What changed in this filing

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Item 1. Financial Statements

2024-05-03 compared with 2023-11-09 · 227 added, 485 removed, 471 unchanged (60% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

($ in thousands, except share and per share amounts) (Unaudited)

1 unchanged sentence

$ 1,065,175 $ 1,017,651

Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 320 as of September 30, 2023)

Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 329 )

42,700 42,986

Equity securities, at fair value 117,083 118,249

Mortgage loans (at fair value as of September 30, 2023;

at amortized cost as of December 31, 2022)

59,318 51,859

Mortgage loans, at fair value 44,309 50,070

Equity method investments 103,962 110,653

Other long-term investments 2,045 3,852

22 unchanged sentences

Stockholders’ equity

Series A preferred stock, $ 0.01 par value;

10,000,000 and 2,000,000 shares authorized, 0 and 1,969,660 shares issued and outstanding, respectively

Common stock, $ 0.01 par value, 500,000,000 and 168,000,000 shares authorized, 37,677,521 and 16,832,955 shares issued, respectively

Treasury stock, $ 0.01 par value, 0 and 233,289 shares, respectively

Common stock, $ 0.01 par value, 500,000,000 shares authorized, 39,995,027 and 39,863,756 shares issued and outstanding, respectively

Additional paid-in capital 711,309 710,855

1 unchanged sentence

Accumulated other comprehensive loss ( 29,279 ) ( 22,953 )

Accumulated deficit ( 50,974 ) ( 105,417 )

Retained earnings (accumulated deficit) 15,076 ( 21,708 )

Total stockholders’ equity 692,272 661,031

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three months ended September 30, Nine months ended September 30,

AND COMPREHENSIVE INCOME (UNAUDITED)

Three months ended March 31,

($ in thousands, except share and per share amounts) 2024 2023

2 unchanged sentences

Net investment income 18,297 4,646

Net investment (losses) gains ( 2,984 ) ( 7,305 ) 3,328 ( 26,117 )

Net investment gains 8,303 961

Total revenues 264,968 189,930

5 unchanged sentences

Total expenses 217,991 170,208

Income (loss) before income taxes 27,795 ( 3,118 ) 72,533 23,819

Income tax expense (benefit) 6,084 ( 719 ) 15,814 4,842

Net income (loss) 21,711 ( 2,399 ) 56,719 18,977

Income before income taxes 46,977 19,722

Income tax expense 10,193 4,166

Net income 36,784 15,556

Net income attributable to participating securities — 1,274

Net income (loss) attributable to common stockholders $ 21,711 $ ( 2,399 ) $ 55,227 $ 9,853

Comprehensive income (loss):

Net income (loss) $ 21,711 $ ( 2,399 ) $ 56,719 $ 18,977

Other comprehensive loss:

Net income attributable to common stockholders $ 36,784 $ 14,282

Comprehensive income:

Net income $ 36,784 $ 15,556

Other comprehensive (loss) income:

Unrealized gains and losses on investments:

Net change in unrealized losses on investments, net of tax ( 8,722 ) ( 17,806 ) ( 5,309 ) ( 49,308 )

Reclassification adjustment for (losses) gains on securities no longer held, net of tax ( 3,667 ) 31 ( 4,879 ) 362

Total other comprehensive loss ( 12,389 ) ( 17,775 ) ( 10,188 ) ( 48,946 )

Comprehensive income (loss) $ 9,322 $ ( 20,174 ) $ 46,531 $ ( 29,969 )

Net change in unrealized (losses) gains on investments, net of tax ( 5,418 ) 7,788

Reclassification adjustment for losses on securities no longer held, net of tax ( 908 ) ( 47 )

Total other comprehensive (loss) income ( 6,326 ) 7,741

Comprehensive income $ 30,458 $ 23,297

Per share data:

Basic earnings (loss) per share $ 0.59 $ ( 0.15 ) $ 1.56 $ 0.60

Diluted earnings (loss) per share $ 0.57 $ ( 0.15 ) $ 1.50 $ 0.58

Basic earnings per share $ 0.94 $ 0.43

Diluted earnings per share $ 0.90 $ 0.42

Weighted-average common shares outstanding

4 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

($ in thousands) Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Stock Notes Receivable Accumulated Other Comprehensive Loss Accumulated Deficit Total

Balance at January 1, 2023 $ 20 $ 168 $ ( 2 ) $ 577,289 $ ( 6,911 ) $ ( 43,485 ) $ ( 105,417 ) $ 421,662

Cumulative effect on adoption of ASU No.

2016-13 — — — — — — ( 2,276 ) ( 2,276 )

Employee equity transactions — — — 1,864 193 — — 2,057

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three months ended March 31,

($ in thousands, except share amounts) 2024 2023

Preferred shares:

Balance at beginning of period — 1,969,660

Preferred stock conversion to common shares — ( 1,969,660 )

Proceeds from initial public offering, net — 48 — 62,358 — — — 62,406

Net income — — — — — — 15,556 15,556

Other comprehensive income, net of tax — — — — — 7,741 — 7,741

Balance at March 31 — —

Employee equity transactions — — — 2,011 — — — 2,011

Expenses from initial public offering — — — ( 391 ) — — — ( 391 )

Net income — — — — — — 19,452 19,452

Other comprehensive loss, net of tax — — — — — ( 5,540 ) — ( 5,540 )

Balance at June 30, 2023 $ — $ 377 $ — $ 642,988 $ ( 6,718 ) $ ( 41,284 ) $ ( 72,685 ) $ 522,678

Employee equity transactions — — — 2,304 1,093 — — 3,397

Net income — — — — — — 21,711 21,711

Other comprehensive loss, net of tax — — — — — ( 12,389 ) — ( 12,389 )

Balance at September 30, 2023 $ — $ 377 $ — $ 645,292 $ ( 5,625 ) $ ( 53,673 ) $ ( 50,974 ) $ 535,397

The accompanying notes are an integral part of the consolidated financial statements.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

($ in thousands) Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Stock Notes Receivable Accumulated Other Comprehensive Loss Accumulated Deficit Total

Balance at January 1, 2022 $ 20 $ 168 $ ( 2 ) $ 575,159 $ ( 9,092 ) $ 4,640 $ ( 144,813 ) $ 426,080

Employee equity transactions — — — 502 188 — — 690

Reclassification of stock notes receivable to other assets — — — — 1,942 — — 1,942

Net income — — — — — — 16,311 16,311

Other comprehensive loss, net of tax — — — — — ( 16,404 ) — ( 16,404 )

Common shares:

Balance at beginning of period 39,863,756 16,599,666

Issuance of shares 131,271 4,753,332

Preferred stock conversion to common shares — 16,305,113

Balance at March 31 39,995,027 37,658,111

Preferred stock:

Balance at beginning of period $ — $ 20

Preferred stock conversion to common shares — ( 20 )

Balance at March 31 $ — $ —

Common stock:

Balance at beginning of period $ 399 $ 168

Issuance of common stock 1 —

Preferred stock conversion to common shares — 161

Proceeds from equity offerings, net — 48

Balance at March 31 $ 400 $ 377

Treasury stock:

Balance at beginning of period $ — $ ( 2 )

Preferred stock conversion to common shares — 2

Balance at March 31 $ — $ —

Additional paid-in capital:

Balance at beginning of period $ 710,855 $ 577,289

Issuance of common stock 454 1,864

Preferred stock conversion to common shares — ( 143 )

Proceeds from equity offerings, net — 62,358

Balance at March 31 $ 711,309 $ 641,368

Stock notes receivable:

Balance at beginning of period $ ( 5,562 ) $ ( 6,911 )

Employee equity transactions 328 193

Balance at March 31 $ ( 5,234 ) $ ( 6,718 )

Accumulated other comprehensive loss:

Balance at beginning of period $ ( 22,953 ) $ ( 43,485 )

Other comprehensive (loss) income, net of tax ( 6,326 ) 7,741

Balance at March 31 $ ( 29,279 ) $ ( 35,744 )

Retained earnings (accumulated deficit):

Balance at beginning of period $ ( 21,708 ) $ ( 105,417 )

Cumulative effect on adoption of ASU No.

2016-13 — ( 2,276 )

Net income 36,784 15,556

Other comprehensive loss, net of tax — — — — — ( 14,767 ) — ( 14,767 )

Balance at June 30, 2022 $ 20 $ 168 $ ( 2 ) $ 576,331 $ ( 6,942 ) $ ( 26,531 ) $ ( 123,437 ) $ 419,607

Employee equity transactions — — — 354 30 — — 384

Net loss — — — — — — ( 2,399 ) ( 2,399 )

Other comprehensive loss, net of tax — — — — — ( 17,775 ) — ( 17,775 )

Balance at September 30, 2022 $ 20 $ 168 $ ( 2 ) $ 576,685 $ ( 6,912 ) $ ( 44,306 ) $ ( 125,836 ) $ 399,817

Balance at March 31 $ 15,076 $ ( 92,137 )

Total stockholders’ equity $ 692,272 $ 507,146

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine months ended September 30,

Three months ended March 31,

($ in thousands) 2024 2023

5 unchanged sentences

Purchase of fixed maturity securities, available-for-sale ( 97,426 ) ( 72,466 )

Purchase of illiquid investments ( 1,156 ) ( 4,431 )

Purchase of equity securities ( 2,035 ) ( 12,889 )

Purchase of equity method investments ( 261 ) ( 286 )

Investment in direct and indirect loans 10,816 14,665

Purchase of property and equipment ( 260 ) ( 614 )

Sales and maturities of investment securities 53,473 34,980

Distributions from equity method investments 1,704 2,052

Proceeds from equity method and other long-term investments 4,871 355

Change in short-term investments ( 27,706 ) ( 166,193 )

Receivable for securities sold 14,442 3,273

Change in receivable/payable for securities ( 13,755 ) 3,984

Cash provided by deposit accounting 2,417 5,038

Other, net ( 1,421 ) ( 834 )

Net cash used in investment activities ( 69,866 ) ( 193,426 )

Cash flows from financing activities:

Employee share purchases 1,287 2,180

Repayment of stock notes receivable 328 193

Draw on revolving line of credit 50,000 50,000

Repayment of term loan — ( 50,000 )

Repayment of trust preferred ( 59,794 ) —

Proceeds from initial public offering — 66,262

Net cash provided by financing activities 67,549 2,180

Net decrease in cash and cash equivalents and restricted cash ( 21,745 ) ( 1,188 )

Net cash (used in) provided by financing activities ( 9,466 ) 66,455

Net increase (decrease) in cash and cash equivalents and restricted cash 14,933 ( 19,764 )

Cash and cash equivalents and restricted cash at beginning of period (1)

100,336 125,011

Cash and cash equivalents and restricted cash at end of period (1)

$ 115,269 $ 105,247

Supplemental disclosure of cash flow information:

Cash paid for interest $ 2,656 $ 3,145

Cash paid for federal income taxes $ 10,000 $ —

(1) The sum of cash and cash equivalents and restricted cash from the consolidated balance sheets

The accompanying notes are an integral part of the consolidated financial statements.

15 unchanged sentences

Actual results could differ materially from these estimates.

Recent Accounting Standards Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and fixed maturity securities, by introducing an approach based on expected losses.

The expected loss approach required entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts.

The Company adopted ASU 2016-13 effective January 1, 2023 using the modified retrospective approach, by which a cumulative-effect adjustment was made to retained earnings as of the date of adoption.

In connection with the adoption of ASU 2016-13, the Company elected the fair value option in accounting for mortgage loans effective January 1, 2023 as targeted transition relief.

The adoption of ASU 2016-13 resulted in a $ 2.3 million increase in accumulated deficit, net of tax.

Updates to Significant Accounting Policies

The following accounting policies have been updated to reflect the Company's adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments as described above.

Available-for-sale

Investments in fixed maturities that are classified as available-for-sale are carried at fair value.

For available-for-sale fixed maturities in an unrealized loss position, the Company first determines whether there is an intent to sell the security or if it is more likely than not that the Company will be required to sell the security before maturity or recovery of its cost basis.

If either of these criteria were met, the amortized cost of the security is written down to fair value with the losses recognized in net investment (losses) gains on the consolidated statements of operations.

If neither of the these criteria were met, the Company determines whether unrealized losses are due to credit-related factors.

If the unrealized losses are due to credit-related factors, an allowance for credit losses is determined using a present value of cash flows compared to the amortized cost of the security.

The allowance for credit losses is limited to the amount by which fair value is below amortized cost.

Changes in the allowance for credit losses are recognized in net investment income on the consolidated statements of operations.

Credit losses that are limited by the fair value of the security are recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive (loss) income.

Unrealized losses that are not credit-related continue to be recognized in stockholders’ equity, net of taxes, as a component of accumulated other comprehensive (loss) income.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Held-to-maturity

Investments in fixed maturity securities that are held-to-maturity are carried at amortized cost net of an allowance for credit losses.

The allowance for credit losses represents the current estimate of expected credit losses.

The Company develops a historical loss rate from Moody’s table of estimated multi-year cumulative loss rates for asset backed securities.

This historical loss rate is adjusted for current conditions and reasonable and supportable forecasts.

Changes in the allowance for credit losses are recognized in net investment income on the consolidated statements of operations.

Mortgage loans

The Company elected the fair value option in accounting for mortgage loans effective January 1, 2023 as targeted transition relief.

Under the fair value option, mortgage loans are measured at fair value, and changes in unrealized gains and losses on mortgage loans are reported in net investment (losses) gains on the condensed consolidated statements of operations.

Interest income and amortization continue to be recognized in net investment income on the consolidated statements of operations.

Reinsurance Recoverables

Reinsurance recoverables are carried net of an allowance for credit losses.

The allowance for credit losses represents the current estimate of expected credit losses.

The Company develops a historical loss rate using the A.M.

Best impairment rate and rating transition study which provides historical loss data of similarly rated reinsurance companies based on the expected duration of the receivables.

This historical loss rate is adjusted for current conditions and reasonable and supportable forecasts and consideration of current economic conditions.

Changes in the allowance for credit losses are recognized in underwriting, acquisition and insurance expenses on the consolidated statements of operations.

Premiums Receivable

Premiums receivable are carried net of an allowance for credit losses.

The allowance for credit losses represents the current estimate of expected credit losses.

The Company develops a historical loss rate using historical write-offs and aging of receivables.

This historical loss rate is adjusted for current conditions, reasonable and supportable forecasts and our ability to cancel coverage on a policy after premium is considered past due.

Changes in the allowance for credit losses are recognized in underwriting, acquisition and insurance expenses on the consolidated statements of operations.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the amortized cost and the fair value by investment category at September 30, 2023 and December 31, 2022:

The following tables set forth the amortized cost and the fair value by investment category at March 31, 2024 and December 31, 2023:

($ in thousands) Gross

Losses Allowance for Credit Losses Fair Value

September 30, 2023

March 31, 2024

Fixed maturity securities, available-for-sale:

4 unchanged sentences

Commercial mortgage-backed securities 31,878 502 ( 1,854 ) — 30,526

Asset-backed securities 168,962 201 ( 5,426 ) — 163,737

Other asset-backed securities 206,357 1,416 ( 3,277 ) — 204,496

Total fixed maturity securities, available-for-sale $ 1,102,190 $ 8,996 $ ( 46,011 ) $ — $ 1,065,175

Fixed maturity securities, held-to-maturity:

Asset-backed securities $ 44,757 $ — $ ( 3,668 ) $ ( 320 ) $ 40,769

Other asset-backed securities $ 43,029 $ 25 $ ( 1,324 ) $ ( 329 ) $ 41,401

Total fixed maturity securities, held-to-maturity $ 43,029 $ 25 $ ( 1,324 ) $ ( 329 ) $ 41,401

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

($ in thousands) Gross

Loss Fair Value

Loss Allowance for Credit Losses Fair Value

December 31, 2023

5 unchanged sentences

Commercial mortgage-backed securities 31,411 449 ( 1,926 ) — 29,934

Asset-backed securities 116,275 91 ( 6,542 ) 109,824

Other asset-backed securities 188,010 1,221 ( 3,504 ) — 185,727

Total fixed maturity securities, available-for-sale $ 1,047,713 $ 12,491 $ ( 42,553 ) $ — $ 1,017,651

Fixed maturity securities, held-to-maturity:

Asset-backed securities $ 52,467 $ — $ ( 5,696 ) $ 46,771

Other asset-backed securities $ 43,315 $ — $ ( 1,969 ) $ ( 329 ) $ 41,017

Total fixed maturity securities, held-to-maturity $ 43,315 $ — $ ( 1,969 ) $ ( 329 ) $ 41,017

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the amortized cost and fair value of available-for-sale fixed maturity securities by contractual maturity at September 30, 2023:

The following table sets forth the amortized cost and fair value of available-for-sale fixed maturity securities by contractual maturity at March 31, 2024:

($ in thousands) Amortized

5 unchanged sentences

Mortgage-backed securities 329,042 313,540

Asset-backed securities 168,962 163,737

Other asset-backed securities 206,357 204,496

Total $ 1,102,190 $ 1,065,175

1 unchanged sentence

Also, changing interest rates, tax considerations or other factors may result in portfolio sales prior to maturity.

The Company’s fixed maturity securities, held-to-maturity, at September 30, 2023 consisted entirely of asset backed securities that were not due at a single maturity date.

The following tables set forth the gross unrealized losses and the corresponding fair values of investments, aggregated by length of time that individual securities had been in a continuous unrealized loss position as of September 30, 2023 and December 31, 2022:

The Company’s fixed maturity securities, held-to-maturity, at March 31, 2024 consisted entirely of asset backed securities that were not due at a single maturity date.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Less than 12 Months 12 Months or More Total

($ in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

September 30, 2023

March 31, 2024

Fixed maturity securities, available-for-sale:

4 unchanged sentences

Commercial mortgage-backed securities 3,765 ( 27 ) 15,426 ( 1,827 ) 19,191 ( 1,854 )

Asset-backed securities 81,952 ( 1,317 ) 65,329 ( 4,109 ) 147,281 ( 5,426 )

Other asset-backed securities 36,528 ( 258 ) 60,458 ( 3,019 ) 96,986 ( 3,277 )

Total fixed maturity securities, available-for-sale 253,704 ( 3,133 ) 416,341 ( 42,878 ) 670,045 ( 46,011 )

Fixed maturity securities, held-to-maturity:

Asset-backed securities — — 40,769 ( 3,668 ) 40,769 ( 3,668 )

Other asset-backed securities — — 39,371 ( 1,324 ) 39,371 ( 1,324 )

Total fixed maturity securities, held-to-maturity:

13 unchanged sentences

Commercial mortgage-backed securities 4,942 ( 74 ) 15,290 ( 1,852 ) 20,232 ( 1,926 )

Asset-backed securities 74,684 ( 3,351 ) 25,820 ( 3,191 ) 100,504 ( 6,542 )

Other asset-backed securities 27,887 ( 106 ) 75,253 ( 3,398 ) 103,140 ( 3,504 )

Total fixed maturity securities, available-for-sale 121,362 ( 1,667 ) 441,858 ( 40,886 ) 563,220 ( 42,553 )

Fixed maturity securities, held-to-maturity:

Asset-backed securities 46,771 ( 5,696 ) — — 46,771 ( 5,696 )

Other asset-backed securities — — 41,017 ( 1,969 ) 41,017 ( 1,969 )

Total fixed maturity securities, held-to-maturity:

4 unchanged sentences

Among the factors that management considers for fixed maturity securities are the financial condition of the issuer including receipt of scheduled principal and interest cash flows, and intent to sell, including if it is more likely than not that the Company will be required to sell the investments before recovery.

As of September 30, 2023, the Company had 869 lots of fixed maturity securities in an unrealized loss position.

As of March 31, 2024, the Company had 692 lots of fixed maturity securities in an unrealized loss position.

The Company does not have an intent to sell these securities and it is not more likely than not that the Company will be required to sell these securities before maturity or recovery of its cost basis.

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of net investment (losses) gains for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the components of net investment gains for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

2 unchanged sentences

Equity securities 1,081 1,227

Other — — 1 36

Total 1,598 1,721

4 unchanged sentences

Total ( 2,286 ) ( 4,527 )

Net unrealized (losses) gains on investments

Net unrealized gains on investments

Equity securities 8,020 3,745

Mortgage loans 971 22

Net investment (losses) gains $ ( 2,984 ) $ ( 7,305 ) $ 3,328 $ ( 26,117 )

The following table sets forth the proceeds from sales of available-for-sale fixed maturity securities and equity securities for the nine months ended September 30, 2023 and 2022:

Nine months ended September 30,

Net investment gains $ 8,303 $ 961

The following table sets forth the proceeds from sales of available-for-sale fixed maturity securities and equity securities for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

1 unchanged sentence

Equity securities 10,458 13,325

The following table sets forth the components of net investment income for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the components of net investment income for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

13 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the change in net unrealized losses on the Company’s investment portfolio, net of deferred income taxes, included in other comprehensive loss for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the change in net unrealized (losses)/gains on the Company’s investment portfolio, net of deferred income taxes, included in other comprehensive loss for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

21 unchanged sentences

These represent Level 2 fair value inputs.

Commercial mortgage-backed securities, residential mortgage-backed securities and asset-backed securities

Commercial mortgage-backed securities, residential mortgage-backed securities and other asset-backed securities

The Company uses a pricing model that utilizes market-based inputs that may include dealer quotes, market spreads, and yield curves.

9 unchanged sentences

The spread represents the incremental cost of capital based on the borrower’s ability to make future payments and the value of the collateral relative to the loan balance and is subject to judgement and uncertainty.

The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of September 30, 2023:

September 30, 2023

The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

High 9.75 % 9.50 %

Low 4.27 % 3.25 %

Weighted average 7.39 % 7.05 %

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the Company’s investments within the fair value hierarchy at September 30, 2023 and December 31, 2022:

September 30, 2023

The following tables set forth the Company’s investments within the fair value hierarchy at March 31, 2024 and December 31, 2023:

March 31, 2024

($ in thousands) Level 1 Level 2 Level 3 Total

5 unchanged sentences

Commercial mortgage-backed securities — 30,526 — 30,526

Asset-backed securities — 163,737 — 163,737

Other asset-backed securities — 204,496 — 204,496

Total fixed maturity securities, available-for-sale 35,566 1,029,609 — 1,065,175

Fixed maturity securities, held-to-maturity:

Asset-backed securities — — 40,769 40,769

Other asset-backed securities — — 41,401 41,401

Total fixed maturity securities, held-to-maturity — — 41,401 41,401

Equity securities:

Common stocks 70,378 — — 70,378

Consumer discretionary 1,687 — — 1,687

Consumer staples 13,345 — — 13,345

Energy 3,434 — — 3,434

Finance 21,556 — — 21,556

Industrial 10,681 — — 10,681

Information technology 3,974 — — 3,974

Materials 3,173 — — 3,173

Other 2,291 — — 2,291

Total common stocks 60,141 — — 60,141

Preferred stocks — 1,189 — 1,189

Consumer staples — 404 — 404

Finance — 4,756 — 4,756

Industrial — 1,025 — 1,025

Other — 714 — 714

Total preferred stocks — 6,899 — 6,899

Mutual funds 45,516 — — 45,516

Fixed income 5,197 — — 5,197

Equity 34,678 — — 34,678

Commodity 472 — — 472

Total mutual funds 40,347 — — 40,347

Total equity securities 115,894 1,189 — 117,083

1 unchanged sentence

Short-term investments 297,932 — — 297,932

Total investments $ 340,919 $ 835,381 $ 100,087 $ 1,276,387

Total $ 449,392 $ 1,030,798 $ 85,710 $ 1,565,900

SKYWARD SPECIALTY INSURANCE GROUP, INC.

9 unchanged sentences

Commercial mortgage-backed securities — 29,934 — 29,934

Asset-backed securities — 109,824 — 109,824

Other asset-backed securities — 185,727 — 185,727

Total fixed maturity securities, available-for-sale 44,166 973,485 — 1,017,651

Fixed maturity securities, held-to-maturity:

Asset-backed securities — — 46,771 46,771

Other asset-backed securities — — 41,017 41,017

Total fixed maturity securities, held-to-maturity:

— — 41,017 41,017

Equity securities:

Common stocks 67,425 — — 67,425

Consumer discretionary 1,948 — — 1,948

Consumer staples 12,036 — — 12,036

Energy 3,241 — — 3,241

Finance 22,636 — — 22,636

Industrial 9,452 — — 9,452

Information technology 2,284 — — 2,284

Materials 2,820 — — 2,820

Other 1,579 — — 1,579

Total common stocks 55,996 — — 55,996

Preferred stocks — 7,358 — 7,358

Consumer staples — 117 — 117

Finance — 7,085 — 7,085

Industrial — 1,020 — 1,020

Other — 549 — 549

Total preferred stocks — 8,771 — 8,771

Mutual funds 43,466 — — 43,466

Fixed income 5,068 — — 5,068

Equity 49,773 — — 49,773

Commodity 561 — — 561

Total mutual funds 55,402 — — 55,402

Total equity securities 110,891 7,358 — 118,249

1 unchanged sentence

Short-term investments 270,226 — — 270,226

Total investments $ 281,097 $ 567,802 $ 99,613 $ 948,512

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the nine months ended September 30, 2023:

Total $ 425,283 $ 980,843 $ 91,087 $ 1,497,213

The following tables set forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the three months ended March 31, 2024 and 2023:

($ in thousands) Mortgage Loans

4 unchanged sentences

Balance at March 31, 2024 $ 44,309

Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end $ ( 14 )

Total gains for the period recognized in net investment gains (losses) ( 21 )

Settlements ( 9,582 )

Balance at June 30, 2023 $ 32,762

Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end $ 3

Total gains for the period recognized in net investment gains (losses) 26

Total gains for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end $ 952

($ in thousands) Mortgage Loans

Balance at December 31, 2022 $ 52,842

Total losses for the period recognized in net investment gains (losses) 22

Issuances 892

Settlements ( 11,421 )

Balance at September 30, 2023 $ 59,318

Balance at March 31, 2023 $ 42,335

Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end $ ( 14 )

The Company measures certain assets, including investments in indirect loans and loan collateral, equity method investments and other invested assets, at fair value on a nonrecurring basis only when they are deemed to be impaired.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition to the preceding disclosures on assets and liabilities recorded at fair value in the consolidated balance sheets, the Company is also required to disclose the fair values of certain other financial instruments for which it is practicable to estimate fair value.

6 unchanged sentences

Fixed maturity securities, held-to-maturity consists of senior and junior notes with target rates of return.

As of September 30, 2023, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).

As of March 31, 2024, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).

Notes payable:

1 unchanged sentence

The Company determines fair value using the income approach utilizing inputs that are observable (Level 2).

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subordinated debt:

3 unchanged sentences

The Company determines the fair value of these instruments using the income approach utilizing inputs that are observable (Level 2).

The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

($ in thousands) Carrying

1 unchanged sentence

Notes payable

Term loan, due December 31, 2024 $ — $ — $ 50,000 $ 50,000

Revolving credit facility 100,000 100,000 50,000 50,000

6 unchanged sentences

Mortgage Loans

The Company has invested in Separately Managed Accounts (“SMA1” and “SMA2”), managed by Arena Investors, LP (“Arena”), which is affiliated with The Westaim Corporation (“Westaim”) who, directly and through Westaim HIIG LP (a limited partnership controlled by Westaim), is the Company’s largest stockholder.

As of September 30, 2023 and December 31, 2022, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2.

(a general partnership controlled by Westaim), is the Company’s largest stockholder.

As of March 31, 2024 and December 31, 2023, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2.

The Company’s mortgage loan portfolios are primarily senior loans on real estate across the U.S.

The loans earn interest at a fixed spread above a prime rate, mature in approximately 1 to 2 years from loan origination and the principal amounts of the loans range between 61 % to 90 % property’s appraised value at the time the loans were made.

Mortgage loan participations are carried at fair value as of September 30, 2023 and cost adjusted for unamortized premiums, discounts, and loan fees as of December 31, 2022.

The carrying value of the Company’s mortgage loans as of September 30, 2023 and December 31, 2022 were as follows:

($ in thousands) September 30, 2023 December 31, 2022

The loans earn interest at a fixed spread above a prime rate, mature in approximately 1 year to 3 years from loan origination and the principal amounts of the loans range between 64 % to 90 % property’s appraised value at the time the loans were made.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The carrying value of the Company’s mortgage loans as of March 31, 2024 and December 31, 2023 were as follows:

($ in thousands) March 31, 2024 December 31, 2023

Commercial $ 15,322 $ 14,469

2 unchanged sentences

Industrial 6,936 6,785

Multi-family 2,624 5,593

Office — 3,197

$ 44,309 $ 50,070

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s gross investment income for mortgage loans for the three and nine months ended September 30, 2023 and 2022 were as follows:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the Company’s gross investment income for mortgage loans for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

2 unchanged sentences

Hospitality 471 161

Office — 84 203 306

Multi-family — 117

Industrial — 181 — 433

$ 1,419 $ 1,473

1 unchanged sentence

The Company writes off the uncollectible amount in the period it was determined to be uncollectible.

There was no write-off for uncollectible amounts during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023 and December 31, 2022, approximately $ 6.7 million and $ 6.4 million of mortgage loans, respectively, were in the process of foreclosure.

The carrying value of the mortgage loans in foreclosure is the lower of cost adjusted for unamortized premiums, discounts, and loan fees or the fair value of the collateral less costs to sell.

Other Long-Term Investments

Equity Method Investments

There was no write-off for uncollectible amounts during the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and December 31, 2023, approximately $ 6.9 million and $ 7.1 million of mortgage loans, respectively, were in the process of foreclosure.

As of March 31, 2024, $ 6.9 million of mortgage loans were not producing income for the previous 12 months.

Equity Method Investments and Other

The Company’s ownership interests in most of its equity method investments range from approximately 3% to less than 5% where the Company has significant influence but not control.

The carrying value of the Company’s equity method investments as of September 30, 2023 and December 31, 2022 were as follows:

($ in thousands) September 30, 2023 December 31, 2022

The following table sets forth the carrying value of the Company’s equity method investments as of March 31, 2024 and December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023

Arena Special Opportunities Fund, LP units $ 40,643 $ 41,046

4 unchanged sentences

Dowling Capital Partners LP units 858 1,708

Universa Black Swan LP units — 1,325

Brewer Lane Ventures Fund II LP units 663 560

3 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of net investment (loss) income from equity method investments for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the components of net investment income (loss) from equity method investments for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

8 unchanged sentences

$ 1,098 $ ( 4,664 )

The following table sets forth the unfunded commitment of equity method investments as of September 30, 2023 and December 31, 2022:

($ in thousands) September 30, 2023 December 31, 2022

The following table sets forth the unfunded commitment of equity method investments as of March 31, 2024 and December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023

Brewer Lane Ventures Fund II LP units $ 4,227 $ 4,610

6 unchanged sentences

The Company amortizes this difference over a 15-year useful life.

The following table sets forth the Company’s recorded investment in RISCOM compared to its share of underlying equity as of September 30, 2023 and December 31, 2022:

($ in thousands) September 30, 2023 December 31, 2022

The following table sets forth the Company’s recorded investment in RISCOM compared to its share of underlying equity as of March 31, 2024 and December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023

Investment in RISCOM:

2 unchanged sentences

Recorded investment balance $ 3,807 $ 4,121

The following table sets forth the Company’s recorded investment in JVM Funds LLC compared to its share of underlying equity as of September 30, 2023 and December 31, 2022:

($ in thousands) September 30, 2023 December 31, 2022

The following table sets forth the Company’s recorded investment in JVM Funds LLC compared to its share of underlying equity as of March 31, 2024 and December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023

Investment in JVM Funds LLC:

6 unchanged sentences

Investment in Indirect Loans and Loan Collateral

As of September 30, 2023 and December 31, 2022, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2.

The carrying value and unfunded commitment of the SMA1 and SMA2 as of September 30, 2023 and December 31, 2022 were as follows:

September 30, 2023 December 31, 2022

($ in thousands) Carrying Value Unfunded Commitment Carrying Value Unfunded Commitment

As of March 31, 2024 and December 31, 2023, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2.

The carrying value of the SMA1 and SMA2 as of March 31, 2024 and December 31, 2023 were as follows:

($ in thousands) March 31, 2024 December 31, 2023

SMA1 $ 24,883 $ 30,816

1 unchanged sentence

Investment in indirect loans and loan collateral $ 31,204 $ 36,025

Investment in Trust

The Company carries its investment in the common stock of the Delos Capital Trust n/k/a HIIG Capital Trust I (“Trust”) at cost.

There were no impairments or observable changes in price during the nine months ended September 30, 2023 and 2022.

Allowance for Credit Losses

Premiums Receivable

The following table sets forth the changes in the allowance for expected credit losses on premiums receivable for the nine months ended September 30, 2023.

($ in thousands) Allowance for Credit Losses

Balance at December 31, 2022 $ 629

Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 —

Current period change for estimated uncollectible premiums 409

Write-offs of uncollectible premiums receivable ( 56 )

Balance at March 31, 2023 $ 982

Current period change for estimated uncollectible premiums 37

Write-offs of uncollectible premiums receivable ( 96 )

Recoveries of amounts previously written off 18

Balance at June 30, 2023 $ 941

Current period change for estimated uncollectible premiums 277

Write-offs of uncollectible premiums receivable ( 228 )

Recoveries of amounts previously written off 17

Balance at September 30, 2023 $ 1,007

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reinsurance Recoverables

The Company analyzes the credit risk associated with its reinsurance recoverables by monitoring the financial strength rating of its reinsurers from A.M.

Best, a widely recognized rating agency with an exclusive insurance industry focus.

The Company assesses the financial strength rating annually and updated throughout the year as A.M.

Best provides updates on ratings and outlooks.

The Company assesses the adequacy of various forms of credit enhancements such as reinsurance payables, letters of credit and funds held.

The Company’s reinsurance recoverables net of credit enhancements by A.M.

Best rating as of September 30, 2023 was as follows:

Best Rating September 30, 2023

A- and above 98.0 %

B++ to B+ 2.0

The Company considers reinsurance balances to be past due when they are 90 days past due.

The following table sets forth the changes in the allowance for estimated uncollectible reinsurance for the nine months ended September 30, 2023:

($ in thousands) Allowance for Credit Losses

Balance at December 31, 2022 $ —

Cumulative effect of adoption of ASU 2016-13 at January 1, 2023 2,295

Current period change for estimated uncollectible reinsurance —

Write-offs of uncollectible reinsurance recoverables —

Balance at March 31, 2023 $ 2,295

Current period change for estimated uncollectible reinsurance —

Write-offs of uncollectible reinsurance recoverables —

Balance at June 30, 2023 $ 2,295

Current period change for estimated uncollectible reinsurance —

Write-offs of uncollectible reinsurance recoverables —

Balance at September 30, 2023 $ 2,295

Notes Payable

Notes Payable & Subordinated Debt

Revolving Credit Facility

The Company entered into an agreement to obtain a new unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks during the first quarter of 2023.

The Revolving Credit Facility provided the Company 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 nine months ended September 30, 2023, the Company drew $ 50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on its existing term loan.

The Company subsequently terminated the existing term loan and revolving line of credit.

As of December 31, 2023, the Company drew $ 50.0 million on the Revolving Credit Facility.

During the three months ended March 31, 2024, the Company drew an additional $ 50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on its existing Debentures (defined below).

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 September 30, 2023, the six-month SOFR on the Revolving Credit Facility was 5.47 %, plus a margin of 1.60 %.

The following table sets forth the outstanding draws on the Revolving Credit Facility as of March 31, 2024:

($ in thousands) March 31, 2024

Amount Margin Six-month SOFR Net interest rate

March 15, 2024 $ 50,000 1.60 % 5.25 % 6.85 %

March 29, 2023 $ 50,000 1.60 % 5.23 % 6.83 %

The Company was 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 September 30, 2023, the Company was in compliance with all covenants.

As of March 31, 2024, the Company was in compliance with all covenants.

In August 2006, the Company received $ 58.0 million of proceeds from a debenture offering through a statutory trust, Delos Capital Trust (the “Trust”).

The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of $ 59.8 million issued by the Company and cash of $ 1.8 million from the issuance of Trust common shares purchased by the Company equal to 3 % of the Trust capitalization.

On March 15, 2024, the Company redeemed the Debentures and paid $ 1.4 million of accrued interest.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity

Reverse Stock Split

On September 23, 2022, the Board of Directors approved a 4-for-1 reverse stock split of the Company’s common stock.

The reverse stock split became effective January 3, 2023.

All share and per share information included in the accompanying consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to reflect the reverse stock split of common stock for all periods presented.

Initial Public Offering

On January 4, 2023, the Company announced the launch of its initial public offering (“IPO”) of its common stock.

On January 12, 2023, the Company priced its IPO of 8,952,383 shares of its common stock, with 4,750,000 shares offered by the Company and 4,202,383 shares sold by selling stockholders, at a price of $ 15.00 per share.

The shares began trading on January 13, 2023 on the Nasdaq Global Select Market under the ticker symbol “SKWD.”

The Company completed its IPO on January 18, 2023.

The underwriters exercised in full their option to purchase 1,342,857 additional shares of common stock from the selling stockholders, at a price per share of $ 15.00 .

The Company’s net proceeds from the IPO were approximately $ 62.0 million, after deducting underwriting discounts and specific incremental expenses directly attributable to the IPO.

Upon the closing of its IPO, the Company filed an amended and restated certificate of incorporation which, among other things, increased the number of authorized shares consisting of 500,000,000 shares of common stock, par value $ 0.01 per share, and 10,000,000 shares of preferred stock, par value $ 0.01 per share.

Preferred Shares Conversion

The Preferred Shares had preference in liquidation over common stock in the amount of the face value of $ 50.00 per share and any declared but unpaid dividends to related common shares at the applicable conversion rate.

The Preferred Shares provided the holder the option at any time to convert the Preferred Shares into common stock based on the Option Conversion Rate.

At December 31, 2022, the Company had 1,969,660 Preferred Shares that could be converted to 16,305,113 common shares based on a conversion price equal to $ 6.04 per common share.

The Preferred Shares were subject to mandatory conversion upon the closing of an IPO at the Mandatory Conversion Rate.

At December 31, 2022, the Mandatory Conversion Rate allowed the holder of the Preferred Shares the right to convert into common stock based on a conversion price equal to $ 6.04 per common share.

On January 18, 2023, the 1,969,660 Preferred Shares converted to 16,305,113 shares of common stock upon the Company’s closing of its IPO.

The following table sets forth the Company’s income tax expense (benefit) and effective tax rates for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the Company’s income tax expense and effective tax rates for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

Income tax expense (benefit) $ 6,084 $ ( 719 ) $ 15,814 $ 4,842

Income tax expense $ 10,193 $ 4,166

Effective tax rate 21.7 % 21.1 %

The effective tax rate will differ from the statutory rate of 21 percent due to permanent differences for disallowed expenses for tax and beneficial adjustments for tax-exempt income and dividends-received deduction.

The Company paid federal income taxes of $ 10.0 million during the nine months ended September 30, 2023.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Losses and Loss Adjustment Expenses

The following table sets forth the reconciliation of unpaid losses and loss adjustment expenses (“LAE”) as reported in the condensed consolidated balance sheets as of and for the nine months ended September 30, 2023 and 2022:

Nine months ended September 30,

Three months ended March 31,

($ in thousands) 2024 2023

13 unchanged sentences

Reserves for losses and LAE, end of period $ 1,376,946 $ 1,173,176

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commission and Fee Income

2 unchanged sentences

Commission and fee income is primarily generated from SUA for the placement of insurance policies on either a third-party insurance or reinsurance company.

The following table sets forth the Company’s disaggregated revenues from contracts with customers for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the Company’s disaggregated revenues from contracts with customers for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

3 unchanged sentences

Total commission and fee income $ 2,026 $ 1,492

The Company’s contract assets from commission and fee income as of September 30, 2023 and December 31, 2022 were $ 2.3 million and $ 1.3 million, respectively.

Contract assets were $ 1.7 million and $ 1.2 million as of September 30, 2022 and December 31, 2021, respectively.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s contract assets from commission and fee income as of March 31, 2024 and December 31, 2023 were $ 1.5 million and $ 1.0 million, respectively.

Contract assets were $ 1.3 million as of both March 31, 2023 and December 31, 2022.

Underwriting, Acquisition and Insurance Expenses

The following table sets forth the components of underwriting, acquisition and insurance expenses for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the components of underwriting, acquisition and insurance expenses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) 2024 2023

5 unchanged sentences

The Company remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations.

The following table sets forth the effects of reinsurance on written and earned premiums and losses and loss adjustment expenses for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30,

($ in thousands) Written Earned Written Earned

Direct premiums $ 308,215 $ 299,294 $ 246,339 $ 242,727

Assumed premiums 47,517 51,665 23,911 30,020

Ceded premiums ( 75,036 ) ( 123,926 ) ( 98,795 ) ( 114,699 )

Net premiums $ 280,696 $ 227,033 $ 171,455 $ 158,048

Ceded losses and LAE incurred $ 103,753 $ 60,878

Nine months ended September 30,

The following table sets forth the effects of reinsurance on written and earned premiums and losses and loss adjustment expenses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands) Written Earned Written Earned

7 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of reinsurance recoverables and ceded unearned premium as of September 30, 2023 and December 31, 2022:

($ in thousands) September 30, 2023 December 31, 2022

The following table sets forth the components of reinsurance recoverables and ceded unearned premium as of March 31, 2024 and December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023

Ceded unpaid losses and LAE $ 466,095 $ 455,484

6 unchanged sentences

These trust accounts provide the Company additional security to collect claim recoverables under reinsurance contracts and the Company does not carry these on the balance sheet because the Company will only have custody over these accounts upon the failure of the reinsurer to pay amounts due.

At September 30, 2023, the market value of these accounts was approximately $ 137.4 million.

The agreements provide that, as was customary in the past, the reinsurer will continue claim payment reimbursements without disturbing the trust balances.

The trust amount will be adjusted periodically, by mutual agreement, based on loss reserve recoverables.

At March 31, 2024, the market value of these accounts was approximately $ 171.2 million.

The trust amount will be adjusted periodically, by mutual agreement, based on claim payments and loss reserve recoverables.

Certain ceded reinsurance contracts that transfer only significant timing risk and do not transfer sufficient underwriting risk are accounted for using the deposit method of accounting.

The Company’s deposit asset at September 30, 2023 and December 31, 2022 was $ 33.2 million and $ 41.8 million, respectively, and was included in other assets on the condensed consolidated balance sheets.

Stock Based Compensation

On September 23, 2022, the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) approved the Company’s 2022 Long-Term Incentive Plan (the “2022 Plan”), which became effective on January 12, 2023.

The 2022 Plan provides for the granting of restricted stock, restricted stock units, performance stock units, stock options as well as cash-based performance awards, to select employees and non-employee directors of the Company.

The 2022 Plan stated that 3,200,516 shares of common stock were available for issuance.

On September 23, 2022, the Compensation Committee approved the Company’s 2022 Employee Stock Purchase Plan (the “ESPP”), which became effective on May 15, 2023.

Under the ESPP, all employees of the Company may choose, at two different specified time intervals each year, to have a percentage of their annual base earnings withheld to purchase the Company’s common stock.

The purchase price of the common stock is 85 % of the lower of its beginning-of-interval or end-of-interval market price.

As of September 30, 2023, 376,531 common stock were available for purchase under this plan.

In December 2020, the Compensation Committee approved a Long Term Incentive Plan (the “2021 Plan”).

The 2021 Plan provides for the granting of restricted stock, restricted stock units and performance stock units (collectively “restricted stock units” or “stock units”), as well as cash-based performance awards, to select employees and non-employee directors of the Company.

The Compensation Committee granted 1,101,116 and 198,842 shares of restricted stock and restricted stock units during the nine months ended September 30, 2023 and 2022, under the 2022 Plan and 2021 Plan, respectively.

Members of the Board of Directors were granted 22,742 and 15,196 shares of restricted stock during the nine months ended September 30, 2023 and 2022, respectively, with a service period of 1 year.

The fair value of restricted stock and restricted stock units under the 2022 Plan for awards granted at the time of the Company’s IPO were granted at the IPO price of $ 15.00 per share.

The fair value of subsequent grants were equal to the closing stock price on the date the restricted stock units were granted.

The Compensation Committee granted 759,990 stock options during the nine months ended September 30, 2023.

The grant date fair value of the options under the 2022 Plan was determined using the Black-Scholes model where the term was

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the contractual term of 10 years less the weighted average service period.

The volatility was determined based on the historical volatility of comparable publicly traded insurance companies.

The grant date fair value of options under the ESPP was determined using the Black-Scholes model where the term was the length of time between the grant date and the date the options are exercisable of 6 months.

The volatility was determined based on the historical volatility of comparable publicly traded insurance companies.

The restricted stock and restricted stock units granted to employees and the Board of Directors during the nine months ended September 30, 2023 and 2022 were valued at approximately $ 17.7 million and $ 2.6 million, respectively, based on the grant date fair value.

The stock options granted to employees during the nine months ended September 30, 2023 were valued at approximately $ 4.4 million based on the grant date fair value.

The following table sets forth the Company’s equity awards, target payout ranges and authorized target restricted stock and stock units for the nine months ended September 30, 2023 and 2022:

Payout Range Requisite

Service Period Target

Stock and Stock Units

Nine months ended September 30, 2023

Market condition awards 0 %– 150 %

3 years 37,622

Performance condition awards 0 %– 150 %

3 years 95,456

Service condition awards N/A 1 – 4 years

Stock options N/A 3 – 4 years

Nine months ended September 30, 2022

Market condition awards 0 %– 150 %

3 years 28,495

Performance condition awards 0 %– 150 %

3 years 26,210

Service condition awards N/A 1 – 3 years

The following table sets forth option activity for the nine months ended September 30, 2023:

Weighted-Average

Exercise Price Stock

Outstanding at January 1, 2023 —

Granted $ 15.00 759,990

Outstanding at September 30, 2023 759,990

The intrinsic value of each option is determined based on the difference between the fair value of the underlying share and the exercise price of the underlying option.

The aggregate intrinsic value of options outstanding at September 30, 2023 was $ 9.4 million.

The weighted-average remaining contractual life of the options outstanding at September 30, 2023 was 9.3 years.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Company’s restricted stock and restricted stock units activity for the nine months ended September 30, 2023 and 2022:

Weighted-Average

Fair Value Stock and Stock Units

Non-vested at January 1, 2023 $ 12.55 419,896

Granted 16.06 1,101,116

Vested 13.21 ( 35,954 )

Forfeited 15.30 ( 36,354 )

Non-vested at September 30, 2023 $ 15.12 1,448,704

Non-vested at January 1, 2022 $ 13.23 375,643

Granted 14.17 198,842

Vested 15.55 ( 126,978 )

Forfeited 12.51 ( 10,547 )

Non-vested at September 30, 2022 $ 12.54 436,960

The total fair value of shares vested at September 30, 2023 and 2022 were $ 1.0 million and $ 2.0 million, respectively.

As of September 30, 2023 the total unrecognized compensation cost related to non-vested, stock-based compensation awards was $ 18.1 million and the weighted average period over which that cost is expected to be recognized is 1.7 years.

For the three and nine months ended September 30, 2023, the Company recognized $ 2.3 million and $ 6.2 million of stock-based compensation expense, respectively.

For the three and nine months ended September 30, 2022, the Company recognized $ 0.5 million and $ 1.7 million, of stock-based compensation expense, respectively.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s deposit asset at March 31, 2024 and December 31, 2023 was $ 27.5 million and $ 29.9 million, respectively, and was included in other assets on the condensed consolidated balance sheets.

Earnings Per Share

The following table sets forth a reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share computations contained in the period-ended consolidated financial statements for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

The following table sets forth the compilation of basic and diluted net earnings per share for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

($ in thousands, except for share and per share amounts) 2024 2023

Net income (loss) $ 21,711 $ ( 2,399 ) $ 56,719 $ 18,977

Net income $ 36,784 $ 15,556

Undistributed income allocated to participating securities — ( 1,274 )

Net income (loss) attributable to common stockholders (numerator for basic earnings per share) 21,711 ( 2,399 ) 55,227 9,853

Net income attributable to common stockholders (numerator for basic earnings per share) 36,784 14,282

Undistributed income allocated to participating securities — 1,274

Net income (loss) (numerator for diluted earnings per share under the two-class method) $ 21,711 $ ( 2,399 ) $ 56,719 $ 18,977

Net income (numerator for diluted earnings per share under the two-class method) $ 36,784 $ 15,556

Basic weighted-average common shares 39,108,351 32,848,243

Preferred shares (if converted method) — — 959,124 15,245,533

Contingently issuable instruments (treasury stock method) 706,794 — 684,017 518,727

Market condition awards (contingently issuable) 93,935 — 89,467 103,811

Performance awards (contingently issuable) 87,297 — 52,223 39,231

Restricted stock units (treasury stock method) 618,750 — 467,911 227,054

Options (treasury stock method) 153,674 — 74,846 —

Dilutive effect of preferred shares — 2,931,256

Dilutive effect of stock notes 711,752 708,746

Dilutive effect of stock units 935,890 444,612

Dilutive effect of options 329,143 19,216

Diluted weighted-average common share equivalents 41,085,136 36,952,073

Basic earnings (loss) per share $ 0.59 $ ( 0.15 ) $ 1.56 $ 0.60

Diluted earnings (loss) per share $ 0.57 $ ( 0.15 ) $ 1.50 $ 0.58

The Company’s preferred shares participate in dividends and distributions with common stock on an as-converted basis and represent a participating security.

Instruments awarded to employees that provide the holder the right to purchase common stock at a fixed price were included as potential common shares, weighted for the portion of the period they were granted, if dilutive.

Anti-dilutive instruments are excluded from the calculation of diluted weighted-average common share equivalents as they would have an anti-dilutive impact.

The following table sets forth the weighted-average instruments that were

Basic earnings per share $ 0.94 $ 0.43

Diluted earnings per share $ 0.90 $ 0.42

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

excluded from the calculation of diluted weighted-average common share equivalents during the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

Preferred shares (if converted method) — 15,247,437 — —

Contingently issuable instruments (treasury stock method) — 510,577 — 3,024

Market condition awards (contingently issuable) 1,881 112,454 1,488 —

Performance awards (contingently issuable) 1,670 42,411 1,391 —

Restricted stock units (treasury stock method) 1,518 252,180 1,667 —

Options (treasury stock method) 2 — 364,714 —

The Company’s common and preferred shares financed by stock notes are contingently issuable instruments where the holder must return, all or part of, the shares if the stock notes are not paid off.

The following table sets forth common share equivalents of contingently issuable instruments (in shares) that were excluded from basic earnings (loss) per share for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

The Company’s preferred shares participate in dividends and distributions with common stock on an as-converted basis and represent a participating security.

The following table presents anti-dilutive instruments that were excluded from the calculation of diluted weighted-average common share equivalents during the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Stock units 70,671 443,951

Options 48 333,551

The following table presents common share equivalents of contingently issuable instruments that were excluded from basic earnings per share in the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Common shares 866,428 1,054,510

Preferred shares, if converted — 1,059,602 — 1,059,602

Total 932,588 1,140,128 932,588 1,140,128

The impact of the contingently issuable instruments on diluted earnings (loss) per share was calculated using the treasury stock method and included in the reconciliation of the denominator of the basic and diluted earnings (loss) per share computations for the three and nine months ended September 30, 2023 and 2022.

Related Party Transactions

In July 2023, Westaim dissolved Westaim HIIG LP and obtained direct ownership of the Company’s common stock held by the partnership.

As of September 30, 2023, Westaim owned 28.1 % of the Company’s common stock.

As of December 31, 2022, Westaim, including shares beneficially owned through Westaim HIIG LP, owned 44.5 % of the Company’s common stock.

The changes in ownership percentage were primarily due to the IPO, conversion of preferred stock to common stock, distribution of shares controlled by Westaim through a limited partnership, and secondary offering.

The Company’s investment in Westaim was included in equity securities on the consolidated balance sheets.

The unrealized loss on this investment as of September 30, 2023 and December 31, 2022 was $ 1.3 million and $ 2.3 million, respectively.

Prior to the closing of the IPO, Westaim performed consulting and certain other services for the Company pursuant to a Management Services Agreement.

This agreement terminated pursuant to its terms upon the closing of the IPO.

Westaim subsequently transferred the direct ownership of the Company’s stock to the wholly owned general partnership, Westaim HIIG GP Inc.

As of March 31, 2024 and December 31, 2023, Westaim, including shares beneficially owned through Westaim HIIG GP Inc., owned 17.5 % of the Company’s common stock.

RISCOM provides the Company with wholesale brokerage services.

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The Company holds a 20 % ownership interest in RISCOM.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net earned premium and gross commission expense related to these agreements for the three and nine months ended September 30, 2023 and 2022 were as follows:

Three months ended September 30, Nine months ended September 30,

Net earned premium and gross commission expense related to these agreements for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31,

($ in thousands) 2024 2023

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Commissions 6,887 6,853

Premiums receivable as of September 30, 2023 and December 31, 2022 were $ 14.8 million and $ 9.9 million, respectively.

The Company has reinsurance agreements with Everest Re, an affiliate of Mt.

Whitney Securities, LLC, which was a limited partner of Westaim HIIG LP through November 30, 2022, and holder of preferred shares.

During the nine months ended September 30, 2023, Mt.

Whitney Securities divested their entire ownership of the Company’s equity securities.

Reinsurance premiums ceded during the three and nine months ended September 30, 2022 related to the agreement were $ 11.0 million and $ 53.2 million, respectively.

Reinsurance recoverable from Everest Re, net of premium payables at December 31, 2022 were $ 177.5 million.

Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the three and nine months ended September 30, 2023 were $ 0.5 million and $ 3.1 million, respectively, compared to $ 0.6 million and $ 2.8 million for the three and nine months ended September 30, 2022, respectively.

Premiums receivable as of March 31, 2024 and December 31, 2023 were $ 15.6 million and $ 10.6 million, respectively.

Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the three months ended March 31, 2024 were $ 2.0 million, compared to $ 2.1 million for the three months ended March 31, 2023.

See Note 4 and 5 for investments involving affiliated companies and additional related party transactions.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

11 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 1. Financial Statements