What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 142 added, 69 removed, 294 unchanged (42% of the section changed)

2 unchanged sentences

and the terms “our Company,” “we,” “us,” and “our” as used below refer to Skyward Specialty Insurance Group and its consolidated subsidiaries.

The term “first quarter” as used below refers to the three months ended March 31 for the time period then ended.

The term “second quarter” as used below refers to the three and six months ended June 30 for the time period then ended.

Select insurance and accounting terms for Skyward Specialty are defined in the section entitled “Select Insurance and Financial Terms” included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

1 unchanged sentence

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

Founded in 2006, Skyward Specialty is a specialty insurance company incorporated in Delaware.

Founded in 2006, Skyward Specialty is a specialty insurance holding company incorporated in Delaware.

We have one reportable segment through which we offer a broad array of commercial property and casualty products and solutions on a non-admitted (or E&S) and admitted basis, predominantly in the United States.

33 unchanged sentences

Results of Operations

The following table summarizes our results for the three months ended March 31, 2023 and 2022:

The following table summarizes our results for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

10 unchanged sentences

Net investment gains (losses) $ 5,351 $ (14,374) $ 6,312 $ (18,812)

Income before federal income tax $ 19,722 $ 20,580

Income before income taxes $ 25,016 $ 6,357 $ 44,738 $ 26,937

Net income $ 19,452 $ 5,065 $ 35,008 $ 21,376

19 unchanged sentences

Adjusted Operating Income (Loss)

The following table provides a reconciliation of adjusted operating income to net income for the three months ended March 31, 2023 and 2022:

($ in thousands) 2023 2022

Pre-tax After-tax Pre-tax After-tax

The following table provides a reconciliation of adjusted operating income to net income for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

($ in thousands) Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax

Income as reported $ 25,016 $ 19,452 $ 6,357 $ 5,065 $ 44,738 $ 35,008 $ 26,937 $ 21,376

4 unchanged sentences

Underwriting Income (Loss)

The following table provides a reconciliation of underwriting income (loss) to income (loss) before federal income tax for the three months ended March 31, 2023 and 2022:

The following table provides a reconciliation of underwriting income (loss) to income (loss) before federal income tax for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

Income before federal income tax $ 19,722 $ 20,580

Income before income taxes $ 25,016 $ 6,357 $ 44,738 $ 26,937

Interest expense 2,466 1,365 4,618 2,542

5 unchanged sentences

Adjusted Loss Ratio / Adjusted Combined Ratio

The following table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the three months ended March 31, 2023 and 2022:

The following table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

10 unchanged sentences

Tangible Stockholders’ Equity

The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the periods ended March 31, 2023 and 2022:

The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the periods ended June 30, 2023 and 2022:

($ in thousands) 2023 2022

3 unchanged sentences

Adjusted Return on Equity

The following table provides a reconciliation of adjusted return on equity to return on equity for the periods ended March 31, 2023 and 2022:

The following table provides a reconciliation of annualized adjusted return on equity to annualized return on equity for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

adjusted operating income $ 15,486 $ 19,817

annualized adjusted operating income $ 64,068 $ 65,682 $ 63,006 $ 72,475

average stockholders’ equity $ 514,912 $ 424,113 $ 471,143 $ 422,844

Adjusted return on equity

Annualized adjusted return on equity

12.4 % 15.5 % 13.3 % 17.1 %

Return on Tangible Equity

Return on tangible equity for the periods ended March 31, 2023 and 2022 reconciles to return on equity as follows:

Annualized return on tangible equity for the three and six months ended June 30, 2023 and 2022 reconciles to annualized return on equity as follows:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

net income $ 15,556 $ 16,311

annualized net income $ 77,808 $ 20,260 $ 70,016 $ 42,752

average tangible stockholders’ equity $ 425,570 $ 333,327 $ 381,251 $ 331,874

Return on tangible equity

Annualized return on tangible equity

18.3 % 6.1 % 18.3 % 12.9 %

Adjusted Return on Tangible Equity

Adjusted return on tangible equity for the periods ended March 31, 2023 and 2022 reconciles to return on equity as follows:

Annualized adjusted return on tangible equity for the three and six months ended June 30, 2023 and 2022 reconciles to annualized return on equity as follows:

Three months ended June 30, Six months ended June 30,

($ in thousands) 2023 2022 2023 2022

adjusted operating income $ 15,486 $ 19,817

annualized adjusted operating income $ 64,068 $ 65,682 $ 63,006 $ 72,475

average tangible stockholders’ equity $ 425,570 $ 333,327 $ 381,251 $ 331,874

Adjusted return on tangible equity

Annualized adjusted return on tangible equity

15.1 % 19.7 % 16.5 % 21.8 %

Underwriting Results

The following table presents gross written premiums by underwriting division for the three months ended March 31, 2023 and 2022:

The following table presents gross written premiums by underwriting division for the three months ended June 30, 2023 and 2022:

($ in thousands) 2023 2022 Change % Change

10 unchanged sentences

Total gross written premiums $ 421,994 $ 326,227 $ 95,767 29.4 %

The quarter to date 2023 increase in gross written premiums, when compared to the same 2022 period, was primarily driven by double-digit premium growth in our global property and agriculture, transactional E&S, professional lines, surety and captives underwriting divisions.

The gross written premium increases were primarily driven by (i) new business, (ii) rate increases, and (iii) the addition of new products and units in global property and agriculture, professional lines and captives.

Net earned premiums were $182.8 million for the three months ended March 31, 2023, compared to $141.7 million for the same 2022 period, an increase of $41.1 million or 29.0%.

The increase in net earned premiums was primarily driven by the same reasons that drove the increase in gross written premiums discussed above.

For additional information regarding our reinsurance programs, see the “Reinsurance” discussion included in in this Item 2 .

The following table presents gross written premiums by underwriting division for the six months ended June 30, 2023 and 2022:

($ in thousands) 2023 2022 Change % Change

Global Property & Agriculture $ 198,420 $ 136,757 $ 61,663 45.1 %

Industry Solutions 146,882 137,371 9,511 6.9 %

Programs 101,297 94,513 6,784 7.2 %

Captives 85,363 70,166 15,197 21.7 %

Accident & Health 73,265 63,739 9,526 14.9 %

Professional Lines 66,161 34,912 31,249 89.5 %

Transactional E&S 60,249 31,334 28,915 92.3 %

Surety 50,922 35,528 15,394 43.3 %

Total continuing business $ 782,559 $ 604,320 $ 178,239 29.5 %

Exited business (67) 4,549 (4,616) (101.5 %)

Total gross written premiums $ 782,492 $ 608,869 $ 173,623 28.5 %

The second quarter and first half of 2023 increase in gross written premiums, when compared to the same 2022 periods, was primarily driven by double-digit premium growth in our transactional E&S, global property and agriculture,

professional lines, surety and captives underwriting divisions .

The gross written premium increases were primarily driven by new business and rate increases.

During the first half of 2023, we added new teams and products in our surety, captives, professional lines and global property and agriculture underwriting divisions.

Net earned premiums for the second quarter of 2023 were $194.3 million compared to $146.1 million for the same 2022 period, an increase of $48.2 million or 33.0%.

Net earned premiums for the first half of 2023 were $377.2 million compared to $287.8 million for the same 2022 period, an increase of $89.4 million or 31.1%.

The increase in net earned premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.

For additional information regarding our reinsurance programs, see the “Reinsurance” discussion included in this Item 2 .

Losses and LAE

The following table sets forth the components of the loss and LAE ratio and adjusted loss and LAE ratio for the three months ended March 31, 2023 and 2022:

The following table sets forth the components of the loss and LAE ratio and adjusted loss and LAE ratio for the three months ended June 30, 2023 and 2022:

($ in thousands) Losses

16 unchanged sentences

(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2

The loss and LAE ratio improved 0.7 points when compared to the same 2022 period.

Catastrophe losses from wind and hail events, including tornadoes, added 1.8 points to the current quarter loss ratio compared to the first quarter of 2022, which was not impacted by catastrophe losses.

The non-cat loss and LAE ratio improved 2.4 points when compared to the same 2022 period primarily driven by the continued run-off of exited business and the shift in the mix of business.

The following table sets forth the components of the loss and LAE ratio and adjusted loss and LAE ratio for the six months ended June 30, 2023 and 2022:

($ in thousands) Losses

Losses and LAE:

Non-cat loss and LAE (1)

$ 229,964 60.9 % $ 181,790 63.2 %

Cat loss and LAE (1)

10,045 2.7 % — 0.0 %

Prior accident year development - LPT

(704) (0.2) % — 0.0%

Total losses and LAE $ 239,305 63.4 % $ 181,790 63.2 %

Adjusted losses and LAE (2) :

Non-cat loss and LAE (1)

$ 229,964 60.9 % $ 181,790 63.2 %

Cat loss and LAE (1)

10,045 2.7 % — — %

Total adjusted losses and LAE (2)

$ 240,009 63.6 % $ 181,790 63.2 %

(1) Current accident year

(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2

The loss ratio for the second quarter of 2023 increased 1.2 points when compared to the same 2022 period.

Catastrophe losses from three large convective storm losses in the South in our global property and transactional E&S divisions added 3.5 points to the current quarter loss ratio, compared to the second quarter of 2022 which was not impacted

by catastrophe losses.

The non-cat loss and LAE ratio improved 2.1 points when compared to the same 2022 period primarily driven by the shift in the mix of business and continued run-off of exited business.

The loss ratio for the first half of 2023 increased 0.2 points when compared to the same 2022 period.

Catastrophe losses from second quarter convective storms and first quarter wind and hail events, including tornadoes, added 2.7 points to the loss ratio compared to the first half of 2022, which was not impacted by catastrophe losses.

The non-cat loss and LAE ratio improved 2.3 points when compared to the same 2022 period primarily driven by the shift in the mix of business and continued run-off of exited business.

Expense Ratio

The following table sets forth the components of the expense ratio for the three months ended March 31, 2023 and 2022:

The following table sets forth the components of the expense ratio for the three months ended June 30, 2023 and 2022:

($ in thousands) Expenses % of

6 unchanged sentences

Total net expenses $ 54,443 28.0 % $ 42,323 29.0 %

The expense ratio for the quarter improved 1.0 point when compared to the same 2022 period.

The improvement was driven by (i) improvement in the other operating and general expenses ratio due to the increase in earned premiums and (ii) an increase in commission and fee income when compared to the same 2022 period.

Partially offsetting the improvement was an increase in the net policy acquisition expense ratio due to the shift in our mix of business.

The expense ratio for the first quarter 2023 excludes the impact of our initial public offering (“IPO”) related stock compensation which is reported in other expenses in our condensed consolidated statements of operations and comprehensive (loss) income.

The following table sets forth the components of the expense ratio for the six months ended June 30, 2023 and 2022:

($ in thousands) Expenses % of

Net Earned Premiums Expenses % of

Net Earned Premiums

Net policy acquisition expenses $ 44,371 11.7 % $ 28,135 9.8 %

Other operating and general expenses 63,967 17.0 % 56,783 19.7 %

Underwriting, acquisition and insurance expenses 108,338 28.7 % 84,918 29.5 %

commission and fee income (3,732) (1.0 %) (2,290) (0.8 %)

Total net expenses $ 104,606 27.7 % $ 82,628 28.7 %

The expense ratios for the second quarter and first half of 2023 improved 1.0 point, respectively, when compared to the same 2022 periods, primarily driven by improvements in the other operating and general expenses ratios due to the increase in earned premiums.

Partially offsetting the improvements were increases in the net policy acquisition expense ratios due to the shift in our mix of business.

The expense ratios for the second quarter and first half of 2023 exclude the impact of IPO related stock compensation and secondary offering expenses, which are reported in other expenses in our condensed consolidated statements of operations and comprehensive income (loss).

Investment Results

The following table sets forth the components of net investment income and net investment gains (losses) for the three months ended March 31, 2023 and 2022:

The following table sets forth the components of net investment income and net investment gains (losses) for the three months ended June 30 and 2022:

($ in thousands) Net

8 unchanged sentences

Net unrealized gains (losses) on securities still held $ 5,017 $ (14,514)

Net realized gains 334 140

Net investment gains (losses) $ 5,351 $ (14,374)

(1) Excludes operating cash of $1 and $5, respectively.

The following table sets forth the components of net investment income and net investment gains (losses) for the six months ended June 30, 2023 and 2022:

($ in thousands) Net

Annualized Net

Short-term and money market investments $ 4,922 6.4 % $ 146 0.2 %

Core fixed income 13,306 3.6 % 6,396 2.6 %

Opportunistic fixed income (5,570) (6.1) % 18,473 25.7 %

Equities 569 0.7 % 657 1.7 %

Net investment income (1)

$ 13,227 2.1 % $ 25,672 6.2 %

Net unrealized gains (losses) on securities still held $ 8,784 $ (19,883)

Net realized (losses) gains (2,472) 1,071

1 unchanged sentence

(1) Excludes operating cash of $2 and $7, respectively.

Net investment income for the first quarter 2023 decreased $10.5 million when compared to the same 2022 period.

Increased income from our core fixed income portfolio and short-term and money market investments was offset by losses in our opportunistic fixed income portfolio.

The increase in income from our core fixed income portfolio was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) higher net investment yields of 3.7% compared to 2.7% for the same 2022 period.

The increase in income from short-term and money market investments was due to (i) a larger asset base driven by the addition of the net IPO proceeds and (ii) higher net investment yields of 3.5% compared to 0.0% for the same 2022 period.

The opportunistic fixed income portfolio was impacted by a decline in the fair value of certain limited partnership investments.

Net investment income for the second quarter and first half of 2023 decreased $1.9 million and $12.5 million, respectively, when compared to the same 2022 periods.

For the second quarter and first half of 2023, increased income from core fixed income and short-term and money market investments was offset by losses in opportunistic fixed income.

The increase in income from our core fixed income portfolio for the second quarter and first half of 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) higher net investment book yields of 3.6%, respectively, compared to 2.7% and 2.6%, respectively, for the same 2022 periods.

The increase in income from short-term and money market investments for the second quarter and first half of 2023 was due to higher investment yields of 5.3% and 6.4%, respectively, compared to 0.4% and 0.2%, respectively, for the same 2022 periods.

The opportunistic fixed income portfolio was impacted by a decline in the fair value of limited partnership investments for the second quarter and first half of 2023 when compared to the same 2022 periods.

When a fixed maturity has been determined to have an impairment, the impairment charge is separated into an amount representing the credit loss, which is recognized in earnings as a realized loss and on the balance sheet as an allowance for credit losses netted with the amortized cost of fixed maturities.

1 unchanged sentence

The amount related to non-credit factors is recognized in accumulated other comprehensive income and future increases or decreases in fair value, if not credit losses, are included in accumulated other comprehensive (loss) income.

We reviewed our available-for-sale fixed maturities at March 31, 2023 and determined that no credit impairment existed in the gross unrealized holding losses.

We reviewed our available-for-sale fixed maturities at June 30, 2023 and determined that no credit impairment existed in the gross unrealized holding losses.

See Note 2, “Investments” to our condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional information.

Composition of Investment Portfolio

The following table sets forth the components of our investment portfolio at carrying value at March 31, 2023 and December 31, 2022:

The following table sets forth the components of our investment portfolio at carrying value at June 30, 2023 and December 31, 2022:

($ in thousands) Fair

8 unchanged sentences

The portfolio is managed by third party managers.

The average duration of the portfolio was approximately 4.2 years and 4.3 years, respectively, as of March 31, 2023 and December 31, 2022.

The following table sets forth the components of our core fixed income portfolio at March 31, 2023 and December 31, 2022:

The average duration of the portfolio was approximately 4.2 years and 4.3 years, respectively, as of June 30, 2023 and December 31, 2022.

The following table sets forth the components of our core fixed income portfolio at June 30, 2023 and December 31, 2022:

($ in thousands) Fair value % of total

7 unchanged sentences

Core fixed income securities, available-for-sale $ 767,491 100.0 % $ 607,572 100.0 %

The weighted average credit rating of the portfolio was “AA” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at March 31, 2023 and December 31, 2022.

The following table sets forth the credit quality of our core fixed income portfolio at March 31, 2023 and December 31, 2022, as rated by Standard & Poor’s or equivalent designation:

The weighted average credit rating of the portfolio was “AA” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at June 30, 2023 and December 31, 2022.

The following table sets forth the credit quality of our core fixed income portfolio at June 30, 2023 and December 31, 2022, as rated by Standard & Poor’s or equivalent designation:

($ in thousands) Fair value % of total Fair value % of total

6 unchanged sentences

Opportunistic fixed income

The opportunistic fixed income portfolio is managed by Arena which is affiliated with Westaim, our largest shareholder.

The opportunistic fixed income portfolio is managed by Arena which is affiliated with Westaim, our largest stockholder.

The opportunistic fixed income portfolio consists of separately managed accounts, limited partnerships, promissory notes and equity interests.

The underlying securities are primarily floating rate senior secured loans, comprised of short duration, collateralized, asset-oriented credit investments designed to generate attractive risk-adjusted returns.

The limited partnerships are subject to future increases or decreases in asset value as asset values are monetized and the income is distributed.

As of March 31, 2023, the opportunistic fixed income portfolio consisted of three components:

The limited partnerships are subject to future increases or decreases in asset value as asset values are monetized and the income

is distributed.

As of June 30, 2023, the opportunistic fixed income portfolio consisted of three components:

diversified asset based lending (55.6%), commercial mortgage loans (27.9%) and cash and cash equivalents (16.5%).

The following table sets forth the components of our opportunistic fixed income portfolio by industry sector at March 31, 2023 and December 31, 2022:

The following table sets forth the components of our opportunistic fixed income portfolio by industry sector at June 30, 2023 and December 31, 2022:

($ in thousands) Fair

9 unchanged sentences

(2) Includes cash on settlements that have not yet been reinvested.

The average duration of the direct loans in the portfolio is approximately 1.5 years and 1.4 years as of March 31, 2023 and December 31, 2022, respectively.

The average duration of the direct loans in the portfolio is approximately 1.4 years and 1.4 years as of June 30, 2023 and December 31, 2022, respectively.

The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations and other types of equity interests, 78.1% of which are publicly traded.

The portfolio is directed internally and includes both self-managed investments and portfolios managed by third-party investment management firms.

The following table sets forth the components of our equities portfolio by security type at March 31, 2023 and December 31, 2022:

The following table sets forth the components of our equities portfolio by security type at June 30, 2023 and December 31, 2022:

($ in thousands) Fair

5 unchanged sentences

(1) Other includes limited partnerships, limited liability companies and other equity interests

Income tax expense was $4.2 million and $4.3 million, respectively, for the three months ended March 31, 2023 and 2022.

Our effective tax rate was 21.1% and 20.7%, respectively, for the three months ended March 31, 2023 and 2022.

Income tax expense for the three and six months ended June 30, 2023 was $5.6 million and $9.7 million, respectively, compared to $1.3 million and $5.6 million, respectively, for the same 2022 periods.

Our effective tax rate for the three and six months ended June 30, 2023 was 22.2% and 21.7%, respectively, compared to 20.3% and 20.6%, respectively, for the same 2022 periods.

For additional information, see Note 9 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.

4 unchanged sentences

Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that generally earn interest and dividends.

We also use cash to pay for operating expenses such as salaries, rent and taxes and capital expenditures such as technology systems.

We also use cash to pay for operating expenses such as salaries, rent and taxes and capital expenditures such as

technology systems.

We use reinsurance to manage the risk that we take on our policies.

3 unchanged sentences

Management believes that cash receipts from premiums and proceeds from investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the three months ended March 31, 2023 and 2022 were:

Our cash flows for the six months ended June 30, 2023 and 2022 were:

($ in thousands) 2023 2022

7 unchanged sentences

Cash flows from operations in each of the past two years were used primarily to fund investing activities.

Net cash used in investing activities in 2023 and 2022 was primarily driven by purchases of short-term investments and fixed maturity securities.

Net cash used in investing activities in 2023 and 2022 was primarily driven by purchases of fixed maturity securities and short-term investments.

Net cash provided by financing activities in 2023 was primarily from proceeds of $66.3 million from our IPO.

1 unchanged sentence

Revolving Credit Facility

On March 29, 2023, we entered into an agreement to obtain a new unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks.

On March 29, 2023, we entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks.

The Revolving Credit Facility provides us with up to a $150.0 million revolving credit facility, with an accordion that can increase the capacity by $50.0 million, and a letter of credit sub-facility of up to $30.0 million.

During the three months ended March 31, 2023, we drew $50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on our existing term loan.

During the first quarter of 2023, we drew $50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on our existing term loan.

In connection with our entry into the Revolving Credit Facility, we terminated the existing term loan and revolving line of credit pursuant to our Credit Agreement dated as of December 11, 2019, with Prosperity Bank.

The interest rate on the Revolving Credit Facility was the Secured Overnight Financing Rate (“SOFR”) plus a margin of between 0 and 0 basis points based on the ratio of debt to total capital and a credit spread adjustment of 0 basis points.

Interest on the Revolving Credit Facility is payable quarterly.

The interest rate on the Revolving Credit Facility is the Secured Overnight Financing Rate (“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.

At June 30, 2023, the six-month SOFR on the Revolving Credit Facility was 4.66%, plus a margin of 1.60%.

We are 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.

As of March 31, 2023, we are in compliance with all covenants.

As of June 30, 2023, we are in compliance with all covenants.

Trust Preferred

2 unchanged sentences

The Trust Preferred are an unsecured obligation, are redeemable, and have a maturity date of September 15, 2036.

Interest on the Trust Preferred is payable quarterly at an annual rate based on the three-month LIBOR (5.19% and 4.77% on March 31, 2023 and December 31, 2022, respectively), plus 3.4%.

Interest on the Trust Preferred is payable quarterly at an annual rate based on the three-month LIBOR (5.55% and 4.77% at June 30, 2023 and December 31, 2022, respectively), plus 3.4%.

Subordinated Debt

1 unchanged sentence

Interest on the subordinated notes is 7.25% fixed for the first eight years and 8.25% fixed thereafter.

Early retirement of the debt ahead of the eight year commitment requires all interest payments to be paid in full, as well as the return of all capital.

retirement of the debt ahead of the eight-year commitment requires all interest payments to be paid in full, as well as the return of all capital.

Principal payment is due at maturity on May 24, 2039 and interest is payable quarterly.

At March 31, 2023 the ratio of total debt outstanding, including the Revolving Credit Facility, the Trust Preferred and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 20.2% and at December 31, 2022, the

ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 23.4%.

At June 30, 2023 the ratio of total debt outstanding, including the Revolving Credit Facility, the Trust Preferred and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 19.8% and at December 31, 2022, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 23.4%.

We strategically purchase reinsurance from third parties which enhances our business by protecting capital from severity events (either large single event losses or catastrophes) and reducing volatility in our earnings.

7 unchanged sentences

It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.

For the three months ended March 31, 2023 and 2022, our net retention on a written basis (calculated as net written premiums as a percentage of gross written premiums) was 56.1% and 47.9%, respectively.

The following is a summary of our reinsurance programs as of March 31, 2023:

For the three and six months ended June 30, 2023 our net retention on a written basis (calculated as net written premiums as a percentage of gross written premiums) was 50.6% and 53.1%, respectively, compared to 57.9% and 53.2%, respectively, for the same 2022 periods.

The following is a summary of our reinsurance programs as of June 30, 2023:

Line of Business Maximum Company Retention

12 unchanged sentences

$1.55 million per occurrence

Cyber $2.69 million per occurrence

Representation and Warranty $2.50 million per occurrence

(1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis