Skyward Specialty Insurance Group, Inc. — FY 2022 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2022; it does not provide a standalone fourth-quarter results summary. Skyward is a U.S.-focused specialty property and casualty insurer, including accident and health coverage, operating across eight underwriting divisions and one reportable segment. Its strategy centers on specialized risks and tailored underwriting. The financial statements were audited by Ernst & Young, which issued an unqualified opinion on the financial statements.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Gross written premiums | $1,144.0 million | $939.9 million |
| Net written premiums | $675.5 million | $529.1 million |
| Net earned premiums | $616.0 million | $499.8 million |
| Total revenues | $642.4 million | $550.2 million |
| Net income | $39.4 million | $38.3 million |
| Net income attributable to common shareholders | $20.5 million | $19.8 million |
| Basic / diluted EPS | $1.24 / $1.21 | $1.21 / $1.18 |
| Operating cash flow | $208.9 million | $175.3 million |
| Loss / expense / combined ratio | 65.3% / 28.7% / 94.0% | 70.9% / 26.9% / 97.8% |
| Adjusted combined ratio (non-GAAP) | 92.6% | 94.6% |
| Net investment income | $36.9 million | $24.6 million |
| Net investment losses (gains) | $(15.7) million | $17.1 million |
Gross written premiums rose 21.7%; continuing-business premiums increased 31.2%, with double-digit growth in all eight divisions. Transactional E&S grew 168.2%, Professional Lines 55.0%, and Surety 52.7%; exited-business premiums fell 92.6% as runoff continued. Net retention increased to 59.1% from 56.3%.
Underwriting income, a non-GAAP measure, was $36.5 million versus $10.9 million. Adjusted operating income was $58.6 million versus $36.1 million (the filing presents this measure after tax in its headline table). The GAAP combined ratio improved 3.8 points. The adjusted loss ratio improved 3.8 points to 63.9%, while the expense ratio rose 1.8 points to 28.7%, reflecting mix and investment in underwriting staff.
Balance sheet, debt and liquidity
At December 31, total assets were $2.36 billion, total liabilities $1.94 billion and stockholders’ equity $421.7 million, compared with $2.12 billion, $1.69 billion and $426.1 million, respectively, a year earlier. Equity included a $48.1 million other comprehensive loss, primarily from unrealized investment losses. Tangible stockholders’ equity, a non-GAAP measure, was $331.8 million.
Cash and cash equivalents were $45.4 million, restricted cash $79.6 million and investments $1.08 billion. The holding company separately reported $8.9 million in cash and investments. Management said liquidity was sufficient for operating needs and committed capital expenditures over the next 12 months. Operating cash flow was positive; cash and restricted cash together increased $17.7 million during 2022.
Debt at year-end included a $50.0 million term loan due December 2024 and $78.6 million of subordinated debt, for approximately $128.6 million in carrying value; the $50 million revolver had no balance outstanding. Debt-to-total-capitalization was 23.4%, versus 23.2%. The company reported compliance with credit covenants. After year-end, it announced plans to refinance with a proposed unsecured facility of up to $150 million, subject to completion.
Material changes, outlook and notable items
- Losses and reserves: Current-year catastrophe losses were $6.5 million, or 1.1 points of the loss ratio, compared with $11.8 million, or 2.4 points, in 2021. Prior-year development was $14.4 million adverse in 2022, all related to LPT-covered losses, versus $28.0 million adverse in 2021. Management attributed adverse development in exited lines mainly to higher general and professional liability claim frequency and severity; favorable development in continuing multiline business partly offset it.
- Loss portfolio transfer (LPT): The LPT reduced the volatility of legacy business but does not eliminate reserve risk. Net reserves subject to the LPT were $68.6 million at year-end. The filing describes Section A coverage as exhausted for additional incurred losses, while Section B retained some stated coverage capacity.
- Investments: Net investment income increased as the portfolio expanded and yields rose. Net investment losses of $15.7 million, alongside $48.1 million of other comprehensive loss, reflected market-related valuation pressure. Rising interest rates can reduce fixed-income fair values; the filing estimates a 4.1% decline in core fixed-income fair value under a 100-basis-point rate increase.
- Reserves and exposures: Net IBNR was 61.8% of net loss reserves, up from 60.0%. Management described its reserve position as its strongest historically, but reserves are estimates and remain exposed to inflation, litigation, social inflation, claims trends and changes in law or coverage interpretation.
- Capital and subsequent events: The January 2023 IPO generated approximately $62.3 million in net proceeds for the company; selling stockholders also sold shares. The IPO and conversion of preferred stock into common shares occurred after the reporting date. No cash dividends are planned in the foreseeable future.
- Accounting and controls: Adoption of the expected-credit-loss standard in 2023 was expected to increase the allowance for uncollectible reinsurance and accumulated deficit by approximately $2.3 million, net of tax. Management reported effective disclosure controls and internal control over financial reporting at year-end; a material weakness identified in 2021 was reported as remediated in 2022. The auditor did not attest to internal controls.
- Guidance and risks: The filing gives no specific earnings or premium guidance. Management cited growth opportunities in specialty markets and a then-current hard insurance market, while noting that market cycles can reverse. Principal risks include reserve adequacy, catastrophe exposure and reinsurance availability or collectability, competition, inflation and interest-rate movements, reliance on independent distribution partners, regulation, and cyber and operational risks.
Important facts for investors to verify
- Track reserve development—especially exited lines and LPT recoveries—and whether favorable continuing-business experience persists.
- Assess premium growth alongside underwriting quality: the GAAP combined ratio improved, but the expense ratio increased and business mix is changing.
- Review investment valuation, credit quality and liquidity, including the unrealized losses and related-party-managed opportunistic investments.
- Confirm completion and terms of the proposed post-year-end credit facility, and monitor the 2024 term-loan maturity and covenant requirements.
- Verify the impact of the IPO, preferred-share conversion and expected-credit-loss accounting adoption in subsequent-period reports.
- Monitor the A.M. Best A- rating, statutory capital and surplus, and any restrictions on moving cash from insurance subsidiaries to the holding company.