Business Context and Reporting Period
Company: Skyward Specialty Insurance Group, Inc. (SKWD)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2024
Business Overview: Skyward is a specialty commercial property and casualty (P&C) insurer operating in the United States. It focuses on underserved and dislocated markets through eight distinct underwriting divisions, including Accident & Health, Captives, Global Property & Agriculture, Industry Solutions, Professional Lines, Programs, Surety, and Transactional E&S. The company operates on both admitted and non-admitted (E&S) bases.
Key Financial Metrics
| Metric ($ in thousands) | 2024 | 2023 |
|---|---|---|
| Gross Written Premiums | $1,743,232 | $1,459,829 |
| Net Written Premiums | $1,123,578 | $910,691 |
| Net Earned Premiums | $1,056,722 | $829,143 |
| Net Income | $118,828 | $85,984 |
| Underwriting Income | $81,859 | $76,526 |
| Net Investment Income | $80,686 | $40,322 |
| Combined Ratio | 92.3% | 90.7% |
| Loss and LAE Ratio | 63.4% | 62.1% |
| Expense Ratio | 28.9% | 28.6% |
| Return on Equity (ROE) | 16.3% | 15.9% |
| Stockholders' Equity | $793,999 | $661,031 |
| Total Debt Outstanding | $120,000 | $128,690 |
Note: Debt includes $57.0 million FHLB Loan, $43.0 million Revolving Credit Facility, and $20.0 million Subordinated Notes.
Material Changes vs. Prior Period
- Premium Growth: Gross written premiums increased 19.4% year-over-year, driven by double-digit growth in Captives (44.3%), Surety (43.7%), Transactional E&S (38.0%), and Programs (22.2%).
- Profitability: Net income rose 38.2% to $118.8 million. Underwriting income increased 6.9% to $81.9 million.
- Investment Performance: Net investment income doubled to $80.7 million, primarily due to a larger asset base and higher book yields (5.2% in 2024 vs. 4.5% in 2023).
- Loss Ratios: The loss ratio increased 1.3 points to 63.4%. This was primarily due to a $11.6 million net impact from prior accident year development related to a Loss Portfolio Transfer (LPT). Catastrophe losses increased due to Hurricanes Helene, Beryl, and Milton.
- Reserve Development: The company recognized $25.7 million in adverse development on prior years' reserves, largely attributed to the LPT commutation and multi-line solutions.
Guidance, Outlook, Risks, and Unusual Items
- Management Commentary: Management emphasizes its "Rule Our Niche" strategy, leveraging technology (SkyBI) and specialized underwriting to navigate market cycles. The company successfully diversified its portfolio to reduce exposure to traditional P&C cycles.
- Unusual Items:
- LPT Commutation: A Loss Portfolio Transfer agreement with R&Q Re was commuted effective January 31, 2025. The company recognized a $13.6 million increase in the allowance for uncollectible reinsurance related to this LPT, which was written off in 2024.
- Reserve Methodology Change: In 2024, the company transitioned from evaluating reserves on a policy year basis to an accident year basis, resulting in reallocation of IBNR reserves.
- Risks and Contingencies:
- Material Weakness in Internal Controls: The company identified a material weakness in Information Technology General Controls (ITGCs) regarding user access for financial reporting systems. This resulted in an adverse opinion on internal controls, though the financial statements received an unqualified opinion.
- Catastrophe Exposure: Significant exposure to severe weather events (hurricanes, convective storms) remains a key risk, with property insurance representing 29% of gross written premiums.
- Reinsurance Credit Risk: While 99% of reinsurance recoverables are from highly rated or collateralized reinsurers, failure of reinsurers to pay could result in losses.
- Capital Actions: The Board approved a $50.0 million share repurchase program in October 2024; no shares had been repurchased as of December 31, 2024.
Investor Verification Checklist
- Reserve Adequacy: Verify the impact of the $25.7 million adverse development and the transition to accident-year reserving on future loss ratios.
- Internal Control Remediation: Monitor the progress of remediation for the identified material weakness in ITGCs to ensure future financial reporting reliability.
- LPT Commutation Impact: Confirm the final financial impact of the LPT commutation with R&Q Re, including the $11.7 million cash received in January 2025.
- Catastrophe Exposure: Review geographic concentration of property risks and the adequacy of catastrophe reinsurance coverage given recent hurricane activity.
- Debt Covenants: Ensure continued compliance with debt covenants, particularly the minimum A.M. Best rating and liquidity requirements.