What changed in this filing

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Item 1. Business

2024-04-01 compared with 2023-03-28 · 125 added, 204 removed, 328 unchanged (50% of the section changed)

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and its subsidiaries.

We are a growing specialty insurance company delivering commercial property casualty (P&C) products and solutions on a non-admitted (or E&S) and admitted basis, predominantly in the United States.

We are a growing specialty insurance company delivering commercial property and casualty (P&C) products and solutions on a non-admitted (or E&S) and admitted basis, predominantly in the United States.

We focus our business on markets that are underserved, dislocated and/or for which standard insurance coverages are insufficient or inadequate to meet the needs of businesses, including our customers and prospective customers operating in these markets.

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we distribute through multiple channels;

we write multiple lines of business, including general liability, excess liability, professional liability, commercial auto, group accident and health, property, surety and workers’ compensation;

we write multiple lines of business, including general liability, excess liability, professional liability (including cyber insurance), commercial auto, group accident and health, property, agriculture, surety and workers’ compensation;

we insure both short and medium duration liabilities;

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Best Company (“A.M.

Best”) with a stable outlook.

On January 18, 2023, we completed our initial public offering (the “IPO”), of 10,295,240 shares of common stock, consisting of 4,750,000 shares sold by us and 4,202,383 shares sold by selling stockholders, at the public offering price of $15.00 per share.

The underwriters also exercised their option to purchase 1,342,857 additional shares of common stock from the selling stockholders.

The net proceeds to the Company were approximately $62.3 million, after deducting underwriting discounts and specific incremental expenses directly attributable to the IPO.

Best”) with positive outlook.

Our Business and Our Strategy

We have one reportable segment through which we offer a broad array of insurance coverages to a number of market niches.

Each of our eight distinct underwriting divisions has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches.

Each of our eight distinct underwriting divisions, or “continuing business,” has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches.

We believe this structure and expertise allow us to serve the needs of our customers effectively and be a value-add partner to our distributors, while earning attractive risk-adjusted returns.

For the year ended December 31, 2023, 43% of our gross written premiums were written on an admitted basis and 57% were non-admitted.

The year ended 2023 marked a significant underwriting achievement for us as each of our eight underwriting divisions wrote over $100.0 million in gross written premiums.

Our Underwriting Divisions

Accident & Health :

Our Accident & Health (“A&H”) underwriting division provides a medical stop loss solution targeting organizations with less than 2,500 employees.

Our Accident & Health (“A&H”) underwriting division provides a medical stop loss solution targeting organizations with less than 2,500 employees, as well as group and single-employer captive solutions.

Our approach for managing medical costs, combined with our claims oversight, enables us to partner with select distribution partners.

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We write these products on an admitted basis and distribute primarily through retail brokers and wholesale broker partners.

We established our presence in the A&H marketplace in 2015 through an acquisition of a program administrator, expanding our scope in 2016 with another program administrator partnership and eventual acquisition in 2018.

Our Captives underwriting division provides group captive solutions by drawing on our underwriting and claims expertise from other underwriting divisions to create group captives for companies seeking to self-insure.

By leveraging our underwriting, claims, technology, and analytical expertise across our Company, we are able to broaden our

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market reach and write additional profitable business with limited additional expense.

Our Captive underwriting division writes property, general liability, commercial auto, excess liability, and workers’ compensation lines of business on an E& S and an admitted basis.

By leveraging our underwriting, claims, technology, and analytical expertise across our Company, we are able to broaden our market reach and write additional profitable business with limited additional expense.

Our Captive underwriting division writes group A&H, property, general liability, commercial auto, excess liability, and workers’ compensation lines of business on an E&S and an admitted basis.

We often administer this business through partnerships with third-party captive managers.

Global Property :

Our Global Property underwriting division provides property-only solutions to large multi-jurisdictional entities with complex property exposures.

Global Property and Agriculture :

Our Global Property underwriting unit provides property-only solutions to large multi-jurisdictional entities with complex property exposures.

The business is written entirely on an E&S basis.

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Our book and position with our customers and distribution partners has been curated over more than ten years, and we have become an important partner to the brokers that place this business and an equally important part of our insureds’ risk transfer program.

Our Global Agriculture underwriting unit provides secondary and reinsurance solutions for crop, livestock and other renewable resources.

Industry Solutions :

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Our Professional Lines underwriting division includes three underwriting units:

Management Liability, Professional Liability, and Allied Health.

Management Liability, Professional Liability (which includes cyber insurance), and Allied Health.

Professional Liability and Allied Health provide E&S primary and excess claims-made liability products distributed exclusively through wholesale brokers, while our Management Liability unit provides both E&S and admitted products distributed through both wholesale and retail brokers.

Our teams of experienced professional lines underwriters and claims professionals strive to deliver creative solutions effectively and efficiently, often for higher severity exposures, thereby providing value to our distribution partners and customers.

Our Programs underwriting division partners with program administrators focused on certain markets that align with our expertise and strategy.

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Our Programs underwriting division writes property, general liability, commercial auto liability, excess liability, and workers’ compensation lines of business on an E&S and an admitted basis.

Our Surety underwriting division provides contract and commercial surety solutions to a range of trade and services organizations requiring bonding.

We principally focus on small to medium sized enterprises with aggregate bond programs up to approximately $60.0 million.

Our Surety underwriting division provides contract, commercial and transactional surety solutions to a range of trade and services organizations requiring bonding.

We principally focus on small to medium sized enterprises with aggregate bond programs up to approximately $50.0 million for contract and $75.0 million for commercial and transactional.

Our underwriting and claims professionals differentiate themselves through their technical capabilities and decision making speed.

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We access the market in this division exclusively through wholesale brokers.

We formed our Transactional E&S division in September 2020 with the hiring of experienced underwriters with whom our leadership team worked at prior companies to build this business.

In addition to the underwriting divisions listed above (which we refer to as our “continuing business”), in the twelve months ended December 31, 2022 we wrote premiums in certain markets and lines of business that we have exited and placed into run-off following a determination that they did not fit our “Rule Our Niche” strategy.

We refer to these lines and businesses, along with others we previously exited, as our “exited business.”

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The following graphic depicts the percentage distribution of gross written premiums for continuing business by underwriting division for the year ended December 31, 2022:

The following charts outline the percentage of gross written premiums for continuing business on an admitted and non-admitted basis, by duration of risk (short-tail, which is generally less than two years, versus medium-tail, which is generally greater than two years), and by distribution source for the year ended December 31, 2022:

In addition to our continuing business, there are business units and lines of business that we previously exited and placed into run-off.

We refer to these lines and businesses as our “exited business.”

We seek to lead in our chosen market niches and establish sustainable competitive positions in these markets.

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Fostering a culture that promotes nimbleness and responsiveness to market opportunities and dislocation.

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We refer to this strategy as “Rule Our Niche” and it forms the basis of our approach to building a strong defensible market position, creating a competitive moat, and winning in our chosen markets.

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We consistently strive for excellence in risk selection, pricing, and claims outcomes, and to amplify these critical functions with the use of advanced technology and analytics.

Within every underwriting division, our actions are intentional to “Rule Our Niche.” We aim to innovate constantly, and our actions are specific to each of our divisions and the markets we serve.

Some notable highlights are:

Within our Specialty Trucking underwriting unit, we developed the award-winning, proprietary SkyDrive underwriting and risk management portal for our underwriters, brokers, and insureds to address a market that has been disrupted for some time due to the loss experience of certain incumbent carriers operating in the market.

Our portal synthesizes real-time intelligence on driver and fleet history, safety, and performance, utilizing telematics and other data from a variety of sources.

We believe the portal significantly increases the power of our risk selection, underwriting, risk management and claims decision-making.

Given the success of SkyDrive, we have started to deploy components of SkyDrive across our commercial auto exposures in other underwriting divisions as well.

• Quick-Strike :

Across all of our commercial auto lines, we utilize an innovative “quick strike” response to claims events.

We seek to have an experienced investigator at the scene of an accident within two hours of the event, regardless of the location, to access, and if appropriate, to resolve quickly any third-party claims.

• SkyVantage :

Within our Accident & Health underwriting division, we have deployed SkyVantage, our latest technology driven stop-loss solution.

SkyVantage leverages big data and machine learning to evaluate group health risk at a deeper level, particularly for smaller accounts (those with less than 250 lives) for which we believe efficient data capture and data fidelity are critical to the underwriting process.

We utilize SkyVantage to facilitate risk scoring to augment our experienced underwriters’ analyses for risk selection and pricing.

• Cannabis Industry :

As part of our focus on underserved markets, we identified the cannabis industry as a market niche not sufficiently served by the P&C insurance industry.

In property and general liability lines, we elected to partner with a technology-forward program administrator with specific capabilities for the cannabis industry.

We subsequently developed and launched cannabis specific professional and executive liability products we offer directly to our wholesale partners, and then further developed and launched cannabis specific commercial surety products.

We identified, evaluated, and launched products across these underwriting divisions in less than six months.

We believe we have one of the market leading product offerings for cannabis, one of the fastest growing industries in the United States as measured by sales and job creation.

• Construction Captive :

Together with our distribution partners for our Construction underwriting unit, we identified an opportunity to leverage our market leading experience and capabilities in a particular specialty contractor segment.

We subsequently developed and launched an innovative captive solution for this segment which is offered side-by-side with our traditional guaranteed cost product.

As a result, we have significantly broadened the portion of this market we can serve while leveraging our existing underwriting, claims and analytic expertise.

Our Competitive Strengths

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Many carriers have chosen to reject businesses that they deem to be too complex, or that requires thoughtful individual underwriting;

or, alternatively, have focused on simple small account risks for which more automated underwriting can be effective.

or, alternatively, have focused on simple account risks for which more automated underwriting can be effective.

Instead, we have chosen to build our underwriting divisions around deeply experienced underwriters who we empower with appropriate authority to make underwriting decisions.

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Further, we augment our underwriters’ experience with data and predictive analytics that are intended to differentiate risk selection and pricing decision-making while enhancing efficiency.

We believe our adjusted combined

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ratio of 92.6% for the year ended December 31, 2022 and 94.6% for the year ended December 31, 2021 are evidence of our underwriting profitability potential in the lines of business we target.

Highly skilled underwriters .

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Superior Claims Staff and Operations .

We have cultivated a best-in-class and highly specialized team of claims professionals who are highly knowledgeable about the niches we serve the lines of business we write.

We have cultivated a best-in-class and highly specialized team of claims professionals who are highly knowledgeable about the niches we serve and the lines of business we write.

Our claims professionals systematically address first party claims with fair and equitable solutions and third-party claims with holistic and comprehensive responses, in each case seeking to ensure consistent and early loss recognition of indemnity and loss adjustment expenses (“LAE”).

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We fundamentally believe that every underwriting and claims decision can be augmented with the use of new types of risk data and advanced technology.

While our underwriting decisions are backed by reliable historical data and in-depth evaluation of risks resulting from intentional investment in data collection and processing capabilities, we amplify our underwriting and claims prowess by combining this data with new forms of risk data and predictive analytics.

Examples of our utilization of technology include our use of SkyDrive in our Specialty Trucking unit and deployment of SkyVantage in our A&H line.

While our underwriting decisions are backed by reliable historical data and in-depth

evaluation of risks resulting from intentional investment in data collection and processing capabilities, we amplify our underwriting and claims prowess by combining this data with new forms of risk data and predictive analytics.

Diversified business that allows us to respond to, and capitalize on, changes in market conditions across P&C cycles.

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Attractive and winning culture.

As evidenced by our internal surveys and public information such as that available on Glassdoor and LinkedIn, we have built a distinctive winning culture.

As evidenced by our internal surveys, public information such as that available on Glassdoor and LinkedIn, and our selection as a “Best Places to Work in Insurance,” we have built a distinctive winning culture.

Key to our culture and operating approach is a flat structure of communication and decision-making.

We trust our staff to make decisions that produce or exceed our desired financial results, and we support our staff with a clear system of measurement to gauge performance.

Our use of advanced technology to enhance, but not replace, our underwriting and claims teams’ decision-making is both practical and a source of value to our professionals.

We have chosen to adopt a hybrid work schedule which provides our employees with the flexibility for remote working.

We pride ourselves on maintaining an entrepreneurial environment that encourages and rewards a proactive approach to capitalize on market disruption.

This environment is not only consistent with our identity as a specialty insurer but also a foundation for our success in attracting great talent and our objective of delivering best-in-class results.

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High-quality, experienced leadership team that is aligned with our shareholders.

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Each of our leaders have a material portion of their compensation in the form of long-term and short-term incentives tied to delivering sustainable, best-in-class underwriting returns.

Select members of our executive leadership team have additional long term incentive targets tied directly to growth in book value per share.

Our executive leadership team have additional long-term incentive targets tied directly to growth in book value per share.

Our Strategy in Action

With everything we do, from recruiting to marketing to underwriting to loss adjusting and claims resolution, we seek to follow the core tenets of our “Rule Our Niche” strategy.

This strategy is based on (i) selecting underserved market niches with attractive risk-adjusted returns for which commoditized products are inadequate to meet the needs of customers;

and (ii) building sustainable defensible competitive positions in these markets with talent and technology.

With everything we do, from recruiting to marketing to underwriting to loss adjusting and claims resolution, we seek to follow the core tenets of our “Rule Our Niche” strategy, as described above.

We believe our “Rule Our Niche” strategy will help us achieve our goal of generating best-in-class underwriting profitability for our niches while creating superior long-term shareholder value through growth in book value per share.

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One such trend is the continued rise in demand for specialized insurance solutions because of increasing risks, as well as the complexity of risks, due to climate change/increased frequency of severe weather events, supply chain uncertainty, financial inflation risk, cyber risk, emergence of novel health risks, increased level of litigation, attorney involvement and jury awards, and healthcare delivery and cost.

Another such noticeable market trend is the emergence of different types of economic cycles within the commercial P&C market.

Historically, we saw what appeared to be the market moving in lockstep across all lines of business.

Today, in our opinion, the market is experiencing a variety of “micro cycles and micro dislocations” where different pockets of the P&C insurance market experience hardening and softening at different times.

Within the last 24 months, we have demonstrated our ability to react quickly in response to these trends by launching our Allied Health professional lines underwriting unit, entering the cannabis industry in three of our underwriting divisions, completing the acquisition of Aegis Surety, announcing a program administration technology partnership in cargo, launching two new captive solutions and adding an excess liability capability in our E&S business.

Another such noticeable market trend is the emergence of

“micro cycles and micro dislocations” where different pockets of the P&C insurance market experience hardening and softening at different times.

We have demonstrated our ability to react quickly in response to these trends by launching new underwriting units, entering underserved markets, partnering with others with advanced technology, and launching new captive solutions.

We believe our gross written premium growth and profitability is indicative of our momentum and provides a powerful reference for the positioning of our Company to continue to expand and grow in the markets we seek to serve.

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Our focus on the fundamentals that drive underwriting excellence is at the center of our strategy.

Furthermore, our cross functional collaboration ensures that our underwriting, claims, actuarial and product management

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teams regularly review performance and trends so that portfolio, pricing and coverage changes can be implemented quickly.

Furthermore, our cross functional collaboration ensures that our underwriting, claims, actuarial and product management teams regularly review performance and trends so that portfolio, pricing and coverage changes can be implemented quickly.

Use our balance sheet to capture a larger part of the market we serve.

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We believe this is imperative to maintain the confidence of customers, distribution partners, reinsurers, regulators, rating agencies and shareholders.

Since 2019, in addition to executing the LPT to limit our exposure to potential loss reserve development primarily associated with certain exited business, we have materially strengthened our claims case reserves practices with the aim to reserve to the expected ultimate loss within 90 days of first notice of loss.

In addition, we have intentionally increased the level of IBNR reserves held above our claims case reserves to a more conservative position.

Our net IBNR as a percentage of total net losses and LAE reserves was 61.8% as of December 31, 2022 compared to 60.0% as of December 31, 2021.

We believe our reserve position is now the strongest it has been in our history and positions us well for consistently strong underwriting profitability in the future.

We have strengthened our claims case reserves practices with the aim to reserve to the expected ultimate loss within 90 days of the first notice of loss.

In addition, we increase the level of IBNR reserves held above our claims case reserves.

We believe our conservative reserve philosophy positions us well for consistently strong underwriting profitability in the future.

Marketing and Distribution

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This approach allows us to access the business we target effectively and efficiently based on the needs and dynamics of a particular market niche.

Retail Agents and Brokers :

We primarily distribute our Industry Solutions and Surety products and a portion of our Global Property products through retail agents and brokers.

We seek to partner with retail agents and brokers that specialize in the niche markets we target and have an ability to produce both our desired quality and quantity of business.

We believe these specialized retail agents and brokers have better visibility into their clients’ needs which helps us to better customize coverages to meet those needs.

Wholesale Brokers :

We primarily market and distribute our Professional Lines, and Transactional E&S products and a portion of our Global Property products through specialist wholesale brokers, including through London market wholesale brokers.

We are deliberate in partnering with leading wholesale brokers in our target markets with the experience, knowledge, and ability to produce the type, volume, and quality of business we seek to write.

We write business with many of the leading wholesalers in the United States and London.

Program Administrators :

We partner with select program administrators that we believe have competitive advantages in certain markets owing to their scale, underwriting, technology and/or distribution infrastructure, and who align with our strategy.

We conduct thorough diligence on program administrators before entering into new partnerships to ensure alignment on underwriting and risk management.

We set strict underwriting guidelines to ensure that the business produced meets our target returns.

In addition, we regularly and actively monitor the performance of the business produced by our program administration partners to ensure that it is consistent with our expectations.

We also impose stringent reporting and auditing requirements on our partners designed to identify any potential issues before they arise.

We are not a fronting carrier and generally do not intend to generate fee income from our program partners.

Currently, we have relationships with six program administrators.

In all instances, we seek to align compensation of our program administration partners to meet our target underwriting profit.

In two of our partnerships, we have further aligned our interests by having a minority equity ownership position and/or warrants to acquire an equity ownership position in the respective program administrators.

Captive Managers :

We partner with captive managers as they serve a critical role in sourcing prospective customers, supporting the sale of the captive product, and administering the group captive.

Captive Managers work directly with retail agents and brokers to ensure a prospective customer is suitable for a group captive solution and to assist the retail agent or broker in the presentation of the group captive product.

The captive manager also facilitates the day-to-day needs of the captive and its members and coordinates various administrative and operating functions for the captive including compliance, financial reporting, and board meetings.

In certain instances, the captive manager will pre-

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underwrite a prospective customer prior to submission for full underwriting review by our Captives underwriting unit.

Delivery of other components of the captive product, including underwriting, claims oversight, reinsurance, and collateral management for claims are functions we perform.

Close partnership on nearly all functions is critical to the successful construction and delivery of our group captive solutions.

Our approach to underwriting is deeply embedded in our “Rule Our Niche” strategy and is core to how we win in the market.

Within the eight divisions, we further specialize underwriting teams with a focus on specific niches within the markets the eight divisions serve.

Kirby Hill, our President of Industry Solutions, Captives and Programs underwriting divisions, has more than 30 years of experience spanning multiple facets of the insurance business, John Burkhart, our President of Specialty Lines overseeing the Professional Lines, Surety, Transactional E&S and A&H underwriting divisions, has approximately 30 years of underwriting experience, and Doug Davies, our Senior Vice President of the Global Property Underwriting Division, has approximately 20 years of underwriting experience.

Kirby Hill, our President of Industry Solutions, Captives and Programs underwriting divisions, has more than 30 years of experience spanning multiple facets of the insurance business, John Burkhart, our President of Specialty Lines overseeing the Professional Lines, Surety, Transactional E&S and A&H underwriting divisions, has approximately 30 years of underwriting experience, and Doug Davies, our Senior Vice President of the Global Property and Agriculture Underwriting Division, has approximately 20 years of underwriting experience.

Our underwriting approach is underpinned by hiring highly experienced, best-in-class and diverse teams of technical underwriters with established track records in specific specialty niche markets.

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Finally, our underwriting controls and procedures are regularly reviewed to ensure our underwriters are acting with clear line of sight to profitably underwrite each of the markets we serve.

Overall, we believe that our best-in-class underwriting talent, our use of advanced technology and analytics to enhance our underwriting selection and pricing, as well as our orientation to surround our underwriters with support from other functional areas to act on opportunities and respond to potential disruption is a unique composition of capabilities to “Rule Our Niche” in each of the markets we serve.

Claims Management

During the year ended December 31, 2022, we handled 72.5% of our claims in-house, measured as percentage of gross reported losses.

In the limited instances where we do not handle claims in-house, we utilize TPAs.

Specifically, we utilize TPAs for a select set of captives and programs for which the TPA possesses specific expertise that we would not seek to replicate.

We also utilize TPAs for our workers’ compensation line of business, given the specific geographical knowledge that is required to adjudicate these claims.

Our internal claims managers actively oversee TPA activities and monitor their individual claim handling activities to our prescribed service levels and standards.

In addition, our claims department works closely with our underwriting teams to keep them apprised of claims trends and provide feedback to our underwriters on emerging areas of loss experience.

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Our claims department is guided by the following principles:

Skyward’s claims department is guided by the following principles:

(1) prompt and comprehensive claim investigations, considering all aspects of each loss, and using advanced analytics and technology to improve efficiency, accuracy and speed of response;

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(3) promptly establishing reserves reflective of our best estimate of ultimate loss;

(4) effectively pursuing contribution and subrogation on every claim;

(5) detecting and preventing fraud activity throughout the claims handling process using a variety of existing tools and new technological processes;

(4) effectively pursuing contribution and subrogation where appropriate and warranted;

(5) detecting and preventing fraud activity throughout the claims handling process using a variety of tools;

and (6) disciplined litigation management to provide our customers with a superior legal defense while closely monitoring legal costs.

Moreover, when our insureds are sued or presented with a claim against them, we retain specialized independent legal counsel to defend and represent them.

We vet both individual attorneys, and their law firms, to ensure they have the experience and expertise required to defend our insureds effectively and efficiently.

We have developed carefully crafted litigation guidelines for both our claims processionals and our outside counsel to ensure that counsel is providing the appropriate defense to our insureds.

To ensure that defense costs are reasonable, customary and standard within the respective attorneys’ geography and practice area, we review legal invoices to confirm case handling and billing practices fall within our retainer agreement with the law firm.

We have invested heavily in technology in all aspect of our claims from first notice of loss through claims settlement.

Like underwriting data, our claims data is captured in SkyBI for reporting and analytics.

We have also sought to innovate our claims processes to reduce loss costs.

By way of example, for commercial auto, we have implemented “quick strike” response to claims events that deploys an experienced investigator at the scene of an accident within two hours of the event, regardless of the location, to access, and if appropriate, to resolve quickly any third-party claims.

Similarly, we are piloting the use of artificial intelligence to signal fraud, early indicators of propensity for legal representation by third party claimants, and to route claims at first notice of loss based on potential severity.

To this end, we provide continuous training to our claim staff on claim evaluation, strategy, litigation management, good-faith claims handling and best practices.

Our ultimate goal is to achieve timely and optimal claim outcomes.

We handle the majority of our claims in-house.

In certain instances, we utilize Third Party Administrators (TPAs), to handle claims on Skyward’s behalf, when needed.

Specifically, we may utilize TPAs for programs, captives, occupational accident, workers compensation and Loss Portfolio Transfer (LPT) runoff claims.

We actively manage and oversee our TPAs and monitor their individual claims-handling activities, to be in accordance with our claims handling and reserving guidelines and general best practices.

We regularly audit our TPAs to ensure compliance with these guidelines and practices.

When the retention of counsel is warranted for a liability claim made against an insured, we retain independent legal counsel to defend and represent an insured.

We select defense counsel based on their geographical location and expertise to ensure that they have the requisite experience and legal knowledge to defend our insureds effectively and efficiently.

We have developed carefully crafted litigation guidelines for both our claims professionals and our outside counsel to follow.

Adherence to these guidelines ensures that counsel is providing the appropriate defense to our insureds.

Finally, to ensure that legal costs are reasonable, and customary within the respective defense counsel’s geography and practice area, we employ a legal spend management solution to analyze legal invoices for adherence to case handling and billing practice standards.

We are leveraging technology to gain efficiencies in the claims-handling process.

For example, we launched a technology solution to speed up the process of creating claims correspondence and to automate routine tasks behind the scenes, such as vendor payments.

Similarly, we are piloting the use of artificial intelligence to route claims to the best-suited claims handler based on likely severity.

We are also developing a Large Language Model to identify claims with early indicators for potential severity, unusual types of exposures or the propensity for legal representation by third party claimants.

Additionally, we are always looking for opportunities to resolve our claims as efficiently and effectively as possible.

For example, for commercial auto, we have implemented a “quick strike” program to respond to claim reports.

This program involves deploying experienced investigators and other appropriate vendors to the scene of a reported auto accident, ideally within two hours of the accident, regardless of the location.

This quick response assists us in evaluating the facts and circumstances of the accident to begin our investigation as quickly as possible.

If appropriate, our program aids us in resolving any third-party claims as quickly as possible.

Finally, our claims handlers and managers are organized by line of business to ensure that the right expertise is brought to bear in handling claims.

The managers and adjusters work very closely with their underwriting partners to keep them apprised of legal trends and emerging claims issues of note.

The goal is to educate our underwriters on emerging areas of loss experience to assist them in their risk selection processes.

Our technology is at the heart of everything we do and every decision we make, helping us to win over the long-term.

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Within every underwriting division, our actions are intentional to “Rule Our Niche.” We aim to innovate constantly, and our actions are specific to each of the divisions/markets we serve.

Examples include SkyDrive and SkyVantage.

Core Transactional Platforms.

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We also back-up our data daily for system restoration if needed.

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actions we take to prevent disruptions to our systems and data include:

Additional actions we take to prevent disruptions to our systems and data include:

actively monitoring Cybersecurity and Infrastructure Security Agency’s (CISA) cybersecurity directives, taking immediate action on any vulnerability identified in a directive;

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$1.0 million per occurrence

Cyber $2.69 million per occurrence

Excess Casualty (1)(2)

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$2.8 million per occurrence

Representation and Warranty $2.5 million per occurrence

$3.0 million per occurrence

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We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.

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In the event of a catastrophe that impacts our reinsurance contracts, a portion of our reinsurance program includes the right to pay additional premium to reinstate reinsurance limits for potential future recoveries during the same contract year and preserve our limit for subsequent events.

This payment for subsequent event coverage is known as a “reinstatement.”

In addition to our reinsurance programs for our continuing business, during 2020, we entered into a LPT retroactive reinsurance agreement with a third-party reinsurer domiciled in Bermuda for liabilities (including claim payments, allocated losses and LAE reserves and certain extra-contractual obligations) related to certain policies issued or assumed for policy years 2017 and prior so as to limit the volatility associated with the business written during those years.

For additional information about the LPT, see Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Losses and LAE.”

Certain ceded reinsurance contracts, which we determined do not transfer significant insurance risk, are accounted for using the deposit method of accounting.

See the section entitled “Management’s Discussion and Analysis — Critical Accounting Policies and Estimates — Reinsurance” for more information regarding the deposit method of accounting.

For the years ended December 31, 2022 and 2021, our net premium retention, defined as the ratio of net premiums written divided by gross written premiums, was 59.1% and 56.3%, respectively.

We seek to purchase reinsurance from reinsurers that are rated at least “A-” (“Excellent”) or better by A.M.

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Hence, failure of the reinsurer to honor its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible.

At December 31, 2022 and 2021, there was no allowance for uncollectible reinsurance.

At December 31, 2023 and 2022, our allowance for uncollectible reinsurance was $2.3 million and $0.0 million, respectively.

The following table sets forth our most significant reinsurers by amount of reinsurance recoverables, as well as the reinsurers A.M.

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121,805 Unrated

Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2)

38,146 Unrated

RGA Reinsurance Company 37,070 A+

Partner Reinsurance Co.

of the US 23,381 A+

Swiss Reinsurance America Corp 22,334 A+

Munich Reinsurance America Inc.

Hannover Ruckversicherung AG 14,114 A+

Amlin Bermuda Limited 13,206 A

Scor Reinsurance Co.

General Reinsurance Corp 21,548 A++

Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2)

20,859 Unrated

ACE (Chubb Property & Casualty Insurance Company) 16,003 A+

Aspen Insurance UK Limited 14,822 A

Munich Reinsurance America Inc.

Top 10 Total 414,471

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Our Chief Risk Officer oversees several critical ERM processes as well as chairing our cross-functional corporate ERM Committee.

We formalize our own view of risk and solvency in terms of potential economic loss using our Economic

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Capital Model (“ECM”).

We formalize our own view of risk and solvency in terms of potential economic loss using our Economic Capital Model (“ECM”).

We use the output of our ECM to measure potential earnings and capital loss for a range of scenarios.

These outputs are measured against risk tolerances that are set out and updated annually by the ERM Committee and discussed with the Audit Committee of our Board.

These outputs are measured against risk tolerances that are set out and updated annually by the ERM Committee and discussed with the Risk Committee of our Board.

More specifically, our ECM provides a probabilistic modeled view of earnings and capital loss that brings together the potential loss from catastrophes, reserving, underwriting, market, credit risk, strategic and operational risks.

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The top 10 risks are further identified and quantified by the Chief Risk Officer and the ERM Committee and reviewed every quarter.

The Chief Risk Officer and the ERM Committee submit these reports to the Audit Committee on a regular basis.

The Chief Risk Officer and the ERM Committee submit these reports to the Risk Committee on a regular basis.

We construct our operational processes and controls with a view to identify, assess and manage key risks on an ongoing basis.

For example, our Underwriting Committee is responsible for overseeing standard letters of authority, underwriting audits, changes in risk appetite, and product line and division expansion.

For example, our Underwriting Committee is responsible for overseeing changes in risk appetite, and product line and division expansion.

Within Claims, we diligently monitor our claims handling practices against guidelines through regular internal audits, conduct monthly large loss reviews, and maintain and monitor a watchlist of potential high severity claims.

Within Actuarial, we perform quarterly reserve studies, and our Reserve Committee meets twice each quarter to review and respond to trends in loss emergence.

Within Actuarial, we perform quarterly reserve studies, and our Reserve Committee meets each quarter to review and respond to trends in loss emergence.

Any key observations are subsequently discussed with the CEO.

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Our SkyBI platform provides real-time portfolio, underwriting, claims and actuarial analytics which is critical to ensuring that the above processes achieve the desired outcome.

Altogether, our Enterprise Risk Management is at the center of our decision making and our day-to-day activities.

Altogether, our ERM is at the center of our decision making and our day-to-day activities.

It is a central component to our strategy to achieve market leading risk adjusted returns for our shareholders.

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A reserve can be increased or decreased over time as claims move towards settlement, which can impact earnings in the form of either adverse development or reserve releases.

For additional information regarding our loss reserves, see Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Losses and LAE.”

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The following table sets forth our one-year development information on changes in the loss reserve for the years ended December 31, 2022 and 2021:

($ in thousands) 2022 2021

Beginning of Year:

Reserves for losses and LAE $ 979,549 $ 856,780

reinsurance recoverable on unpaid claims (381,338) (375,178)

Net reserves for losses and loss adjustment expenses 598,211 481,602

Incurred, net of reinsurance, related to:

Current year 393,939 338,348

Prior years (1)

14,385 28,000

Total 408,324 366,348

Paid, net of reinsurance, related to:

Current year 105,928 77,551

Prior years 194,836 172,188

Total 300,764 249,739

Net reserves for losses and LAE 705,771 598,211

reinsurance recoverable on unpaid claims, end of period 435,986 381,338

Reserves for losses and loss adjustment expenses $ 1,141,757 $ 979,549

(1) This line item shows changes in the current calendar year in the provision for losses and loss expenses attributable to claims occurring in prior years.

See discussion regarding the calendar year developments at Item 7 of this Form 10-K Management’s Discussion and Analysis section at “Results of Operations—Losses and LAE Development.”

For additional information regarding our loss reserves, see Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Results of Operations - Losses and LAE” and “Critical Accounting Policies.”

We seek to maintain a balanced investment portfolio predominantly composed of investments that generate predictable and stable returns, augmented by select strategic investments that generate attractive risk-adjusted returns.

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We actively manage and monitor our investment risk to balance the goals of stable growth and liquidity with our need to comply with the insurance regulatory and rating agency frameworks within which we operate.

Our portfolio is mainly comprised of cash and cash equivalents and investment-grade fixed-maturity securities, supplemented by additional investments that fit our risk appetite, principally higher yielding direct lending strategies and equities.

Other investments, while typically not rated securities, are generally lower volatility fixed income loans and securities that we believe provide us with risk-adjusted returns above what is achievable in liquid investment grade markets.

We call this part of our investment portfolio opportunistic fixed income.

Our portfolio is mainly comprised of cash and cash equivalents and investment-grade fixed-maturity securities, supplemented by additional investments that fit our risk appetite.

The Investment Committee of our Board of Directors reviews and approves our investment policy and strategy.

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

Our opportunistic fixed income portfolio is managed by Arena Investors, LP (“Arena”), which is affiliated with The Westaim Corporation (“Westaim”) who, through Westaim HIIG LP (a limited partnership controlled by Westaim), is the Company’s largest shareholder.

Our opportunistic fixed income portfolio is managed by Arena Investors, LP (“Arena”), which is affiliated with The Westaim Corporation (“Westaim”), the Company’s largest shareholder.

For additional discussion regarding our investments, including the market risks related to our investment portfolio, see Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments.”

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We face competition in our underwriting divisions from other specialty and standard insurers as well as program administrators.

Competition is based on many factors including pricing of coverage, the general reputation and

Table of Conte nt s

perceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of the underwriting and claims teams.

Competition is based on many factors including pricing of coverage, the general reputation and perceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of the underwriting and claims teams.

Given the diversity of our underwriting divisions, our competition is broad and certain competitors may be specific to only a subset of our divisions.

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Tokio Marine Holdings, Inc.;

CNA Financial Corporation;

CNA Financial

Hiscox, Ltd.;

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and James River Group Holdings, Ltd.

Our Structure

We conduct our operations principally through four insurance companies:

Houston Specialty Insurance Company (“HSIC”), our largest insurance subsidiary, underwrites multiple lines of insurance on a surplus lines basis in 50 states, the District of Columbia and select foreign countries.

Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia.

Great Midwest Insurance Company (“GMIC”), a subsidiary of IIC underwrites multiple lines of insurance on an admitted basis in all 50 states, the District of Columbia and is a certified surety bond company listed with the Department of the Treasury.

Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of GMIC, is an approved surplus lines company in 49 states and the District of Columbia.

The following table sets forth the geographic distribution of our gross written premiums for the year ended December 31, 2023:

California 9.0

Louisiana 8.0

Pennsylvania 3.4

New Jersey 3.4

Massachusetts 2.4

All other states 39.9

Total 100.0 %

In addition to our primary insurance companies, we also own Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands that was incorporated on January 7, 2020.

Skyward Re was established to facilitate the LPT.

Skyward Underwriters Agency, Inc., a licensed agent, managing general agent and reinsurance broker, and Skyward Service Company, which provides various administrative services to our subsidiaries.

Our organizational structure is set forth below.

Each entity is wholly-owned by its immediate parent:

Our insurance group, Skyward Specialty Insurance Group, Inc.

currently has a rating of “A-”(Excellent) with a stable outlook from A.M.

currently has a rating of “A-” (Excellent) with positive outlook from A.M.

Best, which rates insurance companies based on factors of concern to policyholders.

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These ratings are based on factors relevant to policyholders, agents, insurance brokers and intermediaries and are not specifically related to securities issued by the company.

Insurance Regulation

We are regulated by insurance regulatory authorities in the states in which we conduct business.

State insurance laws and regulations generally are designed to protect the interests of policyholders, consumers and claimants rather than stockholders or other investors.

The nature and extent of state regulation varies by jurisdiction, and state insurance regulators generally have broad administrative power relating to, among other matters, setting capital and surplus requirements, licensing of insurers and insurance producers, review and approval of product forms and rates, establishing standards for reserve adequacy, prescribing statutory accounting methods and the form and content of statutory financial reports, regulating certain transactions with affiliates and prescribing types and amounts of investments.

Regulation of insurance companies constantly changes as governmental agencies and legislatures react to real or perceived issues.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that alter and, in many cases, increase, state authority to regulate insurance companies and insurance holding company systems.

Further, the National Association of Insurance Commissioners (“NAIC”) and some state insurance regulators are re-examining existing laws and regulations specifically focusing on issues relating to the solvency of insurance companies, interpretations of existing laws and the development of new laws.

Although the federal government does not directly regulate the business of insurance, federal initiatives often affect the insurance industry in a variety of ways.

In addition, the Federal Insurance Office (the “FIO”) was established within the U.S.

Department of the Treasury by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.

The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S.

financial system, although the FIO has no express regulatory authority over insurance companies or other insurance industry participants.

Insurance Holding Company Regulation

We operate as an insurance holding company system and are subject to the insurance holding company laws of the State of Texas, the state in which our primary insurance companies are domiciled, as well as those of Oklahoma.

These statutes require that each insurance company in the system register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system and domiciled in that state.

These statutes also provide that all transactions among members of a holding company system must be fair and reasonable.

Transactions between insurance subsidiaries and their parents and affiliates generally must be disclosed to the state regulators, and notice to or prior approval of the applicable state insurance regulator generally is required for any material or extraordinary transaction.

Intellectual Property

We have applied for various trademark registrations in the United States at both federal and state levels.

We will pursue additional trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost effective.

In addition, we monitor our trademarks and service marks and protect them from unauthorized use as necessary.

Employees and Human Capital

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Compensation and Benefits

We offer and maintain a competitive benefits package designed to support the well-being of our employees, including, but not limited to, medical, dental and vision insurance, a 401(k) plan, paid time off, family leave and employee assistance programs.

We also emphasize the training and development of our employees and provide opportunities to further their education and professional development.

We know that we cannot win at our business unless we first win with our people.

Intellectual Property

We have applied for various trademark registrations in the United States at both federal and state levels.

We will pursue additional trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost effective.

In addition, we monitor our trademarks and service marks and protect them from unauthorized use as necessary.

Our Structure

We conduct our operations principally through four insurance companies.

Houston Specialty Insurance Company (“HSIC”), our largest insurance subsidiary, underwrites multiple lines of insurance on a surplus lines basis in 50 states and the District of Columbia.

Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia.

Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of GMIC, is an approved surplus lines company in 47 states.

Table of Conte nt s

The following table sets forth the geographic distribution of our gross written premiums for the year ended December 31, 2022:

California 10.7

Louisiana 9.3

Pennsylvania 3.2

New Jersey 3.1

Massachusetts 2.7

All other states 40.4

Total 100.0 %

In addition to our primary insurance companies, we also own Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands that was incorporated on January 7, 2020.

Skyward Re was established to facilitate the LPT.

Skyward Underwriters Agency, Inc., a licensed agent, managing general agent and reinsurance broker, and Skyward Service Company, which provides various administrative services to our subsidiaries.

Our organizational structure is set forth below.

Each entity is wholly-owned by its immediate parent:

Table of Conte nt s

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-K

Item 1. Business