Q4 2024 Skyward Specialty Insurance Group Inc Earnings Call
Speaker Change: Thank you for standing by and welcome to the Skyward Specialty Insurance Group's fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press
Speaker Change: And now I'd like to introduce your host for today's program, Natalie Schoolcraft, Vice President of Investor Relations. Please go ahead.
Natalie Schoolcraft: Thank you, Jonathan. Good morning, everyone, and welcome to our fourth quarter 2024 earnings conference call.
Natalie Schoolcraft: 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.
Natalie Schoolcraft: 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.
Natalie Schoolcraft: Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements.
Natalie Schoolcraft: 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.
Natalie Schoolcraft: 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 Investor section. With that, I will turn the call over to Andrew. Andrew?
Andrew Robinson: Thank you, Natalie. Good morning, everyone, and thank you for joining us.
Andrew Robinson: We finished the year strong, reporting adjusted operating income of $0.80 per diluted share for the quarter, driven by both outstanding underwriting and investment results.
Andrew Robinson: For the third time this year, we delivered quarterly growth above 20%.
Andrew Robinson: For the year, our adjusted operating income of $2.87 per diluted share is up over 28% compared to 2023.
Andrew Robinson: Our book value per share was up 18% from the beginning of the year to $19.79.
Andrew Robinson: and our full year return on equity of 16.3% was again a strong result.
Andrew Robinson: The 19% full-year top-line growth was outstanding given the current market backdrop. And our focus on shifting our portfolio to less P&C cycle-exposed parts of the market is working. I'll talk more about that later in the call.
Andrew Robinson: With that, I'll turn the call over to Mark to discuss our financial results in greater detail.
Thank you, Andrew.
Mark Haushill: We had another strong quarter, reporting adjusted operating income of $33.2 million.
Andrew Robinson: or $0.80 per diluted share and net income of $14.4 million.
or $0.35 per diluted share.
Andrew Robinson: For the full year, our adjusted operating income of $126.7 million was up 57% over the prior year.
Andrew Robinson: Gross written premiums grew by 21% for the quarter and 19% for the year with surety.
programs, captives.
Andrew Robinson: Transactional E&S and Agriculture, each contributing meaningfully to the growth this quarter. Net written premiums grew by 23% for the year and our retention of 64.5% was up over the prior year of 62.4%.
Andrew Robinson: Turning to our underwriting results, our fourth quarter adjusted combined ratio was 91.6% and included 2.2 points of cat losses principally from Hurricane Milton.
Andrew Robinson: Our adjusted operating combined ratio of 91.2% for the year was elevated slightly compared to 2023, driven by the marginal increase in our CAT loss ratio.
Andrew Robinson: The non-CAT loss ratio of 60.5% for the quarter and 60.6% for the year were consistent with the prior quarter and the year.
Andrew Robinson: In line with what we previously disclosed, in the fourth quarter we increased reserves by $25.3 million related to losses previously subject to the LPT from accident years 2018 and prior.
Andrew Robinson: The net impact of the LPT on the combined ratio was 4.2 points in the quarter and 1.1 points for the year.
Andrew Robinson: On January 31st, we commuted the OPT, removing future reinsurance recoverable credit risk related to this portfolio.
Andrew Robinson: As we've previously discussed, during 2024, we completely rebuilt our actuarial data and converted from policy to accident year for accident years 2020 and after.
Andrew Robinson: seated and net premiums and losses to each accident year which improved the fidelity of our accident year data compared to our prior estimation method of reserving by policy year and allocating to accident year.
Andrew Robinson: I'll note that our reserve position continues to be strong and as a measure of that strength our IV&R now makes up over 69% of total reserves up from 63% last year and 57% in 2020.
Andrew Robinson: This is particularly notable as we continue to shorten the reliability durations and increase the speed of recognition in claims.
Andrew Robinson: The quarter-to-date expense ratios of 28.9% respectively are in line with our expectations of sub 30.
Andrew Robinson: The business makes shift, continue to impact acquisition costs for both the quarter and the year, but we're offset by improvements in our other operating and general expenses ratio, benefiting from the scale of our business.
Andrew Robinson: Turning to our investment results, our strategy to de-risk the portfolio continued to pay off, with net investment income of $20.7 million in the quarter and $80.7 million for the year, an increase of over $40 million compared to year-end 2023.
Andrew Robinson: Consistent with our investment strategy to deploy free cash flow to fixed income
Andrew Robinson: In the fourth quarter, we put $46 million to work at 5.8%.
Andrew Robinson: The net investment income from our fixed income portfolio increased to $15.9 million from $11.7 million in the prior year quarter, driven by improving portfolio yield and significant increase in the invested asset base.
Andrew Robinson: Our embedded yield was 5.1% at December 31st compared to 4.8% a year ago and 5% at September 30th.
Andrew Robinson: We reported a slight gain of .1 million in our Alternative and Strategic Investments portfolio compared to a loss of 2.2 million in the prior year quarter.
Andrew Robinson: Both periods were impacted by the change in the fair value of limited partnership investments that was previously classified as opportunistic fixed income.
Andrew Robinson: At December 31st, this portion of our portfolio only comprised 6% of our overall portfolio compared to 9% a year ago.
Andrew Robinson: At December 31st, we had approximately $275 million in short-term investments and our yield on short-term investments was 4.2%.
Andrew Robinson: Our financial leverage is modest as we finish the year with a low 13% debt-to-capital ratio. And given our undrawn capacity from our revolver, our current leverage, we have ample debt financing flexibility.
Andrew Robinson: Lastly, as previously communicated in our press release on February 5th, for 2025 we expect net income of between $138 and $150 million.
Andrew Robinson: a combined ratio between 91 and 92 percent inclusive of two to two and a half points of catastrophe losses and we expect gross written premium growth in the low to mid teens.
Now, I'll turn the call back over to Andrew.
Andrew Robinson: It is hard to believe that we've been reporting as a public company for two years now.
Andrew Robinson: And we're hitting our stride as we continue to deliver outstanding and consistent earnings growth in mid to upper teens ROEs.
Andrew Robinson: We remain laser-focused on executing our Rural Earnings Strategy and generating top quartile returns at all parts of the market cycle.
Andrew Robinson: Our emphasis on seeking growth in high return areas that are less exposed to the PNC cycles appears to be prudent.
Andrew Robinson: For Skyward, this currently includes A&H, Charity, Captives, Mortgage, Credit, and Agriculture, which together accounted for 42% of our $388 million of gross written premiums this quarter and 39% of gross written premiums for the year.
Andrew Robinson: This aspect of portfolio management has increasingly been an area of focus in our drive to consistently deliver top quartile underwriting returns.
Andrew Robinson: Beyond the portfolio focus I just noted, we had double-digit growth in six of eight divisions.
Andrew Robinson: Professional lines growth was down slightly given softening conditions in more of the lines we target.
Andrew Robinson: We do expect that to reverse in 2025, given the investments we have made in healthcare and media, which should offset a more defensive posture in some of the other professional lines.
Andrew Robinson: Industry solutions continue to be impacted by our intentional actions in commercial auto but grew modestly in the quarter as we continue to find attractive new business opportunities in construction and energy.
turning to our operational metrics.
Andrew Robinson: We had a quarter similar to last. On pricing, we achieved mid-single-digit-plus pure rate.
Andrew Robinson: Global property and as I just noted some of the lines in professional are being impacted by downward pricing trends.
Andrew Robinson: The market backdrop in occurrence liability, including auto liability, continues to be very supportive of decent rate, although the lost cost inflation environment continues to be challenging, and as such, we are being very selective in our growth in these areas.
Andrew Robinson: Retention was strong in the upper 70s for the quarter, driven by business mix and our intentional actions in commercial auto.
Andrew Robinson: Lastly, we continue to see strong submission growth, which was solidly in the teens this quarter, but modestly down from the 20-plus percent in the prior quarters.
Andrew Robinson: We are confident that strong submissions growth will continue across most of our divisions.
Speaker Change: As I look back on 2024, I have immense pride at the accomplishments of our Skyward team.
This year was extraordinary with remarkable growth and industry recognition.
Speaker Change: from earning our upgrade by A-Invest to a full A, to securing our place as ninth on S&P Global's list of top performing PNC companies.
Speaker Change: to earning accolades that affirm our place as an employer of choice. We've solidified ourselves as a leader in the specialty property and casualty insurance market.
Speaker Change: 2025 will mark a significant milestone for our company as it is our fifth year since re-branding and reintroducing ourselves to the industry as Skyward Specialty.
Speaker Change: In just five short years, we've redefined who we are, consistently performed at a high level, and built a company that reflects our vision for the future we are creating.
Speaker Change: We've transformed our business, reshaped our teams and capabilities, placing us in the strongest position yet to defend and expand our increasing leadership in key markets.
Speaker Change: On behalf of my colleagues and our board, we thank you for your continued support and we look forward to our continued success in 2025.
Speaker Change: I'd now like to turn the call back over to the operator to open it up for Q&A. Operator? Certainly. And our first question for today comes from the line of Mark Hughes from True Securities. Your question, please.
Mark Hughes: Yeah, thank you. Just looking at some of this early company data, it seems like there's still a lot of inflation and casualty, particularly in access. How do you see the adequacy of the pricing in that market? Do you think that's going to be a grower for you this year?
Thanks, Mark. Great question.
Mark Hughes: You know, I think what I'd say to you is that might be an indication that now is a time to grow there. I think for us specifically, we will take a more cautious approach. I don't differentiate this that greatly from our discussion a couple years ago on CAT.
Mark Hughes: Capmarket was like rock hard people were loading up on it. You know, it was it was pretty extraordinary and we just sort of
Mark Hughes: stuck to our our plan, right, which is let's be sensible and in this particular case
Mark Hughes: I'd say that you can only be confident to the extent that you're confident in the loss of inflation and I think that
there's probably not a company out there that is not.
Mark Hughes: surprised at the increasing loss inflation as compared to what they thought the loss inflation would be.
Mark Hughes: two or three years ago. And if that trend continues, it may very well be that 10 or 11 or 12 points of rate is not enough. And moreover, it's probably not enough if your starting point isn't right. And so I think we're being really selective about where we're growing. We're trying to make sure that
Mark Hughes: We're shying away from the places where personal injury, bodily injury.
Mark Hughes: may be most prevalent in sort of the loss makeup. And I think in that regard.
Mark Hughes: But I just, I do find it interesting, right? Because there's a lot of companies out there growing and it seems like investors are applauding it when you see the growth, particularly a lot of that's being driven by rate, not as much as units.
Mark Hughes: And, you know, like I wonder whether that ultimately is going to produce the kind of outcome that people believe it will. I think for us, we're taking a more measured approach as we have been over the course of the last probably 18 months or so.
Speaker Change: I appreciate that. How about your pace of hiring? You've done well growing the top line by adding new teams, new capabilities. How do you see 2025 shaping up?
Speaker Change: I think that we are a winner, a very strong winner. We added 19 underwriters in.
Speaker Change: in Q4, a very difficult time to add underwriters. We had seven in surety.
Speaker Change: And I need not to sort of wax on about, you know, the wonders of our surety business.
Speaker Change: And, you know, by the way, back to your other question, Mark, it's a fantastic position to be in that we can grow there with people whose books of business will generally follow them versus
Speaker Change: having to sort of lean in on an uncertain loss inflation environment on casualty. So I feel really good about it. We've definitely been a winner. I think our ability to attract talent is amongst the very best in the industry, and I don't see any reason that's not going to continue here in 2025.
Thank you, appreciate it.
Speaker Change: Thank you. And our next question comes from the line of Matt Carletti from Citizens JMP. Your question please.
Hey, thanks. Good morning. Morning, Matt. Good morning, Matt.
Speaker Change: Andrew, maybe calling on Mark's question there, I mean you guys have obviously done a really good job.
adding teams and growing organically.
Speaker Change: Can you talk a little bit about how you view M&A, just if it is part of the discussion, if it is off the table, if it's just something you look at, just want to get inside your head and think a little bit about how you, if there's a time and place for that, or if that's just not for Skyward.
Speaker Change: Yeah, thanks Matt. I am so here's what I'd say over you know sort of my
Speaker Change: five-year arc, right? You know, we had a lot of work to do to
Speaker Change: to get the business fully in the position that we wanted it to be in. And by the way, I'll tell you, we are there. I think that 2024 was a watershed year for us in many regards, and I think we're there.
Speaker Change: That said, we just delivered a 21% organic growth outcome, and by the way, we did it in places that maybe others aren't doing it because we're having to work really hard on like if you want to grow, insurity, right? You have to be able to attract great talent.
So, the first thing I'd say is that we cannot...
do anything that impedes what is
Speaker Change: an incredibly successful organic engine that we've created here. And so that is topmost of mine. And then the second thing, of course, is, you know, if you're gonna do M&A, you have to be proportional in terms of, you know, the kind of risk that you're taking on. If it brings with it balance sheet risk, we want to be...
Incredibly measured there.
You know, that said...
During 2024, we hired a head of corporate development.
Speaker Change: who had worked for me in my prior part of my career. I personally, you know,
train and develop them myself and
Speaker Change: and we are much more active at looking at opportunities. But I would just say to you.
Speaker Change: and to our investors that, you know, rest assured that the bar is exceptionally high because we recognize that even if something mathematically looks like it's accretive to our shareholders, it brings with it a different profile of risk and we neither can have, you know, any undue risk on anything that we may acquire, but more importantly, we just can't disrupt the organic engine that we have going as a company because it is really a distinctive feature of this company that...
Speaker Change: that I'm really proud of what we created, and you just don't wanna interfere with that.
Speaker Change: That makes perfect sense. Just a follow-up question on capital. How should we think about... Do you feel you're sitting at excess capital currently? Do you feel you're kind of about right, given the growth, or just maybe stepping back? Is there a...
Speaker Change: I look at premiums to equity, I know it's a very blunt instrument, but is there a certain level that on the outside we kind of look at to help gauge that as time goes on, that feels like a right leverage ratio?
Hey Matt, it's Mark. You know, first...
Matt: feel really great about our capital. I mean, you're right, 1.5-ish to 1, we're pretty balanced. I think we could lever that up a little bit. So I don't feel any pressure on capital. We talked about the flexibility we have.
Matt: with the revolver. So, right, I feel really good about where we are.
And you know, Matt, the organic capital that we're generating
Matt: is supporting what we see as growth opportunities. So, sorry, for the third time, I feel great about it. And Matt, I'd add one other thing, which is that something I don't believe we get enough credit for as a company.
Matt: We are distinct, certainly amongst companies our size, in the diversity of our portfolio. And that has, obviously, benefits in terms of
Matt: options for where we deploy capital. It creates obviously multiple avenues for growth, for earnings diversification, but really importantly, it creates.
Matt: a capital diversification for us. And the one thing I can say is that, you know, without revealing too much, our internal plans as we look out through 2025.
Matt: will put us, you know, when we put up the pie chart at the end of this year...
Speaker Change: here you go oh my god this is like an incredibly well diversified portfolio with every single one of the businesses at scale and that's a hugely capital efficient approach and so when Mark says you know 1.5 to 1 you know he's talking about you know net premium to surplus you know if you think about it in statutory terms.
Speaker Change: That number may go up here in terms of leverage as we continue to get more balance in our portfolio. As I said, I don't think we get enough credit for it.
Speaker Change: Thank you very much for the color, very much appreciate it. Thanks, Matt.
Speaker Change: Thank you. And our next question comes from the line of Andrew Anderson from Jeffries. Your question please.
Speaker Change: Hi guys, good morning. This is Charlie on for Andrew. I was wondering if you could provide some color of what you're seeing on submission flows and what might be driving the slowdown to the mid-teens.
Speaker Change: and maybe if that's, you know, coming from MIX or if there are other drivers and then to that end, have there been any changes in the quote to submission ratio or the bind to quote?
Yeah, thank you for the question.
Speaker Change: Yeah, I don't know if I would read too much in into it You know, I think that we're seeing a lot of submissions. There's there's no question about it It's not we don't we're not concerned about what what we're seeing
Speaker Change: You know, there is, you know, there is ebbs and flows in terms of the quality that fit what we do. I mean, for example, as I said, you know,
Speaker Change: if you take for example E&S and we're very much a true E&S writer and so very little of our portfolio is
Speaker Change: kind of the marginal stuff, the E&S light that comes, you know, in and out of the market.
but we're seeing plenty of submission flow.
Speaker Change: And I think that's self-evident in the results, and I'll point you to something that's very important, which is
Speaker Change: last quarter where you know the growth was down a little bit from where we had been you know we had reported submission growth you know well north of 20% in this quarter you know we're 21% growth and we we you know described that it dropped into the teens I I just I don't think that we have any concerns there and we feel pretty good about you know the the opportunities that we're going
Speaker Change: to write new business in 2025. It's just not, I wouldn't point to that as an area of particular concern for us.
Speaker Change: Okay, great. And then, sorry, I just want to follow up on that. The quote to
for the Bind to Quo. Any major changes there?
Speaker Change: Somebody will, you know, let's say on the admin side will exit the market and you suddenly see a flow of business in You know, oftentimes it doesn't fit us
Speaker Change: So, I really, again, I would not point to any trends that we can see in our business. There is ordinarily noise from quarter to quarter, but then what you oftentimes will see is that quarter to quarter noise will revert back, and so there really isn't anything there that I would report out to you that is notable for us.
Speaker Change: Okay, understood. And then last one, if I could sneak one in, could you just provide an update on how much work is left to be done on the commercial auto portfolio?
Speaker Change: Yeah, I think I reported out on this last quarter or the quarter before the question was asked. I think at the end of this quarter that we're in right now, there will be no more work done on the portfolio. I don't have the numbers in front of me, but I believe roughly
Speaker Change: about 12 or 13% of our premium this quarter was in commercial auto. And we have a little bit more work to do and that will be it.
Speaker Change: By the way, I'll point you as well to the obvious fact that exposure is coming down, but not unlike everything you've heard from everybody else, price is going up. That written premium is a far lower exposure base just simply because of the pricing actions that are happening on top of the exposure that we're keeping.
Okay, and just to confirm, that was end of 1Q25?
Speaker Change: I know once you yeah the current for the current quarter is absolutely yes
Cool. Well, thank you guys for the questions. Thank you.
Speaker Change: Thank you. And our next question comes from the line of Meijer Shields from KBW. Your question, please.
Speaker Change: Hi, this is Dean Anfermayer. I was curious, you know, as your business mix shifts toward those lines of business that aren't, you know, as correlated with the P&C market cycle, I was wondering what implications that has on the expense ratio.
Speaker Change: That's a great question. Thank you for asking it. We're seeing it come through here. I mean, it's not expense ratio alone. It's all facets of...
Speaker Change: you know, kind of the combined ratio metrics, and I'll give you a couple of examples, but
Speaker Change: I think, by and large, what you're seeing where our acquisition costs are going up
Speaker Change: I think is a trend that will likely continue for us and and then sort of our other underwriting expenses you know, we've been we're sort of now into the period where the growth in our business is providing us scale and leverage there
We're sticking to our kind of Mendoza line of sub-30.
Speaker Change: You know, it's sort of critical to us to continue to sort of grow our underwriting income in a way that we're targeting.
Speaker Change: But I think what you'll see is you'll see that geography. But the other thing I'll point out to you is that...
Speaker Change: You know, some businesses like a great example is A&H, you know, A&H
Speaker Change: will run sort of in the in the 70s and probably around mid-70s on loss ratio yet our A&H business is virtually a almost a capital-free business. Put differently, Mark and I have modeled where if we removed it
Speaker Change: We wouldn't release any capital, and so growth there would actually probably drive up our combined ratio because it sits higher than our average of 90-91, but from a return on capital perspective, it's hugely accretive.
Speaker Change: and so there are other things that that happen in there but by and large what I would I would just say to you to your question is we'll be saying sub 30 and you'll you'll continue to see a little bit of a rise on acquisition costs and and a continued leverage on our on our other underwriting expense
Speaker Change: Got it, that makes sense. And then just last one, are there any new units you guys expect to launch in like 25 or 2026? I know there was a few you rolled out this year so I was just curious about that.
Speaker Change: Yeah, well, in this past year, right, we launched a bunch, right, we launched...
Speaker Change: mortgage and credit, we did a renewables launch inside of energy, we launched media liability, life sciences, I mean
Speaker Change: you know, the list goes on. We did quite a bit. You can imagine, as I've said in the past, we are we're strategy-led, right? So, you know, kind of in our thinking, there are always things to do. Frequently, those are tied to teams or leaders that we will target, and that targeting might take
Speaker Change: quarters, if not years, to actually get those people into our organization because we're kind of patient in that regard. So the answer is yes, we have some things that we're working on. Whether we have new launches here in 2026 or not depends a lot on whether we get the talent across that we're aiming at. We're going to be doing some things to change up our divisional reporting as we roll into 2025.
Speaker Change: to put a bit more granularity around that, which will be helpful to everybody, I hope. But otherwise, I think that what you should assume is that we have a pretty strong growth engine from the range of things that we've done here over the past few quarters, that now we'll start making a meaningful contribution towards our top line.
I got it. Thank you, Andrew. Thank you.
Speaker Change: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our next question comes in line of Michael Zaremski from BMO. Your question, please.
Dan: Hey, good morning. Thanks for taking my question. It's Dan on for Mike.
Speaker Change: Maybe first, can you just walk us through the reserve change where you're going from the policy year to accident year and just, you know, is this now the industry norm or maybe why Skyward wasn't conforming to that in the past? Thanks.
Speaker Change: Well, this is Andrew. I'll let Mark answer the question. Why we weren't conforming to it, I don't know, right? You know, why?
You know,
Speaker Change: In due course, we always knew that we were going to fully convert it, but, you know, I would just say God invented time so that everything doesn't happen at once and we got to this in the sort of the timeframe we could.
and the fidelity of what we have now is terrific.
Speaker Change: I don't know much more to say about it than that's the context. I don't know if there's anything you'd add.
Yeah, exactly. And look, what we said earlier...
Speaker Change: I think is, we used to allocate from policy year to accident year.
Speaker Change: What we've done now is refined it and have a true accident year.
Speaker Change: representation so it was just it was legacy it was something that we knew we had to do and and it was it was a big project so yeah accident year is is the norm and we knew it was coming so we executed it in 24
Speaker Change: It's the norm here in the United States, Lloyd's works on a policy or basis.
Speaker Change: and so, you know, and my predecessor, you know, is a Brit who grew up inside of Lloyd's and so maybe that's the reason, but I don't know that.
Speaker Change: Okay, that's helpful. Thanks. And then just sticking with reserves, maybe you mentioned that normally there's a ground-up review at the conclusion of the year Just wondering outside of you know, the LBT noise in this quarter if there are any puts and takes to that annual review
Speaker Change: I mean look, let me just say this, we will be filing our K on March 3rd.
Speaker Change: They're a little bit of puts and takes, but nothing really major to talk about. But once you get the K and the annual statements are filed, we're happy to have any discussions or go through that with you. It's just a lot. And the P will be out next week as well.
Speaker Change: and I look I just I'd say this yes we we did a bottom-up in no uncertain terms our reserves
Speaker Change: are in the best position they've ever been in. Our redundancy relative to our central estimate is the strongest.
Speaker Change: both on a dollar and on a percentage basis that it's ever been in.
Speaker Change: and speeding our claims recognition as as indicators of a really strong position on the liability side of our balance sheet. So I think that everything is in the context of we were in a good position and we are in a better position.
Thank you. Thank you.
Speaker Change: Thank you. And our next question comes from the line of Alex Scott from Barclays. Your question please.
Alex Scott: Good morning. I was hoping you could kind of give us an update on the...
Alex Scott: the niche strategy you all have. Where are you seeing good opportunities as you look forward into 25 and 26?
Speaker Change: Thanks Alex. Boy that's a that's a so there's probably a long list out there and and I will also say that you know with the change of administration comes you know a change in in in some emphasis of opportunities
Speaker Change: but I'll just highlight a couple of them. There's no question about it that we are.
Speaker Change: We're seeing a lot of opportunity on the energy side. We were seeing opportunity on the energy side before.
Speaker Change: the change in the administration. I remind you that we launched a
Speaker Change: We launched a focus around renewables in addition to our more traditional energy.
sector focus.
Speaker Change: But that's one area that we're certainly seeing a good deal of opportunity.
Speaker Change: Life Sciences looks like we we timed our entry well. We've got a you know a great leader there with a great product and there's no question about it in sort of you know early indications from
Speaker Change: the brokers, that that's going to be a part of our business that I believe will be a meaningful growth contributor.
Speaker Change: You know, one thing I will say about, you know, sort of our health care professional liability
Speaker Change: The market around that is interesting because I wouldn't describe it as a hard market, but the nature of exposure is changing so dramatically that, you know, we're a true E&S writer there, and so we're writing to the exposure.
Speaker Change: And as such, you know, I think we're seeing, you know, for example, in that particular part of our professional liability division, we're seeing, you know, a lot of opportunity that we can convert on.
Speaker Change: So, you know, it really runs the gamut, but I also believe that probably another two quarters out from now as, you know, sort of the effects of the administration start to take root in the economy that we might be talking about a handful of different things.
Speaker Change: but I will say to you those examples I gave you are indicative of the kinds of breadth that we're seeing across, you know, across our business in total.
Speaker Change: That's really helpful. Thank you. Apologies ahead of time. There were some overlapping calls, so if I'm asking something repetitive, my apologies.
Speaker Change: I wanted to ask you about stop-loss. I know it's a small business. It's something you guys have grown a little bit in Seems like it's been fine for you all. I mean it hasn't affected the consolidated result seemingly
recently, at least.
Speaker Change: industry's facing some pressure there I think even some of the better underwriters
Speaker Change: a bit more pressure this quarter. So, interested in what your experience has been and if it's been good. It seems like 2025 is going to be a hard market for that business. Were you able to lean into anything?
around the New York Times.
Speaker Change: By the way, thank you, Alex, and thank you for asking that, and no, nobody did ask that. And, you know, we have heard that, we had one analyst write about this around, and I like,
Speaker Change: I just I'm completely confounded because if there's problems that companies like Voya it has absolutely nothing to do with our business. I mean couldn't it's like it's it's it has nothing to do with our business at all and we
We don't even see the guys that are being referenced.
Speaker Change: The business is fantastic for us. It's never been performing better. You know, the contribution from that business.
is
Speaker Change: you know, quite honestly, it's now at a level where, from a combined ratio perspective,
Speaker Change: Even though barring my comments earlier when I said like in a normalized basis, it'll run at a higher level It's actually running consistent with our overall Combined ratio for our business on a on a on a on an area that requires very very little capital and you're right 1-1 has been a boon. I mean we just we had an unbelievable 1-1 in A&H
Speaker Change: and we're seeing it in multiple places. The most notable thing is that, going back about 24 months ago, we launched a captive capability inside of our A&H business that complimented sort of the, you know, the individual employer medical stop loss. So it's a group captive kind of play.
Speaker Change: and we started to really see a lot of traction in 2024 there. And in 2025, not only are we seeing a lot of traction there, but now we've also seen sort of the return of the more traditional business.
Speaker Change: There are a couple of entities that have completely pulled back, MGAs that have lost paper and so forth. And it's just opened up the market for us. And we kept our powder dry, our growth was sort of in the low teens, and we see an unbelievable amount of opportunity. But I'll reemphasize something that's really important, which is...
Speaker Change: This talk about kind of the problems in the market has like literally nothing to do. We don't see any of the names.
Speaker Change: that are describing problems out there. And I couldn't, again, I know I'm saying these things over and over.
Speaker Change: It may be one of the best success stories of 2024 for our company and our position coming into 2025. And our results for the 1-1 renewals, which is something like 55% of the business for the year, was absolutely extraordinary.
Great. That's very interesting. Thanks so much.
Thank you.
Speaker Change: Thank you. And our next question comes from the line of Mike Phillips from Oppenheimer. Your question, please.
Speaker Change: Hi, good morning. It's Roland on for Mike. I wanted to quickly go back to commercial auto. Given the industry challenges and your own caution on that line, is there any sort of loss trend detail you're able to give on your book, reserve staffs, what sort of classes of business, etc.?
Speaker Change: Specifically for, are you asking specifically for auto? Specifically on the commercial auto since you are so cautious about the growth there. Yeah, so I'm going to highlight something I've talked about in the past. We really have sort of three buckets of commercial auto.
Speaker Change: One Bucket is a very long-standing program with an entity that we are a material owner in and, you know, effectively,
Speaker Change: they're an expert in a very specific area. And that business, by the way, has delivered fantastic outcomes for, you know, 10 plus years for us.
Speaker Change: And there, because of the nature of that business, we're seeing a lower loss trend. So I would describe it, you know, kind of in the mid to sort of upper single digit, you know, kind of loss trend.
Speaker Change: So that's one area. The second area is in our captives, our group captives. There's a good deal of auto there. Within the group captives, you know,
Speaker Change: The principal captives there are very technology-intensive, so pretty much, you know, these are heavy autos. They're loaded with pretty much everything that you can possibly imagine, which is really important from a risk management perspective, but also, obviously, you know, you can know a great deal about the loss very, very quickly. And I would say there, you know, we're probably seeing what the industry is seeing driven by severity. You're kind of talking ten-ish percent.
you know, kind of
you know, severity trends.
Speaker Change: generally speaking you're going to see in our results our frequency is way down. I mean like when you when you when you look at our results there's gonna there's a break in our frequency around the time that I joined when we started exiting you know some really bad stuff and our frequency is down about 50% on you know on a per exposure basis but it's also down 50% on an open claims basis across the entire life cycle so you'll see that and then the third bucket is basically what supports our industry solutions and and then
Speaker Change: I think again I think on a severity trend we're probably seeing what the industry's seeing which is you know 10 percentage plus or minus
Speaker Change: what I'm, you know, going back to my comments earlier, what I'm cautious about
Speaker Change: is that, you know, that 10%, it's not unreasonable to think that that 10% could be 12%, 14%, you know, some higher number a couple or three years out, a couple or three years out, which again...
Speaker Change: for us makes it perplexing some of the confidence comments that we hear from others, because while there's a lot of rate to be captured, it brings with it a good deal of risk.
Speaker Change: and on the flip side, not to sort of go on too much, I don't know if you saw it, but this week...
Speaker Change: that I think of it if it occurs in Georgia and other states start to act accordingly you know that's the kind of thing that can really bend the curve on the lost cost inflation but without that change
Speaker Change: That scenario that I described where, you know, it looks like 10% today and it could go to 12, 13, 14 and higher is not an unreasonable scenario, and that's the reason why we're cautious. And also why you'll see, certainly in the last couple years of our accident years, we're just, you know, we, for the small, much smaller portion of our business that is bodily injury exposed, we've got up.
Speaker Change: you know, a lot of IV&R should there be a change in trend going forward.
Speaker Change: That's super helpful, thank you so much. Shifting a little bit, I was just curious how much of your growth expectation...
Speaker Change: is from the new hires or teams versus existing verticals, and then
Speaker Change: On that topic, how do you book new products? Is there a sort of extra layer of caution that goes into the law spec there? And sort of what timeline does it take for you to be comfortable with your law specs on new business?
Yeah, great question. So, for nearly all of our businesses,
Speaker Change: we endeavor to put a margin above our indicated. For newer businesses, that margin is greater. Also, in every single planning year, when we come into the year, Mark and I hold back what we call corporate IV&R so that should we launch a business during the course of the year, we can put further risk margin into that. So the answer is yes.
Yes, and yes, across the board.
All right, well, thank you so much. Thank you
Speaker Change: Thank you. And our next question comes from the line of Andrew Clearman from TD Cowen. Your question, please. Hey, good morning. Nice quarter. So, um, I was particularly interested, you know, you saw some great growth and I was particularly interested in the two growth areas.
Speaker Change: programs where I know you've got you know kind of a broad
Speaker Change: mix of proper, you know, products, property, GL, commercial auto, excess liability, workers comp. Kind of curious where you're seeing the growth within programs and then, you know, in that excess liability area, are you seeing a lot of growth there as well?
Andrew Robinson: Thank you, Andrew, and thanks for the question. So I'm gonna try to source it before, hopefully before the end of
Andrew Robinson: My full answer, but yes, it was a bump up in programs for this quarter, but I do believe that for the full year, it was much more moderate. So, you know, you know, unsurprisingly, there can be some lumpiness there. What I will tell you on the program side, our program strategy very much follows what I've been describing to you overall, right? So we're,
Andrew Robinson: we're not leaning in on programs on liability. In fact, quite the contrary. I think that we're probably even more cautious.
Andrew Robinson: on liability and programs because obviously that's an instance where you're delegating authority and I just think that it requires an extra level of precaution. So most of our growth there is coming from areas that aren't in the areas that you mentioned. Where it is coming from the areas that you mentioned are things like, you know, we have a cannabis program which is both property and liability. But that's very, very specific. It's not cat exposed on.
Andrew Robinson: on one hand, and a liability, it is PremOps, but, you know, you don't find the kind of bottle injury that you're finding, you know, elsewhere. And so, you know, I would just, I would say to you that that shouldn't surprise you that, you know, sort of our development there is following, you know, what we're doing overall, and we're finding
Andrew Robinson: niches here and there that are very complimentary to our overall business.
Andrew Robinson: You know, look, on the excess side, you know, I need to be very clear that
Andrew Robinson: Principally as a company, our access, first off, we keep our limits short, so we only offer five million dollar limits.
Andrew Robinson: For all but one area, our access is written over our own primary, right? So it's an umbrella as opposed to a standalone access. Where we write standalone access in our transactional E&S business,
Andrew Robinson: we write virtually no auto. So we're really writing the same kinds of.
writing in those.
overall.
Andrew Robinson: That was very very helpful and you know maybe maybe a similar question with regard to captives which were you know gross written was up 43% and again I think you're in the same broad spectrum of lines and captives as you are in programs.
Andrew Robinson: Where do you, I think if I remember correctly, you attach somewhere around 350.
The House of Non-Average
Andrew Robinson: Partially, but it'll be it'll be on our paper. I will to clarify though most of the growth in in captives is actually coming from something that
Andrew Robinson: is a very innovative captive that we talked about, that we introduced in 2023.
Andrew Robinson: And it is, it's, it's unbelievable. I mean, we have, it's just been an incredible growth engine and the results are equally astounding. And, you know, I can't remember whether I made this point, but
Speaker Change: during, I believe it was Helene, you know, we had something like $200 million of exposure in Bradenton and got that all that exposure out largely because of the technology that we use. And so our loss experience has been absolutely extraordinary and it's pretty hard to put a captive together around property, particularly those kinds of vertical limits.
Speaker Change: and the fact that we did it and we have great reinsurance support, that's really been the source of our growth.
Got it. Thank you very much.
Thank you.
Mark Hughes: Thank you, and our next question comes from the line of Mark Hughes from True Securities. Your question please.
Speaker Change: Mark, I don't know if you'll have this, but you happen to have the cash from operations for the full year? Right, I had about $300 million, Mark.
Yep. Okay, that was it. Thank you.
Speaker Change: Sorry about that. I didn't mean to be back in the queue. Thank you.
Speaker Change: Certainly. And, once again, if you do have a question at this time, please press Star-11.
Speaker Change: And this does conclude the question and answer session of today's program. I'd like to hand the program back to Natalie Schoolcraft for any further remarks.
Natalie Schoolcraft: Thanks, Jonathan, and thank you everyone for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialties. I am available after the call to answer any additional questions that you may have. We look forward to speaking with you again on our first quarter earnings call. Thank you and have a wonderful day.
Speaker Change: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.