Item 1. Financial Statements
Item 1. Financial Statements
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2024 December 31, 2023
($ in thousands, except share and per share amounts) (Unaudited)
Assets
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost of $ 1,239,724 and $ 1,047,713 , respectively)
$ 1,200,273 $ 1,017,651
Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 225 and $ 329 , respectively)
39,962 42,986
Equity securities, at fair value 112,823 118,249
Mortgage loans, at fair value 43,670 50,070
Equity method investments 101,903 110,653
Other long-term investments 2,665 3,852
Short-term investments, at fair value 215,041 270,226
Total investments 1,716,337 1,613,687
Cash and cash equivalents 72,989 65,891
Restricted cash 35,278 34,445
Premiums receivable, net 377,333 179,235
Reinsurance recoverables, net 667,837 596,334
Ceded unearned premium 255,138 186,121
Deferred policy acquisition costs 116,499 91,955
Deferred income taxes 25,107 21,991
Goodwill and intangible assets, net 87,868 88,435
Other assets 81,108 75,341
Total assets $ 3,435,494 $ 2,953,435
Liabilities and stockholders’ equity
Liabilities:
Reserves for losses and loss adjustment expenses $ 1,470,106 $ 1,314,501
Unearned premiums 711,854 552,532
Deferred ceding commission 47,948 37,057
Reinsurance and premium payables 207,638 150,156
Funds held for others 95,596 58,588
Accounts payable and accrued liabilities 59,796 50,880
Notes payable 100,000 50,000
Subordinated debt, net of debt issuance costs 18,936 78,690
Total liabilities 2,711,874 2,292,404
Stockholders’ equity
Common stock, $ 0.01 par value, 500,000,000 shares authorized, 40,096,132 and 39,863,756 shares issued and outstanding, respectively
401 399
Additional paid-in capital 713,542 710,855
Stock notes receivable ( 5,233 ) ( 5,562 )
Accumulated other comprehensive loss ( 31,136 ) ( 22,953 )
Retained earnings (accumulated deficit) 46,046 ( 21,708 )
Total stockholders’ equity 723,620 661,031
Total liabilities and stockholders’ equity $ 3,435,494 $ 2,953,435
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
Three months ended June 30, Six months ended June 30,
($ in thousands, except share and per share amounts) 2024 2023 2024 2023
Revenues:
Net earned premiums $ 257,583 $ 194,347 $ 493,925 $ 377,178
Commission and fee income 2,053 2,240 4,079 3,732
Net investment income 22,138 8,583 40,435 13,229
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
Expenses:
Losses and loss adjustment expenses 159,054 124,405 302,968 239,305
Underwriting, acquisition and insurance expenses 76,679 56,683 146,453 108,338
Interest expense 2,449 2,466 5,176 4,618
Amortization expense 360 486 748 873
Other expenses 1,045 1,465 2,233 2,579
Total expenses 239,587 185,505 457,578 355,713
Income before income taxes 40,355 25,016 87,332 44,738
Income tax expense 9,385 5,564 19,578 9,730
Net income 30,970 19,452 67,754 35,008
Net income attributable to common stockholders $ 30,970 $ 19,452 $ 67,754 $ 33,606
Comprehensive income
Net income $ 30,970 $ 19,452 $ 67,754 $ 35,008
Other comprehensive income:
Unrealized gains and losses on investments:
Net change in unrealized (losses) gains on investments, net of tax ( 1,451 ) ( 4,375 ) ( 6,869 ) 3,413
Reclassification adjustment for losses on securities no longer held, net of tax ( 406 ) ( 1,165 ) ( 1,314 ) ( 1,212 )
Total other comprehensive (loss) income ( 1,857 ) ( 5,540 ) ( 8,183 ) 2,201
Comprehensive income $ 29,113 $ 13,912 $ 59,571 $ 37,209
Per share data:
Basic earnings per share $ 0.79 $ 0.53 $ 1.73 $ 0.97
Diluted earnings per share $ 0.75 $ 0.51 $ 1.65 $ 0.93
Weighted-average common shares outstanding
Basic 39,177,457 36,603,779 39,142,825 34,746,874
Diluted 41,168,082 38,143,585 41,110,384 37,503,914
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Three months ended June 30,
($ in thousands, except share amounts) 2024 2023
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.
5
Table of Contents
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 June 30 — —
Common shares:
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 June 30 40,096,132 37,674,063
Preferred stock:
Balance at beginning of year $ — $ 20
Preferred stock conversion to common shares — ( 20 )
Balance at June 30 $ — $ —
Common stock:
Balance at beginning of year $ 399 $ 168
Issuance of common stock 2 —
Preferred stock conversion to common shares — 161
Proceeds from equity offerings, net — 48
Balance at June 30 $ 401 $ 377
Treasury stock:
Balance at beginning of year $ — $ ( 2 )
Preferred stock conversion to common shares — 2
Balance at June 30 $ — $ —
Additional paid-in capital:
Balance at beginning of year $ 710,855 $ 577,289
Issuance of common stock 2,687 3,875
Preferred stock conversion to common shares — ( 143 )
Proceeds from equity offerings, net — 61,967
Balance at June 30 $ 713,542 $ 642,988
Stock notes receivable:
Balance at beginning of year $ ( 5,562 ) $ ( 6,911 )
Employee equity transactions 329 193
Balance at June 30 $ ( 5,233 ) $ ( 6,718 )
Accumulated other comprehensive loss:
Balance at beginning of year $ ( 22,953 ) $ ( 43,485 )
Other comprehensive (loss) income, net of tax ( 8,183 ) 2,201
Balance at June 30 $ ( 31,136 ) $ ( 41,284 )
Retained earnings (accumulated deficit):
Balance at beginning of year $ ( 21,708 ) $ ( 105,417 )
Cumulative effect on adoption of ASU No. 2016-13 — ( 2,276 )
Net income 67,754 35,008
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.
6
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
($ in thousands) 2024 2023
Cash flows from operating activities
Net income $ 67,754 $ 35,008
Adjustments to reconcile net income to net cash provided by operating activities 47,466 73,469
Net cash provided by operating activities 115,220 108,477
Cash flows from investing activities:
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
Purchase of property and equipment ( 2,769 ) ( 1,198 )
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 —
Change in short-term investments 55,185 ( 69,512 )
Change in receivable/payable for securities 34 2,767
Cash provided by deposit accounting 5,325 7,549
Net cash used in investment activities ( 97,824 ) ( 198,084 )
Cash flows from financing activities:
Employee share purchases — 193
Repayment of stock notes receivable 329 —
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 (used in) provided by financing activities ( 9,465 ) 66,455
Net increase (decrease) in cash and cash equivalents and restricted cash 7,931 ( 23,152 )
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)
$ 108,267 $ 101,859
Supplemental disclosure of cash flow information:
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
The accompanying notes are an integral part of the consolidated financial statements.
7
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of Skyward Specialty Insurance Group, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the disclosures required by GAAP for complete consolidated financial statements. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a more complete description of the Company’s business and accounting policies. In the opinion of management, all adjustments necessary for a fair statement of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited annual consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.
2. Investments
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
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Losses Fair Value
June 30, 2024
Fixed maturity securities, available-for-sale:
U.S. government securities $ 36,055 $ 16 $ ( 503 ) $ — $ 35,568
Corporate securities and miscellaneous 449,632 3,157 ( 16,407 ) — 436,382
Municipal securities 101,289 266 ( 7,281 ) — 94,274
Residential mortgage-backed securities 363,584 2,069 ( 18,351 ) — 347,302
Commercial mortgage-backed securities 47,903 338 ( 1,934 ) — 46,307
Other asset-backed securities 241,261 1,479 ( 2,300 ) — 240,440
Total fixed maturity securities, available-for-sale $ 1,239,724 $ 7,325 $ ( 46,776 ) $ — $ 1,200,273
Fixed maturity securities, held-to-maturity:
Other asset-backed securities $ 40,187 $ 20 $ ( 1,342 ) $ ( 225 ) $ 38,640
Total fixed maturity securities, held-to-maturity $ 40,187 $ 20 $ ( 1,342 ) $ ( 225 ) $ 38,640
8
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Investments (continued)
($ in thousands) Gross
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Loss Allowance for Credit Losses Fair Value
December 31, 2023
Fixed maturity securities, available-for-sale:
U.S. government securities $ 44,685 $ 202 $ ( 721 ) $ — $ 44,166
Corporate securities and miscellaneous 392,773 6,408 ( 15,761 ) — 383,420
Municipal securities 98,266 655 ( 6,143 ) — 92,778
Residential mortgage-backed securities 292,568 3,556 ( 14,498 ) — 281,626
Commercial mortgage-backed securities 31,411 449 ( 1,926 ) — 29,934
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:
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
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
Cost Fair Value
Due in less than one year $ 39,839 $ 39,420
Due after one year through five years 311,737 301,370
Due after five years through ten years 191,013 185,279
Due after ten years 44,387 40,155
Mortgage-backed securities 411,487 393,609
Other asset-backed securities 241,261 240,440
Total $ 1,239,724 $ 1,200,273
Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. 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 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:
9
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. 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
June 30, 2024
Fixed maturity securities, available-for-sale:
U.S. government securities $ 15,880 $ ( 81 ) $ 16,039 $ ( 422 ) $ 31,919 $ ( 503 )
Corporate securities and miscellaneous 110,151 ( 1,654 ) 179,426 ( 14,753 ) 289,577 ( 16,407 )
Municipal securities 24,319 ( 464 ) 52,868 ( 6,817 ) 77,187 ( 7,281 )
Residential mortgage-backed securities 111,065 ( 1,278 ) 124,446 ( 17,073 ) 235,511 ( 18,351 )
Commercial mortgage-backed securities 19,350 ( 126 ) 15,297 ( 1,808 ) 34,647 ( 1,934 )
Other asset-backed securities 51,137 ( 252 ) 55,351 ( 2,048 ) 106,488 ( 2,300 )
Total fixed maturity securities, available-for-sale 331,902 ( 3,855 ) 443,427 ( 42,921 ) 775,329 ( 46,776 )
Fixed maturity securities, held-to-maturity:
Other asset-backed securities — — 36,594 ( 1,342 ) 36,594 ( 1,342 )
Total fixed maturity securities, held-to-maturity: — — 36,594 ( 1,342 ) 36,594 ( 1,342 )
Total $ 331,902 $ ( 3,855 ) $ 480,021 $ ( 44,263 ) $ 811,923 $ ( 48,118 )
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
December 31, 2023
Fixed maturity securities, available-for-sale:
U.S. government securities $ 7,342 $ ( 25 ) $ 25,604 $ ( 696 ) $ 32,946 $ ( 721 )
Corporate securities and miscellaneous 26,742 ( 570 ) 174,947 ( 15,191 ) 201,689 ( 15,761 )
Municipal securities 16,815 ( 290 ) 47,269 ( 5,853 ) 64,084 ( 6,143 )
Residential mortgage-backed securities 37,634 ( 602 ) 103,495 ( 13,896 ) 141,129 ( 14,498 )
Commercial mortgage-backed securities 4,942 ( 74 ) 15,290 ( 1,852 ) 20,232 ( 1,926 )
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:
Other asset-backed securities — — 41,017 ( 1,969 ) 41,017 ( 1,969 )
Total fixed maturity securities, held-to-maturity: — — 41,017 ( 1,969 ) 41,017 ( 1,969 )
Total $ 121,362 $ ( 1,667 ) $ 482,875 $ ( 42,855 ) $ 604,237 $ ( 44,522 )
10
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. 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. Such judgments could change in the future as more information becomes known, which could negatively impact the amounts reported. 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 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. The Company determined that no credit impairment existed in the gross unrealized holding losses because the credit ratings of these securities were consistent with the credit ratings when purchased and/or at origination, there were no adverse changes in financial condition of the issuer and no adverse credit quality events in underlying assets. The Company attributed the unrealized losses to the changes in interest rates.
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
Gross realized gains
Fixed maturity securities, available-for sale $ 331 $ 211 $ 830 $ 704
Equity securities 493 814 1,574 2,041
Other — — 18 1
Total 824 1,025 2,422 2,746
Gross realized losses
Fixed maturity securities, available-for sale ( 466 ) ( 218 ) ( 860 ) ( 456 )
Equity securities ( 417 ) ( 472 ) ( 2,291 ) ( 4,761 )
Other ( 6 ) ( 1 ) ( 24 ) ( 1 )
Total ( 889 ) ( 691 ) ( 3,175 ) ( 5,218 )
Net unrealized (losses) gains on investments
Equity securities ( 730 ) 5,038 7,290 8,783
Mortgage loans ( 1,030 ) ( 21 ) ( 59 ) 1
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
Fixed maturity securities, available-for sale $ 17,917 $ 19,363
Equity securities 17,760 17,583
11
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. 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
Income:
Fixed maturity securities, available-for sale $ 13,407 $ 7,583 $ 25,638 $ 14,259
Fixed maturity securities, held-to-maturity 1,230 1,251 2,356 2,254
Equity securities 751 1,044 1,378 1,770
Equity method investments 2,642 ( 2,104 ) 3,740 ( 6,768 )
Mortgage loans 1,588 1,275 3,007 2,748
Indirect loans 221 ( 1,929 ) ( 1,473 ) ( 3,248 )
Short-term investments and cash 3,421 3,186 7,661 4,975
Other 655 29 1,524 9
Total investment income 23,915 10,335 43,831 15,999
Investment expenses ( 1,777 ) ( 1,752 ) ( 3,396 ) ( 2,770 )
Net investment income $ 22,138 $ 8,583 $ 40,435 $ 13,229
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
Fixed maturity securities $ ( 2,370 ) $ ( 7,013 ) $ ( 10,359 ) $ 2,773
Deferred income taxes 513 1,473 2,176 ( 572 )
Total $ ( 1,857 ) $ ( 5,540 ) $ ( 8,183 ) $ 2,201
3. Fair Value Measurements
The Company’s financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in its consolidated financial statements. In determining fair value, the market approach is generally applied, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities.
The Company uses data primarily provided by third-party investment managers or pricing vendors to determine the fair value of its investments. Periodic analyses are performed on prices received from third parties to determine whether the prices are reasonable estimates of fair value. The analyses include a review of month-to-month price fluctuations and, as needed, a comparison of pricing services’ valuations to other pricing services’ valuations for the identical security.
The Company classifies its financial instruments into the following three-level hierarchy:
Level 1 - Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement
date.
Level 2 - Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability through
corroboration with market data at the measurement date.
Level 3 - Unobservable inputs that reflect management’s best estimate of what market participants would use in
pricing the asset or liability at the measurement date.
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:
12
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
U.S. government securities, mutual funds and common stock
The Company uses unadjusted quoted prices for identical instruments in an active exchange to measure fair value which represent Level 1 inputs.
Preferred stocks, municipal securities, corporate securities and miscellaneous
The Company uses a pricing model that utilizes market-based inputs such as trades in an illiquid market for a particular security or trades in active markets for securities with similar characteristics. The model considers other inputs such as benchmark yields, issuer spreads, security terms and conditions, and other market data. These represent Level 2 fair value inputs.
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. It may evaluate individual tranches in a security by determining cash flows using the security’s terms and conditions, collateral performance, credit information benchmark yields and estimated prepayments. These represent Level 2 fair value inputs.
13
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
Mortgage loans
Mortgage loans have variable interest rates and are collateralized by real property. The Company determines fair value of mortgage loans using the income approach utilizing inputs that are observable and unobservable (Level 3). The unobservable input consists of the spread applied to a prime rate used to discount cash flows. 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 June 30, 2024 and December 31, 2023:
June 30, 2024 December 31, 2023
High 9.75 % 9.50 %
Low 3.60 % 3.25 %
Weighted average 7.49 % 7.05 %
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
Fixed maturity securities, available-for-sale:
U.S. government securities $ 35,568 $ — $ — $ 35,568
Corporate securities and miscellaneous — 436,382 — 436,382
Municipal securities — 94,274 — 94,274
Residential mortgage-backed securities — 347,302 — 347,302
Commercial mortgage-backed securities — 46,307 — 46,307
Other asset-backed securities — 240,440 — 240,440
Total fixed maturity securities, available-for-sale 35,568 1,164,705 — 1,200,273
Fixed maturity securities, held-to-maturity:
Other asset-backed securities — — 38,640 38,640
Total fixed maturity securities, held-to-maturity — — 38,640 38,640
Equity securities:
Common stocks 69,439 — — 69,439
Preferred stocks — 3,177 — 3,177
Mutual funds 40,207 — — 40,207
Total equity securities 109,646 3,177 — 112,823
Mortgage loans — — 43,670 43,670
Short-term investments 215,041 — — 215,041
Total $ 360,255 $ 1,167,882 $ 82,310 $ 1,610,447
14
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
December 31, 2023
($ in thousands) Level 1 Level 2 Level 3 Total
Fixed maturity securities, available-for-sale:
U.S. government securities $ 44,166 $ — $ — $ 44,166
Corporate securities and miscellaneous — 383,420 — 383,420
Municipal securities — 92,778 — 92,778
Residential mortgage-backed securities — 281,626 — 281,626
Commercial mortgage-backed securities — 29,934 — 29,934
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:
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
Preferred stocks — 7,358 — 7,358
Mutual funds 43,466 — — 43,466
Total equity securities 110,891 7,358 — 118,249
Mortgage loans — — 50,070 50,070
Short-term investments 270,226 — — 270,226
Total $ 425,283 $ 980,843 $ 91,087 $ 1,497,213
15
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. 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 (losses) gains 971
Issuances 187
Settlements ( 6,919 )
Balance at March 31, 2024 $ 44,309
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 gains for the period recognized in net investment (losses) gains 22
Issuances 892
Settlements ( 11,421 )
Balance at March 31, 2023 $ 42,335
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 )
Issuances 30
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.
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. Estimated fair value amounts, defined as the quoted market price of a financial instrument, have been determined using available market information and other appropriate valuation methodologies. However, considerable judgements are required in developing the estimates of fair value where quoted market prices are not available. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.
16
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurements (continued)
The following methods and assumptions were used in estimating the fair value disclosures of other financial instruments:
Fixed maturity securities, held-to-maturity: Fixed maturity securities, held-to-maturity consists of senior and junior notes with target rates of return. 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: The carrying value approximates the estimated fair value for notes payable as the notes payable accrue interest at current market rates plus a spread. The Company determines fair value using the income approach utilizing inputs that are observable (Level 2).
Subordinated debt: Subordinated debt consists of two debt instruments, the Junior Subordinated Interest Debentures, due September 15, 2036, and Unsecured Subordinated Notes, due May 24, 2039. The carrying value of the Junior Subordinated Interest Debentures approximates the estimated fair value as the instrument accrues interest at current market rates plus a spread. Unsecured Subordinated Notes have a fixed interest rate. 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 June 30, 2024 and December 31, 2023:
June 30, 2024 December 31, 2023
($ in thousands) Carrying
Value Fair
Value Carrying
Value Fair
Value
Notes payable
Revolving credit facility $ 100,000 $ 100,000 $ 50,000 $ 50,000
Notes payable $ 100,000 $ 100,000 $ 50,000 $ 50,000
Subordinated debt
Junior subordinated interest debentures $ — $ — $ 59,186 $ 59,794
Unsecured subordinated notes 18,936 20,731 19,504 21,378
Subordinated debt, net of debt issuance costs $ 18,936 $ 20,731 $ 78,690 $ 81,172
Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.
4. Mortgage Loans
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 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
Retail 14,127 16,072
Hospitality 7,916 12,744
Industrial 6,383 6,785
$ 43,670 $ 50,070
17
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. 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
Commercial $ 851 $ 555 $ 1,309 $ 1,049
Retail 470 416 960 1,011
Hospitality 269 132 739 293
Office — 97 — 203
Multi-family — 75 — 192
$ 1,590 $ 1,275 $ 3,008 $ 2,748
The uncollectible amounts on loans, on an individual loan basis, are determined based upon consultations and advice from the Company’s specialized investment manager and consideration of any adverse situations that could affect the borrower’s ability to repay, the estimated value of underlying collateral, and other relevant factors. 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 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.
5. Equity Method Investments and Other
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 %
JVM Funds LLC units 18,425 10.1 % 20,061 10.1 %
Arena SOP LP units 3,142 12.1 % 2,463 12.3 %
RISCOM 4,196 20.0 % 4,121 20.0 %
Hudson Ventures Fund 2 LP units 5,003 2.5 % 4,669 2.5 %
Dowling Capital Partners LP units 684 5.0 % 1,708 6.2 %
Brewer Lane Ventures Fund II LP units 639 2.4 % 560 2.5 %
$ 71,510 $ 74,628
18
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. 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
Dowling Capital Partners LP units $ 40 $ 338 $ 1,382 $ 605
RISCOM 389 224 675 305
Brewer Lane Ventures Fund II LP ( 24 ) ( 29 ) ( 56 ) ( 29 )
Hudson Ventures Fund II LP units 210 ( 158 ) 158 ( 413 )
JVM Funds LLC ( 535 ) ( 221 ) ( 1,019 ) ( 641 )
Universa Black Swan LP units — ( 348 ) — ( 904 )
Arena SOP LP units 390 ( 727 ) 679 ( 2,778 )
Arena Special Opportunities Fund, LP units 2,172 ( 1,183 ) 1,921 ( 2,913 )
$ 2,642 $ ( 2,104 ) $ 3,740 $ ( 6,768 )
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
Hudson Ventures Fund 2 LP units 722 848
Dowling Capital Partners LP units 678 386
$ 5,627 $ 5,844
The difference between the cost of an investment and its proportionate share of the underlying equity in net assets is allocated to the various assets and liabilities of the equity method investment. The Company amortizes the difference in net assets over the same useful life of a similar asset as the underlying equity method investment. For investment in RISCOM, a similar asset would be agent relationships. 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 June 30, 2024 and December 31, 2023:
($ in thousands) June 30, 2024 December 31, 2023
Investment in RISCOM:
Underlying equity $ 2,816 $ 2,620
Difference 1,380 1,501
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 June 30, 2024 and December 31, 2023:
($ in thousands) June 30, 2024 December 31, 2023
Investment in JVM Funds LLC:
Underlying equity $ 17,744 $ 19,304
Difference 681 757
Recorded investment balance $ 18,425 $ 20,061
19
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Equity Method Investments and Other (continued)
Investment in Indirect Loans and Loan Collateral
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
SMA2 7,082 5,209
Investment in indirect loans and loan collateral $ 30,393 $ 36,025
6. 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. As of December 31, 2023, the Company drew $ 50.0 million on the Revolving Credit Facility. 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 June 30, 2024:
($ in thousands) June 30, 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 June 30, 2024, the Company was in compliance with all covenants.
Debentures
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.
20
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
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
Income tax expense $ 9,385 $ 5,564 $ 19,578 $ 9,730
Effective tax rate 23.3 % 22.2 % 22.4 % 21.7 %
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.
8. 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 six months ended June 30, 2024 and 2023:
Six months ended June 30,
($ in thousands) 2024 2023
Reserves for losses and LAE, beginning of period $ 1,314,501 $ 1,141,757
Less: reinsurance recoverable on unpaid claims, beginning of period ( 455,484 ) ( 435,986 )
Reserves for losses and LAE, beginning of period, net of reinsurance 859,017 705,771
Incurred, net of reinsurance, related to:
Current period 303,450 240,010
Prior years — —
Total incurred, net of reinsurance 303,450 240,010
Paid, net of reinsurance, related to:
Current period 39,202 29,124
Prior years 158,857 133,757
Total paid 198,059 162,881
Net reserves for losses and LAE, end of period 964,408 782,900
Plus: reinsurance recoverable on unpaid claims, end of period 505,698 441,227
Reserves for losses and LAE, end of period $ 1,470,106 $ 1,224,127
21
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Commission and Fee Income
Skyward Underwriters Agency, Inc. (“SUA”), a subsidiary of the Company, is a managing general insurance agent and reinsurance broker for property and casualty and accident and health risks in specialty niche markets. 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 six months ended June 30, 2024 and 2023:
Three months ended June 30, Six months ended June 30,
($ in thousands) 2024 2023 2024 2023
SUA commission revenue $ 699 $ 1,385 $ 1,689 $ 2,242
SUA fee income 564 805 1,410 1,261
Other 790 50 980 229
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 June 30, 2024 and December 31, 2023 were $ 1.7 million and $ 1.0 million, respectively.
10. Underwriting, Acquisition and Insurance Expenses
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
Amortization of policy acquisition costs $ 35,931 $ 23,136 $ 67,908 $ 44,371
Other operating and general expenses 40,748 33,547 78,545 63,967
Total underwriting, acquisition and insurance expenses $ 76,679 $ 56,683 $ 146,453 $ 108,338
11. Reinsurance
Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide the Company with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. The Company remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations.
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,
2024 2023
($ in thousands) Written Earned Written Earned
Direct premiums $ 404,443 $ 335,398 $ 332,062 $ 283,762
Assumed premiums 91,800 70,786 89,932 48,213
Ceded premiums ( 199,114 ) ( 148,601 ) ( 208,257 ) ( 137,628 )
Net premiums $ 297,129 $ 257,583 $ 213,737 $ 194,347
Ceded losses and LAE incurred $ 106,954 $ 99,981
22
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Reinsurance (continued)
Six months ended June 30,
2024 2023
($ 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
Ceded paid losses and LAE 143,576 122,287
Loss portfolio transfer 20,858 20,858
Allowance for credit losses ( 2,295 ) ( 2,295 )
Reinsurance recoverables $ 667,837 $ 596,334
Ceded unearned premium $ 255,138 $ 186,121
The Company entered into agreements with several of its reinsurers, whereby the reinsurer established funded trust accounts with the Company as the sole beneficiary. 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 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 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.
23
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings Per Share
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
Numerator
Net income $ 30,970 $ 19,452 $ 67,754 $ 35,008
Less: Undistributed income allocated to participating securities — — — ( 1,402 )
Net income attributable to common stockholders (numerator for basic earnings per share) 30,970 19,452 67,754 33,606
Add back: Undistributed income allocated to participating securities — — — 1,402
Net income (numerator for diluted earnings per share under the two-class method) $ 30,970 $ 19,452 $ 67,754 $ 35,008
Denominator
Basic weighted-average common shares 39,177,457 36,603,779 39,142,825 34,746,874
Dilutive effect of preferred shares — — — 1,449,343
Dilutive effect of stock notes 722,153 763,590 717,217 740,396
Dilutive effect of stock units 900,119 685,065 900,565 512,331
Dilutive effect of options 368,353 91,151 349,777 54,970
Diluted weighted-average common share equivalents 41,168,082 38,143,585 41,110,384 37,503,914
Basic earnings per share $ 0.79 $ 0.53 $ 1.73 $ 0.97
Diluted earnings per share $ 0.75 $ 0.51 $ 1.65 $ 0.93
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 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 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
24
Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Related Party Transactions
RISCOM
RISCOM provides the Company with wholesale brokerage services. RISCOM and the Company also have a managing general agency agreement. The Company holds a 20 % ownership interest in RISCOM.
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
Net earned premium $ 26,161 $ 19,916 $ 52,055 $ 42,101
Commissions 6,347 6,149 13,234 13,002
Premiums receivable as of June 30, 2024 and December 31, 2023 were $ 14.5 million and $ 10.6 million, respectively.
Other
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.
14. Commitments and Contingencies
Litigation
The Company is named as a defendant in various legal actions arising from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the losses and loss adjustment expense reserves. Also, from time to time, the Company is a defendant in various legal actions that relate to bad faith claims, disputes with third parties or that involve alleged errors and omissions. The Company records accruals for these items to the extent the losses are probable and reasonably estimable. Although the ultimate outcome of these matters cannot be determined at this time, based on present information, the availability of insurance coverage and advice received from outside legal counsel, the Company believes the resolution of any such matters will not, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Indemnification
In conjunction with the sale of business assets and subsidiaries, the Company has provided indemnifications to certain of the buyers. Certain indemnifications cover typical representations and warranties related to the responsibilities to perform under the sales contracts. The amount of potential exposure covered by the indemnifications is difficult to determine because the indemnifications cover a variety of matters, operations and scenarios. Certain of these indemnifications have no time limit. At this time, the Company does not have reason to believe any such significant claims exist.
25
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.