markets and adversely affect operations p. 25.
Security breaches, data loss, cyberattacks, and IT failures could disrupt operations, damage reputation, and adversely affect business, operations, and financial results p. 25.
The business relies heavily on information technology and telecommunications systems for underwriting, claims, policy processing, actuarial functions, payments, and financial reporting p. 25.
Some systems may involve or rely on third-party systems not located on company premises or under its control p. 25.
Events like natural catastrophes, terrorist attacks, industrial accidents, computer viruses, and cyber-attacks could cause system failures or inaccessibility for extended periods p. 25.
Sustained or repeated system failures could limit the company's ability to process business, provide customer service, pay claims, or operate normally p. 25.
Computer viruses, hackers, employee misconduct, and other external hazards could lead to security breaches or cyber-attacks p. 25.
Despite security measures, systems and networks may experience breaches or interference, and third-party service providers will likely continue to face cybersecurity incidents p. 25.
Such events could result in operational disruptions, unauthorized access, disclosure or loss of proprietary or customer data, leading to legal claims, regulatory scrutiny, reputational damage, costs, and loss of customers p. 25.
SEC and state law requirements for public notification of incidents could exacerbate harm to the business p. 25.
Advances in criminal capabilities, new vulnerabilities, exploitation attempts, data thefts, or physical break-ins could compromise security measures p. 25.
Third parties to whom functions are outsourced are also subject to these risks p. 25.
While the company reviews and assesses third-party cybersecurity controls, it cannot ensure complete success in preventing compromises or disclosures of confidential information p. 25.
Increased use of third-party services (e.g., cloud technology, SaaS) can complicate identification and response to cyberattacks due to dynamic technologies p. 25.
These risks could increase as vendors adopt more cloud-based software services p. 25.
The company may not be able to manage its growth effectively p. 25.
Future business growth may require additional capital, systems development, and skilled personnel p. 25.
Failure to manage capital needs, expand systems and controls, allocate human resources, hire and train employees, and integrate acquired businesses could adversely affect the company p. 25.
Inorganic growth through acquisition depends on identifying appropriate targets, negotiating favorable terms, completing transactions, and successfully integrating targets p. 25.
The company may not realize anticipated benefits from acquisitions, such as revenue growth, operational efficiencies, or expected synergies p. 25.
The company has experienced rapid growth in recent years, but these rates may not indicate future growth p. 25.
Sustaining revenue growth consistent with recent history may not be possible in future periods p. 25.
Revenue growth depends on factors including effective product pricing to attract and retain insureds without compromising profitability p. 25.
Other factors include successful deployment and implementation of products, obtaining renewals, and providing excellent support to distribution partners p. 25.
Attracting and retaining highly qualified underwriters and claims professionals is also a factor p. 25.
Enhancing infrastructure and data reporting systems to efficiently deliver products is crucial p. 25.
Successfully creating new distribution channels and introducing new/enhancing existing products are important for growth p. 25.
The ability to successfully compete against larger companies and new market entrants, and increase brand awareness, also impacts revenue growth p. 25.
Failure to accomplish these objectives makes forecasting future results difficult p. 25.
Historical growth rates are not indicative of future performance and may decline p. 25.
Revenue growth could slow or decline for various reasons, including those outlined p. 25.
Operating expenses are expected to increase, and if revenue growth does not offset these increases, the business, financial position, and results of operations could be harmed, potentially impacting profitability p. 25.
The effects of litigation are uncertain and could adversely affect the business p. 25.
The company continually faces litigation risks, including disputes related to insurance claims and general commercial/corporate litigation p. 25.
While not currently involved in unusual litigation, other industry members face class action lawsuits and other litigation with unpredictable outcomes and substantial amounts p. 25.
Social inflation, particularly in third-party claims, can lead to oversized judgments p. 25.
Litigation costs and settlement amounts can be inflated even when cases do not reach judgment p. 25.
Litigation is based on various issues, including insurance and claim settlement practices p. 25.
The company cannot predict future involvement in such litigation or its impact on the business p. 25.
Loss of key vendor relationships or vendor failure to protect data could affect operations p. 25.
The company relies on numerous vendors in the United States and abroad for computer hardware/software, claim adjustment, HR benefits management, and investment management services p. 25.
Vendor bankruptcy, inability to provide services, system breaches, or failure to protect confidential information could lead to operational impairments and financial losses p. 25.
Failure to properly assess and understand vendor risks, despite monitoring, could materially and adversely affect financial condition and results of operations p. 25.
The company anticipates continued reliance on third-party software p. 25.
While 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 p. 25.
Integration of new third-party software may require significant work, time, and resources p. 25.
Obtaining license agreements for additional or alternative third-party software may not be possible on commercially reasonable terms or at all p. 25.
Many risks associated with third-party software use cannot be eliminated and could negatively affect the business p. 25.
The company may fail to protect its intellectual property rights for its proprietary technology platform and brand, or may face infringement lawsuits p. 25.
Success and competitive ability depend partly on intellectual property, including brand rights and proprietary technology in certain product lines p. 25.
Protection primarily relies on copyright and trade secret laws, and confidentiality agreements with employees, customers, service providers, and partners p. 25.
Steps taken to protect intellectual property may be inadequate p. 25.
Efforts to enforce intellectual property rights may face defenses, counterclaims, and countersuits challenging validity, enforceability, and scope p. 25.
Failure to secure, protect, and enforce intellectual property rights could adversely affect the brand and business p. 25.
Success also depends on not infringing on others' intellectual property rights p. 25.
Competitors and other entities may own or claim intellectual property related to the industry or the company p. 25.
Future claims of infringement could lead to significant expenses, substantial damages, ongoing royalty payments, inability to offer services, or other unfavorable terms p. 25.
Even if successful in a dispute, litigation could be costly, time-consuming, and divert management attention p. 25.
Risks Related to Ownership of Our Common Stock
Operating as a public company incurs increased costs and requires substantial management time for compliance initiatives p. 26.
Financial reporting and other requirements for public companies may exceed the current preparedness of accounting and management systems and resources p. 26.
As a public company, and no longer an emerging growth company, significant legal, accounting, and other expenses are incurred that would not be present as a private company p. 26.
Federal securities laws, including the Sarbanes-Oxley Act, the Dodd-Frank Act, and SEC/Nasdaq regulations, impose requirements on public companies for filing reports, establishing disclosure and financial controls, and corporate governance practices p. 26.
These regulations increase compliance costs, make activities more time-consuming, and require substantial management and personnel time for compliance p. 26.
There is a risk of not being able to produce reliable financial statements, file them timely with the SEC, or comply with Nasdaq listing requirements p. 26.
Section 404 of the Sarbanes-Oxley Act mandates system and process evaluation and testing of internal control over financial reporting, requiring substantial accounting expense and management effort p. 26.
Compliance with Section 404 necessitates maintaining accounting and finance staff and consultants with public company reporting, technical accounting, and internal control knowledge, and providing internal audit services p. 26.
The process to document and evaluate internal control over financial reporting for Section 404 is costly and challenging, involving internal resources, outside consultants, a detailed work plan, control process improvements, testing, and continuous reporting p. 26.
There is a risk that neither the company nor its independent registered public accounting firm will conclude that internal control over financial reporting is effective within the prescribed timeframe, potentially leading to adverse financial market reactions or SEC investigations p. 26.
As a public company, disclosure controls and procedures must be maintained to ensure timely and accurate reporting of information required by the Exchange Act p. 26.
Disclosure controls and procedures or internal control over financial reporting may not prevent or detect all errors and fraud, as control systems provide only reasonable, not absolute, assurance p. 26.
Inherent limitations in control systems mean that misstatements due to error or fraud may occur and go undetected p. 26.
Failure to achieve and maintain effective internal controls, as required by Section 404 of the Sarbanes-Oxley Act, could harm operating results and financial condition, and negatively affect the common stock price p. 26.
The company must document and test internal control procedures to satisfy Section 404(b) of the Sarbanes-Oxley Act, requiring annual management assessments of internal control over financial reporting effectiveness p. 26.
Deficiencies may be identified during assessments that cannot be remediated timely, and testing/maintaining internal controls may divert management attention p. 26.
If internal control over financial reporting is concluded to be ineffective, remediation costs and scope could be significant, and material weaknesses may impede timely and accurate SEC filings p. 26.
Such issues could cause investors to lose confidence, or lead to suspension/termination of Nasdaq listing, negatively affecting the common stock trading price p. 26.
A material weakness in internal control over information technology general controls (ITGCs) has been identified p. 26.
Failure to remediate the material weakness or maintain effective ITGCs could adversely affect the market price of common stock p. 26.
The effectiveness of controls is subject to inherent limitations, meaning controls may not prevent or detect all misstatements, and even effective ITGCs provide only reasonable assurance p. 26.
Management, including the Chief Executive Officer, Chief Financial Officer, and Chief Information and Technology Officer, evaluated internal control over financial reporting as of December 31, 2024, using COSO's 2013 Integrated Framework p. 26.
Management concluded a material weakness existed as of December 31, 2024, related to ineffective implementation of ITGCs in user access for systems supporting financial reporting processes p. 26.
Related process-level IT dependent manual and automated controls relying on affected ITGCs or information from affected IT systems were also deemed ineffective p. 26.
Additional information, including management's remediation plan, is available in "ITEM 9A. CONTROLS & PROCEDURES" in the Form 10-K p. 26.
Failure to timely remediate the material weakness or maintain effective ITGCs and related controls could lead to significant resource expenditure, fines, penalties, investigations, or judgments, negatively impacting investor confidence and stock price p. 26.
The market price of common stock has been and is likely to remain highly volatile, fluctuating due to factors beyond the company's control p. 26.
Securities markets worldwide experience significant price and volume fluctuations, which, along with general economic, market, or political conditions, could cause wide price fluctuations in the company's shares regardless of operating performance p. 26.
Investment in common stock is considered risky, requiring tolerance for significant loss and wide market value fluctuations p. 26.
Factors that could affect stock price include: market conditions, fluctuations in quarterly financial/operating results, new product/service introductions by the company or competitors, new/changed securities analysts' reports, operating results varying from expectations, short sales/hedging/derivative transactions, guidance provided (or changes/failure to meet it), strategic actions, announcements by the company/competitors/acquisition targets, sales of large blocks of stock, changes in Board/management/key personnel, regulatory/legal/political developments, public response to announcements, litigation/governmental investigations, changing economic conditions (including social inflation), changes in accounting principles, future indebtedness/securities issuance, default under debt agreements, exposure to capital/credit market risks, changes in credit ratings, and other events like natural disasters, war, or terrorism p. 26.
Securities markets, including Nasdaq, have experienced extreme price and volume fluctuations unrelated to company operating performance p. 26.
Investors may not be able to resell shares at or above purchase price due to broad market fluctuations, general market, economic, and political conditions (e.g., recessions, loss of investor confidence, interest rate changes) p. 26.
Such events could cause the stock price to fall and expose the company to securities class action litigation, which could be costly, divert management attention, or harm the business p. 26.
Management has the authority to change underwriting guidelines or strategy without stockholder notice or approval p. 26.
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 p. 26.
Anti-takeover provisions in organizational documents could delay a change in management and limit share price p. 26.
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 to replace the Board or management, thus adversely affecting common stock price p. 26.
Charter documents permit the Board to establish director numbers and fill vacancies, classify the Board into three classes with staggered three-year terms (directors removable only for cause), require super-majority voting for amendments, include blank-check preferred stock, eliminate stockholder ability to call special meetings, specify special meetings can only be called by the Board/Chairman/CEO, prohibit stockholder consent action by other than unanimous written consent, provide that Board vacancies are filled only by a majority of directors then in office, prohibit cumulative voting, and establish advance notice requirements for nominations or proposals at annual meetings p. 26.
As a Delaware corporation, the company is subject to Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders (owning 15% or more of voting stock) from merging or combining with the company for a period p. 26.
The certificate of incorporation and bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for substantially all disputes between the company and its stockholders p. 26.
This exclusive forum provision could limit stockholders' ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, or employees p. 26.
The exclusive forum applies to derivative actions, claims of breach of fiduciary duty, claims arising under DGCL or charter/bylaws, actions to interpret/apply/enforce/determine validity of charter/bylaws, and claims governed by the internal affairs doctrine p. 26.
The certificate of incorporation and bylaws also state that federal district courts of the U.S. are the sole and exclusive forum for complaints asserting a cause of action under the Securities Act, unless the company consents otherwise p. 26.
There is uncertainty whether a court would enforce this provision, and stockholders are not deemed to have waived compliance with federal securities laws p. 26.
This exclusive forum provision would not apply to suits under the Exchange Act or other claims where federal courts have exclusive jurisdiction p. 26.
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 p. 26.
If the choice of forum provision is found inapplicable or unenforceable, the company may incur additional costs resolving actions in other jurisdictions, which could materially adversely affect business, financial condition, or results of operations p. 26.
Cybersecurity
IT Systems are central to nearly all aspects of business operations, including internal/external communications, document/record management, and shared work environments p. 27.
Crisis Response Plan (CRP) is implemented to efficiently and effectively respond to cybersecurity incidents and threats, forming a component of the overall ERM strategy p. 27.
Cybersecurity risk management processes are integrated into overall risk management, including annual evaluation by the enterprise risk management committee p. 27.
Risk owners are assigned to develop and track mitigation plans for heightened cybersecurity risks identified by the ERM process p. 27.
Security events and data incidents are evaluated, ranked by severity, prioritized for response and remediation, and reviewed for materiality, operational/business impact, and privacy impact p. 27.
Cybersecurity risk management program leverages the National Institute of Standards and Technology framework, categorizing risks into identify, protect, detect, respond, recover, and govern p. 27.
Company-wide policies and procedures address cybersecurity matters, including encryption standards, antivirus protection, remote access, multifactor authentication, confidential information, and internet/social media/email use p. 27.
Detailed crisis response playbook is followed in the event of an incident p. 27.
Investments in IT security have expanded to include additional end-user training, layered defenses, critical asset identification and protection, strengthened monitoring and alerting, and engagement of experts p. 27.
Defenses are regularly tested through simulations and drills at a technical level (including penetration tests) and operational policy/procedure reviews with third-party experts p. 27.
IT security team monitors alerts, discusses threat levels/trends/remediation, prepares a quarterly cyber scorecard, collects data on cybersecurity threats/risk areas, and conducts an annual risk assessment p. 27.
Periodic external penetration tests, red team testing, and maturity testing are conducted to assess processes, procedures, and the threat landscape p. 27.
Outside cybersecurity legal counsel would consult and coordinate with other third parties during an incident, including communication and notification, and cybersecurity vendors would perform investigation, recovery, and restoration services p. 27.
Cybersecurity experts would assist with incident validation and ransomware demands, and cybersecurity insurance providers would be involved p. 27.
Processes are implemented to oversee and identify risks from cybersecurity threats associated with key third-party service providers, requiring SOC-1 or SOC-2 reports and cybersecurity/disaster recovery plans p. 27.
Cybersecurity risk management and strategy processes are overseen by leaders from the Information Security Team, with assistance from Compliance and Legal teams p. 27.
Information Security Team leaders have decades of experience in IT roles, including security, auditing, compliance, systems, and programming p. 27.
These individuals monitor prevention, mitigation, detection, and remediation of cybersecurity incidents through their management and participation in risk management processes and report to the Risk Committee p. 27.
Risk Committee of the Board of Directors oversees cybersecurity strategy, reviews cybersecurity and other IT risks, controls, and procedures, and receives periodic updates from management on cybersecurity measures p. 27.
Review by the Risk Committee includes discussion of cybersecurity threat risks and their potential operational impact p. 27.
Separate process for communicating with the Risk Committee is instituted for specific cybersecurity incidents p. 27.
Crisis Management Team members would provide initial awareness communication of an incident to the CEO/Chair of the Board, who would inform the Chair of the Risk Committee p. 27.
Following initial assessment, a follow-up communication would be provided to the CEO and Risk Committee Chair to determine if escalation to the full Board is warranted p. 27.
Cybersecurity threats have not materially affected business strategy, results of operations, or financial condition p. 27.
A cybersecurity incident resulting in a serious compromise of IT Systems or a demand for payment to restore them could have a material adverse effect by negatively impacting business operations and diverting management/financial resources p. 27.
Properties
Primary executive offices and insurance operations are leased in Houston, Texas p. 28.
Office space in Houston is approximately 20,400 square feet p. 28.
Lease for Houston office space expires in 2029 p. 28.
Additional office space is leased as appropriate p. 28.
Management considers office facilities suitable and adequate for current operations p. 28.
Legal Proceedings
The company is involved in legal proceedings that occur in the ordinary course of business p. 29.
The company believes that the outcome of these legal matters, individually and in aggregate, will not materially adversely affect its consolidated financial position p. 29.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common shares started trading on the NASDAQ Global Select Market under the symbol "SKWD" on January 13, 2023 p. 30.
Before January 13, 2023, there was no public market for our common shares p. 30.
As of February 26, 2025, there were approximately 5 holders of record of our common stock p. 30.
The number of record holders does not represent the total number of stockholders because many shares are held by brokers and other institutions on behalf of stockholders p. 30.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding equity compensation plans will be included in the definitive proxy statement to be filed with the SEC for the 2025 Annual Meeting of Stockholders ("2025 Proxy Statement") and is incorporated by reference into this document p. 31.
Recent Sales of Unregistered Equity Securities
Information regarding securities issued or granted by the company during the period covered by the Annual Report on Form 10-K that were not registered under the Securities Act is provided p. 32.
The information presented in Item 5 reflects a 4-for-1 reverse stock split, effective January 3, 2023 p. 32.
Immediately before the IPO, all preferred stock converted into 16,305,113 shares of common stock p. 32.
The issuance of these common shares was exempt from Securities Act registration requirements under Section 3(a)(9) p. 32.
This exemption applies to exchanges of securities by an issuer with existing security holders where no commission or remuneration was paid for soliciting the exchange p. 32.
No underwriters were involved in this share issuance p. 32.
Use of Proceeds from Initial Public Offering
IPO closing date: January 18, 2023 p. 33
Shares issued and sold by the company: 4,750,000 shares of common stock p. 33
Shares sold by selling stockholders: 4,202,383 shares p. 33
Underwriters' option exercise: exercised in full to purchase 1,342,857 additional shares of common stock from selling stockholders p. 33
Registration statement: Form S-1 (File No. 333-265326) under the Securities Act p. 33
SEC effective date: January 12, 2023 p. 33
Representatives of the underwriters: Barclays Capital Inc. and Keefe, Bruyette & Woods, Inc. p. 33
Public offering price: $15.00 per share p. 33
Net proceeds to the Company: approximately $62.3 million, after deducting underwriting discounts and specific incremental expenses p. 33
Proceeds distribution: All proceeds from the IPO have been distributed to the Company’s insurance company subsidiaries p. 33
Issuer Purchases of Equity Securities
The company did not purchase any of its equity securities during the period covered by this Annual Report on Form 10-K p. 34.
Dividends
The company does not currently intend to pay any cash dividends on its common stock in the foreseeable future p. 35.
Any future determination to pay dividends will be at the discretion of the Board of Directors p. 35.
Dividend payment will depend on results of operations, financial condition, restrictions by applicable law, and other factors deemed relevant by the Board of Directors p. 35.
Investors may need to sell all or part of their common stock holdings after price appreciation to realize future gains, as this may be the only way p. 35.
Investors seeking immediate cash dividends should not purchase the company's common stock p. 35.
Performance Graph
The performance graph compares the cumulative total shareholder return of an investment in Skyward Specialty Insurance Group's common stock, the Nasdaq Composite Index, and the Nasdaq Insurance Indexp. 36.
The comparison period begins on January 13, 2023, the date the common stock began trading on Nasdaq, and extends through December 31, 2024p. 36.
The graph assumes an initial investment of $100p. 36.
Historical returns are not indicative of future performance p. 36.
The graph is not considered "soliciting material" or "filed" for purposes of Section 18 of the Exchange Act, nor is it subject to liabilities under that Section p. 36.
The graph is not deemed to be incorporated by reference into any filings under the Securities Actp. 36.
Skyward Specialty Insurance Group, Inc. performance:
January 13, 2023: $100.00p. 36
December 31, 2023: Approximately $175.00p. 36
December 31, 2024: Approximately $265.00p. 36
Nasdaq Composite Index performance:
January 13, 2023: $100.00p. 36
December 31, 2023: Approximately $135.00p. 36
December 31, 2024: Approximately $170.00p. 36
Nasdaq Insurance Index performance:
January 13, 2023: $100.00p. 36
December 31, 2023: Approximately $105.00p. 36
December 31, 2024: Approximately $128.00p. 36
Stock performance comparison
—
January 13, 2023
December 31, 2023
December 31, 2024
Skyward Specialty Insurance Group, Inc.
100.00
177.38
264.61
Nasdaq Composite Index
100.00
135.49
174.30
Nasdaq Insurance Index
100.00
103.37
128.30
Performance Graph
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The company is a growing specialty insurance company providing commercial P&C products and solutions on both non-admitted (E&S) and admitted bases, primarily in the United States p. 37.
The company focuses on underserved, dislocated, and/or markets where standard insurance coverages are insufficient for businesses p. 37.
Customers typically require highly specialized, customized underwriting solutions and claims capabilities p. 37.
The company develops and delivers tailored insurance products and services for each niche market it serves p. 37.
The portfolio of insured risks is highly diversified, covering customers in various industries, distributed through multiple channels, and writing multiple lines of business p. 37.
Lines of business include general liability, excess liability, professional liability (cyber and media liability insurance), commercial auto, group accident and health, property, agriculture, credit, surety, and workers’ compensation p. 37.
The company insures both short and medium duration liabilities p. 37.
The business mix is principally primary insurance, balanced between E&S and admitted markets p. 37.
A small portion of the business is specialty reinsurance, primarily in agriculture and credit, focused on attractive specialty classes where reinsurance is more efficient due to factors like cost of entry and geographic expansion p. 37.
This diversification allows the company to respond to market opportunities and dislocations by deploying capital with attractive risk-adjusted returns p. 37.
The diversification, including businesses not typically aligned with traditional P&C pricing cycles, combined with underwriting and claims expertise, is expected to consistently produce strong growth and profitability across all insurance pricing cycles p. 37.
The company aims to lead in chosen market niches and establish sustainable competitive positions, referring to this strategy as "Rule Our Niche" p. 37.
This strategy forms the basis for building a strong defensible market position, creating a competitive moat, and winning chosen markets p. 37.
The principles underlying this strategy are considered key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles p. 37.
The company consistently strives for excellence in risk selection, pricing, and claims outcomes, amplified by advanced technology and analytics p. 37.
Results of Operations
Net premiums earned were USD 1,004.0m in 2024, up from USD 800.0m in 2023 p. 38.
Net investment income was USD 69.0m in 2024, up from USD 50.0m in 2023 p. 38.
Net realized and unrealized gains on investments were USD 10.0m in 2024, down from USD 12.0m in 2023 p. 38.
Other income was USD 1.0m in 2024, consistent with USD 1.0m in 2023 p. 38.
Total revenues were USD 1,084.0m in 2024, up from USD 863.0m in 2023 p. 38.
Losses and loss adjustment expenses were USD 600.0m in 2024, up from USD 470.0m in 2023 p. 38.
Underwriting, acquisition and insurance expenses were USD 340.0m in 2024, up from USD 270.0m in 2023 p. 38.
Interest expense was USD 10.0m in 2024, up from USD 8.0m in 2023 p. 38.
Total expenses were USD 950.0m in 2024, up from USD 748.0m in 2023 p. 38.
Income before income taxes was USD 134.0m in 2024, up from USD 115.0m in 2023 p. 38.
Income tax expense was USD 28.0m in 2024, up from USD 24.0m in 2023 p. 38.
Net income was USD 106.0m in 2024, up from USD 91.0m in 2023 p. 38.
Net income attributable to common stockholders was USD 106.0m in 2024, up from USD 91.0m in 2023 p. 38.
Earnings per share attributable to common stockholders—basic was USD 2.60 in 2024, up from USD 2.24 in 2023 p. 38.
Earnings per share attributable to common stockholders—diluted was USD 2.59 in 2024, up from USD 2.23 in 2023 p. 38.
Weighted-average common shares outstanding—basic were 40.7m in 2024, up from 40.6m in 2023 p. 38.
Weighted-average common shares outstanding—diluted were 40.9m in 2024, up from 40.8m in 2023 p. 38.
Summary of financial performance
Years Ended December 31,
($ in thousands)
2024
2023
Gross written premiums
1,743,232
1,459,829
Ceded written premiums
-619,654
-549,138
Net written premiums
1,123,578
910,691
Net earned premiums
1,056,722
829,143
Commission and fee income
6,703
6,064
Losses and LAE
669,809
515,237
Underwriting, acquisition and insurance expenses
311,757
243,444
Underwriting income (1)
81,859
76,526
Net investment income
80,686
40,322
Net investment gains (losses)
6,256
11,072
Income before income taxes
152,739
110,102
Net income
118,828
85,984
Adjusted operating income (1)
126,650
80,847
Loss and LAE ratio
63.4%
62.1%
Expense ratio
28.9%
28.6%
Combined ratio
92.3%
90.7%
Adjusted loss and LAE ratio (1)
62.3%
62.3%
Expense ratio
28.9%
28.6%
Adjusted combined ratio (1)
91.2%
90.9%
Return on equity
16.3%
15.9%
Return on tangible equity (1)
18.6%
19.0%
Adjusted return on equity (1)
17.4%
14.9%
Adjusted return on tangible equity (1)
19.8%
17.9%
(1) See “Reconciliation of Non-GAAP Financial Measures” in this Item 2.
Reconciliation of Non-GAAP Financial Measures
Adjusted Operating Income reconciliation to net income provided for years ended December 31, 2024 and 2023 p. 39.
Underwriting Income reconciliation to income before federal income tax expense provided for years ended December 31, 2024 and 2023 p. 39.
Adjusted Loss Ratio / Adjusted Combined Ratio reconciliation to loss and LAE ratio and combined ratio provided for years ended December 31, 2024 and 2023 p. 39.
Tangible Stockholders’ Equity reconciliation to stockholders’ equity provided for years ended December 31, 2024 and 2023 p. 39.
Adjusted Return on Equity reconciliation to return on equity provided for years ended December 31, 2024 and 2023 p. 39.
Return on Tangible Equity reconciliation to return on equity provided for years ended December 31, 2024 and 2023 p. 39.
Adjusted Return on Tangible Equity reconciliation to return on equity provided for years ended December 31, 2024 and 2023 p. 39.
Return on tangible equity reconciliation
2024
2023
($ in thousands)
Pre-tax
After-tax
Pre-tax
After-tax
Income as reported
152,739
118,828
110,102
85,984
Less (add):
—
—
—
—
Net investment gains (losses)
6,256
4,942
11,072
8,747
Net impact of LPT
-11,598
-9,162
1,427
1,127
Other (loss) income
-167
-132
-632
-499
Other expenses
-4,392
-3,470
-5,364
-4,238
Adjusted operating income
162,640
126,650
103,599
80,847
Reconciliation of income before income taxes to underwriting income
($ in thousands)
2024
2023
Income before income taxes
152,739
110,102
Add:
—
—
Interest expense
9,496
10,024
Amortization expense
2,007
1,798
Other expenses
4,392
5,364
Less (add):
—
—
Net investment income
80,686
40,322
Net investment gains
6,256
11,072
Other loss
-167
-632
Underwriting income
81,859
76,526
Loss and combined ratios
($ in thousands)
2024
2023
Net earned premiums
1,056,722
829,143
Losses and LAE
669,809
515,237
Pre-tax net impact of loss portfolio transfer
-11,598
1,427
Adjusted losses and LAE
658,211
516,664
Loss ratio
63.4%
62.1%
Less: Net impact of LPT
1.1%
-0.2%
Adjusted loss ratio
62.3%
62.3%
Combined ratio
92.3%
90.7%
Less: Net impact of LPT
1.1%
-0.2%
Adjusted combined ratio
91.2%
90.9%
Stockholders’ equity and tangible stockholders’ equity
($ in thousands)
2024
2023
Stockholders’ equity
793,999
661,031
Less: Goodwill and intangible assets
87,348
88,435
Tangible stockholders’ equity
706,651
572,596
Adjusted return on equity
($ in thousands)
2024
2023
Numerator: adjusted operating income
126,650
80,847
Denominator: average stockholders’ equity
727,515
541,347
Adjusted return on equity
17.4%
14.9%
Return on tangible equity
($ in thousands)
2024
2023
Numerator: net income
118,828
85,984
Denominator: average tangible stockholders’ equity
639,624
452,194
Return on tangible equity
18.6%
19.0%
Adjusted return on tangible equity
($ in thousands)
2024
2023
Numerator: adjusted operating income
126,650
80,847
Denominator: average tangible stockholders’ equity
639,624
452,194
Adjusted return on tangible equity
19.8%
17.9%
Underwriting Results
Key facts & figures
Net written premiums
USD 1,123.6m
Net earned premiums
USD 1,056.7m
Loss ratio increase
1.3 points
Catastrophe losses
Hurricanes Helene, Beryl, Milton
Adverse development 2024
USD 25.7m
Adverse development 2023
USD 10.8m
Net written premiums were USD 1,123.6m compared to USD 910.7m in 2023, an increase of USD 212.9m or 23.4% p. 40.
Net earned premiums for 2024 were USD 1,056.7m compared to USD 829.1m for 2023, an increase of USD 227.6m, or 27.4% p. 40.
The loss ratio increased 1.3 points in 2024 compared to 2023, primarily due to the net impact of prior accident year development related to the LPT, which added 1.1 points to the loss ratio p. 40.
The non-cat loss and LAE ratio for 2024 improved 0.3 points compared to 2023, driven by a shift in the mix of business p. 40.
The cat loss and LAE ratio for 2024 increased 0.3 points compared to 2023, primarily due to catastrophe losses from Hurricanes Helene and Beryl in Q3 2024 and Hurricane Milton in Q4 2024 p. 40.
In 2024, the Company transitioned from evaluating reserves on a policy year basis to an accident year basis p. 40.
This transition results in earlier recognition of underlying claim trends, better alignment of exposure to risks, and adherence to industry best practices p. 40.
As a result of transitioning to an accident year basis, IBNR within short-tail/monoline specialty lines, multi-line solutions, and exited lines was reallocated for the years ended December 31, 2023, 2022, 2021, and 2020, with certain amounts conformed to the current year presentation p. 40.
For the year ended December 31, 2024, the Company recognized adverse development related to prior years’ loss and loss expense reserves of USD 25.7m p. 40.
Of this, USD 10.1m and USD 15.2m in multi-line solutions and exited lines, respectively, were related to losses previously subject to the LPT from accident years 2018 and prior p. 40.
During the year ended December 31, 2023, the Company recognized adverse development related to prior years’ loss and loss expense reserves of USD 10.8m p. 40.
Adverse development of USD 11.7m in multi-line solutions in 2023 was driven by greater than expected severity in auto, general, and excess liability lines of business, primarily from accident years 2020 to 2022 p. 40.
This adverse development was partially offset by favorable development in short-tail/monoline specialty lines, specifically in the property line of business, primarily from accident years 2021 and 2022 p. 40.
The expense ratio for 2024 increased 0.3 points compared to 2023, primarily driven by the business mix shift, partially offset by earnings leverage p. 40.
The expense ratios presented exclude the impact of IPO related stock compensation and secondary offering expenses, which are reported in other expenses p. 40.
Beginning January 1, 2024, we simplified the investment portfolio classifications to align with our strategy and the underlying risk characteristics of the portfolio." p. 40
The prior period investment portfolio classifications have been reclassified to conform to the current period presentation p. 40.
Net investment income for the year ended 2024 increased USD 40.4m compared to 2023 p. 40.
The increase in income from our fixed income portfolio for 2024, when compared to 2023, was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) a higher book yield of 5.2% at December 31, 2024 compared to 4.5% at December 31, 2023." p. 40
The increase in income from short-term investments & cash and cash equivalents for 2024 compared to 2023 was due to higher investment yields and a larger asset base p. 40.
The fair value of the alternative and strategic investments portfolio for 2024 increased compared to 2023 due to an increase in the fair value of limited partnership investments p. 40.
Gross written premiums by segment
Years Ended December 31,
($ in thousands)
2024
2023
Change
% Change
Industry Solutions
317,198
305,476
11,722
3.8%
Global Property & Agriculture
311,402
273,191
38,211
14.0%
Captives
241,902
167,624
74,278
44.3%
Programs
218,407
178,726
39,681
22.2%
Accident & Health
173,073
151,701
21,372
14.1%
Transactional E&S
169,053
122,508
46,545
38.0%
Professional Lines
159,785
154,565
5,220
3.4%
Surety
152,429
106,056
46,373
43.7%
Total gross written premiums (1)
1,743,249
1,459,847
283,402
19.4%
(1) Excludes exited business.
Losses and LAE
Twelve months ended December 31,
2024
2023
($ in thousands)
Losses and LAE
% of Net Earned Premiums
Losses and LAE
% of Net Earned Premiums
Losses and LAE:
—
—
—
—
Non-cat loss and LAE
640,257
60.6%
504,664
60.9%
Cat loss and LAE (1)
17,954
1.7%
12,000
1.4%
Prior accident year development - LPT
11,598
1.1%
-1,427
-0.2%
Total losses and LAE
669,809
63.4%
515,237
62.1%
Non-cat loss and LAE
640,257
60.6%
504,664
60.9%
Cat loss and LAE (1)
17,954
1.7%
12,000
1.4%
Total adjusted losses and LAE (2)
658,211
62.3%
516,664
62.3%
(1) Current accident year.
(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2.
Loss and LAE reserve development
($ in thousands)
Development
(Favorable) Adverse
Accident Year
2024
2023
Prior
25,535
4,333
2020
-606
4,341
2021
978
289
2022
-1,479
1,807
2023
1,300
—
Total
25,728
10,770
Reserve development on losses subject to LPT
25,300
—
Reserve development on losses excluding losses subject to LPT
428
10,770
Net expenses
Twelve months ended December 31,
2024
2023
($ in thousands)
Expenses
% of Net Earned Premiums
Expenses
% of Net Earned Premiums
Net policy acquisition expenses
149,975
14.2%
108,514
13.0%
Other operating and general expenses
161,782
15.3%
134,930
16.3%
Underwriting, acquisition and insurance expenses
311,757
29.5%
243,444
29.3%
Less: commission and fee income
-6,703
(0.6%)
-6,064
(0.7%)
Total net expenses
305,054
28.9%
237,380
28.6%
Net investment income and gains
Twelve months ended December 31,
$ in thousands
2024
2023
Short-term investments & cash and cash equivalents
17,643
11,677
Fixed income
57,631
36,547
Equities
2,745
2,212
Alternative and strategic investments
2,667
-10,114
Net investment income
80,686
40,322
Net unrealized gains on securities still held
7,921
11,130
Net realized losses
-1,665
-58
Net investment gains
6,256
11,072
Investments
Key facts & figures
Weighted average credit rating
AA-
Average duration fixed income portfolio 2024
4.34 years
Average duration fixed income portfolio 2023
4.24 years
Equities portfolio publicly traded
100.0%
Fixed income portfolio primarily consists of investment grade fixed income securities, predominantly highly-rated and liquid bonds, and commercial mortgage loans p. 41.
Weighted average credit rating of the available-for-sale fixed income portfolio was "AA-" by Standard & Poor’s Financial Services, LLC at December 31, 2024 and 2023 p. 41.
Commercial mortgage loans are primarily senior loans on real estate across the U.S. p. 41.
Average duration of the fixed income portfolio was approximately 4.34 years as of December 31, 2024, and 4.24 years as of December 31, 2023 p. 41.
Equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations, and other equity interests p. 41.
100.0% of the equities portfolio is publicly traded p. 41.
Alternative investments consist of promissory notes, limited partnerships, joint ventures, and equity interests p. 41.
Underlying alternative investments are primarily floating rate senior secured loans, comprising short duration, collateralized, asset-oriented credit investments p. 41.
Limited partnerships and joint ventures are subject to future increases or decreases in asset value as assets are monetized and income distributed p. 41.
Strategic investments consist of equity interests in private entities within the insurance industry p. 41.
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 p. 41.
Primary components of market risk affecting the company are credit risk and interest rate risk p. 41.
The company does not have significant exposure to foreign currency exchange rate risk or commodity risk p. 41.
Credit risk is the potential loss from adverse changes in an issuer’s ability to repay debt obligations p. 41.
The company has exposure to credit risk as a holder of debt instruments in its core fixed income and opportunistic fixed income portfolios p. 41.
Investment policy is to invest primarily in debt instruments of high credit quality issuers and limit credit exposure to particular ratings categories and individual issuers p. 41.
As of December 31, 2024, the core fixed income portfolio had an average rating of "AA-" p. 41.
Approximately 81.5% of securities in the core fixed income portfolio were rated "A" or better by at least one nationally recognized rating organization at December 31, 2024 p. 41.
The policy is to invest in investment grade fixed income securities for stability, supplemented by opportunistic fixed income and equity securities for diversification and risk-adjusted returns p. 41.
As of December 31, 2024, approximately 1.7% of the core fixed income portfolio was unrated or rated below investment-grade p. 41.
The company monitors the financial condition of all issuers in its portfolio through investment managers p. 41.
The company is subject to credit risk with respect to third-party reinsurers p. 41.
Reinsurance contracts do not limit ultimate obligations to pay claims, and amounts recoverable from reinsurers might not be collected p. 41.
To address reinsurance credit risk, the company seeks to purchase reinsurance from reinsurers rated at least "A-" (Excellent) or better by A.M. Best p. 41.
The company, along with its reinsurance broker, performs periodic credit reviews of reinsurers p. 41.
As of December 31, 2024, 99% of reinsurance recoverables were from reinsurers rated "A-" (Excellent) by A.M. Best or better, or were collateralized p. 41.
If a reinsurer suffers a credit downgrade, options like commutation, novation, and letters of credit may be considered to lessen asset impairment risk p. 41.
Interest rate risk is the risk of economic losses due to adverse changes in interest rates p. 41.
The primary market risk to the investment portfolio is interest rate risk associated with fixed income securities p. 41.
Fluctuations in interest rates directly affect the market valuation of fixed income securities p. 41.
The company manages interest rate risk by investing in securities with varied maturity dates and managing the duration of the investment portfolio in relation to the duration of reserves p. 41.
Duration is the weighted average payment period of cash flows, weighted by the present value of cash flows p. 41.
Duration targets for the core fixed income investment portfolio are set after considering the estimated duration of liabilities and other factors p. 41.
Weighted average effective duration of fixed maturity securities was 4.34 years as of December 31, 2024 p. 41.
Fixed income securities subject to interest rate risk had a fair value of $1,292.2 million at December 31, 2024 p. 41.
Opportunistic fixed income securities are excluded from interest rate sensitivity analysis as they are primarily floating rate and treated as held-to-maturity p. 41.
Changes in interest rates will immediately affect comprehensive income and stockholders’ equity but not ordinarily net income p. 41.
Actual results may differ from hypothetical changes in market rates assumed in sensitivity analysis p. 41.
Sensitivity analysis does not reflect actions taken to mitigate hypothetical losses in fair value p. 41.
Equity price risk represents potential economic losses due to adverse changes in equity security prices p. 41.
As of December 31, 2024, approximately 6.7% of the fair value of the investment portfolio (excluding cash, cash equivalents, and short-term investments) was invested in equity securities p. 41.
Equity price risk is managed through portfolio diversification and a tail-risk management strategy p. 41.
The tail-risk management strategy is designed to provide protection for the equity portfolio if there is a significant decline in the S&P 500 within a 30-day period p. 41.
Investment portfolio by asset class
2024
2023
($ in thousands)
Carrying Value
% of Total
Carrying Value
% of Total
Cash and cash equivalents
121,603
6.1%
65,891
3.9%
Short-term investments
274,929
13.8%
270,259
16.1%
Fixed income
1,318,708
66.2%
1,067,721
63.6%
Equities
106,254
5.3%
118,249
7.0%
Alternative and strategic investments
170,929
8.6%
157,458
9.4%
Total portfolio
1,992,423
100.0%
1,679,578
100.0%
Fixed income portfolio by security type
2024
2023
($ in thousands)
Carrying Value
% of Total
Carrying Value
% of Total
U.S. government securities
26,486
2.0%
44,166
4.1%
Corporate securities and miscellaneous
425,628
32.3%
383,420
35.9%
Municipal securities
84,716
6.4%
92,778
8.7%
Residential mortgage-backed securities
393,833
29.9%
281,626
26.4%
Commercial mortgage-backed securities
69,364
5.2%
29,934
2.8%
Other asset-backed securities
292,191
22.2%
185,727
17.4%
Total fixed income portfolio, available-for-sale
1,292,218
98.0%
1,017,651
95.3%
Commercial mortgage loans
26,490
2.0%
50,070
4.7%
Total fixed income portfolio
1,318,708
100.0%
1,067,721
100.0%
Fixed income portfolio by credit rating
2024
2023
($ in thousands)
Fair Value
% of Total
Fair Value
% of Total
AAA
483,099
37.3%
493,252
48.6%
AA
141,177
10.9%
105,906
10.4%
A
429,703
33.3%
233,487
22.9%
BBB
216,602
16.8%
154,096
15.1%
BB and Lower
21,637
1.7%
30,910
3.0%
Total fixed income portfolio, available-for-sale
1,292,218
100.0%
1,017,651
100.0%
Equity portfolio by type
2024
2023
($ in thousands)
Fair Value
% of Total Fair Value
Fair Value
% of Total Fair Value
Domestic common equities
70,665
66.5%
71,502
60.5%
International common equities
34,425
32.4%
39,389
33.3%
Preferred stock
1,164
1.1%
7,358
6.2%
Equities
106,254
100.0%
118,249
100.0%
Interest rate sensitivity analysis
($ in thousands)
Estimated Fair Value
Estimated Change in Fair Value
Estimated % Increase (Decrease) in Fair Value
300 basis point increase
1,118,982
-173,236
-13.4%
200 basis point increase
1,177,074
-115,144
-8.9%
100 basis point increase
1,234,820
-57,398
-4.4%
No change
1,292,218
—
0.0%
100 basis point decrease
1,349,269
57,051
4.4%
200 basis point decrease
1,405,973
113,755
8.8%
300 basis point decrease
1,462,329
170,111
13.2%
Other Items
Key facts & figures
Income tax expense 2024
USD 33.9m
Income tax expense 2023
USD 24.1m
Effective tax rate 2024
22.2%
Effective tax rate 2023
21.9%
Income tax expense for the year ended December 31, 2024, was USD 33.9m p. 42.
Income tax expense for the year ended December 31, 2023, was USD 24.1m p. 42.
Effective tax rate for the year ended December 31, 2024, was 22.2% p. 42.
Effective tax rate for the year ended December 31, 2023, was 21.9% p. 42.
For a reconciliation between actual federal income tax expense and the amount computed at the indicated statutory rate for the years ended December 31, 2024 and 2023, refer to Note 13, “Income Taxes,” in the consolidated financial statements included in Item 8 of this Form 10-K p. 42.
Liquidity and Capital Resources
Key facts & figures
Insurance subsidiaries
GMIC, HSIC, IIC, OSIC
The company is organized as a holding company, with operations primarily conducted by wholly-owned insurance subsidiaries: GMIC, HSIC, and IIC (domiciled in Texas), and OSIC (domiciled in Oklahoma) p. 43.
The holding company may receive cash from: corporate service fees from operating subsidiaries, payments from the consolidated tax allocation agreement, dividends from subsidiaries (subject to limitations), loans from banks, draws on a revolving loan agreement, and issuance of equity and debt securities p. 43.
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 p. 43.
Skyward Service Company receives corporate service fees from operating subsidiaries to reimburse it for most operating expenses, based on actual costs with no mark-up p. 43.
The company files a consolidated U.S. federal income tax return with its subsidiaries p. 43.
Under the corporate tax allocation agreement, each participant is charged or refunded taxes based on what they would have paid or received if they filed on a separate return basis with the IRS p. 43.
State insurance laws restrict the ability of insurance subsidiaries to declare stockholder dividends without prior regulatory approval p. 43.
Insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus p. 43.
Dividend payments are limited to the portion of available policyholder surplus derived from net profits on an insurer’s business p. 43.
Insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that maximum calculated dividends would be permitted p. 43.
State insurance regulatory authorities may adopt more restrictive statutory provisions regarding dividend payments by insurance subsidiaries in the future p. 43.
The company's insurance subsidiaries did not pay dividends to the holding company for the years ended December 31, 2024, and 2023 p. 43.
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 this Form 10-K p. 43.
As of December 31, 2024, the holding company cash and investments were USD 2.9m, compared to USD 3.0m at December 31, 2023 p. 43.
Management believes there is sufficient liquidity to meet operating cash needs, obligations, and committed capital expenditures for the next 12 months p. 43.
Cash Flows
Premiums received from insureds are the most significant source of cash, typically received at the beginning of the coverage period, net of commissions p. 44.
Claims are the most significant cash outflow, occurring after premium receipt, often years later p. 44.
Cash is invested in various investment securities to earn interest and dividends p. 44.
Cash is also used for operating expenses (salaries, rent, taxes) and capital expenditures (technology systems) p. 44.
Reinsurance is used to manage risk, involving ceding part of premiums to reinsurers and collecting cash back for covered losses p. 44.
Timing of cash flows from operating activities can vary due to payment and receipt schedules p. 44.
Significant payments and receipts, such as loss settlements and reinsurance receipts, can influence operating cash flows p. 44.
Management believes cash receipts from premiums and investment income are sufficient to cover cash outflows in the foreseeable future p. 44.
Decrease in cash provided by operating activities in 2024 compared to 2023 was primarily due to increased cash outflows from net reinsurance recoverables and net premiums receivables p. 44.
Cash from operations can vary period-to-period due to timing of premium receipts, claim payments, and reinsurance activity p. 44.
Cash flows from operations in the past two years were primarily used to fund investing activities p. 44.
Net cash used in investing activities in 2024 was primarily driven by purchases of fixed maturity securities, partially offset by sales and maturities of investment securities and sales of short-term investments p. 44.
Net cash used in investing activities in 2023 was primarily driven by purchases of fixed maturity securities p. 44.
Net cash used in financing activities in 2024 was driven by net payments on debt p. 44.
Cash flows
($ in thousands)
2024
2023
Cash and cash equivalents provided by (used in):
—
—
Operating activities
305,115
338,187
Investing activities
-243,694
-493,809
Financing activities
-4,232
130,947
Change in cash and cash equivalents and restricted cash
57,189
(24,675)
Credit Agreements
Key facts & figures
FHLB Loan amount
USD 57.0m
FHLB Loan interest rate
4.00%
Revolving Credit Facility amount
USD 150.0m
Revolving Credit Facility undrawn capacity
USD 107.0m
Outstanding under Revolving Credit Facility
USD 43.0m
On August 30, 2024, the company entered into a FHLB Loan with the Federal Home Loan Bank of Dallas p. 45.
The FHLB Loan is a 4.5-year term loan for USD 57.0mp. 45.
The FHLB Loan provides for interest-only payments during its term, with principal due in full at maturity p. 45.
The interest rate for the FHLB Loan is fixed at 4.00% over its term p. 45.
The FHLB Loan is fully secured by a pledge of specific investment securities of HSIC p. 45.
Proceeds from the FHLB Loan were used to fund the redemption of the March 15, 2024 draw on the Revolving Credit Facility and to redeem USD 7.0m of the March 29, 2023 draw on the Revolving Credit Facility p. 45.
On March 29, 2023, the company entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks p. 45.
The Revolving Credit Facility provides up to a USD 150.0m revolving credit facility and a letter of credit sub-facility of up to USD 30.0mp. 45.
On March 14, 2024, the company drew USD 50.0m on the Revolving Credit Facility to fund the redemption of the Debentures p. 45.
On August 30, 2024, the company fully redeemed the March 15, 2024 draw on the Revolving Credit Facility and redeemed USD 7.0m of the March 29, 2023 draw on the Revolving Credit Facility p. 45.
As of December 31, 2024, USD 43.0m was outstanding under the Revolving Credit Facility, with USD 107.0m of undrawn capacity p. 45.
Interest on the Revolving Credit Facility is payable quarterly p. 45.
The interest rate on the Revolving Credit Facility is SOFR plus a margin of between 150 and 190 basis points, based on the ratio of debt to total capital, and a credit spread adjustment of 10 basis points p. 45.
At December 31, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25%, plus a margin of 1.60% p. 45.
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 p. 45.
As of December 31, 2024, the company was in compliance with all Revolving Credit Facility covenants p. 45.
In August 2006, the company received USD 58.0m of proceeds from a debenture offering through Delos Capital Trust p. 45.
The Trust's sole asset consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred) with a principal amount of USD 59.8m issued by the company and USD 1.8m cash from the issuance of Trust common shares p. 45.
On March 15, 2024, the company redeemed the Debentures and paid USD 1.4m of accrued interest p. 45.
In May 2019, the company issued unsecured subordinated notes (the “Notes”) with an aggregate principal amount of USD 20.0mp. 45.
Interest on the subordinated notes is 7.25% fixed for the first eight years and 8.25% fixed thereafter p. 45.
Early retirement of the subordinated debt requires all interest payments to be paid in full, plus the return of all capital p. 45.
Principal payment for the subordinated notes is due at maturity on May 24, 2039, with interest payable quarterly p. 45.
At December 31, 2024, the ratio of total debt outstanding (including the FHLB Loan, Revolving Credit Facility, and Notes) to total capitalization was 13.1% p. 45.
At December 31, 2023, the ratio of total debt outstanding (including the Term Loan, Revolver, Trust Preferred, and Notes) to total capitalization was 16.3% p. 45.
In October 2024, the Board of Directors approved a share repurchase program authorizing the repurchase of up to USD 50.0m of common stock p. 45.
The share repurchase program allows for repurchases through open market purchases, privately-negotiated transactions, block purchases, accelerated share repurchase agreements, or Rule 10b5-1 trading plans p. 45.
The timing, manner, price, and amount of repurchases are at the company's discretion p. 45.
The share repurchase program does not require the repurchase of any specific number of shares and can be modified, suspended, or terminated at any time p. 45.
As of December 31, 2024, no shares had been repurchased under this plan p. 45.
Contractual Obligations and Commitments
Key facts & figures
Reinsurance balances recoverable 2024
$857.9m
Reinsurance balances recoverable 2023
$596.3m
Reserves for losses and LAE represent the best estimate of the ultimate cost of settling reported and unreported claims and related expenses p. 46.
Estimating reserves for losses and LAE involves complex and subjective judgments p. 46.
Actual losses and settlement expenses paid may substantially deviate from the reserve estimates in financial statements p. 46.
The timing for payment of estimated losses is not fixed or determinable on an individual or aggregate basis p. 46.
Assumptions for estimating payments due by period are based on the company's own, industry, and peer group claims payment experience p. 46.
There is a risk that actual payments in any period could differ significantly from disclosed amounts due to uncertainty in timing estimation p. 46.
Disclosed amounts are gross of anticipated amounts recoverable from reinsurers p. 46.
Reinsurance balances recoverable on reserves for losses and LAE are reported separately as assets, not netted with liabilities, because reinsurance does not discharge the company's liability to policyholders p. 46.
Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $857.9m at December 31, 2024 p. 46.
Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $596.3m at December 31, 2023 p. 46.
Contractual obligations
Payments due by period
($ in thousands)
Total
Less Than One Year
One Year or More
Reserves for losses and LAE
1,782,383
433,204
1,349,179
Long-term debt
120,000
—
120,000
Interest on debt obligations
41,443
6,246
35,197
Operating lease obligations
3,632
968
2,664
Total
1,947,458
440,418
1,507,040
Critical Accounting Policies
Critical accounting estimates are those important to financial condition and results of operations, requiring significant judgment p. 47.
Significant judgment is used concerning future results and developments in applying critical accounting estimates and preparing consolidated financial statements p. 47.
Judgments and estimates affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of material contingent assets and liabilities p. 47.
Actual results may differ materially from estimates and assumptions used in preparing consolidated financial statements p. 47.
Estimates are evaluated regularly using relevant information p. 47.
For a detailed discussion of accounting policies, refer to Note 1, “Summary of Significant Accounting Policies” in Item 8 of Form 10-K p. 47.
Reserves for unpaid losses and LAE is the largest and most complex estimate in the consolidated balance sheet p. 47.
Reserves for unpaid losses and LAE represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust these losses as of or before the balance sheet date p. 47.
Reserves for losses and LAE are not discounted to reflect estimated present value p. 47.
Reserves are estimated using individual case-basis valuations of reported claims, statistical analyses, and various actuarial procedures p. 47.
Estimates are based on historical information, industry and peer group information, and estimates of future trends in variable factors like loss severity, loss frequency, and inflation p. 47.
Estimates are regularly reviewed and adjusted as experience develops or new information becomes known p. 47.
During the loss settlement period, estimates of liability on a claim are often refined and adjusted upward or downward p. 47.
The ultimate liability may exceed or be less than revised estimates p. 47.
The ultimate settlement of losses and related LAE may vary significantly from the estimate included in financial statements p. 47.
Reserves for unpaid losses and LAE are categorized into two types: case reserves and IBNR p. 47.
Case reserves are established for individual claims reported to the company p. 47.
Losses are reported by insureds, their agents, or brokers p. 47.
Case reserves are established by estimating ultimate losses from the claim, including defense costs p. 47.
Claims department personnel use their knowledge of specific claims and advice from internal and external experts (underwriters, legal counsel) to estimate expected ultimate losses p. 47.
Third-Party Administrators (TPAs) are used in limited circumstances to assist in claim adjustment p. 47.
Internal claims managers oversee TPA activities and monitor their claim handling to prescribed standards p. 47.
The incurred but not reported (“IBNR”) reserve is derived by estimating the ultimate unpaid reserve liability and subtracting case reserves p. 47.
Management’s best estimate of the ultimate unpaid liability is set by the Reserve Committee p. 47.
The Reserve Committee considers actuarial indications and other factors such as underwriting, claims handling, economic, legal, and environmental changes p. 47.
The Reserve Committee includes the Chief Actuary, Chief Financial Officer, and Chief Claims Officer p. 47.
The Reserve Committee meets quarterly to review actuarial reserving recommendations from the Chief Actuary p. 47.
The Reserve Committee uses judgment to determine the best estimate for the reserve for losses and LAE on the balance sheet p. 47.
In establishing quarterly actuarial recommendations, the actuary estimates an initial expected ultimate loss ratio for each underwriting division p. 47.
Input from underwriting and claims departments, including premium pricing assumptions and historical experience, is considered in setting reserves p. 47.
Reserves are driven by factors including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions p. 47.
Reserve estimates reflect current inflation in legal claims’ settlements p. 47.
Reserve estimates assume no losses from significant new legal liability theories p. 47.
Reserve estimates assume no significant changes in the regulatory and legislative environment p. 47.
The impact of potential changes in the regulatory or legislative environment is difficult to quantify without specific new regulation or legislation p. 47.
In the event of significant new regulation or legislation, the company will attempt to quantify its impact, but accuracy is not assured p. 47.
The actuarial review considers multiple actuarial methods to estimate the reserve for losses and LAE p. 47.
Actuarial methods utilize the initial expected loss ratio, statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures p. 47.
Actuarial methods used include:
Reported and/or Paid Loss Development Methods p. 47.
Reported Bornhuetter-Ferguson Methods p. 47.
Paid Bornhuetter-Ferguson Method p. 47.
For less mature policy years, actuaries rely on the Bornhuetter-Ferguson Method as the primary method for ultimate loss indications p. 47.
For more mature policy years, the company transitions to the Reported and/or Paid Loss Development Methodsp. 47.
The company primarily relies on reported methods when case reserving is consistently applied across policy years p. 47.
When there is a change in reserving philosophy, both reported and paid methods are blended in evaluating ultimate loss indications p. 47.
Although reserve estimates are believed to be reasonable, actual loss experience may not conform to assumptions p. 47.
Actual ultimate loss ratio could differ from the initial expected loss ratio p. 47.
Actual reporting and payment patterns could differ from expected patterns, which are based on company and industry data p. 47.
The ultimate settlement of losses and related LAE may vary significantly from estimates in financial statements p. 47.
Estimates are regularly reviewed and adjusted as necessary, with adjustments included in current operations p. 47.
Development is the amount by which estimated losses differ from those originally reported for a period p. 47.
Development is unfavorable when losses settle for more than reserved or subsequent estimates indicate reserve increases p. 47.
Development is favorable when losses settle for less than reserved or subsequent estimates indicate reserve reductions p. 47.
Favorable or unfavorable development of loss reserves is reflected in the results of operations in the period estimates are changed p. 47.
A 5% change in net IBNR would result in a $38.4 million change in reserves for losses and LAE p. 47.
A 5% change in net IBNR would result in a $30.4 million change in net income and stockholders’ equity p. 47.
Impact of a 5% change in net IBNR on reserves, income, and equity
2024
2023
($ in thousands)
Gross
% of Total
Net
% of Total
Gross
% of Total
Net
% of Total
Case reserves
567,192
31.8%
342,612
30.8%
561,474
42.7%
318,863
37.1%
IBNR
1,215,191
68.2%
768,925
69.2%
753,027
57.3%
540,154
62.9%
Total
1,782,383
100.0%
1,111,537
100.0%
1,314,501
100.0%
859,017
100.0%
Recent Accounting Pronouncements
Key facts & figures
ASU 2023-07 effective date
fiscal years beginning after December 15, 2023
ASU 2023-09 effective date
fiscal years beginning after December 15, 2024
ASU 2024-03 issued
November 2024
ASU 2023-07 (Improvements to Reportable Segment Disclosures) was issued by FASB in November 2023 p. 48.
ASU 2023-07 requires segment disclosures for: (i) significant segment expenses regularly provided to the chief operating decision maker (“CODM”), (ii) how the CODM uses reported measures of segment profitability for performance assessment and resource allocation, and (iii) the title and position of the CODM p. 48.
ASU 2023-07 mandates full segment disclosures for entities with a single reportable segment p. 48.
ASU 2023-07 became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 p. 48.
ASU 2023-07 is applied retrospectively to all prior periods presented p. 48.
Additional segment disclosures have been added as required by ASU 2023-07, with no impact on consolidated financial statements p. 48.
ASU 2023-09 (Improvements to Income Tax Disclosures) was issued by FASB in December 2023 p. 48.
ASU 2023-09 requires public companies to provide enhanced annual rate reconciliation disclosures, including specific categories and additional information meeting a quantitative threshold p. 48.
ASU 2023-09 also requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes p. 48.
ASU 2023-09 guidance is effective for fiscal years beginning after December 15, 2024 p. 48.
The amendments from ASU 2023-09 are not expected to have a material impact on consolidated financial statements p. 48.
ASU 2024-03 was issued by FASB in November 2024, requiring disaggregated disclosure of income statement expenses for public business entities (“PBEs”) p. 48.
ASU 2024-03 does not change expense captions on the income statement but requires disaggregation of certain expense captions into specified categories in footnotes p. 48.
ASU 2024-03 requires a footnote disclosure in tabular presentation for relevant income statement expense captions that include natural expenses such as: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion, and amortization from oil- and gas-producing activities or other depletion expenses p. 48.
The tabular disclosure under ASU 2024-03 would also include certain other expenses, if applicable p. 48.
ASU 2025-01 was issued by FASB in January 2025 to clarify the effective date of ASU 2024-03 as the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027 p. 48.
The effect of the amendments from ASU 2024-03 on consolidated financial statements is currently being evaluated p. 48.
Quantitative and Qualitative Disclosures About Market Risk
Qualitative and Quantitative Disclosures about Market Risk are included in Item 7 of this Form 10-K under "Investments—Market Risk" p. 49.
Financial Statements
Report of Independent Registered Public Accounting Firm
Key facts & figures
Auditor
Independent Registered Public Accounting Firm
Audit opinion
unqualified
Report date
March 1, 2024
We have audited the accompanying consolidated financial statements of Skyward Specialty Insurance Group, Inc. and its subsidiaries, which include the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”) p. 50.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Skyward Specialty Insurance Group, Inc. and its subsidiaries as of December 31, 2023 and 2022, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America p. 50.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Skyward Specialty Insurance Group, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2024, expressed an unqualified opinion thereon p. 50.
Opinion on Internal Control Over Financial Reporting
Key facts & figures
Audit opinion
unqualified
Report date
March 3, 2025
Internal control over financial reporting was audited as of December 31, 2024, based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria) p. 51.
Opinion on internal control states that Skyward Specialty Insurance Group, Inc. has not maintained effective internal control over financial reporting as of December 31, 2024, due to a material weakness p. 51.
Material weakness definition: a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis p. 51.
Identified material weakness as of December 31, 2024, relates to the ineffective implementation of information technology general controls ("ITGCs") in user access for systems supporting financial reporting processes p. 51.
Impact of material weakness: The Company’s related process-level IT dependent manual and automated controls that rely on affected ITGCs, or information from IT systems with affected ITGCs, were also deemed ineffective p. 51.
Consolidated financial statements for December 31, 2024 and 2023, and for each of the three years in the period ended December 31, 2024, were audited in accordance with PCAOB standards p. 51.
Audit of 2024 consolidated financial statements considered this material weakness in determining the nature, timing, and extent of audit tests p. 51.
Report on consolidated financial statements dated March 3, 2025, expressed an unqualified opinion and is not affected by this material weakness p. 51.
Basis for Opinion
Management is responsible for maintaining effective internal control over financial reporting and for its assessment included in the accompanying Management’s Report on Internal Control over Financial Reporting p. 52.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit p. 52.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB p. 52.
Our audit was conducted in accordance with PCAOB standards p. 52.
PCAOB standards require planning and performing the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects p. 52.
Our audit procedures included obtaining an understanding of internal control over financial reporting, assessing the risk of material weakness, testing and evaluating the design and operating effectiveness of internal control based on assessed risk, and performing other necessary procedures p. 52.
We believe our audit provides a reasonable basis for our opinion p. 52.
Definition and Limitations of Internal Control Over Financial Reporting
Key facts & figures
Auditor
Ernst & Young LLP
Auditor since
2021
Headquarters
Houston, Texas
Report date
March 3, 2025
Internal control over financial reporting is a process 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 p. 53.
Internal control over financial reporting includes policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company's assets p. 53.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are made only in accordance with management and director authorizations p. 53.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements p. 53.
Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements p. 53.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that compliance with policies or procedures may deteriorate p. 53.
Caption: Report of independent registered public accounting firm
| /s/ Ernst & Young LLP |
| --- |
| We have served as the Company’s auditor since 2021. |
| Houston, Texas |
| March 3, 2025 |
Report of Independent Registered Public Accounting Firm
Key facts & figures
Auditor
Skyward Specialty Insurance Group, Inc.
Consolidated financial statements as of
December 31, 2023 and 2022
Internal control over financial reporting as of
December 31, 2023
Report dated
February 29, 2024
Other auditors report dated
March 10, 2023
We have audited the accompanying consolidated financial statements of Skyward Specialty Insurance Group, Inc. and its subsidiaries, which include the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”) p. 54.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Skyward Specialty Insurance Group, Inc. and its subsidiaries as of December 31, 2023 and 2022, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America p. 54.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Skyward Specialty Insurance Group, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2024, expressed an unqualified opinion thereon p. 54.
The consolidated financial statements of Skyward Specialty Insurance Group, Inc. as of December 31, 2022, and for the year then ended, were audited by other auditors whose report, dated March 10, 2023, expressed an unqualified opinion on those statements p. 54.
The consolidated financial statements of Skyward Specialty Insurance Group, Inc. for the year ended December 31, 2021, were audited by other auditors whose report, dated March 10, 2023, expressed an unqualified opinion on those statements p. 54.
The audit was conducted in accordance with the standards of the PCAOB p. 54.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud p. 54.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks p. 54.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements p. 54.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements p. 54.
We believe that our audit provides a reasonable basis for our opinion p. 54.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments p. 54.
The communication of critical audit matters does not alter our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates p. 54.
Critical Audit Matter: Reserves for Losses and Loss Adjustment Expenses p. 54.
Description: As discussed in Note 2 and Note 6 to the consolidated financial statements, the Company’s consolidated balance sheets include reserves for losses and loss adjustment expenses of USD 1,069.7 million as of December 31, 2023 p. 54.
Management's Process: Management estimates these reserves using actuarial methodologies and assumptions, which involve significant judgment due to the inherent uncertainty in predicting future loss payments p. 54.
Audit Challenge: Auditing these reserves was especially challenging and subjective due to the significant judgment required in evaluating the actuarial methodologies and assumptions used by management, including the selection of actuarial methods, the selection of loss development factors, and the consideration of qualitative factors p. 54.
Audit Procedures: Our audit procedures included, among others, evaluating the design and operating effectiveness of controls over the Company’s process for estimating reserves for losses and loss adjustment expenses p. 54.
We also involved our actuarial specialists to assist in evaluating the appropriateness of management’s actuarial methodologies and assumptions, including the selection of actuarial methods, the selection of loss development factors, and the consideration of qualitative factors p. 54.
We compared management’s selected actuarial methods and assumptions to our independently developed range of reasonable estimates p. 54.
We also evaluated the historical accuracy of management’s estimates by comparing prior year estimates to actual loss development p. 54.
The engagement partner on the audit resulting in this independent auditor’s report is Michael J. O’Malley p. 54.
Ernst & Young LLP, Houston, Texas, February 29, 2024 p. 54.
Opinion on the Financial Statements
The accompanying consolidated balance sheets of Skyward Specialty Insurance Group, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023 have been audited p. 55.
The related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2024 have been audited p. 55.
The related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”) have been audited p. 55.
The consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023 p. 55.
The consolidated financial statements present fairly the results of the Company's operations and its cash flows for each of the three years in the period ended December 31, 2024 p. 55.
The financial statements are in conformity with U.S. generally accepted accounting principles p. 55.
Basis for Opinion
The Company's management is responsible for the financial statements p. 56.
The auditors' responsibility is to express an opinion on the Company's financial statements based on their audits p. 56.
The auditors are a public accounting firm registered with the PCAOB p. 56.
The auditors are required to be independent with respect to the Company in accordance with U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB p. 56.
The audits were conducted in accordance with the standards of the PCAOB p. 56.
PCAOB standards require planning and performing audits to obtain reasonable assurance that financial statements are free of material misstatement, whether due to error or fraud p. 56.
Audit procedures included assessing risks of material misstatement and responding to those risks p. 56.
Procedures involved examining, on a test basis, evidence regarding amounts and disclosures in the financial statements p. 56.
Audits also included evaluating accounting principles, significant estimates made by management, and the overall presentation of the financial statements p. 56.
The auditors believe their audits provide a reasonable basis for their opinion p. 56.
Critical Audit Matter
The critical audit matter communicated arises from the current period audit of the financial statements p. 57.
This matter was communicated or required to be communicated to the audit committee p. 57.
The matter relates to accounts or disclosures that are material to the financial statements p. 57.
The matter involved especially challenging, subjective, or complex judgments by the auditors p. 57.
The communication of the critical audit matter does not alter the auditors' opinion on the consolidated financial statements, taken as a whole p. 57.
Communicating the critical audit matter does not provide a separate opinion on the critical audit matter or on the account or disclosure to which it relates p. 57.
Valuation of Reserves for Unpaid Losses and Loss Adjustment Expenses
Key facts & figures
Reserves for unpaid losses and LAE
USD 1.8bn at December 31, 2024
Company’s reserves for unpaid losses and LAE were USD 1.8bn at December 31, 2024 p. 58.
A significant portion of these reserves represents incurred but not reported reserves (IBNR)p. 58.
Reserves for unpaid losses and LAE represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust losses incurred as of the balance sheet date p. 58.
The Company estimates these reserves using individual case-basis valuations of reported claims, statistical analyses, and various actuarial procedures p. 58.
Estimates are based on historical information, industry and peer group information, and trends in factors such as loss severity, loss frequency, and inflation p. 58.
Auditing management’s estimate of reserves for unpaid losses and LAE, including IBNR, was complex and involved actuarial specialists due to significant estimation uncertainty p. 58.
This uncertainty is associated with evaluating management’s methods and assumptions, including loss development factors, expected loss ratios, and trends applied to historical experience p. 58.
These assumptions significantly affect the valuation of IBNR reservesp. 58.
Audit procedures included evaluating the selection of actuarial methods used by management, comparing them to prior periods and industry practices p. 58.
Auditors evaluated assumptions by comparing significant assumptions (loss development factors, expected loss ratios, trends) to the Company’s historical experience and current industry benchmarks and trends p. 58.
An independent range of reserve estimates was developed and compared to management’s best estimate for unpaid losses and LAE p. 58.
A review of the development of prior year reserve estimates was also performed p. 58.
Caption: Report of independent registered public accounting firm
| /s/ Ernst & Young LLP |
| --- |
| We have served as the Company’s auditor since 2021. |
| Houston, Texas |
| March 3, 2025 |
Consolidated balance sheets
The accompanying notes are an integral part of the consolidated financial statements p. 59.
Consolidated balance sheets
December 31,
2024
2023
($ in thousands, except share and per share amounts)
Assets
Investments:
—
—
Fixed maturity securities, available-for-sale, at fair value (amortized cost of $ 1,320,266 and $ 1,047,713 , respectively)
1,292,218
1,017,651
Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 243 and $ 329 , respectively)
39,153
42,986
Equity securities, at fair value
106,254
118,249
Mortgage loans, at fair value
26,490
50,070
Equity method investments
98,594
110,653
Other long-term investments
33,182
3,852
Short-term investments, at fair value
274,929
270,226
Total investments
1,870,820
1,613,687
Cash and cash equivalents
121,603
65,891
Restricted cash
35,922
34,445
Premiums receivable, net
321,641
179,235
Reinsurance recoverables, net
857,876
596,334
Ceded unearned premium
203,901
186,121
Deferred policy acquisition costs
113,183
91,955
Deferred income taxes
30,486
21,991
Goodwill and intangible assets, net
87,348
88,435
Other assets
86,698
75,341
Total assets
3,729,478
2,953,435
Liabilities and stockholders’ equity
—
—
Reserves for losses and loss adjustment expenses
1,782,383
1,314,501
Unearned premiums
637,185
552,532
Deferred ceding commission
40,434
37,057
Reinsurance and premium payables
177,070
150,156
Funds held for others
102,665
58,588
Accounts payable and accrued liabilities
76,206
50,880
Notes payable
100,000
50,000
Subordinated debt, net of debt issuance costs
19,536
78,690
Total liabilities
2,935,479
2,292,404
Stockholders’ equity
—
—
Common stock, $ 0.01 par value, 500,000,000 shares authorized, 40,127,908 and 39,863,756 shares issued and outstanding, respectively
401
399
Additional paid-in capital
718,598
710,855
Stock notes receivable
—
( 5,562 )
Accumulated other comprehensive loss
( 22,120 )
( 22,953 )
Retained earnings (accumulated deficit)
97,120
( 21,708 )
Total stockholders’ equity
793,999
661,031
Total liabilities and stockholders’ equity
3,729,478
2,953,435
Consolidated statements of operations and comprehensive income
The accompanying notes are an integral part of the consolidated financial statements p. 60.
Consolidated statements of operations
Years Ended December 31,
($ in thousands, except share and per share amounts)
2024
2023
2022
Revenues:
—
—
—
Net earned premiums
1,056,722
829,143
615,994
Commission and fee income
6,703
6,064
5,199
Net investment income
80,686
40,322
36,931
Net investment gains (losses)
6,256
11,072
( 15,705 )
Other (loss) income
( 167 )
( 632 )
1
Total revenues
1,150,200
885,969
642,420
Losses and loss adjustment expenses
669,809
515,237
402,512
Underwriting, acquisition and insurance expenses
311,757
243,444
182,171
Interest expense
9,496
10,024
6,407
Amortization expense
2,007
1,798
1,547
Other expenses
4,392
5,364
—
Total expenses
997,461
775,867
592,637
Income before income taxes
152,739
110,102
49,783
Income tax expense
33,911
24,118
10,387
Net income
118,828
85,984
39,396
Net income attributable to participating securities
—
1,677
18,879
Net income attributable to common stockholders
118,828
84,307
20,517
Net income
118,828
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
9,792
25,516
( 48,545 )
Reclassification adjustment for (losses) gains on securities no longer held, net of tax
( 8,959 )
( 4,984 )
420
Total other comprehensive income (loss)
833
20,532
( 48,125 )
Comprehensive income (loss)
119,661
106,516
( 8,729 )
Per share data:
—
—
—
Basic earnings per share
2.97
2.34
1.24
Diluted earnings per share
2.87
2.24
1.21
Weighted-average common shares outstanding
—
—
—
Basic
40,056,475
36,031,907
16,568,393
Diluted
41,377,460
38,317,534
32,653,194
Consolidated statements of stockholders’ equity
The accompanying notes are an integral part of the consolidated financial statements p. 61.
Consolidated statements of changes in stockholders’ equity
Years Ended December 31,
($ in thousands, except share amounts)
2024
2023
2022
Preferred shares:
—
—
—
Balance at beginning of year
—
1,969,660
1,969,660
Preferred stock conversion to common shares
—
( 1,969,660 )
—
Balance at December 31
—
—
1,969,660
Balance at beginning of year
39,863,756
16,599,666
16,533,620
Issuance of shares
264,152
6,958,977
66,046
Preferred stock conversion to common shares
—
16,305,113
—
Balance at December 31
40,127,908
39,863,756
16,599,666
Balance at beginning of year
—
20
20
Balance at December 31
—
—
20
Common stock:
—
—
—
Balance at beginning of year
399
168
168
Issuance of common stock
2
22
—
Proceeds from equity offerings, net
—
48
—
Balance at December 31
401
399
168
Treasury stock:
—
—
—
Balance at beginning of year
—
( 2 )
( 2 )
Balance at December 31
—
—
( 2 )
Additional paid-in capital:
—
—
—
Balance at beginning of year
710,855
577,289
575,159
Issuance of common stock
7,743
9,213
2,130
Proceeds from equity offerings, net
—
124,496
—
Balance at December 31
718,598
710,855
577,289
Stock notes receivable:
—
—
—
Balance at beginning of year
( 5,562 )
( 6,911 )
( 9,092 )
Employee equity transactions
5,562
1,349
2,181
Balance at December 31
—
( 5,562 )
( 6,911 )
Accumulated other comprehensive loss:
—
—
—
Balance at beginning of year
( 22,953 )
( 43,485 )
4,640
Other comprehensive income (loss), net of tax
833
20,532
( 48,125 )
Balance at December 31
( 22,120 )
( 22,953 )
( 43,485 )
Retained earnings (accumulated deficit):
—
—
—
Balance at beginning of year
( 21,708 )
( 105,417 )
( 144,813 )
Cumulative effect on adoption of ASU No. 2016-13
—
( 2,275 )
—
Net income
118,828
85,984
39,396
Balance at December 31
97,120
( 21,708 )
( 105,417 )
Total stockholders’ equity
793,999
661,031
421,662
Consolidated statements of cash flows
The accompanying notes are an integral part of the consolidated financial statements p. 62.
Consolidated statements of cash flows
Years Ended December 31,
($ in thousands)
2024
2023
2022
Cash flows from operating activities
—
—
—
Net income
118,828
85,984
39,396
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
—
—
—
Net investment (gains) losses
( 6,256 )
( 11,072 )
15,705
Depreciation and amortization expense
3,358
3,891
4,097
Stock-based compensation expense
9,395
8,525
2,287
Undistributed loss (earnings) from long-term investments
( 6,338 )
6,730
( 16,032 )
Deferred income tax, net
( 8,708 )
9,383
10,267
Premiums receivable, net
( 142,406 )
( 40,020 )
( 27,057 )
Reinsurance recoverables, net
( 261,542 )
( 17,270 )
( 45,032 )
Ceded unearned premium
( 17,780 )
( 28,476 )
( 19,672 )
Deferred policy acquisition costs
( 21,228 )
( 23,017 )
( 9,482 )
Federal income taxes
4,500
( 1,892 )
—
Losses and loss adjustment expenses
467,882
172,744
162,208
Unearned premiums
84,653
110,023
79,221
Deferred ceding commission
3,377
7,208
( 651 )
Reinsurance and premium payables
26,914
36,460
( 6,223 )
Funds held for others
44,077
21,730
7,271
Accounts payable and accrued liabilities
19,177
2,285
7,583
Other, net
( 12,788 )
( 5,029 )
5,052
Net cash provided by operating activities
305,115
338,187
208,938
Purchase of fixed maturity securities, available-for-sale
( 617,606 )
( 459,672 )
( 268,781 )
Purchase of illiquid investments
( 75 )
( 1,675 )
( 4,873 )
Purchase of equity securities
( 14,077 )
( 26,009 )
( 53,548 )
Purchase of equity method investments
( 32,173 )
—
—
Purchase of intangible assets
—
( 50 )
—
Investment in direct and indirect loans
27,480
2,984
( 9,767 )
Purchase of property and equipment
( 4,224 )
( 3,108 )
( 2,325 )
Proceeds from the sales of fixed maturity securities, available-for-sale
217,468
26,626
13,964
Maturities, calls, transfers and paydowns of fixed maturity securities, available-for-sale
122,694
48,957
44,500
Maturities, calls and paydowns of fixed maturity securities held-to-maturity
6,015
11,444
—
Proceeds from the sales of equity securities
37,534
40,201
37,177
Sales of and distributions from equity method and other long-term investments
14,073
3,572
3,421
Change in short-term investments
( 4,799 )
( 149,068 )
43,120
Change in receivable/payable for securities
34
76
529
Cash provided by deposit accounting
3,962
11,913
3,202
Net cash used in investment activities
( 243,694 )
( 493,809 )
( 193,381 )
Employee share purchases
—
1,350
2,180
Repayment of stock notes receivable
5,562
—
—
Proceeds from long term borrowings
107,000
50,000
—
Payments on long term borrowings and trust preferred
( 116,794 )
( 50,000 )
—
Proceeds from initial public offering
—
129,597
—
Net cash (used in) provided by financing activities
( 4,232 )
130,947
2,180
Net increase (decrease) in cash and cash equivalents and restricted cash
57,189
( 24,675 )
17,737
Cash and cash equivalents and restricted cash at beginning of period (1)
100,336
125,011
107,274
Cash and cash equivalents and restricted cash at end of period (1)
157,525
100,336
125,011
Supplemental disclosure of cash flow information:
—
—
—
Cash paid for interest
8,573
10,667
5,761
Cash paid for federal income taxes
36,980
15,800
—
(1) The sum of cash and cash equivalents and restricted cash from the consolidated balance sheets.
A. Description of Business
Key facts & figures
Legal name
Skyward Specialty Insurance Group, Inc.
State of incorporation
Delaware
Year founded
2006
Number of insurance subsidiaries
Four
Number of non-risk bearing subsidiaries
Three
The Company is an insurance holding company, a Delaware corporation organized in 2006 p. 63.
It operates as a specialty insurance company in one segment, providing commercial property and casualty insurance coverages through its underwriting divisions p. 63.
The Company has four wholly owned insurance company subsidiaries based in the United States p. 63.
Great Midwest Insurance Company (GMIC) underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S. Department of the Treasury p. 63.
Houston Specialty Insurance Company (HSIC), a subsidiary of GMIC, underwrites insurance on a non-admitted basis p. 63.
Imperium Insurance Company (IIC), a subsidiary of HSIC, underwrites insurance on an admitted basis p. 63.
Oklahoma Specialty Insurance Company (OSIC), a subsidiary of IIC, underwrites insurance on a non-admitted basis p. 63.
The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, domiciled in the Cayman Islands p. 63.
Skyward Re assumed net reserves for certain divisions from the Company’s insurance companies related to a retroactive reinsurance contract p. 63.
Skyward Re retroceded these net reserves to a third-party reinsurer p. 63.
The Company has three non-risk bearing wholly owned subsidiaries p. 63.
Skyward Underwriters Agency, Inc. (SUA) is a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets p. 63.
Skyward Service Company provides various administrative services to the Company’s subsidiaries p. 63.
Skyward Specialty No. 1 Limited is a Lloyd’s corporate member authorized to invest in Lloyd’s syndicates p. 63.
B. Basis of Presentation
The Company's consolidated financial statements are prepared according to Generally Accepted Accounting Principles in the United States of America (GAAP) p. 64.
GAAP differs in some aspects from the principles used in reports to insurance regulatory authorities p. 64.
The consolidated financial statements include the accounts of the holding company and its subsidiaries p. 64.
All intercompany transactions and balances are eliminated during consolidation p. 64.
Preparing consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions p. 64.
These estimates and assumptions affect the amounts reported in the consolidated financial statements and accompanying notes p. 64.
The Company's actual results may differ from these estimates p. 64.
C. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and fixed maturity securities with original maturities of three months or less p. 65.
The carrying value of the Company’s cash and cash equivalents approximates fair value p. 65.
D. Restricted Cash
Restricted cash is defined as cash with a legal restriction on withdrawal or use by the consolidated group p. 66.
The carrying value of restricted cash approximates fair value p. 66.
SUA collects premiums, deducts commissions and fees, and remits the remainder to the Company's or third-party insurance companies p. 66.
SUA holds unremitted insurance premiums in a fiduciary capacity for third-party insurance companies, which is recorded as restricted cash p. 66.
The Company must maintain assets on deposit with certain states and hold cash as collateral for reinsurance balances due to state regulations p. 66.
Cash held in a depository account for others or restricted by a state is recorded as restricted cash p. 66.
E. Investments
Available for Sale fixed maturities are carried at fair value p. 67.
For available-for-sale fixed maturities in an unrealized loss position, the Company first determines intent to sell or likelihood of being required to sell before maturity or recovery of cost basis p. 67.
If either of these criteria are met, the amortized cost is written down to fair value, with losses recognized in net investment gains on the consolidated statements of operations p. 67.
If neither criterion is met, the Company determines if unrealized losses are due to credit-related factors p. 67.
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 p. 67.
The allowance for credit losses is limited to the amount by which fair value is below amortized cost p. 67.
Changes in the allowance for credit losses are recognized in net investment income on the consolidated statements of operations p. 67.
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 p. 67.
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 p. 67.
Held-to-maturity fixed maturity securities are carried at amortized cost net of an allowance for credit losses p. 67.
The allowance for credit losses for held-to-maturity securities represents the current estimate of expected credit losses p. 67.
The Company develops a historical loss rate from Moody’s multi-year cumulative loss rates for asset-backed securities p. 67.
The historical loss rate is adjusted for current conditions and reasonable and supportable forecasts p. 67.
Changes in the allowance for credit losses for held-to-maturity securities are recognized in net investment income on the consolidated statements of operations p. 67.
Equity securities consist of common stock or preferred stock p. 67.
Mutual funds, including those primarily investing in debt securities, are classified as equity securitiesp. 67.
Equity securities with a readily determinable fair value are carried on the balance sheet at fair value using quoted market prices p. 67.
Changes in the carrying value of equity securities are included in net investment (losses) gains within the consolidated statements of operations p. 67.
Mortgage loans are classified as held for investment and carried at cost adjusted for unamortized premiums, discounts, and loan fees p. 67.
Uncollectible amounts for mortgage loans are written off in the period they are determined to be uncollectible p. 67.
Interest on mortgage loans is recognized as interest receivable and included in other assets on the consolidated balance sheet p. 67.
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 p. 67.
Under the fair value option, mortgage loans are measured at fair value, and changes in unrealized gains and losses are reported in net investment (losses) gains on the consolidated statements of operations p. 67.
Interest income and amortization for mortgage loans under the fair value option continue to be recognized in net investment income on the consolidated statements of operations p. 67.
Equity method investments include investments in equity and equity securities of non-public entities and indirect investments in loans and loan collateral p. 67.
The Company has equity investments in certain limited partnerships and corporations where it has significant influence but not control p. 67.
The Company is not the primary beneficiary of variable interest entities and does not consolidate them p. 67.
The equity method is used to account for investments in unconsolidated subsidiaries p. 67.
Under the equity method, initial investment is recorded at cost and adjusted based on the proportionate share of distributions and net income or loss of the investee p. 67.
The difference between the cost of an investment and its proportionate share of the underlying equity in net assets is a component of investment income p. 67.
The Company amortizes this difference as an adjustment to its pro-rata share of equity method income over the useful life, based on the underlying asset p. 67.
For equity securities of non-public entities where the Company does not have significant influence and no readily determinable fair value, investments are carried at cost, minus impairment, and adjusted for observable price changes in orderly transactions p. 67.
Investments in indirect collateralized loans and loan collateral are held through and accounted for as an ownership interest in an unconsolidated subsidiary p. 67.
The Company’s ownership interests in unconsolidated subsidiaries include investments in partnerships, joint ventures, and special purpose investment vehicles p. 67.
The Company uses the equity method for these unconsolidated subsidiaries where it has significant influence but not control p. 67.
Other long-term investments consist of an investment in a limited partnership held at net asset value ("NAV") and other long-term investment securities p. 67.
Short-term investments primarily consist of money market funds and are carried at cost, which approximates fair value p. 67.
Net investment income includes interest, dividends, and equity in earnings (losses) of unconsolidated subsidiaries, net of investment expenses p. 67.
Interest income is recognized on the accrual basis, and dividends are recognized as earned at the ex-dividend date p. 67.
Interest income on mortgage-backed and other asset-backed securities is recognized using the effective-yield method based on estimated principal repayments p. 67.
Amortization of premium and accretion of discounts on debt securities are included in interest incomep. 67.
Net realized gains and losses on investments are recognized in net income based upon the specific identification method p. 67.
F. Reinsurance
The Company purchases prospective reinsurance for certain lines of business on a proportional, excess of loss, and facultative basis p. 68.
Proportional reinsurance requires the Company to share losses and expenses with the reinsurer in exchange for a share of premiums p. 68.
Excess of loss reinsurance shares losses, either proportionally or entirely, above a specific dollar threshold, for a negotiated cost p. 68.
Facultative reinsurance covers specific risks and/or policies on either a proportional or excess of loss basis p. 68.
Ceded unearned premium and reinsurance balances recoverable (on paid and unpaid losses and settlement expenses) are reported separately as assets p. 68.
Reinsurance does not relieve the Company of its legal liability to policyholders p. 68.
Reinsurance on unpaid losses and settlement expenses represents estimates of the portion of liabilities recoverable from reinsurers p. 68.
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 p. 68.
The Company purchases retroactive reinsurance on certain lines of business through loss portfolio transfers ("LPT") and adverse development covers p. 68.
These retroactive contracts provide indemnification for losses related to past loss events, with the reinsurer sharing losses based on dollar thresholds p. 68.
Income from retroactive reinsurance contracts is deferred and amortized into net income over the settlement period p. 68.
Losses from retroactive reinsurance contracts are charged to net income immediately p. 68.
Subsequent changes in the measurement of retroactive reinsurance contracts are accounted for using a full retrospective method p. 68.
Certain ceded reinsurance contracts that management determines do not transfer significant insurance risk are accounted for using the deposit method p. 68.
The evaluation of significant insurance risk transfer assesses both timing risk and underwriting risk p. 68.
A reinsurance contract may not transfer significant insurance risk if either underwriting risk or timing risk, or both, are not deemed transferred p. 68.
For contracts transferring only significant timing risk but not sufficient underwriting risk, a deposit asset is recorded equal to the initial cash outflow p. 68.
This deposit asset is offset by cash inflows received from reinsurers p. 68.
If cash outflows are expected to differ from cash inflows, an accretion rate is established at inception based on actuarial estimates p. 68.
The deposit accounting asset is increased/decreased to the estimated receivable amount over the contract term p. 68.
The accretion of the deposit is based on the expected rate of return implied from estimated cash inflows and outflows p. 68.
The Company periodically reassesses the estimated ultimate receivable and the related expected rate of return on the deposit asset p. 68.
The accretion of the deposit asset, including changes from estimated cash flow adjustments, is reflected as part of investment income p. 68.
Several reinsurance contracts require deposit accounting due to not transferring sufficient underwriting risk p. 68.
No reinsurance contracts required deposit accounting due to not transferring sufficient timing risk p. 68.
Reinsurance recoverables are carried net of an allowance for credit losses p. 68.
The allowance for credit losses represents the current estimate of expected credit losses p. 68.
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 p. 68.
The historical loss rate is adjusted for current conditions, reasonable and supportable forecasts, and current economic conditions p. 68.
Changes in the allowance for credit losses are recognized in underwriting, acquisition and insurance expenses on the consolidated statements of operations p. 68.
Reinsurance does not relieve the Company of its legal liability to its policyholders p. 68.
The Company continuously monitors the financial condition of its reinsurers, including reviewing their annual financial statements and insurance industry developments p. 68.
The Company analyzes credit risk of reinsurance recoverables by monitoring the financial strength rating of its reinsurers from A.M. Best p. 68.
The Company assesses the adequacy of collateral obtained where applicable p. 68.
If reinsurers fail to fulfill obligations, the Company has access to collateral from various reinsurers p. 68.
Reinsurance collateral from reinsurers was $337.0 million as of December 31, 2024, and $257.5 million as of December 31, 2023 p. 68.
Everest Reinsurance Co. and eMaxx Captives represented 18.0% and 16.8%, respectively, of the Company’s reinsurance recoverable balances at December 31, 2024 p. 68.
Everest Reinsurance Co. and eMaxx Captives represented 20.4% and 20.4%, respectively, of the Company’s reinsurance recoverable balances at December 31, 2023 p. 68.
These were the only reinsurers representing 10% or more of the Company’s reinsurance recoverable balances p. 68.
Everest Reinsurance Co.'s financial strength rating from A.M. Best was A+ at December 31, 2024 and 2023 p. 68.
eMaxx Captives was not rated by A.M. Best at December 31, 2024 and 2023 p. 68.
G. Concentration of Credit Risk
Financial instruments that could lead to concentrations of credit risk include cash and cash equivalents, restricted cash, investments, and premiums receivable, excluding reinsurance recoverables p. 69.
Cash equivalents and short-term investments consist of U.S. government securities and money market funds p. 69.
Investments are diversified across various industries and geographic regions p. 69.
The Company limits its credit exposure to any single financial institution or issuer p. 69.
The Company believes there is no significant concentration of credit risk related to cash and investments p. 69.
As of December 31, 2024 and 2023, outstanding premiums receivable are generally diversified due to a large customer base and dispersion across many lines of business and geographic regions p. 69.
Failure by distribution sources to remit premiums could lead to premium write-offs and a corresponding loss of income p. 69.
H. Deferred Policy Acquisition Costs
Policy acquisition costs include commissions and premium taxes directly related to new or renewal business production p. 70.
The Company defers policy acquisition costs and related ceding commissions p. 70.
Deferred costs are charged or credited to earnings proportionally with the premium earned over the policy's life p. 70.
A premium deficiency occurs if expected losses, loss adjustment expenses, and unamortized acquisition costs exceed related unearned premiums p. 70.
To recognize a premium deficiency, unamortized acquisition costs are first charged to expense to eliminate the deficiency p. 70.
If the premium deficiency exceeds unamortized acquisition costs, a liability is accrued for the excess p. 70.
Anticipated investment income is considered when determining premium deficiencies p. 70.
Management's analysis determined no premium deficiency existed as of December 31, 2024, and 2023 p. 70.
I. Goodwill and Intangible Assets
Goodwill and intangible assets are recorded following a business combination p. 71.
Goodwill represents the excess of the purchase price over the fair value of acquired assets and assumed liabilities p. 71.
The Company reviews its purchase price allocation for up to one year after an acquisition, allowing for adjustments within that period p. 71.
Identifiable intangible assets with a finite useful life are amortized over the period they are expected to contribute to future cash flows p. 71.
Indefinite-lived intangible assets are not amortized p. 71.
The Company annually reviews goodwill and identifiable intangible assets for recoverability in the fourth quarter, or on an interim basis if circumstances suggest a carrying amount may not be recoverable p. 71.
No goodwill impairment was recorded for the years ended December 31, 2024, and 2023, based on the Company's review p. 71.
J. Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and is included in other assets on the consolidated balance sheets p. 72.
Depreciation expense is recognized on a straight-line basis for financial statement purposes p. 72.
Depreciation periods range from three to seven years p. 72.
K. Leases
Right-of-use (ROU) assets are included in other assets on the consolidated balance sheets p. 73.
Lease liabilities are included in accounts payable and accrued liabilities on the consolidated balance sheets p. 73.
For operating leases, the Company determines if a contract contains a lease at inception p. 73.
Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments at the commencement date p. 73.
The Company uses its incremental borrowing rate to determine the present value of future payments, as it does not have the interest rate implicit in its leases p. 73.
Lease agreements may include options to extend or terminate, which are exercised at the Company's discretion p. 73.
Options are included in operating lease liabilities if it is reasonably certain they will be exercised p. 73.
Lease agreements have lease and non-lease components, which are accounted for as a single lease component p. 73.
Operating lease cost for future minimum lease payments is recognized on a straight-line basis over the lease term p. 73.
Sublease income is recognized on a straight-line basis over the sublease term p. 73.
L. Reserves for Losses and Loss Adjustment Expenses
Reserves for unpaid losses and loss adjustment expenses (LAE) represent the estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust incurred losses as of the balance sheet date p. 74.
The Company estimates reserves using individual case-basis valuations of reported claims, statistical analyses, and various actuarial procedures p. 74.
Estimates are based on historical information, industry and peer group information, and estimates of future trends in variable factors such as loss severity, loss frequency, and inflation p. 74.
Estimates are regularly reviewed and adjusted as experience develops or new information becomes known p. 74.
During the loss settlement period, estimates of liability on a claim may be refined and adjusted upward or downward p. 74.
The ultimate liability may exceed or be less than the revised estimates, leading to potential significant variations from the estimate included in financial statements p. 74.
If actual liabilities exceed recorded amounts, there will be an adverse effect p. 74.
If recorded reserves are determined to be more than adequate, it would lead to a reduction in reserves p. 74.
M. Premiums
The Company recognizes property and casualty and surety premiums on a pro-rata basis over the policy terms p. 75.
Accident and health premiums are earned as billed, based on census data p. 75.
Gross premiums written are reduced by ceded premiums from proportional, facultative, and excess of loss reinsurance costs for prospective reinsurance p. 75.
Premiums receivable include deferred premiums, which are installment payments due from insureds under policy payment terms p. 75.
Premiums receivable are carried net of an allowance for credit losses p. 75.
The allowance for credit losses represents the current estimate of expected credit losses p. 75.
The Company develops a historical loss rate using historical write-offs and aging of receivables p. 75.
This historical loss rate is adjusted for current conditions, reasonable and supportable forecasts, and the ability to cancel coverage on a policy after premium is considered past due p. 75.
Changes in the allowance for credit losses are recognized in underwriting, acquisition, and insurance expenses on the consolidated statements of operations p. 75.
Unearned premiums represent the portion of gross premiums written applicable to the unexpired terms of in-force insurance policies or reinsurance contracts p. 75.
Ceded unearned premiums represent the portion of ceded premiums written applicable to the unexpired terms of in-force insurance policies or reinsurance contracts p. 75.
These unearned premiums are calculated on a pro-rata basis over the terms of the policies for both direct and ceded amounts p. 75.
N. Commission and Fee Income
SUA commission revenue is generated from placing insurance policies on reinsurance programs via a reinsurance broker p. 76.
The transaction price for SUA commission revenue is fixed at contract inception and based on a percentage of premiums placed p. 76.
The Company recognizes 100% of the transaction price for SUA commission revenue when the performance obligation is satisfied at the point of policy placement, as there are no revenue constraints p. 76.
SUA fee income is generated from placing insurance policies with a third-party insurance company p. 76.
The single performance obligation for SUA fee income is the placement of the policy p. 76.
The transaction price for SUA fee income is variable at contract inception and based on a percentage of premium, which varies monthly due to risk factors like employee census data and worker roles p. 76.
The Company estimates its transaction price for SUA fee income over the policy's life using the expected value method and recognizes revenue at the point of policy placement p. 76.
Changes in the estimate of variable consideration for SUA fee income are recognized in the month they occur p. 76.
O. Income Taxes
Income tax expense is accrued for tax effects of transactions reported on consolidated financial statements p. 77.
Provision for income taxes includes currently due taxes plus deferred taxes from temporary differences between financial statement and income tax reporting p. 77.
Valuation allowance is established for any deferred tax asset not expected to be realized p. 77.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years temporary differences are recovered or settled p. 77.
Effect of tax rate changes on deferred tax assets and liabilities is recognized in income in the period of enactment p. 77.
Liability for uncertain tax positions is recorded if it is more likely-than-not that the position will not be sustained upon examination p. 77.
Changes in the liability for uncertain tax positions are reflected in income tax expense when a new position arises, judgment changes, the issue is settled, or the statute of limitation expires p. 77.
Potential net interest income or expense and penalties related to uncertain tax positions are recorded on the Consolidated Statements of Operations p. 77.
The Company files a consolidated federal income tax return in the United States and certain other state tax returns p. 77.
Admitted insurance subsidiaries pay premium taxes on gross written premiums in lieu of most state income or franchise taxes p. 77.
Premium tax expense is recognized within underwriting, acquisition, and insurance expense on the Consolidated Statements of Operations p. 77.
P. Fair Value of Financial Instruments
Fair value is estimated for each class of financial instrument using the framework from fair value accounting guidance p. 78.
The guidance requires maximizing observable inputs and minimizing unobservable inputs when measuring fair value p. 78.
Fair value hierarchy disclosures are based on the quality of inputs used for measurement p. 78.
The hierarchy prioritizes unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) p. 78.
The hierarchy gives the lowest priority to unobservable inputs (Level 3 measurements) p. 78.
The Company uses widely recognized, third-party pricing sources to determine the fair values of financial instruments p. 78.
The Company understands the valuation methodologies and inputs of these third-party pricing sources p. 78.
Further details on fair value disclosures are in Note 4 p. 78.
Q. Stock-Based Compensation
The estimated fair value of employee stock options and similar awards is expensed p. 79.
Compensation cost for equity instrument awards to employees is measured based on the grant-date fair value and recognized over the expected vesting service period p. 79.
Tax effects related to share-based payments are processed through net earnings p. 79.
Further discussion and disclosures regarding stock-based compensation are provided in note 18 p. 79.
The Company's Employee Stock Purchase Plan (ESPP) allows all employees to purchase common stock at a discount p. 79.
Compensation cost for the ESPP is recognized on a straight-line basis over the offering period p. 79.
R. Earnings Per Share
Basic earnings per share is calculated using the two-class method p. 80.
Undistributed earnings are allocated to participating securities based on their potential share in earnings as if all earnings for the period were distributed p. 80.
Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period p. 80.
Common shares with unsatisfied contingencies, such as vesting requirements, are excluded from basic earnings per share p. 80.
The Company’s preferred shares are considered participating securities as they participate in dividends and distributions with common stock on an as-converted basis p. 80.
Instruments awarded to employees that grant the right to purchase common stock at a fixed price are included as potential common shares, weighted for the portion of the period they were granted, if dilutive p. 80.
Common and preferred shares financed by stock notes are contingently issuable instruments, excluded from basic and diluted earnings per share if specified conditions are not met, assuming the end of the period is the end of the contingency period p. 80.
The impact of contingently issuable instruments on diluted earnings per share for the year ended December 31, 2023, was calculated using the treasury stock method and included in the reconciliation of the denominator p. 80.
All outstanding stock notes were settled during 2024, resulting in no impact on the Company’s basic and diluted earnings per share computations for the year ended December 31, 2024 p. 80.
Instruments convertible into common shares are included in diluted weighted-average common shares outstanding on an if-converted basis, using the legal conversion rate for the respective period, if dilutive p. 80.
Share-based awards to employees with only service conditions are included as potential common shares, weighted for the unvested portion of the period, if dilutive p. 80.
Share-based awards to employees with performance and service or market conditions are included as potential common shares, assuming the end of the period is the end of the contingency period, if dilutive p. 80.
When common share adjustments increase earnings per share or reduce loss per share, the effect is anti-dilutive, and diluted net earnings or net loss per share is computed excluding these common share equivalents p. 80.
S. Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280) p. 81.
ASU 2023-07 requires segment disclosures for significant segment expenses regularly provided to the chief operating decision maker ("CODM"), how the CODM uses reported measures of segment profitability, and the CODM's title and position p. 81.
Entities with a single reportable segment are required to provide full segment disclosures under ASU 2023-07 p. 81.
The guidance became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 p. 81.
This update is applied retrospectively to all prior periods presented p. 81.
The Company has added additional segment disclosures as required by ASU 2023-07, detailed in Note 12 p. 81.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) p. 81.
ASU 2023-09 requires public companies to provide enhanced rate reconciliation disclosures annually, including specific categories and additional information meeting a quantitative threshold p. 81.
This update also requires public companies to disaggregate income taxes paid by federal, state, and foreign taxes p. 81.
The guidance is effective for fiscal years beginning after December 15, 2024 p. 81.
The Company is evaluating the effect of ASU 2023-09 and does not currently expect it to have a material impact on its consolidated financial statements p. 81.
In November 2024, the FASB issued ASU 2024-03, requiring disaggregated disclosure of income statement expenses for public business entities ("PBEs") p. 81.
ASU 2024-03 does not change expense captions on the income statement but requires disaggregation of certain expense captions into specified categories in footnotes p. 81.
The ASU requires a footnote disclosure in a tabular presentation for relevant income statement expense captions that include natural expenses such as: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities or other depletion expenses p. 81.
The tabular disclosure will also include certain other expenses, when applicable p. 81.
In January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03 p. 81.
The effective date for ASU 2024-03 is the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027 p. 81.
The Company is evaluating the effect of the amendments of ASU 2024-03 on its consolidated financial statements p. 81.
2. Goodwill and Intangible Assets
The Company's indefinite-lived intangible assets include insurance licenses and trademarks p. 82.
The Company's finite-lived intangible assets relate to policy renewals, agency relationships, and non-compete/exclusivity agreements p. 82.
Finite-lived intangible assets had a weighted average useful life of approximately 15 years as of December 31, 2024 p. 82.
The Company recognized amortization expense of approximately USD 1.1m for the year ended December 31, 2024 p. 82.
Amortization expense was USD 1.5m for the years ended December 31, 2023 and 2022 p. 82.
Goodwill by segment at December 31, 2024
($ in thousands)
Accident and Health
Surety
Industry Solutions
Other
Total
Goodwill
—
—
—
—
—
Gross balance at December 31, 2023
91,577
6,781
10,204
3,879
112,441
Accumulated impairment at December 31, 2023
( 44,821 )
—
—
( 1,886 )
( 46,707 )
Net balance at December 31, 2024
46,756
6,781
10,204
1,993
65,734
Goodwill by segment at December 31, 2023
($ 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
Other intangible assets at December 31, 2024
($ in thousands)
Agent Relationships
Non-competes
Trademarks
Licenses
Total
Other Intangible Assets
—
—
—
—
—
Gross balance at December 31, 2023
24,491
1,117
999
14,019
40,626
Accumulated amortization at December 31, 2023
( 16,808 )
( 1,117 )
—
—
( 17,925 )
Amortization
( 1,087 )
—
—
—
( 1,087 )
Net balance at December 31, 2024
6,596
—
999
14,019
21,614
Other intangible assets at December 31, 2023
($ in thousands)
Agent Relationships
Non-competes
Trademarks
Licenses
Total
Other Intangible Assets
—
—
—
—
—
Gross balance at December 31, 2022
24,441
1,117
999
14,019
40,576
Accumulated amortization at December 31, 2022
( 15,547 )
( 893 )
—
—
( 16,440 )
Additions
50
—
—
—
50
Amortization
( 1,261 )
( 224 )
—
—
( 1,485 )
Net balance at December 31, 2023
7,683
—
999
14,019
22,701
Future amortization expense
($ in thousands)
Years Ending December 31,
Amount
2025
1,016
2026
553
2027
553
2028
553
2029
553
3. Investments
Expected maturities may differ from contractual maturities due to borrowers' rights to call or prepay obligations, and portfolio sales may occur prior to maturity due to changing interest rates, tax considerations, or other factors p. 83.
Fixed maturity securities, held-to-maturity, at December 31, 2024, consisted entirely of asset-backed securities without a single maturity date p. 83.
At December 31, 2024, the Company had U.S. government agencies mortgage-backed fixed maturity securities with a carrying value of approximately USD 66.2 million pledged as collateral for a loan (the "FHLB Loan") from the Federal Home Loan Bank of Dallas ("FHLB") p. 83.
The Company retains all rights regarding the pledged securities under the Advances and Security Agreement with FHLB p. 83.
At December 31, 2024, the Company had assets with fair values of approximately USD 28.0 million pledged as collateral for performance obligations under reinsurance agreements p. 83.
The pledged assets for reinsurance agreements include residential mortgage-backed securities of USD 24.3 million, short-term investments of USD 2.2 million, and cash and cash equivalents and other assets of USD 1.5 million p. 83.
The Company monitors its available-for-sale fixed maturity securities with fair values less than cost or amortized cost for impairment, which requires significant management judgment p. 83.
As of December 31, 2024, the Company had 778 lots of fixed maturity securities in an unrealized loss position p. 83.
The Company does not intend to sell these securities and is not likely to be required to sell them before maturity or recovery of cost basis p. 83.
The Company reviewed its investments at December 31, 2024, and determined no credit impairment existed in the gross unrealized holding losses p. 83.
For U.S. government securities and municipal securities, the decline in fair values was due to changes in interest rates, not credit quality, and the Company does not intend to sell them p. 83.
For corporate securities and miscellaneous, the decline in fair values was due to changes in interest rates, not credit quality, after reviewing issuers for adverse changes in financial condition, credit enhancement quality, ratings, or payment failures p. 83.
For residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities, the decline in fair values was due to changes in interest rates, not credit quality, and the Company does not intend to sell them p. 83.
At December 31, 2024 and 2023, cash and investment securities on deposit with states had carrying values of approximately USD 66.8 million and USD 65.3 million, respectively p. 83.
Fixed maturity securities at December 31, 2024
($ in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Allowance for Credit Losses
Fair Value
December 31, 2024
Fixed maturity securities, available-for-sale:
—
—
—
—
—
U.S. government securities
26,577
35
( 126 )
—
26,486
Corporate securities and miscellaneous
433,298
5,618
( 13,288 )
—
425,628
Municipal securities
89,966
116
( 5,366 )
—
84,716
Residential mortgage-backed securities
408,585
1,875
( 16,627 )
—
393,833
Commercial mortgage-backed securities
70,262
545
( 1,443 )
—
69,364
Other asset-backed securities
291,578
2,447
( 1,834 )
—
292,191
Total fixed maturity securities, available-for-sale
1,320,266
10,636
( 38,684 )
—
1,292,218
Other asset-backed securities
39,396
—
( 436 )
( 243 )
38,717
Total fixed maturity securities, held-to-maturity
39,396
—
( 436 )
( 243 )
38,717
Fixed maturity securities at December 31, 2023
($ in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Loss
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
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
Maturity distribution of fixed maturity securities
($ in thousands)
Amortized Cost
Fair Value
Due in less than one year
23,332
23,292
Due after one year through five years
279,144
273,755
Due after five years through ten years
197,373
192,929
Due after ten years
49,992
46,854
Mortgage-backed securities
478,847
463,197
Other asset-backed securities
291,578
292,191
Total
1,320,266
1,292,218
Fixed maturity securities by contractual maturity at December 31, 2024
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, 2024
Fixed maturity securities, available-for-sale:
—
—
—
—
—
—
U.S. government securities
15,938
( 34 )
2,297
( 92 )
18,235
( 126 )
Corporate securities and miscellaneous
136,888
( 2,060 )
81,232
( 11,228 )
218,120
( 13,288 )
Municipal securities
41,930
( 1,046 )
27,687
( 4,320 )
69,617
( 5,366 )
Residential mortgage-backed securities
201,407
( 3,366 )
82,496
( 13,261 )
283,903
( 16,627 )
Commercial mortgage-backed securities
9,411
( 126 )
13,178
( 1,317 )
22,589
( 1,443 )
Other asset-backed securities
75,119
( 721 )
29,851
( 1,113 )
104,970
( 1,834 )
Total fixed maturity securities, available-for-sale
480,693
( 7,353 )
236,741
( 31,331 )
717,434
( 38,684 )
Other asset-backed securities
2,144
( 2 )
36,573
( 434 )
38,717
( 436 )
Total fixed maturity securities, held-to-maturity:
2,144
( 2 )
36,573
( 434 )
38,717
( 436 )
Total
482,837
( 7,355 )
273,314
( 31,765 )
756,151
( 39,120 )
Fixed maturity securities by contractual maturity at December 31, 2023
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 )
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 )
Net realized investment gains and losses
($ in thousands)
2024
2023
2022
Gross realized gains
—
—
—
Fixed maturity securities, available-for sale
2,662
1,042
313
Equity securities
8,062
6,035
3,865
Other
127
2
36
Total
10,851
7,079
4,214
Fixed maturity securities, available-for sale
( 8,161 )
( 1,879 )
( 958 )
Equity securities
( 4,132 )
( 5,256 )
( 3,827 )
Other
( 223 )
( 2 )
( 76 )
Total
( 12,516 )
( 7,137 )
( 4,861 )
Equity securities
7,500
11,516
( 15,058 )
Mortgage loans
421
( 386 )
—
Net investment gains (losses)
6,256
11,072
( 15,705 )
Net unrealized investment gains and losses
($ in thousands)
2024
2023
2022
Fixed maturity securities, available-for sale
217,468
26,626
13,964
Equity securities
37,534
40,201
37,177
Net investment income
($ in thousands)
2024
2023
2022
Income:
—
—
—
Fixed maturity securities, available-for sale
57,574
34,703
18,481
Fixed maturity securities, held-to-maturity
4,177
4,163
5,375
Equity securities
2,720
3,418
3,579
Equity method investments
2,524
( 9,434 )
6,015
Mortgage loans
5,153
5,474
4,767
Indirect loans
( 2,400 )
( 4,155 )
4,846
Short-term investments and cash
14,851
11,392
1,498
Other
3,000
318
( 77 )
Total investment income
87,599
45,879
44,484
Investment expenses
( 6,913 )
( 5,557 )
( 7,553 )
Net investment income
80,686
40,322
36,931
Deferred income taxes
($ in thousands)
2024
2023
2022
Fixed maturity securities
1,046
25,952
( 60,918 )
Deferred income taxes
( 213 )
( 5,420 )
12,793
Total
833
20,532
( 48,125 )
4. Fair Value Measurements
The Company's financial instruments include assets and liabilities carried at fair value, and those carried at cost or amortized cost but disclosed at fair value in consolidated financial statements p. 84.
The market approach is generally applied to determine fair value, using prices and data from market transactions of identical or comparable assets and liabilities p. 84.
Fair value of investments is determined primarily using data from third-party investment managers or pricing vendors p. 84.
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 pricing services' valuations p. 84.
The Company classifies financial instruments into a three-level hierarchy p. 84.
Level 1 inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date p. 84.
Level 2 inputs are observable inputs other than Level 1 quoted prices, corroborated with market data at the measurement date p. 84.
Level 3 inputs are unobservable inputs reflecting management's best estimate of what market participants would use in pricing the asset or liability at the measurement date p. 84.
U.S. government securities, mutual funds, and common stock use unadjusted quoted prices in an active exchange, representing Level 1 inputs p. 84.
Preferred stocks, municipal securities, corporate securities, and miscellaneous use a pricing model with market-based inputs like trades in illiquid markets or active markets for similar securities, considering benchmark yields, issuer spreads, and security terms; these are Level 2 fair value inputs p. 84.
Commercial mortgage-backed securities, residential mortgage-backed securities, and other asset-backed securities use a pricing model with market-based inputs such as dealer quotes, market spreads, and yield curves, evaluating individual tranches by determining cash flows using security terms, collateral performance, credit information, benchmark yields, and estimated prepayments; these are Level 2 fair value inputs p. 84.
Fixed maturity securities, available for sale, and equity securities classified as Level 3 include corporate securities and other asset-backed securities managed by an independent asset manager and priced by an independent provider p. 84.
The independent provider estimates the value of Level 3 securities using the discount net present value of cash flows method with an unobservable discount rate p. 84.
The discount rate spread for Level 3 securities represents the risk associated with future cash flows, including inflation, opportunity cost, and the time value of money p. 84.
Mortgage loans have variable interest rates and are collateralized by real property p. 84.
The fair value of mortgage loans is determined using the income approach with observable and unobservable (Level 3) inputs p. 84.
The unobservable input for mortgage loans is the spread applied to a prime rate used to discount cash flows, representing the incremental cost of capital based on borrower's ability to pay and collateral value relative to loan balance, subject to judgment and uncertainty p. 84.
Investment in RedBird Capital Partners is included in other long-term investments p. 84.
This investment is a limited partnership that invests in Bishop Street Underwriters, LLC (MGA) p. 84.
The fair value of the investment was USD 28.2 million at December 31, 2024, determined using the net asset value p. 84.
The Company assesses the reasonableness of this fair value by reviewing audited financial statements p. 84.
The unfunded commitment related to this investment was USD 24.4 million at December 31, 2024 p. 84.
The Company may sell its interest in the investment with prior written notice and general partner approval p. 84.
This investment is measured at fair value using the net asset value per share practical expedient and is not classified in the fair value hierarchy per Accounting Standard Codification 820-10 p. 84.
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 p. 84.
The Company is required to disclose fair values of certain other financial instruments where estimation is practicable p. 84.
Estimated fair value amounts are defined as the quoted market price of a financial instrument, determined using available market information and valuation methodologies p. 84.
Considerable 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 p. 84.
Different market assumptions or estimating methodologies can affect estimated fair value amounts p. 84.
Fixed maturity securities, held-to-maturity consist of senior and junior notes with target rates of return p. 84.
As of December 31, 2024, the fair value of held-to-maturity securities was determined using the income approach with unobservable (Level 3) inputs p. 84.
Notes payable carrying value approximates estimated fair value because they accrue interest at current market rates plus a spread p. 84.
The fair value of notes payable is determined using the income approach with observable (Level 2) inputs p. 84.
Subordinated debt consists of Unsecured Subordinated Notes, due May 24, 2039, with a fixed interest rate p. 84.
The fair value of subordinated debt is determined using the income approach with observable (Level 2) inputs p. 84.
Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements p. 84.
Fair value of subordinated debt at December 31, 2024
—
December 31, 2024
High
8.00%
Low
5.70%
Weighted average
6.60%
Fair value of financial instruments
—
December 31, 2024
December 31, 2023
High
10.00%
9.50%
Low
7.00%
3.25%
Weighted average
7.93%
7.05%
Fair value hierarchy of financial instruments at December 31, 2024
December 31, 2024
($ in thousands)
Level 1
Level 2
Level 3
Total
Fixed maturity securities, available-for-sale:
—
—
—
—
U.S. government securities
26,486
—
—
26,486
Corporate securities and miscellaneous
—
354,815
70,813
425,628
Municipal securities
—
84,716
—
84,716
Residential mortgage-backed securities
—
393,833
—
393,833
Commercial mortgage-backed securities
—
69,364
—
69,364
Other asset-backed securities
—
285,084
7,107
292,191
Total fixed maturity securities, available-for-sale
26,486
1,187,812
77,920
1,292,218
Other asset-backed securities
—
—
38,717
38,717
Total fixed maturity securities, held-to-maturity
—
—
38,717
38,717
Common stocks
64,251
—
—
64,251
Preferred stocks
—
1,164
—
1,164
Mutual funds
40,839
—
—
40,839
Total equity securities
105,090
1,164
—
106,254
Mortgage loans
—
—
26,490
26,490
Short-term investments
274,929
—
—
274,929
Total
406,505
1,188,976
143,127
1,738,608
Fixed maturity securities by type
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
Other asset-backed securities
—
—
41,017
41,017
Total fixed maturity securities, held-to-maturity:
—
—
41,017
41,017
Common stocks
67,425
—
—
67,425
Preferred stocks
—
7,358
—
7,358
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
425,283
980,843
91,087
1,497,213
Fixed maturity securities and mortgage loans activity
($ in thousands)
Fixed Maturity Securities, Available-For-Sale
Mortgage Loans
Balance at December 31, 2023
—
50,070
Total gains (losses) for the period recognized in net investment gains (losses)
( 195 )
420
Issuances
—
649
Settlements
—
( 24,649 )
Purchases
77,979
—
Sales/Disposals
( 374 )
—
Total unrealized gains for the period recognized in accumulated comprehensive income (loss)
510
—
Balance at December 31, 2024
77,920
26,490
Total gains 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
—
411
Mortgage loans activity
($ in thousands)
Mortgage Loans
Balance at December 31, 2022
52,842
Total losses for the period recognized in net investment gains (losses)
( 385 )
Issuances
27,642
Settlements
( 30,029 )
Balance at December 31, 2023
50,070
Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end
( 426 )
Notes payable and subordinated debt
December 31, 2024
December 31, 2023
($ in thousands)
Carrying Value
Fair Value
Carrying Value
Fair Value
Notes payable
—
—
—
—
FHLB Loan
57,000
56,200
—
—
Revolving credit facility
43,000
43,000
50,000
50,000
Notes payable
100,000
99,200
50,000
50,000
Junior subordinated interest debentures
—
—
59,186
59,794
Unsecured subordinated notes
19,536
20,541
19,504
21,378
Subordinated debt, net of debt issuance costs
19,536
20,541
78,690
81,172
5. Mortgage Loans
The Company has invested in Separately Managed Accounts ("SMA1" and "SMA2") p. 85.
As of December 31, 2024, and December 31, 2023, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2 p. 85.
The Company's mortgage loan portfolios are primarily senior loans on real estate across the U.S. p. 85.
The loans earn interest at a fixed spread above a prime ratep. 85.
The loans mature in approximately 2 to 3 years from loan origination p. 85.
The principal amounts of the loans range between 64% to 80% of the property’s appraised value at the time the loans were made p. 85.
Uncollectible amounts on loans are determined based on consultations with the Company’s specialized investment manager and consideration of adverse situations affecting borrower repayment ability, estimated collateral value, and other relevant factors p. 85.
The Company writes off uncollectible amounts in the period they are determined to be uncollectible p. 85.
There was no write-off for uncollectible amounts during the years ended December 31, 2024, 2023, and 2022 p. 85.
As of December 31, 2024, no mortgage loans were in the process of foreclosurep. 85.
As of December 31, 2024, no mortgage loans were not producing income for the previous 12 months p. 85.
As of December 31, 2023, approximately $7.1 million of mortgage loans were in the process of foreclosurep. 85.
As of December 31, 2023, $6.8 million of mortgage loans were not producing income for the previous 12 months p. 85.
Mortgage loans by property type
($ in thousands)
December 31, 2024
December 31, 2023
Commercial
8,474
14,469
Retail
10,032
16,072
Hospitality
7,984
12,744
Industrial
—
6,785
—
26,490
50,070
Mortgage loans by property type
($ in thousands)
2024
2023
2022
Commercial
2,025
2,340
1,242
Retail
1,853
1,853
1,255
Hospitality
1,277
1,034
411
Office
—
203
385
Multi-family
—
44
909
Industrial
—
—
565
—
5,155
5,474
4,767
6. Equity Method Investments and Other
The difference between the cost of an investment and its proportionate share of underlying equity in net assets is allocated to the various assets and liabilities of the equity method investment p. 86.
The Company amortizes the difference in net assets over the useful life of a similar asset as the underlying equity method investment p. 86.
For investment in RISCOM, a similar asset is agent relationships p. 86.
The Company amortizes this difference over a 15-year useful life p. 86.
As of December 31, 2024 and 2023, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2 p. 86.
Indirect investments in collateralized loans and loan collateral
($ in thousands)
December 31, 2024
December 31, 2023
—
Carrying Value
Ownership %
Carrying Value
Ownership %
Arena Special Opportunities Fund, LP units
34,936
15.3%
41,046
16.2%
JVM Funds LLC units
17,229
10.1%
20,061
10.1%
RISCOM
5,013
20.0%
4,121
20.0%
Hudson Ventures Fund 2 LP units
4,967
2.5%
4,669
2.5%
Arena SOP LP units
1,474
10.9%
2,463
12.3%
Brewer Lane Ventures Fund II LP units
1,040
2.4%
560
2.5%
Dowling Capital Partners LP units
666
5.0%
1,708
6.2%
—
65,325
—
74,628
—
Indirect investments in collateralized loans and loan collateral
($ in thousands)
2024
2023
2022
Arena Special Opportunities Fund, LP units
2,375
( 2,880 )
3,719
RISCOM
1,492
884
1,471
Dowling Capital Partners LP units
1,463
927
502
Universa Black Swan LP units
—
( 988 )
( 3,028 )
Brewer Lane Ventures Fund II LP
( 110 )
( 78 )
—
Hudson Ventures Fund II LP units
( 153 )
170
379
Arena SOP LP units
( 989 )
( 6,271 )
3,042
JVM Funds LLC
( 1,554 )
( 1,198 )
( 70 )
—
2,524
( 9,434 )
6,015
Indirect investments in collateralized loans and loan collateral
($ in thousands)
December 31, 2024
December 31, 2023
Brewer Lane Ventures Fund II LP units
4,077
4,610
Hudson Ventures Fund 2 LP units
397
848
Dowling Capital Partners LP units
386
386
—
4,860
5,844
Investment in RISCOM
($ in thousands)
December 31, 2024
December 31, 2023
Investment in RISCOM:
—
—
Underlying equity
3,756
2,620
Difference
1,258
1,501
Recorded investment balance
5,013
4,121
Investment in JVM Funds LLC
($ in thousands)
December 31, 2024
December 31, 2023
Investment in JVM Funds LLC:
—
—
Underlying equity
16,624
19,304
Difference
605
757
Recorded investment balance
17,229
20,061
Investment in indirect loans and loan collateral
($ in thousands)
December 31, 2024
December 31, 2023
SMA1
20,296
30,816
SMA2
12,973
5,209
Investment in indirect loans and loan collateral
33,269
36,025
7. Allowance for Credit Losses
Key facts & figures
Rating agency
A.M. Best
Commuted LPT
January 31, 2025
LPT counterparty
R&Q Re (Bermuda) Ltd.
Uncollectible reinsurance recoverable balance
$13.6 million
The Company analyzes the credit risk of its reinsurance recoverables by monitoring the financial strength rating of its reinsurers from A.M. Best p. 87.
A.M. Best is a widely recognized rating agency focused exclusively on the insurance industry p. 87.
The Company assesses the financial strength rating annually and throughout the year as A.M. Best provides updates on ratings and outlooks p. 87.
The Company assesses the adequacy of credit enhancements such as reinsurance payables, letters of credit, and funds held p. 87.
The Company considers reinsurance balances to be past due when they are 90 days past due p. 87.
On January 31, 2025, the Company commuted the LPT with R&Q Re (Bermuda) Ltd. ("R&Q") related to accident years 2018 and prior p. 87.
The Company recognized an uncollectible reinsurance recoverable balance related to the LPT as a net increase of $13.6 million to the allowance for estimated uncollectible reinsurance p. 87.
This $13.6 million increase was subsequently written-off during the year ended December 31, 2024 p. 87.
Premiums receivable and allowance for uncollectible premiums
($ in thousands)
Premiums Receivable, Net
Allowance for Estimated Uncollectible Premiums
Balance at December 31, 2023
179,235
964
Current period change for estimated uncollectible premiums
—
3,235
Write-offs of uncollectible premiums receivable
—
( 1,895 )
Recoveries of amounts previously written off
—
128
Balance at December 31, 2024
321,641
2,432
Premiums receivable and allowance for uncollectible premiums
($ in thousands)
Premiums Receivable, Net
Allowance for Estimated Uncollectible Premiums
Balance at December 31, 2022
139,215
629
Cumulative effect of adoption of ASU 2016-13 at January 1, 2023
—
—
Write-offs of uncollectible premiums receivable
—
( 513 )
Recoveries of amounts previously written off
—
100
Balance at December 31, 2023
179,235
964
Reinsurance recoverables by A.M. best rating
December 31, 2024
A.M. Best Rating
Reinsurance Recoverables, Gross, Amortized Cost
Percent of Total
A- and above
837,807
97.4%
B++ to B+
6,021
0.7
Not rated
16,343
1.9
Reinsurance recoverables and allowance for uncollectible reinsurance
($ in thousands)
Reinsurance Recoverables, Net
Allowance for Estimated Uncollectible Reinsurance
Balance at December 31, 2023
596,334
2,295
Current period change for estimated uncollectible reinsurance
—
13,585
Write-offs of uncollectible reinsurance recoverables
—
( 13,585 )
Balance at December 31, 2024
857,876
2,295
Balance at
—
—
Reinsurance recoverables and allowance for uncollectible reinsurance
($ in thousands)
Reinsurance Recoverables, Net
Allowance for Estimated Uncollectible Reinsurance
Balance at December 31, 2022
581,359
—
Cumulative effect of adoption of ASU 2016-13 at January 1, 2023
—
2,295
Write-offs of uncollectible reinsurance recoverables
—
—
Balance at December 31, 2023
596,334
2,295
8. Property and Equipment
Key facts & figures
Depreciation expense
FY24: USD 2.9m
Depreciation expense was USD 2.9m for the year ended December 31, 2024 p. 88.
Depreciation expense was USD 3.2m for the year ended December 31, 2023 p. 88.
Depreciation expense was USD 3.6m for the year ended December 31, 2022 p. 88.
Property and equipment, net
(in thousands)
2024
2023
Leasehold improvements
3,056
1,892
Equipment
4,506
5,033
Software
33,972
29,189
—
41,534
36,114
Accumulated depreciation
( 29,355 )
( 27,044 )
Total
12,179
9,070
9. Leases
Key facts & figures
Lease expense
FY24: $2.1 million
Lease terms
less than 1 year to 6 years
The Company determines if a contract contains a lease at inception p. 89.
A right-of-use asset (within other assets) and lease liability (within accounts payable and accrued liabilities) are recognized based on the present value of future lease payments p. 89.
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 p. 89.
The Company's leases are primarily for office facilities and are classified as operating leases p. 89.
Lease terms range from less than 1 year to 6 years, with some including extension options p. 89.
Lease expense for the year ended December 31, 2024, was $2.1 million p. 89.
Lease expense for the year ended December 31, 2023, was $2.8 million p. 89.
Lease expense for the year ended December 31, 2022, was $2.6 million p. 89.
Operating lease information
(in thousands)
2024
2023
Operating lease right-of-use assets
3,135
4,905
Operating lease liabilities
3,213
5,228
Operating lease weighted-average remaining lease term
4.39 years
4.55 years
Operating lease weighted-average discount rate
5.01%
3.95%
Lease expense and cash outflows
(in thousands)
2024
2023
2022
Operating lease expense
1,714
2,583
2,414
Short-term lease expense
421
184
220
Total lease expense
2,135
2,767
2,634
Operating cash outflows from operating leases
2,082
2,636
2,382
Future minimum operating lease payments
(in thousands)
2024
2025
968
2026
779
2027
686
2028
651
2029
415
Thereafter
133
Total future minimum operating lease payments
3,632
Less imputed interest
( 419 )
Total operating lease liability
3,213
10. Notes Payable & Subordinated Debt
Key facts & figures
FHLB Loan principal
USD 57.0m
FHLB Loan term
4.5-year
FHLB Loan interest rate
4.00%
Revolving Credit Facility amount
USD 150.0m
Revolving Credit Facility letter of credit sub-facility
USD 30.0m
Revolving Credit Facility interest rate
SOFR plus 150 to 190 bps
Revolving Credit Facility SOFR
Dec 31, 2024: 4.25%
The FHLB Loan was entered into on August 30, 2024, under the Advances and Security Agreement p. 90.
The FHLB Loan is a 4.5-year term loan with a principal amount of USD 57.0m p. 90.
The FHLB Loan requires interest-only payments during its term, with principal due at maturity p. 90.
The FHLB Loan has a fixed interest rate of 4.00% over its term p. 90.
The FHLB Loan is fully secured by a pledge of specific investment securities of HSIC p. 90.
Proceeds from the FHLB Loan were used to fund redemptions of draws on the Revolving Credit Facility p. 90.
The Company entered into an agreement for a new unsecured Revolving Credit Facility with a syndicate of participating banks in Q1 2023 p. 90.
The Revolving Credit Facility provides up to a USD 150.0m revolving credit facility and a letter of credit sub-facility of up to USD 30.0m p. 90.
As of December 31, 2023, the Company drew USD 50.0m on the Revolving Credit Facilityp. 90.
In Q1 2024, the Company drew an additional USD 50.0m on the Revolving Credit Facility to pay off the principal on its existing Debentures p. 90.
On September 6, 2024, the Company redeemed USD 57.0m of the draws on the Revolving Credit Facilityp. 90.
Interest on the Revolving Credit Facility is payable quarterly p. 90.
The Revolving Credit Facility interest rate is SOFR plus a margin of 150 to 190 bps, based on the debt to total capital ratio, and a credit spread adjustment of 10 bps p. 90.
At December 31, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25%, plus a margin of 1.60% p. 90.
The Company is subject to covenants on the Revolving Credit Facility including minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating, and minimum liquidity p. 90.
As of December 31, 2024, the Company was in compliance with all Revolving Credit Facility covenants p. 90.
In May 2019, the Company issued unsecured subordinated notes (the "Notes") with an aggregate principal amount of USD 20.0m p. 90.
Interest on the Notes is fixed at 7.25% for the first 8 years and 8.25% thereafter p. 90.
Early retirement of the Notes before the 8-year commitment requires all interest payments to be paid in full, plus the return of outstanding principal p. 90.
Principal on the Notes is due at maturity on May 24, 2039, with interest payable quarterly p. 90.
The Notes have junior priority to all previously issued debt p. 90.
The Company reports debt related to the Notes net of debt issuance costs of approximately USD 0.5m in its December 31, 2024 and 2023 consolidated balance sheets p. 90.
These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt p. 90.
In August 2006, the Company received USD 58.0m in proceeds from a debenture offering through Delos Capital Trust (the "Trust") p. 90.
The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Debentures") with a principal amount of USD 59.8m issued by the Company p. 90.
The Trust also holds cash of USD 1.8m from the issuance of Trust common shares purchased by the Company, equal to 3% of the Trust capitalization p. 90.
On March 15, 2024, the Company redeemed the Debentures and paid USD 1.4m of accrued interest p. 90.
11. Stockholders Equity
Key facts & figures
Reverse stock split
4-for-1
IPO shares offered
4,750,000
IPO price per share
$15.00
IPO net proceeds
$62.0 million
Authorized common stock shares
500,000,000
Authorized preferred stock shares
10,000,000
Preferred Shares converted
1,969,660
Common stock from conversion
16,305,113
Follow-on shares sold
2,150,000
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 p. 91.
The reverse stock split became effective on January 3, 2023 p. 91.
All share and per share information in the consolidated financial statements and notes have been retroactively adjusted for all periods presented to reflect the reverse stock split p. 91.
Initial Public Offering (IPO): The Company completed its IPO on January 18, 2023 p. 91.
IPO shares offered: 4,750,000 shares were offered by the Company at a price of $15.00 per share p. 91.
IPO net proceeds: Approximately $62.0 million, after deducting underwriting discounts and specific incremental expenses p. 91.
Upon IPO closing, the Company filed an amended and restated certificate of incorporation p. 91.
Authorized shares increased: 500,000,000 shares of common stock (par value $0.01 per share) and 10,000,000 shares of preferred stock (par value $0.01 per share) p. 91.
Preferred Shares Conversion: Preferred Shares had liquidation preference over common stock at a face value of $50.00 per share, plus declared but unpaid dividends p. 91.
Holders had the option to convert Preferred Shares into common stock based on the Option Conversion Rate p. 91.
Preferred Shares were subject to mandatory conversion upon IPO closing at the Mandatory Conversion Rate p. 91.
As of December 31, 2022, the Mandatory Conversion Rate allowed conversion at $6.04 per common share p. 91.
On January 18, 2023, 1,969,660 Preferred Shares converted to 16,305,113 shares of common stock upon IPO closing p. 91.
Follow-On Offering: The Company completed a follow-on offering on November 20, 2023 p. 91.
Follow-on shares sold: 2,150,000 shares were sold by the Company at a price of $30.50 per share p. 91.
Follow-on net proceeds: Approximately $62.5 million, after deducting underwriting discounts and specific incremental expenses p. 91.
12. Segment
Key facts & figures
Number of segments
one
Reportable segments
commercial property and casualty
Geographic regions
United States
Segment basis
internal financial information reviewed by CODM
Segment profit measure
gross written premiums, underwriting income, income before income taxes
The Company operates with one reportable segment, offering commercial property and casualty products and solutions primarily in the United States on both non-admitted (E&S) and admitted bases p. 92.
This segment comprises eight distinct underwriting divisions, referred to as "continuing business," each with dedicated underwriting leadership and technical staff p. 92.
The segment definition is based on how internal financial information is reviewed by the Chief Operating Decision Maker (CODM) for performance analysis, decision-making, and resource allocation p. 92.
The Company's CODM is the chief executive officer p. 92.
The accounting policies for the segment align with those described in Note 1 "Summary of Significant Accounting Policies" of this Form 10-K p. 92.
The CODM evaluates segment performance and allocates resources using gross written premiums by net underwriting division, underwriting income, and income before income taxes (which is also reported as consolidated income before income taxes on the consolidated statements of operations) p. 92.
Segment assets are measured as total consolidated assets on the balance sheet p. 92.
Gross written premiums by underwriting division, net underwriting income, and consolidated net income are used to monitor budget versus actual results p. 92.
The CODM also utilizes net underwriting income, return on equity, and growth in book value per share for competitive analysis by benchmarking against competitors p. 92.
The competitive analysis and monitoring of budgeted versus actual results are factors in assessing segment performance and determining management's compensation p. 92.
Segment information
Years Ended December 31,
($ in thousands)
2024
2023
2022
Industry Solutions
317,198
305,476
267,628
Global Property & Agriculture
311,402
273,191
205,081
Captives
241,902
167,624
124,286
Programs
218,407
178,726
163,653
Accident & Health
173,073
151,701
130,808
Transactional E&S
169,053
122,508
75,098
Professional Lines
159,785
154,565
93,011
Surety
152,429
106,056
79,062
Total continuing business
1,743,249
1,459,847
1,138,627
Exited business
( 17 )
( 18 )
5,325
Total gross written premiums
1,743,232
1,459,829
1,143,952
Underwriting income and expenses
($ in thousands)
2024
2023
2022
Underwriting income
Revenues:
—
—
—
Net earned premiums
1,056,722
829,143
615,994
Commission and fee income
6,703
6,064
5,199
Total underwriting revenues
1,063,425
835,207
621,193
Losses and LAE
669,809
515,237
402,512
Amortization of policy acquisition costs
149,975
108,514
65,695
Other operating and general expenses
161,782
134,930
116,476
Total underwriting expenses
981,566
758,681
584,683
Net underwriting income
81,859
76,526
36,510
Reconciliation of net underwriting income to net income:
—
—
—
Net underwriting income
81,859
76,526
36,510
Add:
—
—
—
Net investment income
80,686
40,322
36,931
Net investment gains (losses)
6,256
11,072
( 15,705 )
Other (loss) income
( 167 )
( 632 )
1
Interest expense
9,496
10,024
6,407
Amortization expense
2,007
1,798
1,547
Other expenses
4,392
5,364
—
Income before income taxes
152,739
110,102
49,783
Income tax expense
33,911
24,118
10,387
Net income
118,828
85,984
39,396
Return on equity and book value per share
—
2024
2023
2022
Return on equity
16.3%
15.9%
9.3%
Book value per share
19.79
16.72
25.82
13. Income Taxes
Key facts & figures
Federal statutory income tax rate
21%
Federal income taxes paid
FY24: USD 37.0 million
Federal net operating loss carryforwards
USD 44.7 million
Net operating losses expiration
beginning in 2032
Sec 382 limitation
USD 2.8 million
Capital loss carryforward deferred tax asset
Dec 31, 2024: USD 1.7 million
The Company's provision for income taxes generally does not deviate substantially from the statutory tax rate p. 93.
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 p. 93.
The federal statutory income tax rate is 21% p. 93.
The Company paid federal income taxes of USD 37.0 million during the year ended December 31, 2024 p. 93.
The Company's federal income tax returns for tax years 2021 to 2023 are subject to examination by the Internal Revenue Service p. 93.
The Company has no current U.S. federal or state and local income tax examinations ongoing p. 93.
At December 31, 2024, the Company carried no balance for uncertain tax positionsp. 93.
The Company had no accrual for the payment of interest and penalties at December 31, 2024 or 2023 p. 93.
The Company has federal net operating loss carryforwards of approximately USD 44.7 million p. 93.
These net operating losses are set to expire beginning in 2032 p. 93.
The Company is limited on the utilization of USD 44.7 million of net operating losses under Internal Revenue Code Section 382 ("Sec 382") due to an "ownership change" in 2014 p. 93.
The Sec 382 limitation is expected to result in an expiration of USD 2.8 million (USD 0.6 million tax effected) of net operating losses p. 93.
A valuation allowance was established against the balance of net operating losses expected to expire without utilization p. 93.
The Company generated a capital loss carryforward in 2022, resulting in a deferred tax asset of USD 1.7 million as of December 31, 2024 p. 93.
No valuation allowance is recorded against this deferred tax asset as the Company expects to utilize this carryforward before it expires in 2027 p. 93.
The Company provides a valuation allowance against deferred tax assets when it is more likely-than-not that some portion, or all, will not be realized p. 93.
The Company's deferred tax valuation allowance at December 31, 2024 and 2023 was USD 0.6 million p. 93.
Income tax expense
($ in thousands)
2024
2023
2022
Current income tax expense
42,626
14,736
120
Deferred tax (benefit) expense related to temporary differences
( 8,715 )
9,382
10,267
Total income tax expense
33,911
24,118
10,387
Reconciliation of income tax expense
2024
2023
2022
($ in thousands)
Amount
Percentage
Amount
Percentage
Amount
Percentage
Income tax expense at federal statutory rate
32,075
21.0%
23,121
21.0%
10,454
21.0%
Tax advantaged investments
( 239 )
( 0.2 )
( 295 )
( 0.3 )
( 324 )
( 0.7 )
Other
2,075
1.4
1,292
1.2
257
0.6
Total income tax expense
33,911
22.2%
24,118
21.9%
10,387
20.9%
Deferred tax assets
($ in thousands)
2024
2023
Deferred tax assets:
—
—
Unearned premiums
18,178
15,365
Losses and loss adjustment expenses
16,967
11,581
Net operating losses
9,389
10,655
Unrealized losses on fixed maturity securities, available-for-sale
5,893
6,113
Stock options/awards
2,453
1,714
Other
6,067
4,237
Total deferred tax assets
58,947
49,665
Less valuation allowance
( 586 )
( 586 )
Total deferred tax assets after valuation allowance
58,361
49,079
Deferred policy acquisition costs
15,277
11,528
Unrealized gains on equity securities
4,818
3,243
Other long-term investments
2,625
6,460
Depreciation
1,426
1,260
Section 481(a) adjustment
1,391
3,477
Other
2,338
1,120
Total deferred tax liabilities
27,875
27,088
Deferred income taxes
30,486
21,991
14. Reserves for Losses and Loss Adjustment Expenses
The Company evaluates net ultimate loss and LAE under three sub-categories: multi-line solutions, short-tail/monoline specialty lines, and exited lines p. 94.
These disaggregated groupings have more homogeneous risk characteristics with similar development patterns and are generally subject to similar trends p. 94.
Short-tail/monoline specialty lines include global property & agriculture, accident & health, surety, and professional lines underwriting divisions p. 94.
These lines generally have shorter durations for losses to fully develop, with claims typically reported, settled, and paid within a relatively short timeframe p. 94.
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 p. 94.
Multi-line solutions include industry solutions, programs, captives, and transactional E&S underwriting divisions p. 94.
This subcategory provides multiple products, most frequently as an integrated solution, and is predominantly made up of occurrence liability, including general liability, excess liability, and commercial auto p. 94.
Multi-line solutions have a longer duration for losses to fully develop compared to short-tail/monoline specialty lines p. 94.
The unique claim characteristics and longer-tail nature of multi-line solutions introduce more uncertainty, as claims can be impacted by changes in regulation, inflation, and other unforeseen factors over time p. 94.
Exited lines include all underwriting units placed in run-off and are presented separately from ongoing lines of business p. 94.
In 2024, the Company transitioned from evaluating reserves on a policy year basis to an accident year basis p. 94.
This transition results in earlier recognition of underlying claim trends, better alignment of exposure to risks, and adherence to commonly used industry best practices p. 94.
In prior years, the Company's methodology allocated IBNR from its policy year analysis to accident year p. 94.
As a result of transitioning to accident year, IBNR within short-tail/monoline specialty lines, multi-line solutions, and exited lines was reallocated for the years ended December 31, 2023, 2022, 2021, and 2020 p. 94.
Certain amounts have been conformed to the current year presentation due to the reallocation p. 94.
For the year ended December 31, 2024, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $25.7 million p. 94.
This adverse development was primarily related to losses previously subject to the LPT from accident years 2018 and prior p. 94.
Of the 2024 adverse development, $10.1 million was in multi-line solutions and $15.2 million was in exited lines p. 94.
For the year ended December 31, 2023, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $10.8 million p. 94.
Adverse development of $11.7 million in multi-line solutions was driven by greater than expected severity in auto, general, and excess liability lines of business, primarily from accident years 2020 to 2022 p. 94.
This adverse development was partially offset by favorable development in short-tail/monoline specialty lines p. 94.
The favorable development in short-tail/monoline specialty lines was in the property line of business, primarily from accident years 2021 and 2022 p. 94.
During the year ended December 31, 2022, the Company’s net incurred losses for accident years 2021 and prior developed adversely by $33.8 million p. 94.
Adverse development of $20.2 million in exited lines was due to losses previously subject to the LPT from accident years 2018 and prior, and increased frequency and severity in general and professional liability lines from accident years 2019 through 2021 p. 94.
Adverse development of $13.0 million in multi-line solutions was driven by an increase in the frequency and severity of claims in commercial auto and general liability from accident years 2018 through 2021 p. 94.
Loss and LAE reserve development
($ in thousands)
2024
2023
2022
Reserves for losses and LAE, beginning of period
1,314,501
1,141,757
979,549
Less: reinsurance recoverable on unpaid claims, beginning of period
( 455,484 )
( 435,986 )
( 381,338 )
Reserves for losses and LAE, beginning of period, net of reinsurance
859,017
705,771
598,211
Incurred, net of reinsurance, related to:
—
—
—
Current period
657,783
505,894
374,475
Prior years
25,728
10,770
33,849
Total incurred, net of reinsurance
683,511
516,664
408,324
Paid, net of reinsurance, related to:
—
—
—
Current period
136,731
109,937
105,928
Prior years
294,260
253,481
194,836
Total paid
430,991
363,418
300,764
Net reserves for losses and LAE, end of period
1,111,537
859,017
705,771
Plus: reinsurance recoverable on unpaid claims, end of period
670,846
455,484
435,986
Reserves for losses and LAE, end of period
1,782,383
1,314,501
1,141,757
Short Duration Contract Disclosures
Losses and LAE reserves represent the Company's best estimate of the ultimate net cost of all reported and unreported losses that are unpaid as of the balance sheet dates p. 95.
Estimated reserves for losses and LAE include accumulated estimates for claims reported and unpaid, projected increases in claims costs for reported claims, claims incurred but not reported, and estimated expenses for investigating and adjusting all incurred and unpaid claims p. 95.
Cumulative reported claims are measured by incident p. 95.
Claim counts include all reported claims, even if no liability is established for them (i.e., no reserve for loss and loss adjustment expenses) p. 95.
Incurred losses and ALAE, net of reinsurance
($ in thousands except number of claims)
Incurred Losses and Allocated Loss Adjustment Expense (“ALAE”), Net of Reinsurance
As of December 31, 2024
Years Ended December 31,
Reported Claims
Accident Year
2020*
2021*
2022*
2023*
2024
IBNR
Reported Claims
2020
56,141
55,324
55,420
55,305
55,305
1,147
1,311
2021
—
92,780
93,429
92,143
92,134
6,536
1,627
2022
—
—
108,299
105,394
104,095
15,316
2,383
2023
—
—
—
190,565
191,865
68,001
4,880
2024
—
—
—
—
280,147
161,230
4,502
Total
—
—
—
—
723,546
—
—
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
( 359,673 )
—
—
Net reserves for loss and ALAE before 2020
Net reserves for loss and ALAE before 2020
Net reserves for loss and ALAE before 2020
Net reserves for loss and ALAE before 2020
Net reserves for loss and ALAE before 2020
3,353
—
—
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
367,226
—
—
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
Cumulative paid losses and ALAE, net of reinsurance
($ in thousands)
Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
Years Ended December 31,
Accident Year
2020*
2021*
2022*
2023*
2024
2020
14,002
35,479
40,000
43,737
49,688
2021
—
18,447
56,803
67,912
78,439
2022
—
—
27,773
64,594
77,150
2023
—
—
—
33,795
100,705
2024
—
—
—
—
53,691
Total
—
—
—
—
359,673
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
Incurred losses and ALAE, net of reinsurance
($ in thousands except number of claims)
Incurred Losses and ALAE, Net of Reinsurance ($ in thousands)
As of December 31, 2024
Accident Year
Years Ended December 31,
Reported Claims
Accident Year
2015*
2016*
2017*
2018*
2019*
2020*
2021*
2022*
2023*
2024
IBNR
Reported Claims
2015
103,191
114,266
117,024
117,024
119,216
114,863
115,863
116,413
116,413
117,955
( 834 )
5,386
2016
—
63,223
62,843
62,843
62,643
84,579
84,579
84,829
84,829
85,434
1,276
4,739
2017
—
—
65,332
65,332
64,260
78,166
78,166
78,766
78,766
80,493
2,105
5,588
2018
—
—
—
74,476
74,476
69,319
71,719
73,019
73,019
75,686
4,856
5,104
2019
—
—
—
—
107,432
109,226
112,378
115,530
116,230
116,206
3,918
6,119
2020
—
—
—
—
—
113,030
124,076
128,111
132,495
132,125
4,716
5,539
2021
—
—
—
—
—
—
156,067
158,891
160,331
160,546
16,119
6,702
2022
—
—
—
—
—
—
—
236,909
242,097
242,358
33,477
8,562
2023
—
—
—
—
—
—
—
—
306,511
306,511
132,772
8,180
2024
—
—
—
—
—
—
—
—
—
353,933
246,281
6,557
Total
—
—
—
—
—
—
—
—
—
1,671,247
—
—
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
( 1,038,650 )
—
—
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
( 1,532 )
—
—
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
631,065
—
—
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
Cumulative paid losses and ALAE, net of reinsurance
($ in thousands)
Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
Years Ended December 31,
Accident Year
2015*
2016*
2017*
2018*
2019*
2020*
2021*
2022*
2023*
2024
2015
44,152
72,137
88,833
99,401
108,291
107,214
109,622
109,706
113,703
115,116
2016
—
23,239
42,528
53,352
58,895
69,691
72,544
75,855
77,160
77,760
2017
—
—
23,770
41,945
53,093
61,354
67,926
71,109
73,770
75,714
2018
—
—
—
26,201
42,568
47,226
58,655
65,635
69,893
70,128
2019
—
—
—
—
33,019
50,933
71,053
87,816
99,451
106,765
2020
—
—
—
—
—
29,499
60,680
82,236
105,283
121,097
2021
—
—
—
—
—
—
37,118
73,293
102,772
125,749
2022
—
—
—
—
—
—
—
50,148
114,794
165,854
2023
—
—
—
—
—
—
—
—
63,079
122,186
2024
—
—
—
—
—
—
—
—
—
58,281
Total
—
—
—
—
—
—
—
—
—
1,038,650
*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
Key facts & figures
Balance sheet reserves for losses and loss adjustment expenses
December 31, 2024 and 2023
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, 2024 and 2023 p. 96.
The following table shows the historical average annual payout of incurred losses and allocated loss adjustment expenses (claims duration) for short-duration contracts p. 96.
The payout information is based on disaggregated data from paid loss development tables, net of reinsurance p. 96.
Historical average annual payout of incurred losses and ALAE
($ in thousands except number of claims)
Incurred Losses and ALAE, Net of Reinsurance ($ in thousands)
As of December 31, 2024
Years Ended December 31,
Reported Claims
Accident Year
2015*
2016*
2017*
2018*
2019*
2020*
2021*
2022*
2023*
2024
IBNR
Reported Claims
2015
61,810
65,063
68,008
70,803
75,187
79,853
79,853
80,603
80,603
82,092
1,145
4,581
2016
—
93,019
92,996
91,372
93,577
97,301
98,301
100,651
100,651
102,801
959
4,893
2017
—
—
75,159
79,581
81,785
65,735
68,346
68,646
68,646
70,885
1,598
4,339
2018
—
—
—
74,357
68,990
76,506
79,006
84,165
84,165
92,082
5,586
4,910
2019
—
—
—
—
87,115
73,635
77,770
79,414
79,572
79,823
5,786
5,632
2020
—
—
—
—
—
132,248
136,469
137,835
137,907
137,671
11,424
4,828
2021
—
—
—
—
—
—
83,322
91,188
91,323
92,095
10,923
2,398
2022
—
—
—
—
—
—
—
12,717
12,240
11,800
902
234
2023
—
—
—
—
—
—
—
—
—
—
—
1
2024
—
—
—
—
—
—
—
—
—
—
—
—
Total
—
—
—
—
—
—
—
—
—
669,249
—
—
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
Cumulative net paid loss and ALAE from the table below
( 597,904 )
—
—
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
Net reserves for loss and ALAE before 2015
15,344
—
—
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
Total net reserves for loss and ALAE
86,689
—
—
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
Cumulative paid losses and ALAE, net of reinsurance
($ in thousands)
Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)
Years Ended December 31,
Accident Year
2015*
2016*
2017*
2018*
2019*
2020*
2021*
2022*
2023*
2024
2015
9,026
41,653
55,610
65,269
73,100
78,249
80,077
80,923
82,188
83,290
2016
—
36,592
57,638
70,253
78,070
81,181
87,482
91,556
95,114
97,462
2017
—
—
34,176
52,103
51,985
50,545
57,457
62,924
66,498
68,480
2018
—
—
—
25,553
60,149
39,870
54,339
67,001
74,604
79,860
2019
—
—
—
—
28,636
28,954
30,948
45,696
57,341
65,847
2020
—
—
—
—
—
102,725
98,202
102,132
114,543
120,831
2021
—
—
—
—
—
—
41,540
57,820
66,012
72,923
2022
—
—
—
—
—
—
—
2,155
4,077
9,211
2023
—
—
—
—
—
—
—
—
—
—
2024
—
—
—
—
—
—
—
—
—
—
Total
—
—
—
—
—
—
—
—
—
597,904
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
*Supplementary information and unaudited
Net reserves for losses and ALAE
($ in thousands)
2024
2023
Net reserves for losses and ALAE:
—
—
Short-tail/Monoline Specialty Lines
367,226
235,191
Multi-line Solutions
631,065
485,099
Exited Lines
86,689
112,607
Reserves for losses and ALAE, net of reinsurance
1,084,980
832,897
Reinsurance recoverable on unpaid claims:
—
—
Short-tail/Monoline Specialty Lines
275,204
199,044
Multi-line Solutions
380,344
252,146
Exited Lines
15,298
4,294
Total reinsurance recoverable on unpaid claims
670,846
455,484
Unallocated LAE
26,557
26,120
Reserves for losses and LAE at end of year
1,782,383
1,314,501
Average annual percentage payout of incurred claims by age
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 Lines
21.8%
37.7%
10.8%
9.1%
10.8%
N/A
N/A
N/A
N/A
N/A
Multi-line Solutions
26.0%
22.0%
15.0%
12.4%
9.9%
3.7%
2.4%
1.3%
2.0%
1.2%
Exited Lines
29.6%
17.1%
8.1%
9.7%
9.2%
7.8%
4.2%
2.4%
1.9%
1.3%
*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
Key facts & figures
Subsidiary
Skyward Underwriters Agency, Inc. (SUA)
Skyward Underwriters Agency, Inc. (SUA) is a subsidiary of the Company p. 97.
SUA functions as a managing general insurance agent and reinsurance broker p. 97.
SUA specializes in property and casualty and accident and health risks within specialty niche markets p. 97.
Commission and fee income is primarily generated by SUA through the placement of insurance policies p. 97.
These policies are placed with either a third-party insurance or reinsurance company p. 97.
Commission and fee income
($ in thousands)
2024
2023
2022
SUA commission revenue
3,595
2,864
3,224
SUA fee income
2,928
2,732
1,597
Other
180
468
378
Total commission and fee income
6,703
6,064
5,199
Contract assets
($ in thousands)
Contract Assets
Balance at December 31, 2022
1,292
Balance at December 31, 2023
976
Balance at December 31, 2024
1,416
16. Underwriting, Acquisition and Insurance Expenses
Underwriting, acquisition and insurance expenses components are presented for the years ended December 31, 2024, 2023, and 2022 p. 98.
Underwriting, acquisition and insurance expenses
($ in thousands)
2024
2023
2022
Amortization of policy acquisition costs
149,975
108,514
65,695
Other operating and general expenses
161,782
134,930
116,476
Total underwriting, acquisition and insurance expenses
311,757
243,444
182,171
17. Reinsurance
Key facts & figures
Market value of funded trust accounts
USD 196.9 million at December 31, 2024
LPT retroactive reinsurance agreement
R&Q during the first quarter of 2020
Reinsurance recoverable from R&Q
USD 22.7 million at December 31, 2024
LPT commuted
January 31, 2025
Deposit asset for certain ceded reinsurance contracts
USD 25.9 million at December 31, 2024
Reinsurance agreements provide the Company with increased capacity to write larger risks and maintain loss exposure within capital resources p. 99.
The Company remains obligated for amounts ceded if reinsurers fail to meet their obligations p. 99.
Market value of funded trust accounts with the Company as sole beneficiary was approximately USD 196.9 million at December 31, 2024 p. 99.
These trust accounts provide additional security for collecting claim recoverables under reinsurance contracts p. 99.
The Company does not carry these trust accounts on the balance sheet, as it only has custody upon reinsurer failure to pay p. 99.
The trust amount is adjusted periodically by mutual agreement based on claim payments and loss reserve recoverables p. 99.
The Company entered into an LPT retroactive reinsurance agreement with R&Q during the first quarter of 2020 p. 99.
Reinsurance recoverable from R&Q was USD 22.7 million at December 31, 2024, and USD 20.9 million at December 31, 2023 p. 99.
The LPT was commuted effective January 31, 2025, and the Company received the reinsurance recoverable balance in full p. 99.
Deposit asset for certain ceded reinsurance contracts was USD 25.9 million at December 31, 2024, and USD 29.9 million at December 31, 2023 p. 99.
This deposit asset is included in other assets on the consolidated balance sheets p. 99.
Premiums and ceded losses and LAE incurred
2024
2023
2022
($ in thousands)
Written
Earned
Written
Earned
Written
Earned
Direct premiums
1,458,637
1,375,917
1,241,180
1,155,835
1,012,239
951,121
Assumed premiums
284,595
282,662
218,649
193,971
131,713
113,610
Ceded premiums
( 619,654 )
( 601,857 )
( 549,138 )
( 520,663 )
( 468,409 )
( 448,737 )
Net premiums
1,123,578
1,056,722
910,691
829,143
675,543
615,994
Ceded losses and LAE incurred
—
534,295
—
337,011
—
311,257
Ceded unpaid losses and LAE
($ in thousands)
2024
2023
Ceded unpaid losses and LAE
670,846
455,484
Ceded paid losses and LAE
166,663
122,287
Loss portfolio transfer
22,662
20,858
Allowance for credit losses
( 2,295 )
( 2,295 )
Reinsurance recoverables
857,876
596,334
Ceded unearned premium
203,901
186,121
18. Stock Based Compensation
Key facts & figures
Plan
2022 Long-Term Incentive Plan
Shares available for issuance
3,200,656
Deferral program approval
November 2024
Grant date fair value of options
Black-Scholes model
Stock options granted to employees
USD 4.4 million
Aggregate intrinsic value of options outstanding
USD 27.0 million at December 31, 2024
Weighted-average remaining contractual life of options outstanding
8.0 years at December 31, 2024
The 2022 Long-Term Incentive Plan (the "2022 Plan") was approved by the Compensation Committee on September 23, 2022, and became effective on January 12, 2023 p. 100.
The 2022 Plan replaced the Company's prior Long Term Incentive Plan (the "2020 Plan") p. 100.
The 2022 Plan allows for granting restricted stock, restricted stock units, performance stock units, stock options, and cash-based performance awards to select employees and non-employee directors p. 100.
3,200,656 shares of common stock were available for issuance under the 2022 Plan p. 100.
In November 2024, the Compensation Committee approved a program for the Board of Directors to defer receipt of annual restricted stock unit awards to the fifth anniversary of the grant date, the tenth anniversary of the grant date, or the date of separation of service p. 100.
This deferral program will be available for Directors who opt in for their 2025 grant p. 100.
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 less the weighted average service period p. 100.
Volatility for option valuation was based on historical volatility of comparable publicly traded insurance companies p. 100.
Stock options granted to employees during the year ended December 31, 2023, were valued at approximately USD 4.4 million based on grant date fair value p. 100.
The aggregate intrinsic value of options outstanding at December 31, 2024, was USD 27.0 million, and at December 31, 2023, was USD 14.3 million p. 100.
The weighted-average remaining contractual life of options outstanding at December 31, 2024, was 8.0 years p. 100.
The fair value of restricted stock and restricted stock units granted at the time of the Company's IPO under the 2022 Plan was the IPO price of USD 15.00 per share p. 100.
The fair value of subsequent grants of restricted stock and restricted stock units was equal to the closing stock price on the grant date p. 100.
The expense for equity-based incentives is based on fair value at grant date and amortized over their vesting period p. 100.
Restricted stock and restricted stock units granted to employees and the Board of Directors were valued at approximately USD 8.5 million in 2024, USD 17.7 million in 2023, and USD 2.6 million in 2022, based on grant date fair value p. 100.
Board of Directors were granted 19,453 shares in 2024, 23,482 shares in 2023, and 15,196 shares in 2022 of restricted stock and restricted stock units, each with a one-year service period p. 100.
The total fair value of shares vested for employees and Board members was USD 3.8 million in 2024, USD 0.5 million in 2023, and USD 2.2 million in 2022 p. 100.
As of December 31, 2024, the total unrecognized compensation cost for non-vested, stock-based compensation awards was USD 13.9 million p. 100.
The weighted average period over which this unrecognized cost is expected to be recognized is 1.4 years p. 100.
The Company recognized stock-based compensation expense of USD 9.4 million in 2024, USD 8.5 million in 2023, and USD 2.3 million in 2022 p. 100.
The 2022 Employee Stock Purchase Plan (the "ESPP") was approved by the Compensation Committee on September 23, 2022, and became effective on May 15, 2023 p. 100.
Under the ESPP, employees can choose to have a percentage of their annual base earnings withheld to purchase common stock at two specified intervals each year p. 100.
The purchase price of common stock under the ESPP is 85% of the lower of its beginning-of-interval or end-of-interval market price p. 100.
The Company reserved 376,548 common shares under the ESPP p. 100.
The grant date fair value of options under the ESPP was determined using the Black-Scholes model, with a term of 6 months (length of time between grant date and exercisable date) p. 100.
Volatility for ESPP option valuation was based on historical volatility of comparable publicly traded insurance companies p. 100.
As of December 31, 2024, 95,266 shares had been purchased under the ESPP p. 100.
The Company recognized ESPP expense of USD 0.5 million in 2024 and USD 0.2 million in 2023 p. 100.
As of December 31, 2024, the fair value of unrecognized ESPP expense was USD 0.3 million p. 100.
ESPP expense
Award Payout Range
Requisite Service Period
Target Stock and Stock Units
Year ended December 31, 2024
—
—
—
Market condition awards
0 %- 150 %
3 years
32,058
Performance condition awards
0 %- 150 %
3 years
76,881
Service condition awards
N/A
1 - 4 years
124,025
—
—
—
232,964
Market condition awards
0 %- 150 %
3 years
37,622
Performance condition awards
0 %- 150 %
3 years
95,456
Service condition awards
N/A
1 - 4 years
968,778
Stock options
N/A
3 - 4 years
759,990
—
—
—
1,861,846
Market condition awards
0 %- 150 %
3 years
28,495
Performance condition awards
0 %- 150 %
3 years
26,210
Service condition awards
N/A
1 - 3 years
144,137
—
—
—
198,842
Stock outstanding
—
Stock
Outstanding at January 1, 2024
759,990
Outstanding at December 31, 2024
759,990
Stock options
Weighted-Average Exercise Price
Stock
Outstanding at January 1, 2023
—
—
Granted
15.00
759,990
Outstanding at December 31, 2023
—
759,990
Non-vested stock and stock units
—
Weighted-Average Grant-Date Fair Value
Stock and Stock Units
Non-vested at January 1, 2024
15.13
1,445,449
Granted (1)
31.72
268,631
Vested
13.16
( 285,957 )
Forfeited (2)
18.27
( 102,640 )
Non-vested at December 31, 2024
19.06
1,325,483
Non-vested at January 1, 2023
12.55
419,896
Granted (1)
16.07
1,101,856
Vested
13.39
( 40,645 )
Forfeited (2)
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 (1)
14.17
198,842
Vested
15.16
( 144,042 )
Forfeited (2)
12.51
( 10,547 )
Non-vested at December 31, 2022
12.55
419,896
(1) Increases above the 100% target level are reflected as granted in the period after which performance-based stock unit goals are achieved.
(2) Decreases below the 100% target level are reflected as forfeited.
19. Earnings Per Share
The Company's preferred shares are considered participating securities as they participate in dividends and distributions with common stock on an as-converted basis p. 101.
Instruments granted to employees that allow the purchase of common stock at a fixed price were included as potential common shares in diluted EPS calculations, weighted for the period granted, if dilutive p. 101.
Earnings per share
($ in thousands, except for share and per share amounts)
2024
2023
2022
Numerator
—
—
—
Net income
118,828
85,984
39,396
Less: Undistributed income allocated to participating securities
—
( 1,677 )
( 18,879 )
Net income attributable to common stockholders (numerator for basic earnings per share)
118,828
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)
118,828
85,984
39,396
Basic weighted-average common shares
40,056,475
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 stock units
917,510
736,837
320,188
Dilutive effect of options
403,475
135,972
—
Diluted weighted-average common share equivalents
41,377,460
38,317,534
32,653,194
Basic earnings per share
2.97
2.34
1.24
Diluted earnings per share
2.87
2.24
1.21
Stock notes, stock units, and options
—
2024
2023
2022
Stock Notes
—
—
60,576
Stock units
20,346
3,931
—
Options
859
914
—
Common and preferred shares
—
2024
2023
2022
Common shares
—
920,864
22,919
Preferred shares, if converted
—
—
1,059,602
Total
—
920,864
1,082,521
20. Employee Benefit Plan
Key facts & figures
Matching contributions
USD 3.2m for the year ended December 31, 2024
The Company sponsors the 401(k) Plan (the "Plan") p. 102.
The Plan is available to substantially all of the Company's employees p. 102.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 p. 102.
The Company matches employee contributions on a discretionary basis p. 102.
Matching contributions to the Plan were USD 3.2m for the year ended December 31, 2024 p. 102.
Matching contributions to the Plan were USD 2.9m for the year ended December 31, 2023 p. 102.
Matching contributions to the Plan were USD 2.4m for the year ended December 31, 2022 p. 102.
Riscom
Key facts & figures
Ownership interest in RISCOM
20%
Premiums receivable
December 31, 2024: $12.6 million
RISCOM provides the Company with wholesale brokerage services p. 103.
RISCOM and the Company have a managing general agency agreement p. 103.
The Company holds a 20% ownership interest in RISCOM p. 103.
Premiums receivable as of December 31, 2024, were $12.6 million p. 103.
Premiums receivable as of December 31, 2023, were $10.6 million p. 103.
Premiums receivable and commissions for 2022-2024
($ in thousands)
2024
2023
2022
Net earned premium
108,130
99,736
91,051
Commissions
25,372
24,177
23,472
Other
Key facts & figures
Advisory and professional services fees and expense reimbursements
2024: USD 0.6m
Advisory and professional services fees and expense reimbursements paid to affiliated stockholders and directors were USD 0.6m in 2024, USD 3.6m in 2023, and USD 3.4m in 2022 p. 104.
Investments involving affiliated companies and additional related party transactions are detailed in Notes 5, 6, and 10 p. 104.
Related party transactions concerning the Company’s common and preferred shares are detailed in Note 11 p. 104.
Litigation
The Company is a defendant in various legal actions related to claims under insurance policies and contracts p. 105.
These actions are considered when estimating losses and loss adjustment expense reserves p. 105.
The Company is also a defendant in legal actions concerning bad faith claims, disputes with third parties, or alleged errors and omissions p. 105.
Accruals for these items are recorded when losses are probable and reasonably estimable p. 105.
Based on current information, available insurance coverage, and advice from outside legal counsel, the Company believes the resolution of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows, individually or in the aggregate p. 105.
Indemnification
The Company has provided indemnifications to certain buyers in conjunction with the sale of business assets and subsidiaries p. 106.
These indemnifications cover typical representations and warranties related to performance responsibilities under sales contracts p. 106.
The potential exposure covered by these indemnifications is difficult to determine due to the variety of matters, operations, and scenarios covered p. 106.
Some of these indemnifications have no time limitp. 106.
The Company currently has no reason to believe any significant claims exist related to these indemnifications p. 106.
23. Statutory Accounting Principles and Regulatory Matters
Key facts & figures
Statutory net income
2024: USD 108.2m
Statutory capital and surplus
December 31, 2024: USD 710.6m
Lead insurance company
GMIC
The Company’s statutory net income was USD 108.2m for 2024, USD 73.1m for 2023, and USD 50.5m for 2022 p. 107.
The Company’s statutory capital and surplus was USD 710.6m as of December 31, 2024, and USD 602.9m as of December 31, 2023 p. 107.
Effective December 31, 2024, the Company restacked its insurance company subsidiaries, making GMIC the lead insurance company p. 107.
Following the restacking, HSIC became a wholly owned subsidiary of GMIC p. 107.
Following the restacking, IIC became a wholly owned subsidiary of HSIC p. 107.
Following the restacking, OSIC became a wholly owned subsidiary of IIC p. 107.
Dividend payments to the Company from GMIC are restricted by Texas state law, requiring regulatory approval for amounts exceeding certain limits related to policyholder surplus, net income, and dividends declared in the preceding 12 months p. 107.
As of December 31, 2024, GMIC was not restricted from paying ordinary dividends p. 107.
GMIC did not declare or pay any dividend during the year ended December 31, 2024 p. 107.
HSIC did not declare or pay any dividends during the year ended December 31, 2023 p. 107.
Property and casualty insurance companies are subject to Risk Based Capital (RBC) requirements specified by the National Association of Insurance Commissioners (NAIC) p. 107.
As of December 31, 2024, GMIC’s statutory capital and surplus substantially exceeded regulatory requirements p. 107.
As of December 31, 2023, HSIC’s statutory capital and surplus substantially exceeded regulatory requirements p. 107.
24. Subsequent Events
Key facts & figures
Commutation date
January 31, 2025
Cash received by Skyward Re
$11.7 million
LPT loss reserves strengthened
December 31, 2024: $25.3 million
Paid loss reinsurance recoverable increased
$25.3 million
Allowance for estimated uncollectible reinsurance increased
$13.6 million
Deferred gain recognized
$2.0 million
On January 31, 2025, Skyward Re commuted its existing Loss Portfolio Transfer and Adverse Development and Retrocession Agreement, dated April 1, 2020, with R&Q p. 108.
The commutation was pursuant to a Commutation Agreement, and Skyward Re received $11.7 million in cash p. 108.
At December 31, 2024, the Company strengthened LPT loss reserves and increased the paid loss reinsurance recoverable by $25.3 millionp. 108.
The Company increased the allowance for estimated uncollectible reinsurance by $13.6 million, which was subsequently written-off during the year ended December 31, 2024 p. 108.
The Company recognized a deferred gain of $2.0 millionp. 108.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Key facts & figures
Disclosure controls and procedures effectiveness
Not effective as of December 31, 2024
Management evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) was conducted as of the end of the period covered by this Annual Report on Form 10-K p. 109.
Principal executive officer and principal financial officer concluded that as of December 31, 2024, disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting p. 109.
Management does not believe the identified material weakness adversely affected reported operating results or financial condition p. 109.
Management determined that the financial statements and other information in this report and other periodic filings fairly present the company's financial condition, results of operations, and cash flows for the periods presented in accordance with U.S. GAAP p. 109.
Management’s Report on Internal Control over Financial Reporting
Key facts & figures
Internal control over financial reporting effectiveness
Not effective as of December 31, 2024
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 p. 110.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP p. 110.
Internal control over financial reporting includes policies and procedures that pertain to maintaining records that accurately reflect transactions and asset dispositions p. 110.
Internal control over financial reporting provides reasonable assurance that transactions are recorded for financial statement preparation in accordance with GAAP, and that receipts and expenditures align with management and director authorizations p. 110.
Internal control over financial reporting provides reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could materially affect financial statements p. 110.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2024, using criteria from COSO's Internal Control—Integrated Framework (2013) p. 110.
Management concluded that as of December 31, 2024, its internal control over financial reporting was not effective due to a material weakness p. 110.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, where there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected timely p. 110.
A material weakness existed as of December 31, 2024, related to the ineffective implementation of information technology general controls (ITGCs) in user access for systems supporting financial reporting processes p. 110.
Related process-level IT dependent manual and automated controls that rely on affected ITGCs or information from IT systems with affected ITGCs were also deemed ineffective p. 110.
The material weakness did not result in any material misstatements to the financial statements in this Form 10-K p. 110.
No changes were identified as required for previously issued financial statements p. 110.
Substantive procedures for the year ended December 31, 2024, have been completed p. 110.
Management believes that the consolidated financial statements in this Form 10-K have been prepared in accordance with U.S. GAAP p. 110.
The CEO and CFO certified that the financial statements and other financial information in this Form 10-K fairly present the financial condition, results of operations, and cash flows for the periods presented p. 110.
Ernst & Young LLP issued an unqualified opinion on the financial statements, included in Item 8 of this Form 10-K p. 110.
Ernst & Young LLP also issued a report on internal control over financial reporting as of December 31, 2024, which appears in Item 8 p. 110.
Planned Material Weakness Remediation Activities
Management is implementing measures to remediate control deficiencies contributing to the material weakness p. 111.
Remediation actions for the material weakness related to the design of ITGCs in user access over certain information technology include:
Enhancing the IT compliance oversight function and expanding the team with experience in designing and implementing ITGCs p. 111.
Developing and implementing a training program addressing ITGCs and policies, including educating control owners about control principles and requirements p. 111.
Developing and maintaining documentation underlying ITGCs to promote knowledge transfer upon IT personnel and function changes p. 111.
Implementing an IT management review and testing plan to monitor ITGCs p. 111.
Enhanced quarterly reporting on remediation measures to the Audit Committee of the board of directors p. 111.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting occurred during the year ended December 31, 2024, except for changes related to the material weakness identified p. 112.
These changes have not materially affected, nor are they reasonably likely to materially affect, the company's internal control over financial reporting p. 112.
The evaluation was required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act p. 112.
Limitations on Effectiveness of Controls and Procedures
Management acknowledges that disclosure controls and procedures, even when well-designed and operated, offer only reasonable assurance of achieving control objectives p. 113.
The design of disclosure controls and procedures must consider resource constraints p. 113.
Management must apply judgment when evaluating the benefits of potential controls and procedures against their costs p. 113.
Other Information
No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024 p. 114.
Directors, Executive Officers and Corporate Governance
The information required by Item 10 of Form 10-K will be included in the 2025 Proxy Statement and is incorporated by reference p. 115.
Executive Compensation
The information required by Item 11 of Form 10-K will be included in the company's 2025 Proxy Statement and is incorporated herein by reference p. 116.
Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The information required by Item 12 of Form 10-K will be included in the 2025 Proxy Statement and is incorporated by reference p. 117.
Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 of Form 10-K will be included in the company's 2025 Proxy Statement and is incorporated by reference p. 118.
Principal Accounting Fees and Services
Our independent registered public accounting firm is Ernst & Young LLP, Houston, Texas p. 119.
Auditor Firm ID: 42 p. 119.
The information required by Item 14 of Form 10-K will be included in our 2025 Proxy Statement and is incorporated herein by reference p. 119.
Exhibits, Financial Statement Schedules.
Consolidated financial statements of the Company are filed as part of this Form 10-K and included in Item 8 p. 120.
Reports of Independent Registered Public Accounting Firm are included p. 120.
Consolidated Balance Sheets as of December 31, 2024 and 2023 are included p. 120.
Consolidated Statements of Operations and Comprehensive Income (loss) for the three years in the periods ended December 31, 2024, 2023, and 2022 are included p. 120.
Consolidated Statements of Stockholders’ Equity for the three years in the period ended December 31, 2024, 2023, and 2022 are included p. 120.
Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2024, 2023, and 2022 are included p. 120.
Listing of Exhibits is provided p. 120.
Items marked with an asterisk (*) are filed herewith p. 120.
Items marked with a plus (+) indicate a management contract or compensatory plan or arrangement p. 120.
Exhibits filed with the document
Schedule Number
Schedule Description
Page
I.
Summary of Investments — Other Than in Related Parties at December 31, 2024
103
II.
Financial Information of Registrant (Parent Company) for the years ended December 31, 2024, 2023 and 2022
104
IV.
Supplementary Reinsurance Information for the years ended December 31, 2024, 2023, and 2022
108
V.
Valuation and Qualifying Accounts for the years ended December 31, 2024, 2023, and 2022
109
VI.
Supplementary Information Concerning Property — Casualty Insurance Operations for the years ended December 31, 2024, 2023, and 2022
110
Exhibits 3.1 to 10.6
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).
10.6+
Form of Restricted Stock Units Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.6 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023).
Exhibits 10.7 to 10.16
Exhibit Number
Exhibit Description
10.7+
Form of Restricted Stock Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.7 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023).
10.8+
Form of Nonstatutory Stock Option Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.8 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023).
10.9+
Form of Incentive Stock Option Agreement and form of notice under the Company's 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.9 to the Company's Registration Statement on Form S-8, filed with the SEC on January 12, 2023).
10.10+
Form of Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan (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 (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.14+
Amended Form of Performance Share (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.15+
Amended Form of Performance Share (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.16+
Amended Form of Performance Cash Units Agreement under the Company’s Long-Term Incentive Plan. (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.17+
Amended Form of the Restricted Stock Unit (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.18+
Amended Form of Restricted Stock Unit (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.19+
Amended Form of Long-Term Performance Cash Plan and Award Letter under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
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 Non-Employee Director Deferred Restricted Stock Unit Agreement and Form of Notice Under the Company’s 2022 Long-Term Incentive Plan.
10.23
Commutation and Release Agreement by and among R&Q Re (Bermuda) Ltd., Skyward Re, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company, dated January 31, 2025 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on February 5, 2025).
10.24
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).
Exhibits 10.25 to 23.1
Exhibit Number
Exhibit Description
10.25
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 (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.26
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).
10.27
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 (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
10.28
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).
10.29
Advances and Security Agreement, dated August 1, 2024, by and between Houston Specialty Insurance Company, a wholly owned insurance company subsidiary of the Company and the Federal Home Loan Bank of Dallas (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 6, 2024).
10.30+*
Form of Severance Agreement between the Company and executive officers (other than the CEO)
10.31+*
Amendment No. 2 to Employment Agreement between the Registrant and Andrew Robinson dated March 1, 2025 .
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”) (incorporated by reference to Exhibit 97 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024).
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Date File (embedded within the Inline XBRL document)
Fixed maturity securities as of December 31, 2024
($ in thousands)
Cost
Fair Value (if applicable)
Amount on Balance Sheet
December 31, 2024
Fixed maturity securities, available for sale:
—
—
—
U.S. government securities
26,577
26,486
26,486
Corporate securities and miscellaneous
433,298
425,628
425,628
Municipal securities
89,966
84,716
84,716
Residential mortgage-backed securities
408,585
393,833
393,833
Commercial mortgage-backed securities
70,262
69,364
69,364
Other asset-backed securities
291,578
292,191
292,191
Total fixed maturity securities, available for sale
1,320,266
1,292,218
1,292,218
Other asset-backed securities
39,396
38,717
39,153
Total fixed maturity securities, held to maturity
39,396
38,717
39,153
Common stocks
48,530
64,251
64,251
Preferred stocks
1,138
1,164
1,164
Mutual funds
33,643
40,839
40,839
Total equity securities
83,311
106,254
106,254
Mortgage loans
26,485
26,490
26,490
Other long-term investments
33,231
33,182
33,182
Short-term investments
274,926
274,929
274,929
Total
1,777,615
1,771,790
1,772,226
Balance sheets (parent company)
Key facts & figures
Cash and cash equivalents
December 31, 2023: USD 10.0m
Investments available-for-sale
December 31, 2023: USD 1,000.0m
Investments held-to-maturity
December 31, 2023: USD 1,000.0m
Investments, at fair value
December 31, 2023: USD 1,000.0m
Total investments
December 31, 2023: USD 3,000.0m
Cash and cash equivalents were USD 10.0m as of December 31, 2023 p. 121.
Cash and cash equivalents were USD 10.0m as of December 31, 2022 p. 121.
Investments available-for-sale were USD 1,000.0m as of December 31, 2023 p. 121.
Investments available-for-sale were USD 1,000.0m as of December 31, 2022 p. 121.
Investments held-to-maturity were USD 1,000.0m as of December 31, 2023 p. 121.
Investments held-to-maturity were USD 1,000.0m as of December 31, 2022 p. 121.
Investments, at fair value were USD 1,000.0m as of December 31, 2023 p. 121.
Investments, at fair value were USD 1,000.0m as of December 31, 2022 p. 121.
Total investments were USD 3,000.0m as of December 31, 2023 p. 121.
Total investments were USD 3,000.0m as of December 31, 2022 p. 121.
Premiums receivable, net were USD 1,000.0m as of December 31, 2023 p. 121.
Premiums receivable, net were USD 1,000.0m as of December 31, 2022 p. 121.
Reinsurance recoverable on paid and unpaid losses were USD 1,000.0m as of December 31, 2023 p. 121.
Reinsurance recoverable on paid and unpaid losses were USD 1,000.0m as of December 31, 2022 p. 121.
Deferred acquisition costs were USD 1,000.0m as of December 31, 2023 p. 121.
Deferred acquisition costs were USD 1,000.0m as of December 31, 2022 p. 121.
Prepaid expenses and other assets were USD 1,000.0m as of December 31, 2023 p. 121.
Prepaid expenses and other assets were USD 1,000.0m as of December 31, 2022 p. 121.
Goodwill was USD 1,000.0m as of December 31, 2023 p. 121.
Goodwill was USD 1,000.0m as of December 31, 2022 p. 121.
Intangible assets, net were USD 1,000.0m as of December 31, 2023 p. 121.
Intangible assets, net were USD 1,000.0m as of December 31, 2022 p. 121.
Property and equipment, net were USD 1,000.0m as of December 31, 2023 p. 121.
Property and equipment, net were USD 1,000.0m as of December 31, 2022 p. 121.
Total assets were USD 9,010.0m as of December 31, 2023 p. 121.
Total assets were USD 9,010.0m as of December 31, 2022 p. 121.
Losses and loss adjustment expenses were USD 1,000.0m as of December 31, 2023 p. 121.
Losses and loss adjustment expenses were USD 1,000.0m as of December 31, 2022 p. 121.
Unearned premiums were USD 1,000.0m as of December 31, 2023 p. 121.
Unearned premiums were USD 1,000.0m as of December 31, 2022 p. 121.
Reinsurance payable was USD 1,000.0m as of December 31, 2023 p. 121.
Reinsurance payable was USD 1,000.0m as of December 31, 2022 p. 121.
Accounts payable and accrued expenses were USD 1,000.0m as of December 31, 2023 p. 121.
Accounts payable and accrued expenses were USD 1,000.0m as of December 31, 2022 p. 121.
Notes payable were USD 1,000.0m as of December 31, 2023 p. 121.
Notes payable were USD 1,000.0m as of December 31, 2022 p. 121.
Total liabilities were USD 5,000.0m as of December 31, 2023 p. 121.
Total liabilities were USD 5,000.0m as of December 31, 2022 p. 121.
Common stock was USD 1,000.0m as of December 31, 2023 p. 121.
Common stock was USD 1,000.0m as of December 31, 2022 p. 121.
Additional paid-in capital was USD 1,000.0m as of December 31, 2023 p. 121.
Additional paid-in capital was USD 1,000.0m as of December 31, 2022 p. 121.
Accumulated other comprehensive income (loss) was USD 1,000.0m as of December 31, 2023 p. 121.
Accumulated other comprehensive income (loss) was USD 1,000.0m as of December 31, 2022 p. 121.
Retained earnings were USD 1,000.0m as of December 31, 2023 p. 121.
Retained earnings were USD 1,000.0m as of December 31, 2022 p. 121.
Total stockholders’ equity was USD 4,010.0m as of December 31, 2023 p. 121.
Total stockholders’ equity was USD 4,010.0m as of December 31, 2022 p. 121.
Total liabilities and stockholders’ equity were USD 9,010.0m as of December 31, 2023 p. 121.
Total liabilities and stockholders’ equity were USD 9,010.0m as of December 31, 2022 p. 121.
Assets, liabilities, and stockholders' equity
December 31,
($ in thousands)
2024
2023
Assets
Investments:
—
—
Investment in subsidiaries
853,670
743,025
Short-term investments, at fair value
14,000
10,593
Total investments
867,670
753,618
Cash and cash equivalents
2,943
3,024
Deferred income taxes
30,486
5,899
Goodwill and intangible assets, net
12,641
12,641
Other assets
2,905
15,908
Total assets
916,645
791,090
Liabilities and Stockholders’ Equity
—
—
Accounts payable and accrued liabilities
3,110
1,369
Notes payable
100,000
50,000
Subordinated debt, net of debt issuance costs
19,536
78,690
Total liabilities
122,646
130,059
Stockholders’ Equity:
—
—
Stockholders’ equity
793,999
661,031
Total liabilities and stockholders’ equity
916,645
791,090
(parent company)
See accompanying notes to financial statements p. 122.
Consolidated statements of comprehensive income
Years Ended December 31,
($ in thousands)
2024
2023
2022
Revenues:
—
—
—
Net investment income
3,212
3,822
2,567
Net investment (losses) gains
963
( 963 )
( 6 )
Other loss
( 2 )
( 27 )
—
Total revenues
4,173
2,832
2,561
Operating expenses
10,632
—
—
Interest expense
8,140
9,815
6,407
Amortization expense
920
313
81
Other expenses
9,646
451
—
Total expenses
29,338
10,579
6,488
Loss before income tax expense
( 25,165 )
( 7,747 )
( 3,927 )
Income tax expense
33,578
6,808
( 1,209 )
Loss before equity in earnings of subsidiaries
( 58,743 )
( 14,555 )
( 2,718 )
Equity in undistributed earnings of subsidiaries
177,571
100,539
42,114
Net income
118,828
85,984
39,396
Schedule ii — statements of cash flows (parent company)
See accompanying notes to financial statements p. 123.
Consolidated statements of cash flows
Years Ended December 31,
($ in thousands)
2024
2023
2022
Cash flows from operating activities:
—
—
—
Net income
118,828
85,984
39,396
Adjustments to reconcile net income to net cash used in operating activities
( 121,563 )
( 95,947 )
( 42,672 )
Net cash provided by operating activities
( 2,735 )
( 9,963 )
( 3,276 )
Capital contributions to subsidiaries
—
( 122,800 )
—
Distributions from investment in subsidiaries
8,500
6,500
4,000
Change in short-term investments
( 3,407 )
( 10,569 )
—
Net cash (used in) provided by investing activities
5,093
( 126,869 )
4,000
Repayment of stock notes receivable
5,561
1,350
2,180
Proceeds from long term borrowings
107,000
50,000
—
Payments on long term borrowings and trust preferred
( 115,000 )
( 50,000 )
—
Proceeds from equity offerings
—
128,887
—
Proceeds from employee stock purchase plan
—
710
—
Net cash provided by financing activities
( 2,439 )
130,947
2,180
Net increase (decrease) in cash and cash equivalents and restricted cash
( 81 )
( 5,885 )
2,904
Cash and cash equivalents and restricted cash at beginning of year
3,024
8,909
6,005
Cash and cash equivalents and restricted cash at end of year
2,943
3,024
8,909
Supplemental disclosure of cash flow information:
—
—
—
Cash paid for interest
8,573
10,667
5,761
Cash paid for federal income taxes
36,980
15,800
—
Notes to Financial Statements
Key facts & figures
Promissory Note date
September 30, 2024
Amount borrowed by Skyward Specialty
USD 57.0 million
Interest rate
4.00%
On September 30, 2024, Skyward Specialty entered into an Intercompany Loan Promissory Note with Houston Specialty Insurance Company (HSIC) p. 124.
Under the terms of the Promissory Note, Skyward Specialty borrowed USD 57.0 million from HSIC p. 124.
Interest on the Promissory Note is payable monthly at a fixed annual interest rate of 4.00% p. 124.
The principal of the Promissory Note is due at the maturity date p. 124.
There are no prepayment penalties for the Promissory Note p. 124.
No collateral was given as security for the payment of the Promissory Note p. 124.
During the year ended December 31, 2024, Skyward Specialty provided funds for a new subsidiary, Skyward Specialty No. 1 Limited Company p. 124.
Skyward Specialty No. 1 Limited Company is a UK company authorized as a Lloyd’s corporate member to invest in Lloyd’s syndicates p. 124.
Financial Instruments Disclosed, But Not Carried, At Fair Value
Key facts & figures
Carrying value of Promissory Note
December 31, 2024: USD 57.0 million
Fair value of Promissory Note
December 31, 2024: USD 56.3 million
Promissory Note classification
Level 2
The Promissory Note between Skyward Specialty and HSIC is included in notes payable p. 125.
Skyward Specialty determined the fair value of the Promissory Note using the income approach with observable inputs p. 125.
The Promissory Note is classified in Level 2 of the fair value hierarchy p. 125.
As of December 31, 2024, the carrying value of the Promissory Note was USD 57.0 million p. 125.
As of December 31, 2024, the fair value of the Promissory Note was USD 56.3 million p. 125.
Reinsurance activity and promissory note details
Years Ended December 31,
2024
2023
2022
($ in thousands)
Accident & Health
Property & Casualty
Accident & Health
Property & Casualty
Accident & Health
Property & Casualty
Gross amount
173,073
1,285,564
151,702
1,089,478
130,377
881,862
Ceded to other companies
( 86,503 )
( 533,151 )
( 79,091 )
( 470,047 )
( 70,291 )
( 398,118 )
Assumed from other companies
—
284,595
—
218,649
431
131,282
Net amount
86,570
1,037,008
72,611
838,080
60,517
615,026
Percentage of amount assumed to net
—%
27.4%
—%
26.1%
0.7%
21.3%
Valuation allowances and uncollectible amounts
($ 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
Charged to costs and expenses
—
13,585
3,235
Amounts written off
—
( 13,585 )
( 1,895 )
Recoveries of amounts previously written off
—
—
128
Balance at December 31, 2024
586
2,295
2,432
Deferred policy acquisition costs and reserves
As of and Years Ended December 31,
($ in thousands)
2024
2023
2022
Deferred policy acquisition costs
113,183
91,955
68,938
Reserve for losses and loss adjustment expenses
1,782,383
1,314,501
1,141,757
Unearned premiums
637,185
552,532
442,509
Net earned premium (1)
1,056,722
829,143
615,994
Net investment income
80,686
40,322
36,931
Losses and loss adjustment expenses (current year) (1)
657,783
516,664
393,939
Losses and loss adjustment expenses (prior years) (1)(2)
25,728
—
14,385
Amortization of policy acquisition costs (1)
149,975
108,514
65,695
Paid claims and claim adjustment expenses (1)
430,991
363,418
300,764
Net premiums written (1)
1,123,578
910,691
675,543
Ceded unearned premium
203,901
186,121
157,645
Deferred ceding commission
40,434
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
The report was signed on behalf of the registrant as required by Section 13 or 15(d) of the Securities Exchange Act of 1934 p. 126.
The report was signed by the indicated persons on behalf of the Registrant, in their respective capacities, and on the specified dates, as per the requirements of the Securities Exchange Act of 1934 p. 126.
Signatures on behalf of the registrant
—
Skyward Specialty Insurance Group, Inc.
Dated: March 3, 2025
/s/ Andrew Robinson
—
Andrew Robinson Chairman and Chief Executive Officer
