What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-03 compared with 2024-04-01 · 609 added, 482 removed, 1065 unchanged (51% of the section changed)

2 unchanged sentences

To the Stockholders and the Board of Directors of Skyward Specialty Insurance Group, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Skyward Specialty Insurance Group, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Skyward Specialty Insurance Group, Inc.

(the Company) has not maintained effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment.

Management has identified a material weakness that existed as of December 31, 2024, related to the ineffective implementation of information technology general controls (“ITGCs”) in the area of user access for systems that support the Company’s financial reporting processes.

Further, the Company’s related process-level IT dependent manual and automated controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs, were also deemed ineffective.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a).

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report dated March 3, 2025, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2021.

Houston, Texas

March 3, 2025

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Skyward Specialty Insurance Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Skyward Specialty Insurance Group, Inc.

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

generally accepted accounting principles.

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Reserves for Unpaid Losses and Loss Adjustment Expenses

Description of the Matter

At December 31, 2024, the Company’s reserves for unpaid losses and loss adjustment expenses (LAE) was $1.8 billion, of which a significant portion represents incurred but not reported reserves (IBNR).

As described in Note 1 of the consolidated financial statements, the reserves for unpaid losses and LAE represents the Company’s estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust the losses that have been incurred as of the balance sheet date.

The Company estimates the reserves for unpaid losses and LAE using individual case-basis valuations of reported claims and statistical analyses and various actuarial procedures.

Those estimates are based on historical information, industry and peer group information, and estimates of trends in factors such as loss severity, loss frequency, and other factors such as inflation.

Auditing management’s estimate of reserves for unpaid losses and LAE, including IBNR, was complex and involved our actuarial specialists due to the significant estimation uncertainty associated with evaluating management’s methods and assumptions including loss development factors, expected loss ratios, and trends applied to the Company’s historical experience.

These assumptions have a significant effect on the valuation of IBNR reserves.

How We Addressed the Matter in Our Audit

With the assistance of actuarial specialists, our audit procedures to test the Company’s reserves for unpaid losses and LAE included, among others, an evaluation of the selection of the actuarial methods utilized by management, including comparison with the actuarial methods used in prior periods and those used in the industry.

In addition, we evaluated the assumptions used in the actuarial methods, by comparing the significant assumptions, including loss development factors, expected loss ratios, and trends to the Company’s historical experience and current industry

benchmarks and trends.

We developed an independent range of reserve estimates and compared the range of reserve estimates to management’s best estimate for unpaid losses and LAE.

We also performed a review of the development of prior year reserve estimates.

/s/ Ernst & Young LLP

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Houston, Texas

April 1, 2024

March 3, 2025

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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$ 1,292,218 $ 1,017,651

Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 329 as of December 31, 2023)

Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $ 243 and $ 329 , respectively)

39,153 42,986

Equity securities, at fair value 106,254 118,249

Mortgage loans (at fair value as of December 31, 2023;

at amortized cost as of December 31, 2022)

50,070 51,859

Mortgage loans, at fair value 26,490 50,070

Equity method investments 98,594 110,653

Other long-term investments 33,182 3,852

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Deferred policy acquisition costs 113,183 91,955

Deferred income taxes, net 21,991 36,188

Deferred income taxes 30,486 21,991

Goodwill and intangible assets, net 87,348 88,435

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Stockholders’ equity

Series A preferred stock, $ 0.01 par value;

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

Common stock, $ 0.01 par value, 500,000,000 and 168,000,000 shares authorized, 39,863,756 and 16,832,955 shares issued, respectively

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

Common stock, $ 0.01 par value, 500,000,000 shares authorized, 40,127,908 and 39,863,756 shares issued and outstanding, respectively

Additional paid-in capital 718,598 710,855

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Accumulated other comprehensive loss ( 22,120 ) ( 22,953 )

Accumulated deficit ( 21,708 ) ( 105,417 )

Retained earnings (accumulated deficit) 97,120 ( 21,708 )

Total stockholders’ equity 793,999 661,031

Total liabilities and stockholders’ equity $ 3,729,478 $ 2,953,435

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

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

Years Ended December 31,

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Net income attributable to participating securities — 1,677 18,879

Net income attributable to common shareholders $ 84,307 $ 20,517

Net income attributable to common stockholders $ 118,828 $ 84,307 $ 20,517

Comprehensive income

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Diluted 41,377,460 38,317,534 32,653,194

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

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in thousands) 2023 2022

Years Ended December 31,

($ in thousands, except share amounts) 2024 2023 2022

Preferred shares:

Balance at beginning of year — 1,969,660 1,969,660

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

Balance at December 31 — — 1,969,660

Common shares:

Balance at beginning of year 39,863,756 16,599,666 16,533,620

Issuance of shares 264,152 6,958,977 66,046

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

Balance at December 31 40,127,908 39,863,756 16,599,666

Preferred stock:

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Preferred stock conversion to common shares — ( 20 ) —

Balance at end of year $ — $ 20

Balance at December 31 $ — $ — $ 20

Common stock:

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Proceeds from equity offerings, net — 48 —

Balance at end of year $ 399 $ 168

Balance at December 31 $ 401 $ 399 $ 168

Treasury stock:

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Preferred stock conversion to common shares — 2 —

Balance at end of year $ — $ ( 2 )

Balance at December 31 $ — $ — $ ( 2 )

Additional paid-in capital:

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Proceeds from equity offerings, net — 124,496 —

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

Balance at December 31 $ 718,598 $ 710,855 $ 577,289

Stock notes receivable:

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Employee equity transactions 5,562 1,349 2,181

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

Balance at December 31 $ — $ ( 5,562 ) $ ( 6,911 )

Accumulated other comprehensive loss:

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Other comprehensive income (loss), net of tax 833 20,532 ( 48,125 )

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

Accumulated Deficit:

Balance at December 31 $ ( 22,120 ) $ ( 22,953 ) $ ( 43,485 )

Retained earnings (accumulated deficit):

Balance at beginning of year $ ( 21,708 ) $ ( 105,417 ) $ ( 144,813 )

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Net income 118,828 85,984 39,396

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

Balance at December 31 $ 97,120 $ ( 21,708 ) $ ( 105,417 )

Total stockholders’ equity $ 793,999 $ 661,031 $ 421,662

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

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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Purchase of equity securities ( 14,077 ) ( 26,009 ) ( 53,548 )

Purchase of equity method investments ( 32,173 ) — —

Purchase of intangible assets — ( 50 ) —

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Purchase of property and equipment ( 4,224 ) ( 3,108 ) ( 2,325 )

Sales and maturities of investment securities 127,228 95,641

Sales of and distributions from unconsolidated subsidiaries 3,572 3,421

Proceeds from the sales of fixed maturity securities, available-for-sale 217,468 26,626 13,964

Maturities, calls, transfers and paydowns of fixed maturity securities, available-for-sale 122,694 48,957 44,500

Maturities, calls and paydowns of fixed maturity securities held-to-maturity 6,015 11,444 —

Proceeds from the sales of equity securities 37,534 40,201 37,177

Sales of and distributions from equity method and other long-term investments 14,073 3,572 3,421

Change in short-term investments ( 4,799 ) ( 149,068 ) 43,120

Payable for securities sold 76 529

Change in receivable/payable for securities 34 76 529

Cash provided by deposit accounting 3,962 11,913 3,202

Net cash used in investing activities ( 493,809 ) ( 193,381 )

Net cash used in investment activities ( 243,694 ) ( 493,809 ) ( 193,381 )

Cash flows from financing activities:

Employee share purchases — 1,350 2,180

Draw on revolving line of credit 50,000 —

Repayment of term loan ( 50,000 ) —

Proceeds from equity offerings 128,887 —

Proceeds from employee stock purchase plan 710 —

Net cash provided by financing activities 130,947 2,180

Net (decrease) increase in cash and cash equivalents and restricted cash ( 24,675 ) 17,737

Cash and cash equivalents and restricted cash at beginning of year* 125,011 107,274

Cash and cash equivalents and restricted cash at end of year* $ 100,336 $ 125,011

Repayment of stock notes receivable 5,562 — —

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 — 129,597 —

Net cash (used in) provided by financing activities ( 4,232 ) 130,947 2,180

Net increase (decrease) in cash and cash equivalents and restricted cash 57,189 ( 24,675 ) 17,737

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

100,336 125,011 107,274

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

$ 157,525 $ 100,336 $ 125,011

Supplemental disclosure of cash flow information:

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

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

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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The Company has four wholly owned insurance company subsidiaries based in the United States:

• Houston Specialty Insurance Company (“HSIC”) underwrites insurance on a non-admitted basis.

• Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites insurance on an admitted basis

• Great Midwest Insurance Company (“GMIC”), a subsidiary of IIC, underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S.

• Great Midwest Insurance Company (“GMIC”) underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S.

Department of the Treasury.

• Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of GMIC, underwrites insurance on a non-admitted basis.

The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, that is domiciled in the Cayman Islands and assumes net reserves for certain divisions, related to a retroactive reinsurance contract, from the Company’s insurance companies and retrocedes the net reserves to a third-party reinsurer.

The Company has two non-risk bearing wholly owned subsidiaries, (i) Skyward Underwriters Agency, Inc.

(“SUA”) is a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets, and (ii) Skyward Service Company provides various administrative services to the Company’s subsidiaries.

• Houston Specialty Insurance Company (“HSIC”), a subsidiary of GMIC, underwrites insurance on a non-admitted basis.

• Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites insurance on an admitted basis.

• Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of IIC, underwrites insurance on a non-admitted basis.

The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, that is domiciled in the Cayman Islands and assumed net reserves for certain divisions, related to a retroactive reinsurance contract, from the Company’s insurance companies and retroceded the net reserves to a third-party reinsurer.

The Company has three non-risk bearing wholly owned subsidiaries, (i) Skyward Underwriters Agency, Inc.

(“SUA”),a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets, (ii) Skyward Service Company an entity which provides various administrative services to the Company’s subsidiaries, and (iii) Skyward Specialty No.

1 Limited, a Lloyd’s corporate member authorized to invest in Lloyd’s syndicates.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which differ in some respects from those followed in reports to insurance regulatory authorities.

The consolidated financial statements includes the accounts of the holding company and its subsidiaries.

The consolidated financial statements include the accounts of the holding company and its subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation.

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Cash held in a depository account for others, or restricted by a state, is recorded as restricted cash.

Available for Sale

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

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

If either of these criteria were met, the amortized cost of the security is written down to fair value with the losses

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognized in net investment gains on the consolidated statements of operations.

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

Summary of Significant Accounting Policies (continued)

Available for Sale

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

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

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

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

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

Other-than-Temporary Impairments

Prior to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), on January 1, 2023, the Company evaluated declines in the market value of invested assets below amortized cost, for other-than-temporary impairment losses, on a quarterly basis.

Impairment losses for declines in the value of its fixed maturity securities below amortized cost attributable to issuer-specific events were based on all relevant facts and circumstances for each investment and were recognized when appropriate.

For all investments with unrealized losses due to market conditions or industry-related events where the Company did not had intent to sell the security and it had the ability to hold the investment for either a period of time sufficient to allow a market recovery or to maturity, declines in value below cost were not assumed to be other-than-temporary.

When the Company considered the impairment of the value of an investment to be other-than-temporary, it reported the decrease in value in net income within the consolidated statements of operations and a corresponding reduction in carrying value on the consolidated balance sheet.

Equity securities with a readily determinable fair value

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Investments in equity securities with a readily determinable fair value are carried on the balance sheet at fair value using quoted market prices.

Changes in the carrying value of equity securities are included in net investment gains (losses) within the consolidated statements of operations.

Changes in the carrying value of equity securities are included in net investment (losses) gains within the consolidated statements of operations.

Mortgage loan s

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

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

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

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

Other long-term investments

Other long-term investments include investments in equity and equity securities of non-public entities and indirect investments in loans and loan collateral.

Equity method investments

Equity method investments include investments in equity and equity securities of non-public entities and indirect investments in loans and loan collateral.

The Company has equity investments in certain limited partnerships and corporations where it has significant influence but not control.

The analysis of entities that are variable interest entities indicated the Company is not the primary

The analysis of entities that are variable interest entities indicated the Company is not the primary beneficiary, and would not have to consolidate these entities.

Equity method is used to account for these investments in unconsolidated subsidiaries.

Under the equity method, initial investment is recorded at cost and is subsequently adjusted based on its proportionate share of distributions and net income or loss of the equity method investee.

The difference between the cost of an investment and its proportionate share of the underlying equity in net assets recorded on the

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

beneficiary, and would not have to consolidate these entities.

Equity method is used to account for these investments in unconsolidated subsidiaries.

Under the equity method, initial investment is recorded at cost and is subsequently adjusted based on its proportionate share of distributions and net income or loss of the equity method investee.

The difference between the cost of an investment and its proportionate share of the underlying equity in net assets recorded on the investee’s books is a component of investment income.

Summary of Significant Accounting Policies (continued)

investee’s books is a component of investment income.

The Company amortizes the difference as an adjustment to its pro-rata share of equity method income over the useful life which is based on the underlying asset.

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The Company has significant influence, but not control of these unconsolidated subsidiaries and uses the equity method to account for these investments.

Other long-term investments

Other long-term investments consist of an investment in a limited partnership held at net asset value (“NAV”) and other long-term investment securities.

Short-Term Investments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Deposit Accounting

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Reinsurance recoverables present potential exposures to individual reinsurers.

Everest Reinsurance Co represented 20.4 % and 28.2 % of the Company’s reinsurance recoverable balances at December 31, 2023 and 2022, respectively, and was the only reinsurer that represented 10% or more of the Company’s reinsurance recoverable balances.

Its financial strength rating from A.M.

Best was A+ at December 31, 2023 and 2022.

Everest Reinsurance Co.

and eMaxx Captives represented 18.0 % and 16.8 %, respectively, of the Company’s reinsurance recoverable balances at December 31, 2024, and 20.4 % and 20.4 %, respectively, at December 31, 2023, and were the only reinsurers that represented 10% or more of the Company’s reinsurance recoverable balances.

Everest Reinsurance Co’s financial strength rating from A.M.

Best was A+ at December 31, 2024 and 2023 and eMaxx Captives was not rated by A.M.

Best at December 31, 2024 and 2023.

Concentration of Credit Risk

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Deferred Policy Acquisition Costs

Policy acquisition costs consist of commissions and premium taxes that vary with and are directly related to the successful production of new or renewal business.

The Company defers policy acquisition costs and related ceding commissions and charge or credit them to earnings in proportion with the premium earned over the life of the policy.

The Company defers policy acquisition costs and related ceding commissions and charges or credits them to earnings in proportion with the premium earned over the life of the policy.

A premium deficiency is recognized if the sum of expected losses, loss adjustment expenses, and unamortized acquisition costs exceed its related unearned premiums.

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Reserves for Losses and Loss Adjustment Expenses

Reserves for losses and loss adjustment expenses (“LAE”) represent the Company’s best estimate of the ultimate net cost of all reported and unreported losses that are unpaid as of the balance sheet dates.

The estimates are based on certain actuarial and other assumptions related to the ultimate cost to settle such claims.

Such assumptions are subject to occasional changes due to evolving economic, social and political conditions.

Because of the nature of business the Company has historically written, management believes that it has limited exposure to environmental and other toxic tort type claim liabilities.

All estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary.

Such adjustments are reflected in the results of operations in the period in which they are determined.

Due to the inherent uncertainty in estimating reserves for losses and settlement expenses, there can be no assurance that the ultimate liability will not exceed recorded amounts.

If actual liabilities do exceed recorded

The reserves for unpaid losses and loss adjustment expenses (“LAE”) represents the Company’s estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust the losses that have been incurred as of the balance sheet date.

We estimate the reserves using individual case-basis valuations of reported claims and statistical analyses and various actuarial procedures.

Those estimates are based on our historical information, industry and peer group information and our estimates of future trends in variable factors such as loss severity, loss frequency and other factors such as inflation.

We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us.

Additionally, during the loss settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward.

Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates.

Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimate included in our financial statements.

If actual liabilities do exceed recorded amounts,

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amounts, there will be an adverse effect.

Summary of Significant Accounting Policies (continued)

there will be an adverse effect.

Furthermore, we may determine that recorded reserves are more than adequate to cover expected losses, which would lead to a reduction in our reserves.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Premium tax expense is recognized within underwriting, acquisition and insurance expense on the Consolidated Statements of Operations.

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Undistributed earnings are allocated to participating securities based on the extent to which each class may share in earnings as if all the earnings for the period have been distributed.

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period.

Common shares, when contingencies, such as vesting requirements, exist and have not been satisfied, are excluded from basic earnings per share.

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These instruments are excluded from basic and diluted earnings per share when the specified conditions are not met presuming the end of the period is the end of the contingency period.

The impact of the contingently issuable instruments on diluted earnings per share was calculated using the treasury stock method and included in the reconciliation of the denominator of the basic and diluted earnings per share computations for the years ended December 31, 2023 and 2022.

All outstanding stock notes were settled during 2024 so there was no impact to the Company’s basic and diluted earnings per share computations for the year ended December 31, 2024.

Instruments that are convertible into common shares are included in diluted weighted-average common shares outstanding on an if-converted basis based on the legal conversion rate for the respective period, if dilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements

The Company currently qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Accordingly, the Company is provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies.

The Company may elect to adopt new or revised accounting guidance within the same time period as private companies, unless, as indicated below, management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance.

Recent Accounting Standards Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

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

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

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

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

The adoption of ASU 2016-13 resulted in the Company recognizing an increase in the allowance for uncollectible reinsurance of $ 2.3 million an d an increase, net of tax, in accumulated deficit of $ 2.3 million.

Recent Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280).

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This update states that entities with a single reportable segment are required to provide full segment disclosures.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The guidance became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

This update is applied retrospectively to all prior periods presented.

The Copmany is evaluating the effect of the amendments on its consolidated financial statements.

The Company has added additional segment disclosures as required by ASU 2023-07, see Note 12 for the additional disclosures required by this ASU.

Recent Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740).

ASU 2023-09 requires public companies, on an annual basis, provide enhanced rate reconciliation disclosures, including disclosures of specific categories and additional information that meet a quantitative threshold.

ASU 2023-09 requires public companies, on an annual basis, to provide enhanced rate reconciliation disclosures, including disclosures of specific categories and additional information that meets a quantitative threshold.

This update also requires public companies to, among other things, disaggregate income taxes paid by federal, state and foreign taxes.

The guidance is effective for fiscal years beginning after December 15, 2024.

The Company is continuing to evaluate the effect and currently does not expect the amendments will have a material impact on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, which requires disaggregated disclosure of income statement expenses for public business entities (“PBEs”).

The ASU does not change the expense captions an entity presents on the face of the income statement;

rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

ASU 2024-03 require a footnote disclosure about specific expenses by requiring PBEs to disaggregate, in a tabular presentation, each relevant expense caption on the face of the income statement that includes any of the following natural expenses:

(1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities or other types of depletion expenses.

The tabular disclosure will also include certain other expenses, when applicable.

In January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03 as the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.

The Company is evaluating the effect of the amendments on its consolidated financial statements.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets

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Net balance at December 31, 2023 $ 46,756 $ 6,781 $ 10,204 $ 1,993 $ 65,734

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets (continued)

The following tables set forth the carrying amount and changes in the balance of other intangible assets at December 31, 2024 and 2023:

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Accumulated amortization at December 31, 2023 ( 16,808 ) ( 1,117 ) — — ( 17,925 )

Additions 50 — — — 50

Amortization ( 1,087 ) — — — ( 1,087 )

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Accumulated amortization at December 31, 2022 ( 15,547 ) ( 893 ) — — ( 16,440 )

Additions 50 — — — 50

Amortization ( 1,261 ) ( 224 ) — — ( 1,485 )

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Its finite lived intangible assets, which relate to policy renewals, agency relationships, within agent relationships, and non-compete/exclusivity agreements, within non-competes, have a weighted average useful life of approximately 15 years as of December 31, 2024.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized $ 1.5 million in amortization expense for the years ended December 31, 2023 and 2022.

The Company recognized approximately $ 1.1 million in amortization expense for the year ended December 31, 2024, and $ 1.5 million for the years ended December 31, 2023 and 2022.

The following table sets forth the estimated future net amortization expense of intangible assets:

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Years Ending December 31,

The following tables set forth the amortized cost and the fair value of investments at December 31, 2023 and 2022:

($ in thousands) Gross

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

($ in thousands) Amortized

Losses Allowance for Credit Losses Fair Value

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Total fixed maturity securities, held-to-maturity $ 39,396 $ — $ ( 436 ) $ ( 243 ) $ 38,717

($ in thousands) Gross

Losses Fair Value

($ in thousands) Amortized

Loss Allowance for Credit Losses Fair Value

December 31, 2023

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

The amortized cost and estimated fair value of fixed maturity securities, available for sale, at December 31, 2024 by contractual maturity are shown below.

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.

($ in thousands) Amortized

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Total $ 1,320,266 $ 1,292,218

The Company’s fixed maturity securities, held to maturity, at December 31, 2023 consist entirely of asset backed securities that are not due at a single maturity date.

The following tables summarize gross unrealized losses and the corresponding fair values of investments, aggregated by length of time that individual securities have been in a continuous unrealized loss position:

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

At December 31, 2024, the Company had U.S.

government agencies mortgage-backed fixed maturity securities, with a carrying value of approximately $ 66.2 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 December 31, 2024, the Company had assets with fair values of approximately $ 28.0 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 $ 24.3 million are residential mortgage-backed securities, $ 2.2 million of short-term investments and $ 1.5 million of cash and cash equivalents and other assets.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

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 December 31, 2024 and 2023:

Less than 12 Months 12 Months or More Total

($ in thousands) Fair Value Gross

Losses Fair Value Gross

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

December 31, 2024

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Total fixed maturity securities, held-to-maturity:

2,144 ( 2 ) 36,573 ( 434 ) 38,717 ( 436 )

Total $ 482,837 $ ( 7,355 ) $ 273,314 $ ( 31,765 ) $ 756,151 $ ( 39,120 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

Less than 12 Months 12 Months or More Total

($ in thousands) Fair Value Gross

Losses Fair Value Gross

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

December 31, 2023

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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 )

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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 December 31, 2023, the Company has 584 lots of fixed maturity securities in an unrealized loss position.

As of December 31, 2024, the Company had 778 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 Company reviewed its investments at December 31, 2024 and determined that no credit impairment existed in the gross unrealized holding losses, due to the reasons discussed below:

government securities and municipal securities :

These securities were issued by the U.S.

Treasury Department, Federal government-sponsored entities or by state and local governments.

The decline in fair values was attributable to changes in interest rates and not credit quality.

The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery.

Therefore, the Company does not consider these impaired securities.

• Corporate securities and miscellaneous :

Corporations in various industries issued these securities.

The decline in fair values was attributable to changes in interest rates and not credit quality.

The Company reviewed the issuers of these securities to identify any significant adverse change in financial condition, a change in the quality of credit enhancement (if any), a ratings decrease, or negative outlook assignment from a major credit rating agency, and any failure to make interest or principal payments.

After these reviews, the Company determined that the decline in fair values was attributable to changes in interest rates and not credit quality.

The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery.

Therefore, the Company does not consider these impaired securities.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments (continued)

• Residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities :

The decline in fair values was attributable to changes in interest rates and not credit quality.

The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery.

Therefore, the Company does not consider these impaired securities.

The following table sets forth the components of net investment gains (losses) for the years ended December 31, 2024, 2023 and 2022:

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Equity securities 8,062 6,035 3,865

Other 127 2 36

Total 10,851 7,079 4,214

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Net investment gains (losses) $ 6,256 $ 11,072 $ ( 15,705 )

The following table sets forth the proceeds from sales of debt and equity securities for the years ended December 31, 2023 and 2022:

The following table sets forth the proceeds from sales of available-for-sale fixed maturity securities and equity securities for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

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Indirect loans ( 2,400 ) ( 4,155 ) 4,846

Short-term investments 11,392 1,498

Short-term investments and cash 14,851 11,392 1,498

Other 3,000 318 ( 77 )

Investment income 45,879 44,484

Total investment income 87,599 45,879 44,484

Investment expenses ( 6,913 ) ( 5,557 ) ( 7,553 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 income (loss) for the years ended December 31, 2023 and 2022:

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 years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

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Various state regulations require the Company to maintain cash, investment securities or letters of credit on deposit with the states in a depository account.

At December 31, 2023 and 2022, cash and investment securities on deposit had fair values of approximately $ 62.3 million and $ 60.2 million, respectively.

At December 31, 2024 and 2023, cash and investment securities on deposit had carrying values of approximately $ 66.8 million and $ 65.3 million, respectively.

Fair Value Measurements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 that are managed by an independent asset manager and priced by an independent pricing provider.

The provider estimates the value of the securities using the discount net present value of cash flows method using an unobservable discount rate.

The discount rate spread represents the risk associated with future cash flows, including inflation, opportunity cost and the time value of money.

This rate represents Level 3 fair value inputs.

The following table sets forth the range of the discount rate as of December 31, 2024:

December 31, 2024

Weighted average 6.60 %

Mortgage loans

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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 December 31, 2023:

December 31, 2023

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

December 31, 2024 December 31, 2023

High 10.00 % 9.50 %

Low 7.00 % 3.25 %

Weighted average 7.93 % 7.05 %

Investment in RedBird Capital Partners

Included in other long-term investments is an investment in a limited partnership with RedBird Capital Partners, which invests in Bishop Street Underwriters, LLC (“Bishop Street”), a managing general agent (MGA).

The investment had a fair value of $ 28.2 million at December 31, 2024, which was determined using the net asset value.

The Company employs procedures to assess the reasonableness of the fair value of the investment including obtaining and reviewing the audited financial statements.

The unfunded commitment related to the investment was $ 24.4 million at December 31, 2024.

The Company may sell its interest in the investment with the appropriate prior written notice and approval by the general partner.

In accordance with Accounting Standard Codification 820-10, this investment is measured at fair value using the net asset value per share practical expedient and has not been classified in the fair value hierarchy.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

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

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Total fixed maturity securities, held-to-maturity — — 38,717 38,717

Equity securities:

Common stocks 64,251 — — 64,251

Consumer discretionary 2,313 — — 2,313

Consumer staples 14,015 — — 14,015

Energy 3,187 — — 3,187

Finance 24,267 — — 24,267

Industrial 12,170 — — 12,170

Information technology 5,192 — — 5,192

Materials 3,782 — — 3,782

Other 2,499 — — 2,499

Total common stocks 67,425 — — 67,425

Preferred stocks — 1,164 — 1,164

Consumer staples — 433 — 433

Finance — 5,061 — 5,061

Industrial — 1,052 — 1,052

Other — 812 — 812

Total preferred stocks — 7,358 — 7,358

Mutual funds 40,839 — — 40,839

Fixed income 5,405 — — 5,405

Equity 37,546 — — 37,546

Commodity 515 — — 515

Total mutual funds 43,466 — — 43,466

Total equity securities 105,090 1,164 — 106,254

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Short-term investments 274,929 — — 274,929

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

Total $ 406,505 $ 1,188,976 $ 143,127 $ 1,738,608

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

December 31, 2023

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Total fixed maturity securities, held-to-maturity:

— — 41,017 41,017

Equity securities:

Common stocks 67,425 — — 67,425

Consumer discretionary 1,948 — — 1,948

Consumer staples 12,036 — — 12,036

Energy 3,241 — — 3,241

Finance 22,636 — — 22,636

Industrial 9,452 — — 9,452

Information technology 2,284 — — 2,284

Materials 2,820 — — 2,820

Other 1,579 — — 1,579

Total common stocks 55,996 — — 55,996

Preferred stocks — 7,358 — 7,358

Consumer staples — 117 — 117

Finance — 7,085 — 7,085

Industrial — 1,020 — 1,020

Other — 549 — 549

Total preferred stocks — 8,771 — 8,771

Mutual funds 43,466 — — 43,466

Fixed income 5,068 — — 5,068

Equity 49,773 — — 49,773

Commodity 561 — — 561

Total mutual funds 55,402 — — 55,402

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

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

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

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 years ended December 31, 2024 and 2023:

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

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

Total gains (losses) for the period recognized in net investment gains (losses) ( 195 ) 420

Issuances — 649

Settlements — ( 24,649 )

Purchases 77,979 —

Sales/Disposals ( 374 ) —

Total unrealized gains for the period recognized in accumulated comprehensive income (loss) 510 —

Balance at December 31, 2024 $ 77,920 $ 26,490

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 $ — $ 411

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the year ended December 31, 2023:

Fair Value Measurements (continued)

($ in thousands) Mortgage Loans

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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.

Subordinated debt consists of the Unsecured Subordinated Notes, due May 24, 2039 and 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).

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Notes payable

Term loan $ — $ — $ 50,000 $ 50,000

FHLB Loan $ 57,000 $ 56,200 $ — $ —

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

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Subordinated debt, net of debt issuance costs $ 19,536 $ 20,541 $ 78,690 $ 81,172

Other financial instruments qualify as insurance-related products and are exempt from fair value disclosure requirements.

Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Loans

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

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

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

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

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

The loans earn interest at a fixed spread above a prime rate, mature in approximately 1 to 3 years from loan origination and the principal amounts of the loans range between 61 % to 90 % of the property’s appraised value at the time the loans were made.

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

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

($ in thousands) 2023 2022

Retail $ 16,072 $ 16,516

The loans earn interest at a fixed spread above a prime rate, mature in approximately 2 year 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 following table sets forth the carrying value of the Company’s mortgage loans as of December 31, 2024 and December 31, 2023:

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

Commercial $ 8,474 $ 14,469

Industrial 6,785 6,329

Multi-family — 5,593

Office — 3,197

Retail 10,032 16,072

Hospitality 7,984 12,744

Industrial — 6,785

$ 26,490 $ 50,070

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s gross investment income for the years ended December 31, 2023 and 2022 is as follows:

Years Ended December 31,

The following table sets forth the Company’s gross investment income for mortgage loans for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

Retail $ 1,853 $ 1,255

Commercial $ 2,025 $ 2,340 $ 1,242

Industrial — 565

Multi-family 44 909

Office 203 385

Retail 1,853 1,853 1,255

Hospitality 1,277 1,034 411

Office — 203 385

Multi-family — 44 909

Industrial — — 565

$ 5,155 $ 5,474 $ 4,767

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

There was no write-off for uncollectible amounts for the years ended December 31, 2023 and 2022.

As of December 31, 2023 and 2022, approximately $ 7.1 million and $ 6.4 million of mortgage loans, respectively, were in the process of foreclosure.

As of December 31, 2023, $ 6.8 million of mortgage loans were not producing income for the previous 12 months.

Other Long-Term Investments

Unconsolidated Subsidiaries - Equity Method Investments

The Company’s ownership interests in most of its equity method investments range from approximately 3% to less than 50% where the Company has significant influence but not control.

The Company owns investment products issued by Arena Special Opportunities Partners (Feeder) I, LP (“Arena SOP”), managed by Arena, which is affiliated with Westaim.

The investment products include senior and junior notes issued by the Arena SOP to raise capital from limited partners to fund purchases of investments.

The return on the investments is used to pay interest on the senior and junior notes based on target returns of each class.

The senior and junior notes are debt securities classified as held to maturity and presented on the balance sheet within fixed maturity securities, held to maturity.

Income in excess of return targets on the senior and junior notes is allocated to the investment in Arena SOP.

During the year ended December 31, 2022, the Company entered into an agreement for limited partnership interests in Brewer Lane Ventures Fund II, L.P.

During the years ended December 31, 2023 and 2022, the Company invested $ 0.4 million and $ 0.2 million, respectively, in Brewer Lane Ventures Fund II, L.P.

and $ 0.9 million and $ 1.3 million, respectively, in Hudson Ventures Fund 2, LP.

There was no write-off for uncollectible amounts during the years ended December 31, 2024, 2023 and 2022 respectively.

As of December 31, 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 and $ 6.8 million of mortgage loans were not producing income for the previous 12 months.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying value of equity method investments at December 31, 2023 and 2022 is as follows:

($ in thousands) 2023 2022

Arena SOP LP units $ 2,463 $ 8,734

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 December 31, 2024 and 2023:

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

Carrying Value Ownership % Carrying Value Ownership %

Arena Special Opportunities Fund, LP units $ 34,936 15.3 % $ 41,046 16.2 %

Brewer Lane Ventures Fund II LP units 560 200

Dowling Capital Partners LP units 1,708 1,965

Hudson Ventures Fund 2 LP units 4,669 3,551

JVM Funds LLC units 17,229 10.1 % 20,061 10.1 %

RISCOM 5,013 20.0 % 4,121 20.0 %

Universa Black Swan LP units — 1,325

Hudson Ventures Fund 2 LP units 4,967 2.5 % 4,669 2.5 %

Arena SOP LP units 1,474 10.9 % 2,463 12.3 %

Brewer Lane Ventures Fund II LP units 1,040 2.4 % 560 2.5 %

Dowling Capital Partners LP units 666 5.0 % 1,708 6.2 %

$ 65,325 $ 74,628

Equity in (loss) income from unconsolidated subsidiaries for the years ended December 31, 2023 and 2022 is summarized as follows:

The following table sets forth the components of net investment income (loss) from equity method investments for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

Arena SOP LP units $ ( 6,271 ) $ 3,042

Arena Special Opportunities Fund, LP units $ 2,375 $ ( 2,880 ) $ 3,719

Dowling Capital Partners LP units 927 502

Hudson Ventures Fund 2 LP units 170 379

JVM Funds LLC ( 1,198 ) ( 70 )

RISCOM 1,492 884 1,471

Brewer Lane Ventures Fund II LP ( 78 ) —

Dowling Capital Partners LP units 1,463 927 502

Universa Black Swan LP units — ( 988 ) ( 3,028 )

Brewer Lane Ventures Fund II LP ( 110 ) ( 78 ) —

Hudson Ventures Fund II LP units ( 153 ) 170 379

Arena SOP LP units ( 989 ) ( 6,271 ) 3,042

JVM Funds LLC ( 1,554 ) ( 1,198 ) ( 70 )

$ 2,524 $ ( 9,434 ) $ 6,015

The unfunded commitment of equity method investments at December 31, 2023 and 2022 is as follows:

($ in thousands) 2023 2022

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

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

Brewer Lane Ventures Fund II LP units $ 4,077 $ 4,610

Dowling Capital Partners LP units 386 386

Hudson Ventures Fund 2 LP units 397 848

Dowling Capital Partners LP units 386 386

$ 4,860 $ 5,844

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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 which is amortized over a 15 -year useful life.

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

($ in thousands) 2023 2022

For investment in RISCOM, a similar asset would be agent relationships.

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments and Other (continued)

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

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

Investment in RISCOM:

2 unchanged sentences

Recorded investment balance $ 5,013 $ 4,121

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company amortizes the difference in net assets in JVM Funds LLC over the 7 -year estimated useful life of the investment in rental properties.

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

($ in thousands) 2023 2022

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

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

Investment in JVM Funds LLC:

2 unchanged sentences

Recorded investment balance $ 17,229 $ 20,061

Unconsolidated Subsidiaries - Investment in Bank Holding Companies

The Company carries a $ 2.0 million investment in Captex Bancshares, a Texas bank holding company, at cost, less impairment or observable changes in price.

The Company does not have significant influence over the investee.

The Company reviews these investments for impairment or observable changes in price during each reporting period.

There was no impairment or observable change in price during the years ended December 31, 2023 and 2022.

Unconsolidated Subsidiaries - Investment in Indirect Loans and Loan Collateral

Investment in Indirect Loans and Loan Collateral

As of December 31, 2024 and 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 December 31, 2023 and 2022 are as follows:

($ in thousands) 2023 2022

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

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

SMA1 $ 20,296 $ 30,816

1 unchanged sentence

Investment in indirect loans and loan collateral $ 33,269 $ 36,025

Unconsolidated Subsidiaries - Investment in Trust

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

The Company does not have significant influence over the investee.

There was no impairment or observable change in price during the years ended ended December 31, 2023 and 2022.

See Note 10 for further information on the Trust.

Allowance for Credit Losses

Premiums Receivable

The following tables set forth the changes in the allowance for expected credit losses on premiums receivable for the years ended December 31, 2024 and 2023 .

($ in thousands) Premiums Receivable, Net Allowance for Estimated Uncollectible Premiums

Balance at December 31, 2023 $ 179,235 $ 964

Current period change for estimated uncollectible premiums 3,235

Write-offs of uncollectible premiums receivable ( 1,895 )

Recoveries of amounts previously written off 128

Balance at December 31, 2024 $ 321,641 $ 2,432

SKYWARD SPECIALTY INSURANCE GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses

Premiums Receivable

The following table sets forth the changes in the allowance for expected credit losses on premiums receivable for the year ended ended December 31, 2023.

Allowance for Credit Losses (continued)

($ in thousands) Premiums Receivable, Net Allowance for Estimated Uncollectible Premiums

13 unchanged sentences

Best as of December 31, 2024:

Best Rating December 31, 2023

December 31, 2024

Best Rating Reinsurance Recoverables, Gross, Amortized Cost Percent of Total

A- and above $ 837,807 97.4 %

2 unchanged sentences

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

The following table sets forth the changes in the allowance for estimated uncollectible reinsurance for the year ended ended December 31, 2023:

The following tables set forth the changes in the allowance for estimated uncollectible reinsurance for the years ended December 31, 2024 and 2023:

($ in thousands) Reinsurance Recoverables, Net Allowance for Estimated Uncollectible Reinsurance

Balance at December 31, 2023 $ 596,334 $ 2,295

Current period change for estimated uncollectible reinsurance 13,585

Write-offs of uncollectible reinsurance recoverables ( 13,585 )

Balance at December 31, 2024 $ 857,876 $ 2,295

($ in thousands) Reinsurance Recoverables, Net Allowance for Estimated Uncollectible Reinsurance

Balance at December 31, 2022 $ 581,359 $ —

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

2 unchanged sentences

Balance at December 31, 2023 $ 596,334 $ 2,295

On January 31, 2025, the Company commuted the LPT with R&Q Re (Bermuda) Ltd.

("R&Q") related to accident years 2018 and prior.

The Company recognized the uncollectible reinsurance recoverable balance related to the LPT as a net increase of $ 13.6 million to the allowance for estimated uncollectible reinsurance, which was subsequently written-off during the year ended December 31, 2024.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

10 unchanged sentences

Total $ 12,179 $ 9,070

Depreciation expense related to property and equipment was $ 3.2 million and $ 3.6 million for the years ended December 31, 2023 and 2022, respectively.

Depreciation expense related to property and equipment was $ 2.9 million, $ 3.2 million, and $ 3.6 million for the years ended December 31, 2024, 2023 and 2022 respectively.

The Company determines if a contract contains a lease at inception and recognizes a right-of-use asset, within other assets, and lease liability, within accounts payable and accrued liabilities, based on the present value of future lease payments.

1 unchanged sentence

The Company’s leases are primarily for office facilities which have been classified as operating leases.

Its leases have remaining lease terms ranging from 1 to 6 years, some of which include options to extend the leases.

Lease expense for the years ended December 31, 2023 and 2022 was $ 2.8 million and $ 2.6 million, respectively.

The following tables provide information regarding the Company’s leases as of and for the years ended December 31, 2023 and 2022:

Its leases have remaining lease terms ranging from less than 1 year to 6 years, some of which include options to extend the leases.

Lease expense for the years ended December 31, 2024, 2023, and 2022 was $ 2.1 million, $ 2.8 million and $ 2.6 million, respectively.

The following table provides information regarding the Company’s leases as of December 31, 2024 and 2023:

(in thousands) 2024 2023

3 unchanged sentences

Operating lease weighted-average discount rate 5.01 % 3.95 %

The following table presents the Company’s lease expenses for the years ended December 31, 2024, 2023 and 2022:

(in thousands) 2024 2023 2022

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases (continued)

The following table sets forth the future minimum lease payment obligations of the Company’s operating leases at December 31, 2024:

4 unchanged sentences

Total operating lease liability $ 3,213

Subordinated Debt

The following table summarizes the Company’s subordinated debt as of December 31, 2023 and 2022:

($ in thousands) 2023 2022

Junior subordinated interest debentures, due September 15, 2036, payable quarterly

Principal $ 59,794 $ 59,794

Debt issuance costs ( 608 ) ( 657 )

Unsecured subordinated notes, due May 24, 2039, interest payable quarterly

Principal 20,000 20,000

Debt issuance costs ( 496 ) ( 528 )

Subordinated debt, net of debt issuance costs $ 78,690 $ 78,609

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 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 first quarter of 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).

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.

At December 31, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25 %, plus a margin of 1.60 %.

The Company is 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 December 31, 2024, the Company was in compliance with all covenants.

In May 2019, the Company entered into an agreement to issue unsecured subordinated notes (the “Notes”) with an aggregate principal amount of $ 20.0 million.

5 unchanged sentences

These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

On August 2, 2006, the Trust issued $ 58.0 million of fixed/floating rate capital securities guaranteed by us.

The Trust also issued us $ 1.8 million of common stock, classified within other long-term investments.

The Company has not consolidated the Trust as it does not meet the criteria for consolidation and the Company does not have significant influence over the investee.

The Company carries its investment in the common stock of the Trust at cost.

There was no impairment or observable change in price during the year ended December 31, 2023.

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.

The Debentures are an unsecured obligation that are currently redeemable, and have a maturity date of September 15, 2036.

Interest on the Debentures is payable quarterly at an annual rate based on the three-month LIBOR ( 5.59 % and 4.77 % at December 31, 2023 and 2022, respectively) plus 3.4 %.

The Company reflects debt related to the Debentures in its December 31, 2023 and 2022 consolidated balance sheets, net of debt issuance costs of approximately $ 0.6 million and $ 0.7 million, respectively.

These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

Notes Payable

The Revolving Credit Facility provided

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the Company with up to $ 150.0 million, with an accordion that can increase the capacity by $ 50.0 million, and a letter of credit sub-facility of up to $ 30.0 million.

During the year ended December 31, 2023, the Company drew $ 50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on its existing term loan.

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

Interest on the Revolving Credit Facility is payable quarterly.

The interest rate on the Revolving Credit Facility is the Secured Overnight Financing Rate (“SOFR”) plus a margin of between 150 and 190 basis points, based on the ratio of debt to total capital, and a credit spread adjustment of 10 basis points.

At December 31, 2023, the six-month SOFR on the Revolving Credit Facility was 5.47 %, plus a margin of 1.60 %.

The interest rate on the term loan was the one-month LIBOR ( 4.39 % on December 31, 2022) plus the “Applicable Margin,” which was defined as 1.65 %.

The revolving line of credit included a fee of 0.25 % on the unused portion.

The following table sets forth the interest payments on the Company’s notes payable during the years ended December 31, 2023 and 2022:

($ in thousands) 2023 2022

Interest payments on terminated term loan $ 1,396 $ 1,443

Interest payments on revolving credit facility 2,598 —

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 December 31, 2023, the Company was in compliance with all covenants.

Notes Payable & Subordinated Debt (continued)

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.

Stockholders Equity

12 unchanged sentences

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

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Follow-On Offering

1 unchanged sentence

The Company’s net proceeds were approximately $ 62.5 million, after deducting underwriting discounts and specific incremental expenses directly attributable to the offering.

The Company has one reportable segment through which it offers a broad array of commercial property and casualty products and solutions on a non-admitted (or E&S) and admitted basis, predominantly in the United States.

The segment is made up of eight distinct underwriting divisions, or “continuing business,” and has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches.

The Company defines its segment on the basis of the way in which internally reported financial information is regularly reviewed by the Chief Operating Decision Maker (“CODM”) to analyze financial performance, make decisions and allocate resources.

The Company’s CODM is the chief executive officer.

The accounting policies of the segment are the same as those described in Note 1 “Summary of Significant Accounting Policies” of this Form 10-K.

The CODM assesses performance for the segment and decides how to allocate resources based on gross written premiums by net underwriting division, underwriting income, and income before income taxes that also is reported on the consolidated statements of operations as consolidated income before income taxes.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

Gross written premiums by underwriting division, net underwriting income, and consolidated net income are used to monitor budget versus actual results.

The chief operating decision maker also uses net underwriting income, return on equity and growth in book value per share in competitive analysis by benchmarking to the Company’s competitors.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment (continued)

competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

The following table presents gross written premiums by underwriting division for the years ended December 31, 2024, 2023 and 2022:

Years Ended December 31,

($ in thousands) 2024 2023 2022

Industry Solutions $ 317,198 $ 305,476 $ 267,628

Global Property & Agriculture 311,402 273,191 205,081

Captives 241,902 167,624 124,286

Programs 218,407 178,726 163,653

Accident & Health 173,073 151,701 130,808

Transactional E&S 169,053 122,508 75,098

Professional Lines 159,785 154,565 93,011

Surety 152,429 106,056 79,062

Total continuing business $ 1,743,249 $ 1,459,847 $ 1,138,627

Exited business ( 17 ) ( 18 ) 5,325

Total gross written premiums $ 1,743,232 $ 1,459,829 $ 1,143,952

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment (continued)

The following table presents information about reported segment net underwriting income, significant segment expenses and a reconciliation of net underwriting income to net income for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

Underwriting income

Net earned premiums $ 1,056,722 $ 829,143 $ 615,994

Commission and fee income 6,703 6,064 5,199

Total underwriting revenues 1,063,425 835,207 621,193

Losses and LAE 669,809 515,237 402,512

Amortization of policy acquisition costs 149,975 108,514 65,695

Other operating and general expenses 161,782 134,930 116,476

Total underwriting expenses 981,566 758,681 584,683

Net underwriting income $ 81,859 $ 76,526 $ 36,510

Reconciliation of net underwriting income to net income:

Net underwriting income $ 81,859 $ 76,526 $ 36,510

Net investment income 80,686 40,322 36,931

Net investment gains (losses) 6,256 11,072 ( 15,705 )

Other (loss) income ( 167 ) ( 632 ) 1

Interest expense 9,496 10,024 6,407

Amortization expense 2,007 1,798 1,547

Other expenses 4,392 5,364 —

Income before income taxes 152,739 110,102 49,783

Income tax expense 33,911 24,118 10,387

Net income $ 118,828 $ 85,984 $ 39,396

The following table presents return on equity and book value per share for the years ended December 31, 2024, 2023 and 2022:

2024 2023 2022

Return on equity 16.3 % 15.9 % 9.3 %

Book value per share $ 19.79 $ 16.72 $ 25.82

The following table sets forth the components of the Company’s income tax expense for the years ended December 31, 2024, 2023 and 2022:

1 unchanged sentence

Current income tax expense $ 42,626 $ 14,736 $ 120

Deferred tax expense 9,382 10,267

Income tax expense $ 24,118 $ 10,387

Deferred tax (benefit) expense related to temporary differences ( 8,715 ) 9,382 10,267

Total income tax expense $ 33,911 $ 24,118 $ 10,387

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

The Company’s provision for income taxes generally does not deviate substantially from the statutory tax rate.

1 unchanged sentence

The following table sets forth the differences between income taxes expected at the federal statutory income tax rate of 21% and the reported income tax expense for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) Amount Percentage Amount Percentage

2024 2023 2022

($ in thousands) Amount Percentage Amount Percentage Amount Percentage

Income tax expense at federal statutory rate $ 32,075 21.0 % $ 23,121 21.0 % $ 10,454 21.0 %

2 unchanged sentences

Total income tax expense $ 33,911 22.2 % $ 24,118 21.9 % $ 10,387 20.9 %

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023:

1 unchanged sentence

Deferred tax assets:

Net operating losses $ 10,655 $ 14,966

Losses and loss adjustment expenses 11,581 10,748

Unearned premiums $ 18,178 $ 15,365

Losses and loss adjustment expenses 16,967 11,581

Net operating losses 9,389 10,655

Unrealized losses on fixed maturity securities, available-for-sale 5,893 6,113

6 unchanged sentences

Deferred policy acquisition costs 15,277 11,528

Other long-term investments 6,460 6,055

Section 481(a) adjustment 3,477 1,405

Unrealized gains on equity securities 4,818 3,243

Other long-term investments 2,625 6,460

Depreciation 1,426 1,260

Section 481(a) adjustment 1,391 3,477

Other 2,338 1,120

10 unchanged sentences

The Company is limited on the utilization of $ 44.7 million of the net operating losses under Internal Revenue Code Section 382 (“Sec 382”) which imposes limitations on a corporation’s ability to utilize tax attributes if the corporation experiences an “ownership change” which occurred during 2014.

The Sec 382 limitation is expected to result in an expiration of $ 2.8 million ($ 0.6 million tax effected) of net operating losses.

The Sec 382 limitation is

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

expected to result in an expiration of $ 2.8 million ($ 0.6 million tax effected) of net operating losses.

A valuation allowance was established against the balance that is expected to expire without utilization.

6 unchanged sentences

however, it evaluates net ultimate loss and LAE under three sub-categories:

multiline solutions, short tail/monoline specialty lines and exited lines.

multi-line solutions, short-tail/monoline specialty lines and exited lines.

The Company determined that these disaggregated groupings have more homogeneous risk characteristics with similar development patterns and are generally subject to similar trends.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Short-tail/Monoline Specialty Lines

10 unchanged sentences

Exited lines includes all underwriting units that the Company placed in run-off and are presented separately from on-going lines of business.

The following table sets forth the reconciliation of unpaid losses and loss adjustment expenses for the years ended December 31, 2023 and 2022:

In 2024, the Company transitioned from evaluating reserves on a policy year basis to an accident year basis which results in earlier recognition of underlying claim trends, better alignment of exposure to risks, and adherence to commonly used industry best practices.

In prior years, the Company’s methodology allocated IBNR from its policy year analysis to accident year.

As a result of transitioning to accident year, IBNR within short-tail/monoline specialty lines, multi-line solutions, and exited lines was reallocated for the years ended December 31, 2023, 2022, 2021 and 2020, and certain amounts have been conformed to the current year presentation.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reserves for Losses and Loss Adjustment Expenses (continued)

The following table sets forth the reconciliation of unpaid losses and loss adjustment expenses (“LAE”) as reported in the consolidated balance sheets as of and for the years ended December 31, 2024, 2023 and 2022:

($ in thousands) 2024 2023 2022

13 unchanged sentences

Reserves for losses and LAE, end of period $ 1,782,383 $ 1,314,501 $ 1,141,757

For the year ended December 31, 2023, the Company recognized favorable development related to prior years’ loss and loss expense reserves of $ 9.2 million in short tail/monoline specialty lines and adverse development of $ 11.9 million in multi-line solutions, respectively.

The favorable development in short tail/monoline specialty lines was driven by property lines of business from the 2021 accident year.

The adverse development in multi-line solutions was driven by higher than expected severity in general and auto liability lines of business primarily from the 2019 accident year.

During the year ended December 31, 2022, the Company’s net incurred losses for accident years 2021 and prior developed adversely by $ 14.4 million which was related to losses subject to the LPT.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Within exited lines, adverse development of $ 14.5 million was from the 2019 accident year primarily driven by increased in frequency and severity in general and professional liability.

The remaining $ 8.4 million of net adverse development was from other accident years.

Within multi-line solutions, favorable development of $ 10.8 million was from the 2020 through 2021 accident years and was driven by reduction in frequency of claims in commercial auto and general liability.

The remaining $ 2.3 million of net adverse development was from various other accident years.

For the year ended December 31, 2024, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $ 25.7 million, primarily related to losses previously subject to the LPT from accident years 2018 and prior, with $ 10.1 million and $ 15.2 million in multi-line solutions and exited lines, respectively.

For the year ended December 31, 2023, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $ 10.8 million.

Adverse development of $ 11.7 million in multi-line solutions was driven by greater than expected severity in auto, general, and excess liability lines of business primarily from accident years 2020 to 2022.

The adverse development was partially offset by favorable development in short-tail/monoline specialty lines.

The favorable development was in the property line of business primarily from accident years 2021 and 2022.

During the year ended December 31, 2022, the Company’s net incurred losses for accident years 2021 and prior developed adversely by $ 33.8 million.

Adverse development of $ 20.2 million in exited lines was due to (i) losses previously subject to the LPT from accident years 2018 and prior, and (ii) increased frequency and severity in general and professional liability lines from accident years 2019 through 2021.

Adverse development of $ 13.0 million in multi-line solutions was driven by an increase in the frequency and severity of claims in commercial auto and general liability from accident years 2018 through 2021.

Short Duration Contract Disclosures

4 unchanged sentences

reserve for loss and loss adjustment expenses).

Short Tail/Monoline Specialty

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reserves for Losses and Loss Adjustment Expenses (continued)

Short-tail/Monoline Specialty Lines

($ in thousands except number of claims)

Incurred Losses and LAE, Net of Reinsurance As of December 31, 2023

Incurred Losses and Allocated Loss Adjustment Expense (“ALAE”), Net of Reinsurance As of December 31, 2024

Years Ended December 31,

Reported Claims

Accident Year 2019* 2020* 2021* 2022* 2023 IBNR

Accident Year 2020*

2020 $ 56,141 $ 55,324 $ 55,420 $ 55,305 $ 55,305 $ 1,147 1,311

4 unchanged sentences

Total $ 723,546

Cumulative net paid loss and LAE from the table below ( 283,284 )

Net reserves for loss and LAE before 2019 17,964

Total net reserves for loss and LAE $ 276,704

Cumulative net paid loss and ALAE from the table below ( 359,673 )

Net reserves for loss and ALAE before 2020 3,353

Total net reserves for loss and ALAE $ 367,226

*Supplementary information and unaudited

($ in thousands)

Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands)

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)

Years Ended December 31,

6 unchanged sentences

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Multi-line Solutions

($ in thousands except number of claims)

Incurred Losses and LAE, Net of Reinsurance ($ in thousands) As of December 31, 2023

Incurred Losses and ALAE, Net of Reinsurance ($ in thousands) As of December 31, 2024

Year Years Ended December 31, Reported Claims

2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023 IBNR

2015 $ 103,191 $ 114,266 $ 117,024 $ 117,024 $ 119,216 $ 114,863 $ 115,863 $ 116,413 $ 116,413 $ 117,955 $ ( 834 ) 5,386

9 unchanged sentences

Total $ 1,671,247

Cumulative net paid loss and LAE from the table below ( 994,414 )

Net reserves for loss and LAE before 2014 ( 2,346 )

Total net reserves for loss and LAE $ 463,146

Cumulative net paid loss and ALAE from the table below ( 1,038,650 )

Net reserves for loss and ALAE before 2015 ( 1,532 )

Total net reserves for loss and ALAE $ 631,065

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reserves for Losses and Loss Adjustment Expenses (continued)

($ in thousands)

Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands)

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)

Years Ended December 31,

Year 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023

2015 $ 44,152 $ 72,137 $ 88,833 $ 99,401 $ 108,291 $ 107,214 $ 109,622 $ 109,706 $ 113,703 $ 115,116

9 unchanged sentences

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exited Lines — all lines in runoff

($ in thousands except number of claims)

Incurred Losses and LAE, Net of Reinsurance ($ in thousands) As of December 31, 2023

Incurred Losses and ALAE, Net of Reinsurance ($ in thousands) As of December 31, 2024

Years Ended December 31, Reported Claims

Year 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023 IBNR

2015 $ 61,810 $ 65,063 $ 68,008 $ 70,803 $ 75,187 $ 79,853 $ 79,853 $ 80,603 $ 80,603 $ 82,092 $ 1,145 4,581

6 unchanged sentences

2022 12,717 12,240 11,800 902 234

2022 35,834 45,111 12,913 215

2023 2,930 8,478 31

Total $ 669,249

Cumulative net paid loss and LAE from the table below ( 637,997 )

Net reserves for loss and LAE before 2014 4,440

Total net reserves for loss and LAE $ 119,167

Cumulative net paid loss and ALAE from the table below ( 597,904 )

Net reserves for loss and ALAE before 2015 15,344

Total net reserves for loss and ALAE $ 86,689

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reserves for Losses and Loss Adjustment Expenses (continued)

($ in thousands)

Cumulative Paid Losses and LAE, Net of Reinsurance ($ in thousands)

Cumulative Paid Losses and ALAE, Net of Reinsurance ($ in thousands)

Years Ended December 31,

Year 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023

2015 $ 9,026 $ 41,653 $ 55,610 $ 65,269 $ 73,100 $ 78,249 $ 80,077 $ 80,923 $ 82,188 $ 83,290

6 unchanged sentences

2022 2,155 4,077 9,211

2022 19,676 22,208

Total $ 597,904

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the reconciliation of the net incurred and paid loss development tables to the balance sheet reserves for losses and loss adjustment expenses at December 31, 2024 and 2023:

($ in thousands) 2024 2023

Net reserves for losses and LAE:

Short Tail/Monoline Specialty $ 276,704

Net reserves for losses and ALAE:

Short-tail/Monoline Specialty Lines $ 367,226 $ 235,191

Multi-line Solutions 631,065 485,099

Exited Lines 86,689 112,607

Reserves for losses and LAE, net of reinsurance 859,017

Reserves for losses and ALAE, net of reinsurance 1,084,980 832,897

Reinsurance recoverable on unpaid claims:

Short Tail/Monoline Specialty 199,044

Short-tail/Monoline Specialty Lines 275,204 199,044

Multi-line Solutions 380,344 252,146

1 unchanged sentence

Total reinsurance recoverable on unpaid claims 670,846 455,484

Unallocated LAE 26,557 26,120

Reserves for losses and LAE at end of year $ 1,782,383 $ 1,314,501

2 unchanged sentences

1* 2* 3* 4* 5* 6* 7* 8* 9* 10*

Short Tail/Monoline Specialty 54.0 % 24.7 % 12.1 % 5.0 % 2.2 % 1.0 % 0.5 % 0.2 % 0.2 % 0.1 %

Short-Tail/Monoline Specialty Lines 21.8 % 37.7 % 10.8 % 9.1 % 10.8 % N/A N/A N/A N/A N/A

Multi-line Solutions 26.0 % 22.0 % 15.0 % 12.4 % 9.9 % 3.7 % 2.4 % 1.3 % 2.0 % 1.2 %

1 unchanged sentence

*Supplementary information and unaudited

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2024, 2023 and 2022:

9 unchanged sentences

Balance at December 31, 2024 1,416

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Underwriting, Acquisition and Insurance Expenses

6 unchanged sentences

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 if reinsurers do not meet their obligations.

The following table sets forth the effects of reinsurance on premiums written and earned for years ended December 31, 2023 and 2022:

($ in thousands) Written Earned Written Earned

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 years ended December 31, 2024, 2023 and 2022:

2024 2023 2022

($ in thousands) Written Earned Written Earned Written Earned

Direct premiums $ 1,458,637 $ 1,375,917 $ 1,241,180 $ 1,155,835 $ 1,012,239 $ 951,121

3 unchanged sentences

Ceded losses and LAE incurred $ 534,295 $ 337,011 $ 311,257

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

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reinsurance (continued)

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

($ in thousands) 2024 2023

6 unchanged sentences

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;

the Company does not carry these on the balance sheet as it will only have custody over these accounts upon the failure of the reinsurer to pay amounts due.

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 December 31, 2024, the market value of these accounts was approximately $ 196.9 million.

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

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

During the first quarter of 2020, the Company entered into an LPT retroactive reinsurance agreement.

Under the LPT, the Company received reinsurance protection of approximately $ 127.4 million above the ceded losses and LAE reserves and is subject to co-participations at specified amounts.

During the year ended December 31, 2022, the Company strengthened reserves for certain divisions covered by the LPT by $ 14.4 million, resulting in an increase in the amount ceded under this agreement.

The increase in the amount ceded during the year ended December 31, 2022 were partially offset by $ 5.8 million of recognized gain.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the impact of the LPT on the consolidated statements of operations for the years ended December 31, 2023 and 2022:

($ in thousands) 2023 2022

Strengthening of reserves subject to the LPT $ — $ ( 14,385 )

Reinsurance recoveries under the LPT 1,427 5,813

Pretax net impact of the LPT $ 1,427 $ ( 8,572 )

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

During the first quarter of 2020, the Company entered into an LPT retroactive reinsurance agreement (“LPT”) with R&Q.

At December 31, 2024 and 2023 the reinsurance recoverable from R&Q was $ 22.7 million and $ 20.9 million, respectively.

The LPT was commuted effective January 31, 2025 and the Company received the reinsurance recoverable balance in full.

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 was included in other assets on the consolidated balance sheets.

The Company’s deposit assets as of December 31, 2023 and 2022 were $ 29.9 million and $ 41.8 million, respectively.

The Company’s deposit asset at December 31, 2024 and December 31, 2023 was $ 25.9 million and $ 29.9 million, respectively, and was included in other assets on the consolidated balance sheets.

Stock Based Compensation

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

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

The 2022 Plan stated that 3,200,656 shares of common stock were available for issuance.

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

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

The Compensation Committee granted 1,101,856 and 198,842 shares of restricted stock and restricted stock units during the years ended December 31, 2023 and 2022, under the 2022 Plan and 2021 Plan, respectively.

Members of the Board of Directors were granted 23,482 and 15,196 shares of restricted stock during the years ended December 31, 2023 and 2022, respectively, with a service period of one year .

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

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

The expense for these equity-based incentives is based on their fair value at the date of grant and amortized over their vesting period.

The Compensation Committee granted 759,990 stock options during the year ended December 31, 2023.

The grant date fair value of the options under the 2022 Plan was determined using the Black-Scholes model where the term was the contractual term of 10 years less the weighted average service period.

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

The restricted stock and restricted stock units granted to employees and the Board of Directors during the years ended December 31, 2023 and 2022 were valued at approximately $ 17.7 million and $ 2.6 million, respectively, based on the grant date fair value.

The stock options granted to employees during the year ended December 31, 2023 were valued at approximately $ 4.4 million based on the grant date fair value.

In November 2024, the Compensation Committee approved a program to permit the Company’s Board of Directors to defer receipt of their annual restricted stock units awards to the fifth anniversary of the grant date, the tenth anniversary of the grant date, or the date of separation of service from the Company.

This program will become available for the Directors who opt into the provisions for their 2025 grant.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation (continued)

The following table sets forth the Company’s equity awards, target payout ranges and authorized target restricted stock and stock units for the years ended December 31, 2024, 2023 and 2022:

Payout Range Requisite

Service Period Authorized Target

Common Shares

Award Payout Range Requisite

Service Period Target

Stock and Stock Units

Year ended December 31, 2024

3 unchanged sentences

3 years 76,881

Service condition awards N/A 1 to 4 years

Stock options N/A 3 to 4 years

Service condition awards N/A 1 – 4 years

Year ended December 31, 2023

3 unchanged sentences

3 years 95,456

Restricted stock unit awards N/A 1 to 3 years

The following table sets forth option activity for the year ended December 31, 2023 :

Service condition awards N/A 1 – 4 years

Stock options N/A 3 – 4 years

Year ended December 31, 2022

Market condition awards 0 %– 150 %

3 years 28,495

Performance condition awards 0 %– 150 %

3 years 26,210

Service condition awards N/A 1 – 3 years

Stock options

The grant date fair value of the options under the 2022 Plan was determined using the Black-Scholes model where the term was the contractual term of 10 years less the weighted average service period.

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

The stock options granted to employees during the year ended December 31, 2023 were valued at approximately $ 4.4 million based on the grant date fair value.

The following tables sets forth option activity for the years ended December 31, 2024 and 2023:

Weighted-Average

1 unchanged sentence

Outstanding at January 1, 2024 759,990

Outstanding at December 31, 2024 759,990

Weighted-Average

Exercise Price Stock

Outstanding at January 1, 2023 —

Granted $ 15.00 759,990

1 unchanged sentence

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

The aggregate intrinsic value of options outstanding at December 31, 2023 was $ 14.3 million.

The aggregate intrinsic value of options outstanding at December 31, 2024 and 2023 was $ 27.0 million and $ 14.3 million, respectively.

The weighted-average remaining contractual life of the options outstanding at December 31, 2024 was 8.0 years.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation (continued)

Restricted stock awards and restricted stock units

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

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

The expense for these equity-based incentives is based on their fair value at the date of grant and amortized over their vesting period.

The restricted stock and restricted stock units granted to employees and the Board of Directors during the years ended December 31, 2024, 2023 and 2022 were valued at approximately $ 8.5 million, $ 17.7 million and $ 2.6 million respectively, based on the grant date fair value.

The following table sets forth the Company’s restricted stock and restricted stock units activity for the years ended December 31, 2024, 2023 and 2022:

2 unchanged sentences

Non-vested at January 1, 2024 $ 15.13 1,445,449

Granted 16.07 1,101,856

31.72 268,631

Vested 13.16 ( 285,957 )

Forfeited (2)

18.27 ( 102,640 )

Non-vested at December 31, 2024 $ 19.06 1,325,483

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

Granted 14.17 198,842

16.07 1,101,856

Vested 13.39 ( 40,645 )

Forfeited (2)

15.29 ( 35,658 )

Non-vested at December 31, 2023 $ 15.13 1,445,449

The total fair value of shares vested at December 31, 2023 and 2022 were $ 0.5 million and $ 2.2 million, respectively.

As of December 31, 2023 the total unrecognized compensation cost related to non-vested, share-based compensation awards was $ 15.9 million and the weighted average period over which that cost is expected to be recognized is 1.5 years.

The Company recognized $ 8.5 million and $ 2.3 million of stock-based compensation expense for the years ended December 31, 2023 and 2022, respectively.

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

14.17 198,842

Vested 15.16 ( 144,042 )

Forfeited (2)

12.51 ( 10,547 )

Non-vested at December 31, 2022 $ 12.55 419,896

(1) Increases above the 100% target level are reflected as granted in the period after which performance-based stock unit goals are achieved.

(2) Decreases below the 100% target level are reflected as forfeited.

Members of the Board of Directors were granted 19,453 , 23,482 and 15,196 shares of restricted stock and restricted stock units during the years ended December 31, 2024, 2023 and 2022, respectively, with a service period of one year .

The total fair value of shares vested for employees and members of the Board of Directors at December 31, 2024, 2023 and 2022 was $ 3.8 million, $ 0.5 million and $ 2.2 million, respectively.

As of December 31, 2024 the total unrecognized compensation cost related to non-vested, stock-based compensation awards was $ 13.9 million and the weighted average period over which that cost is expected to be recognized is 1.4 years.

For the years ended December 31, 2024, 2023 and 2022 the Company recognized $ 9.4 million, $ 8.5 million and $ 2.3 million, respectively, of stock-based compensation expense.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation (continued)

Employee Stock Purchase Plan

1 unchanged sentence

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

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

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

The company has reserved 376,548 common shares under this plan.

2 unchanged sentences

As of December 31, 2024, a total of 95,266 shares had been purchased under this plan.

The Company recognized $ 0.2 million of expense for the year ended December 31, 2023.

The Company recognized $ 0.5 million and $ 0.2 million of expense during the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, the fair value of unrecognized expense was $ 0.3 million.

Stock Notes Receivable

The Company previously granted common stock to its employees and non-employee directors under the Stock Purchase Program and Equity Incentive Program (the “Legacy Programs”).

The Legacy Programs required that employees who receive an award purchase a certain amount of stock, which the Company then matched.

The matching share awards were subject to certain vesting requirements.

For the purchased portion of the participant’s stock, the participant was required to make a minimum payment toward the purchase commitment, with the remainder of the balance issued as a note receivable to the Company and recorded as a stock notes receivable within stockholders’ equity.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

3 unchanged sentences

Undistributed income allocated to participating securities — ( 1,677 ) ( 18,879 )

Net income attributable to common shareholders (numerator for basic earnings per share) 84,307 20,517

Net income attributable to common stockholders (numerator for basic earnings per share) 118,828 84,307 20,517

Undistributed income allocated to participating securities — 1,677 18,879

3 unchanged sentences

Dilutive effect of stock notes — 696,110 519,080

Dilutive effect of awarded stock units 736,837 320,188

Dilutive effect of awarded options 135,972 —

Dilutive effect of stock units 917,510 736,837 320,188

Dilutive effect of options 403,475 135,972 —

Diluted weighted-average common share equivalents 41,377,460 38,317,534 32,653,194

1 unchanged sentence

Diluted earnings per share $ 2.87 $ 2.24 $ 1.21

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.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share (continued)

The following table presents anti-dilutive instruments that were excluded from the calculation of diluted weighted-average common share equivalents during the years ended December 31, 2024, 2023 and 2022:

2024 2023 2022

Stock Notes — — 60,576

Awarded stock units 3,931 —

Awarded options 914 —

The following table presents common share equivalents of contingently issuable instruments that were excluded from basic earnings per share in shares for the years ended December 31, 2023 and 2022:

Stock units 20,346 3,931 —

Options 859 914 —

The following table presents common share equivalents of contingently issuable instruments that were excluded from basic earnings per share in the years ended December 31, 2024, 2023 and 2022:

2024 2023 2022

Common shares — 920,864 22,919

1 unchanged sentence

Total — 920,864 1,082,521

Employee Benefit Plans

Employee Benefit Plan

The Company sponsors the 401(k) Plan (the “Plan”).

1 unchanged sentence

The Company matches employee contributions on a discretionary basis.

During the years ended December 31, 2023 and 2022, the Company contributed $ 2.9 million and $ 2.4 million in matching contributions to the Plan, respectively.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2024, 2023 and 2022, the Company contributed $ 3.2 million,$ 2.9 million, and $ 2.4 million in matching contributions to the Plan, respectively.

Related Party Transactions

In 2014 and continuing through 2015, Westaim HIIG LP acquired a majority of the Company’s common stock.

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

As of December 31, 2023, Westaim owned 17.5 % of the Company’s common stock.

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

The changes in Westaim HIIG LP’s ownership percentage were primarily due to equity offerings, conversion of preferred common stock, and distribution of shares controlled by Westaim through a limited partnership.

In 2015, the Company purchased 3,076,924 shares of Westaim common stock for $ 8.4 million.

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

The Company had an unrealized gain on this investment of $ 0.5 million at December 31, 2023, and an unrealized loss of $ 2.3 million at December 31, 2022.

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

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

RISCOM provides the Company with wholesale brokerage services.

1 unchanged sentence

The Company holds a 20 % ownership interest in RISCOM.

Net earned premium and gross written commissions related to these agreements for the years ended December 31, 2023 and 2022 is summarized as follows:

Net earned premium and gross commission expense related to these agreements for the years ended December 31, 2024, 2023 and 2022 were as follows:

($ in thousands) 2024 2023 2022

Net earned premium $ 108,130 $ 99,736 $ 91,051

Gross written commissions 24,177 23,472

Premiums receivable from RISCOM as of December 31, 2023 and 2022 were $ 10.6 and $ 9.9 million, respectively.

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

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

During the year ended December 31, 2023, Mt.

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

Reinsurance premiums ceded during the year ended December 31, 2022 related to the agreement was $ 59.6 million.

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

Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the years ended December 31, 2023 and 2022 were $ 3.6 million and $ 3.4 million, respectively.

Commissions 25,372 24,177 23,472

Premiums receivable as of December 31, 2024 and 2023 were $ 12.6 million and $ 10.6 million, respectively.

Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the years ended December 31, 2024, 2023 and 2022 were $ 0.6 million, $ 3.6 million and $ 3.4 million respectively.

See Notes 5, 6 and 10 for investments involving affiliated companies and additional related party transactions.

See Note 11 for related party transactions related to the Company’s common and preferred shares.

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

3 unchanged sentences

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’s management believes the resolution of any such matters will not, individually or in the aggregate, have a

SKYWARD SPECIALTY INSURANCE GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

material adverse effect on the Company’s consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

During the years ended December 31, 2023 and 2022, the Company recorded no provision for various contingencies.

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.

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.

1 unchanged sentence

Certain of these indemnifications have no time limit.

As of December 31, 2023, the Company does not have reason to believe any such significant claims exist.

Contingent Consideration Related to Acquisitions

The Company potentially owes earn-out liabilities to former owners of assets and business acquired.

No earn-out liabilities existed as of December 31, 2023 and 2022.

No earn-out payment was made to former owners during the years ended December 31, 2023 and 2022.

At this time, the Company does not have reason to believe any such significant claims exist.

Statutory Accounting Principles and Regulatory Matters

The following table sets forth statutory net income and statutory capital and surplus for the Company for the years ended and as of December 31, 2023 and 2022:

($ in thousands) 2023 2022

Statutory net income $ 46,884 $ 10,860

Statutory capital and surplus 602,916 408,167

Dividend payments to the Company from HSIC are restricted by Texas state law as to the amount that may be paid without the approval of regulatory authorities.

The maximum amount of dividends which can be paid by HSIC without prior approval is subject to restrictions relating to policyholder surplus, net income, and dividends declared or distributed during the preceding 12 months.

As of December 31, 2023, HSIC is not restricted to paying ordinary dividends.

HSIC did not declare or pay any dividend during the years ended December 31, 2023 and 2022.

The Company’s statutory net income was $ 108.2 million, $ 73.1 million and $ 50.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The Company’s statutory capital and surplus was $ 710.6 million and $ 602.9 million as of December 31, 2024 and 2023, respectively.

Effective December 31, 2024, the Company restacked its insurance company subsidiaries and GMIC became the lead insurance company which resulted in the following changes:

• HSIC became a wholly owned subsidiary of GMIC;

• IIC became a wholly owned subsidiary of HSIC;

• OSIC became a wholly owned subsidiary of IIC.

Dividend payments to the Company from GMIC are restricted by Texas state law as to the amount that may be paid without the approval of regulatory authorities.

The maximum amount of dividends which can be paid by GMIC without prior approval is subject to restrictions relating to policyholder surplus, net income, and dividends declared or distributed during the preceding 12 months.

As of December 31, 2024, GMIC is not restricted to paying ordinary dividends.

GMIC did not declare or pay any dividend during the year ended December 31, 2024 and HSIC did not declare or pay any dividends during the year ended December 31, 2023.

Property and casualty insurance companies are subject to certain Risk Based Capital (“RBC”) requirements as specified by the National Association of Insurance Commissioners (“NAIC”).

Under those requirements, the amount of capital and surplus maintained by a property and casualty insurance company is to be determined based on the various risk factors related to it.

As of December 31, 2023 and 2022, HSIC’s statutory capital and surplus substantially exceeded the regulatory requirements.

As of December 31, 2024 GMIC’s statutory capital and surplus substantially exceeded the regulatory requirements and as of December 31 2023, HSIC’s statutory capital and surplus substantially exceeded the regulatory requirements.

Subsequent Events

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

The Company drew $ 50.0 million on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption.

After the draw, the Company had $ 100.0 million outstanding under the Revolving Credit Facility with another $ 50.0 million of undrawn capacity.

On January 31, 2025, Skyward Re commuted its existing Loss Portfolio Transfer and Adverse Development and Retrocession Agreement, dated April 1, 2020 with R&Q pursuant to a Commutation Agreement and received $ 11.7 million in cash.

At December 31, 2024, the Company (i) strengthened LPT loss reserves and increased the paid loss reinsurance recoverable by $ 25.3 million, (ii) increased the allowance for estimated uncollectible reinsurance by $ 13.6 million which was subsequently written-off during the year ended December 31, 2024, and (iii) recognized a deferred gain of $ 2.0 million.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

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-K

Item 8. Financial Statements and Supplementary Data