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, 2023, 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, 2023. 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, 2023.
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, 2023, as defined in the JOBS Act.
Changes in Internal Control over Financial Reporting
There was no change 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On November 30, 2023 , Andrew Robinson , Chief Executive Officer , adopted a Rule 10b5-1 trading plan. Mr. Robinson’s plan provides for the sale of up to 126,748 shares of our common stock by December 31, 2024. This plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and our policies regarding transactions in our securities.
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 2024 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 2024 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 2024 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 2024 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 2024 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, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Income (loss) for the two years in the period ended December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the two years in the period ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the two years in the period ended December 31, 2023 and 2022
(a)(2)
Schedule Number Schedule Description Page
I. Summary of Investments — Other Than in Related Parties at December 31, 202 3
101
II. Condensed Financial Information of Registrant (Parent Company) for the years ended December 31, 202 3 and 202 2
102
IV. Supplementary Reinsurance Information for the years ended December 31, 202 3 and 202 2
105
V. Valuation and Qualifying Accounts for the years ended December 31, 202 3 and 202 2
106
VI. Supplementary Information Concerning Property — Casualty Insurance Operations for the years ended December 31, 202 3 and 202 2
107
(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 (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
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).
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Exhibit
Number Exhibit Description
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).
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 (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.11+ Performance-Based Restricted Stock Units Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.12+ Performance Unit Agreement under the Company’s 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2023).
10.13+ Amended Form of Performance Share (GBVPS) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.14+ Amended Form of Performance Share (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.15+ Amended Form of Performance Share (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.16+ Amended Form of Performance Cash Units Agreement under the Company’s Long-Term Incentive Plan.
10.17+ Amended Form of the Restricted Stock Unit (Executives) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.18+ Amended Form of Restricted Stock Unit (Others) Agreement under the Company’s 2022 Long-Term Incentive Plan.
10.19+ Amended Form of Long-Term Performance Cash Plan and Award Letter under the Company’s 2022 Long-Term Incentive Plan.
10.20+ 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).
10.21+ 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).
10.22+ 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).
10.23 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).
10.24* 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
10.25* 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).
10.26 Second Amendment Agreement effective as of December 8, 2023, to that certain Investment Management Agreement dated November 6, 2015, by and among Arena Investors, LP, Houston Specialty Insurance Company, Imperium Insurance Company, and Great Midwest Insurance Company.
10.27 Credit Agreement, dated March 29, 2023, by and among Skyward Specialty Insurance Group, Inc., the lenders from time to time party thereto and Truist Bank, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on April 3, 2023).
10.28 First Amendment dated as of February 26, 2024, to that certain Credit Agreement, dated March 29, 2023, by and among Skyward Specialty Inc., the lenders from time to time party thereto and Truist Bank, as administrative agent.
10.29 Guaranty Agreement, dated March 29, 2023, by and among Skyward Service Company, Skyward Underwriters Agency, Inc., the loan parties identified on the signature pages thereto and Truist Bank. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on April 3, 2023).
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 Principal Executive 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.
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.
97 Policy for Recovery of Erroneously Awarded Incentive Compensation (“Clawback Policy”) adopted November 9, 2023.
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 With Embedded Linkbase Documents
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 (if applicable) Amount on
Balance Sheet
December 31, 2023
Fixed maturity securities, available for sale:
U.S. government securities $ 44,685 $ 44,166 $ 44,166
Corporate securities and miscellaneous 392,773 383,420 383,420
Municipal securities 98,266 92,778 92,778
Residential mortgage-backed securities 292,568 281,626 281,626
Commercial mortgage-backed securities 31,411 29,934 29,934
Other asset-backed securities 188,010 185,727 185,727
Total fixed maturity securities, available for sale 1,047,713 1,017,651 1,017,651
Fixed maturity securities, held to maturity:
Other asset-backed securities 43,315 41,017 42,986
Total fixed maturity securities, held to maturity 43,315 41,017 42,986
Equity securities:
Common stocks 54,672 67,425 67,425
Preferred stocks 8,736 7,358 7,358
Mutual funds 39,429 43,466 43,466
Total equity securities 102,837 118,249 118,249
Mortgage loans 50,542 50,070 50,070
Other long-term investments 3,798 3,798 3,798
Short-term investments 270,226 270,226 270,226
Total $ 1,518,431 $ 1,501,011 $ 1,502,980
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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) 2023 2022
Assets
Investments:
Investment in subsidiaries $ 743,025 $ 503,549
Short-term investments, at fair value 10,593 25
Total investments 753,618 503,574
Cash and cash equivalents 3,024 8,909
Deferred income taxes 5,899 19,655
Goodwill and intangible assets, net 12,641 12,641
Other assets 15,908 6,992
Total assets $ 791,090 $ 551,771
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued liabilities $ 1,369 $ 1,500
Notes payable 50,000 50,000
Subordinated debt, net of debt issuance costs 78,690 78,609
Total liabilities 130,059 130,109
Stockholders’ Equity:
Stockholders’ equity 661,031 421,662
Total liabilities and stockholders’ equity $ 791,090 $ 551,771
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II — CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY)
Years Ended December 31,
($ in thousands) 2023 2022
Revenues:
Net investment income $ 3,822 $ 2,567
Net investment losses ( 963 ) ( 6 )
Other losses ( 27 ) —
Total revenues 2,832 2,561
Expenses
Interest expense 9,815 6,407
Amortization expense 313 81
Other expenses 451 —
Total expenses 10,579 6,488
Loss before income tax expense ( 7,747 ) ( 3,927 )
Income tax expense (benefit) 6,808 ( 1,209 )
Net loss before equity in earnings of subsidiaries ( 14,555 ) ( 2,718 )
Equity in undistributed earnings of subsidiaries 100,539 42,114
Net income $ 85,984 $ 39,396
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II — CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY)
Years Ended December 31,
($ in thousands) 2023 2022
Cash flows from operating activities:
Net income $ 85,984 $ 39,396
Adjustments to reconcile net income to net cash used in operating activities ( 95,947 ) ( 42,672 )
Net cash provided by operating activities ( 9,963 ) ( 3,276 )
Cash flows from investing activities:
Capital contributions to subsidiaries ( 122,800 ) —
Distributions from investment in subsidiaries 6,500 4,000
Change in short-term investments ( 10,569 ) —
Net cash (used in) provided by investing activities ( 126,869 ) 4,000
Cash flows from financing activities:
Employee share purchases 1,350 2,180
Draw on revolving line of credit 50,000 —
Repayment of term loan ( 50,000 ) —
Proceeds from equity offerings 128,887 —
Proceeds from employee stock purchase plan 710 —
Net cash provided by financing activities 130,947 2,180
Net (decrease) increase in cash and cash equivalents and restricted cash ( 5,885 ) 2,904
Cash and cash equivalents and restricted cash at beginning of year 8,909 6,005
Cash and cash equivalents and restricted cash at end of year $ 3,024 $ 8,909
Supplemental disclosure of cash flow information:
Cash paid for interest $ 10,667 $ 5,761
Cash paid for federal income taxes 15,800 —
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV — REINSURANCE
Years Ended December 31,
2023 2022
($ in thousands) Accident &
Health Property &
Casualty Accident &
Health Property &
Casualty
Gross amount $ 151,702 $ 1,089,478 $ 130,377 $ 881,862
Ceded to other companies ( 79,091 ) ( 470,047 ) ( 70,291 ) ( 398,118 )
Assumed from other companies — 218,649 431 131,282
Net amount $ 72,611 $ 838,080 $ 60,517 $ 615,026
Percentage of amount assumed to net — % 26.1 % 0.7 % 21.3 %
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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, 2022 $ 586 $ — $ 261
Charged to costs and expenses — — 584
Amounts written off — — ( 216 )
Balance at December 31, 2022 586 — 629
Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 — 2,295 —
Charged to costs and expenses — — 748
Amounts written off — — ( 513 )
Recoveries of amounts previously written off — — 100
Balance at December 31, 2023 $ 586 $ 2,295 $ 964
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE VI — SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
As of and Years Ended December 31,
($ in thousands) 2023 2022
Deferred policy acquisition costs $ 91,955 $ 68,938
Reserve for losses and loss adjustment expenses 1,314,501 1,141,757
Unearned premiums 552,532 442,509
Net earned premium (1)
829,143 615,994
Net investment income 40,322 36,931
Losses and loss adjustment expenses (current year) (1)
516,664 393,939
Losses and loss adjustment expenses (prior years) (1)(2)
— 14,385
Amortization of policy acquisition costs (1)
108,514 65,695
Paid claims and claim adjustment expenses (1)
363,418 300,764
Net premiums written (1)
910,691 675,543
Ceded unearned premium 186,121 157,645
Deferred ceding commission 37,057 29,849
(1) Amount is presented net of reinsurance
(2) Amount does not include gain 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: April 1, 2024
/s/ Andrew Robinson
Andrew Robinson
Chairman and 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 Chairman and Chief Executive Officer April 1, 2024
Andrew Robinson (Principal Executive Officer)
/s/ Mark Haushill Chief Financial Officer April 1, 2024
Mark Haushill (Principal Financial and Accounting Officer)
/s/ Gena Ashe Director April 1, 2024
Gena Ashe
/s/ Robert Creager Director April 1, 2024
Robert Creager
/s/ Marcia Dall Director April 1, 2024
Marcia Dall
/s/ James Hays Director April 1, 2024
James Hays
/s/ Anthony J. Kuczinski Director April 1, 2024
Anthony J. Kuczinski
/s/ Michael Morrissey Director April 1, 2024
Michael Morrissey
/s/ Katharine Terry Director April 1, 2024
Katharine Terry
108