Earnings call transcript: Skyward Specialty Insurance Q2 2025 sees record underwriting

Skyward Specialty Insurance Group Inc reported robust financial performance in its Q2 2025 earnings call, highlighted by record underwriting income and strategic growth across niche markets. The company’s stock rose by 2.97% to $49.14, reflecting positive investor sentiment. According to InvestingPro data, the company maintains a "GREAT" financial health score of 3.46, with the stock trading near its 52-week range of $41.28 to $65.05. The company’s market capitalization stands at approximately $2 billion. Key financial metrics, such as net income and adjusted operating income, showcased strong year-over-year growth, reinforcing Skyward’s competitive position in the insurance sector.

Key Takeaways

• Record underwriting income and improved expense ratio.
• Gross written premiums increased by 18%.
• Stock price rose by 2.97% in aftermarket trading.
• Continued investment in AI and new product lines.
• Strategic focus on niche market growth.

Company Performance

Skyward Specialty Insurance demonstrated significant growth in Q2 2025, with gross written premiums rising by 18% and net written premiums up by 14%. The company achieved its best-ever underwriting income, driven by a disciplined approach to risk management and a focus on niche markets. Total revenue grew by an impressive 21.67% over the last twelve months, while maintaining a healthy current ratio of 1.68. Skyward’s annualized return on equity reached 19.1%, underscoring its strong financial health. For deeper insights into Skyward’s financial metrics and growth potential, investors can access the comprehensive Pro Research Report available on InvestingPro.

Financial Highlights

• Revenue: Not specified, but gross written premiums grew by 18%.
• Adjusted operating income: $37.1 million ($0.89 per diluted share).
• Net income: $38.8 million ($0.93 per diluted share).
• Combined ratio: 89.4%, a company best.
• Investment income: $18.6 million, impacted by alternative asset portfolio performance.

Outlook & Guidance

Skyward expects continued growth in agriculture, credit, and accident & health (A&H) segments. The company maintains a conservative approach to liability exposure and anticipates potential product innovation in the oil and gas surety market. Future EPS forecasts indicate steady growth, with projections of $0.97 for Q4 2025 and $4.2 for FY2026.

Executive Commentary

CEO Andrew Robinson emphasized the company’s adaptability and strategic focus: "We are built not just for today’s environment, but for all cycles to deliver long-term outperformance." He also highlighted Skyward’s niche strategy as a blueprint for durable top-quartile performance through market cycles.

Risks and Challenges

• Softening conditions in the property market could impact future growth.
• Investment income was reduced due to alternative asset performance.
• Challenging conditions in commercial auto and general liability segments.
• Potential exposure to market fluctuations in niche segments.
• Need to maintain competitive advantage in rapidly evolving markets.

Skyward Specialty Insurance’s Q2 2025 performance reflects a strategic focus on niche markets and innovation, positioning the company for continued success amid evolving market conditions.

Full transcript - Skyward Specialty Insurance Group Inc (SKWD) Q2 2025:

Howard, Conference Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the second quarter 2025 Skyward Specialty Insurance Group earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question, you will need to press Star 11 on your telephone keypad. At this time, I would like to turn the conference over to Natalie Schoolcraft of Investor Relations. Ma’am, please begin.

Natalie Schoolcraft, Investor Relations, Skyward Specialty Insurance Group: Thank you, Howard. Good morning, everyone, and welcome to our second quarter 2025 earnings conference call. Today I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer, Mark Hoeschel. We will begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainties which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release as well as in our 10-K that was previously filed with the Securities and Exchange Commission.

Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules, are included as part of our press release and available on our website under the Investors section. With that, I will turn the call.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Over to Andrew. Thank you, Natalie. Good morning and thank you for joining us. We’re pleased to report another outstanding quarter with adjusted operating income of $37.1 million or $0.89 per diluted share, driven by $31.2 million of pretax underwriting income, our best in company history year to date. Annualized return on equity continues to be excellent at 19.1%. Gross written premiums grew 18% for the quarter and our 89.4% combined ratio, also a company best, are a direct result of our diversified business portfolio and the strong execution of our rule, our niche strategy. We continue to generate profitable growth in areas less exposed to the cycles impacting the broader P&C market.

Our portfolio mix, risk selection and operational agility are allowing us to grow where conditions are attractive and moderate where they are not, all while delivering top quartile returns, maintaining our low volatility and not extending our average liability duration. Our growth this quarter is particularly notable as we pulled back again in global and E&S property in response to increasingly softening conditions and we elected to hold our current liability exposure base roughly flat in spite of an overall positive rate environment simply due to our view that the loss inflation continues to be a serious headwind and we want to be selective in the areas we seek to grow our casualty business. In contrast, our growth in areas including agriculture, credit and A&H demonstrates again that we are exceptionally well positioned to adapt and reallocate capital elsewhere in our portfolio to continue to grow underwriting income.

We are built not just for today’s environment, but for all cycles to deliver long term outperformance. With that, I’ll turn the call over to Mark to discuss our financial results in greater detail. Mark, thank you, Andrew.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: We had another strong quarter reporting adjusted operating income of $37.1 million or $0.89 per diluted share and net income of $38.8 million or $0.93 per diluted share. Gross written premiums grew by 18% for the quarter. Agriculture and credit, accident & health, captives, and specialty programs contributed meaningfully to the growth this quarter. Net written premiums grew by 14% and our net retention through six months of 60.9% was in line with the prior year of 61.2%. Turning to our underwriting results, our second quarter combined ratio was 89.4% and included 11.4 points of cat losses, principally from convective storms in the South and Midwest. The non-cat loss ratio of 59.9% for the quarter improved 0.7 points compared to 2023 and is the best in company history.

While in pockets we observed auto liability and to a lesser extent general liability severity trends, we also have units where auto and GL continue to emerge favorably. It’s for this reason we’re being selective on growing exposure in occurrence liability lines. Our shorter tail lines, including property and surety, continue to emerge favorably as does our professional portfolio. There was no net reserve development this quarter. Our reserve position continues to be strong as IBNR makes up more than 70% of our net reserves, while the duration of our liabilities continues to shorten. In line with our conservative reserving philosophy, we maintained our margin above actuarial indications. The expense ratio of 28.1% improved 0.9 points over the prior year quarter and was in line with our expectations of sub-30s.

The business mix shift continued to impact acquisition costs for the quarter but was offset by two points of improvement over the prior year in our other operating and general expense ratio, which benefited from the scale of our business. Operating income benefited from our company-best underwriting results in the quarter but was impacted by a reduction in investment income to $18.6 million as a result of our alternative asset portfolio. These positions, primarily in private credit, have lagged expectations and this quarter was no exception due to the accounting treatment. We marked the underlying positions to market quarterly and as we have seen, that can and has resulted in some volatility this quarter. Our oil and gas and real estate holdings impacted our net investment income. As we previously discussed, this portfolio is in redemption and on June 30 it comprised less than 5% of our investment portfolio.

Through six months, $30 million of capital was returned and reinvested in our fixed income portfolio excluding alternative investments. Net investment income increased 23.5% over the prior year due to the 30% increase in income from our fixed income portfolio driven by a higher portfolio yield and a significant increase in the invested asset base. In the second quarter we put $170 million to work at just under 6%. Our embedded yield was 5.3% at June 30 versus 4.8% a year ago. Our financial leverage is modest as we finished the quarter just shy of 12% debt to capital ratio and given our undrawn capacity from our revolver and our current leverage, we have ample debt financing flexibility. Lastly, I wanted to make everyone aware that we will be filing an amended 10-K around the same time as we file the second quarter 10-Q.

To be clear, this is administrative and simply adds a standard sentence to E&Y’s unqualified opinion. Now I’ll turn the call back over to Andrew.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thank you, Mark. Our outstanding second quarter performance reflects the strength of our diversified portfolio and our underwriting discipline in light of softening conditions across several lines and our ability to adapt quickly to evolving market conditions. We continue to grow with precision, targeting segments where our expertise, data and technology, and underwriting discipline give us a durable advantage. We are seeing sustained momentum across several key areas of our business, including agriculture, credit, and accident & health (A&H), where our specialized knowledge and capabilities are key differentiators. As a reminder, in agriculture we serve markets that have government-subsidized agriculture programs, and we have constructed a well-diversified global portfolio. In this quarter, we continue to see opportunities in the U.S. dairy and livestock program, and we were able to close several new accounts.

As we have built this portfolio, we have accumulated a depth of knowledge and insight that we believe is distinct. Similarly, we have provided a product to this market that we also believe is unique, and we have now achieved the size to selectively utilize a proprietary hedging strategy to mute the potential volatility. Moreover, we are currently booking this portfolio at the most conservative outcome we can reasonably expect, and we are bullish about the future contribution as we continue to earn in the growth from agriculture. In credit, increased economic uncertainty is reshaping risk profiles, and we continue to experience favorable pricing and conditions. We believe that both the credit and agriculture markets offer opportunities for profitable growth. Our accident & health (A&H) division started the year strong, and the second quarter was a continuation of that trend, principally driven by a group captives for medical stop-loss offering.

Just as a reminder, we are not competing against companies focused on large accounts. Our focus is on smaller accounts, generally with 500 lives or less. That said, the poor performance in the large group market has been a contributor to the improving conditions in the market we serve. In surety, we had moderate growth, largely driven by reduced federal funding, including that flowing to states and unis. We remain bullish in our surety outlook, and we believe we are well positioned to continue to grow this market-leading business in transactional excess & surplus (E&S). As noted in my earlier comments, we shrunk our property book in response to increasingly competitive market conditions, but this was more than offset by the growth in our liability book, and we continue to see selective opportunities to grow in line margin and specialty programs.

Our growth was driven by those program managers where we have an ownership position, which is roughly 70% of our total division. This ownership is a further measure of alignment in addition to the underwriting performance compensation structures we employ when we delegate authority. Two programs added over recent quarters contributed meaningfully to the growth this quarter. Growth in specialty programs will be lumpy, driven principally by program adds. The growth in our captives division is a result of new insureds joining existing captives as these companies seek more control over their risk programs. Our ability to partner on unique solutions opens new capital efficient revenue streams. These are sticky, relationship-driven opportunities that align well with our long-term strategy. Professional lines growth was flat as we continue to experience competition in miscellaneous E&O, and we’ve been very selective in management liability.

We are leaning into opportunities in health care, which is an attractive market and where we are exceptionally well positioned. With an extraordinary team of deeply technical underwriters, we are staying disciplined in global property, given the current market backdrop. Our account retention was in the high 80s as we continue to maintain a cautious, deliberate approach, participating where pricing and terms reflect the true risk and stepping back where they do not. Finally, in construction and energy solutions, these were impacted by further intentional actions in construction, particularly commercial auto, and a selective approach to other casualty. Nonetheless, in energy we are very pleased with the consistent growth and profitability, including in the renewables market. Turning to our operational metrics, renewal pricing was consistent with the prior quarter at mid single-digit pure rate and an encouraging mid-digit exposure growth, both excluding global property.

New business pricing continued to be in line with our in-force book. Retention dipped slightly to the mid-70s for the quarter, driven by business mix and construction as noted earlier. Lastly, we continue to see strong submission growth, which was in the mid teens. This quarter we’ve doubled down on our investment in augmenting the deep expertise of our underwriters and claims professionals with advanced technology, as demonstrated by our award-winning Skyview platform. We believe that we are in a leading position using AI in this regard, particularly in the specialty insurance markets where we compete. We have every business seeking to leverage the powerful advancements we have been implementing in specific units, including accident & health (A&H), Healthcare, Miscellaneous E&O, and Energy.

Given the AI arms race, I believe our early mover advantage will compound and contribute to the competitive moat we’re building around every division and unit in our company. Altogether, we delivered another outstanding quarter, and our results reflect the strength of our strategy, the quality of our execution, and the resilience of our business model. Our deep expertise, disciplined underwriting, and focus on complex underserved markets continues to differentiate us. We are seeing the market shift in real time. Certain areas continue to soften while others remain dislocated and underserved. These are the environments where Skyward Specialty Insurance Group thrives. Our ability to adapt with discipline and precision to grow where conditions support our return thresholds and moderate where they do not is exactly why we built the portfolio we have.

Our rule or niche strategy is not just a tagline, it is a blueprint for durable top quartile performance through the market cycles. We remain committed to this strategy and confident in our ability to execute it. I’d now like to turn the call back over to the operator to open it up for Q&A.

Howard, Conference Operator: Ladies and gentlemen, if you have a question or comment at this time, please press Star 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press Star 11 again. If you have a question or comment at this time, please press Star 11 on your telephone keypad. Please stand by while we compile the Q and A roster. Our first question or comment comes from the line of Greg Peters from Raymond James. Your line is open, sir.

Good afternoon, everyone. Andrew, in your comments you spoke a lot about where you’re seeing growth.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Where you’re pulling back.

Effectively outlining your cycle management strategy. Maybe you could spend some additional time talking to us about these key lines of growth, the ag business, the credit, the captives, and the programs. I think you said that you’re assuming some higher loss picks just on the.

Ag business.

To take out volatility risk. Maybe you can just talk to us about how you’re approaching the reserving side as you grow these businesses.

Yeah, I mean, I think, Greg, thank you for the question. Saying good afternoon, that kind of feels weird because every one of our calls is in the morning. Good afternoon. I think that what I point to you, Greg, is that if you step back over the arc of.

Howard, Conference Operator: Sort.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Over the last five years and particularly during our time as a public company, we have been very consistent in building and launching new businesses, scaling and seeing great outcomes. I don’t think that in any instance we have done anything different with the businesses you just mentioned in terms of reserving philosophy. I think that we take a, you know, overall, of course, as you know, we take a conservative position. I think that our bias towards lines that we believe have volatility will take even a more conservative position in the range in particular as we’re getting going. In this case I just highlight ag because, you know, it’s a line that has a bit of volatility. Our picks reflect sort of the conservative end of that. That’s in addition to some of the things that we’re doing to take the volatility out.

I would also say to you that while we highlighted the growth areas that you just mentioned, there’s no shortage of growth inside of the divisions that maybe as a headline, don’t have growth. My point to what we’re seeing in healthcare solutions or inside of our energy division with renewables, there’s plenty of pockets of growth that just aren’t rising to what we’re drawing out in these calls. I think to your point, cycle management, it’s not just cycle management, it’s also what we’re seeing in terms of loss inflation and we don’t want to lean into exposure growth where we see a very heavy dose of loss inflation. I think all those things contribute and some of that isn’t expressly visible in our comments, but sort of below the division level reporting.

Yeah, that’s good detail. I appreciate that. For my follow up question, I’m going to go to the investment side.

And.

I know in the comments you talked about the alternatives and strategics just representing 5% that’s been in runoff for a while now. I think that percentage of the mix investment sets come down pretty substantially.

But.

As we think about going forward, maybe you could talk about how you’re looking at those results and when you frame out projections, what are you thinking about for that line and for the broader investment income piece?

Great question. Let me just say this. Obviously we’re not happy with results at top to bottom. The growth and underwriting are outstanding, and we have one item where we didn’t meet our own internal expectations, nor your expectations. I think that is a bit of a red herring in terms of the performance of our business. We think it’s just not something that people should get distracted by because we have had volatility. I think that at the point that we took the company public, our alts were north of 20% of our portfolio. We have done everything that we said that we were going to do, which included that every dollar of investing was going to go into our core fixed income. Obviously, we’ve grown our investment base at a faster pace than we thought.

We’ve been helped by a decent yield environment, and we’ve taken the right steps in managing down this portfolio. Mark mentioned in his prepared remarks, $30 million of redemption in the first half of this year. I feel great about what we’ve done. Am I happy with the volatility in this quarter? No, I’m not happy with the volatility in this quarter, but that’s the way business is sometimes. I’m very confident that we have roughly 30 positions remaining in this portfolio. We’re on top of it, and I do suspect that there will be quarters ahead where the volatility will work to our advantage, coming the other way and otherwise. I don’t think there’s really much that we want to say about the alts because it’s not part of our investment strategy going forward. Yeah, fair enough.

Thanks for the color and detail.

Thank you.

Howard, Conference Operator: Thanks, Greg.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Appreciate it, Greg.

Howard, Conference Operator: Thank you. Our next question or comment comes from the line of Michael Zyrimski from BMO Capital Markets. Mr. Zyrimski, your line is open.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Hey.

Howard, Conference Operator: Morning.

Sorry, I made the mistake, too. Good afternoon.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Good afternoon.

Thanks for the comments on the alignment with some of your MGAs that you have ownership stakes in. I guess, yeah, we can see that from the stat disclosure that there’s a number of MGAs that are aligned with Skyward Specialty Insurance Group.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Is that just curious, like if.

Can you shed more light on how those relationships came to be? Is there any further color just so we understand the inner workings of how aligned you are with those MGAs?

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thanks. Yeah, thanks, Mike. One is our longest standing relationship and what I would consider to be, while they’re not formally part of our company, they’re virtually that way where we own a 20% stake and we have refusal rights and so forth. By the way, that one relationship is nearly two thirds of our total premium in that division. They’re compensated effectively the same way we compensate our underwriters, so that’s just sort of good news. The second is a partnership that we launched with an MGA that is growing and developing where we are a direct investor, we have an active role there.

We have special rights that benefit us, and quite honestly, where we outlined our philosophy with them before we entered into that partnership and they viewed the distinctiveness of having that formal commitment from us as being something that was distinctive for them in terms of building their business, that’s turned out to be a win-win. That’s really the principal two sources and nearly all of our new program adds, I think minus one, has come through that partnership. You can describe that how you wish. 15% of our premium falls into the delegated authority, program administrator MGA kind of market, but those relationships are deeply strategic. They’re not transactional, and I think they’re quite different because we, you know, we’re, I think, as appropriately cynical of delegating authority as any excellent underwriting company should be.

I’ve listened to the comments of some of our peers around this and I think we would share all those views. That said, I think we’ve struck the right tone here and relationship with the folks that we do business with.

Okay, that’s great disclosure and color, I guess. Switching gears on the pricing commentary, I believe you gave us pricing excluding property for the first time.

Howard, Conference Operator: Right.

I think we all know property pricing was.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: I just want to make sure when we.

Apples to apples, if we look at your last quarter or previous quarters pricing commentary that didn’t include global property, am I understanding that correctly?

You are, Mike. You’re absolutely correct. Only Global Property, all other property lines. I think you’ve probably heard enough, Mike, from others that property across the board is feeling some effects. The larger account end of the market’s greater effect. Our net rate when we report out rate, we report out gross generally because effectively the gross rate for U.S. versus net rate tends to be equivalent in Global Property. It’s a little different because of the way we structure and use reinsurance, particularly fac. Our net rate was a negative high single digits pure rate for the quarter. I will tell you that our pricing right now for Global Property is sitting roughly equivalent to where it was in 2Q2023, and it’s come down fast. I will tell you that.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: If you.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Were to draw the line at this particular moment, Mike, we feel incredibly good about the technical rate of that book and how that would perform at that rating level. The way that rates have moved, it’s like we’ll be one quarter forward and we might be having a different conversation. It’s been that intense of a drop off. I think it’s a very dynamic situation. Okay, yep, got it.

Lastly, on just headcount, if we look at the 10-K that came out a while ago, 10-K headcount was, I believe, plus 15% or maybe it was low double digits, sorry, a little below 2023’s level. Would you, high level, kind of expect headcount to decelerate a bit but still be close to 10%?

The year.

Goes as planned or just kind of. I’m assuming that headcount also doesn’t include some of those MGA ownership and MGA relationships that you don’t wholly own.

Yeah, I mean, one thing I would say to you is that our, I mean just again, the proportion of the premium that’s coming from delegated authorities has been knocking around between 13% and 15%. That’s been relatively consistent. While it was a higher growth quarter there, it didn’t really move the overall portfolio. I think that the one thing I would just highlight first is that our controllable expenses, as Mark noted in his prepared remarks, is down to two points from last year. It was our best ever. I think it was 13.1%, which is pretty darn good. Of course, I believe that we’re getting economies of scale. I mentioned our use of technology. We believe that that’s an important contributor.

Our vision for the way that we believe, in particular on underwriting and claims, and I’ll start with underwriting, is that we have the ability to multiply the productivity of our underwriters over time because of the things that we’re doing in AI, which I would describe as, when I use a football analogy, instead of starting with a touchback on your own 30 yard line, your first offensive play is on your opponent’s 20 yard line. You’re kind of getting far down the field. That really means that our underwriters have the ability to be very productive. That’s one of the places that we want to see a lot of leverage because great underwriters are hard to come by. If we can amplify the ones we have, and that’s some of what’s coming through right now. You’re seeing that in our numbers right now.

Thank you.

Thank you, Mike.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Thank you.

Howard, Conference Operator: Our next question or comment comes from the line of Alex Scott from Barclays. Your line is open.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Hey, first one I had for you.

Guys, on the captive piece of the premiums, I was expecting to slow a little bit more because I figured maybe there was a little more sensitivity there to softening market capacity. It is a little easier to come by, maybe less demand for captives.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: The growth was very good.

Actually.

I’m just interested if you could provide.

A little more color around what’s driving that, if there is sensitivity to the cycle in the market or if there is something more idiosyncratic about it?

I think the thing that’s driving it to be very direct is we have one, and I talked about this in the past, Alex, that we have one very innovative property focused captive in the automotive dealers market that uses on the ground weather technology to fundamentally change the risk management and controls. That proposition is a winning proposition. To be honest, in a market that effectively hasn’t changed, I believe within that market there’s also a decent amount of moral hazard with what happens when property is damaged at a dealership. I think we’ve built a proposition that is pretty darn powerful, that is attracting, you know, I would characterize as the very best, you know, sort of operators in that market. That’s been the principal driver. It’s great because there aren’t a lot of really great examples of property captives out there in general.

This is now in its fourth year, and I would almost say that at this particular moment we’re really starting to stretch our legs on that. It’s a partnership that we have with a technology company, company called Understory Weather, that it’s really, I think it’s very distinct and unique.

Got it.

Okay. I also wanted to ask about the.

A&H growth.

Could you just talk a little bit about exposure to things like medical cost inflation? We all see the health insurers and what they’re saying. There’s been a fair amount of pressure there. On the other hand, I know you guys have a pretty differentiated and unique way that you’re going about it at the small end of the stop loss market in particular. Maybe you could just help us think through that and how you’re being thoughtful about the growth into this, I guess, business. It’s faced a little bit of headwind.

Yeah, thanks, Alex. I think just backing up, the growth, as I mentioned in my opening remarks, was driven by the group captive portion of that business. Obviously, a theme, generous theme emerging here. I think that with the group captives, it really accelerates our approach to medical cost management. Because the captives are directly tied to the performance, I think that you find the participants engaged in wanting to lean in. We’ve talked a lot about reference based pricing, which uses Medicare based pricing. We talked about working outside the major PBMs. We actually have specific programs in place for very expensive drugs where we can get access to those drugs through special relationships and all. That’s very dynamic given obviously what’s going on in the world right now. We feel like we’re in a pretty darn good position.

The thing that’s really stood out though is that, and talked about this in the past, we absolutely are a company that when we see these extraordinarily large bills coming from the providers on behalf of our clients, instead of what is the traditional process generally in the market of pay and pursue, like if there’s a bill that comes through that’s $2 million, oftentimes that gets paid and then there’s an effort to negotiate afterwards. We are not doing that. We are negotiating the payment before we actually pay. The foundation of that is oftentimes a legal foundation. We’ve had great success and it has been an immense benefit to our customers and to the members in the group captives. We have that formula. We think we have distinct IP around that. That’s in addition to all the other interesting things that we do.

That’s been part of our formula and you can see it in the results to be direct.

Got it. Thank you.

Thank you.

Howard, Conference Operator: Thank you. Our next question or comment comes from the line of Meyer Shields from KBW. Mr. Shields, your line is open.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Great, thanks.

I think it’s still morning in Houston.

Setting that aside, Andrew, you talked about the limited growth in surety because of.

I guess declining infrastructure spending.

Is any of that impacting loss activity on the surety side? No, no, surety is. It’s been unbelievable to be honest. We have an extraordinarily, extraordinarily good team, very responsible. We’ve equipped them with fantastic tools. Our claims leader in surety, our new claims leader, we just went through a succession, is a lawyer who has actually recently won a landmark case that the surety industry took note of. Quite honestly, I love our mix. I mean all the things that we did, we brought in a fantastic team from a competitor around fiduciary and judicial bonds. We’ve been growing that at a fantastic rate. We are, the oil and gas market is in commercial.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Sure.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: It is incredibly stressed due to some major losses, reinsurers are backed away in this quarter that we’re in now. We’re going to be announcing probably the most innovative product to hit that market, which I’m excited about. Very dislocated market, but product where we believe we have a solution that will not add unusual risk for us but really provide a solution to the market. I think we are incredibly smart and measured about how we’re playing things. I’ll also tell you, Mara, I believe that the federal funding given sort of our key trading partners there, which there are very small handful of distributors that really trade in that sort of that federal part of the market, is going to bounce back the second half of the year. 8% growth could return to something higher.

Not to say that 8% growth in surety is not incredibly respectable to begin with. All this is to say feel great about it and there’s nothing on the loss front at this time that would indicate there’s any sort of change in our performance. Okay, fantastic. If I can touch briefly on commercial auto. I know Mark, you made some comments about I think severity and I was hoping to get a better handle on whether there were any reserve movements in commercial auto and whether the current book loss picks are changing for 2025.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Hey, Mayor, good question.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: No.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Loss picks are not changing, and my comments were relative to emergence indicated to indicated. We are booked higher than indicated, so there are no changes in loss picks.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: No.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: What I will say to add to my commentary, look, in the quarter, the favorable emergence in our E&S and surety and professional lines, frankly, was quite a bit more than I would have expected. The favorable pockets that we saw on severity really wasn’t that unexpected but didn’t change our picks at all. Does that make sense?

It does.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thank you so much.

Thank you, Baron.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Thank You.

Howard, Conference Operator: Our next question or comment comes from the line of Andrew Robinson from Jefferies. Your line is open, sir.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Hey, good morning. Could you expand a bit on the sentence being added to the amended filing?

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Sure. It was exciting. What happened is there was a clear sentence within the opinion, within the EY’s opinion, that merely refers to their control opinion. Somehow it was dropped in the case. It’s just an administrative thing. Actually, I’m kind of glad you did ask. It changes nothing. Changes nothing with respect to the unqualified opinion. It’s just a requirement that we refile the 10-K. The only part that will be refiled will be the opinion and the financial statements, not the entire K.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Andrew, just to give you some context about how this emerged because we are recently, you know, we became an accelerated filer EY. We were selected to basically have an internal audit on EY auditing us. That audit came back very well. This was the one item that emerged. Has this been, I think you are still working on resolving the weakness throughout the year 2025. Has that been completed?

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Another good question. Look, we won’t get formal sign off, if you will, until EY issues their opinion for 2025. Internally we are working on the remediation with respect to the material weakness. We believe it’s been remediated, but until the end of the year when the opinions are actually issued, that will be the point in time.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Where that would be lifted. Okay, thanks. Maybe switching just to the session rate. It was up year over year and quarter over quarter. I would have thought it would have been a little bit lighter year over year, given less property growth. Is there anything kind of one off there, and how should we think about that in the back half of the year?

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: The way I think about it is the way we referred to it earlier, we’ve guided to about a 60% ratio. It can move around quarter over quarter due to the way we book reinsurance treaties at inception. When we renew treaties, we seed it up front as opposed to over time. The second quarter is typically when you see a dip in the retention ratio. It’s pretty much in line with what we’ve done year over year, quarter over quarter. I wouldn’t read anything more into that other than Andrew has talked a lot about captives. You do know that our retention ratio on captives is lower than, I would say, the non-captive or the property business. As the captives grow, our retention ratio could move a little bit. I feel good about the 60.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Andrew, that includes with accident & health (A&H) where there’s been a lot of growth. There is some mix going on here. We’ve said it plenty of times, we’re grossline underwriters. We want to take more risk, and where we have an opportunity to do that, we will. An example of that is that as we’ve grown and diversified our surety portfolio, we’ve upped our retention. We came through a renewal this year, we upped our retention. We don’t want to swap dollars at the bottom million dollars there. You’ll find as you see our annual disclosures around this that, in general, we try to eat more of our own cooking where we can. Some of these things are more structural. In this case, it is the captives piece working its way through.

Howard, Conference Operator: Okay, thank you.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thank you.

Howard, Conference Operator: Thank you. Our next question or comment comes from the line of Matt Carletti from Citizens Capital Markets. Your line is open.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thanks. Good morning. Just a quick one. Andrew, you guys have always done a great job of bringing on teams and building out new niches. Since we last spoke last quarter, you started an aviation unit. Could you just tell us a little bit about the focus there? I know it’s, you referenced kind of.

Underserved markets, I’m going to go.

Out on a limb and say it’s not major airlines or anything like that, but what sorts of risks are you looking at there?

Yes.

Yeah, we’re not. No, we’re not. We’re not as you described. The background on this, Matt, is actually a little more straightforward. We had in place a relationship with a program administrator focused on what I would describe as really kind of the small part of the aviation market, a lot of personal aircraft and such. You can really think about sort of truly the non-commercial end of things. We really, really like that team. We had an inside line to effectively bring the business in house by buying. It was not a marketed process. It was a convenient means to create a process over time for succession. We did that with a belief as well that we could invest and grow the business.

The book we acquired, circa $20 million, we probably believe that that’s something that we can grow and not deteriorate margins at all by probably up to like $50 million. It fits really well with the kind of things that we look for. It’s quite niche and there’s just a small number of competitors there. We think we have a great team and we’re going to bring the Skyward sort of the chemistry that we can bring to catalyze these things around technology and hopefully build a really great little business for ourselves. Wonderful. Appreciate the color.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Thank you.

Howard, Conference Operator: Thank you. Our next question or comment comes from the line of Andrew Kligerman from TD Cowen. Your line is open.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Hey, nice to talk to you. Going back on the retention item, it looks like, you know, over.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: The last few years you’ve been around.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: I don’t know, low 60s in terms of retention, part A. I’d like to understand the dynamic of the impact of captives on the retention.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Maybe you could give in that area.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: us a sense of how much you retain on those premiums. Secondly, it’s a little bit on the low end. Where do you see that 62% annually going over time?

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: That’s a great question. Thanks for that.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: So.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: We’ve been asked this question enough that we probably need to provide a bridge as part of our standing materials. On the P&C side, which is the larger part of the captives, generally speaking, the captives retain the first anywhere between $350,000 and $500,000. You can think of, from an 80/20 perspective, 80% of the premiums in that layer and then 20% is above that. To the extent that the captives have excess, then that basically is gross to us less what goes into our excess treaty. That’s why it really does skew us down. The other, as we’ve mentioned in the past, Andrew, is global property. We have a very large line. Two thirds of that is quota shared.

In this market right now that we’re in, where the brokers are moving lots of these accounts to far longer stretches, instead of a very layered program, like people talk about shared and layered, they’re becoming these very long stretches. We not only bring a large quota share capacity to that, but we also then will offer a line where we have to use facultative to get to our net line. Those are dynamics that one is due to business mix, the other is due to market dynamics. It’s hard to answer your question if you unpack those items. Our net retentions in our business are kind of in the low 80s-ish kind of number, which isn’t all that different than my experience of what maybe a company that doesn’t have our business mix might ordinarily look like. That was very helpful.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Thank you, and then maybe shifting over.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Andrew, you were talking about the casualty.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Business and pulling back in some areas.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: You were seeking to grow in.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Some areas of casualty as well. I was kind of curious what you think look somewhat attractive at this stage.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Yeah, I think that within our E&S business, we’ve had just, I mean the results are just outstanding and they continue to emerge outstanding.

Howard, Conference Operator: Right.

So.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: I think that on the sort of the primary GL side, where we compete, average premium is $45,000. You can classify that however you want. I’d say it’s a good market. You see these individual instances of just like really stupid behavior. I ask all of our underwriters to send to me every week examples of things that are being done in the market that are dumb. You find that. I think that the E&S market on the primary GL, it’s a pretty good market with occasional just craziness going on. The excess market, as you’ve heard from everybody, is really strong pricing. What we’re trying to do is make sure that we are writing the kind of occupancies and classes where we’re steering clear from where we see the inflation trends. Really like the teeth of that biting away from the E&S business.

Our energy business inside of our industry solutions has a long history of delivering very comfortable 80s combined ratios on a fully loaded basis. They have systematically added new areas. We’ve gone into renewables very successfully. We’re looking at power now and I feel very good. Those tend to be. We’re not seeing the kind of inflation trends there. What we’re staying away from are the places where we see the inflation trends. Even if you can get 12%, 13%, 15% or more, and we see a lot of other companies in our competitive set who are growing in those markets. I don’t want to have exposure growth in an area where, yeah, you think it might be 8%, 9% or 10% loss inflation, but three years from now it’s 12%, 13%, 14%. We’re trying to steer clear from those things.

That’s why when I made my comments, Mark made his comments, this is what we mean about being really selective. We have certain places where our exposure growth in a current liability is actually quite substantial and then we have other places where it’s shrinking.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Appreciate the insights.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Thank you.

Howard, Conference Operator: Thank you. Our next question or comment comes from the line of Mark Hughes from Truist Securities. Your line is open.

Thank you. Good day. Mark, the cat loss assumption, either for the third quarter or the full year, given the mix change and the deceleration in property, how should we think about cat losses?

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Mark? I don’t see any change to the guidance that we’ve given.

That’s what, roughly 2 points for the full year. Is that right?

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Okay, that’s right.

How about current accident year loss pick a little bit better this quarter? Is this the right level on a go forward, or how should we think about it?

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: You know what, Mark. No, we’re not moving loss picks. It’s just business mix.

Andrew Robinson, Chairman and Chief Executive Officer, Skyward Specialty Insurance Group: Mark, I would just refer back to the guidance that we gave at the beginning of the year. We like that guidance. We’re pleased that we’re over delivering against that guidance. We think that that’s a sensible approach. We would refer folks back to guidance. I know that some companies want to see perpetual raise in estimates. We’re just, you know, we give you our guidance and we’ll do that on an annual basis and we’ll stick to that. If we’re performing well, we’ll over deliver. Up to this point we’ve been over delivering.

Yeah, very good. How about when we think about the mix? I think you had, Andrew, referred to some lumpiness in the programs and maybe some seasonality. I’m saying maybe some seasonality in other businesses. Is there anything when we think about 3Q? You talked about adding programs recently that influences the trend on written, anything about 3Q or 4Q we should keep in mind, either tough comps or easy comps from last year’s second half. That might be useful to understand as we’re looking at it.

We had a good second half last year. We had a good first half last year as well, and we had a good first half this year as well. We’ve had good first halves and second halves. I wouldn’t overplay the programs piece. I think that it should be kind of in that 15% of our portfolio. Again, one relationship makes up a big chunk of that. I mention the lumpiness because we added two programs in the course of the last three quarters, and you’re seeing some of that crystallize in this quarter. Beyond that, I wouldn’t really overplay it. I think that as we stand here now, I think that, look, it’s a very different market. You’re observing that some companies are doing less well and other companies are doing better.

Where I see our performance right now, as I look at the third quarter, I think that the third quarter is going to be a very good third quarter. Fourth quarter, it’s always, you never know, right, because it’s all about kind of this desperation, you know, breeds bad behavior as people are trying to close out their financial years. We’re just going to stick to our knitting and do the things that we do well. I think, you know, I just say to you, generally, I think the third quarter should be a good third quarter. It’s not going to be driven by programs. It’s going to be driven by the fact that we have the right businesses across the board that should be taking advantage of the market, taking advantage of the market and us being sensible in the places that are more challenged.

Yeah, appreciate that. Thank you.

I just say one other thing, Mark.

Yeah.

It’s hard to focus on one individual thing. I believe that we are distinct in this marketplace, particularly a company of our size, where we are blessed with the portfolio that we have with no business that’s more than 16% of our premium, if I remember correctly, and no business less than 8% of our premium. They’re all at scale. Our ability to sort of press down in different places is unique and distinct to us. While others might put up big growth on things like casualty because the rate is there, you have to acknowledge that the rate is there because the starting point is problematic and because the loss inflation is problematic.

We’re like, yeah, we want to put up growth when those opportunities present, but we want to also be confident in the starting point, the loss inflation, and all the other things that go along with that. We don’t feel pressure to grow only where pricing is offered. We have this portfolio that allows us to put down our capital in a way that many others don’t.

Yeah, understood. Appreciate it, Andrew. Thank you.

Thank you.

Mark Hoeschel, Chief Financial Officer, Skyward Specialty Insurance Group: Thanks, Mark.

Thank you.

Howard, Conference Operator: I’m sure. No additional questions in the queue at this time. I’d like to turn the conference back over to Natalie Schoolcraft for any closing remarks.

Natalie Schoolcraft, Investor Relations, Skyward Specialty Insurance Group: Thanks, everyone, for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialty Insurance Group. I am available after the call to answer any additional questions that you may have. We look forward to speaking with you again on our third quarter earnings call. Thank you and have a wonderful day.

Howard, Conference Operator: Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

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