Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Report on Internal Control over Financial Reporting
Our 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, as amended. Our 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 generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the audit committee of our board of directors.
Based on that assessment under the framework in Internal Control-Integrated Framework (2013), management concluded that the company’s internal control over financial reporting was effective as of December 31, 2022.
This annual report on Form 10-K does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting as we are an emerging growth company as of December 31, 2022, as defined in the JOBS Act.
Changes in Internal Control over Financial Reporting
In the course of preparing the consolidated financial statements for the year ended December 31, 2021, our management identified a material weakness in our internal control over financial reporting as we had not designed or maintained an effective control environment and associated control activities to meet our accounting and reporting requirements. The material weaknesses identified for the year ended December 31, 2021 were remediated for the year ended December 31, 2022.
Aside from the remediation of the material weakness identified for the year ended December 31, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information - None
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Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections - Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The information required by this Item 12 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is Ernst & Young LLP , Houston, Texas . Auditor Firm ID: 42
The information required by this Item 14 of Form 10-K will be included in our 2023 Proxy Statement and is incorporated herein by reference.
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Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) LISTING OF FINANCIAL STATEMENTS
The following consolidated financials statements of the Company are filed as part of this Form 10-K and are included in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive (Loss) Income for the two years in the period ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the two years in the period ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the two years in the period ended December 31, 2022 and 2021
(a)(2)
Schedule Number Schedule Description Page
I. Summary of Investments — Other Than in Related Parties at December 31, 2022
105
II. Condensed Financial Information of Registrant (Parent Company) for the years ended December 31, 2022 and 2021
106
IV. Supplementary Reinsurance Information for the years ended December 31, 2022 and 2021
109
V. Valuation and Qualifying Accounts for the years ended December 31, 2022 and 2021
110
VI. Supplementary Information Concerning Property — Casualty Insurance Operations for the years ended December 31, 2022 and 2021
111
(a)(3) LISTING OF EXHIBITS
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
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).
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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.
10.11+ Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.12+ Performance Unit Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.13+ 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).
10.14+ 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).
10.15+ Form of Promissory Note (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.16 Lease Agreement by and between Memorial City Towers, Ltd. and Southwest Insurance Partners, Inc., dated December 1, 2008, with Amendment No. 1, dated February 16, 2009, Lease Commencement Agreement, dated August 24, 2009, Supplemental Parking Agreement, dated September 24, 2009, Amendment No. 2, dated August 17, 2010, Supplemental Letter Agreement dated August 26, 2010, Supplemental Lease Commencement Agreement, dated November 8, 2010, Amendment No. 3, dated February 20, 2013, Supplemental Commencement Agreement, dated September 25, 2013, Amendment No. 4, dated April 21, 2015, Amendment No. 5, dated July 27, 2015, Supplemental Commencement Agreement, dated October 7, 2015, Supplemental Commencement Agreement, dated April 7, 2016, Amendment No. 6, dated May 9, 2016, Supplemental Commencement Agreement, dated February 24, 2017, Amendment No. 7, dated November 6, 2017, and Supplemental Commencement Agreement, dated October 3, 2018 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.17 Credit Agreement by and between Prosperity Bank and Houston International Insurance Group, Ltd., dated December 11, 2019 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.18 Management Services Agreement by and between Westaim HIIG GP Inc. and Houston International Insurance Group, Ltd., dated August 1, 2019 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.19 Surety Excess of Loss Reinsurance Contract by and among Everest Reinsurance Company, Houston Specialty Insurance Company, Imperium Insurance Company, Great Midwest Insurance Company, Oklahoma Specialty Insurance Company and Boston Indemnity Company, Inc., dated June 1, 2021 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.20* Consulting Agreement by and between Stephen Way and Skyward Specialty Insurance Group, Inc., dated January 1, 2022 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
10.21* Loss Portfolio Transfer and Adverse Development Retrocession Agreement by and among R&Q Bermuda (SAC) Limited acting in respect of the HIIG Segregated Account, HIIG Re, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company, dated April 1, 2020 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
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Exhibit
Number Exhibit Description
10.22* 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).
21.1 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-1, filed with the SEC on November 14, 2022).
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1 Certification of P rincipal E xecutive O fficer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Sec uriti es Exchan ge 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.
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 Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
104 Cover Page Interactive Date File (embedded within the Inline XBRL document)
____________________
* To be filed by amendment.
+ Management contract or compensatory plan or arrangement.
† Portions of this exhibit have been omitted for confidentiality purposes.
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I — SUMMARY OF INVESTMENTS — OTHER THAN IN RELATED PARTIES
($ in thousands) Cost Fair Value Amount on
Balance Sheet
December 31, 2022
Fixed maturity securities, available for sale:
U.S. government securities $ 50,416 $ 48,541 $ 48,541
Corporate securities and miscellaneous 255,116 235,129 235,129
Municipal securities 65,836 57,727 57,727
Residential mortgage-backed securities 134,844 119,856 119,856
Commercial mortgage-backed securities 40,129 36,495 36,495
Asset-backed securities 116,275 109,824 109,824
Total fixed maturity securities, available for sale 662,616 607,572 607,572
Fixed maturity securities, held to maturity:
Asset-backed securities 52,467 46,771 52,467
Total fixed maturity securities, held to maturity 52,467 46,771 52,467
Equity securities:
Common stocks 50,484 55,996 55,996
Preferred stocks 11,798 8,771 8,771
Mutual funds 53,968 55,402 55,402
Total equity securities 116,250 120,169 120,169
Mortgage loans 51,859 52,842 51,859
Short-term investments 121,158 121,158 121,158
Total investments $ 1,004,350 $ 948,512 $ 953,225
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (PARENT COMPANY)
December 31,
($ in thousands) 2022 2021
Assets
Investments:
Investment in subsidiaries $ 503,549 $ 517,326
Short-term investments, at fair value 25 25
Total investments 503,574 517,351
Cash and cash equivalents 8,909 5,849
Restricted cash — 156
Deferred income taxes 19,655 15,182
Goodwill and intangible assets, net 12,641 12,641
Other assets 6,992 4,218
Total assets $ 551,771 $ 555,397
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued liabilities $ 1,500 $ 788
Notes payable 50,000 50,000
Subordinated debt, net of debt issuance costs 78,609 78,529
Total liabilities 130,109 129,317
Stockholders’ Equity:
Stockholders’ equity 421,662 426,080
Total liabilities and stockholders’ equity $ 551,771 $ 555,397
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II — CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY)
December 31,
($ in thousands) 2022 2021
Revenues:
Net investment income $ 2,567 $ 2,383
Net investment losses ( 6 ) —
Total revenues 2,561 2,383
Expenses
Interest expense 6,407 4,621
Amortization expense 81 81
Total expenses 6,488 4,702
Loss before income tax expense ( 3,927 ) ( 2,319 )
Income tax benefit ( 1,209 ) ( 487 )
Net loss before equity in earnings of subsidiaries ( 2,718 ) ( 1,832 )
Equity in undistributed earnings of subsidiaries 42,114 40,149
Net income $ 39,396 $ 38,317
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II — CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY)
December 31,
($ in thousands) 2022 2021
Cash flows from operating activities:
Net income $ 39,396 $ 38,317
Adjustments to reconcile net income to net cash used in operating activities ( 42,672 ) ( 40,447 )
Net cash provided by operating activities ( 3,276 ) ( 2,130 )
Cash flows from investing activities:
Capital contribution to subsidiaries — ( 10,000 )
Distributions from investment in subsidiaries 4,000 4,000
Net cash provided by (used in) investing activities 4,000 ( 6,000 )
Cash flows from financing activities:
Employee share purchases 2,180 1,380
Net cash provided by financing activities 2,180 1,380
Net increase (decrease) in cash and cash equivalents and restricted cash 2,904 ( 6,750 )
Cash and cash equivalents and restricted cash at beginning of year 6,005 12,755
Cash and cash equivalents and restricted cash at end of year $ 8,909 $ 6,005
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,761 $ 4,669
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV — REINSURANCE
December 31,
2022 2021
($ in thousands) Accident &
Health Property &
Casualty Accident &
Health Property &
Casualty
Gross amount $ 130,377 $ 881,862 $ 111,759 $ 730,559
Ceded to other companies ( 70,291 ) ( 398,118 ) ( 68,350 ) ( 342,366 )
Assumed from other companies 431 131,282 387 97,154
Net amount $ 60,517 $ 615,026 $ 43,796 $ 485,347
Percentage of amount assumed to net 0.7 % 21.3 % 0.9 % 20.0 %
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE V — VALUATION AND QUALIFYING ACCOUNTS
($ in thousands) Valuation
Allowance
For Deferred
Tax Assets Allowance for
Uncollectible
Reinsurance
Recoverable Allowance for
Uncollectible
Premiums
Receivable
Balance at January 1, 2021 $ 586 $ — $ 1,146
Charged to costs and expenses — — 18
Amounts written off — — ( 903 )
Balance at December 31, 2021 586 — 261
Charged to costs and expenses — — 584
Amounts written off — — ( 216 )
Balance at December 31, 2022 $ 586 $ — $ 629
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE VI — SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
December 31,
($ in thousands) 2022 2021
Deferred policy acquisition costs $ 68,938 $ 59,456
Reserve for losses and loss adjustment expenses 1,141,757 979,549
Unearned premiums 442,509 363,288
Net earned premium (1)
615,994 499,823
Net investment income 36,931 24,646
Losses and loss adjustment expenses (current year) (1)
393,939 338,348
Losses and loss adjustment expenses (prior years) (1)(2)
14,385 28,000
Amortization of policy acquisition costs (1)
65,695 47,061
Paid claims and claim adjustment expenses (1)
300,764 249,739
Net premiums written (1)
675,543 529,143
Ceded unearned premium 157,645 137,973
Deferred ceding commission 29,849 30,500
(1) Amount is presented net of reinsurance
(2) Amount does not include gain or loss on retroactive reinsurance which is included in losses and loss adjustment expenses presented on the Consolidated Statements of Operations
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Skyward Specialty Insurance Group, Inc.
Dated: March 28, 2023
/s/ Andrew Robinson
Andrew Robinson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Andrew Robinson Chief Executive Officer and Director (Principal Executive Officer) March 28, 2023
Andrew Robinson
/s/ Mark Haushill Chief Financial Officer (Principal Financial and Accounting Officer) March 28, 2023
Mark Haushill
/s/ J. Cameron MacDonald Director March 28, 2023
J. Cameron MacDonald
/s/ Robert Creager Director March 28, 2023
Robert Creager
/s/ Marcia Dall Director March 28, 2023
Marcia Dall
/s/ James Hays Director March 28, 2023
James Hays
/s/ Robert Kittel Director March 28, 2023
Robert Kittel
/s/ Katharine Terry Director March 28, 2023
Katharine Terry
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