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DATE

Friday, Aug. 1, 2025, at 9:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Andrew Robinson
  • Chief Financial Officer — Mark Hochul
  • Senior Vice President, Investor Relations — Natalie Schoolcraft

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TAKEAWAYS

  • Adjusted operating income: $37.1 million, or $0.89 per diluted share, with pretax underwriting income at a company record $31.2 million.
  • Net income: $38.8 million, or $0.93 per diluted share, for the quarter.
  • Gross written premiums: Increased 18% as capital was reallocated away from softening global and E&S property lines toward higher-growth areas.
  • Combined ratio: 89.4%, an all-time company low, including 1.4 points of catastrophe losses from convective storms in the South and Midwest.
  • Net reserve position: IBNR comprised more than 70% of net reserves, with no net reserve development and a margin maintained above actuarial indications.
  • Expense ratio: 28.1%, improving by 0.9 points over the prior-year quarter, supported by a two-point improvement in other operating and general expenses.
  • Net investment income: $18.6 million, impacted by underperformance in alternative assets, mainly private credit, oil, gas, and real estate holdings.
  • Alternative investments: Reduced to less than 5% of the investment portfolio as of June 30, 2025, with $30 million of capital returned and reinvested in fixed income during the first six months of 2025; remaining positions are in redemption.
  • Embedded portfolio yield: 5.3% as of June 30, 2025, compared to 4.8% a year ago.
  • Financial leverage: Debt-to-capital ratio just under 12%, providing "ample debt financing flexibility."
  • Strategic capital allocation: Growth focused in agriculture, credit, and Accident & Health (A&H), with continued pullback in global and E&S property and deliberate restraint in occurrence liability exposure.
  • Business mix: Surety growth was moderate due to reduced federal funding, while the captives division expanded through new insureds in existing captives.
  • Professional lines: Growth was flat as the company remained selective in management liability and faced increased competition in miscellaneous E&O, while pursuing healthcare opportunities.
  • Operational metrics: Mid-digit exposure growth (excluding global property), and new business pricing in line with the in-force book.
  • Account retention: Dipped slightly to the mid-70s, driven by business mix and construction.
  • Submission growth: Increased in the mid-teens percentage range.
  • AI and technology investment: Continued investment in proprietary technology, including AI applications and the SkyView platform, positioned as contributing to a durable competitive moat across divisions.
  • Aviation niche expansion: Acquisition of a non-commercial aviation portfolio, targeting small aircraft, with initial premium volume around $20 million and plans to grow the aviation unit toward $50 million in premium while maintaining margins.
  • Administrative filing note: An amended 10-K will be filed to add a standard sentence to E&Y's unqualified audit opinion, described as administrative with no impact on audit status.

SUMMARY

Skyward Specialty Insurance Group(SKWD -0.35%) reported record quarterly pretax underwriting income and a company-best combined ratio, driven by disciplined cycle management and capital reallocation to resilient segments such as agriculture, credit, and A&H. Management emphasized a conservative reserving approach, particularly in volatile and emerging lines, and continued to reduce alternative investment exposure, redeploying capital into fixed income. Account retention remained high overall, though construction and business mix modestly lowered the total retention rate.

  • Robinson said, "We're staying disciplined in global property given the current market backdrop," signaling continued caution in an area seeing rapid rate declines.
  • Robinson described MGA partnerships as "deeply strategic," with one relationship representing nearly two-thirds of total premium in specialty programs and featuring ownership stakes and alignment in compensation methodology.
  • Hochul stated, "These [alternative asset] positions, primarily in private credit, have lagged expectations," resulting in "some volatility" in net investment income; these assets are being systematically run off in line with stated strategy.
  • Within captives, growth is being driven by a property-focused automotive dealer captive utilizing advanced weather technology, which management believes provides a distinctive competitive advantage.
  • The accident and health group captive business leverages direct negotiation of provider bills, reference-based pricing, and specific high-cost drug programs to address medical inflation and cost containment.
  • Management reaffirmed a conservative bias in setting assumptions for emerging and more volatile portfolios, with figures for agriculture for the quarter explicitly booked "as conservatively as we can reasonably expect."
  • No adjustments to catastrophe loss guidance or current accident year loss picks were made for the full year, with Robinson referencing prior annual guidance and stating, "if we're performing well, we'll over-deliver."
  • The acquisition of a niche aviation unit is part of a targeted build-out in under-penetrated markets, leveraging operational strengths and technology for future growth.
  • An administrative control matter requires a 10-K amendment, but this is stated to have "no change" to the unqualified audit opinion or financial statement integrity.

INDUSTRY GLOSSARY

  • IBNR: Incurred But Not Reported; reserves set aside for events that have occurred but have not yet been formally reported as claims.
  • MGA (Managing General Agent): Specialized insurance intermediary with underwriting authority and, sometimes, risk-sharing or ownership relationship with the carrier.
  • FAC (Facultative Reinsurance): A type of reinsurance that covers a single risk or a defined package of risks, as opposed to covering a class of business.
  • A&H: Abbreviation for Accident & Health insurance, a segment focusing on medical and health-related coverage.
  • SkyView platform: Proprietary technology platform developed by Skyward Specialty Insurance Group, Inc. to augment underwriting and claims operations with advanced analytics and AI.

Full Conference Call Transcript

Andrew Robinson: Thank you, Natalie. Good morning, and thank you for joining us. We are 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. We elected to hold our occurrence 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 ag, 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?

Mark Hochul: Thank you, Andrew. 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, 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 1.4 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 2024, and it 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. If for this reason we're being selective on gross 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've 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 a 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 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. Thank you, Mark.

Andrew Robinson: Our outstanding second quarter performance reflects the strength of our diversified portfolio, 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 A&H, where our specialized knowledge and capabilities are key differentiators. As a reminder, in agriculture, we serve markets that have government-subsidized programs, and we have constructed a well-diversified global portfolio.

In this quarter, we continue to see opportunities in the US dairy and livestock program and were able to close several new accounts. As we have built this portfolio, we have accumulated depth of knowledge that we believe is distinct. Similarly, we 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 outcome. Moreover, we are currently booking this portfolio the most conservatively we can reasonably expect, and so we are bullish about the future contribution as we continue to earn in the growth from Ag.

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 division started the year strong, and the second quarter was a continuation of that trend, principally driven by a group captive offering to the medical stop-loss market. Just as a reminder, we are not competing against companies focused on large accounts or focuses 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 munis. We remain bullish in our surety outlook, and we believe we are well-positioned to continue to grow this market-leading business. In transactional E&S, as noted in my earlier comments, we shrunk our property book in response to increasingly competitive market conditions, but this is more than offset by the growth in our liability book. Inland marine, and we continue to see selective opportunities to grow. In 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, and 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 where we are exceptionally well-positioned with an extraordinary team of deeply technical underwriters. We're staying disciplined in global property given the current market backdrop. Our account retention was in the high eighties 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. And 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. Unless 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 continues 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've been implementing in specific units, including A&H, health care, 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 continue to differentiate us.

We're 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, Inc. 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. A rule in each 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. Operator?

Operator: At this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press 11 again. Again, if you have a question or comment at this time, please press 11 on your telephone keypad. Our first question or comment comes from the line of Gregory Peters from Raymond James. Your line is open, sir.

Gregory Peters: Good afternoon, everyone. So, Andrew, in your comments, you spoke a lot about where you're seeing growth and where you're pulling back. It's effectively outlining your cycle management strategy. Maybe you could spend some additional time talking to us about, you know, these key lines of growth, the ag business, the credit, the captives, the programs. I think you said that you're assuming some power loss picks just on, like, 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.

Andrew Robinson: Yeah. I mean, I think Greg, you know, thank you for the question. Yeah, saying good afternoon, that kinda feels weird because every one of our calls is in the morning. So good afternoon. Look. I think that what I'd point to you, Greg, is that if you step back, you know, over the arc of sort of 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, you know, great outcomes. And 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. And I think in this case, I just highlight ag because, you know, it's a line that has a bit of volatility. And so our picks, you know, reflect sort of the conservative end of that. You know, 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 division with renewables. You know, there's plenty of pockets of growth that just aren't rising to, you know, what we're drawing out in these calls. And so 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 don't wanna lean into exposure growth where we see a very heavy dose of loss inflation. I think all of those things contribute, and some of that isn't expressly visible in our comments, but sort of below the division level reporting.

Gregory Peters: Yeah. That's good detail. I appreciate that. For my follow-up question, gonna go to the investment side. You know? And I know in the comments, you talked about the alternatives and strategics just representing 5%. That's been in runoff for now for a while now. I think that percentage of the mix investments that's come down pretty substantially. But, you know, as we think about going forward, maybe you could talk about, you know, how you're looking at those results and, you know, when you frame out projections, what do you what are you thinking about for that line? And for the broader investment income piece?

Andrew Robinson: Great question. So let me just say this. You know, obviously, we're not happy with results at top to bottom on the growth in underwriting are outstanding, and we have, you know, one item where, you know, 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, and 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. Yeah.

We have done everything that we said that we were gonna do, which included that every dollar investing was gonna 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, you know, 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, you know, in the 30 positions remaining in this portfolio. We're on top of it. And, you know, I do suspect that there will be quarters ahead where, you know, the volatility will work to our advantage coming the other way.

And, otherwise, I don't think there's really much that we wanna say about the alts because it's not part of our investment strategy going forward.

Gregory Peters: Okay. Yeah. Fair enough. Thanks for the color and detail.

Andrew Robinson: Thank you. Thanks, Greg. Appreciate it, Greg.

Operator: Thank you. Our next question or comment comes from the line of Michael Zaremski from BMO Capital Markets. Mister Zaremski, your line is open.

Michael Zaremski: Hey. Morning. Sorry. I made the mistake too. Good afternoon. 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 stats disclosure. That there's a number of MGAs that So with that, just curious, like, if you can kind of shed more light on how those relationships came to be. And is there just any further color just so we just understand the inner workings of

Andrew Robinson: Yeah. Thanks, Mike. Well, one is our longest-standing relationship and, you know, what I would consider to be, you know, well, they're not formally part of our company. They're virtually that way. Where we own a 20% stake and, you know, we have refusal rights and so forth. And by the way, that one relationship is nearly two-thirds of our total premium in, you know, in that division. And they're compensated, you know, 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 in developing where we are a direct investor. We have an active role there.

We have special rights that benefit us. And, you know, quite honestly, we outlined our philosophy with them, they viewed the distinctiveness of having that formal commitment from us as being something that was distinctive for them in terms of, you know, building their business. And so that's turned out to be a win-win. That's really, you know, that's really the principal two sources. And nearly all of our new program ads, I think, minus one has come through that partnership. And so you know, you can describe that how you wish, but, you know, 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. And 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, you know, with the folks that we do business with.

Michael Zaremski: 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. Right? And so I think we all know property pricing was, you know, decelerated. Right? So I just wanna make sure when we hit apples to apples, if we look at your, you know, last quarter or previous quarters, pricing commentary, that didn't include global property. Am I understanding that correctly?

Andrew Robinson: You are, Mike, you're absolutely correct. Only Global Property, all other property lines. And I think you know, you've probably heard enough, Mike, from others and you know, that property across the board is feeling some effects. The larger account into the market a greater effect. Our net rate so when we report out rate, we report out gross generally because, effectively, the gross needs the gross rate for us versus net rate, you know, tends to be equivalent. In global property, it's a little different because of the way we structure and use reinsurance, particularly FAC, but our net rate was a negative high single digits pure rate for the quarter.

And I will tell you that our pricing right now for global property is sitting roughly equivalent to where it was in the '23. And it's come down fast. I will tell you that we if you 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, but the way that rates have moved, it's like we'll be one month one quarter forward. We might be having a different conversation. It's been that intensive a drop-off. So, you know, so I think it's a very dynamic situation.

Michael Zaremski: Okay. Yep. Got it. And, lastly, on the headcount, you know, if we look at the, you know, 10-K came out a while ago, but, you know, 10-K, I think, headcount was I believe, plus 15%, a little higher than or no. Maybe it was low double digits. Sorry. A little below 2023's level. Is you know, would you know, high level, would you kind of expect headcount to decel a bit but still kind of be close to 10% if, if the year goes as planned or just kinda and I'm assuming that headcount also doesn't include some of those MGA ownership and, MGA relationships that, you don't wholly own.

Andrew Robinson: Yeah. I mean, well, one thing I would say to you is that is that our I mean, just again, our the proportion of the premium that's coming from, you know, delegated authorities is consistent. So while it was a higher growth quarter, has been knocking around between, like, 13-15%. So that's been relatively there, you know, that it didn't really move sort of the overall portfolio. Look. I think that the one thing I would just highlight first is that you know, our OUE, our controllable expenses, as Mark noted in his prepared remarks, is down two points from last year. It was our best ever. I think it was 13.1%, which is pretty darn good.

You know, of course, I believe that we're getting economies of scale. I mentioned our use technology. We believe 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 productivity of our underwriters over time because of the things that we're doing in AI, which I would describe as wanna use a football analogy instead of starting, you know, with a touchback on your own 30-yard line, you're your first offensive play is on your competitors', you know, your opponent's 20-yard line.

So you're kinda getting far down the field, and so that really means that our underwriters have the ability to be very productive. And, you know, that's where one of the places that, you know, we wanna 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 that's coming through right now. You're seeing that in our numbers right now.

Michael Zaremski: Thank you. Thank you, Mike.

Operator: Thank you. Our next question or comment comes from the line of Alex Scott from Barclays. Your line is open.

Alex Scott: Hey. First one I had for you guys is on the captive piece of the premiums. That you know, I was expecting to slow a little bit more because I figured maybe there was a little more sensitivity there to, you know, softening market, you know, capacity is a little easier to come by, maybe, you know, less demand for captives. The growth was very good, actually. And so I'm just interested if you could provide a little more color around, you know, what's driving that if you know, if there is sensitivity to sort of the cycle in the market or if there's something more idiosyncratic about it.

Andrew Robinson: Well, look, 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 and that proposition's a winning proposition. And so 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, you know, with what happens when property is, you know, is damaged, you know, at a dealership.

That we've really 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. And that's been the principal driver. And it's great because aren't a lot of really great examples of property captives out there in general, and this is now in its fourth year. And I would almost say that at this particular moment, you know, we're really starting to stretch our legs on that. And it's a partnership that we have with a technology company called Understory Weather that I think it's very distinct and unique.

Alex Scott: Got it. Okay. And 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? You know, we all see the health insurers and what they're saying, and, you know, 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. So maybe you could just help us think through that and how, you know, you're being thoughtful about the growth into this business. It's faced a little bit of headwind.

Andrew Robinson: Yeah. Thanks, Alex. So I think just backing up the growth as I think I mentioned in my opening remarks, was driven by the group captive portion of that business. Obviously, a theme emerging here. But I think that with the group captives, it really accelerates our approach to medical cost management. And because the captives are directly tied to the, you know, to the performance, I think that you find the participants engaged in wanting to lean in. And so, you know, we've talked a lot about, you know, reference-based pricing, you know, which uses Medicare-based pricing. We talked about, you know, working outside the major PBMs.

We actually have specific programs in place for, you know, 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, you know, in the world right now. But we feel like we're in a pretty darn good position. The thing that's really stood out though is that we and I've talked about this in the past, but 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, you know, generally in the market of, you know, pay and pursue.

Like, if there's a bill that comes through that's $2 million, you know, oftentimes that gets paid and then there's an effort to negotiate afterward. We are not doing that. We are negotiating the payment before we actually pay. And 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 and the group captives. And so we have that formula. We think we have distinct IP around that in addition to all the other interesting things that we do. But that's been, you know, that's been part of our formula, and you can see it in the results. To be direct.

Alex Scott: Got it. Thank you.

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

Meyer Shields: Great. Thanks. I think it's still morning in Houston. But setting that aside, Andrew, you talked about the limited growth in surety because of, I guess, declining infrastructure spend. Is any of that impacting loss activity on the surety side?

Andrew Robinson: No. Surety has been unbelievable, to be honest. We have an extraordinarily good team. Very responsible, we've equipped them with fantastic tools. Our claims leader and surety, our new claims leader so we just went through a succession. Is a lawyer who has actually recently won a landmark case that the surety industry took note of. And quite honestly, I love our mix. Right? I mean, all the things that we did, you know, we brought in a fantastic team. From a competitor around, you know, fiduciary and judicial bonds. Been growing that at a fantastic rate. We are the oil and gas market is in commercial surety is incredibly stressed due to some major losses. Reinsurers have 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 a product where we believe we have a solution that will not add, you know, unusual growth for unusual risk for us. But really provide a solution to the market. So I think we are incredibly smart and measured about how we're playing things.

I'll also tell you, Meyer, I believe that the federal funding given sort of our key trading partners there, of which they're a very small handful of distributors, that they really trade in that sort of that federal part of the market is going to bounce back the second half of the year. So 8% growth, you know, could return to something higher. Not to say that 8% growth in surety is not incredibly respectable to begin with. So 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.

Meyer Shields: Okay. Fantastic. If I can touch briefly on commercial auto. I know, Mark, you made some comments about, I think, severity. You know, something 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 Hochul: Hey, Meyer. Good question. No. So loss picks are not changing, and my comments were relative to emergence indicated to indicated. So we are booked higher than indicated, so there are no change in loss picks. No. But 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. The pockets that we saw on severity really wasn't that unexpected, but didn't change our picks at all. That make sense?

Meyer Shields: It does. Thank you so much.

Operator: Thank you. Our next question or comment comes from the line of Andrew Andersen from Jefferies. Your line is open, sir.

Andrew Andersen: Hey. Good morning. Could you expand a bit on the sentence being added to the amended filing?

Mark Hochul: Sure. That was exciting. So what happened is there was a clear sentence within the opinion when the E&Y's opinion that merely refers to their control opinion. Somehow it was dropped in the case. So it's just an administrative thing. And I actually am kinda glad you did ask. It changes nothing. Changes nothing with respect to the unqualified opinion. It's just a requirement that we file, refile the 10-K, not the entire K, and the only part that will be refiled will be the opinion and the financial statements.

Andrew Robinson: And, Andrew, just to give you some context about how this emerged, because, you know, because we are recently, you know, we became an accelerated filer, we were selected to basically have an internal audit on auditing us, and that audit came back very well, but this was the one item that emerged.

Andrew Andersen: Okay. And has this been I think you were still working on resolving the weakness throughout the year, '25. Has that been completed?

Mark Hochul: So another good question. Look. We won't get formal sign-off, if you will, until issues their opinion for '25. 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 where that would be lifted.

Andrew Andersen: 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. Anything kind of one-off there? And how should we think about that in the back half of the year?

Mark Hochul: Well, the way I think about it is the way we refer to it earlier. We've guided to about a 60% ratio. It can move around quarter over quarter due to the way we book frame reinsurance treaties at inception. So when we renew treaties, we seeded up front as opposed to over time. And 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. So I wouldn't read anything more into that other than Andrew's 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. So as the captives grow, our retention ratio could move a little bit. But I feel good about the sixty. And, Andrew, that includes that includes within A&H where there's been a lot of growth.

Andrew Robinson: So there's some mix going on here, but, you know, we've said it plenty of times. You know, we're gross line underwriters. We want to take more risk, you know, and where we have an opportunity to do that, we will. And, you know, an example that, you know, is that as we've, you know, grown and diversified our surety portfolio, we've upped our retention. We came through a renewal this year. We upped our attention again because we weren't we don't wanna swap dollars at sort of the bottom million dollars there.

So you'll find as you see our annual sort of disclosures around this, that in general, we try to eat more of our own cooking where we can, but some of these things are more structural. In this case, really, it is the captive speech working its way through.

Andrew Andersen: Okay. Thank you.

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

Matt Carletti: Thanks. Good morning. Hey. 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'm I know it's I think you referenced kinda underserved market, so I'm gonna go out on a limb and say it's, you know, major airlines or anything like that. But what sorts of risks are you looking at there?

Andrew Robinson: Yes. Yeah. We're not no. We're not. We're not as you described. So the background notice on this, Matt, is actually a little more straightforward. So the straightforward. We had in place a relationship with a program administrator focused on what I would describe as really kind of a small part of the aviation market, a lot of personal aircraft and such. So, you know, you can really think about sort of truly the noncommercial end of things. And we really, really like that team. And we had an inside line to effectively bring the business in-house by buying it. It was not a marketed process.

It was a convenient means to create a process for, you know, over time for succession. And we did that with a belief as well that we could invest and grow the business. So the book we acquired, you know, circa $20 million, we probably believe that, you know, that's something that we can grow and not deteriorate margins at all by probably, you know, up to, like, $50 million. And it fits really well with, you know, with the kind of things that we look for.

It's quite niche, and there's just a small number of competitors there, and we think we have a great team, and we're gonna bring the, you know, the Skyward, you know, sort of the chemistry that we can bring to catalyze these things around technology, and hopefully build a really great little business for ourselves.

Matt Carletti: Wonderful. Appreciate the color. Thanks.

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

Andrew Kligerman: Hey, nice to talk to you. Going back on the retention item, so it looks like, you know, over the last few years, you've been around, 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. Maybe you could in that area, give us a sense of how much you retain on those premiums? And then secondly, it's a little bit on the low end, where do you see that 62-ish percent annually going over time?

Andrew Robinson: It's a great question, and thanks for that. So we've been asked this question enough that we probably need to provide a bridge as part of our standing materials. But, you know, on the P&C side, you know, which is the larger part of the captives, you know, generally speaking, the captives retain the first anywhere between $350,000 and $500,000. And you can think of, you know, from an 80-20 perspective, 80% of the premiums in that layer and then 20% is above that. And then to the extent that the captives have excess, then that basically is gross to us less, you know, what goes into our excess treaty. So 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. And in this market right now that we're in where the brokers are moving lots of these accounts to far longer stretches instead of, like, you know, a very layered program, like people talk about shared and layered. They're becoming these very long stretches. So we not only bring a large quota share capacity to that, but we also then will offer a line where we have to use fax to get to our net line. So those are dynamics that one is due to business mix, the other is due to market dynamics.

So it's hard to answer your question. If you unpack those items, you know, our net retentions in our business are kind of in the low eighties-ish kinda number, which isn't all that different than kinda my experience of what maybe a company that doesn't have our business mix might ordinarily look like.

Andrew Kligerman: That was very helpful. Thank you. And then maybe shifting over Andrew, you were talking about the casualty business and pulling back in some areas, but you were seeking to grow in some areas of casualty as well. I was kind of curious what you think looks somewhat attractive at this stage.

Andrew Robinson: Yeah. Look. I think that within our E&S business, you know, we've had just I mean, the results are just outstanding, and they continue to emerge outstanding. Right? So but I think that on the sort of the primary GL side, you know, where we compete, average, you know, average premium is $45,000. So you can classify that however you want. I'd say it's a good market but you see these individual instances of just, like, really stupid behavior. And, you know, I all of our underwriters to send to me every week, like, examples of, like, things that are being done in the market that are dumb.

And so you find, like, the I think that the E&S market on the primary GL it's a pretty good market. With, you know, 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 we're trying to make sure that we are, you know, writing the kind of occupancies and classes where we're steering clear from where we see the inflation trends really like the, you know, the teeth of that biting. Away from sort of the E&S business, you know, our energy business inside of our industry solutions, has a long history of delivering, you know, very comfortable eighties combined ratios on a fully loaded basis.

And they have systematically sort of added new areas. You know, we've gone into renewables very successfully. We're looking at power now. And I feel very good. And those tend to be we're not seeing the kind of inflation trends there. And what we're staying away from are the places where we see the inflation trends. Because 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, you know, in those markets. I don't wanna have exposure growth in an area where yeah, you think it might be eight, nine, or 10% loss inflation, but three years from now, it's 12, 13, 14.

So we're trying to steer clear from those things, and that's why I made my comments, Mark made his comments, you know, this is what we mean about being really selective. So we have certain places where our exposure growth in occurrence liability is actually quite substantial, and then we have other places where it's shrinking.

Andrew Kligerman: Appreciate the insights.

Andrew Robinson: Thank you.

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

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

Mark Hochul: Mark, I don't see any change to the guidance that we've given.

Mark Hughes: And that's, what, roughly two points for the full year? Is that right?

Mark Hochul: Okay. That's right.

Mark Hughes: How about the current accident year, loss pick, so a little bit better? This quarter. Is this the right level on a go forward? Or how should we think about

Mark Hochul: You know what, Mark? No. We're not moving loss picks. It's just business mix.

Andrew Robinson: Yeah. But 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's a sensible approach. But, you know, we just we would refer folks back to guidance. I know that some companies, you know, 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. And if we're performing well, we'll over-deliver. And up to this point, we've been over-delivering.

Mark Hughes: Yeah. Very good. About the when we think about the mix, I think you had Andrew referred to some lumpiness in the programs. And maybe some seasonality here. I'm saying maybe some seasonality in other businesses. There anything when we think about 3Q, you know, you yeah, you talked about the 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

Andrew Robinson: Well, we had a good second half last year. Had a good first half last year as well. And we had a good first half this year as well. So we've had good first halves and second halves. I wouldn't overplay the programs piece. I think that, you know, it should be kind of in that 15% of our portfolio. Again, one relationship makes up a big chunk of that. I mentioned 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, you know, as we stand here now, I think that look, it's a very different market. You're observing that. You know, 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 gonna be a very good third quarter. You know, fourth quarter, it's always you never know. Right? Because it's all about kind of this desperation, you know, pretty bad behavior. People are trying to close out their financial years. We're just gonna stick to our knitting and do the things that we do well.

But I think, you know, I just say to you generally, the third quarter should be a good third quarter. And it's not gonna be driven by programs. It's gonna be, you know, driven by, you know, 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.

Mark Hughes: Yeah. Appreciate that. Thank you.

Andrew Robinson: And I just I'll say one other thing, Mark. Yeah. Like, 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. And our ability to sort of press down in different places is unique and distinct to us.

And so while others might put up, you know, big growth on things like casualty because the rate is there, well, you have to acknowledge that the rate is there because the starting point is problematic and because the loss inflation is problematic where 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. So we don't feel pressure to grow, you know, only where pricing is offered. We have this portfolio that allows us, you know, to put down, you know, our capital in a way that many others don't.

Mark Hughes: Yeah. Understood. Appreciate it, Andrew. Thank you.

Andrew Robinson: Thank you. Thanks, Mark.

Operator: Thank you. I'm showing 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: Thanks, everyone, for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialty Insurance Group, Inc. I'm 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.

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.