What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-07 · 101 added, 60 removed, 257 unchanged (39% of the section changed)

2 unchanged sentences

and the terms “our Company,” “we,” “us,” and “our” as used below refer to Skyward Specialty Insurance Group and its consolidated subsidiaries.

The term “first quarter” as used below refers to the three months ended March 31 for the time period then ended.

The term “second quarter” as used below refers to the three and six months ended June 30 for the time period then ended.

We discuss certain key metrics which provide useful information about our business and the operational factors underlying our financial performance.

3 unchanged sentences

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2025, or for any other future period.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2025, or for any other future period.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our 2024 Form 10-K.

13 unchanged sentences

Results of Operations

The following table summarizes our results for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following table summarizes our results for the three and six months ended June 30, 2025 and 2024:

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

($ in thousands) 2025 2024 2025 2024

9 unchanged sentences

Net investment income $ 18,589 $ 22,034 $ 37,927 $ 40,331

Net investment gains $ 6,841 $ 8,303

Net investment gains (losses) $ 3,205 $ (1,721) $ 10,039 $ 6,582

Income before income taxes $ 49,795 $ 40,355 $ 101,230 $ 87,332

15 unchanged sentences

Adjusted Operating Income

The following table provides a reconciliation of adjusted operating income to net income for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

($ in thousands) Pre-tax After-tax Pre-tax After-tax

The following table provides a reconciliation of adjusted operating income to net income for the three and six months ended June 30, 2025 and 2024:

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

2025 2024 2025 2024

($ in thousands) Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax

Income as reported $ 49,795 $ 38,839 $ 40,355 $ 30,970 $ 101,230 $ 80,897 $ 87,332 $ 67,754

5 unchanged sentences

Underwriting Income

The following table provides a reconciliation of underwriting income to income before federal income tax expense for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following table provides a reconciliation of underwriting income to income before federal income tax expense for the three and six months ended June 30, 2025 and 2024:

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

($ in thousands) 2025 2024 2025 2024

8 unchanged sentences

Tangible Stockholders’ Equity

The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the periods ended March 31, 2025 and 2024:

Three months ended March 31,

The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the periods ended June 30, 2025 and 2024:

($ in thousands) 2025 2024

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Annualized Adjusted Return on Equity

The following table provides a reconciliation of annualized adjusted return on equity to annualized return on equity for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following table provides a reconciliation of annualized adjusted return on equity to annualized return on equity for the three and six months ended June 30, 2025 and 2024:

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

($ in thousands) 2025 2024 2025 2024

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Annualized Return on Tangible Equity

Annualized return on tangible equity for the three months ended March 31, 2025 and 2024 reconciles to annualized return on equity as follows:

Three months ended March 31,

Annualized return on tangible equity for the three and six months ended June 30, 2025 and 2024 reconciles to annualized return on equity as follows:

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

($ in thousands) 2025 2024 2025 2024

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Annualized Adjusted Return on Tangible Equity

Annualized adjusted return on tangible equity for the three months ended March 31, 2025 and 2024 reconciles to annualized return on equity as follows:

Three months ended March 31,

Annualized adjusted return on tangible equity for the three and six months ended June 30, 2025 and 2024 reconciles to annualized return on equity as follows:

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

($ in thousands) 2025 2024 2025 2024

4 unchanged sentences

Underwriting Results

The following tables present gross written premiums by underwriting division for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following tables present gross written premiums by underwriting division for the three and six months ended June 30, 2025 and 2024:

Three months ended June 30,

($ in thousands) 2025 2024 Change % Change

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(1) Excludes exited business

The increase in gross written premiums for the first quarter of 2025, when compared to the same 2024 period, was driven by double-digit premium growth primarily from the agriculture and credit (re)insurance, accident & health and specialty programs divisions, partially offset by a decrease in gross written premiums in the global property division.

Net written premiums for the first quarter of 2025 were $343.3 million, an increase of $56.2 million or 19.6%, when compared to $287.1 million for the same 2024 period.

The increase in net written premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.

Net earned premiums for the first quarter of 2025 were $300.4 million, an increase of $64.1 million or 27.1% when compared to $236.3 million for the same 2024 period.

The increase in net earned premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.

Six months ended June 30,

($ in thousands) 2025 2024 Change % Change

Accident & Health $ 123,658 $ 84,989 $ 38,669 45.5 %

Agriculture and Credit (Re)insurance 159,420 79,913 79,507 99.5 %

Captives 145,362 130,507 14,855 11.4 %

Construction & Energy Solutions 149,184 152,436 (3,252) (2.1 %)

Global Property 130,678 145,543 (14,865) (10.2 %)

Professional Lines 79,313 80,345 (1,032) (1.3 %)

Specialty Programs 148,630 111,822 36,808 32.9 %

Surety 78,535 71,484 7,051 9.9 %

Transactional E&S 105,467 97,841 7,626 7.8 %

Total gross written premiums (1)

$ 1,120,247 $ 954,880 $ 165,367 17.3 %

(1) Excludes exited business

The increases in gross written premiums for the second quarter and first half of 2025, when compared to the same 2024 periods, were driven by double-digit premium growth primarily from the agriculture and credit (re)insurance, accident & health, specialty programs and captives divisions, partially offset by decreases in gross written premiums in the global property and construction & energy solutions divisions.

Net written premiums for the second quarter of 2025 were $339.2 million compared to $297.1 million for the same 2024 period, an increase of $42.1 million or 14.2%.

Net written premiums for the first half of 2025 were $682.5 million

compared to $584.2 million for the same 2024 period, an increase of $98.3 million or 16.8%.

The increases in net written premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.

Net earned premiums for the second quarter of 2025 were $295.5 million compared to $257.6 million for the same 2024 period, an increase of $37.9 million or 14.7%.

Net earned premiums for the first half of 2025 were $595.9 million compared to $493.9 million for the same 2024 period, an increase of $102.0 million or 20.6%.

The increases in net earned premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.

For additional information regarding our reinsurance programs, see the “Reinsurance” discussion included in this Item 2 .

Losses and LAE

The following tables set forth the components of the loss and LAE ratios and adjusted loss and LAE ratios for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following tables set forth the components of the loss and LAE ratios and adjusted loss and LAE ratios for the three and six months ended June 30, 2025 and 2024:

Three months ended June 30,

($ in thousands) Losses

8 unchanged sentences

(1) Current accident year

The loss ratio for the first quarter of 2025 increased 1.5 points when compared to the same 2024 period, due to higher catastrophe losses, primarily from convective storms in the Midwest and the California wildfires.

The improvement in the non-catastrophe loss and LAE ratio for the first quarter of 2025 when compared to the same 2024 period, was driven by the business mix shift.

Six months ended June 30,

($ in thousands) Losses

Losses and LAE:

Non-cat loss and LAE

$ 358,071 60.1 % $ 299,450 60.6 %

Cat loss and LAE (1)

10,500 1.8 % 4,000 0.8 %

Prior accident year development - LPT

— — % (482) (0.1)%

Total losses and LAE $ 368,571 61.9 % $ 302,968 61.3 %

(1) Current accident year

The loss ratio for the second quarter improved 0.4 points and it increased 0.6 points for the first half of 2025, when compared to the same 2024 periods, respectively.

Catastrophe losses in the second quarter increased marginally when compared to the same 2024 period, driven by convective storms in the South and Midwest.

The first half of 2025 was also impacted by convective storms in the Midwest and the California wildfires.

The non-cat loss and LAE ratios for the second quarter and first half of 2025 improved 0.7 points and 0.5 points, respectively, when compared to the same 2024 periods, primarily driven by the business mix shift.

Expense Ratio

The following tables set forth the components of the expense ratios for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following tables set forth the components of the expense ratios for the three and six months ended June 30, 2025 and 2024:

Three months ended June 30,

($ in thousands) Expenses % of

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Total net expenses $ 83,036 28.1 % $ 74,626 29.0 %

The expense ratio for the first quarter improved 0.6 points when compared to the same 2024 period primarily due to earnings leverage partially offset by higher acquisition costs due to the business mix shift.

The expense ratios for the first quarters of 2025 and 2024 exclude the impact of IPO related stock compensation and secondary offering expenses, which are reported in other expenses in our condensed consolidated statements of operations and comprehensive income.

Six months ended June 30,

($ in thousands) Expenses % of

Net Earned Premiums Expenses % of

Net Earned Premiums

Net policy acquisition expenses $ 89,126 15.0 % $ 67,908 13.7 %

Other operating and general expenses 83,021 13.9 % 78,545 15.9 %

Underwriting, acquisition and insurance expenses 172,147 28.9 % 146,453 29.6 %

commission and fee income (4,536) (0.8 %) (4,079) (0.8 %)

Total net expenses $ 167,611 28.1 % $ 142,374 28.8 %

The expense ratios for the second quarter and first half of 2025 improved 0.9 points and 0.7 points, respectively, when compared to the same 2024 periods due to earnings leverage partially offset by higher acquisition costs due to the business mix shift.

The expense ratios for all periods presented exclude the impact of IPO related stock compensation and secondary offering expenses, which are reported in other expenses in our condensed consolidated statements of operations and comprehensive income.

Investment Results

The following table sets forth the components of net investment income and net investment gains (losses) for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following table sets forth the components of net investment income and net investment gains (losses) for the three and six months ended June 30, 2025 and 2024:

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

$ in thousands 2025 2024 2025 2024

4 unchanged sentences

Net investment income $ 18,589 $ 22,034 $ 37,927 $ 40,331

Net unrealized gains on securities still held

Net unrealized gains (losses) on securities still held

$ (3,181) $ (1,760) $ 2,310 $ 7,231

Net realized gains (losses) 6,386 (39) 7,729 (649)

Net investment gains $ 6,841 $ 8,303

Net investment income for the first quarter of 2025 increased $1.0 million when compared to the same 2024 period.

The increase in income from our fixed income portfolio for the first quarter of 2025, when compared to the same 2024 period, was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) a higher book yield of 5.2% at March 31, 2025 compared to 4.7% at March 31, 2024.

The decrease in income from short-term investments for the first quarter of 2025 when compared to the same 2024 period, was due to a lower book yield.

The losses from alternative and strategic investments for the first quarter of 2025 was driven by the decline in the fair value of limited partnership investments.

Net investment gains (losses) $ 3,205 $ (1,721) $ 10,039 $ 6,582

Net investment income for the second quarter and first half of 2025 decreased $3.4 million and $2.4 million, respectively when compared to the same 2024 periods.

The decreases in net investment income were primarily driven by losses from our alternative & strategic investments portfolio due to the decline in the fair value of limited partnership investments.

Partially offsetting the decreases in net investment income were increases in income from our fixed income

portfolio for the second quarter and first half of 2025, when compared to the same 2024 periods, due to (i) a larger asset base, and (ii) a higher book yield of 5.3% at June 30, 2025 compared to 4.4% at June 30, 2024.

When a fixed maturity has been determined to have an impairment, the impairment charge is separated into an amount representing the credit loss, which is recognized in earnings as a realized loss and on the balance sheet as an allowance for credit losses netted with the amortized cost of fixed maturities.

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The amount related to non-credit factors is recognized in accumulated other comprehensive income and future increases or decreases in fair value, if not credit losses, are included in accumulated other comprehensive (loss) income.

We reviewed our available-for-sale fixed maturities at March 31, 2025 and determined that no credit impairment existed in the gross unrealized holding losses.

We reviewed our available-for-sale fixed maturities at June 30, 2025 and determined that for two available-for-sale securities in the “corporate securities and miscellaneous” category, and recognized a provision for credit losses of $6.2 million.

This determination was made based on new recovery analysis that showed deteriorating conditions raising credit concerns.

Other than the securities discussed previously, we determined that no other credit impairment existed.

See Note 2, “Investments” to our condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional information.

Composition of Investment Portfolio

The following table sets forth the components of our investment portfolio at carrying value at March 31, 2025 and December 31, 2024:

The following table sets forth the components of our investment portfolio at carrying value at June 30, 2025 and December 31, 2024:

($ in thousands) Carrying Value

7 unchanged sentences

Our fixed income portfolio primarily consists of investment grade fixed income securities, which are predominantly highly-rated and liquid bonds, and commercial mortgage loans.

The following table sets forth the components of our fixed income securities at March 31, 2025 and December 31, 2024:

The following table sets forth the components of our fixed income securities at June 30, 2025 and December 31, 2024:

($ in thousands) Carrying Value % of Total

9 unchanged sentences

Total fixed income portfolio $ 1,639,632 100.0 % $ 1,318,708 100.0 %

The weighted average credit rating of our available-for-sale fixed income portfolio was “A+” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at March 31, 2025 and “AA-” at December 31, 2024.

The following table sets forth the credit quality of our available-for-sale fixed income portfolio at March 31, 2025 and December 31, 2024, as rated by Standard & Poor’s or equivalent designation:

The weighted average credit rating of our available-for-sale fixed income portfolio was “A+” at June 30, 2025 and “AA-” at December 31, 2024.

The following table sets forth the credit quality of our available-for-sale fixed income portfolio at June 30, 2025 and December 31, 2024:

($ in thousands) Fair Value % of Total Fair Value % of Total

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Our commercial mortgage loans are primarily senior loans on real estate across the U.S.

The average duration of our fixed income portfolio was approximately 4.29 years and 4.34 years, respectively, as of March 31, 2025 and December 31, 2024.

The average duration of our fixed income portfolio was approximately 4.35 years and 4.34 years, respectively, as of June 30, 2025 and December 31, 2024.

The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations and other types of equity interests, 100.0% of which are publicly traded.

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Strategic investments consists of equity interests in private entities within the insurance industry.

Income tax expense for the three months ended March 31, 2025 was $9.4 million compared to $10.2 million for the same 2024 period.

Our effective tax rate for the three months ended March 31, 2025 was 18.2%, compared to 21.7% for the same 2024 period.

The effective tax rate for the three months ended March 31, 2025 was impacted by certain discrete tax items, primarily tax benefits from stock-based compensation, which reduced the effective tax rate by 3.9%.

additional information, see Note 7 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.

Income tax expense for the three and six months ended June 30, 2025 was $11.0 million and $20.3 million, respectively, compared to $9.4 million and $19.6 million, respectively, for the same 2024 periods.

Our effective tax rates for the three and six months ended June 30, 2025 were 22.0% and 20.1%, respectively, compared to 23.3% and 22.4% for the same 2024 periods, respectively.

The effective tax rate for the six months ended June 30, 2025 was impacted by certain discrete tax items, primarily tax benefits from stock-based compensation, which reduced the effective tax rate by 1.7%.

For additional information, see Note 7 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.

Liquidity and Capital Resources

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Management believes that cash receipts from premiums and proceeds from investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the three months ended March 31, 2025 and 2024:

Our cash flows for the six months ended June 30, 2025 and 2024:

($ in thousands) 2025 2024

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Cash flows from operations in each of the past two years were used primarily to fund investing activities.

Net cash used in investing activities in 2025 and 2024 were primarily driven by purchases of fixed maturity securities and short-term investments.

Net cash used in investing activities in 2025 and 2024 were primarily driven by purchases of fixed maturity securities.

Net cash used in financing activities in 2024 was driven by net payments on debt.

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On August 30, 2024, we fully redeemed the March 15, 2024 draw on the Revolving Credit Facility and redeemed $7.0 million of the March 29, 2023 draw on the Revolving Credit Facility.

As of March 31, 2025, we had $43.0 million outstanding under the Revolving Credit Facility with another $107.0 million of undrawn capacity.

As of June 30, 2025, we had $43.0 million outstanding under the Revolving Credit Facility with another $107.0 million of undrawn capacity.

Interest on the Revolving Credit Facility is payable quarterly.

The interest rate on the Revolving Credit Facility is the 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 March 31, 2025, the six-month SOFR on the Revolving Credit Facility was 4.22%, plus a margin of 1.60%.

At June 30, 2025, the six-month SOFR on the Revolving Credit Facility was 4.22%, plus a margin of 1.60%.

We are 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 March 31, 2025, we are in compliance with all covenants.

As of June 30, 2025, we are in compliance with all covenants.

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

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Principal payment is due at maturity on May 24, 2039 and interest is payable quarterly.

At March 31, 2025 the ratio of total debt outstanding, including the FHLB Loan, the Revolving Credit Facility and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 12.3% and at December 31, 2024, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 13.1%.

At June 30, 2025 the ratio of total debt outstanding, including the FHLB Loan, the Revolving Credit Facility and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 11.7% and at December 31, 2024, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 13.1%.

Share Repurchase Program

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The share repurchase program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time.

As of March 31, 2025, no shares had been repurchased under this plan.

As of June 30, 2025, no shares had been repurchased under this plan.

We strategically purchase reinsurance from third parties which enhances our business by protecting capital from severity events (either large single event losses or catastrophes) and reducing volatility in our earnings.

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It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.

For the three months ended March 31, 2025 our net retention on a written basis (calculated as net written premiums as a percentage of gross written premiums) was 64.1%, compared to 62.6% for the same 2024 period.

The following is a summary of our reinsurance programs as of March 31, 2025:

For the three and six months ended June 30, 2025 our net retention on a written basis (calculated as net written premiums as a percentage of gross written premiums) was 58.0% and 60.9%, respectively, compared to 59.9% and 61.2%, respectively, for the same 2024 period.

The following is a summary of our reinsurance programs as of June 30, 2025:

Line of Business Maximum Company Retention

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis