Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) reported a strong adjusted operating income of $0.80 per diluted share for Q4 2024, driven by outstanding underwriting and investment results.
• The company achieved quarterly growth above 20% for the third time in 2024, with a full-year adjusted operating income increase of 57% over the prior year.
• Gross written premiums grew by 21% for the quarter and 19% for the year, with significant contributions from surety, programs, captives, transactional ENS, and agriculture.
• Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) successfully shifted its portfolio to less P&C cycle-exposed parts of the market, contributing to a strong return on equity of 16.3% for the year.
• The company maintained a strong reserve position, with IBNR making up over 69% of total reserves, indicating a robust liability management strategy.

Negative Points

• The adjusted combined ratio for the year was slightly elevated at 91.2%, driven by an increase in catastrophe loss ratio.
• Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) faced challenges with loss cost inflation in occurrence liability, including auto liability, which remains a concern.
• The company experienced a slowdown in submission growth, dropping to the mid-10s from previous quarters' 20% growth.
• Professional lines growth was down slightly due to softening conditions in some targeted lines, although recovery is expected in 2025.
• The company had to increase reserves by $25.3 million related to losses from accident years 2018 and prior, impacting the combined ratio.

Q & A Highlights

• Warning! GuruFocus has detected 9 Warning Signs with COVTY.

Q: How do you see the adequacy of pricing in the casualty market, particularly in excess, and do you think it will be a growth area this year? A: Andrew Robinson, CEO: We are taking a cautious approach to growth in the casualty market due to increasing loss inflation. While some companies report significant rate increases, we are selective about where we grow, avoiding areas with high personal injury exposure. We believe that the current rate increases may not be sufficient if loss inflation continues to rise.

Q: How do you view M&A as part of your growth strategy? A: Andrew Robinson, CEO: While we are more actively looking at opportunities, the bar for M&A is exceptionally high. We prioritize our successful organic growth engine and are cautious about taking on balance sheet risk. We hired a head of corporate development to explore opportunities, but any acquisition must not disrupt our organic growth.

Q: Can you provide an update on submission flows and any changes in the quote-to-submission or bind-to-quote ratios? A: Andrew Robinson, CEO: We are seeing strong submission flows, and there are no significant concerns. The quality of submissions varies, but we are confident in our ability to write new business. There are no notable changes in the quote-to-submission or bind-to-quote ratios.

Q: What implications does the shift towards less PNC cycle-exposed lines have on the expense ratio? A: Andrew Robinson, CEO: We expect acquisition costs to rise slightly, but our other underwriting expenses benefit from scale. We aim to maintain a sub-30% expense ratio. Some lines, like A&H, have higher loss ratios but are capital-efficient, contributing positively to our return on capital.

Q: How do you approach new product launches and the associated loss picks? A: Andrew Robinson, CEO: We apply a margin above indicated loss picks for new businesses, with a greater margin for newer lines. We also hold back corporate IBNR to add further risk margin for new launches, ensuring a cautious approach to new product development.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.