What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 195 added, 162 removed, 604 unchanged (37% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

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

42 unchanged sentences

AND COMPREHENSIVE INCOME (UNAUDITED)

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

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

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

2 unchanged sentences

Net investment income 19,521 13,089 59,956 26,318

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

Net investment gains (losses) 10,187 ( 2,984 ) 16,665 3,328

Other loss ( 195 ) — ( 202 ) —

9 unchanged sentences

Net income 36,668 21,711 104,422 56,719

Net income attributable to participating securities — — — 1,492

Net income attributable to common stockholders $ 36,668 $ 21,711 $ 104,422 $ 55,227

3 unchanged sentences

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

Net change in unrealized gains (losses) on investments, net of tax 31,396 ( 8,722 ) 24,527 ( 5,309 )

Reclassification adjustment for losses on securities no longer held, net of tax ( 1,963 ) ( 3,667 ) ( 3,277 ) ( 4,879 )

Total other comprehensive (loss) income ( 1,857 ) ( 5,540 ) ( 8,183 ) 2,201

Total other comprehensive income (loss) 29,433 ( 12,389 ) 21,250 ( 10,188 )

Comprehensive income $ 66,101 $ 9,322 $ 125,672 $ 46,531

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three months ended June 30,

Three months ended September 30,

($ in thousands, except share amounts) 2024 2023

2 unchanged sentences

Issuance of shares 3,799 3,458

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

Balance at September 30 40,099,931 37,677,521

Common stock:

Balance at beginning of period $ 401 $ 377

Issuance of common stock 1 —

Balance at June 30 $ 401 $ 377

Balance at September 30 $ 401 $ 377

Additional paid-in capital:

1 unchanged sentence

Issuance of common stock 2,553 2,304

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

Balance at September 30 $ 716,095 $ 645,292

Stock notes receivable:

1 unchanged sentence

Employee equity transactions 5,233 1,093

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

Balance at September 30 $ — $ ( 5,625 )

Accumulated other comprehensive loss:

Balance at beginning of period $ ( 31,136 ) $ ( 41,284 )

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

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

Other comprehensive gain (loss), net of tax 29,433 ( 12,389 )

Balance at September 30 $ ( 1,703 ) $ ( 53,673 )

Retained earnings (accumulated deficit):

1 unchanged sentence

Net income 36,668 21,711

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

Balance at September 30 $ 82,714 $ ( 50,974 )

Total stockholders’ equity $ 797,507 $ 535,397

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Six months ended June 30,

Nine months ended September 30,

($ in thousands, except share amounts) 2024 2023

2 unchanged sentences

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

Balance at June 30 — —

Balance at September 30 — —

Common shares:

2 unchanged sentences

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

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

Balance at September 30 40,099,931 37,677,521

Preferred stock:

1 unchanged sentence

Preferred stock conversion to common shares — ( 20 )

Balance at June 30 $ — $ —

Balance at September 30 $ — $ —

Common stock:

3 unchanged sentences

Proceeds from equity offerings, net — 48

Balance at June 30 $ 401 $ 377

Balance at September 30 $ 401 $ 377

Treasury stock:

1 unchanged sentence

Preferred stock conversion to common shares — 2

Balance at June 30 $ — $ —

Balance at September 30 $ — $ —

Additional paid-in capital:

3 unchanged sentences

Proceeds from equity offerings, net — 61,967

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

Balance at September 30 $ 716,095 $ 645,292

Stock notes receivable:

1 unchanged sentence

Employee equity transactions 5,562 1,286

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

Balance at September 30 $ — $ ( 5,625 )

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 )

Other comprehensive income (loss), net of tax 21,250 ( 10,188 )

Balance at September 30 $ ( 1,703 ) $ ( 53,673 )

Retained earnings (accumulated deficit):

3 unchanged sentences

Net income 104,422 56,719

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

Balance at September 30 $ 82,714 $ ( 50,974 )

Total stockholders’ equity $ 797,507 $ 535,397

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six months ended June 30,

Nine months ended September 30,

($ in thousands) 2024 2023

8 unchanged sentences

Purchase of equity method investments ( 22,377 ) —

Purchase of intangible assets — ( 50 )

Investment in direct and indirect loans 18,445 ( 3,313 )

6 unchanged sentences

Cash provided by deposit accounting 2,775 8,631

Other, net — ( 1,421 )

Net cash used in investment activities ( 227,963 ) ( 307,833 )

2 unchanged sentences

Repayment of stock notes receivable 5,561 —

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

Repayment of term loan — ( 50,000 )

Repayment of trust preferred ( 59,794 ) —

Proceeds from long term borrowings 107,000 50,000

Payments on long term borrowings and trust preferred ( 116,794 ) ( 50,000 )

Proceeds from initial public offering — 66,262

26 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 June 30, 2024 and December 31, 2023:

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

($ in thousands) Gross

Losses Allowance for Credit Losses Fair Value

June 30, 2024

September 30, 2024

Fixed maturity securities, available-for-sale:

27 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 June 30, 2024:

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

The Company’s fixed maturity securities, held-to-maturity, at September 30, 2024 consisted entirely of asset backed securities that were not due at a single maturity date.

At September 30, 2024, the Company had U.S.

government agencies mortgage-backed fixed maturity securities, with a carrying value of approximately $ 62.4 million pledged as collateral for a loan (the “FHLB Loan”) from the Federal Home Loan Bank of Dallas (“FHLB”) pursuant to an Advances and Security Agreement between the Company and FHLB (the “Advances and Security Agreement”).

In accordance with the terms of the FHLB Loans, the Company retains all rights regarding these pledged securities.

At September 30, 2024, the Company had assets with fair values of approximately $ 27.7 million pledged as collateral for the performance obligations under reinsurance agreements.

In accordance with the terms of the trust agreements, the Company retains all rights regarding these securities, of which $ 24.9 million are residential mortgage-backed securities, $ 2.2 million of short-term investments and $ 0.6 million of cash and cash equivalents and other assets.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

2 unchanged sentences

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

September 30, 2024

Fixed maturity securities, available-for-sale:

11 unchanged sentences

Total $ 72,844 $ ( 440 ) $ 410,058 $ ( 31,264 ) $ 482,902 $ ( 31,704 )

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

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 June 30, 2024, the Company had 796 lots of fixed maturity securities in an unrealized loss position.

As of September 30, 2024, the Company had 505 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.

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,

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 gains (losses) for the three and nine months ended September 30, 2024 and 2023:

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

($ in thousands) 2024 2023 2024 2023

9 unchanged sentences

Total ( 419 ) ( 708 ) ( 3,594 ) ( 5,927 )

Net unrealized (losses) gains on investments

Net unrealized gains (losses) on investments

Equity securities 7,512 ( 6,417 ) 14,802 2,367

Mortgage loans 866 26 807 27

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,

Net investment gains (losses) $ 10,187 $ ( 2,984 ) $ 16,665 $ 3,328

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, 2024 and 2023:

Nine months ended September 30,

($ in thousands) 2024 2023

1 unchanged sentence

Equity securities 22,993 38,581

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,

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

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

($ in thousands) 2024 2023 2024 2023

10 unchanged sentences

Net investment income $ 19,521 $ 13,089 $ 59,956 $ 26,318

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,

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

The following table sets forth the change in net unrealized gains (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, 2024 and 2023:

Three months ended September 30, Nine months ended September 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

12 unchanged sentences

Fair Value Measurements (continued)

Fixed maturity securities, available for sale and equity securities classified as Level 3

The Company has corporate securities and miscellaneous, other asset-backed securities and preferred stock that are managed by an independent asset manager that uses an independent pricing model to estimate the value of the securities it manages.

These represent Level 3 fair value inputs.

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 June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

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

September 30, 2024 December 31, 2023

High 10.92 % 9.50 %

1 unchanged sentence

Weighted average 7.47 % 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

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

September 30, 2024

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

44 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 nine months ended September 30, 2024 and 2023:

SKYWARD SPECIALTY INSURANCE GROUP, INC.

2 unchanged sentences

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

($ in thousands) Fixed Maturity Securities, Available-For-Sale Equity Securities Mortgage Loans

Balance at December 31, 2023 $ — $ — $ 50,070

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

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

Issuances — — 187

1 unchanged sentence

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 )

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

Issuances — — 449

1 unchanged sentence

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 )

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 $ — $ — $ ( 1,031 )

Total (losses) gains for the period recognized in net investment gains (losses) ( 118 ) 246 866

Total unrealized gains for the period recognized in accumulated comprehensive income (loss) 1,592 — —

Transfers into Level 3 23,533 — —

Purchases 23,820 5,571 —

Sales/Disposals ( 153 ) — —

Issuances — — 8

Settlements — — ( 8,277 )

Balance at September 30, 2024 $ 48,674 $ 5,817 $ 36,267

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 $ — $ 246 $ 829

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

($ in thousands) Mortgage Loans

Balance at December 31, 2022 $ 52,842

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

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

Issuances 892

1 unchanged sentence

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 )

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 gains (losses) ( 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

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 $ 3

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

Issuances 26,530

Settlements —

Balance at September 30, 2023 $ 59,318

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 $ 26

The transfers into Level 3 during the three and nine months ended September 30, 2024 were the result of securities that began receiving valuations from asset managers that utilized unobservable inputs at the end of the period.

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.

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

As of September 30, 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).

The Company estimates the fair value of the FHLB Loan by discounting cash flows using a borrowing rate currently available to the Company for loans with similar terms (Level 3).

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 June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

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

September 30, 2024 December 31, 2023

($ in thousands) Carrying

1 unchanged sentence

Notes payable

FHLB Loan $ 57,000 $ 57,000 $ — $ —

Revolving credit facility $ 43,000 $ 43,000 $ 50,000 $ 50,000

7 unchanged sentences

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.

As of September 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

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 80 % of the property’s appraised value at the time the loans were made.

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

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

Commercial $ 14,697 $ 14,469

3 unchanged sentences

$ 36,267 $ 50,070

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,

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

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

($ in thousands) 2024 2023 2024 2023

5 unchanged sentences

$ 1,158 $ 1,249 $ 4,165 $ 3,997

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Loans (continued)

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.

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

As of September 30, 2024 no mortgage loans were in the process of foreclosure and there were no mortgage loans that were not producing income for the previous 12 months.

As of December 31, 2023, approximately $ 7.1 million of mortgage loans were in the process of foreclosure.

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

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

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

Carrying Value Ownership % Carrying Value Ownership %

7 unchanged sentences

$ 69,229 $ 74,628

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

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

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

($ in thousands) 2024 2023 2024 2023

8 unchanged sentences

$ ( 1,144 ) $ ( 4 ) $ 2,596 $ ( 6,772 )

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

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

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

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

2 unchanged sentences

$ 5,060 $ 5,844

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments and Other (continued)

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.

2 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 June 30, 2024 and December 31, 2023:

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

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

Investment in RISCOM:

2 unchanged sentences

Recorded investment balance $ 4,689 $ 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

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, 2024 and December 31, 2023:

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

Investment in JVM Funds LLC:

2 unchanged sentences

Recorded investment balance $ 17,831 $ 20,061

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

SMA1 $ 20,915 $ 30,816

2 unchanged sentences

Notes Payable & Subordinated Debt

On August 30, 2024, the Company entered into the FHLB Loan pursuant to the Advances and Security Agreement.

The FHLB Loan is a 4.5-year term loan in the principal amount of $ 57.0 million.

The FHLB Loan provides for interest-only payments during its term, with principal due in full at maturity.

The interest rate is fixed over the term of the loan at 4.00 %.

The FHLB Loan is fully secured by a pledge of specific investment securities of HSIC.

The Company used the proceeds to fund redemptions of the draws on the Revolving Credit Facility (see “Revolving Credit Facility” below for additional information regarding the redemption).

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.

The Revolving Credit Facility provided the Company with up to a $ 150.0 million revolving credit facility 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).

During the nine months ended September 30, 2024, the Company drew an additional $ 50.0 million on the Revolving Credit Facility and used the

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Notes Payable & Subordinated Debt (continued)

proceeds to pay off the principal on its existing Debentures (defined below).

On September 6, 2024, the Company redeemed $ 57.0 million of the draws on the Revolving Credit Facility.

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 %

At September 30, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25 %, plus a margin of 1.60 %.

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.

As of September 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”).

1 unchanged sentence

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

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 and six months ended June 30, 2024 and 2023:

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

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

Three months ended September 30, Nine months ended September 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.

The Company paid federal income taxes of $ 8.5 million and $ 22.5 million during the three and nine months ended September 30, 2024, respectively, and $ 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 six months ended June 30, 2024 and 2023:

Six months ended June 30,

Nine months ended September 30,

($ in thousands) 2024 2023

13 unchanged sentences

Reserves for losses and LAE, end of period $ 1,568,777 $ 1,268,711

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 six months ended June 30, 2024 and 2023:

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

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

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

($ in thousands) 2024 2023 2024 2023

3 unchanged sentences

Total commission and fee income $ 1,818 $ 2,085 $ 5,897 $ 5,817

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.

The Company’s contract assets from commission and fee income as of September 30, 2024 and December 31, 2023 were $ 2.4 million and $ 1.0 million, respectively.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

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

Three months ended September 30, Nine months ended September 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 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,

The following tables set 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, 2024 and 2023:

Three months ended September 30,

($ in thousands) Written Earned Written Earned

4 unchanged sentences

Ceded losses and LAE incurred $ 108,152 $ 103,753

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reinsurance (continued)

Six months ended June 30,

Nine months ended September 30,

($ in thousands) Written Earned Written Earned

4 unchanged sentences

Ceded losses and LAE incurred $ 300,725 $ 255,855

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reinsurance (continued)

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

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

Ceded unpaid losses and LAE $ 542,884 $ 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 June 30, 2024, the market value of these accounts was approximately $ 196.9 million.

At September 30, 2024, the market value of these accounts was approximately $ 196.4 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.

The Company’s deposit asset at September 30, 2024 and December 31, 2023 was $ 27.1 million and $ 29.9 million, respectively, and was included in other assets on the condensed consolidated balance sheets.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

2 unchanged sentences

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,

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

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

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

14 unchanged sentences

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,

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

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

2024 2023 2024 2023

1 unchanged sentence

Options 16 2 561 364,714

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.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share (continued)

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

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

2024 2023 2024 2023

Common shares — 932,588 — 932,588

Related Party Transactions

2 unchanged sentences

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,

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

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

($ in thousands) 2024 2023 2024 2023

1 unchanged sentence

Commissions 6,448 6,119 19,682 19,122

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.

Premiums receivable as of September 30, 2024 and December 31, 2023 were $ 16.2 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 nine months ended September 30, 2024 were $ 0.2 million and $ 0.4 million, compared to $ 0.5 million and $ 3.1 million, respectively, for the three and nine months ended September 30, 2023.

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

6 unchanged sentences

Indemnification

In conjunction with the sale of business assets and subsidiaries, the Company has provided indemnifications to certain of the buyers.

In conjunction with the sale of business assets and subsidiaries, the Company has provided indemnifications to certain buyers.

Certain indemnifications cover typical representations and warranties related to the responsibilities to perform under the sales contracts.

3 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