What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-08 compared with 2024-05-03 · 203 added, 135 removed, 563 unchanged (38% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

1 unchanged sentence

$ 1,200,273 $ 1,017,651

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

Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 225 and $ 329 , respectively)

39,962 42,986

38 unchanged sentences

AND COMPREHENSIVE INCOME (UNAUDITED)

Three months ended March 31,

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

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

2 unchanged sentences

Net investment income 22,138 8,583 40,435 13,229

Net investment gains 8,303 961

Net investment (losses) gains ( 1,825 ) 5,351 6,478 6,312

Other loss ( 7 ) — ( 7 ) —

Total revenues 279,942 210,521 544,910 400,451

8 unchanged sentences

Net income 30,970 19,452 67,754 35,008

Net income attributable to participating securities — 1,274

Net income attributable to common stockholders $ 30,970 $ 19,452 $ 67,754 $ 33,606

1 unchanged sentence

Net income $ 30,970 $ 19,452 $ 67,754 $ 35,008

Other comprehensive (loss) income:

Other comprehensive income:

Unrealized gains and losses on investments:

12 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three months ended March 31,

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three months ended June 30,

($ in thousands, except share amounts) 2024 2023

Preferred shares:

Common shares:

Balance at beginning of period 39,995,027 37,658,111

Issuance of shares 101,105 15,952

Balance at June 30 40,096,132 37,674,063

Common stock:

Balance at beginning of period $ 400 $ 377

Issuance of common stock 1 —

Balance at June 30 $ 401 $ 377

Additional paid-in capital:

Balance at beginning of period $ 711,309 $ 641,368

Issuance of common stock 2,233 1,620

Balance at June 30 $ 713,542 $ 642,988

Stock notes receivable:

Balance at beginning of period $ ( 5,234 ) $ ( 6,718 )

Employee equity transactions 1 —

Balance at June 30 $ ( 5,233 ) $ ( 6,718 )

Accumulated other comprehensive loss:

Balance at beginning of period $ ( 29,279 ) $ ( 35,744 )

Other comprehensive loss, net of tax ( 1,857 ) ( 5,540 )

Balance at June 30 $ ( 31,136 ) $ ( 41,284 )

Retained earnings (accumulated deficit):

Balance at beginning of period $ 15,076 $ ( 92,137 )

Net income 30,970 19,452

Balance at June 30 $ 46,046 $ ( 72,685 )

Total stockholders’ equity $ 723,620 $ 522,678

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Six months ended June 30,

($ in thousands, except share amounts) 2024 2023

Preferred shares:

Balance at beginning of year — 1,969,660

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

Balance at March 31 — —

Balance at June 30 — —

Common shares:

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

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

Issuance of shares 232,376 4,769,284

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

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

Balance at June 30 40,096,132 37,674,063

Preferred stock:

Balance at beginning of period $ — $ 20

Balance at beginning of year $ — $ 20

Preferred stock conversion to common shares — ( 20 )

Balance at March 31 $ — $ —

Balance at June 30 $ — $ —

Common stock:

Balance at beginning of period $ 399 $ 168

Balance at beginning of year $ 399 $ 168

Issuance of common stock 2 —

1 unchanged sentence

Proceeds from equity offerings, net — 48

Balance at March 31 $ 400 $ 377

Balance at June 30 $ 401 $ 377

Treasury stock:

Balance at beginning of period $ — $ ( 2 )

Balance at beginning of year $ — $ ( 2 )

Preferred stock conversion to common shares — 2

Balance at March 31 $ — $ —

Balance at June 30 $ — $ —

Additional paid-in capital:

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

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

Issuance of common stock 2,687 3,875

1 unchanged sentence

Proceeds from equity offerings, net — 61,967

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

Balance at June 30 $ 713,542 $ 642,988

Stock notes receivable:

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

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

Employee equity transactions 329 193

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

Balance at June 30 $ ( 5,233 ) $ ( 6,718 )

Accumulated other comprehensive loss:

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

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

Other comprehensive (loss) income, net of tax ( 8,183 ) 2,201

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

Balance at June 30 $ ( 31,136 ) $ ( 41,284 )

Retained earnings (accumulated deficit):

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

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

Cumulative effect on adoption of ASU No.

1 unchanged sentence

Net income 67,754 35,008

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

Balance at June 30 $ 46,046 $ ( 72,685 )

Total stockholders’ equity $ 723,620 $ 522,678

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three months ended March 31,

Six months ended June 30,

($ in thousands) 2024 2023

5 unchanged sentences

Purchase of fixed maturity securities, available-for-sale ( 266,800 ) ( 192,749 )

Purchase of illiquid investments — ( 885 )

Purchase of equity securities ( 6,293 ) ( 19,192 )

Purchase of equity method investments ( 1,100 ) —

Purchase of intangible assets — ( 50 )

Investment in direct and indirect loans 14,224 14,032

1 unchanged sentence

Sales and maturities of investment securities 96,419 60,075

Distributions from equity method investments — 1,079

Proceeds from equity method and other long-term investments 7,951 —

4 unchanged sentences

Cash flows from financing activities:

Employee share purchases — 193

Repayment of stock notes receivable 329 —

11 unchanged sentences

Cash paid for interest $ 4,835 $ 5,194

Cash paid for federal income taxes $ 13,980 $ 4,200

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

16 unchanged sentences

Actual results could differ materially from these estimates.

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

The following tables set forth the amortized cost and the fair value by investment category at June 30, 2024 and December 31, 2023:

($ in thousands) Gross

Losses Allowance for Credit Losses Fair Value

March 31, 2024

June 30, 2024

Fixed maturity securities, available-for-sale:

12 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

($ in thousands) Gross

12 unchanged sentences

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

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:

The following table sets forth the amortized cost and fair value of available-for-sale fixed maturity securities by contractual maturity at June 30, 2024:

($ in thousands) Amortized

9 unchanged sentences

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 March 31, 2024 consisted entirely of asset backed securities that were not due at a single maturity date.

The Company’s fixed maturity securities, held-to-maturity, at June 30, 2024 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 June 30, 2024 and December 31, 2023:

SKYWARD SPECIALTY INSURANCE GROUP, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

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

March 31, 2024

June 30, 2024

Fixed maturity securities, available-for-sale:

11 unchanged sentences

Total $ 331,902 $ ( 3,855 ) $ 480,021 $ ( 44,263 ) $ 811,923 $ ( 48,118 )

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Less than 12 Months 12 Months or More Total

14 unchanged sentences

Total $ 121,362 $ ( 1,667 ) $ 482,875 $ ( 42,855 ) $ 604,237 $ ( 44,522 )

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

The Company regularly monitors its available-for-sale fixed maturity securities that have fair values less than cost or amortized cost for signs of impairment, an assessment that requires significant management judgment regarding the evidence known.

1 unchanged sentence

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

As of June 30, 2024, the Company had 796 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.

1 unchanged sentence

The Company attributed the unrealized losses to the changes in interest rates.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

The following table sets forth the components of net investment (losses) gains for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

2 unchanged sentences

Equity securities 493 814 1,574 2,041

Other — — 18 1

Total 824 1,025 2,422 2,746

4 unchanged sentences

Total ( 889 ) ( 691 ) ( 3,175 ) ( 5,218 )

Net unrealized gains on investments

Net unrealized (losses) gains on investments

Equity securities ( 730 ) 5,038 7,290 8,783

Mortgage loans ( 1,030 ) ( 21 ) ( 59 ) 1

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,

Net investment (losses) gains $ ( 1,825 ) $ 5,351 $ 6,478 $ 6,312

The following table sets forth the proceeds from sales of available-for-sale fixed maturity securities and equity securities for the six months ended June 30, 2024 and 2023:

Six months ended June 30,

($ in thousands) 2024 2023

1 unchanged sentence

Equity securities 17,760 17,583

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,

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

The following table sets forth the components of net investment income for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

10 unchanged sentences

Net investment income $ 22,138 $ 8,583 $ 40,435 $ 13,229

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

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 and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

15 unchanged sentences

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying consolidated financial statements and in these notes:

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

government securities, mutual funds and common stock

11 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

Mortgage loans

3 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 March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

High 9.75 % 9.50 %

1 unchanged sentence

Weighted average 7.49 % 7.05 %

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

The following tables set forth the Company’s investments within the fair value hierarchy at June 30, 2024 and December 31, 2023:

June 30, 2024

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

21 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

December 31, 2023

20 unchanged sentences

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:

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

The following tables set forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the six months ended June 30, 2024 and 2023:

($ in thousands) Mortgage Loans

Balance at December 31, 2023 $ 50,070

Total gains for the period recognized in net investment gains (losses) 971

Total gains for the period recognized in net investment (losses) gains 971

Issuances 187

1 unchanged sentence

Balance at March 31, 2024 $ 44,309

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

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

Total gains for the period recognized in net investment (losses) gains ( 1,030 )

Issuances 449

Settlements ( 58 )

Balance at June 30, 2024 $ 43,670

Total losses for the period recognized in net investment (losses) gains attributable to the change in unrealized gains or losses relating to assets held as of period end $ ( 1,031 )

($ in thousands) Mortgage Loans

Balance at December 31, 2022 $ 52,842

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

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

Issuances 892

1 unchanged sentence

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 )

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

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

Settlements ( 9,582 )

Balance at June 30, 2023 $ 32,762

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

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.

3 unchanged sentences

The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

The following methods and assumptions were used in estimating the fair value disclosures of other financial instruments:

1 unchanged sentence

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

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).

As of June 30, 2024, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).

Notes payable:

6 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 March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

($ in thousands) Carrying

9 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 GP Inc.

(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 has invested in Separately Managed Accounts (“SMA1” and “SMA2”).

As of June 30, 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 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

The loans earn interest at a fixed spread above a prime rate, mature in approximately 2 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.

The carrying value of the Company’s mortgage loans as of June 30, 2024 and December 31, 2023 were as follows:

($ in thousands) June 30, 2024 December 31, 2023

Commercial $ 15,244 $ 14,469

3 unchanged sentences

$ 43,670 $ 50,070

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,

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Loans (continued)

The following table sets forth the Company’s gross investment income for mortgage loans for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

2 unchanged sentences

Hospitality 269 132 739 293

Office — 97 — 203

Multi-family — 75 — 192

2 unchanged sentences

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 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.

There was no write-off for uncollectible amounts during the three and six months ended June 30, 2024 and 2023.

As of June 30, 2024 and December 31, 2023, approximately $ 6.4 million and $ 7.1 million of mortgage loans, respectively, were in the process of foreclosure.

As of June 30, 2024, $ 6.4 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 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

The following table sets forth the carrying value and ownership percentage of the Company’s equity method investments as of June 30, 2024 and December 31, 2023:

($ in thousands) June 30, 2024 December 31, 2023

Carrying Value Ownership % Carrying Value Ownership %

Arena Special Opportunities Fund, LP units $ 39,421 16.0 % $ 41,046 16.2 %

9 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

Equity Method Investments and Other (continued)

The following table sets forth the components of net investment income (loss) from equity method investments for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

8 unchanged sentences

$ 2,642 $ ( 2,104 ) $ 3,740 $ ( 6,768 )

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

The following table sets forth the unfunded commitment of equity method investments as of June 30, 2024 and December 31, 2023:

($ in thousands) June 30, 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 March 31, 2024 and December 31, 2023:

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

The following table sets forth the Company’s recorded investment in RISCOM compared to its share of underlying equity as of June 30, 2024 and December 31, 2023:

($ in thousands) June 30, 2024 December 31, 2023

Investment in RISCOM:

2 unchanged sentences

Recorded investment balance $ 4,196 $ 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 March 31, 2024 and December 31, 2023:

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

The following table sets forth the Company’s recorded investment in JVM Funds LLC compared to its share of underlying equity as of June 30, 2024 and December 31, 2023:

($ in thousands) June 30, 2024 December 31, 2023

Investment in JVM Funds LLC:

5 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments and Other (continued)

Investment in Indirect Loans and Loan Collateral

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

As of June 30, 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 June 30, 2024 and December 31, 2023 were as follows:

($ in thousands) June 30, 2024 December 31, 2023

SMA1 $ 23,311 $ 30,816

6 unchanged sentences

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).

During the six months ended June 30, 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.

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

($ in thousands) March 31, 2024

The following table sets forth the outstanding draws on the Revolving Credit Facility as of June 30, 2024:

($ in thousands) June 30, 2024

Amount Margin Six-month SOFR Net interest rate

3 unchanged sentences

Best Rating and minimum liquidity.

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

As of June 30, 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”).

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

The following table sets forth the Company’s income tax expense and effective tax rates for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

2 unchanged sentences

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, dividends-received deduction and non-deductible expenses.

The Company paid federal income taxes of $ 14.0 million during the three and six months ended June 30, 2024 and $ 4.2 million during the three and six months ended June 30, 2023.

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 three months ended March 31, 2024 and 2023:

Three months ended March 31,

Six months ended June 30,

($ in thousands) 2024 2023

20 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 months ended March 31, 2024 and 2023:

Three months ended March 31,

The following table sets forth the Company’s disaggregated revenues from contracts with customers for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

3 unchanged sentences

Total commission and fee income $ 2,053 $ 2,240 $ 4,079 $ 3,732

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.

The Company’s contract assets from commission and fee income as of June 30, 2024 and December 31, 2023 were $ 1.7 million and $ 1.0 million, respectively.

Underwriting, Acquisition and Insurance Expenses

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,

The following table sets forth the components of underwriting, acquisition and insurance expenses for the three and six months ended June 30, 2024 and 2023:

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

($ in thousands) 2024 2023 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 months ended March 31, 2024 and 2023:

Three months ended March 31,

The following tables set forth the effects of reinsurance on written and earned premiums and losses and loss adjustment expenses for the three and six months ended June 30, 2024 and 2023:

Three months ended June 30,

($ 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 March 31, 2024 and December 31, 2023:

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

Reinsurance (continued)

Six months ended June 30,

($ in thousands) Written Earned Written Earned

Direct premiums $ 771,239 $ 662,570 $ 640,275 $ 546,419

Assumed premiums 183,624 132,972 142,217 87,345

Ceded premiums ( 370,634 ) ( 301,617 ) ( 366,614 ) ( 256,586 )

Net premiums $ 584,229 $ 493,925 $ 415,878 $ 377,178

Ceded losses and LAE incurred $ 192,573 $ 164,775

The following table sets forth the components of reinsurance recoverables and ceded unearned premium as of June 30, 2024 and December 31, 2023:

($ in thousands) June 30, 2024 December 31, 2023

Ceded unpaid losses and LAE $ 505,698 $ 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 March 31, 2024, the market value of these accounts was approximately $ 171.2 million.

At June 30, 2024, the market value of these accounts was approximately $ 196.9 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 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.

The Company’s deposit asset at June 30, 2024 and December 31, 2023 was $ 24.6 million and $ 29.9 million, respectively, and was included in other assets on the condensed consolidated balance sheets.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

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,

The following table sets forth the compilation of basic and diluted net earnings per share for the three and six months ended June 30, 2024 and 2023:

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

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

12 unchanged sentences

Diluted earnings per share $ 0.75 $ 0.51 $ 1.65 $ 0.93

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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,

The following table presents anti-dilutive instruments that were excluded from the calculation of diluted weighted-average common share equivalents during the three and six months ended June 30, 2024 and 2023:

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

2024 2023 2024 2023

Stock units 21,813 1,936 135,027 331,484

Options 1,134 315 706 357,059

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,

The following table presents common share equivalents of contingently issuable instruments that were excluded from basic earnings per share in the three and six months ended June 30, 2024 and 2023:

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

2024 2023 2024 2023

Common shares 866,428 1,054,510 866,428 1,054,510

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

1 unchanged sentence

The Company holds a 20 % ownership interest in RISCOM.

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,

Net earned premium and gross commission expense related to these agreements for the three and six months ended June 30, 2024 and 2023 were as follows:

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

($ in thousands) 2024 2023 2024 2023

1 unchanged sentence

Commissions 6,347 6,149 13,234 13,002

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.

Premiums receivable as of June 30, 2024 and December 31, 2023 were $ 14.5 million and $ 10.6 million, respectively.

Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the three and six months ended June 30, 2024 were $ 0.1 million and $ 0.2 million, compared to $ 0.5 million and $ 2.6 million, respectively, for the three and six months ended June 30, 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