Skyward Specialty Insurance Group Inc (SKWD) Q1 2025 Earnings Call Highlights: Record Net ...

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Sat, May 3, 2025, 12:05 AM 4 min read

Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) reported a record net income of $42 million and adjusted operating income of $37.3 million for Q1 2025.
The company achieved a 17% growth in gross written premiums, driven by strong performance in its agriculture, accident and health, specialty programs, transactional ENS, and surety divisions.
The first quarter combined ratio was 90.5%, with a non-catastrophe loss ratio of 60.2%, marking the best in company history.
Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) successfully renewed its property reinsurance programs with favorable terms, providing greater protection at lower costs.
The company demonstrated strong investment performance, with net investment income increasing to $19.3 million, supported by a higher portfolio yield and increased invested asset base.

Negative Points

The company faced 2.2 points of catastrophe losses due to Midwest convective storms and California wildfires.
There is significant seasonality in the agriculture and credit insurance divisions, which may impact premium contributions throughout the year.
The global property premiums decreased, reflecting a softening market, although the company maintained a high account retention rate.
Skyward Specialty Insurance Group Inc (NASDAQ:SKWD) noted irresponsible competition in the market, particularly from fronted programs and certain MGAs, which could impact pricing and underwriting margins.
The company is addressing a material weakness in IT controls, although it had no impact on financial statements, it requires remediation within the year.

Q & A Highlights

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Q: Can you provide more details on the growth opportunities in agriculture and credit insurance? A: Andrew Robinson, CEO: In agriculture, we hired James Tran, an industry veteran, to lead our efforts. We aim for a global portfolio to ensure diversification and minimize volatility. We're active in 8 or 9 countries and have seen great opportunities. In credit insurance, we started with mortgage insurance and expanded into trade credit. Currently, we're more defensive due to economic uncertainties, so credit wasn't a major growth contributor this quarter.

Q: How are you managing loss cost trends across your niche businesses? A: Andrew Robinson, CEO: We estimate our portfolio's loss cost trend to be in the 5-6% range. We limit exposure to high-inflation bodily injury categories and keep our limits short. On the property side, inflation impacts are managed through cash value policies and surety bonds, which benefit from increased material costs. We also monitor broader economic factors like healthcare cost shifts and federal funding reductions.

Q: Can you discuss the seasonality of growth, particularly in the crop insurance sector? A: Andrew Robinson, CEO: Last year, we saw 20% growth with high growth in Q1 and Q3, and lower growth in Q2. This year, Q1 was strong due to significant renewals in Accident & Health. Q2 is expected to be lower, especially in global property, but we anticipate higher growth in Q3. We maintain our mid-teens growth guidance for the year.

Q: What areas are showing favorable reserve emergence? A: Mark Hassel, CFO: We saw favorable emergence in accident years 2020 and later, particularly in property, surety, and professional liability. Occurrence liability lines also showed favorable development. While we didn't recognize this in the quarter, our reserve margin increased compared to year-end.

Q: How does your global agriculture book compare to domestic crop insurance in terms of risk? A: Andrew Robinson, CEO: In the U.S., the federal program covers price and yield, so there's exposure to price fluctuations. Our U.S. business is about 40% of our portfolio, and we've taken measures to protect ourselves. We've reserved conservatively, which should protect us even under stress scenarios.

Q: Is the Q1 acquisition expense ratio a good proxy for the rest of the year? A: Mark Hassel, CFO: Yes, it's a good proxy, though we expect it to tick up slightly due to business mix and continued investment in growth opportunities.

Q: Can you provide more detail on your submission growth and retention rates? A: Andrew Robinson, CEO: In our ENS area, submission growth was over 20%, with increased competition. Industry solutions saw around 10% growth, and surety bid bonds were up 19%. In Accident & Health, RFP submissions increased by 59%, reflecting our strong market proposition.

Q: How do you approach new programs and due diligence in the program market? A: Andrew Robinson, CEO: We partner with MGAs that have unique capabilities we can't replicate. We ensure alignment through material investments and compensation structures. We require data flow to be equal to our internally managed businesses and handle claims ourselves whenever possible to ensure performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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