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What changed in Skyward Specialty Insurance Group, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Skyward Specialty Insurance Group, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+311 added−337 removedSource: 10-K (2025-03-03) vs 10-K (2024-04-01)

Top changes in Skyward Specialty Insurance Group, Inc.'s 2024 10-K

311 paragraphs added · 337 removed · 230 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

76 edited+16 added−17 removed91 unchanged
Biggest changeBest rating, if applicable, as of December 31, 2023: ($ in thousands) Reinsurer Reinsurance Recoverables AM Best Rating Everest Reinsurance Co. $ 121,832 A+ eCaptive PC1-IC (and PC2-IC), Inc (1) 121,805 Unrated RGA Reinsurance Company 37,070 A+ Partner Reinsurance Co. of the US 23,381 A+ Swiss Reinsurance America Corp 22,334 A+ General Reinsurance Corp 21,548 A++ Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2) 20,859 Unrated ACE (Chubb Property & Casualty Insurance Company) 16,003 A+ Aspen Insurance UK Limited 14,822 A Munich Reinsurance America Inc. 14,817 A+ Top 10 Total 414,471 All Others 181,863 Total $ 596,334 (1) This reinsurer facilitates our eMaxx captive; we hold collateral in a statutory trust of $150.8 million on our reinsurance recoverables (2) This reinsurer facilitates our LPT reinsurance agreement; we maintain the right of offset of our recoverables for premiums we owe to the reinsurer, we held collateral in a statutory trust of $23.0 million on our net reinsurance recoverables.
Biggest changeBest rating, if applicable, as of December 31, 2024: ($ in thousands) Reinsurer Reinsurance Recoverables AM Best Rating Everest Reinsurance Co. $ 154,181 A+ eMaxx Captives (1) 144,196 n/r Partner Reinsurance Co. of the US 52,442 A+ General Reinsurance Corp 48,234 A++ Swiss Reinsurance America Corp 37,789 A+ ACE (Chubb Property & Casualty Ins Company) 36,527 A+ RGA Reinsurance Company 24,945 A+ Randall & Quilter (R&Q Bermuda (SAC) Ltd) (2) 22,663 n/r Aspen Insurance UK Limited 19,998 A Insurance Company of the West 18,112 A Top 10 Total 559,087 All Others 298,789 Total $ 857,876 (1) This reinsurer facilitates our eMaxx captive.
This comprehensive data repository forms the foundation of our reporting, analytics, and other data capabilities and is a key tool for our senior management team and business leaders. See the section entitled “Technology” below for more information on SkyBI. 5 Table of Contents We are highly selective in the policies we choose to bind.
This 5 Table of Contents comprehensive data repository forms the foundation of our reporting, analytics, and other data capabilities and is a key tool for our senior management team and business leaders. See the section entitled “Technology” below for more information on SkyBI. We are highly selective in the policies we choose to bind.
SkyBI, our business intelligence platform, focuses on providing our senior leadership, as well as our technical teams, with real-time intelligence to drive superior decision making. SkyBI reflects the best practices our management team has learned from its extensive experience across the P&C insurance and technology sectors.
SkyBI, our business intelligence platform, focuses on providing our senior leadership, as well as our technical teams, with real-time intelligence to drive superior decision making. SkyBI reflects the best practices our management team has learned from its extensive experience across the P&C insurance and technology sectors.
Within every underwriting division, our actions are intentional to “Rule Our Niche.” We aim to innovate constantly, and our actions are specific to each of the divisions/markets we serve. 3. Core Transactional Platforms. Our core operating platforms, including our policy administration, billing and claims systems, are intentionally designed to enable nimble scaling and expansion of our business.
Within every underwriting division, our actions are intentional to “Rule Our Niche.” We aim to innovate constantly, and our actions are specific to each of the divisions/markets we serve. 3. Core Transactional Platforms. Our core operating platforms, including our policy administration, underwriting workbench, billing and claims systems, are intentionally designed to enable nimble scaling and expansion of our business.
We generally use, third-party vendor developed core operating applications that we have customized for our company. Our core platform organization is used for all business except for Accident & Health, Global Property and Surety as the unique features of these underwriting divisions require select dedicated core processing components.
We generally use, third-party vendor developed core operating applications that we have customized for our company. Our core platform organization is used for all business except for accident & health, global property and agriculture and surety as the unique features of these underwriting divisions require select dedicated core processing components.
We developed SkyBI, our single, comprehensive enterprise-wide data repository, as our foundation for reporting, business intelligence, analytics, and other advanced data capabilities. It provides our organization information and performance metrics across the Company in an easy-to-consume visualized format.
We developed SkyBI, our single, comprehensive enterprise-wide data repository, as our foundation for reporting, business intelligence, analytics, and other advanced data capabilities. It provides our organization with information and performance metrics across the Company in an easy-to-consume visualized format.
Additional actions we take to prevent disruptions to our systems and data include: actively monitoring Cybersecurity and Infrastructure Security Agency’s (CISA) cybersecurity directives, taking immediate action on any vulnerability identified in a directive; conducting monthly vulnerability scans on all network attached devices, at all locations, with patching applied whenever needed; requiring two-factor authentication for access to any of our systems; conducting monthly security training for all employees; implementing endpoint detection agents for threat detection and response; performing desktop scenarios to practice responses to breaches involving our cybersecurity insurance partners and retained security consultants; and performing annual penetration testing.
Additional actions we take to prevent disruptions to our systems and data include: actively monitoring Cybersecurity and Infrastructure Security Agency’s (“CISA”) cybersecurity directives, taking immediate action on any vulnerability identified in a directive; conducting monthly vulnerability scans on all network attached devices, at all locations, with patching applied whenever needed; requiring two-factor authentication for access to any of our systems; conducting monthly security training for all employees; implementing endpoint detection agents for threat detection and response; performing desktop scenarios to practice responses to breaches involving our cybersecurity insurance partners and retained security consultants; and performing annual penetration testing.
These models provide a quantitative view of PML events, which is an estimate of the level of loss we would expect to experience once in a given number of years (referred to as the return period). Based upon our modeling, it would take an event beyond our 1 in 250-year PML to exhaust our $28.0 million property catastrophe coverage.
These models provide a quantitative view of PML events, which is an estimate of the level of loss we would expect to experience once in a given number of years (referred to as the return period). Based upon our modeling, it would take an event beyond our 1 in 250-year PML to exhaust our $36.0 million property catastrophe coverage.
We refer to these lines and businesses as our “exited business.” Our Strategy We seek to lead in our chosen market niches and establish sustainable competitive positions in these markets. The following key elements underpin our strategy and approach to our business: 1. Providing differentiated products, services and solutions that meet the unique needs of our target markets; 2.
We refer to these lines and businesses as our “exited business”. Our Strategy We seek to lead in our chosen market niches and establish sustainable competitive positions in these markets. The following key elements underpin our strategy and approach to our business: 1. Providing differentiated products, services and solutions that meet the unique needs of our target markets; 2.
(2) Reinsurance is subject to a loss ratio cap or aggregate level of loss cover that exceeds a modeled 1:250-year PML event. (3) Catastrophe loss protection is purchased up to $28.0 million in excess of $12.0 million retention, which provides cover for a 1:250-year PML event.
(2) Reinsurance is subject to a loss ratio cap or aggregate level of loss cover that exceeds a modeled 1:250-year PML event. (3) Catastrophe loss protection is purchased up to $36.0 million in excess of $12.0 million retention, which provides cover for a 1:250-year PML event.
The data can be filtered by many categories, including distributor, customer segment, line of business, specific industry, individual underwriter, and specific risk feature among others. SkyBI aids in establishing clear line of sight to objectives as well as facilitating our decision-making processes. Advanced technology and new risk data for underwriting and claims.
The data can be filtered by many categories, including distributor, customer segment, line of business, specific industry, individual underwriter, and specific risk feature among others. SkyBI aids in establishing clear line of sight to objectives as well as facilitating our decision-making processes. 3 Table of Contents Advanced technology and new risk data for underwriting and claims.
We believe the diversity of our book allows us to respond to, and capitalize on, market opportunities and dislocations across P&C insurance market and pricing cycles resulting in a durable insurance franchise. Attractive and winning culture.
We believe the diversity of our book allows us to respond to, and capitalize on, market opportunities and dislocations across insurance market and pricing cycles resulting in a durable insurance franchise. Attractive and winning culture.
Our Business and Our Strategy We have one reportable segment through which we offer a broad array of insurance coverages to a number of market niches. Each of our eight distinct underwriting divisions, or “continuing business,” has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches.
Our Business and Our Strategy We have one reportable segment through which we offer a broad array of insurance coverages to a number of market niches. Each of our eight distinct underwriting divisions has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches.
Our portfolio of insured risks is highly diversified—we insure customers operating in a wide variety of industries; we distribute through multiple channels; we write multiple lines of business, including general liability, excess liability, professional liability (including cyber insurance), commercial auto, group accident and health, property, agriculture, surety and workers’ compensation; we insure both short and medium duration liabilities; and our business mix is balanced between E&S and admitted markets.
Our portfolio of insured risks is highly diversified—we insure customers operating in a wide variety of industries; we distribute through multiple channels; we write multiple lines of business, including general liability, excess liability, professional liability (including cyber and media liability insurance), commercial auto, group accident and health, property, agriculture, credit, surety and workers’ compensation; we insure both short and medium duration liabilities; and our business mix is principally primary insurance and balanced between E&S and admitted markets.
We aim to deliver long-term value for our shareholders by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles. All of our insurance company subsidiaries are group rated and have financial strength ratings of “A-” (Excellent) from the A.M. Best Company (“A.M. Best”) with positive outlook.
We aim to deliver long-term value for our shareholders by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles. All of our insurance company subsidiaries are group rated and have financial strength ratings of “A” (Excellent) from the A.M. Best Company (“A.M. Best”) with stable outlook.
While our underwriting decisions are backed by reliable historical data and in-depth 3 Table of Contents evaluation of risks resulting from intentional investment in data collection and processing capabilities, we amplify our underwriting and claims prowess by combining this data with new forms of risk data and predictive analytics.
While our underwriting decisions are backed by reliable historical data and in-depth evaluation of risks resulting from intentional investment in data collection and processing capabilities, we amplify our underwriting and claims prowess by combining this data with new forms of risk data and predictive analytics.
If appropriate, our program aids us in resolving any third-party claims as quickly as possible. 6 Table of Contents Finally, our claims handlers and managers are organized by line of business to ensure that the right expertise is brought to bear in handling claims.
If appropriate, our program aids us in resolving any third-party claims as quickly as possible. Finally, our claims handlers and managers are organized by line of business to ensure that the right expertise is brought to bear in handling claims.
The following table sets forth the geographic distribution of our gross written premiums for the year ended December 31, 2023: 2023 Texas 11.4 % California 9.0 New York 8.7 Louisiana 8.0 Florida 7.3 Pennsylvania 3.4 New Jersey 3.4 Georgia 3.3 Illinois 3.2 Massachusetts 2.4 All other states 39.9 Total 100.0 % In addition to our primary insurance companies, we also own Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands that was incorporated on January 7, 2020.
The following table sets forth the geographic distribution of our gross written premiums for the year ended December 31, 2024: 2024 Texas 11.2 % California 8.8 Florida 8.3 Louisiana 6.8 New York 6.5 Georgia 4.4 Pennsylvania 3.9 New Jersey 3.2 Illinois 2.9 Massachusetts 2.5 All other states 41.5 Total 100.0 % In addition to our primary insurance companies, we also own Skyward Re, a wholly-owned captive reinsurance company domiciled in the Cayman Islands that was incorporated on January 7, 2020.
Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of GMIC, is an approved surplus lines company in 49 states and the District of Columbia.
Oklahoma Specialty Insurance Company (“OSIC”), a subsidiary of IIC, is an approved surplus lines company in 49 states and the District of Columbia.
Specifically, we may utilize TPAs for programs, captives, occupational accident, workers compensation and Loss Portfolio Transfer (LPT) runoff claims. We actively manage and oversee our TPAs and monitor their individual claims-handling activities, to be in accordance with our claims handling and reserving guidelines and general best practices. We regularly audit our TPAs to ensure compliance with these guidelines and practices.
Specifically, we may utilize TPAs for programs, captives, occupational accident, workers compensation and runoff claims. We actively manage and oversee our TPAs and monitor their individual claims-handling activities, to be in accordance with our claims handling and reserving guidelines and general best practices. We regularly audit our TPAs to ensure compliance with these guidelines and practices.
For the year ended December 31, 2023, property insurance represented 27% of our gross written premiums. We actively manage and continuously monitor our aggregation of property writings by geographic area to limit our potential for aggregation of loss resulting from severe events such as hurricanes, convective storms, and earthquakes.
For the year ended December 31, 2024, property insurance represented 29% of our gross written premiums. We actively manage and continuously monitor our aggregation of property writings by geographic area to limit our potential for aggregation of loss resulting from severe events such as hurricanes, convective storms, and earthquakes.
We also emphasize the training and development of our employees and provide opportunities to further their education and professional development. We know that we cannot win at our business unless we first win with our people.
We also emphasize the training and development of our employees and provide opportunities to further their education and professional development. We know that we cannot win at our business unless we first win with our people. 13 Table of Contents
Another such noticeable market trend is the emergence of 4 Table of Contents “micro cycles and micro dislocations” where different pockets of the P&C insurance market experience hardening and softening at different times.
Another such noticeable market trend is the emergence of “micro cycles and micro dislocations” where different pockets of the P&C insurance market experience hardening and softening at different times.
At December 31, 2023 and 2022, our allowance for uncollectible reinsurance was $2.3 million and $0.0 million, respectively. 8 Table of Contents The following table sets forth our most significant reinsurers by amount of reinsurance recoverables, as well as the reinsurers A.M.
At December 31, 2024 and 2023, our allowance for uncollectible reinsurance was $2.3 million. 8 Table of Contents The following table sets forth our most significant reinsurers by amount of reinsurance recoverables, as well as the reinsurers A.M.
Employees and Human Capital As of December 31, 2023, we had approximately 515 employees. Our employees are not subject to any collective bargaining agreement, and we are not aware of any current efforts to implement such an agreement. We believe we have good working relations with our employees.
Employees and Human Capital As of December 31, 2024, we had approximately 580 employees. Our employees are not subject to any collective bargaining agreement, and we are not aware of any current efforts to implement such an agreement. We believe we have good working relations with our employees.
We believe this structure and expertise allow us to serve the needs of our customers effectively and be a value-add partner to our distributors, while earning attractive risk-adjusted returns. For the year ended December 31, 2023, 43% of our gross written premiums were written on an admitted basis and 57% were non-admitted.
We believe this structure and expertise allow us to serve the needs of our customers effectively and be a value-add partner to our distributors, while earning attractive risk-adjusted returns. For the year ended December 31, 2024, 44% of our gross written premiums were written on an admitted basis and 56% were non-admitted.
Aside from maintaining our ECM and overseeing our risk tolerance framework, our Chief Risk Officer works with our ERM Committee to review and maintain a comprehensive risk register with accountabilities to ensure appropriate mitigations are in place and are monitored for any change.
Aside from maintaining our ECM and overseeing our risk tolerance framework, our SVP of Finance & ERM works with our ERM Committee to review and maintain a comprehensive risk register with accountabilities to ensure appropriate mitigations are in place and are monitored for any change.
Industry Solutions : Our Industry Solutions underwriting division includes three underwriting units that each provide multiple coverages to the businesses they serve: Construction, Energy and Specialty Trucking.
Industry Solutions : Our Industry Solutions underwriting division includes three underwriting units that each provide multiple coverages to the businesses they serve: construction, energy and inland marine.
The top 10 risks are further identified and quantified by the Chief Risk Officer and the ERM Committee and reviewed every quarter. The Chief Risk Officer and the ERM Committee submit these reports to the Risk Committee on a regular basis.
The top 10 risks are further identified and quantified by the SVP of Finance & ERM and the ERM Committee and reviewed every quarter. The SVP of Finance & ERM and the ERM Committee submit these reports to the Risk Committee on a regular basis.
The Investment Committee of our Board of Directors reviews and approves our investment policy and strategy. This committee meets on a regular basis to review and consider investment activities, tactics, and new investment opportunities as they arise. The portfolio is directed internally and includes both self-managed investments and portfolios managed by select third-party investment management firms.
The Investment Committee of our Board of Directors reviews and approves our investment policy and strategy. This committee meets quarterly to review and consider investment activities, tactics, and new investment opportunities. The portfolio is directed internally and includes both self-managed investments and portfolios managed by select third-party investment management firms.
Each entity is wholly-owned by its immediate parent: Ratings Our insurance group, Skyward Specialty Insurance Group, Inc. currently has a rating of “A-” (Excellent) with positive outlook from A.M. Best, which rates insurance companies based on factors of concern to policyholders. A.M. Best currently assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “F” (In Liquidation).
Each entity is wholly-owned by its immediate parent: Ratings Our insurance group, Skyward Specialty Insurance Group, Inc. currently has a rating of “A” (Excellent) with stable outlook from A.M. Best, which rates insurance companies based on factors of concern to policyholders. A.M. Best currently assigns 13 ratings to insurance companies, which currently range from “A++” (Superior) to “D” (Poor).
The following is a summary of our reinsurance programs as of December 31, 2023: Line of Business Maximum Company Retention Accident & Health $0.88 million per occurrence Commercial Auto (1) $1.0 million per occurrence Cyber $2.69 million per occurrence Excess Casualty (1)(2) $1.24 million per occurrence General Liability (1) $1.25 million per occurrence Professional Lines (2) $2.7 million per occurrence Property (3) $2.8 million per occurrence Representation and Warranty $2.5 million per occurrence Surety (2) $3.0 million per occurrence Workers’ Compensation (2) $2.33 million per occurrence (1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.
The following is a summary of our reinsurance programs as of December 31, 2024: Line of Business Maximum Company Retention Accident & Health $0.90 million per occurrence Commercial Auto (1) $1.00 million per occurrence Excess Casualty (1)(2) $1.25 million per occurrence General Liability (1) $1.50 million per occurrence Professional Lines (2) $5.21 million per occurrence Property (3) $3.50 million per occurrence Representation and Warranty $3.25 million per occurrence Surety (2) $4.00 million per occurrence Workers’ Compensation (2) $2.33 million per occurrence (1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.
We have demonstrated our ability to react quickly in response to these trends by launching new underwriting units, entering underserved markets, partnering with others with advanced technology, and launching new captive solutions.
We have demonstrated our ability to react quickly in response to these trends by launching new underwriting units, including many not typically aligned with P&C cycles, entering underserved markets, partnering with others with advanced technology, and launching new captive solutions.
We often administer this business through partnerships with third-party captive managers. 1 Table of Contents Global Property and Agriculture : Our Global Property underwriting unit provides property-only solutions to large multi-jurisdictional entities with complex property exposures. The business is written entirely on an E&S basis. We distribute this product through retail brokers and select wholesale brokers.
Global Property and Agriculture : Our Global Property underwriting unit provides property-only solutions to large multi-jurisdictional entities with complex property exposures. The business is written entirely on an E&S basis. We distribute this product through retail brokers and select wholesale brokers.
Regulation of insurance companies constantly changes as governmental agencies and legislatures react to real or perceived issues. In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that alter and, in many cases, increase, state authority to regulate insurance companies and insurance holding company systems.
Regulation of insurance companies constantly changes as governmental agencies and legislatures react to real or perceived issues. In recent years, some state legislatures have considered or enacted laws that alter and, in many cases, increase, state authority to regulate insurance companies and insurance holding company systems, as a protection against federal involvement.
The “A-” (Excellent) rating is the fourth highest rating. In evaluating a company’s financial and operating performance, A.M.
The “A” (Excellent) rating is the third highest rating. In evaluating a company’s financial and operating performance, A.M.
Marketing and Distribution Our approach to marketing and distribution mirrors our approach to underwriting and is a key facet of our “Rule Our Niche” strategy. Our underwriting teams, as well as the Company as a whole, have strong and well-established relationships with our distribution partners and equally strong reputations that provide a foundation to establish affiliations with new distribution partners.
Our underwriting teams, as well as the Company as a whole, have strong and well-established relationships with our distribution partners and equally strong reputations that provide a foundation to establish affiliations with new distribution partners.
We aim to be an employer of choice, and not just for insurance. As such, we strive to create a culture committed to fostering a rich diversity of thought, background and perspective.
We aim to be an employer of choice, and not just for insurance. As such, we strive to create a culture committed to fostering a rich diversity of thought, background and perspective. We strive to cultivate an exceptional workforce to perpetuate our ownership culture and continue to achieve superior business results.
We believe our high-quality leadership and underwriting and claims teams, technology DNA, advanced analytics capabilities, diversified book of business, and strong competitive position in each of our chosen market niches position us to continue to profitably grow our business.
Our leadership is supported by an experienced team with a broad skill set and aligned around our strategy. We believe our high-quality leadership and underwriting and claims teams, technology DNA, advanced analytics capabilities, diversified book of business, and strong competitive position in each of our chosen market niches position us to continue to profitably grow our business.
We believe this approach is key to superior risk selection and pricing, and producing sustainable best-in-class underwriting results across market cycles. We strive to augment the capabilities and experience of our underwriting professionals using new forms of data and analytics for risk selection and pricing. Our underwriting data is captured in our business intelligence platform, SkyBI.
We strive to augment the capabilities and experience of our underwriting professionals using new forms of data and analytics for risk selection and pricing. Our underwriting data is captured in our business intelligence platform, SkyBI.
Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia.
Houston Specialty Company (“HSIC”), a subsidiary of GMIC, underwrites multiple lines of insurance on a surplus lines basis in 50 states, the District of Columbia and select foreign countries. Imperium Insurance Company (“IIC”), a subsidiary of HSIC, underwrites on an admitted basis in all 50 states and the District of Columbia.
We believe our technological advantage positions us for profitable growth and expansion into additional specialty market niches where we can establish a strong and defensible market position. Profitably grow existing lines of business and expand with new underwriting divisions. We believe we are well-positioned to take advantage of several trends impacting our customers in the United States and globally.
We believe our technological advantage positions us for profitable growth and expansion into additional specialty market niches where we can establish a strong and defensible market position. 4 Table of Contents Profitably grow existing lines of business and expand with new underwriting divisions.
IBNR reserves are estimated based on generally accepted actuarial reserving techniques that take into account quantitative loss experience data and, where appropriate, qualitative factors. We regularly review our loss reserves using a variety of actuarial techniques. We also update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information becomes available.
We regularly review our loss reserves using a variety of actuarial techniques. We also update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information becomes available.
Our Construction and Energy underwriting units provide general liability, excess liability, commercial auto, workers’ compensation, and inland marine solutions, written principally on an admitted basis, to a broad range of middle market construction and energy production and servicing customers. Our Specialty Trucking unit writes on an E&S basis commercial auto and general liability solutions to mid-sized intermodal trucking companies.
Our construction and energy underwriting units provide general liability, excess liability, commercial auto, workers’ compensation, and adjacent inland marine solutions, written principally on an admitted basis, to a broad range of middle market construction and energy production and servicing customers, including many in the alternative/renewable energy fields.
These outputs are measured against risk tolerances that are set out and updated annually by the ERM Committee and discussed with the Risk Committee of our Board. More specifically, our ECM provides a probabilistic modeled view of earnings and capital loss that brings together the potential loss from catastrophes, reserving, underwriting, market, credit risk, strategic and operational risks.
More specifically, our ECM provides a probabilistic modeled view of earnings and capital loss that brings together the potential loss from catastrophes, reserving, underwriting, market, credit risk, strategic and operational risks.
Typically, the program administrators possess a competitive advantage (owing to their scale in a particular market niche and/or proprietary technology) that we believe would be difficult for us to replicate on our own. For example, certain of our program administrator partners have developed proprietary technology to optimize risk selection and pricing in specific markets.
We believe partnering with a program administrator in certain circumstances is the optimal way for us to participate profitably or extend our reach in certain markets. Typically, the program administrators possess a competitive advantage (owing to their scale in a particular market niche and/or proprietary technology) that we believe would be difficult for us to replicate on our own.
Any key observations are subsequently discussed with the CEO. Monthly and quarterly our underwriting divisions assess rate change and retention on existing business, new business quality and pricing adequacy, and loss emergence as compared to expected. Our SkyBI platform provides real-time portfolio, underwriting, claims and actuarial analytics which is critical to ensuring that the above processes achieve the desired outcome.
Any key observations are subsequently discussed with the CEO. Monthly and quarterly our underwriting divisions assess rate change and retention on existing business, new business quality and pricing adequacy, and loss emergence as compared to expected.
As of December 31, 2023, 99% of our reinsurance recoverables were either derived from reinsurers rated “A-” (Excellent) by A.M. Best, or better, or were collateralized for our reinsurance recoverable by the reinsurer. While we only select reinsurers whom we believe to have acceptable credit and A.M.
We seek to purchase reinsurance from reinsurers that are rated at least “A-” (“Excellent”) or better by A.M. Best. As of December 31, 2024, 99% of our reinsurance recoverables were either derived from reinsurers rated “A-” (Excellent) by A.M. Best, or better, or were collateralized for our reinsurance recoverable by the reinsurer.
Our Underwriting Divisions Accident & Health : Our Accident & Health (“A&H”) underwriting division provides a medical stop loss solution targeting organizations with less than 2,500 employees, as well as group and single-employer captive solutions. Our approach for managing medical costs, combined with our claims oversight, enables us to partner with select distribution partners.
Our Underwriting Divisions Accident & Health : Our Accident & Health (“A&H”) underwriting division provides medical stop loss to employers who self-insure their employee benefits, as well as covering group and single-employer captives. Our approach for managing medical costs, combined with our claims oversight, enables us to partner with select distribution partners.
Diversified business that allows us to respond to, and capitalize on, changes in market conditions across P&C cycles. We have been successful in building a diversified group of underwriting divisions spanning multiple product lines, industries, geographies and distribution channels.
We have been successful in building a diversified group of underwriting divisions spanning multiple product lines, industries, geographies and distribution channels, including business that is not typically aligned with traditional P&C cycles.
Enterprise Risk Management Our enterprise risk management (“ERM”) is embedded in nearly every aspect of our company and guides our day-to-day activities. At the highest level, our approach to ERM is to ensure we achieve an acceptable risk adjusted return for our shareholders; as such we are intentional in our underwriting and asset portfolio construction.
At the highest level, our approach to ERM is to ensure we achieve an acceptable risk adjusted return for our shareholders while maintaining a strong foundation of trust and reliability for those we serve; as such we are intentional in our underwriting and asset portfolio construction.
Our Captive underwriting division writes group A&H, property, general liability, commercial auto, excess liability, and workers’ compensation lines of business on an E&S and an admitted basis.
Our captive underwriting division 1 Table of Contents writes property, general liability, commercial auto, excess liability, and workers’ compensation lines of business on an E&S and an admitted basis. We often administer this business through partnerships with third-party captive managers.
Altogether, our ERM is at the center of our decision making and our day-to-day activities. It is a central component to our strategy to achieve market leading risk adjusted returns for our shareholders. 9 Table of Contents Reserves We maintain reserves for specific claims incurred and reported, IBNR reserves and reserves for uncollectible reinsurance when appropriate.
It is a central component to our strategy to achieve market leading risk adjusted returns for our shareholders. Reserves We maintain reserves for specific claims incurred and reported, IBNR reserves and reserves for uncollectible reinsurance when appropriate. Our ultimate liability may be greater or less than the current reserves.
When a claim is reported, we establish a case reserve for the estimated amount of the ultimate payment after an appropriate assessment of coverage, damages and other investigation as applicable. The estimate is based on our reserving practices and on the claims adjuster’s experience and knowledge of the nature and value of the specific type of claim.
We do not discount our reserves for losses and LAE to reflect estimated present value. When a claim is reported, we establish a case reserve for the estimated amount of the ultimate payment after an appropriate assessment of coverage, damages and other investigation as applicable.
Best ratings, if our reinsurers are unable to pay the claims for which they are responsible, we ultimately retain primary liability to our policyholders. Hence, failure of the reinsurer to honor its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible.
Hence, failure of the reinsurer to honor its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible.
Our Competitive Strengths We believe that our competitive strengths include: Focus on profitable niches of the market that require technical underwriting and claims management as barriers to entry .
We consistently strive for excellence in risk selection, pricing, and claims outcomes, and to amplify these critical functions with the use of advanced technology and analytics. Our Competitive Strengths We believe that our competitive strengths include: Focus on profitable niches of the market that require technical underwriting and claims management as barriers to entry .
Skyward Re was established to facilitate the LPT.
Skyward Re was established to facilitate the LPT which was commuted effective January 31, 2025.
Our ultimate liability may be greater or less than the current reserves. In the insurance industry, there is always the risk that reserves may prove inadequate. We continually monitor reserves using new information on reported claims and a variety of statistical analyses.
In the insurance industry, there is always the risk that reserves may prove inadequate. We continually monitor reserves using new information on reported claims and a variety of statistical analyses. Anticipated inflation is reflected implicitly in the reserving process through analysis of cost trends and the review of historical development.
All of these factors enable us to respond to market opportunities and dislocations by deploying capital where we believe we can consistently earn attractive risk-adjusted returns. We believe this diversification, combined with our underwriting and claims expertise, will produce strong growth and consistent profitability across P&C insurance pricing cycles.
All of these factors enable us to respond to market opportunities and dislocations by deploying capital where we believe we can consistently earn attractive risk-adjusted returns.
The industry segments we seek to underwrite often have high severity exposures that our teams of skilled and experienced underwriters and claims professionals are able to address quickly and creatively, frequently with multi-line solutions. We distribute these products through retail agents and brokers and a select network of wholesalers.
Our inland marine underwriting unit focuses on logistics and other specialty property risk for assets that are constantly on the move. The industry segments we seek to underwrite often have high severity exposures that our teams of skilled and experienced underwriters and claims professionals are able to address quickly and creatively, frequently with multi-line solutions.
Empowering our underwriting and claims teams with considerable authority to make decisions and apply their expertise; and 5.
Empowering our underwriting and claims teams with considerable authority to make decisions and apply their expertise; and 2 Table of Contents 5. Fostering a culture that promotes nimbleness and responsiveness to market opportunities and dislocation.
Fostering a culture that promotes nimbleness and responsiveness to market opportunities and dislocation. 2 Table of Contents We refer to this strategy as “Rule Our Niche” and it forms the basis of our approach to building a strong defensible market position, creating a competitive moat, and winning in our chosen markets.
We refer to this strategy as “Rule Our Niche” and it forms the basis of our approach to building a strong defensible market position, creating a competitive moat, and winning in our chosen markets. We believe that the principles underlying our strategy are key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles.
For additional information about the LPT, see Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Loss and LAE.” We also operate two non-insurance companies: Skyward Underwriters Agency, Inc., a licensed agent, managing general agent and reinsurance broker, and Skyward Service Company, which provides various administrative services to our subsidiaries. 11 Table of Contents Our organizational structure is set forth below.
We also operate three non-insurance companies: Skyward Underwriters Agency, Inc., a licensed agent, managing general agent and reinsurance broker, Skyward Service Company, which provides various administrative services to our subsidiaries and Skyward Specialty No. 1 Limited Company, a UK company which is an authorized Lloyd’s corporate member. 11 Table of Contents Our organizational structure is set forth below.
Our underwriting approach is underpinned by hiring highly experienced, best-in-class and diverse teams of technical underwriters with established track records in specific specialty niche markets. We then amplify our underwriters’ skill sets with advanced technology and data analytics and empower them with appropriate authority to make decisions.
Within the eight divisions, we further specialize underwriting teams with a focus on specific niches within the markets the eight divisions serve. Our underwriting approach is underpinned by hiring highly experienced, best-in-class and diverse teams of technical underwriters with established track records in specific specialty niche markets.
Great Midwest Insurance Company (“GMIC”), a subsidiary of IIC underwrites multiple lines of insurance on an admitted basis in all 50 states, the District of Columbia and is a certified surety bond company listed with the Department of the Treasury.
Berkley Corporation; American Financial Group Inc.; Tokio Marine Holdings, Inc.; CNA Financial Corporation; Hiscox, Ltd.; RLI Corp.; Intact Finance Corporation; and Kinsale Capital Group, Inc. 10 Table of Contents Our Structure We conduct our operations principally through four insurance companies: Great Midwest Insurance Company (“GMIC”), our largest insurance subsidiary, underwrites multiple lines of insurance on an admitted basis in all 50 states and the District of Columbia and is a certified surety bond company listed with the Department of the Treasury.
This quick response assists us in evaluating the facts and circumstances of the accident to begin our investigation as quickly as possible.
This program involves deploying experienced investigators and other appropriate vendors to the scene of a reported auto accident, ideally within two hours of the accident, regardless of the location. This quick response assists us in evaluating 6 Table of Contents the facts and circumstances of the accident to begin our investigation as quickly as possible.
Case reserves are revised periodically based on subsequent developments associated with each claim. See the section entitled “Claims Management” included in this Item 1 for more information. We establish IBNR reserves in accordance with industry practice to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.
We establish IBNR reserves in accordance with industry practice to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims. IBNR reserves are estimated based on generally accepted actuarial reserving techniques that take into account quantitative loss experience data and, where appropriate, qualitative factors.
We believe the combination of our underwriting and claims expertise with their scale and/or technology creates a more powerful partnership than either party could present to the market on its own. Our Programs underwriting division writes property, general liability, commercial auto liability, excess liability, and workers’ compensation lines of business on an E&S and an admitted basis.
For example, certain of our program administrator partners have developed proprietary technology to optimize risk selection and pricing in specific markets. We believe the combination of our underwriting and claims expertise with their scale and/or technology creates a more powerful partnership than either party could present to the market on its own.
Our investment strategy is similarly set out to have a diversified target portfolio that balances portfolio yield, liquidity, volatility, and potential for principal loss. Our Chief Risk Officer oversees several critical ERM processes as well as chairing our cross-functional corporate ERM Committee.
As an example, we aim to balance liability duration and market cyclicality of our underwriting portfolio, and we use reinsurance to manage volatility outside of our risk tolerances. Our investment strategy is similarly set out to have a diversified target portfolio that balances portfolio yield, liquidity, volatility, and potential for principal loss.
Surety : Our Surety underwriting division provides contract, commercial and transactional surety solutions to a range of trade and services organizations requiring bonding. We principally focus on small to medium sized enterprises with aggregate bond programs up to approximately $50.0 million for contract and $75.0 million for commercial and transactional.
We principally focus on small to medium sized enterprises with aggregate bond programs up to approximately $75.0 million for contract and $100.0 million for commercial and transactional. We write this business on an admitted basis and distribute through retail agents and brokers.
The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system, although the FIO has no express regulatory authority over insurance companies or other insurance industry participants. 12 Table of Contents Insurance Holding Company Regulation We operate as an insurance holding company system and are subject to the insurance holding company laws of the State of Texas, the state in which our primary insurance companies are domiciled, as well as those of Oklahoma.
Insurance Holding Company Regulation We operate as an insurance holding company system and are subject to the insurance holding company laws of the State of Texas, the state in which our primary insurance companies are domiciled, as well as those of Oklahoma.
We are led by an entrepreneurial executive management team with decades of insurance leadership experience spanning multiple aspects of the global P&C industry. Our leadership is supported by an experienced team with a broad skill set and aligned around our strategy.
We believe this diversification, which includes businesses not typically aligned with traditional P&C pricing cycles, combined with our underwriting and claims expertise, will more consistently produce strong growth and profitability across all insurance pricing cycles. We are led by an entrepreneurial executive management team with decades of insurance leadership experience spanning multiple aspects of the global P&C industry.
Professional Lines : Our Professional Lines underwriting division includes three underwriting units: Management Liability, Professional Liability (which includes cyber insurance), and Allied Health. Professional Liability and Allied Health provide E&S primary and excess claims-made liability products distributed exclusively through wholesale brokers, while our Management Liability unit provides both E&S and admitted products distributed through both wholesale and retail brokers.
Professional liability and allied health provide primary and excess claims-made liability products, on an E&S and admitted basis, distributed through both wholesale and retail brokers, depending on the product. Programs : Our Programs underwriting division partners with program administrators focused on certain markets that align with our expertise and strategy.
We have strengthened our claims case reserves practices with the aim to reserve to the expected ultimate loss within 90 days of the first notice of loss. In addition, we increase the level of IBNR reserves held above our claims case reserves. We believe our conservative reserve philosophy positions us well for consistently strong underwriting profitability in the future.
Our claims case reserves practices aim to reserve to the expected ultimate loss within 90 days of the first notice of loss. In addition, our practice is to maintain a level of incurred but not reported reserves (“IBNR”) that, together with our case reserves, is above our actuarial central estimate.
We formalize our own view of risk and solvency in terms of potential economic loss using our Economic Capital Model (“ECM”). We use the output of our ECM to measure potential earnings and capital loss for a range of scenarios.
We use the output of our ECM to measure potential earnings and capital loss for a range of scenarios. These outputs are measured against risk tolerances that are set out and updated annually by the ERM Committee and discussed with the Risk Committee of our Board.
Although the federal government does not directly regulate the business of insurance, federal initiatives often affect the insurance industry in a variety of ways. In addition, the Federal Insurance Office (the “FIO”) was established within the U.S. Department of the Treasury by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010.
In addition, although the federal government does not directly regulate the business of insurance, federal initiatives often affect the insurance industry in a 12 Table of Contents variety of ways, such as treatment of federal subsidiaries, regulations of quasi-governmental entities and regulations issued by federal governmental departments.
Removed
The year ended 2023 marked a significant underwriting achievement for us as each of our eight underwriting divisions wrote over $100.0 million in gross written premiums.
Added
A small portion of our business is specialty reinsurance (principally agriculture and credit) which is similarly focused on attractive specialty classes where we believe it is more efficient to approach these classes through reinsurance given factors such as cost of entry, including the costs of geographic expansion.
Removed
Programs : Our Programs underwriting division partners with program administrators focused on certain markets that align with our expertise and strategy. We believe partnering with a program administrator in certain circumstances is the optimal way for us to participate profitably or extend our reach in certain markets.
Added
We distribute these products through retail agents and brokers and a select network of wholesalers. Professional Lines : Our Professional Lines underwriting division includes three underwriting units: management liability, professional liability (which includes cyber and media liability insurance), and allied health (which includes life sciences).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong others, these risks relate to: • our financial condition and results of operations could be materially adversely affected if we do not accurately assess our underwriting risk; • competition for business in our industry is intense; • because our business depends on insurance retail agents and brokers, wholesalers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results; 13 Table of Contents • we may be unable to purchase third-party reinsurance in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations; • our losses and loss expense reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows; • a decline in our financial strength rating may adversely affect the amount of business we write; • unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations; • our reinsurers may not reimburse us for claims on a timely basis, or at all, which may materially adversely affect our business, financial condition and results of operations; • our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects; • adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our growth and profitability; • the insurance business is historically cyclical in nature, which may affect our financial performance and cause our operating results to vary from quarter to quarter and may not be indicative of future performance; • we are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives; failure to comply with these regulations could subject us to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations; • we could be adversely affected by the loss of one or more key personnel or by an inability to attract and retain qualified personnel; • if we fail to achieve and maintain effective internal controls, our operating results and financial condition could be impacted and the market price of our common stock may be negatively affected; and • our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
Biggest changeAmong others, these risks relate to: • our financial condition and results of operations could be materially adversely affected if we do not accurately assess our underwriting risk; • competition for business in our industry is intense; • because our business depends on insurance retail agents and brokers, wholesalers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results; • we may be unable to purchase third-party reinsurance in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations; • our losses and loss expense reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows; • a decline in our financial strength rating may adversely affect the amount of business we write; • unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations; • our reinsurers may not reimburse us for claims on a timely basis, or at all, which may materially adversely affect our business, financial condition and results of operations; • our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects; • adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our growth and profitability; • the insurance business is historically cyclical in nature, which may affect our financial performance and cause our operating results to vary from quarter to quarter and may not be indicative of future performance; • we are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives; failure to comply with these regulations could subject us to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations; • we could be adversely affected by the loss of one or more key personnel or by an inability to attract and retain qualified personnel; • our ability to maintain effective internal control over financial and management systems and remediate material weaknesses; and • our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations. 14 Table of Contents Risks Related to Our Business and Industry Our financial condition and results of operations could be materially adversely affected if we do not accurately assess our underwriting risk.
Our primary insurance subsidiaries, HSIC, IIC, and GMIC, are subject to extensive regulation in Texas, their state of domicile, and to a lesser degree, the other states in which they operate. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders.
Our primary insurance subsidiaries, GMIC, HSIC and IIC, are subject to extensive regulation in Texas, their state of domicile, and to a lesser degree, the other states in which they operate. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders.
Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders and meet our debt payment obligations largely depends on dividends and other distributions from our primary insurance subsidiaries, HSIC, IIC and GMIC.
Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders and meet our debt payment obligations largely depends on dividends and other distributions from our primary insurance subsidiaries, GMIC, HSIC, and IIC.
The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. As a result of these factors, investors in our common stock may not be able to resell their shares at or above the their purchase price.
The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. As a result of these factors, investors in our common stock may not be able to resell their shares at or above their purchase price.
Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best periodically reviews our financial strength rating and may revise it downward at their discretion based primarily on its analyses of our balance sheet strength, operating performance and business profile. There are specific building blocks A.M.
Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best periodically reviews our financial strength rating and may revise it downward at its discretion based primarily on its analyses of our balance sheet strength, operating performance and business profile. There are specific building blocks A.M.
Among the factors that could affect our stock price are: • market conditions in the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • results of operations that vary from expectations of securities analysts and investors; • short sales, hedging and other derivative transactions in our common stock; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • strategic actions by us or our competitors; • announcement by us, our competitors or our acquisition targets; • sales, or anticipated sales, of large blocks of our stock, including by our directors, executive officers and principal stockholders; • additions or departures in our Board or Directors, senior management or other key personnel; • regulatory, legal or political developments; • public response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation and governmental investigations; • changing economic conditions, including social inflation; • changes in accounting principles; • any indebtedness we may incur or securities we may issue in the future; • default under agreements governing our indebtedness; • exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources; • changes in our credit ratings; and • other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events.
Among the factors that could affect our stock price are: • market conditions in the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • results of operations that vary from expectations of securities analysts and investors; • short sales, hedging and other derivative transactions in our common stock; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • strategic actions by us or our competitors; • announcement by us, our competitors or our acquisition targets; • sales, or anticipated sales, of large blocks of our stock, including by our directors, executive officers and principal stockholders; • additions or departures in our Board or Directors, senior management or other key personnel; • regulatory, legal or political developments; 28 Table of Contents • public response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation and governmental investigations; • changing economic conditions, including social inflation; • changes in accounting principles; • any indebtedness we may incur or securities we may issue in the future; • default under agreements governing our indebtedness; • exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources; • changes in our credit ratings; and • other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability. • Increased cost due to “social inflation,” including continued increase of medical costs, more costly technology in vehicles, supply chain disruptions, more involvement of attorneys in claims matters, third-party financing of litigation, lawsuit abuse and other factors, all of which could increase the frequency and severity of claims and affect the adequacy of our loss reserves. • If claims were to become more frequent, even if we had no liability for those claims, the cost of evaluating such potential claims could escalate beyond the amount of the reserves we have established.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability. • Increased cost due to “social inflation,” including continued increase of medical and material costs, more costly technology in vehicles, supply chain disruptions, more involvement of attorneys in claims matters, third-party financing of litigation, lawsuit abuse and other factors, all of which could increase the frequency and severity of claims and affect the adequacy of our loss reserves. • If claims were to become more frequent, even if we had no liability for those claims, the cost of evaluating and handling such potential claims could escalate beyond the amount of the reserves we have established.
Among other things, our charter documents: • permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; • provide that our Board of Directors will be classified into three classes with staggered, three-year terms and that directors may only be removed for cause; • require super-majority voting to amend provisions in our certificate of incorporation and bylaws; • include blank-check preferred stock, the preference rights and other terms of which may be set by the Board of Directors and could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise benefit our stockholders; • eliminate the ability of our stockholders to call special meetings of stockholders; • specify that special meetings of our stockholders can be called only by our Board of Directors, the chairman of our Board of Directors, or our chief executive officer; • prohibit stockholder consent action by other than unanimous written consent; • provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum; • prohibit cumulative voting in the election of directors; and • establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Among other things, our charter documents: • permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; • provide that our Board of Directors will be classified into three classes with staggered, three-year terms and that directors may only be removed for cause; • require super-majority voting to amend provisions in our certificate of incorporation and bylaws; • include blank-check preferred stock, the preference rights and other terms of which may be set by the Board of Directors and could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise benefit our stockholders; • eliminate the ability of our stockholders to call special meetings of stockholders; • specify that special meetings of our stockholders can be called only by our Board of Directors, the chairman of our Board of Directors, or our chief executive officer; • prohibit stockholder consent action by other than unanimous written consent; • provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum; • prohibit cumulative voting in the election of directors; and 29 Table of Contents • establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting.
As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes-Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting.
These rules and regulations will increase our legal and financial compliance costs, make certain activities more time-consuming and costly, and require our management and other personnel to devote a substantial amount of time to compliance initiatives.
These rules and regulations increase our legal and financial compliance costs, make certain activities more time-consuming and costly, and require our management and other personnel to devote a substantial amount of time to compliance initiatives.
Best reviews, including capital adequacy, operating performance, operating profile and ERM, as well as other factors that could affect their analyses such as: • if we change our business practices from our organizational business plan in a manner that no longer supports A.M.
Best reviews, including capital adequacy, operating performance, operating profile and ERM, as well as other factors that could affect its analyses such as: • if we change our business practices from our organizational business plan in a manner that no longer supports A.M.
Should the recent rate increases decline, including as a result of steps taken by the federal government to slow inflation, such as the passage of the Inflation Reduction Act of 2022, a low interest rate environment would place pressure on our net investment income, particularly as it relates to these securities and short-term investments, which, in turn, may adversely affect our operating results.
Should interest rates decline, including as a result of steps taken by the federal government to slow inflation, such as the recent rate cuts and the passage of the Inflation Reduction Act of 2022, a low interest rate environment would place pressure on our net investment income, particularly as it relates to these securities and short-term investments, which, in turn, may adversely affect our operating results.
In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business. In any case, such securities may have rights, preferences and privileges that are senior to those of the shares of common stock offered hereby.
In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business. In any case, such securities may have rights, preferences and privileges that are senior to those of the shares of our common stock.
In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work which, in turn, could adversely affect our operating margins. Severe weather conditions, including the effects of climate change, catastrophes, pandemic, as well as man-made event events may adversely affect our business, results of operations and financial condition.
In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work which, in turn, could adversely affect our operating margins. 18 Table of Contents Severe weather conditions, including the effects of climate change, catastrophes, pandemic, as well as man-made event events may adversely affect our business, results of operations and financial condition.
A downgrade or withdrawal of our rating could result in any of the following consequences, among others: • causing our current and future distribution partners and insureds to choose other, more highly-rated competitors; • increasing the cost or reducing the availability of reinsurance to us; or • severely limiting or preventing us from writing new and renewal insurance contracts.
A downgrade or withdrawal of our rating could result in any of the following consequences, among others: • causing our current and future distribution partners and insureds to choose other, more highly-rated competitors; 17 Table of Contents • increasing the cost or reducing the availability of reinsurance to us; or • severely limiting or preventing us from writing new and renewal insurance contracts.
In addition, state insurance regulators have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on 21 Table of Contents our interpretations of regulations or practices that we believe generally to be followed by the industry.
In addition, state insurance regulators have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry.
Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business and our A.M. Best Rating. We may become subject to additional government or market regulation, which may have a material adverse impact on our business.
Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business and our A.M. Best Rating. 22 Table of Contents We may become subject to additional government or market regulation, which may have a material adverse impact on our business.
We will need to continue to dedicate internal resources, engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
We are required to dedicate internal resources, engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
Some of these systems may include or rely on third-party systems not located on our premises or under our control. Events such as natural catastrophes, terrorist attacks, industrial accidents, computer viruses and other cyber-attacks may cause our systems to fail or be inaccessible for extended periods of time.
Some of these systems may include or rely on third-party systems not located on our premises or under our control. Events such as natural catastrophes, terrorist attacks, 24 Table of Contents industrial accidents, computer viruses and other cyber-attacks may cause our systems to fail or be inaccessible for extended periods of time.
Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by 25 Table of Contents Section 404 of the Sarbanes-Oxley Act.
Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley Act.
In addition, if we do not manage our TPAs effectively, or if our TPAs are unable to effectively handle our volume of claims, our ability to handle an increasing workload could be adversely affected.
In addition, if we do not manage our TPAs effectively, or if our internal staff or TPAs are unable to effectively handle our volume of claims, our ability to handle an increasing workload could be adversely affected.
In addition, 24 Table of Contents while we generally monitor vendor risk, including the security and stability of our critical vendors, we may fail to properly assess and understand the risks and costs involved in the third-party relationships, and our financial condition and results of operations could be materially and adversely affected.
In addition, while we generally monitor vendor risk, including the security and stability of our critical vendors, we may fail to properly assess and understand the risks and costs involved in the third-party relationships, and our financial condition and results of operations could be materially and adversely affected.
While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority could nullify or void a limitation or exclusion or legislation could be enacted 17 Table of Contents modifying or barring the use of such limitations or exclusions.
While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority could nullify or void a limitation or exclusion or legislation could be enacted modifying or barring the use of such limitations or exclusions.
In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated 18 Table of Contents with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations.
In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations.
Demand for insurance depends on numerous factors, including the frequency and severity of catastrophic events, levels of capacity, the introduction of new capital providers and general economic conditions. All of these factors fluctuate and may contribute to price declines generally in the insurance industry.
Demand for insurance depends on numerous factors, including the frequency and severity of catastrophic events, levels of capacity, the introduction of 20 Table of Contents new capital providers and general economic conditions. All of these factors fluctuate and may contribute to price declines generally in the insurance industry.
Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquiror, the acquiror’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control.
Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquirer, the acquirer’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide 26 Table of Contents fluctuation in the market value of your investment.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment.
In addition, our Investment Committee periodically reviews our Enterprise Based Asset Allocation models to assist in overall risk management. Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time.
In addition, our Investment Committee periodically reviews our Enterprise Based Asset Allocation models to assist in overall risk management. 21 Table of Contents Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time.
As a result, we may make fundamental changes to our operations without 27 Table of Contents stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section entitled “Business” or elsewhere in this filing.
As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section entitled “Business” or elsewhere in this filing.
As we enter new lines of 16 Table of Contents business, or as a result of new theories of claims, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated.
As we enter new lines of business, or as a result of new theories of claims, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated.
In an economic downturn that is characterized by higher unemployment, declining spending, and reduced corporate revenue, the demand for insurance products is generally adversely affected, which directly affects our premium levels and 19 Table of Contents profitability.
In an economic downturn that is characterized by higher unemployment, declining spending, and reduced corporate revenue, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability.
Accordingly, there is uncertainty as to whether a court would enforce such provision, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and 28 Table of Contents regulations thereunder.
Accordingly, there is uncertainty as to whether a court would enforce such provision, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
If we are unable to renew our expiring contracts, enter into new reinsurance arrangements on 15 Table of Contents acceptable terms or expand our coverage, our loss exposure could increase, which would increase our potential losses related to loss events.
If we are unable to renew our expiring contracts, enter into new reinsurance arrangements on acceptable terms or expand our coverage, our loss exposure could increase, which would increase our potential losses related to loss events.
To achieve compliance with Section 404 of the Sarbanes-Oxley Act, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging.
To achieve compliance with Section 404 of the Sarbanes-Oxley Act, we engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging.
As of December 31, 2023, we had gross federal income tax net operating losses, or NOLs, of approximately $49.4 million available to offset our future taxable income, if any, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, or otherwise.
As of December 31, 2024, we had gross federal income tax net operating losses, or NOLs, of approximately $44.7 million available to offset our future taxable income, if any, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, or otherwise.
In the event that any vendor suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect our confidential, proprietary, and other information, we may suffer operational impairments and financial losses.
In the event that any vendor suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, has their systems breached or compromised, or fails to protect our confidential, proprietary, and other information, we may suffer operational impairments and financial losses.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition. As of December 31, 2023, we had $596.3 million of aggregate reinsurance recoverables.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition. As of December 31, 2024, we had $857.9 million of reinsurance recoverables.
In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized.
In addition, SEC and state law requirements regarding general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business. We may change our underwriting guidelines or our strategy without stockholder approval.
The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations. The effects of litigation on our business are uncertain and could have an adverse effect on our business.
The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.
These NOLs are set to expire beginning in 2030.
These NOLs are set to expire beginning in 2032.
As of the date of this filing, A.M. Best has assigned a financial strength rating of “A-” (Excellent) with positive outlook to us. A.M.
As of the date of this filing, A.M. Best has assigned a financial strength rating of “A” (Excellent) with stable outlook to us. A.M.
Additionally, any increased frequency and severity of such weather events, including hurricanes, could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophe events.
Additionally, any increased frequency and severity of such weather events, including hurricanes or convective storms (which are difficult to model with current tools), could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophe events.
In addition, we could be adversely affected if the distributors with whom we do business exceed their granted authority, fail to transfer collected premium to us or breach the obligations that they owe to us. Although we routinely monitor our distribution relationships, such actions could expose us to liability.
In addition, we could be adversely affected if the distributors with whom we do business exceed their granted authority, fail to transfer collected premium to us or breach the obligations that they owe to us.
Our business is highly dependent upon our information technology and telecommunications systems, including our underwriting systems. We rely on these systems to interact with brokers and insureds, to underwrite business, to prepare policies and process premiums, to perform actuarial and other modeling functions, to process claims and make claims payments, and to prepare internal and external financial statements.
We rely on these systems to interact with brokers and insureds, to underwrite business, to prepare policies and process premiums, to perform actuarial and other modeling functions, to process claims and make claims payments, and to prepare internal and external financial statements.
As is typical in our industry, we continually face risks associated with litigation of various types, including disputes relating to insurance claims under our policies as well as other general commercial and corporate litigation.
The effects of litigation on our business are uncertain and could have an adverse effect on our business. As is typical in our industry, we continually face risks associated with litigation of various types, including disputes relating to insurance claims under our policies as well as other general commercial and corporate litigation.
We rely on the experience of our underwriting staff in assessing those risks. If we misunderstand the nature or extent of the risks, we may fail to establish appropriate premium rates which could adversely affect our financial results.
Our underwriting success is dependent on our ability to accurately assess the risks associated with the business we write and retain. We rely on the experience of our underwriting staff in assessing those risks. If we misunderstand the nature or extent of the risks, we may fail to establish appropriate premium rates which could adversely affect our financial results.
Also, if insurance distribution firm consolidation continues at its current pace or increases in the future, our sales channels could be materially affected in a number of ways, including loss of market access or market share in certain geographic areas.
Although we routinely monitor our distribution relationships, such actions could expose us to liability. 15 Table of Contents Also, if insurance distribution firm consolidation continues at its current pace or increases in the future, our sales channels could be materially affected in a number of ways, including loss of market access or market share in certain geographic areas.
Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world, including the markets in which we operate. Climate change may increase the frequency and severity of extreme weather events.
Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world, including in areas that have not historically been exposed to natural disasters and in the markets in which we operate.
In addition, if certain segments of the economy, such as the construction or energy production and servicing segments (which would affect several of our underwriting divisions at one time) were to significantly collapse, it could adversely affect our results. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.
In addition, if certain segments of the economy, such as the construction, credit markets or energy production and servicing segments (which would affect several of our underwriting divisions at one time) were to significantly collapse, it could adversely affect our results.
The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies.
The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks, but could consider legislation in several areas that may affect the insurance industry, including privatization of government entities such as Freddie Mac or Fannie Mae, reduction in federal subsidiaries for certain businesses, such as agriculture, tort reform, corporate governance and the taxation of reinsurance companies.
Should any of our key personnel terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations. 23 Table of Contents Security breaches, loss of data, cyberattacks, and other information technology failures could disrupt our operations, damage our reputation, and adversely affect our business, operations, and financial results.
Should any of our key personnel terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations.
Third parties to whom we outsource certain of our functions are also subject to these risks. While we review and assess our third-party providers’ cybersecurity controls, as appropriate, and make changes to our business processes to manage these risks, we cannot ensure that our attempts to keep such information confidential will always be successful.
While we review and assess our third-party providers’ cybersecurity controls, as appropriate, and make changes to our business processes to manage these risks, we cannot ensure that our attempts to keep systems from being compromised and confidential information from being disclosed will always be successful.
The insurance business is historically cyclical in nature, which may affect our financial performance and cause our operating results to vary from quarter to quarter and may not be indicative of future performance.
These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge. The insurance business is historically cyclical in nature, which may affect our financial performance and cause our operating results to vary from quarter to quarter and may not be indicative of future performance.
For instance, the following uncertainties may have an impact on the adequacy of our reserves: • When a claim is received, it may take considerable time to appreciate fully the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time.
For instance, the following uncertainties may have an impact on the adequacy of our reserves: • When a claim is received, it may take considerable time to appreciate fully the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time. 16 Table of Contents Consequently, estimates of loss associated with specified claims can change as new information emerges, which could cause the reserves for the claim to become inadequate. • New theories of liability are enforced retroactively from time to time by courts.
These include, for example, vendors of computer hardware and software, and vendors and/or outsourcing of services such as claim adjustment services, human resource benefits management services and investment management services.
We rely on services and products provided by many vendors in the United States and abroad. These include, for example, vendors of computer hardware and software, and vendors and/or outsourcing of services such as claim adjustment services, human resource benefits management services and investment management services.
State insurance laws, including the laws of Texas restrict the ability of HSIC, IIC and GMIC to determine how we declare stockholder dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus.
State insurance laws, including the laws of Texas restrict the ability of GMIC, HSIC, and IIC to determine how we declare stockholder dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Dividend payments are further limited to that part of available policyholder surplus that is derived from net profits on our business.
If actual renewals of our existing contracts do not meet expectations, our written premium in future years and our future results of operations could be materially adversely affected. Most of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts.
If actual renewals of our existing contracts or new business from repeat insureds do not meet expectations, our written premium in future years and our future results of operations could be materially adversely affected. Most of our contracts are written for a one-year term and are renewable.
Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions pursuant to our debt agreements, our indebtedness, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
Moreover, state insurance regulators that have jurisdiction over the payment of dividends by our insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. 23 Table of Contents Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions pursuant to our debt agreements, our indebtedness, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements, and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation.
Our business could be adversely affected by changes in laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements.
The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price. If actual renewals do not meet expectations or if we choose not to write renewals because of pricing conditions, our written premium in future years and our future operations would be materially adversely affected.
If actual renewals and repeat business do not meet expectations or if we choose not to write renewals or accept repeat business because of pricing conditions, our written premium in future years and our future operations would be materially adversely affected.
Even if we were to prevail in such a dispute, any litigation could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
Even if we were to prevail in such a dispute, any litigation could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. 26 Table of Contents Risks Related to Ownership of Our Common Stock We have and expect to continue to incur increased costs as a result of operating as a public company, and our management devotes substantial time to compliance initiatives.
This litigation is based on a variety of issues, including insurance and claim settlement practices. We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business.
We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business. Loss of key vendor relationships or failure of a vendor to protect our data, confidential and proprietary information could affect our operations.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm, beginning January 18, 2024.
In particular, pursuant to Section 404 of the Sarbanes-Oxley Act, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes Oxley Act.
Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments.
Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage-backed and other asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.
We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. We may change our underwriting guidelines or our strategy without stockholder approval. Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval.
Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval.
Other fixed income securities, such as mortgage-backed and other asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected. 20 Table of Contents All of our fixed maturity securities, including those held in separately managed accounts and limited partnerships, are subject to credit risk.
All of our fixed maturity securities, including those held in separately managed accounts and limited partnerships, are subject to credit risk.
A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns could cause harm to our business and reputation. For example, our insureds include a wide variety of industries, including potentially controversial industries.
A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns could cause harm to our business and reputation. Alternatively, there could be backlash by investors or customers relating to ESG related topics which could cause harm to our business and reputation.
This effect has led to conditions in the ocean and atmosphere, including warmer-than-average sea-surface temperatures and low wind shear that increase hurricane activity. The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations.
Climate change may increase the frequency and severity of extreme weather events. This effect has led to conditions in the ocean and atmosphere, including warmer-than-average sea-surface temperatures and low wind shear that increase hurricane activity, as well as drought conditions that increase wildfire risks.
Risks Related to Ownership of Our Common Stock We have and expect to continue to incur increased costs as a result of operating as a public company, and our management devotes substantial time to compliance initiatives. We are subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be adequately prepared.
We are subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be adequately prepared. As a public company, and particularly since we are no longer an emerging growth company, we incur significant legal, accounting and other expenses that we would not incur as a private company.
As a result, our operating results are subject to fluctuation and have historically varied from quarter to quarter.
Finally, the market may experience “micro cycles” where certain areas of the market harden or soften independently of the market as a whole, and perhaps at a more drastic rate. As a result, our operating results are subject to fluctuation and have historically varied from quarter to quarter.
A change in the legal status of, or the enforcement of federal laws related to, the cannabis industry could negatively impact us and lead to a decrease in our revenue through the loss of current and potential customers. Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Additionally, the possibility of federal regulatory reform of the insurance industry could increase competition from standard carriers. 14 Table of Contents We may not be able to continue to compete successfully in the insurance markets.
In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition. In addition, a number of new, proposed or potential industry or legislative developments could further increase competition in our industry. We may not be able to continue to compete successfully in the insurance markets.
Removed
Risks Related to Our Business and Industry Our financial condition and results of operations could be materially adversely affected if we do not accurately assess our underwriting risk. Our underwriting success is dependent on our ability to accurately assess the risks associated with the business we write and retain.
Added
The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations. This may include catastrophes even where we do not insure against the loss, such as the 2025 California wildfires, as homes and businesses lost or damaged due to catastrophe may otherwise cancel our policies following such event.
Removed
In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition. In addition, some of our competitors are larger and have greater financial, marketing, and other resources than we do, in addition to being able to absorb large losses more easily.
Added
However, we may be impacted indirectly in instances where businesses we insure are impacted by catastrophes that we have no direct exposure to but as a result they are unable or unwilling to continue paying premiums on our other product offerings.
Removed
Other competitors have longer operating history and more market recognition than we do in certain lines of business. A number of new, proposed or potential industry or legislative developments could further increase competition in our industry.
Added
In addition to the impacts that environmental incidents have on our business, changes to law and regulation related to climate change could also directly affect our business.
Removed
For example, there has been an increase in capital-raising by companies with whom we compete, which could result in new entrants to our markets and an excess of capital in the industry.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity risk management program leverages the National Institute of Standards and Technology framework, which organizes cybersecurity risks into five categories: identify, protect, detect, respond and recover.
Biggest changeIncidents are evaluated to determine materiality as well as operational and business impact and reviewed for privacy impact. 30 Table of Contents Our cybersecurity risk management program leverages the National Institute of Standards and Technology framework, which organizes cybersecurity risks into six categories: identify, protect, detect, respond, recover and govern.
In the event of an incident, we have outside cybersecurity legal counsel who would consult and coordinate with other third parties in the, including communication and notification to third-parties as required; cybersecurity vendors that would perform various investigation services as well as assisting with the recovery and restoration of any impacted IT System services; cybersecurity experts who would assist with validation of the incident and assist with ransomware demands; and cybersecurity insurance providers.
In the event of an incident, we have outside cybersecurity legal counsel who would consult and coordinate with other third parties involved in the incident, including communication and notification to third-parties as required; cybersecurity vendors that would perform various investigation services as well as assisting with the recovery and restoration of any impacted IT System services; cybersecurity experts who would assist with validation of the incident and assist with ransomware demands; and cybersecurity insurance providers.
At the management level, our IT security team regularly monitors alerts and meets to discuss threat levels, trends and remediation. The team also prepares a monthly cyber scorecard, regularly collects data on cybersecurity threats and risk areas and conducts an annual risk assessment.
At the management level, our IT security team regularly monitors alerts and meets to discuss threat levels, trends and remediation. The team also prepares a quarterly cyber scorecard, regularly collects data on cybersecurity threats and risk areas and conducts an annual risk assessment.
These individuals are informed about, and monitor the prevention, mitigation, detection and remediation of cybersecurity incidents through 29 Table of Contents their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our crisis response plan, and report to the Risk Committee on any appropriate items.
These individuals are informed about, and monitor the prevention, mitigation, detection and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our crisis response plan, and report to the Risk Committee on any appropriate items.
Further, security events and data incidents are evaluated, ranked by severity and prioritized for response and remediation. Incidents are evaluated to determine materiality as well as operational and business impact and reviewed for privacy impact.
Further, security events and data incidents are evaluated, ranked by severity and prioritized for response and remediation.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We lease our primary executive offices and insurance operations in Houston, Texas, and occupy approximately 20,000 square feet of office space. The lease for this space expires in 2029. We lease additional office space where appropriate. Management considers our office facilities suitable and adequate for our current levels of operations.
Biggest changeItem 2. Properties We lease our primary executive offices and insurance operations in Houston, Texas, and occupy approximately 20,400 square feet of office space. The lease for this space expires in 2029. We lease additional office space where appropriate. Management considers our office facilities suitable and adequate for our current levels of operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are periodically party to legal proceedings which arise in the ordinary course of business. Currently, we are not involved in any legal proceedings which we believe could have a material adverse effect on our business or results of operation. Item 4. Mine Safety Disclosures - Not applicable. 30 Table of Contents Part II
Biggest changeItem 3. Legal Proceedings We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position. 31 Table of Contents Item 4. Mine Safety Disclosures None. 32 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−5 removed8 unchanged
Biggest changeIssuer Purchases of Equity Securities We did not purchase any of our equity securities during the period covered by this Annual Report on Form 10-K. 31 Table of Contents Dividends We do not currently intend to pay any cash dividends on our common stock in the foreseeable future.
Biggest changeAll the proceeds from the IPO have been distributed to the Company’s insurance company subsidiaries. Issuer Purchases of Equity Securities We did not purchase any of our equity securities during the period covered by this Annual Report on Form 10-K. Dividends We do not currently intend to pay any cash dividends on our common stock in the foreseeable future.
Performance Graph The following performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period beginning January 13, 2023 (the date our common stock began trading on Nasdaq) through December 31, 2023.
Performance Graph The following performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period beginning January 13, 2023 (the date our common stock began trading on Nasdaq) through December 31, 2024.
Securities Authorized for Issuance Under Equity Compensation Plans Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders (“2024 Proxy Statement”) and is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our 2025 Annual Meeting of Stockholders (“2025 Proxy Statement”) and is incorporated herein by reference.
January 13, 2023 December 31, 2023 Skyward Specialty Insurance Group, Inc. $ 100.00 $ 177.38 Nasdaq Composite Index $ 100.00 $ 135.49 Nasdaq Insurance Index $ 100.00 $ 103.37 Item 6. [Reserved] - Not applicable.
January 13, 2023 December 31, 2023 December 31, 2024 Skyward Specialty Insurance Group, Inc. $ 100.00 $ 177.38 $ 264.61 Nasdaq Composite Index $ 100.00 $ 135.49 $ 174.30 Nasdaq Insurance Index $ 100.00 $ 103.37 $ 128.30 Item 6. [Reserved] - Not applicable.
As of March 27, 2024, there were approximately 15 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, this number is not representative of the total number of stockholders represented by these stockholders of record.
As of February 26, 2025, there were approximately 5 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, this number is not representative of the total number of stockholders represented by these stockholders of record.
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
Such returns are based on historical results and are not indicative of future performance. 33 Table of Contents This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
All recipients either received adequate information about us or had access, through employment or other relationships, to such information. Use of Proceeds from Initial Public Offering On January 18, 2023, we closed our IPO, in which we issued and sold 4,750,000 shares of common stock and the selling stockholders sold 4,202,383 shares.
No underwriters were involved in this issuance of shares. Use of Proceeds from Initial Public Offering On January 18, 2023, we closed our IPO, in which we issued and sold 4,750,000 shares of common stock and the selling stockholders sold 4,202,383 shares.
The graph assumes an initial investment of $100. Such returns are based on historical results and are not indicative of future performance.
The graph assumes an initial investment of $100.
Removed
No underwriters were involved in this issuance of shares.
Removed
Grants of Stock Awards and Issuance of Shares During the period covered by this Annual Report on Form 10-K, pursuant to the Company’s 2020 Long-Term Incentive Plan, we granted 1,101,856 shares of restricted stock restricted stock units at a weighted average price of $16.07 per share and 759,990 stock options with a strike price of $15.00 to certain employees and directors.
Removed
During the period covered by this Annual Report on Form 10-K, no shares of common stock were issued upon the exercise of stock options. No underwriters were involved in the foregoing issuance of securities.
Removed
The issuances of the securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 701 promulgated under the Securities Act as transactions pursuant to compensatory benefit plans. The shares of common stock issued upon the exercise of stock options or warrants are deemed to be restricted securities.
Removed
All the proceeds from the IPO have been distributed to the Company’s insurance company subsidiaries.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

66 edited+30 added−61 removed33 unchanged
Biggest changeResults of Operations The following table summarizes our results for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Gross written premiums $ 1,459,829 $ 1,143,952 Ceded written premiums (549,138) (468,409) Net written premiums $ 910,691 $ 675,543 Net earned premiums $ 829,143 $ 615,994 Commission and fee income 6,064 5,199 Losses and LAE 515,237 402,512 Underwriting, acquisition and insurance expenses 243,444 182,171 Underwriting income (1) $ 76,526 $ 36,510 Net investment income $ 40,322 $ 36,931 Net investment gains (losses) $ 11,072 $ (15,705) Income before income taxes $ 110,102 $ 49,783 Net income $ 85,984 $ 39,396 Adjusted operating income (1) $ 80,847 $ 58,574 Loss and LAE ratio 62.1 % 65.3 % Expense ratio 28.6 % 28.7 % Combined ratio 90.7 % 94.0 % Adjusted loss and LAE ratio (1) 62.3 % 63.9 % Expense ratio 28.6 % 28.7 % Adjusted combined ratio (1) 90.9 % 92.6 % Return on equity 15.9 % 9.3 % Return on tangible equity (1) 19.0 % 11.8 % Adjusted return on equity (1) 14.9 % 13.8 % Adjusted return on tangible equity (1) 17.9 % 17.6 % (1) See “Reconciliation of Non-GAAP Financial Measures” in this Item 7 33 Table of Contents Reconciliation of Non-GAAP Financial Measures Adjusted Operating Income The following table provides a reconciliation of adjusted operating income to net income for the years ended December 31, 2023 and 2022: 2023 2022 ($ in thousands) Before Income Taxes After Income Taxes Before Income Taxes After Income Taxes Income as reported $ 110,102 $ 85,984 $ 49,783 $ 39,396 Less (Add): Net impact of LPT 1,427 1,127 (8,572) (6,772) Net investment gains (losses) 11,072 8,747 (15,705) (12,407) Other (loss) income (632) (499) 1 1 Other expenses (5,364) (4,238) — — Adjusted operating income $ 103,599 $ 80,847 $ 74,059 $ 58,574 Underwriting income (loss) The following table provides a reconciliation of underwriting income to income before federal income tax for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Income before federal income tax $ 110,102 $ 49,783 Add: Interest expense 10,024 6,407 Amortization expense 1,798 1,547 Other expenses 5,364 — Less (Add): Net investment income 40,322 36,931 Net investment gains (losses) 11,072 (15,705) Other (loss) income (632) 1 Underwriting income $ 76,526 $ 36,510 34 Table of Contents Adjusted Loss Ratio / Adjusted Combined Ratio The following table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Net earned premiums $ 829,143 $ 615,994 Losses and LAE 515,237 402,512 Pre-tax net impact of loss portfolio transfer (1,427) 8,572 Adjusted losses and LAE $ 516,664 $ 393,940 Loss ratio 62.1 % 65.3 % Net impact of LPT (0.2) % 1.4 % Adjusted loss ratio 62.3 % 63.9 % Combined ratio 90.7 % 94.0 % Net impact of LPT (0.2) % 1.4 % Adjusted combined ratio 90.9 % 92.6 % Tangible Stockholders’ Equity The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity as of December 31, 2023 and 2022: ($ in thousands) 2023 2022 Stockholders’ equity $ 661,031 $ 421,662 Less: goodwill and intangible assets 88,435 89,870 Tangible stockholders’ equity $ 572,596 $ 331,792 Adjusted Return on Equity The following table provides a reconciliation of adjusted return on equity to return on equity for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Numerator: adjusted operating income $ 80,847 $ 58,574 Denominator: average stockholders’ equity $ 541,347 $ 423,871 Adjusted return on equity 14.9 % 13.8 % Return on Tangible Equity Return on tangible equity for the years ended December 31, 2023 and 2022 reconciles to return on equity as follows: ($ in thousands) 2023 2022 Numerator: net income $ 85,984 $ 39,396 Denominator: average tangible stockholders’ equity $ 452,194 $ 333,268 Return on tangible equity 19.0 % 11.8 % 35 Table of Contents Adjusted Return on Tangible Equity Adjusted return on tangible equity for the years ended December 31, 2023 and 2022 reconciles to return on equity as follows: ($ in thousands) 2023 2022 Numerator: adjusted operating income $ 80,847 $ 58,574 Denominator: average tangible stockholders’ equity $ 452,194 $ 333,268 Adjusted return on tangible equity 17.9 % 17.6 % Underwriting Results Premiums The following table presents gross written premiums by underwriting division for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 % Change Industry Solutions $ 305,476 $ 267,628 14.1 % Global Property & Agriculture 273,191 205,081 33.2 % Programs 178,726 163,653 9.2 % Captives 167,624 124,286 34.9 % Professional Lines 154,565 93,011 66.2 % Accident & Health 151,701 130,808 16.0 % Transactional E&S 122,508 75,098 63.1 % Surety 106,056 79,062 34.1 % Total continuing business $ 1,459,847 $ 1,138,627 28.2 % Exited business (18) 5,325 (100.3) % Total gross written premiums $ 1,459,829 $ 1,143,952 27.6 % The year over year increase in gross written premiums, when compared to 2022, was driven by double-digit premium growth in nearly all of our underwriting divisions, five of which grew over 30%.
Biggest changeResults of Operations The following table summarizes our results for the years ended December 31, 2024 and 2023: Years Ended December 31, ($ in thousands) 2024 2023 Gross written premiums $ 1,743,232 $ 1,459,829 Ceded written premiums (619,654) (549,138) Net written premiums $ 1,123,578 $ 910,691 Net earned premiums $ 1,056,722 $ 829,143 Commission and fee income 6,703 6,064 Losses and LAE 669,809 515,237 Underwriting, acquisition and insurance expenses 311,757 243,444 Underwriting income (1) $ 81,859 $ 76,526 Net investment income $ 80,686 $ 40,322 Net investment gains (losses) $ 6,256 $ 11,072 Income before income taxes $ 152,739 $ 110,102 Net income $ 118,828 $ 85,984 Adjusted operating income (1) $ 126,650 $ 80,847 Loss and LAE ratio 63.4 % 62.1 % Expense ratio 28.9 % 28.6 % Combined ratio 92.3 % 90.7 % Adjusted loss and LAE ratio (1) 62.3 % 62.3 % Expense ratio 28.9 % 28.6 % Adjusted combined ratio (1) 91.2 % 90.9 % Return on equity 16.3 % 15.9 % Return on tangible equity (1) 18.6 % 19.0 % Adjusted return on equity (1) 17.4 % 14.9 % Adjusted return on tangible equity (1) 19.8 % 17.9 % (1) See “Reconciliation of Non-GAAP Financial Measures” in this Item 2 Reconciliation of Non-GAAP Financial Measures Adjusted Operating Income The following table provides a reconciliation of adjusted operating income to net income for the years ended December 31, 2024 and 2023: 2024 2023 ($ in thousands) Pre-tax After-tax Pre-tax After-tax Income as reported $ 152,739 $ 118,828 $ 110,102 $ 85,984 Less (add): Net investment gains (losses) 6,256 4,942 11,072 8,747 Net impact of LPT (11,598) (9,162) 1,427 1,127 Other (loss) income (167) (132) (632) (499) Other expenses (4,392) (3,470) (5,364) (4,238) Adjusted operating income $ 162,640 $ 126,650 $ 103,599 $ 80,847 35 Table of Contents Underwriting Income The following table provides a reconciliation of underwriting income to income before federal income tax expense for the years ended December 31, 2024 and 2023: ($ in thousands) 2024 2023 Income before income taxes $ 152,739 $ 110,102 Add: Interest expense 9,496 10,024 Amortization expense 2,007 1,798 Other expenses 4,392 5,364 Less (add): Net investment income 80,686 40,322 Net investment gains 6,256 11,072 Other loss (167) (632) Underwriting income $ 81,859 $ 76,526 Adjusted Loss Ratio / Adjusted Combined Ratio The following table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the years ended December 31, 2024 and 2023: ($ in thousands) 2024 2023 Net earned premiums $ 1,056,722 $ 829,143 Losses and LAE 669,809 515,237 Pre-tax net impact of loss portfolio transfer (11,598) 1,427 Adjusted losses and LAE $ 658,211 $ 516,664 Loss ratio 63.4 % 62.1 % Less: Net impact of LPT 1.1 % (0.2)% Adjusted loss ratio 62.3 % 62.3 % Combined ratio 92.3 % 90.7 % Less: Net impact of LPT 1.1 % (0.2)% Adjusted combined ratio 91.2 % 90.9 % Tangible Stockholders’ Equity The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the years ended December 31, 2024 and 2023: ($ in thousands) 2024 2023 Stockholders’ equity $ 793,999 $ 661,031 Less: Goodwill and intangible assets 87,348 88,435 Tangible stockholders’ equity $ 706,651 $ 572,596 36 Table of Contents Adjusted Return on Equity The following table provides a reconciliation of adjusted return on equity to return on equity for the years ended December 31, 2024 and 2023: ($ in thousands) 2024 2023 Numerator: adjusted operating income $ 126,650 $ 80,847 Denominator: average stockholders’ equity $ 727,515 $ 541,347 Adjusted return on equity 17.4 % 14.9 % Return on Tangible Equity Return on tangible equity for the years ended December 31, 2024 and 2023 reconciles to return on equity as follows: ($ in thousands) 2024 2023 Numerator: net income $ 118,828 $ 85,984 Denominator: average tangible stockholders’ equity $ 639,624 $ 452,194 Return on tangible equity 18.6 % 19.0 % Adjusted Return on Tangible Equity Adjusted return on tangible equity for the years ended December 31, 2024 and 2023 reconciles to return on equity as follows: ($ in thousands) 2024 2023 Numerator: adjusted operating income $ 126,650 $ 80,847 Denominator: average tangible stockholders’ equity $ 639,624 $ 452,194 Adjusted return on tangible equity 19.8 % 17.9 % 37 Table of Contents Underwriting Results Premiums The following tables present gross written premiums by underwriting division for the years ended December 31, 2024 and 2023: Years Ended December 31, ($ in thousands) 2024 2023 Change % Change Industry Solutions 317,198 305,476 11,722 3.8 % Global Property & Agriculture $ 311,402 $ 273,191 $ 38,211 14.0 % Captives 241,902 167,624 74,278 44.3 % Programs 218,407 178,726 39,681 22.2 % Accident & Health 173,073 151,701 21,372 14.1 % Transactional E&S 169,053 122,508 46,545 38.0 % Professional Lines 159,785 154,565 5,220 3.4 % Surety 152,429 106,056 46,373 43.7 % Total gross written premiums (1) $ 1,743,249 $ 1,459,847 $ 283,402 19.4 % (1) Excludes exited business The year-over-year increase in gross written premiums, when compared to 2023, was driven by double-digit premium growth from our captives, surety, transactional E&S, programs and global property & agriculture underwriting divisions.
Liquidity and Capital Resources Sources and Uses of Funds We are organized as a holding company with our operations primarily conducted by our wholly-owned insurance subsidiaries, HSIC, IIC, and GMIC, which are domiciled in Texas, and OSIC, which is domiciled in Oklahoma.
Liquidity and Capital Resources Sources and Uses of Funds We are organized as a holding company with our operations primarily conducted by our wholly-owned insurance subsidiaries, GMIC, HSIC, and IIC, which are domiciled in Texas, and OSIC, which is domiciled in Oklahoma.
The Reserve Committee meets quarterly to review the actuarial reserving recommendations made by the Chief Actuary and uses their best judgment to determine the best estimate to be recorded for the reserve for losses and LAE on our balance sheet.
The Reserve Committee meets quarterly to review the actuarial reserving recommendations made by the Chief Actuary and uses their judgment to determine the best estimate to be recorded for the reserve for losses and LAE on our balance sheet.
On March 15, 2024, the Company redeemed the Debentures and paid $1.4 million of accrued interest. Subordinated Debt In May 2019, we issued unsecured subordinated notes (the “Notes”) with an aggregate principal amount of $20.0 million. Interest on the subordinated notes is 7.25% fixed for the first 8 years and 8.25% fixed thereafter.
On March 15, 2024, the Company redeemed the Debentures and paid $1.4 million of accrued interest. Subordinated Debt In May 2019, we issued unsecured subordinated notes (the “Notes”) with an aggregate principal amount of $20.0 million. Interest on the subordinated notes is 7.25% fixed for the first eight years and 8.25% fixed thereafter.
This update states that entities with a single reportable segment are required to provide full segment disclosures. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This update is applied retrospectively to all prior periods presented.
This update states that entities with a single reportable segment are required to provide full segment disclosures. The guidance became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This update is applied retrospectively to all prior periods presented.
Early retirement of the debt ahead of the eight (8) year commitment requires all interest payments to be paid in full, as well as the return of all capital. Principal payment is due at maturity on May 24, 2039 and interest is payable quarterly.
Early retirement of the debt ahead of the eight-year commitment requires all interest payments to be paid in full, as well as the return of all capital. Principal payment is due at maturity on May 24, 2039 and interest is payable quarterly.
We also perform, along with our reinsurance broker, periodic credit reviews of our reinsurers. At December 31, 2023, 99% of our reinsurance recoverables were either derived from reinsurers rated “A-” (Excellent) by A.M. Best, or better, or were collateralized through funds held, trusts and letters of credit by the reinsurer.
We also perform, along with our reinsurance broker, periodic credit reviews of our reinsurers. At December 31, 2024, 99% of our reinsurance recoverables were either derived from reinsurers rated “A-” (Excellent) by A.M. Best, or better, or were collateralized through funds held, trusts and letters of credit by the reinsurer.
See Note 13, “Income Taxes” to our consolidated financial statements included in Item 8 of this Form 10-K for a reconciliation between our actual federal income tax expense and the amount computed at the indicated statutory rate for the years ended December 31, 2023 and 2022.
See Note 13, “Income Taxes” to our consolidated financial statements included in Item 8 of this Form 10-K for a reconciliation between our actual federal income tax expense and the amount computed at the indicated statutory rate for the years ended December 31, 2024 and 2023.
For a detailed discussion of our accounting policies, see Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 8 of this Form 10-K. Reserves for unpaid losses and LAE The reserves for unpaid losses and LAE is the largest and most complex estimate in our consolidated balance sheet.
For a detailed discussion of our accounting policies, see Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 8 of this Form 10-K. Reserves for unpaid losses and LAE The reserves for unpaid losses and LAE is the largest and most complex estimate in our consolidated balance sheet.
The increase in net earned premiums was primarily driven by the same reasons that drove the increase in gross written premiums discussed above.
The increase in net earned premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above.
We believe that the principles underlying our strategy are key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles. We consistently strive for excellence in risk selection, pricing, and claims outcomes, and to amplify these critical functions with the use of advanced technology and analytics.
We believe that the principles underlying our strategy are key to achieving and sustaining best-in-class underwriting results through P&C insurance pricing cycles. We consistently 34 Table of Contents strive for excellence in risk selection, pricing, and claims outcomes, and to amplify these critical functions with the use of advanced technology and analytics.
See Note 23, “Statutory Accounting Principles and Regulatory Matters” to our consolidated financial statements included in Item 8 of this Form 10-K for additional information regarding our insurance companies. At December 31, 2023, our holding company had $3.0 million in cash and investments compared to $8.9 million at December 31, 2022.
See Note 23, “Statutory Accounting Principles and Regulatory Matters” to our consolidated financial statements included in Item 8 of this Form 10-K for additional information regarding our insurance companies. At December 31, 2024, our holding company had $2.9 million in cash and investments compared to $3.0 million at December 31, 2023.
Our portfolio of insured risks is highly diversified — we insure customers operating in a wide variety of industries; we distribute through multiple channels; we write multiple lines of business, including general liability, excess liability, professional liability (which includes cyber insurance), commercial auto, group accident and health, property, agriculture, surety and workers’ compensation; we insure both short and medium duration liabilities; and our business mix is balanced between E&S and admitted markets.
Our portfolio of insured risks is highly diversified — we insure customers operating in a wide variety of industries; we distribute through multiple channels; we write multiple lines of business, including general liability, excess liability, professional liability (which includes cyber and media liability insurance), commercial auto, group accident and health, property, agriculture, credit, surety and workers’ compensation; we insure both short and medium duration liabilities; and our business mix is principally primary insurance and balanced between E&S and admitted markets.
We also may use the proceeds from these sources to contribute funds to insurance subsidiaries in order to support premium growth, pay dividends and taxes and for other business purposes. Skyward Service Company receives corporate service fees from the operating subsidiaries to reimburse it for most of the operating expenses that it incurs.
We also may use the proceeds from these sources 43 Table of Contents to contribute funds to insurance subsidiaries in order to support premium growth, pay dividends and taxes and for other business purposes. Skyward Service Company receives corporate service fees from the operating subsidiaries to reimburse it for most of the operating expenses that it incurs.
These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly 47 Table of Contents using information that we believe to be relevant.
These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant.
The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of $59.8 million issued by us and cash of $1.8 million from the issuance of Trust common shares purchased by us equal to 3% of the Trust capitalization.
The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Trust Preferred”) with a principal amount of $59.8 million issued by us and cash of $1.8 million from the issuance of Trust common shares purchased by us equal to 3% of the Trust capitalization.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. Our insurance subsidiaries did not pay dividends to us for the years ended December 31, 2023 or 2022.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. Our insurance subsidiaries did not pay dividends to us for the years ended December 31, 2024 and 2023.
In establishing the quarterly actuarial recommendation for the reserves for losses and LAE, our actuary estimates an initial expected ultimate loss ratio for each of our underwriting divisions. Input from our underwriting and claims departments, including premium pricing assumptions and historical experience, is considered by our actuary in estimating the initial expected loss ratios.
In establishing the quarterly actuarial recommendation for the reserves for losses and LAE, our actuary estimates an initial expected ultimate loss ratio for each of our underwriting divisions. Input from our underwriting and claims departments, including premium pricing assumptions and historical experience, is considered in setting our reserves.
At December 31, 2023, the six-month SOFR on the Revolving Credit Facility was 5.47%, plus a margin of 1.60%. We are subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating and minimum liquidity. As of December 31, 2023, we are in compliance with all covenants.
At December 31, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25%, plus a margin of 1.60%. We are subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating and minimum liquidity. As of December 31, 2024, we are in compliance with all covenants.
Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $596.3 million and $581.4 million at December 31, 2023 and December 31, 2022, respectively. Critical Accounting Policies We identified the accounting estimates below as critical to the understanding of our financial position and results of operations.
Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $857.9 million and $596.3 million at December 31, 2024 and December 31, 2023, respectively. Critical Accounting Policies We identified the accounting estimates below as critical to the understanding of our financial position and results of operations.
At December 31, 2023, our core fixed income portfolio had an average rating of “AA-,” with approximately 82% of securities in that portfolio rated “A” or better by at least one nationally recognized rating organization.
At December 31, 2024, our core fixed income portfolio had an average rating of “AA-,” with approximately 81.5% of securities in that portfolio rated “A” or better by at least one nationally recognized rating organization.
Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us. Such adjustments are included in the results of current operations.
Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us.
At December 31, 2023 the ratio of total debt outstanding, including the Revolving Credit Facility, the Trust Preferred and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 16.3% and at December 31, 2022, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 23.4%.
At December 31, 2024 the ratio of total debt outstanding, including the FHLB Loan, the Revolving Credit Facility and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 13.1% and at December 31, 2023, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 16.3%.
The interest rate on the Revolving Credit Facility is the Secured Overnight Financing Rate (“SOFR”) plus a margin of between 150 and 190 basis points based on the ratio of debt to total capital and a credit spread adjustment of 10 basis points.
Interest on the Revolving Credit Facility is payable quarterly. The interest rate on the Revolving Credit Facility is the SOFR plus a margin of between 150 and 190 basis points based on the ratio of debt to total capital and a credit spread adjustment of 10 basis points.
At December 31, 2023, approximately 11.4% of the fair value of our investment portfolio (excluding cash and cash equivalents and short-term investments) was invested in equity securities.
At December 31, 2024, approximately 6.7% of the fair value of our investment portfolio (excluding cash and cash equivalents and short-term investments) was invested in equity securities.
The increase in income from our core fixed income portfolio for the year ended 2023, when compared to the same 2022 period, was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) a higher book yield of 4.5% at December 31, 2023 compared to 3.7% at December 31, 2022.
The increase in income from our fixed income portfolio for 2024, when compared to 2023, was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) a higher book yield of 5.2% at December 31, 2024 compared to 4.5% at December 31, 2023.
We have exposure to credit risk as a holder of debt instruments in our core fixed income and opportunistic fixed income portfolios. Our risk management strategy and investment policy is to invest primarily in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer.
Our risk management strategy and investment policy is to invest primarily in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer.
Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates. Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimate included in our financial statements. We categorize our reserves for unpaid losses and LAE into two types: case reserves and IBNR.
Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates. Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimate included in our financial statements.
The amount by which estimated losses differ from those originally reported for a period is known as “development.” Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
Such adjustments are included in the results of current operations. 47 Table of Contents The amount by which estimated losses differ from those originally reported for a period is known as “development.” Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
All of these factors enable us to respond to market opportunities and 32 Table of Contents dislocations by deploying capital with attractive risk-adjusted returns. We believe this diversification, combined with our underwriting and claims expertise, will produce strong growth and consistent profitability across P&C insurance pricing cycles.
All of these factors enable us to respond to market opportunities and dislocations by deploying capital with attractive risk-adjusted returns. We believe this diversification, which includes businesses not typically aligned with traditional P&C pricing cycles, combined with our underwriting and claims expertise, will more consistently produce strong growth and profitability across all insurance pricing cycles.
On March 14, 2024, we drew $50.0 million on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption of the Debentures (see “Debentures” below for additional information regarding the redemption). After the draw, we had $100.0 million outstanding under the Revolving Credit Facility with another $50.0 million of undrawn capacity.
On March 14, 2024, we drew $50.0 million on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption of the Debentures (see “Debentures” below for additional information regarding the redemption).
Multiple actuarial methods are used to estimate the reserve for losses and LAE. These methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting 48 Table of Contents and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.
These methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.
Our policy is to invest in investment grade fixed income securities which are high quality and liquid, providing a stable income stream, supplemented by opportunistic fixed income and equity securities, with the objective of further enhancing the portfolio’s diversification and risk-adjusted returns.
Our policy is to invest in investment grade fixed income securities which are high quality and liquid, providing a stable income stream, supplemented by opportunistic fixed income and equity securities, with the objective of further enhancing the portfolio’s diversification and risk-adjusted returns. At December 31, 2024, approximately 1.7% of our core fixed income portfolio was unrated or rated below investment-grade.
The increase in income from short-term and money market investments for the year ended 2023, when compared to the same 2022 period, was due to a larger asset base and higher investment yields when compared to the same 2022 period.
The increase in income from short-term investments & cash and cash equivalents for 2024 when compared to 2023 was due to higher investment yields and a larger asset base.
The primary components of market risk affecting us are credit risk and interest rate risk. We do not have significant exposure to foreign currency exchange rate risk or commodity risk. Credit risk Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations.
We do not have significant exposure to foreign currency exchange rate risk or commodity risk. Credit risk Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations. We have exposure to credit risk as a holder of debt instruments in our core fixed income and opportunistic fixed income portfolios.
Credit Agreements Revolving Credit Facility On March 29, 2023, we entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks.
Revolving Credit Facility On March 29, 2023, we entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks. The Revolving Credit Facility provides us with up to a $150.0 million revolving credit facility and a letter of credit sub-facility of up to $30.0 million.
For additional information regarding our reinsurance programs, see the discussion included in “Item 1 Business - Reinsurance ”. 36 Table of Contents Losses and LAE The following table sets forth the components of the loss and LAE ratio and adjusted loss and LAE ratio for the years ended December 31, 2023 and 2022: 2023 2022 ($ in thousands) Losses and LAE % of Net Earned Premiums Losses and LAE % of Net Earned Premiums Losses and LAE: Non-cat loss and LAE (1) $ 504,664 60.9 % $ 387,440 62.8 % Cat loss and LAE (1) 12,000 1.4 % 6,500 1.1 % Prior accident year development - LPT (1,427) (0.2) % 8,572 1.4% Total losses and LAE $ 515,237 62.1 % $ 402,512 65.3 % Adjusted losses and LAE (2) : Non-cat loss and LAE (1) $ 504,664 60.9 % $ 387,440 62.8 % Cat loss and LAE (1) 12,000 1.4 % 6,500 1.1 % Total adjusted losses and LAE (2) $ 516,664 62.3 % $ 393,940 63.9 % (1) Current accident year (2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 7 The loss ratio for the year ended 2023 improved 3.2 points when compared to the same 2022 period.
For additional information regarding our reinsurance programs, see the discussion included in “Item 1 Business - Reinsurance” . 38 Table of Contents Losses and LAE The following tables set forth the components of the loss and LAE ratios and adjusted loss and LAE ratios for the years ended December 31, 2024 and 2023: Twelve months ended December 31, 2024 2023 ($ in thousands) Losses and LAE % of Net Earned Premiums Losses and LAE % of Net Earned Premiums Losses and LAE: Non-cat loss and LAE $ 640,257 60.6 % $ 504,664 60.9 % Cat loss and LAE (1) 17,954 1.7 % 12,000 1.4 % Prior accident year development - LPT 11,598 1.1 % (1,427) (0.2)% Total losses and LAE $ 669,809 63.4 % $ 515,237 62.1 % Adjusted losses and LAE (2) : Non-cat loss and LAE $ 640,257 60.6 % $ 504,664 60.9 % Cat loss and LAE (1) 17,954 1.7 % 12,000 1.4 % Total adjusted losses and LAE (2) $ 658,211 62.3 % $ 516,664 62.3 % (1) Current accident year (2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2 The 2024 loss ratio increased 1.3 points, respectively, when compared to 2023, primarily due to the net impact of prior accident year development related to the LPT, which added 1.1 points to the loss ratio.
Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums and proceeds from investment income are sufficient to cover cash outflows in the foreseeable future.
The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period.
We manage equity price risk through portfolio diversification and maintain a tail-risk management strategy that is designed to provide some protection for the equity portfolio if there is a significant decline in the S&P 500 within a 30 day period. 44 Table of Contents Other Items Income Taxes Income tax expense was $24.1 million for the year ended December 31, 2023 compared to $10.4 million for the year ended December 31, 2022.
We manage equity price risk through portfolio diversification and maintain a tail-risk management strategy that is designed to provide some protection for the equity portfolio if there is a significant decline in the S&P 500 within a 30 day period.
The following table sets forth our gross and net reserves for unpaid losses and LAE at December 31, 2023 and 2022: 2023 2022 ($ in thousands) Gross % of Total Net % of Total Gross % of Total Net % of Total Case reserves $ 561,474 42.7 % $ 318,863 37.1 % $ 485,143 42.5 % $ 269,273 38.2 % IBNR 753,027 57.3 % 540,154 62.9 % 656,614 57.5 % 436,498 61.8 % Total $ 1,314,501 100.0 % $ 859,017 100.0 % $ 1,141,757 100.0 % $ 705,771 100.0 % Case reserves are established for individual claims that have been reported to us.
We categorize our reserves for unpaid losses and LAE into two types: case reserves and IBNR. 46 Table of Contents The following table sets forth our gross and net reserves for unpaid losses and LAE at December 31, 2024 and 2023: 2024 2023 ($ in thousands) Gross % of Total Net % of Total Gross % of Total Net % of Total Case reserves $ 567,192 31.8 % $ 342,612 30.8 % $ 561,474 42.7 % $ 318,863 37.1 % IBNR 1,215,191 68.2 % 768,925 69.2 % 753,027 57.3 % 540,154 62.9 % Total $ 1,782,383 100.0 % $ 1,111,537 100.0 % $ 1,314,501 100.0 % $ 859,017 100.0 % Case reserves are established for individual claims that have been reported to us.
We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio in directional relation to the duration of our reserves. Expressed in years, duration is the weighted average payment period of cash flows, where the weighting is based on the present value of the cash flows.
We 42 Table of Contents manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio in directional relation to the duration of our reserves.
At December 31, 2023, approximately 3.0% of our core fixed income portfolio 43 Table of Contents was unrated or rated below investment-grade. Through our investment managers, we monitor the financial condition of all of the issuers of securities in our portfolio. In addition, we are subject to credit risk with respect to our third-party reinsurers.
Through our investment managers, we monitor the financial condition of all of the issuers of securities in our portfolio. In addition, we are subject to credit risk with respect to our third-party reinsurers.
The favorable development in short tail/monoline specialty lines was driven by property lines of business from the 2021 accident year. The adverse development in multi-line solutions was driven by higher than expected severity in general and auto liability lines of business primarily from the 2019 accident year.
The adverse development was partially offset by favorable development in short-tail/monoline specialty lines. The favorable development was in the property line of business primarily from accident years 2021 and 2022.
The average duration of the portfolio was approximately 4.4 years and 4.3 years, respectively, as of December 31, 2023 and 2022. 41 Table of Contents The following table sets forth the components of our core fixed income portfolio at December 31, 2023 and 2022: 2023 2022 ($ in thousands) Fair Value % of Total Fair Value Fair Value % of Total Fair Value U.S. government securities $ 44,166 4.3 % $ 48,541 8.0 % Corporate securities and miscellaneous 383,420 37.7 % 235,129 38.7 % Municipal securities 92,778 9.1 % 57,727 9.5 % Residential mortgage-backed securities 281,626 27.7 % 119,856 19.7 % Commercial mortgage-backed securities 29,934 2.9 % 36,495 6.0 % Other asset-backed securities 185,727 18.3 % 109,824 18.1 % Core fixed income securities, available for sale $ 1,017,651 100.0 % $ 607,572 100.0 % The weighted average credit rating of the portfolio was “AA-” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at December 31, 2023 and “AA” by Standard & Poor’s at December 31, 2022.
The following table sets forth the components of our fixed income securities at December 31, 2024 and 2023: 2024 2023 ($ in thousands) Carrying Value % of Total Carrying Value % of Total U.S. government securities $ 26,486 2.0 % $ 44,166 4.1 % Corporate securities and miscellaneous 425,628 32.3 % 383,420 35.9 % Municipal securities 84,716 6.4 % 92,778 8.7 % Residential mortgage-backed securities 393,833 29.9 % 281,626 26.4 % Commercial mortgage-backed securities 69,364 5.2 % 29,934 2.8 % Other asset-backed securities 292,191 22.2 % 185,727 17.4 % Total fixed income portfolio, available-for-sale 1,292,218 98.0 % 1,017,651 95.3 % Commercial mortgage loans $ 26,490 2.0 % $ 50,070 4.7 % Total fixed income portfolio $ 1,318,708 100.0 % $ 1,067,721 100.0 % The weighted average credit rating of our available-for-sale fixed income portfolio was “AA-” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at December 31, 2024 and 2023.
In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful. Although we believe that our reserve estimates are reasonable, it is possible that our actual loss experience may not conform to our assumptions.
In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful. The actuarial review considers multiple actuarial methods are used to estimate the reserve for losses and LAE.
The non-cat loss and LAE ratio improved 1.9 points when compared to the same 2022 period, driven by the shift in the mix of business and continued run-off of exited business.
The non-cat loss and LAE ratio for 2024 improved 0.3 points when compared to 2023, primarily driven by the shift in the mix of business.
This update also requires public companies to, among other things, disaggregate income taxes paid by federal, state and foreign taxes. The guidance is effective for fiscal years beginning after December 15, 2024. The Company is evaluating the effect of the amendments on its consolidated financial statements.
ASU 2023-09 requires public companies, on an annual basis, provide enhanced rate reconciliation disclosures, including disclosures of specific categories and additional information that meet a quantitative threshold. This update also requires public companies to, among other things, disaggregate income taxes paid by federal, state and foreign taxes. The guidance is effective for fiscal years beginning after December 15, 2024.
We had fixed income securities that were subject to interest rate risk with a fair value of $1,017.7 million at December 31, 2023. Our opportunistic fixed income securities are excluded from our interest rate sensitivity analysis as they are primarily floating rate and treated as held to maturity securities.
Our opportunistic fixed income securities are excluded from our interest rate sensitivity analysis as they are primarily floating rate and treated as held to maturity securities.
The following table sets forth what changes might occur in the value of our core fixed income portfolio given hypothetical changes in interest rates as of December 31, 2023: ($ in thousands) Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value 300 basis point increase $ 887,124 $ (130,527) (12.8) % 200 basis point increase $ 929,996 $ (87,655) (8.6) % 100 basis point increase $ 973,505 $ (44,146) (4.3) % No change $ 1,017,651 $ — 0.0 % 100 basis point decrease $ 1,062,433 $ 44,782 4.4 % 200 basis point decrease $ 1,107,852 $ 90,201 8.9 % 300 basis point decrease $ 1,153,908 $ 136,257 13.4 % Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income.
The following table sets forth what changes might occur in the value of our core fixed income portfolio given hypothetical changes in interest rates as of December 31, 2024: ($ in thousands) Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value 300 basis point increase $ 1,118,982 $ (173,236) (13.4) % 200 basis point increase $ 1,177,074 $ (115,144) (8.9) % 100 basis point increase $ 1,234,820 $ (57,398) (4.4) % No change $ 1,292,218 $ — 0.0 % 100 basis point decrease $ 1,349,269 $ 57,051 4.4 % 200 basis point decrease $ 1,405,973 $ 113,755 8.8 % 300 basis point decrease $ 1,462,329 $ 170,111 13.2 % Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income.
The following table sets forth our cash flows for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Cash and cash equivalents provided by (used in): Operating activities $ 338,187 $ 208,938 Investing activities (493,809) (193,381) Financing activities 130,947 2,180 Change in cash and cash equivalents $ (24,675) $ 17,737 The increase in cash provided by operating activities in 2023 and 2022 was primarily due to the growth of the business, timing of premium receipts, claim payments and reinsurance activity.
The following table sets forth our cash flows for the years ended December 31, 2024 and 2023: ($ in thousands) 2024 2023 Cash and cash equivalents provided by (used in): Operating activities $ 305,115 $ 338,187 Investing activities (243,694) (493,809) Financing activities (4,232) 130,947 Change in cash and cash equivalents and restricted cash $ 57,189 $ (24,675) The decrease in cash provided by operating activities in 2024 when compared to 2023 was primarily due an increase in cash outflows from our net reinsurance recoverables and net premiums receivables.
Equities The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations and other types of equity interests, 77.2% of which are publicly traded.
The average duration of our fixed income portfolio was approximately 4.34 years and 4.24 years, respectively, as of December 31, 2024 and 2023. 41 Table of Contents Equities The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations and other types of equity interests, 100.0% of which are publicly traded.
The following table sets forth the credit quality of our core fixed income portfolio at December 31, 2023 and 2022, as rated by Standard & Poor’s or equivalent designation: 2023 2022 ($ in thousands) Fair Value % of Total Fair Value % of Total AAA $ 493,252 48.6 % $ 283,733 46.7 % AA 105,906 10.4 % 74,604 12.3 % A 233,487 22.9 % 134,175 22.1 % BBB 154,096 15.1 % 88,369 14.5 % BB and Lower 30,910 3.0 % 26,691 4.4 % Total core fixed income $ 1,017,651 100.0 % $ 607,572 100.0 % Opportunistic fixed income The opportunistic fixed income portfolio is managed by Arena which is affiliated with Westaim, our largest shareholder.
The following table sets forth the credit quality of our available-for-sale fixed income portfolio at December 31, 2024 and 2023, as rated by Standard & Poor’s or equivalent designation: 2024 2023 ($ in thousands) Fair Value % of Total Fair Value % of Total AAA $ 483,099 37.3 % $ 493,252 48.6 % AA 141,177 10.9 % 105,906 10.4 % A 429,703 33.3 % 233,487 22.9 % BBB 216,602 16.8 % 154,096 15.1 % BB and Lower 21,637 1.7 % 30,910 3.0 % Total fixed income portfolio, available-for-sale $ 1,292,218 100.0 % $ 1,017,651 100.0 % Our commercial mortgage loans are primarily senior loans on real estate across the U.S.
Unpaid losses are estimated based on the expected loss ratios underlying our loss cost multipliers, and selected industry development patterns of paid losses. We utilize each of these methods in our comprehensive review of reserves. When evaluating reserves related to less mature policy years, we utilize the Bornhuetter-Ferguson Method as the primary method for our ultimate loss indications.
The actuarial methods used to estimate losses and LAE reserves are: • Reported and/or Paid Loss Development Methods • Reported Bornhuetter-Ferguson Methods • Paid Bornhuetter-Ferguson Method When evaluating reserves related to less mature policy years, our actuaries rely on the Bornhuetter-Ferguson Method as the primary method for our ultimate loss indications.
We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid. 45 Table of Contents The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received.
We use reinsurance to manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.
We set duration targets for our core fixed income investment portfolio after consideration of the estimated duration of our liabilities and other factors. Our fixed maturity securities had a weighted average effective duration of 3.2 years as of December 31, 2023.
Expressed in years, duration is the weighted average payment period of cash flows, where the weighting is based on the present value of the cash flows. We set duration targets for our core fixed income investment portfolio after consideration of the estimated duration of our liabilities and other factors.
Cash flows from operations in each of the past two years were used primarily to fund investing activities. The change in net cash used in investing activities from 2023 to 2022 was primarily driven by an increase in the purchases of fixed maturity securities and short-term investments.
Net cash used in investing activities in 2024 was primarily driven by purchases of fixed maturity securities, partially offset by sales and maturities of investment securities and sales of short-term investments.
Contractual Obligations and Commitments The following table sets forth our contractual obligations and commercial commitments by due date as of December 31, 2023: Payments due by period ($ in thousands) Total Less Than One Year One Year or More Reserves for losses and LAE $ 1,314,501 $ 579,852 $ 734,649 Long-term debt 129,794 59,794 70,000 Interest on debt obligations 109,196 10,408 98,788 Operating lease obligations 5,784 1,671 4,113 Total $ 1,559,275 $ 651,725 $ 907,550 Reserves for losses and LAE represent our best estimate of the ultimate cost of settling reported and unreported claims and related expenses.
As of December 31, 2024, no shares have been repurchased under this plan. 45 Table of Contents Contractual Obligations and Commitments The following table sets forth our contractual obligations and commercial commitments by due date as of December 31, 2024: Payments due by period ($ in thousands) Total Less Than One Year One Year or More Reserves for losses and LAE $ 1,782,383 $ 433,204 $ 1,349,179 Long-term debt 120,000 — 120,000 Interest on debt obligations 41,443 6,246 35,197 Operating lease obligations 3,632 968 2,664 Total $ 1,947,458 $ 440,418 $ 1,507,040 Reserves for losses and LAE represent our best estimate of the ultimate cost of settling reported and unreported claims and related expenses.
Our effective tax rate was 21.9% for the year ended December 31, 2023, compared to 20.9% for the year ended December 31, 2022. The change in our effective tax rate in 2023, when compared to 2022, was primarily due to the relationship of taxable to non-taxable income.
Other Items Income Taxes Income tax expense for the year ended December 31, 2024 was $33.9 million, compared to $24.1 million, for the year ended December 31, 2023. Our effective tax rate for the year ended December 31, 2024 was 22.2%, compared to 21.9%, for the year ended December 31, 2023.
The following chart sets forth the Section B reinsurance structure, the paid and incurred losses and LAE positions within the structure as of December 31, 2023, and the reduction in open claims from the Valuation Date through December 31, 2023: 39 Table of Contents Expense Ratio The following table sets forth the components of the expense ratio for the years ended December 31, 2023 and 2022: 2023 2022 ($ in thousands) Expenses % of Net Earned Premiums Expenses % of Net Earned Premiums Net policy acquisition expenses $ 108,514 13.0 % $ 65,695 10.6 % Other operating and general expenses 134,930 16.3 % 116,476 18.9 % Underwriting, acquisition and insurance expenses 243,444 29.3 % 182,171 29.5 % Less: commission and fee income (6,064) (0.7) % (5,199) (0.8) % Total net expenses $ 237,380 28.6 % $ 176,972 28.7 % The expense ratio was flat when compared to the same 2022 period.
Expense Ratio The following tables set forth the components of the expense ratios for the years ended December 31, 2024 and 2023: Twelve months ended December 31, 2024 2023 ($ in thousands) Expenses % of Net Earned Premiums Expenses % of Net Earned Premiums Net policy acquisition expenses $ 149,975 14.2 % $ 108,514 13.0 % Other operating and general expenses 161,782 15.3 % 134,930 16.3 % Underwriting, acquisition and insurance expenses 311,757 29.5 % 243,444 29.3 % Less: commission and fee income (6,703) (0.6 %) (6,064) (0.7 %) Total net expenses $ 305,054 28.9 % $ 237,380 28.6 % The expense ratio for 2024 increased 0.3 points when compared 2023, primarily driven by the business mix shift partially offset by earnings leverage.
The opportunistic fixed income portfolio consists of separately managed accounts, limited partnerships, promissory notes and equity interests. The underlying securities are primarily floating rate senior secured loans, comprised of short duration, collateralized, asset-oriented credit investments designed to generate attractive risk-adjusted returns.
The underlying investments are primarily floating rate senior secured loans, comprised of short duration, collateralized, asset-oriented credit investments. The limited partnerships and joint ventures are subject to future increases or decreases in asset value as asset values are monetized and the income is distributed. Strategic investments consists of equity interests in private entities within the insurance industry.
Losses and LAE Development The following table sets forth the presentation of the development of the ultimate liability by accident year for the years ended December 31, 2023 and 2022: ($ in thousands) Development (Favorable) Adverse Accident Year 2023 2022 Prior $ 10,132 $ 30,141 2020 7,903 (6,756) 2021 (27,312) (9,000) 2022 9,277 — Total $ — $ 14,385 Reserve development on losses subject to LPT $ — $ 14,385 Reserve development on losses excluding losses subject to LPT $ — $ — For the year ended December 31, 2023, the Company recognized favorable development related to prior years’ loss and loss expense reserves of $9.2 million in short tail/monoline specialty lines and adverse development of $11.9 million in multi-line solutions, respectively.
For the year ended December 31, 2024, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $25.7 million; $10.1 million and $15.2 million in multi-line solutions and exited lines, respectively, were related to losses previously subject to the LPT from accident years 2018 and prior.
Our internal claims managers oversee TPA activities and monitor their individual claim handling activities to our prescribed standards. Our IBNR reserves are developed in accordance with Actuarial Standards of Practice promulgated by the American Academy of Actuaries.
Our internal claims managers oversee TPA activities and monitor their individual claim handling activities to our prescribed standards. The incurred but not reported (“IBNR”) reserve is derived by estimating the ultimate unpaid reserve liability and subtracting case reserves.
The following table sets forth the components of our equities portfolio by security type at December 31, 2023 and 2022: 2023 2022 ($ in thousands) Fair Value % of Total Fair Value Fair Value % of Total Fair Value Domestic common equities $ 71,502 46.7 % $ 76,929 48.8 % International common equities 39,389 25.7 % 34,468 21.9 % Preferred stock 7,358 4.8 % 8,772 5.6 % Other (1) 34,883 22.8 % 37,337 23.7 % Equities $ 153,132 100.0 % $ 157,506 100.0 % (1) Other includes limited partnerships, limited liability companies and other equity interests Market Risk Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices.
The following table sets forth the components of our equities portfolio by security type at December 31, 2024 and 2023: 2024 2023 ($ in thousands) Fair Value % of Total Fair Value Fair Value % of Total Fair Value Domestic common equities $ 70,665 66.5 % $ 71,502 60.5 % International common equities 34,425 32.4 % 39,389 33.3 % Preferred stock 1,164 1.1 % 7,358 6.2 % Equities $ 106,254 100.0 % $ 118,249 100.0 % Alternative and strategic investments Alternative investments consists of promissory notes, limited partnerships, joint ventures and equity interests.
During the year ended December 31, 2022, net incurred losses for accident years 2021 and prior developed adversely by $14.4 million which was related to losses subject to the LPT. Within exited lines, adverse development of $14.5 million was from the 2019 accident year primarily driven by increased frequency and severity in general and professional liability.
During the year ended December 31, 2023, the Company recognized adverse development related to prior years’ loss and loss expense reserves of $10.8 million. Adverse development of $11.7 million in multi-line solutions was driven by 39 Table of Contents greater than expected severity in auto, general, and excess liability lines of business primarily from accident years 2020 to 2022.
A 5% change in net IBNR would result in a $27.0 million change in our reserves for losses and LAE and a $21.3 million change in net income and stockholders’ equity. Recent Accounting Pronouncements We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
A 5% change in net IBNR would result in a $38.4 million change in our reserves for losses and LAE and a $30.4 million change in net income and stockholders’ equity. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280).
The increase in the net policy and acquisition expense ratio, when compared to the same 2022 period, was primarily driven by the shift in our mix of business offset by an improved other operating and general expense ratio, when compared to the same 2022 period, due to the increase in earned premiums. 40 Table of Contents Investment Results The following table sets forth the components of net investment income and net investment (losses) gains for the years ended December 31, 2023 and 2022: ($ in thousands) 2023 2022 Cash and short-term investments (1) $ 11,353 $ 1,427 Core fixed income 32,572 16,544 Opportunistic fixed income (6,844) 16,784 Equities 2,682 2,160 Net investment income (1) $ 39,763 $ 36,915 Net unrealized gains (losses) on securities still held $ 11,130 $ (15,058) Net realized losses (58) (647) Net investment gains (losses) $ 11,072 $ (15,705) (1) excludes income from operating cash for the years ended December, 31, 2023 and 2022.
The following table sets forth the components of net investment income and net investment gains (losses) for the years ended December 31, 2024 and 2023: Twelve months ended December 31, $ in thousands 2024 2023 Short-term investments & cash and cash equivalents $ 17,643 $ 11,677 Fixed income 57,631 36,547 Equities 2,745 2,212 Alternative and strategic investments 2,667 (10,114) Net investment income $ 80,686 $ 40,322 Net unrealized gains on securities still held $ 7,921 $ 11,130 Net realized losses (1,665) (58) Net investment gains $ 6,256 $ 11,072 Net investment income for the year ended 2024 increased $40.4 million when compared to 2023.
Removed
The gross written premium increases were primarily driven by (i) new business, (ii) rate increases, and (iii) retention.
Added
A small portion of our business is specialty reinsurance (principally agriculture and credit) which is similarly focused on attractive specialty classes where we believe it is more efficient to approach these classes through reinsurance given factors such as cost of entry, including the costs of geographic expansion.
Removed
During 2023 we broadened our business portfolio, including (i) entry into inland marine and global agriculture, (ii) added an occupational accident offering in our industry solutions division, (iii) expanded our surety division to serve the SBA market and to provide judicial and fiduciary bonds, and (iv) expanded our accident & health coverages to include individual providers.
Added
We continued to broaden and diversify our product portfolio during 2024, growing in areas that are less exposed to the P&C cycles.
Removed
In addition to the expanded portfolio offerings, growth was also impacted by the addition of new underwriting teams and new tech-enabled partnerships. Net earned premiums were $829.1 million for the year ended December 31, 2023, compared to $616.0 million for the same 2022 period, an increase of $213.1 million or 34.6%.
Added
The gross written premium increases were primarily driven by (i) new captive members and growth in existing captives, (ii) new product offerings, including participation in the Small Business Administration (“SBA”) Bond Guarantee Program, and regional expansion in surety, (iii) new business and rate in transactional E&S, (iv) the addition of four new programs, including Aviation. and (iv) new business in global agriculture.
Removed
Catastrophe losses from second and third quarter convective storms and first quarter wind and hail events, including tornadoes, added 1.4 points to the loss ratio compared to 2022, which was impacted by 1.1 points of catastrophe losses from Hurricane Ian and Winter Storm Elliott.
Added
Slightly offsetting the gross written premium increases were (i) downward pricing pressure in the global property market, and (ii) our intentional actions to address profitability in commercial auto. Net written premiums were $1,123.6 million compared to $910.7 million in 2023, an increase of $212.9 million or 23.4%.
Removed
The loss ratio for the year ended 2022 included 1.4 points from the net impact of LPT reserve strengthening. Additional information regarding the LPT can be found in the “Loss Portfolio Transfer” discussion included in this Item 7.
Added
The increase in net written premiums was primarily driven by the same reasons that drove the increases in gross written premiums discussed above. Net earned premiums for 2024 were $1,056.7 million compared to $829.1 million for 2023, an increase of $227.6 million, or 27.4%.
Removed
The remaining $8.4 million of net adverse development was from other accident years. 37 Table of Contents Within multi-line solutions, favorable development of $10.8 million was from the 2020 through 2021 accident years and was driven by a reduction in frequency of claims in commercial auto and general liability.
Added
The 2024 cat loss and LAE ratio increased 0.3 points when compared to 2023, primarily due to catastrophe losses from Hurricanes Helene and Beryl in the third quarter of 2024 and Hurricane Milton in the fourth quarter of 2024.
Removed
The remaining $2.3 million of net adverse development was from various other accident years.
Added
Losses and LAE Development The following table sets forth the presentation of the development of the ultimate liability by accident year for the years ended December 31, 2024 and 2023: ($ in thousands) Development (Favorable) Adverse Accident Year 2024 2023 Prior $ 25,535 $ 4,333 2020 (606) 4,341 2021 978 289 2022 (1,479) 1,807 2023 1,300 — Total $ 25,728 $ 10,770 Reserve development on losses subject to LPT $ 25,300 $ — Reserve development on losses excluding losses subject to LPT $ 428 $ 10,770 In 2024, the Company transitioned from evaluating reserves on a policy year basis to an accident year basis which results in earlier recognition of underlying claim trends, better alignment of exposure to risks, and adherence to commonly used industry best practices.

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