Q2 2024 Bowhead Specialty Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Bowhead Specialty Second Quarter 2024 Earnings Call. Our host for today's call is Shirley Yap, Chief Accounting Officer and Head of Investor Relations.
Operator: Quarter 2024 Earnings Call. Our host for today's call is Shirley Yapp, Chief Accounting Officer and Head of Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. Ms. Yap, you may begin.
Speaker Change: At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to now turn the call over to your host. Ms. Yap, you may begin.
Shirley App: Thanks, Operator. Good morning and welcome to Bowhead's second quarter 2024 Earnings Conference Call. I'm Shirley App, Bohead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer, and Brad Mulcahy, our Chief Financial Officer.
Shirley Yap: Thanks, Operator. Good morning and welcome to Bowhead's second quarter 2024 Earnings Conference Call. I'm Shirley Yapp, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer, and Brad Mulcahy, our Chief Financial Officer.
Shirley App: Financial results for the second quarter of 2024 were released earlier this morning. You can find the earnings release in the Investor Relations section of our website. Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statements. These statements are made only as of the date of this call and are based on management's current expectations and beliefs.
Speaker Change: Financial results for the second quarter of 2024 were released earlier this morning. You can find your earnings release in the Investor Relations section of our website.
Shirley App: Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filing. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measures can be found in the earnings release we issued this morning and in the investor relations section of our website. With that, I'll turn the call over to Stephen.
Speaker Change: Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statement.
Speaker Change: These statements are made only as of the date of this call and are based on management's current expectations and beliefs.
Speaker Change: Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.
Speaker Change: You should review the risks and uncertainties fully described in our SEC filings.
Speaker Change: We expressly disclaim any duty to update any forward-looking statement except as required by law.
Speaker Change: Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the investor relations section of our website.
Speaker Change: With that, I'll turn the call over to Stephen. Stephen?
Stephen Sills: Thank you, Shirley. And thanks again to our stockholders and analysts for joining us on our first earnings call as a public company. Before I get started, I'd like to take a moment to thank all the Bowhead team members who helped us through our initial public offering. On May 23rd, we began our first day of trading on the New York Stock Exchange under the symbol BOW.
Stephen: Thank you, Shirley. And thanks again to our stockholders and analysts for joining us on our first earnings call as a public company. Before I get started, I'd like to take a moment to thank all of the Bowhead team members who helped us through our initial public offering.
Speaker Change: On May 23rd, we began our first day of trading on the New York Stock Exchange under the symbol BOW. We are very excited to begin this new chapter in the company's evolution.
Stephen Sills: We are very excited to begin this new chapter in the company's evolution. We founded Bowhead just under four years ago and are incredibly proud of the hard work our over 200 employees have contributed to the company's rapid success to date. For those who weren't able to join us on the roadshow, I wanted to reiterate who we are and highlight our key differentiators. We are a growing specialty insurance company operating substantially within the specialty excess and surplus lines market.
Speaker Change: We founded Bowhead just under four years ago and are incredibly proud of the hard work our over 200 employees have contributed to the company's rapid success to date.
Speaker Change: For those who weren't able to join us on the roadshow, I wanted to reiterate who we are and highlight our key differentiators.
Speaker Change: We are a growing specialty insurance company operating substantially within the specialty excess and surplus lines market.
Stephen Sills: About 80% of our premium is in the growing and profitable E&S market, where being free of rate and form restrictions provides the flexibility to rapidly adjust to emerging market opportunities. For our company to be successful, underwriting must come first. From the top down, underwriting profitability is our North Star. It is ever-present within our people and our culture.
Speaker Change: For our company to be successful, underwriting must come first. From the top down, underwriting profitability is our North Star. It is ever-present within our people and our culture.
Stephen Sills: This strong in-house underwriting culture is complemented by a fully integrated and accountable value chain. Product development, actuarial, claims, legal, operations, IT, and our long-term distribution relationships must all work together seamlessly for us to be successful. This accountable value chain allows us to deliver our custom solutions to clients while consistently generating underwriting profit. Not only are we successful today, but we were designed to deliver differentiated profitability across market cycles, not just in hard markets.
Speaker Change: This strong in-house underwriting culture is complemented with a fully integrated and accountable value chain.
Speaker Change: Not only are we successful today, but we were designed to deliver differentiated profitability across market cycles, not just in hard markets.
Stephen Sills: We've created primary and excess capabilities across our products as part of our cycle management strategy. Within the lines that we write today, our highly experienced underwriters are subject matter experts with a proven track record of generating new business. Underwriting authority has to be earned, even for experienced underwriters just joining our team. For each line, we spend considerable time discussing and agreeing on how RIS should be evaluated, and we encourage close collaboration throughout the organization. We also have long-standing relationships with our select group of distribution partners, which are based on expertise, service, and mutual benefit. We believe that dealing with Bowhead is a privilege, not a right.
Speaker Change: Underwriting authority has to be earned, even for experienced underwriters just joining our team. For each line, we spend considerable time discussing and agreeing on how risk should be evaluated, and we encourage close collaboration throughout the organization.
Stephen Sills: Furthermore, we have a highly experienced and entrepreneurial management team backed up by the depth of over 200 people across the country. We operate in a hybrid model that enables us to bring on the best people regardless of where they reside. This is my third time starting and running a publicly traded specialty insurance business, and this group is easily as good as any team I've been a part of. Critical to investors, we have a clean balance sheet with no reserves for maximum years prior to 2020 and no property cat exposures.
Speaker Change: Critical to investors, we have a clean balance sheet with no reserves for maximum years prior to 2020 and no property cat exposures. We have no intangibles, no complicated LPTs, and a simple and conservative investment portfolio.
Stephen Sills: We have no intangibles, no complicated LPTs, and a simple and conservative investment portfolio. Lastly, we have a track record of robust growth with attractive profitability and strong returns. I believe that we have supportive market conditions and that our platform and balance sheet, including the capital we raised in our IPO, position us well for continued profitable growth. With that introduction to Bowhead, let me turn it over to Brad Mulcahy, our CFO, to discuss the details of our quarter. Brad?
Speaker Change: Lastly, we have a track record of robust growth with attractive profitability and strong returns.
Brad Mulcahy: Thanks, Stephen. We enter the quarter with an adjusted net income of $7.9 million, or $0.28 per diluted share, with an adjusted return on average equity of 11.7%. Gross rate and premiums accelerated more than 50% to a record of $175.5 million. We saw premium growth from each of our divisions, with Casualty growing the most and representing a larger portion of the book compared to last year. Rate improvement, particularly in casualty, continues to contribute to the increase in our top line.
Speaker Change: Thanks, Stephen. We ended the quarter with an adjusted net income of $7.9 million, or $0.28 per diluted share, with an adjusted return on average equity of 11.7%.
Speaker Change: Gross rate and premiums accelerated more than 50% to a record of $175.5 million.
Speaker Change: We saw premium growth from each of our divisions, with Casualty growing the most and representing a larger portion of the book compared to last year. Rate improvement, particularly in Casualty, continues to contribute to the increase in our top line.
Brad Mulcahy: The loss ratio for the quarter ended at 65.5%, an increase of 4.6 points from the prior year. I would like to highlight that in light of our high levels of IV&R, which was 92 percent of our net loss reserves at the end of this quarter, we've currently elected to utilize loss ticks informed by industry data rather than only using internal data from our limited operating history. These expected loss ratios are unchanged from Q1, and the movement in the aggregate loss ratio from last year reflects a shift in the mix of our business to a greater percentage of our book being in cash, where industry loss ratios have deteriorated, as others have reported. During the quarter, we did not take down any reserves, nor did we experience any loss activity in excess of our own expectations.
Speaker Change: The loss ratio for the quarter ended at 65.5%, an increase of 4.6 points from the prior year.
Speaker Change: I would like to highlight that in light of our high levels of IV&R, which was 92% of our net loss reserves at the end of this quarter, we've currently elected to utilize loss ticks informed by industry data rather than only using internal data from our limited operating history.
Brad Mulcahy: The expense ratio for the quarter ended at 33.8%, an increase of 1.9 points from the prior year. The acquisition expense ratio increased slightly by 0.3 points to 8.4% due to the change in product. The operating expense portion of the ratio increased 1.6 points to 25.4 percent due to our continued investment in the business as well as certain one-time IPO-related costs, the largest being $1.3 million of stock-based compensation related to management's profit interest.
Speaker Change: The expense ratio for the quarter ended at 33.8%, an increase of 1.9 points from the prior year. The acquisition expense ratio increased slightly by 0.3 points to 8.4% due to the change in product mix.
Speaker Change: The operating expense portion of the ratio increased 1.6 points to 25.4% due to our continued investment in the business as well as certain one-time IPO related costs.
Speaker Change: The largest being $1.3 million of stocks-based compensation related to management's profit interests.
Brad Mulcahy: Excluding this one-time non-cash item, our expense ratio trend decreased since Q1 of 2024 from 32.6% to 32.3% despite our continued investment in the startup of Baylene, which Stephen will discuss later. Overall, the effect of the loss ratio and the expense ratio contributed to a combined ratio of 99.3% for the quarter. Before moving on from the underwriting results, during the quarter, net written premiums were impacted by the start of a new seeded reinsurance agreement. This treaty allows Bowhead to cede a portion of its auto exposure within the excess chasm.
Speaker Change: Excluding this one-time non-cash item, our expense ratio trend decreased since Q1 of 2024 from 32.6% to 32.3%, despite our continued investment in the startup of Baylene, which Stephen will discuss later.
Speaker Change: Overall, the effect of the loss ratio and expense ratio contributed to a combined ratio of 99.3% for the quarter.
Stephen: Before moving on from the underwriting results, during the quarter, net written premiums were impacted by the start of a new seeded reinsurance treaty.
Stephen: This treaty allows Bowhead to cede a portion of its auto-exposure within the excess casualty book.
Brad Mulcahy: The premium retention impact of this treaty will vary each quarter as the underlying exposure varies, but for Q2, the impact was about a one-point reduction in retained premium. Now turning to our investment book, pre-tax net investment income more than doubled to $8.8 million in the current quarter. Our portfolio increased more than 30% since year-end, which was influenced by an additional $131 million of net IPO proceeds. Excluding the IPO proceeds, which were not invested for the full quarter, the portfolio had a book yield of 4.6%, while the new money rate was 5.5% at the end of the quarter.
Speaker Change: The premium retention impact of this treaty will vary each quarter as the underlying exposure varies, but for Q2 the impact was about a one-point reduction in retained premium.
Stephen: Now turning to our investment book, pre-tax net investment income more than doubled to $8.8 million in the current quarter. Our portfolio increased more than 30% since year-end, which was influenced by an additional $131 million of net IPO proceeds.
Stephen: Excluding the IPO proceeds, which were not invested for the full quarter, the portfolio had a book yield of 4.6 percent, while the new money rate was 5.5 percent at the end of the quarter.
Brad Mulcahy: This combination of the new money rate above the roll-off and an increasing asset base positions the company well for future investment income. In addition, credit quality of the portfolio remains at double X, and duration increased from 1.9 years to 2.1 years in the second quarter, again excluding the impact of the ITL program. The effective tax rate for the second quarter was 25.3 percent. We expect tax rates to be consistent with this range in the future.
Speaker Change: In addition, credit quality of the portfolio remains at AA, and duration increased from 1.9 years to 2.1 years in the second quarter, again excluding the impact of the ITO proceeds.
Speaker Change: The effective tax rate for the second quarter was 25.3 percent. We expect tax rates to be consistent with this range in the future.
Brad Mulcahy: And lastly, our stockholders' equity was $339.9 million, and book value per share was $10.41 at the end of the quarter, an increase of 30% from year end. With that, Stephen, I'll turn it back to you for your thoughts on the court. Thanks, Fred.
Stephen: And lastly, our stockholders' equity was $339.9 million, and book value per share was $10.41 at the end of the quarter, an increase of 30% from year-end.
Stephen Sills: Thanks Brad. Let me provide my observations about the state of the market and the growth of each of our three divisions: casualty, health care, and professional liability. I'll also give a brief update on our growth initiative, Baylene, which is our streamlined underwriting platform for hard-to-place, smaller-dollar E&S policies. As Brad mentioned, on a consolidated basis, OHEAD wrote $175 million of premium, growth of over 50% compared to a year ago, which was driven by strength across each of our divisions.
Speaker Change: With that, Stephen, I'll turn it back to you for your thoughts on the quarter.
Stephen: Thanks Brad. Let me provide my observations about the state of the market and the growth of each of our three divisions, casualty, health care, and professional liability.
Stephen: I'll also give a brief update on our growth initiative, Baleen, which is our streamlined underwriting platform for hard-to-place, smaller-dollar E&S policies. As Brad mentioned, on a consolidated basis, Bowhead wrote $175 million of premium.
Stephen: Growth of over 50% compared to a year ago, which was driven by strength across each of our divisions.
Stephen Sills: Looking at our book, submission and quote growth remain strong at levels in line with overall premium growth. We also quoted more business than last year, indicating that the submission growth is within our appetite. We noted that while submissions are important, they are only one of several growth drivers at our disposal, in addition to rate, new business wins, and future operational efficiency. By division, casualty was the lion's share of our premium growth, up over $50 million, or close to 80% compared to a year ago. This growth was driven by the strong rate environment due to the disruptions in the marketplace dynamics from older accident years. We believe that these favorable tailwinds for Bowhead will continue for the foreseeable future.
Speaker Change: Submission and quote growth remain strong at levels in line with overall premium growth.
Speaker Change: We believe that these favorable tailwinds for Bowhead will continue for the foreseeable future. Additionally, in Q3, we're expanding our casualty team to include environmental underwriting expertise, which we expect to offer in the fourth quarter.
Stephen Sills: Additionally, in Q3, we're expanding our casualty team to include environmental underwriting expertise, which we expect to offer in the fourth quarter. Our healthcare liability division grew by over 46%, driven by good rates and retention on renewals, plus strong new business. Our professional liability business, which includes cyber, grew by 7%. However, we continue to see pressure in the public D&O space. While the market is competitive, our public D&O book increased by 4% from last year.
Speaker Change: A professional liability business, which includes cyber, grew by 7%. We continue to see pressure in the public D&O space. While the market is competitive, our public D&O book increased by 4% from last year.
Stephen Sills: Overall, we continue to see a long runway for the favorable market we're experiencing. To be very clear, Bowhead is not reaching for growth, but in the current environment, the growth dynamics are attractive, given the risk-adjusted returns we can generate. Lastly, before I open the call for questions, let me give a brief update on Baylene, a new division we launched late in the second quarter of 2024. Baylene focuses on small, hard-to-place risks written 100% on a non-admitted basis.
Speaker Change: Overall, we continue to see a long runway for the favorable market we're experiencing.
Speaker Change: To be very clear, Bowhead is not reaching for growth, but in the current environment, the growth dynamics are attractive, given the risk-adjusted returns we can generate.
Speaker Change: Lastly, before I open the call for questions, let me give a brief update on Baylene, a new division we launched late in the second quarter of 2024.
Speaker Change: Fielding focuses on small, hard-to-place risks, written 100% on a non-admitted basis.
Stephen Sills: It is a streamlined, low-touch, flow underwriting operation that supplements the craft solutions we offer today. This is a business that we believe has significant growth potential, but this being a low-touch, flow underwriting model is one that we plan to execute gradually. In line with our deliberate, measured, and limited rollout, Baleen's premium for the second quarter of 2024 was minimal. While we don't expect Baleen to contribute meaningfully during 2024, we plan to report its first full quarter premium during our third quarter earnings call. With that, I'll conclude my remarks and turn the call over to questions.
Speaker Change: In line with our deliberate, measured, and limited rollout...
Speaker Change: bailing premium for the second quarter of 2024 was minimal.
Speaker Change: Why we don't expect Baylene to contribute meaningfully during 2024.
Speaker Change: We plan to report Baylene's first full quarter premium during our third quarter earnings call. With that, I'll conclude my remarks and turn the call over for questions.
Operator: If you would like to ask a question at this time, please press star then the number 1 on your telephone keypad, and you will be placed in the queue in the order received.
Speaker Change: Please be prepared to ask your question when prompted. Once again, if you have a question, please press star then the number 1 on your telephone keypad now. One moment while we compile the Q&A roster.
Speaker Change: Your first question comes from Meijer Shields with KVW. Your line is open.
Meijer Shields: Great, fantastic. So I want to start by asking about distribution and I guess the pace of additional agency appointments over the course of the quarter.
Speaker Change: Thank you.
Speaker Change: I think we need to look at it by different lines of business. You know, we're told that we're kind of in 16 different lines, even though there's...
Speaker Change: There's three divisions. So the number that are being increased, let's say in casualty, is considerably smaller than what we might find in private commercial business.
Stephen Sills: So it really varies, but each time we open somebody, we're looking for commitments that they're going to support us versus just having access to them.
Speaker Change: So it really varies, but each time we open somebody we're looking for commitments that they're going to support us versus just having access to us.
Speaker Change: Okay, that's helpful.
Speaker Change: You talked a little bit about the pricing pressure in some components of professional lines and I was wondering whether or how much that's impacting the relative loss ratios between professional lines and casualty?
Speaker Change: When you.
Speaker Change: I'm not sure I follow between
Speaker Change: When you say between professional lines and casualty.
Speaker Change: We're seeing, when we look back at what we've seen on professional lines.
Speaker Change: We think that's.
Speaker Change: developing very favorably.
Speaker Change: We certainly have, going back to our early years,
Speaker Change: open litigation. I think there's
Speaker Change: There's been a history of.
Speaker Change: you know, 40-50% dismissal on security class actions.
Speaker Change: So, there's still things that are open, but we're very comfortable with that.
Speaker Change: Casualty, the biggest concern has been the auto business.
Speaker Change: You know, keep in mind we don't ride auto on a primary basis, on a primary casualty.
Speaker Change: on the X set.
Speaker Change: It is covered within those policies, and as was mentioned earlier, we've bought an auto carve-out, which we think will lower the volatility from auto claims.
Speaker Change: Okay, no, I understand that. Just when we look at the loss ratio, I think the increase year-over-year is predominantly because there's more casualty in the book, and casualty almost equals a higher loss ratio than professional lines, and I'm wondering whether the change in pricing and professional lines and the change in pricing and casualty, how that's moderating the delta of the loss ratio between those two segments.
Speaker Change: The loss ratio has been going up, not that we're booking more on a case basis.
Speaker Change: But the
Speaker Change: Because of the mix, using the formula we've been using with the advice of outside independent actuaries.
Speaker Change: The
Speaker Change: Okay.
Speaker Change: because of the relative flatness in the professional book.
Speaker Change: versus the large growth in the casualty book, I think we're showing higher loss ratios because of that mix.
Speaker Change: Your next question comes from Matt Carletti with Citizens. Your line is open.
Unidentified Analyst: Stephen, I was hoping you could dig into the casualty growth a little bit, give us a little bit of color on some of the maybe underlying lines. Are there a small handful of areas of the business that are really driving the growth, or is it pretty broad-based across all the different products you offer in that segment?
Matt Carletti: Thanks, good morning.
Matt Carletti: Stephen, I was hoping you could dig into the casualty growth a little bit and give us a little bit of color on some of the underlying lines. Are there a small handful of areas of the business that are really driving the growth? Or is it pretty broad based across all the different products you offer in that segment?
Speaker Change: We've started to move away from, and certainly not
Matt Carletti: or at least in terms of the mix.
Speaker Change: the mixes become more than just construction.
Speaker Change: It was, at the beginning, there was a lot of heavy project business.
Speaker Change: construction business. We've added substantially to the team.
Speaker Change: of Casualty Underwriters.
Speaker Change: and that's led to an increase in the number of the amount of casualty outside of construction that's growing. We've recently, in the last month or two, we've added
Speaker Change: several very high-ranking casualty underwriters to the organization which we believe will be a plus in terms of the followings that they have that will attract more business to us.
Speaker Change: Great. And then another one, if I could, is smaller business, but the cyber business. Have you seen anything following the CrowdStrike incident, not thinking about the law side of it, I think we have our hands around that, but more so just reaction in the market, whether it be from an underwriting perspective or from a demand perspective from potential buyers?
Stephen Sills: Well, we think there is more demand, and I think we're comfortable with what we're seeing in terms of what's been reported to us with claims and things like that, but I do think the industry is starting to more evaluate the potential for, you know, catastrophe losses. I think, compared to what's been reported in the insurance press, I think it's very manageable the way this claim is, you know, people are talking about a billion and a half, two billion dollars, but, you know, what would have happened if all these people's computers were turned into bricks?
Speaker Change: But we think there is more demand.
Speaker Change: And I think we're comfortable with what we're seeing in terms of what's...
Speaker Change: what's been reported to us with claims and things like that. But I do think the industry is starting to evaluate more.
Speaker Change: the potential of, you know, catastrophe losses.
Speaker Change: I think, as what's been reported in the insurance press, I think it's very manageable the way this claim is. You know, people are talking about a billion and a half, two billion dollars. But, you know, what would have happened if all these people's computers were turned into bricks?
Speaker Change: and, you know, how that would have affected the industry. And I think everybody's trying to get their arms around how that's going to be evaluated in the future. Keep in mind that overwhelmingly...
Speaker Change: A large part of our cyber book is on the excess side, and it's relatively high-level excess on larger accounts.
Speaker Change: So, you know, we're comfortable in the way we're seeing, but we are going to see, I'm pretty sure we're going to see an uptick in demand for the coverage.
Speaker Change: Great. Thank you very much for the insight. Appreciate it.
Speaker Change: Your next question comes from Pablo Sington with JP Morgan. Your line is open.
Pablo Sington: Hi, good morning. Some insurers have been adding reserves to post-2020 accident years. Are you surprised by that trend and did you see those reserve movements in the industry data when you did your review in late 2023?
Speaker Change: Yeah, hi Pablo. This is Brad. Thanks for the question. I think we were initially surprised by that, but as we looked at it more, most of that's happening on the primary side.
Speaker Change: or sorry, we're in the surplus, excess surplus line size. So we don't see that happening here. We're able to react quicker with rates than some of those other carriers have.
Speaker Change: that were in the in the earlier markets so I don't think we really see that over here on our side we you know the industry data when we talk about using industry data in our reserves
Speaker Change: it's, you know, it's data that informs our own data. So we have some of our own limited history and we just complement it with that industry data. So, you know, what we see is cut as...
Speaker Change: specifically as we can to our books and just kind of complements what we see so we're happy with our reserves and you know the experience that we're seeing as we mentioned.
Speaker Change: Yeah, I think our mix is different.
Speaker Change: From what you're seeing in the group that's adding to reserves, the mix of type of business.
Speaker Change: Keep in mind, you know, as Brad said, we're more access than primary. Our limits...
Brad: are much smaller than what's typically been put out in the past.
Speaker Change: remember a lot of the opportunity that's coming to us is people going down from you know 25 million dollar capacity and and the rates that they got on that and then also as Brad said the you know the surplus lines versus admitted
Speaker Change: we don't
Brad: We also don't write, you know, auto per se, commercial auto, commercial trucking. Obviously, as I said before, you know, we pick up some of it and we write excess casualty, but we're not writing, you know, primary trucking risks or even excess pure trucking risks.
Speaker Change: Yep. Thanks, Stephen. That makes sense. And then just second and last for me, maybe this is better for Brad. So I think at the end of the quarter, you had $180 million of cash on the balance sheet. How much of that do you expect to reinvest into fixed income assets over time and at what pace? Thank you.
Brad: Yeah, thanks Pablo. I think what you're seeing is the IPO proceeds that we mentioned. We got those in late May.
Speaker Change: And obviously, you know, it takes a while to invest $130 million in the bond market during the summer.
Speaker Change: So we expect, you know, we always have a little bit of cash laying around. We have some pretty big bills to pay our reinsurers in particular.
Brad: but most of that is in process for being invested. I think Q3, you'll see a better kind of run rate without that IPO noise in our cash versus investment split.
Speaker Change: Yeah, and sorry, just to put a bullet in this, how much cash do you think you need to run the company at? Right, so on a run rate basis, how much cash do you need to hold at the whole ecosystem?
Speaker Change: How much cash do we need to run as opposed to what we said at the holding company, if that's the question? Yeah, sorry, I should have phrased it better. So, not clearly, cash is in an excess position, right? But on a go-forward basis, and you mentioned that you need to hold some amount of cash, right? What is that amount of cash you need to hold on a go-forward basis? Thank you.
Speaker Change: It really varies every quarter, so what we do is we basically invest everything that we don't need, and that number changes every month. We do it twice a month actually, so I wish I could give you a solid number, but it really truly changes.
Speaker Change: Thank you. Bye-bye.
Speaker Change: Got it. Thank you.
Speaker Change: Your next question comes from Scott Aleniak with RBC Capital. Your line is open.
Unidentified Analyst: Yeah, good morning. Thanks.
Unidentified Analyst: Just wanted to follow up on the last question about capital levels. And if there's a, is there a premium to surplus level ratio that you're targeting over time? And also, how are you thinking about the use of debt? Anything that you can kind of share on that? I'm just not, I'm not, I'm not talking about next quarter. I'm just talking about, you know, kind of longer term over the next year or two.
Scott Aleniak: Yeah, good morning. Thanks. Just wanted to follow up just on the last question just about capital levels and if there's a, is there a premiums to surplus level ratio that you're targeting over time? And also how are you thinking about use of debt? Anything that you can kind of share on that? I'm just not, I'm not, I'm not talking about next quarter. I'm just talking about, you know, kind of longer term over the next year or two.
Speaker Change: Yeah, I think if you look at our.
Speaker Change: Creating a surplus ratio in Q2, it's obviously going to be a little bit high because we have the excess, the upside IPO in there.
Speaker Change: So, I would look more towards our Q1 number or our prior full year number to get kind of a run rate for that. The other question on the debt, you'll notice we did execute.
Speaker Change: a revolving credit facility in Q2 that gives us the opportunity to add debt. We think the business, you know, the next time we need capital, that might be a route to go just to have a little bit better returns on the business to add some debt. But I think we're a little ways from that.
Stephen Sills: We're a little
Speaker Change: Yep. Okay. That's helpful. And then anything you can share on just what you're seeing on rate versus lost trust, lost cost trend across the book, just by, I don't know if you can share by segment or anything like that. And if there was any major change versus Q1, I know casually rates have been picking up pretty much across the industry. So if there's...
Speaker Change: Any caller you can share on any different areas, their rate versus loss trend.
Speaker Change: Yeah, we're seeing, it varies as you suggest, by division. Casualty, we're seeing the strongest rate change.
Speaker Change: followed by the healthcare business and then by the professional lines business.
Speaker Change: And as was mentioned earlier, we use industry picks, but we're not seeing a change in our business in terms of lost trends from what we've originally expected.
Speaker Change: Okay, so is it taking up by much in the casualty areas? You have Q2 versus Q1, is it a few points or is it more than that?
Stephen Sills: We would say, uh, yes.
Speaker Change: We would say yes, that it is kicking up a lot.
Unidentified Analyst: I appreciate the answers, yep.
Speaker Change: Ok.
Speaker Change: All right, appreciate the answers. Yep. Sure. Okay.
Speaker Change: At this time there are no further questions in queue. I'd like to turn the call back over to our presenters for any further remarks.
Speaker Change: Okay, thank you Morgan. I'd like to thank everyone for joining us on our first earnings calls and public company including Bowhead's team members that made this all possible.
Speaker Change: We're very excited about the opportunity ahead of us and look forward to executing on our strategy.
Speaker Change: Our differentiated underwriting model puts us in a position to generate strong growth at attractive returns within the large and underserved E&S market. Thanks again, and we'll talk to you along the way.
Speaker Change: This concludes the Bowhead Specialty 2nd Quarter 2024 Earnings Call. Thank you for attending and have a wonderful rest of your day.