Q2 2024 Skyward Specialty Insurance Group Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Skyward Specialty Insurance Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Natalie Schoolcraft, Head of Investor Relations. Please go ahead.
Good day and thank you for standing by.
Welcome to the
Speaker Change: A Skyward Specialty Insurance Earnings Conference Call.
Speaker Change: At this time, all participants are in listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to have the conference over to your first speaker today, Natalie Schoolcraft, Head of Investor Relations. Please go ahead.
Natalie Schoolcraft: Thank you, Sean. Good morning, everyone, and welcome to our second quarter 2024 earnings conference call. Today I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer, Mark Haushill. We will begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainty, which may affect future financial performance.
Natalie Schoolcraft: Thank you, Sean. Good morning, everyone, and welcome to our second quarter 2024 earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer Andrew Robinson and Chief Financial Officer Mark Haushill.
Speaker Change: We will begin the call today with our prepared remarks, and then we will open the lines for questions.
Natalie Schoolcraft: Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release, as well as in our 10-K that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial information, are included as part of our press release and available on our website, skywardinsurance.com, under the Investors section.
Speaker Change: Our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainties which may affect future financial performance.
Speaker Change: Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements.
Speaker Change: These types of factors are discussed in our press release as well as in our 10-K that was previously filed with the Securities and Exchange Commission.
Speaker Change: Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial information are included as part of our press release and available on our website, skywardinsurance.com, under the Investors section. With that, I will turn the call over to Andrew. Andrew?
Natalie Schoolcraft: With that, I will turn the call over to Andrew. Andrew? Thank you.
Andrew Robinson: Good morning, everyone, and thank you for joining us. We had another great quarter, reporting Q2 adjusted operating income of $0.80 per diluted share, which is our best in company history and nearly double the same quarter last year. Our underwriting income is up over 50%, and our investment income is up over 150% from the prior year. This quarter marks the sixth consecutive quarter we've delivered a sub-92 combined ratio and 18 plus percent growth.
Andrew: Thank you, Natalie.
Andrew: Good morning, everyone, and thank you for joining us.
Andrew: With another great quarter reporting Q2 adjusted operating income of $0.80 per diluted share, which is our best in company history, and nearly double the same quarter last year.
Andrew: Our underwriting income is up over 50% and our investment income is up over 150% from the prior year.
Andrew: This quarter marks the sixth consecutive quarter we've delivered a sub-92 combined ratio and 18 plus percent growth.
Andrew Robinson: Fully diluted book value per share was up 8.9% from the beginning of the year to $17.38, and our annualized adjusted return on equity and tangible equity through six months were 19.6% and 22.4%, respectively. With that, I'll turn the call over to Mark to discuss our financial results in greater detail.
Andrew: Our fully diluted book value per share was up 8.9% from the beginning of the year to $17.38. And our annualized adjusted return on equity and tangible equity through six months were 19.6% and 22.4% respectively.
Andrew: Altogether, these outstanding results are a testament to the high level of execution across our underwriting divisions and the functions that support our business.
Andrew: There's also direct reflection of our rule our niche strategy including our intentional efforts to have a well diversified portfolio of underwriting divisions that enables us to deliver top quartile underwriting profitability across all market cycles.
Andrew: As you may have read last week, Skyward Specialty was upgraded by AMVEST to an A-Rater.
Speaker Change: This is no small achievement given that the company had an A-minus with negative outlook when I joined in May of 2020.
Speaker Change: The incredible commitment, drive, and execution of our 540 employees are the force behind this important achievement. I am confident that this will add to the momentum we have and will further fuel our winning in the marketplace.
Speaker Change: With that, I'll turn the call over to Mark to discuss our financial results in greater detail.
Mark: Thank you, Andrew. For the quarter, we reported net income of $31 million, or $0.75 per diluted share, compared to $19.5 million, or $0.51 per diluted share, for the same period a year ago.
Mark: On an adjusted operating basis, we reported income of $33.1 million, or $0.80 per diluted share, compared to $16 million, or $0.42 per diluted share for the same period a year ago.
Mark: In the quarter, gross written premiums grew by approximately 18 percent.
Mark: with our captives, transactional E&S and surety divisions, and our global agriculture business within our global property and agriculture division, each contributing meaningfully to growth.
Speaker Change: Turning to our underwriting results, the second quarter combined ratio of 90.7% improved 1.3 points.
Speaker Change: compared to the second quarter of 2023. The current accident year non-CAT loss ratio of 60.7% was consistent with the prior year.
Speaker Change: During the quarter, catastrophe losses from convective storms only accounted for 1.2 points on the combined ratio, compared to the second quarter of 2023, which was impacted by 3.5 points of cat losses.
Speaker Change: We maintain our guidance we previously provided for our full year cat loss expectations.
Speaker Change: Turning to our investment results, our strategy to de-risk the portfolio continues to pay off with net investment income of $22.1 million in the quarter, an increase of $13.6 million compared to the same period of 2023.
Speaker Change: Our embedded yield was 4.8% at June 30th versus 4.2% a year ago and 4.7% at March 31st.
Speaker Change: Income from our alternative and strategic investments portfolio increased to $3.6 million from a loss of $3.2 million in the prior year quarter due to an increase in their fair value of limited partnership investments.
Mark Haushill: At June 30th, this portfolio only comprised 8% of our overall investment portfolio compared to almost 11% at December 31st.
Speaker Change: The redemption of the alternative assets, previously classified as opportunistic fixed income, is beginning to work its way through.
Speaker Change: Our 1.2 points of catch referenced earlier is outstanding in light of the considerable property portfolio we have across global property, transactional E&S, and our industry solutions including our inland marine unit, which together are 26% of our portfolio.
Christ: Turning to Bryce.
Speaker Change: We deliver mid-single-digit pure rate and new business pricing consistent with our trailing 12-month enforced pricing.
Christ: The aggregate rate metric ticked down this quarter due to a large renewal book in global property where pricing softened considerably. Otherwise, pricing was broadly consistent with the first quarter.
Christ: I will remind you that in this quarter last year, we achieved our largest ever rate increase similarly driven by global property, which I had noted on the call.
Christ: We've not seen a similar step down in property pricing for Transactional E&S or Inland Marine.
Christ: Pricing in most of our key markets is orderly which allow us to continue to deliver differential growth while maintaining strong underwriting margins going forward.
Christ: And we'll note that exposure for auto is down even further than the written premium metric, given the considerable pricing increases we have achieved.
Andrew Robinson: Lastly, we continue to see strong submission activity, which was up over 25% from the prior year.
Christ: Lastly, we continue to see strong submission activity, which was up over 25% from the prior year quarter.
Christ: Finally, I'd like to take a moment to talk about our team.
Christ: In June , we were recognized as one of the best places to work by U.S. News & World Report, a testament to our commitment to creating a positive, inclusive, and empowering workplace for our employees.
Christ: It is a direct result of our focus on fostering a supportive work environment, prioritizing employee well-being, and investing in professional development.
Speaker Change: Thank you. At this time, we will conduct a question and answer session.
Speaker Change: Hey, thanks. Good morning. Good morning.
Speaker Change: Andrew, I was hoping you could maybe dig in a little bit more to your commentary about
Andrew: You know, kind of where you grew this quarter, and importantly, kind of being areas of the business that aren't necessarily linked to P&C cycles. I think I call it kind of a 36% of the business sort of number, kind of where that stands today. How do you view that longer term? Do you have kind of a
Andrew: kind of a perfect mix that you're looking to get to, or how do you think about that and the benefits that might bring to Skyward over multiple cycles?
Speaker Change: Yeah, that's a great question, Matt. Thanks for that. Well, look, maybe I can just back up and put a little context around this. So in the four years that I've been with the company,
Speaker Change: We have seen, I would describe it as kind of explosive market cycles, micro cycles in various lines of business, right? We saw public DNO go through the roof and then probably come down even faster than it went up.
Speaker Change: Early in my time when I joined Skyward, we saw a big movement on high access. I remember a number of peers who were talking about like mid-teens rate increases and it's just because they had a, you know, very big, you know, high access, large access portfolio.
Speaker Change: But it is our belief that the more that we can build a portfolio that is less susceptible to that, the more predictable we can be around.
Speaker Change: not only our growth, but the quality of our earnings. And I just believe simply the durability of, of, um, you know, the outlook for our business. And while this quarter was 36%, it was really just a by-product of
Speaker Change: A quarter that had, you know, a relatively large growth in agriculture, as an example.
Speaker Change: where I think what we're aiming at for our overall portfolio is more like a third over the course of a year. And today we're probably at...
Speaker Change: Mark Haushill, Andrew Robinson, Andrew Robinson, Mark Haushill, Andrew Robinson, Mark Haushill,
Speaker Change: Great, that's very helpful. Thank you. One other, if I could, kind of diving in a little bit to one of your other comments, your commentary around bringing exposure down on commercial auto, which, you know, it makes a lot of sense in a market that structurally this has a lost cause issue. Can you maybe just
Speaker Change: maybe gives a little bit of color or remind us kind of you know commercial auto is a broad you know category and there's lots of different flavors of commercial auto just kind of what kind of what I guess what you have left on your book kind of what that
Speaker Change: flavor of commercial auto might be. And as you bring that exposure down, are there particular areas of commercial auto that you're reducing emphasis of, or is it more of a broad bring down across the entire category?
Speaker Change: Yeah, also great question, so thank you. Let me just back up here, because we've watched and listened to what others have said about this, and we've also observed.
Speaker Change: I just have to say that this is not about profit. This is about durability. And, you know, if somebody believes that lost cost inflation today is 10 percent, or 11 percent, or 12 percent, or whatever they might believe,
Speaker Change: But everybody believes that it's rising.
Speaker Change: Nobody's to say that two or three years from now, that will have been.
Speaker Change: Underestimated, you know, particularly given sort of the changing dynamic there. So, so I I will just say to you that it is a very Described as more uncertain and we're aware that you know, some of our peers Many of whom we respect have a different view on this than us
Speaker Change: But our view is really simple. It is not a question of profit It's a question about durability and then as it relates to where we see it But the bulk of our business for commercial auto is not, you know, kind of the fleets that would make up
Speaker Change: kind of a lighter round. It's medium to heavy, you know, including...
Speaker Change: you know, intermodal trucking, which is, you know, kind of medium distance, not long haul, but generally, you know, medium to heavy vehicles. And that is the area that there is no question is.
Speaker Change: is the most susceptible to the lost cost inflation that we've seen in. And trucking is kind of the extreme end of that, heavy trucking. But I'm not sure that we really can distinguish between the inflation that we're seeing in kind of the medium part of the market versus the heavy part of the market. And so our disposition about this is kind of across the board.
Speaker Change: Great. Thanks Andrew. Appreciate the insights.
Speaker Change: You're welcome.
Speaker Change: One moment for our next.
Speaker Change: Question?
Speaker Change: And our next question comes from Meyer Shields with KBW.
Meyer Shields: Thanks and good morning. Andrew, I want to continue on commercial auto just to make sure we're covering it. It sounded like one of the reasons...
Meyer Shields: for the change in the net degrowth was on commercial auto, which I guess means you're buying more reinsurance. Are seating commissions there offsetting expenses? Like, how is that impacting the expense ratio?
Speaker Change: No, maybe I didn't quite get the question, Mayor, but I think when we're talking about growth, we're actually talking about a very considerable reduction in units.
Speaker Change: All set by a very considerable increase of price, but the net-net of which is...
Speaker Change: a meaningful step down in written premium for auto. There's really been no change to our reinsurance structure for auto, no change in kind of the seating commissions, nothing there that is noteworthy.
Speaker Change: I don't know if that addresses your question. Maybe I didn't quite get it. So does that address your question?
Speaker Change: Oh, yeah, no, it does. I just wanted to know whether there's any trend that we should worry about.
Speaker Change: It sounds like, and I don't think this is the intent, but it sounds like the shift towards less cyclical lines also means lines with shorter tails, I guess, as you move away from Corso Lato, more agriculture, and more surety.
Speaker Change: Does that impact the fixed income allocation at all in terms of duration?
Speaker Change: Well, look, I think that in the macro sense, instead of just thinking about the one specific part that I referenced around trying to build more of a larger position in lines that are less exposed to the PNC cycles.
Speaker Change: Today, about 56% of our liability portfolio is what we call short-duration, less than two years of liabilities.
Speaker Change: That's been ticking up. I don't think it will go that much higher, because even though you noted three areas that are generally shorter tail lines, another area that we hope to grow over time is more exposure to other areas of credit insurance, which will have a little bit longer tail.
Speaker Change: I would say, by and large, you know, we're probably going to stay in that
Speaker Change: 50 to 60 range being short tail liabilities.
Speaker Change: And, you know, we've pretty much been holding our duration on our investment portfolio.
Speaker Change: consistent at around four years for the fixed income portion. And other than the fact that that's growing as a portion of our portfolio, it's very well laddered. We feel pretty good about that. That's the right place for us to be.
Speaker Change: Okay, perfect. And last question, just because I'm not as familiar, is there any pricing of note in the agricultural component of global property and agriculture? I get the less cyclicality, I just don't know what's actually happening day-to-day in that market.
Speaker Change: The second thing is that this is only our second year of operation. We had, you know, relatively flat rate.
Unidentified Analyst: Maybe one starting with the, you know, benign cat loss ratio, maybe a little bit lower than we would have thought relative to peers, especially given, you know, the Texas exposure there. I touched on the prepared remarks a little bit and attributed it to the lower severity of the press release, but just wondering if there's anything we should be thinking about Skyward's cat exposure there.
Speaker Change: Maybe a little bit lower than we would have thought relative to peers, especially given
Speaker Change: you know, the Texas exposure there.
Speaker Change: yet, which is a pretty sizable chunk.
Speaker Change: You know, we've said it all along that, you know, the first parallel that we write is fire. It isn't cat. And so I think that...
Speaker Change: is going to be something that's going to have a material effect. I think just generally disclosure is a good thing. It will certainly raise the awareness. But the fact of the matter is that I think that there's a lot of talk. There is some action. There's currently action happening at Congress, which is terrific. And you feel like that there's more momentum here, but I am suspicious.
Speaker Change: The plaintiff bar and the litigation financing industry are incredibly well organized. And until we see like the kind of change that that not only just limits disclosure, but put some boundaries around what's reasonable and practical and starts to provide very real examples where, you know, damages start to look like they have in the past adjusted for inflation.
Speaker Change: You know, until we start to see some signs of that, I'm skeptical.
Speaker Change: Great, thanks.
Speaker Change: And our next question comes from Greg Peters with Raymond James.
Speaker Change: Yeah, hey, good morning. This is... Good morning, Greg.
Greg Peters: Oh, good morning.
Greg Peters: Yeah. Just given the growth in the professional lines division over the last year, I'm curious if you could comment on what you're seeing there as far as additional opportunities, and maybe if you could take a moment to clarify what type of exposures you're focused on in that market.
Speaker Change: You know, we write.
Speaker Change: I mean, it's a segment that is profitable and our book is very profitable. Right, so, you know, that's slowed down a bit. On the flip side, you know, we're certainly getting our sort of feet underneath ourselves on the healthcare professionals side.
Speaker Change: And that's been an important growth engine. We've added a lot of...
Speaker Change: to be, as I described in my opening comments, orderly enough, where good underwriters like us with a, you know, with a relatively broad appetite and the ability to sort of look at exposures
Speaker Change: and assess them on an individual basis and price that risk that we can pick off business that we feel really good about at margins that we think are super attractive.
Speaker Change: And, you know, that's been a principal driver. In that book, in our professional book, we have a D&O book. It's principally private, a very small amount of public.
Speaker Change: I've talked about some of the segments that we focus on there, so that we get away from kind of the mainline, you know, sort of competition there. I noted in the past areas like
Speaker Change: Another piece of our professional is architects and engineers.
Speaker Change: Okay, great, thanks. And then just switching gears to the investment income with the increase in income from the alternative and strategic investments. I know you've reduced allocation there, waiting there, and so just hoping you can help frame how we should think about the results from that portfolio moving forward.
Speaker Change: Oh, hey, it's Mark. What I would say is, you know, it's stabilized a little bit during the quarter, but we have seen volatility in the past.
Speaker Change: It's hard to judge how that will play out. I would say we just take it a quarter at a time. It's running off, and it's running off in the fashion that we expected it to. And it's just becoming smaller, if that answers your question.
Speaker Change: And our next question comes from Michael Phillips with Oppenheimer and Company.
Speaker Change: Hi, good morning. It's Roland on for Mike.
Roland: I wanted to start with the global property and ag growth, so you called out the ag piece.
Roland: has grown pretty significantly year over year. Are you able to give us what the sort of property component of that unit was and just discuss your thoughts there. Are there geographies you're shrinking? Is, yeah, anything that would be helpful.
Speaker Change: Yeah, I'll be direct. We saw a double-digit step down in a written premium in global property in this quarter as compared to last year. Now, last year, you know, was...
Speaker Change: I would describe it as the absolute peak of the market, you know, there was probably some bits of the market that were sort of at the opportunistic end for us, but I'll be honest with you, I, you know,
Speaker Change: in most of our business.
Speaker Change: We have a pretty rational and competitive backdrop. This is one place where we saw some pretty darn irrational behavior. You know, a lot of that coming from Lloyd's, but not only from Lloyd's. And this is very large stuff, right? So it attracts the attention.
Speaker Change: of folks who are basically looking to put capital to work and try to write some big-ticket items. We're just not going to fall the market down. We're a very significant line-taker in the primary layer, and there aren't too many folks that are like us.
Speaker Change: So, we're very important to our insurance, but, you know, the fact of the matter is, it was just a...
Speaker Change: Quite honestly, it was pretty ugly behavior out there, and we just let some business go. And you saw that division was pretty much flat versus the prior year. That difference was picked up by tremendous growth that we saw in ag, which we're really pleased about.
Speaker Change: That's very helpful, thank you. And then is that driving what is causing the net premium retention to rise significantly year-over-year or is that part of the runoff of the LPT or what's, is there a way to think about the four-year net retention on premiums?
Speaker Change: The only thing I would say about our full year of net retention is that at the beginning of the year, in our guidance, we pointed you to the 2023 net retentions, which I believe are right around 62-ish percent, give or take a bit.
Speaker Change: And we explain that those are good planning assumptions for this year. And really nothing's changed around that. There are some movements, by the way, where we've changed some renewal dates on particular programs.
Speaker Change: to put ourselves in windows that we felt better about. But by and large, I think it still remains a good planning assumption. Not really much has changed. I wouldn't over-read the quarterly gross to net or any of that. I think that the macro assumption at the beginning of the year was the right assumption.
Speaker Change: Okay, thank you. And if I could sneak one more, and you guys have hired a number of teams in the past two years. You talked about the growth investment sort of pushing up the expense ratio a bit. When you bring a team in, how long does it take for them to reach scale? And is there a timeline you expect sort of the expense ratio to normalize for the growth you've been investing in?
Speaker Change: Yeah, it's a really great question. The answer, unsurprisingly, is it depends.
Speaker Change: It's very interesting, one of our executives describes what we do as a big venture capital like we hold back investments in our planning at the beginning of the year and then we ask our businesses to compete for it.
Speaker Change: There are certain there are certain areas that we consider to be very strategic. We will be making an announcement around one of those here in the in the weeks ahead.
Speaker Change: which is an area that we've been focused on for a long time. And it's so strategic, though, that, you know, what we see is that the payback might be longer, but the margins in that business are very durable.
Speaker Change: and very defensible, and so we like it, and so the payback, sort of the length of the payback being a little bit longer is acceptable. But by and large, we're generally seeing that our underwriters are more than paying for themselves.
Speaker Change: within 12 to 18 months and the exceptions to that you know might be in in particular classes of business or it just simply takes a longer time to build but we want to enter that class because we consider it to be very strategic.
Speaker Change: Is the market for talent becoming significantly more competitive?
Speaker Change: I think the market for talent has been very, very, very competitive, principally because we are a specialty carrier. There is a dearth of talent that are really sort of in the specialty classes.
Speaker Change: But that said, you know, we point to the fact that last year, our voluntary attrition was, you know, what we believe is...
Speaker Change: is at or near industry low of 7%. We're not running far off that again this year. And our ability to attract really, really great talent.
Speaker Change: Speaks for itself, right? I mean, you know, just just last week's announcement of
Speaker Change: you know, adding, you know, what we consider to be a, you know, just an absolutely astoundingly good, you know, technical leader for, you know, life sciences launch, you know, and similarly, you know, an incredible technician, you know, who's leading our transactional ENS property portfolio, like that's the, and you look at their backgrounds, you look at the companies that these people are coming from, these are great companies, and these are impressive people.
Speaker Change: And so I would just say to you, regardless of what's happening in the market, we are clearly winning the talent war. There's no question about that.
Speaker Change: Thank you for your answers and letting me sneak an extra one in there. Thank you.
Speaker Change: Our next question comes from Yaron Kinar with Jefferies.
Speaker Change: Hi, guys. Good morning. This is Charlie on for your own. Hey, Charlie. Good morning.
Charlie: Yeah, congrats on the quarter. Thank you. I have a question for you guys on reserves. If you guys could just provide a little bit of color on maybe longer-tailed reserves, particularly for accident years 2020 and more recent.
Speaker Change: We're not going to move around each and every quarter. We look at our reserves ground up at the end of the year, but the movement was small. And I feel great about our loss picks, which I think is where you're going.
Speaker Change: Well, I don't I don't think we would that it's a great question by the way, I don't think we would assign a specific Kind of value of growth what I can tell you is it's very interesting how these things happen, you know
Speaker Change: Ian O'Donoghue, and in a health care professional.
Speaker Change: and I feel really great about that.
Speaker Change: If nothing else, I can just tell you that the energy level around our organization on the back of that, which is already at a very high level, has just kicked up another notch. And so if I were to assign anything to it, I would just, I would assign the energy that our underwriters have to use that and, you know, get out and win some more, you know, is something that I can.
Speaker Change: Okay, great. And then one more if I could. I know you guys spent some time talking about the, you know, difference in the severe convective storm losses relative to the prior year quarter. I think last year you guys called out a couple of large losses in the south.
Speaker Change: Obviously, the industry had a very high number of SES-related activity and significant losses this quarter as well. How much of the improvement year-over-year in the cat load would you say you attribute to just the geographic...
Speaker Change: difference in where SCS occurred versus where...
Speaker Change: I mean, that one's a pretty straightforward one. I'd say none. I mean, last year, a tornado touched down on top of a factory that was a very large exposure and we took a big loss and that was a big part of it. And this year, we didn't have one of those.
Speaker Change: This is just, when it comes to convective storm, the truth is there is being good, which I think we are. We're good at aggregation management. We're good at underwriting. We protect ourselves the right way in terms of...
Speaker Change: We're good at aggregation management, but a lot of it has to do with just being lucky, right? Because you can be the best underwriter, but if you've got the factory that the tornado touches down on the roof of, well, guess what? That just is what it is, and that's what happened last year.
Speaker Change: Got it. Well, thanks for the questions you guys. Appreciate it.
Speaker Change: And our next question comes from Mark Hughes with Truist Securities.
Speaker Change: Yeah, thank you. Hey, Andrew. Hey, Mark. Good morning, Mark.
Speaker Change: Look, it's a great question. So here's the data I would point you to. Long before the sort of hard market started to be a call hard market, you know, back sort of around 2020, maybe a little bit earlier than that,
Speaker Change: If you take a look at the growth in captives...
Speaker Change: and they have a focus on risk management and I believe that, you know, obviously information technology is playing an important role in companies that have an ambition to, you know, to directly, you know, participate in their cost of risk and take greater control.
Speaker Change: That clearly is accelerated during the hard market, right? I mean, as prices have gone up, you know, the sort of the attractiveness...
Speaker Change: of, in our case, we're talking about group captive solutions.
Speaker Change: You know, it just goes up and up and up, and it has been the case, and it continues.
Speaker Change: You know, that set of data that I just shared with you is, you know, between soft market and hard market is an intractable trend. So we like that. And in that regard, you know, we find that the the certainly the participants that go into group captives, they're ultimately being priced, you know, based on really their their true loss experience. And it is generally less cyclical and less exposed to kind of what's changing in the, you know, in the external market.
Speaker Change: And I believe that we've done quite a bit to position ourselves really well against that.
Speaker Change: And I'll highlight for you...
Speaker Change: You know, two areas, Mark, as an example, one was...
Mark: I guess probably about two years ago when we shared with you that within one of our key classes within construction, crane and rigging, that we created a captive that effectively sits side by side with our guaranteed cost solution.
Mark: That's proven to be a really smart move. And another was our partnership with a technology company called Understory Weather in addressing the automotive dealer segment. And that is another one where, you know, we've made great inroads with tremendous knowledge and experience in that class.
Mark: But we created a captive around that, you know, based on a really unique approach. And those are the kind of things that I think we're getting a reputation for that's positioning us really well, you know, as we're looking to grow this part of the market.
Speaker Change: And refresh me, if you write $100 worth of business in a captive...
Andrew Robinson: Yeah, so...
Speaker Change: What's going to be the bottom line contribution?
Speaker Change: Yeah, so a way that I would describe it to you is that...
Speaker Change: and, you know, roughly...
Speaker Change: The premium that goes to what a group captive participant retains in terms of risk.
Speaker Change: will be, let's call it, 80% of the first million dollars of...
Speaker Change: of Limit and the premium associated with that.
Speaker Change: And so the 20%, let's say it's a 650 excess of 350 or 500 excess of 500.
Speaker Change: You know, that might be worth, you know, 20 cents on the dollar of the total premium.
Speaker Change: And then, depending on the specific program, it may be that the captive participants do or do not participate in the excess, and in the cases it doesn't, they don't participate in the excess.
Speaker Change: It goes into our corporate excess treaties, and we participate as if we were writing the first dollar on a guaranteed cost basis.
Speaker Change: Appreciate that. Then the accident and health business, also kind of a similar profile. How do you control volatility there? Is that just a...
Speaker Change: Your experience historically, is that more or less volatile than your overall blood pressure?
Speaker Change: We, so our A&H, Medical Stop Loss Business, effectively we are writing a specific and aggregate excess cover. That's effectively what we write.
Speaker Change: We actually buy an excess cover as well so that our actual loss corridor is effectively capped.
Speaker Change: And we've done that every year since I've been with this company as a matter of process. And so the reality is that the range or volatility that we might see in that business is rather low.
Speaker Change: Transactional E&S, real strong growth. What are the standout lines of business there that are driving that? GL and property.
Speaker Change: I would put our team in what we do. Our average premium size is a little under $50,000.
Speaker Change: I would put this team against any team in the industry. They are just...
Speaker Change: They're terrific. They have a great following. They're the folks that truly take the time to understand exposure, craft coverage.
Speaker Change: and they're technically just off the charts. And so, if I wanna assign kind of our success there, our success is tied to a team that is incredibly well-respected and followed by our key distribution partners. And we're adding folks.
Speaker Change: And the people who are coming in are every bit as good as, you know, the people that are already in place. And I think the backdrop there is terrific.
Speaker Change: Mark commented on some of the occurrence, liability, pockets of trends that we saw. One place that we are just seeing...
Mark: Absolutely outstanding results and emergence is inside of our transactional E&S, you know, on the GL side.
Speaker Change: Understood. Thank you very much. Thank you.
Speaker Change: And this concludes the question and answer session. I would now like to turn it back to Natalie Schoolcraft for closing remarks.
Natalie Schoolcraft: Thanks everyone for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialty. I am available after the call to answer any additional questions you may have. We look forward to speaking with you again on our third quarter earnings call. Thank you and have a wonderful day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.