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Skyward Specialty Insurance Group Reports First Quarter 2023 Results

HOUSTON, TX, May 09, 2023 (GLOBE NEWSWIRE) -- Skyward Specialty Insurance Group, Inc. (Nasdaq: SKWD) (“Skyward Specialty” or the “Company”) today reported first quarter 2023 net income of $15.6 million, or $0.42 per diluted share, compared to $16.3 million, or $0.50 per diluted share, for the same 2022 period. Adjusted operating income(1) for the first quarter of 2023 was $15.5 million, or $0.42 per diluted share, compared to $19.8 million, or $0.61 per diluted share, for the same 2022 period.

Highlights for the quarter included:

  • Gross written premiums increased 27.5%.
  • Underwriting income(1) of $17.8 million compared to $11.4 million for the first quarter of 2022.
  • Combined ratio of 90.2% compared to 91.9% for the first quarter of 2022.
  • Current accident year non-cat loss and LAE ratio of 61.1% compared to 63.5% for the first quarter of 2022.
(1) See “Reconciliation of Non-GAAP Financial Measures”

Skyward Specialty CEO Andrew Robinson commented, “Our strong momentum from year-end 2022 continued in the first quarter of 2023 with gross written premium growth of 27.5% and a 90.2% combined ratio. Despite a high catastrophe quarter for the industry, we were minimally impacted with only 1.8 points of catastrophe losses, a testament to our disciplined underwriting and diversified business mix.”

“We continue to execute our ‘Rule our Niche’ strategy, launching our global agriculture and inland marine underwriting units in the first quarter. We also continued to invest in underwriting teams and talent throughout the organization. Our first quarter results demonstrate that we are well positioned to continue to deliver value to our shareholders and business partners throughout 2023.”

Results of Operations

Underwriting Results

Premiums      
($ in thousands) Three months ended March 31
unaudited  2023   2022  %
Change
Gross written premiums $360,498  $282,642  27.5% 
Ceded written premiums $(158,357) $(147,241) 7.5% 
Net retention  56.1%   47.9%  NM(1)
Net written premiums $202,141  $135,401  49.3% 
Net earned premiums $182,831  $141,726  29.0% 
(1)Not meaningful      
       

The quarter to date 2023 increase in gross written premiums, when compared to the same 2022 period, was primarily driven by double-digit premium growth in our transactional E&S, global property and agriculture, professional lines, surety and captives underwriting divisions.

Combined Ratio Three months ended
March 31
(unaudited) 2023  2022 
Non-cat loss and LAE(1) 61.1% 63.5%
Cat loss and LAE(1) 1.8% 0.0%
Prior accident year development - LPT(2) (0.1)% 0.0%
Loss Ratio 62.8% 63.5%
Net policy acquisition costs 11.6% 9.5%
Other operating and general expenses 16.6% 19.1%
Commission and fee income (0.8)% (0.2)%
Expense ratio 27.4% 28.4%
Combined ratio 90.2% 91.9%
Adjusted Underwriting Ratios    
Adjusted loss ratio(2) 62.9% 63.5%
Expense ratio 27.4% 28.4%
Adjusted combined ratio(2) 90.3% 91.9%
(1)Current accident year
(2)See “Reconciliation of Non-GAAP Financial Measures”
     

The loss ratio for the first quarter of 2023 improved 0.7 points when compared to the same 2022 period. Catastrophe losses from wind and hail events, including tornadoes, added 1.8 points to the current quarter loss ratio compared to the first quarter of 2022, which was not impacted by catastrophe losses. The non-cat loss and LAE ratio improved 2.4 points when compared to the same 2022 period primarily driven by the continued run-off of exited business and the shift in the mix of business.

The expense ratio for the quarter improved 1.0 point when compared to the same 2022 period. The improvement was driven by (i) improvement in the other operating and general expenses ratio due to the increase in earned premiums and (ii) an increase in commission and fee income when compared to the same 2022 period. Partially offsetting the improvement was an increase in the net policy acquisition expense ratio due to the shift in our mix of business.

The expense ratio for the first quarter 2023 excludes the impact of IPO related stock compensation which is reported in other expenses in our condensed consolidated statements of operations and comprehensive (loss) income.

Investment Results

Net Investment Income (Loss)    
$ in thousands Three months ended
March 31
(unaudited)  2023   2022 
     
Short-term and money market investments $1,780  $3 
Core fixed income  6,339   2,987 
Opportunistic fixed income  (3,141)   11,447 
Equities  (333)   710 
Net investment income(1) $4,645  $15,147 
     
Net unrealized gains (losses) on securities still held $3,767  $(5,369) 
Net realized (losses) gains $(2,806)  $931 
(1)excludes income from operating cash of $1 and $2, respectively.

Net investment income for the first quarter 2023 decreased $10.5 million when compared to the same 2022 period. Increased income from core fixed income and short-term and money market investments was offset by losses in opportunistic fixed income. The increase in income from our core fixed income portfolio was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) higher net investment yields of 3.7% compared to 2.7% for the same 2022 period. The increase in income from short-term and money market investments was due to (i) a larger asset base driven by the addition of the net IPO proceeds and (ii) higher investment yields of 3.5% compared to 0.0% for the same 2022 period. The opportunistic fixed income portfolio was impacted by a decline in the fair value of certain limited partnership investments.

Stockholders’ Equity

Stockholders’ equity was $507.1 million at March 31, 2023 which represents an increase of 20.3% when compared to stockholders’ equity of $421.7 million at December 31, 2022. The increase in stockholders’ equity was primarily due to net IPO proceeds of $62.4 million and net income.

Conference Call

At 10 a.m. central time tomorrow, May 10, 2023, Skyward Specialty management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion at investors.skywardinsurance.com under Events & Presentations. Additionally, investors can access the earnings call via conference call by registering via the conference link. Users will receive dial-in information and a unique PIN to join the call upon registering.

Non-GAAP Financial Measures

This release contains certain financial measures and ratios that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). We refer to these measures as “non-GAAP financial measures.” We use these non-GAAP financial measures when planning, monitoring, and evaluating our performance.

We have chosen to exclude the net impact of the Loss Portfolio Transfer (“LPT”), all development on reserves fully or partially covered by the LPT and amortization of deferred gains associated with recoveries of prior LPT reserve strengthening in certain non-GAAP metrics, where noted, as the business subject to the LPT is not representative of our continuing business strategy. The business subject to the LPT is primarily related to policy years 2017 and prior, was generated and managed under prior leadership, and has either been exited or substantially repositioned during the reevaluation of our portfolio. We consider these non-GAAP financial measures to be useful metrics for our management and investors to facilitate operating performance comparisons from period to period. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered supplemental in nature and is not meant to be a substitute for revenue or net income, in each case as recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as comparative measures. For more information regarding these non-GAAP financial measures and a reconciliation of such measures to comparable GAAP financial measures, see the section entitled “Reconciliation of Non-GAAP Financial Measures.”

About Skyward Specialty Insurance Group, Inc.

Skyward Specialty is a rapidly growing and innovative specialty insurance company, delivering commercial property and casualty products and solutions on a non-admitted and admitted basis. The Company operates through eight underwriting divisions - Accident & Health, Captives, Global Property & Agriculture, Industry Solutions, Professional Lines, Programs, Surety and Transactional E&S. SKWD stock is traded on the Nasdaq Global Select Market, which represents the top fourth of all Nasdaq listed companies.

Skyward Specialty’s subsidiary insurance companies consist of Houston Specialty Insurance Company, Imperium Insurance Company, Great Midwest Insurance Company, and Oklahoma Specialty Insurance Company. These insurance companies are rated A- (Excellent) by A.M. Best Company. Additional information about Skyward Specialty can be found on our website at www.skywardinsurance.com

Forward-Looking Statements

Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are typically, but not always, identified through use of the words “believe,” “expect,” “enable,” “may,” “will,” “could,” “intends,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “potential,” “possible,” “should,” “continue,” and other words of similar meaning. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Skyward Specialty’s Form 10-K, and include (but are not limited to) legislative changes at both the state and federal level, state and federal regulatory rule making promulgations and adjudications, class action litigation involving the insurance industry and judicial decisions affecting claims, policy coverages and the general costs of doing business, the potential loss of key members of our management team or key employees and our ability to attract and retain personnel, the impact of competition on products and pricing, inflation in the costs of the products and services insurance pays for, product development, geographic spread of risk, weather and weather-related events, other types of catastrophic events, our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss, and losses resulting from reinsurance counterparties failing to pay us on reinsurance claims. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Skyward Specialty Insurance Group, Inc.

Media contact:
Haley Doughty
hdoughty@skywardinsurance.com
713-935-4944

or

Investor contact:
Natalie Schoolcraft,
nschoolcraft@skywardinsurance.com
614-494-4988

Skyward Specialty Insurance Group, Inc.

Consolidated Balance Sheets   
($ in thousands, except share and per share amounts)   
(unaudited)March 31,
2023
 December 31,
2022
Assets   
Investments:   
Fixed maturity securities, available-for-sale, at fair value (amortized cost of $718,395 and $662,616, respectively)$673,137  $607,572 
Fixed maturity securities, held-to-maturity, at amortized cost (net of allowance for credit losses of $321 as of March 31, 2023) 48,216   52,467 
Equity securities, at fair value 120,465   120,169 
Mortgage loans (at fair value as of March 31, 2023; at amortized cost as of December 31, 2022) 42,335   51,859 
Other long-term investments 118,784   129,142 
Short-term investments, at fair value 287,351   121,158 
Total investments 1,290,288   1,082,367 
Cash and cash equivalents 41,200   45,438 
Restricted cash 64,047   79,573 
Premiums receivable, net 178,954   139,215 
Reinsurance recoverables, net 570,504   581,359 
Ceded unearned premium 197,044   157,645 
Deferred policy acquisition costs 80,103   68,938 
Deferred income taxes 30,572   36,188 
Goodwill and intangible assets, net 89,503   89,870 
Other assets 79,110   82,846 
Total assets$2,621,325  $2,363,439 
Liabilities and stockholders’ equity   
Liabilities:   
Reserves for losses and loss adjustment expenses$1,173,176  $1,141,757 
Unearned premiums 501,218   442,509 
Deferred ceding commission 40,824   29,849 
Reinsurance and premium payables 185,748   113,696 
Funds held for others 44,256   36,858 
Accounts payable and accrued liabilities 40,328   48,499 
Notes payable 50,000   50,000 
Subordinated debt, net of debt issuance costs 78,629   78,609 
Total liabilities 2,114,179   1,941,777 
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    20 
Common stock, $0.01 par value, 500,000,000 and 168,000,000 shares authorized, 37,658,111 and 16,832,955 shares issued, respectively 377   168 
Treasury stock, $0.01 par value, 0 and 233,289 shares, respectively    (2)
Additional paid-in capital 641,368   577,289 
Stock notes receivable (6,718)  (6,911)
Accumulated other comprehensive loss (35,744)  (43,485)
Accumulated deficit (92,137)  (105,417)
Total stockholders’ equity 507,146   421,662 
Total liabilities and stockholders’ equity$2,621,325  $2,363,439 
    


Skyward Specialty Insurance Group, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)
($ in thousands, except share and per share amounts) Three months ended March 31
(unaudited)  2023   2022 
     
Revenues:    
Net earned premiums $182,831  $141,726 
Commission and fee income  1,492   230 
Net investment income  4,646   15,149 
Net investment gains (losses)  961   (4,438)
Total revenues  189,930   152,667 
Expenses:    
Losses and loss adjustment expenses  114,900   89,989 
Underwriting, acquisition and insurance expenses  51,655   40,534 
Interest expense  2,152   1,177 
Amortization expense  387   387 
Other expenses  1,114    
Total expenses  170,208   132,087 
Income before income taxes  19,722   20,580 
Income tax expense  4,166   4,269 
Net income  15,556   16,311 
Net income attributable to participating securities  1,274   7,829 
Net income attributable to common shareholders $14,282  $8,482 
Comprehensive income (loss):    
Net income $15,556  $16,311 
Other comprehensive income (loss):    
Unrealized gains and losses on investments:    
Net change in unrealized gains (losses) on investments, net of tax  7,788   (16,705)
Reclassification adjustment for (losses) gains on securities no longer held, net of tax  (47)  301 
Total other comprehensive income (loss)  7,741   (16,404)
Comprehensive income (loss) $23,297  $(93)
     


Skyward Specialty Insurance Group, Inc.

Share and Per Share Data    
($ in thousands, except share and per share amounts) Three months ended March 31
(unaudited) 2023 2022
     
Weighted average basic shares  32,848,243   16,376,720 
Weighted average diluted shares  36,952,073   32,412,307 
     
Basic earnings per share $0.43  $0.52 
Diluted earnings per share $0.42  $0.50 
Basic adjusted earnings per share $0.43  $0.63 
Diluted adjusted earnings per share $0.42  $0.61 
     
Annualized ROE(1)  13.4%  15.3%
Annualized adjusted ROE(2)  13.3%  18.5%
Annualized ROTE(3)  16.6%  19.4%
Annualized adjusted ROTE(4)  16.5%  23.6%
     
  March 31 December 31
  2023 2022
     
Shares outstanding  37,658,111   16,599,666 
Fully diluted shares outstanding  39,409,611   33,290,638 
     
Book value per share $13.65  $25.82 
Fully diluted book value per share $13.04  $12.87 
Fully diluted tangible book value per share $10.77  $10.17 
     
(1)Annualized ROE is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period
(2)Annualized adjusted ROE is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period
(3)Annualized ROTE is net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period
(4)Annualized adjusted ROTE is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders’ equity during the period


Skyward Specialty Insurance Group, Inc.
Reconciliation of Non-GAAP Financial Measures

Adjusted operating income (loss) – We define adjusted operating income (loss) as net income (loss) excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted operating income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define adjusted operating income differently.        

($ in thousands) Three months ended March 31
(unaudited)  2023  2022 
  Pre-tax After-tax Pre-tax After-tax
Income as reported $19,722 $15,556 $20,580  $16,311 
Add:        
Other expenses  1,114  880      
Less:        
Net impact of loss portfolio transfer  242  191      
Net investment gains (losses)  961  759  (4,438)  (3,506)
Adjusted operating income $19,633 $15,486 $25,018  $19,817 
         

Underwriting income (loss) – We define underwriting income (loss) as net income (loss) before income taxes excluding net investment income, net investment gains (losses), impairment charges, interest expense, amortization expense and other income and expenses. Underwriting income (loss) represents the pre-tax profitability of our underwriting operations and allows us to evaluate our underwriting performance without regard to investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting income (loss) should not be viewed as a substitute for pre-tax income (loss) calculated in accordance with GAAP, and other companies may define underwriting income (loss) differently.

($ in thousands) Three months ended March 31
(unaudited)  2023  2022
Income before federal income tax $19,722 $20,580
Add:    
Interest expense  2,152  1,177
Amortization expense  387  387
Other expenses  1,114  
Less:    
Net investment income  4,646  15,149
Net investment gains (losses)  961  (4,438)
Underwriting income $17,768 $11,433
     


Skyward Specialty Insurance Group, Inc.
Reconciliation of Non-GAAP Financial Measures

Adjusted Loss Ratio / Adjusted Combined Ratio – We define adjusted loss ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP), excluding losses and LAE related to the LPT and all development on reserves fully or partially covered by the LPT and amortization of deferred gains associated with recoveries of prior LPT reserve strengthening. We use these adjusted ratios as internal performance measures in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Our adjusted loss ratio and adjusted combined ratio should not be viewed as substitutes for our loss ratio and combined ratio, respectively.

($ in thousands)Three months ended March 31
(unaudited) 2023  2022
Net earned premiums$182,831 $141,726
    
Losses and LAE 114,900  89,989
Less: Pre-tax net impact of loss portfolio transfer 242  
Adjusted losses and LAE$115,142 $89,989
    
Loss ratio 62.8%  63.5%
Less: Net impact of LPT(0.1)%  0.0%
Adjusted Loss Ratio 62.9%  63.5%
    
Combined ratio 90.2%  91.9%
Less: Net impact of LPT(0.1)%  0.0%
Adjusted Combined Ratio 90.3%  91.9%
    

Tangible Stockholders’ Equity – We define tangible stockholders’ equity as stockholders’ equity less goodwill and intangible assets. Our definition of tangible stockholders’ equity may not be comparable to that of other companies and should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders’ equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.

($ in thousands) March 31 December 31
(unaudited)  2023  2022  2022
Stockholders’ equity $507,146 $428,619  421,662
Less: Goodwill and intangible assets  89,503  90,970  89,870
Tangible stockholders’ equity $417,643 $337,649 $331,792
       

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