Q2 2025 Bowhead Specialty Holdings Inc Earnings Call

Quarter 2025 earnings conference call.

I'm Shirley. Yep. Full head's Chief accounting officer and head of investor relations.

Joining me today are Stephen Sills, our Chief Executive Officer, and Brad McKay, our Chief Financial Officer.

Earlier this morning, we released our financial results for the second quarter of 2025.

You can find our earnings release in the investors relations section of our website.

Our form. 10 Q will be also available on our website later this evening.

Before we begin, I'd like to remind everyone that this call contains 4 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.

These statements are made only as of the date of this call and are based on Management's, current expectations, and beliefs, for 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 filings.

We expressly disclaim any duty to update any forward-looking statements except as required by law.

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.

Stephen.

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join our call today.

I'm pleased to share the both head. Once again, delivered outstanding results across the board in Q2 growth written premiums increase. 32%, while adjusted net income increased, 62% and diluted adjusted earnings per share increased. 32%,

These results demonstrate what we have consistently communicated since the establishment of our company. That underwriting Matters from the top down underwriting. Profitability is our Northstar.

Starting with gwp, bowhead generated a record, 232 million in premiums during the quarter. This equates to 32% year-over-year growth

We're pleased that this was driven by double-digit growth across all of our craft underwriting divisions.

Once again, our casualty division comprised, the largest portion of our premium growth with a 32% increase to 151 million.

This growth in casualty was primarily driven by our excess casualty book where despite signs of increased competition for now, we're continuing to see favorable underwriting and pricing conditions.

We also experienced modest premium growth in our primary construction project book where we're able to deploy low 1 million or 2 million dollar limits with favorable pricing terms and conditions in our professional liability division premiums increased 23% to 55 million for the quarter. Although we continue to experience challenging underwriting conditions, we found profitable growth opportunities at all. Departments with commercial. Public dno driving more than half of our growth.

In last quarter's call, we mentioned that we had started to see shoots of Market stabilization.

This quarter, a positive developments continued. We capitalized on some new opportunities and retained, the large proportion of our renewals at or near expiring rates.

In the second quarter premiums in our Healthcare liability division, increased 39% to 24 million. The growth came from all the Departments. As we mentioned last quarter, we continue to grow the book responsibly

We're underlying numbers, don't meet our profitability targets. We've continued to decline or let other carriers renew our accounts.

During the quarter been generated 3.4 million of premiums during its fourth full quarter of operations.

While still a small contributor to Bow heads, overall premiums were achieving steady month-over-month growth and are continuing to expand our flow underwriting operation to support our cross cycle strategy.

We operate in, I'll turn the call over to Brad to discuss our strong Q2 results in more detail.

Thanks Stephen. Go ahead generated adjusted net income of 12.8 million or 37 cents per diluted share and adjusted return on average Equity of 12.8% for the second quarter of 2025.

Gross written premiums increased more than 32% to a record 232 million for the quarter. As Stephen mentioned, we achieve double digit growth in each of our craft underwriting divisions, with casually continuing to drive the growth and baling generating 3.4 million of premiums in the quarter.

Turning to our loss ratio. There are several elements that affect our loss ratios.

First as a reminder, since we're a relatively new company writing longtail lines with a short loss history when setting our loss reserves were heavily reliant on industry. Observed loss information, over our own internal debt.

This Reliance is reflected in our high ratio of idnr, as a percentage of total reserves, which was 87.5% at the end of the quarter.

Second product mix. Affects our industry Reliant loss ratio because casually products naturally have higher current accent in your loss ratio assumptions compared to our other products.

Since our casualties division, comprises an Ever larger proportion of our net earned premium our industry Reliant loss. Ratio has been trending higher

This has had the effect of increasing, our current accident near loss ratio by 0.6 points.

From 65 and a half percent in Q2 of last year to 66.1% this quarter.

Next seasonality also has an effect on our loss ratio during the first quarter. When incentive compensation is paid to our internal claims team. Also known as paid Ula. Our loss ratio tends to be higher before. Historically normalizing after the first quarter,

this had the effect of decreasing our loss ratio by 0.7 points from 66.9% in q1 of this year, to 66.2% this quarter,

Lastly, as we mentioned in the previous quarter, the 0.1 Point year-over-year change in our prior accent year loss ratio is simply due to loss ratios being applied to audit premiums that were built in fully earned in the quarter, but related to Prior accident years.

This is not based on actual losses settling from more than reserved and does not represent an increase in estimated reserves on unresolved claims.

We are simply putting loss reserves into the appropriate accent year when the premiums are booked.

As a result, our loss ratio for the quarter was 66.2%, 0.7 Point, increase from 65.5% year-over-year.

For the quarter, it was 30.6%, a decrease of 3.2 points compared to 33.8% year-over-year.

To decrease was driven by the reduction in our operating expense ratio from the continued scaling of our business, as well as The Prudent management of our expenses.

There's also an increase in our other insurance related income, which consists of minimal policy, fees and insurance related services, that contributed to the reduction in our expense ratio from last year.

these improvements were partially offset by an increase in our net acquisition ratio driven by portfolio mix and to a lesser extent of reduction in heard seating commissions

in terms of our net acquisition ratio in late May on the 1-year anniversary from our IPO. The fee we paid to American Family increased from 2% to 2.75%

the impact on our Q2. Net acquisition ratio was minimal. But we expect the increased fee to trickle into our net, acquisition ratio, the rest of the year, as premiums affected by the increase. Our earned

From an expense ratio perspective, we expect the increased fee. We paid American family to be offset by the continued, scaling of our business and The Prudent management of our expenses.

Overall, the loss ratio and expense ratio contributed to a combined ratio of 96.8% for the quarter.

Turning to our Investment Portfolio. Net investment income increased 56% year-over-year to 13.7 million for the quarter, primarily due to higher average, balance of Investments, and higher yields on invested assets,

Our Investment Portfolio. Had a book yield of 4.7% and a new money rate of 4.8%. At the end of the quarter,

the average credit quality of our Investment Portfolio remained at Double A and our average duration was 2.8 years at the end of the quarter.

% from year end.

Before turning the call back to Stephen, I wanted to provide an update on our May 1st seated reinsurance renewals, which apply to all of our departments except for our cyber liability products.

Our cyber liability products are covered by our 60% quotas share treaty which renews January 1st.

Overall, we increase our quota share treaty from 25 to 26% and our excess of lost treaty increase from 60.1% to 65%.

Seating Commissions, in our May, 1st renewals remained unchanged from 2024.

With that, I'll turn the call back over to Steve.

Thanks. Brad. In terms of the ens Market we operate in. Let's start with casualty within the excess casualty segment. We continue to see overall discipline and limit deployment and rates. However, consistent with Trends communicated by other carriers, we've seen a modest uptick in competition, which is in line with the expectations of an underwriting cycle.

In terms of mgas, while they are present their influence in the areas we operate in or minimal. At this time, we often see them participating in the upper end of towers, where Brokers struggle to fill capacity.

Despite the uptick in competition with excess casualty markets, still making up for legacy losses. We don't expect to see limits going back up or in across the board price drop anytime soon.

New business opportunities for excess Towers being reshuffled for price limit, reductions or changing appetites from incumbents.

Still far outweigh instances of unreasonably competitive renewals.

In the ens construction project sector, we're starting to see a deceleration of new construction projects.

Tariffs are creating uncertainty around building material costs.

stricter immigration policies, or resulting in uncertainty around the availability and costs of Labor and the interest rate environment remains uncertain

In professional with the exception of public dno, we're continuing to see challenging market conditions.

Particularly in financial institutions and large cyber liability accounts.

In public dno. As we mentioned, we started seeing signs of Market stabilization Legacy Markets, started to push back on broker requests for rate decreases and Brokers began telling clients to anticipate flats or Rising rates.

With more Kel exiting the segment. We're also seeing more turnover on programs, creating potential opportunities.

While there are limited shoots of small improvements we remain disciplined in our underwriting.

The financial institution space continues to be the most challenging driven by an overabundance of capacity.

Cyber liability market conditions and the large account space remain competitive.

We're seeing new limit opportunities on large accounts, but they're being taken up by new broker facilities ahead of these conditions. We've leveraged our technology to cost-effectively underwrite small and middle-market accounts.

Turning to healthcare liability. This remains a competitive landscape with pockets of positive developments.

For example, in hospitals, we're seeing great increases but the industry is still working through coverage terms and conditions around emerging regulatory crime and abuse risks within the sector likewise in senior care. We're seeing some strong rate on renewals due to Industry, claim activities, but competition Still Remains strong.

Overall, with our disciplined approach to underwriting and our expanding craft and flow platforms.

Go ahead is a franchise being built for enduring success and cross cycle profitability with that. We'll turn the call over for questions.

Thank you.

If you would like to ask a question, please click the very time button found on the black bar at the bottom of your screen. When it's your turn, you'll receive a message from the host. Allowing you to talk, then you'll hear your name called, please accept, unmute your audio and ask your question.

As a reminder, we are allowing analysts 1 question, and a relevant follow-up.

We'll wait 1 moment to allow our key to form.

First question from mayor Shields with Keith Britton Woods.

Please unmute your line, and go ahead.

Um great. Thank you so much and good morning. Uh Stephen I was hoping you could comment on how funable the significant capacity that you described

as available for financial institutions is for other uh professional liability products. Does that tend to leak out or is it restricted to that particular segment?

At this time, it seems to be that particular segment. Um,

in past years, uh, financial institutions have been generally the hardest of the markets because of the the risk of contagion um,

uh, so we're kind of surprised but there are losses in the business and people haven't pulled back and, uh, it just seems to be, um, uh,

The worst of the various classes within the dno world at least at this time.

Okay, that's helpful and and more broadly. I was hoping for an update on what you're seeing or I guess either in bowhead book or more broadly in terms of social inflation specifically on professional liability. Where presumably you don't have the physical injuries that are such a major component of of current social inflation.

Sure. We're seeing it much more on the casualty side, uh, claims that once settled for 2, 3 million to go at 10 plus. Uh, we also think part of the problem is and it's also, you know, we've talked about the opportunities that we've created by people cutting back from 25 million to 5 million dollar layers, which created opportunities for markets like us, you know, going back several years to be able to to fill in those holes and and get a foothold in the market.

Um the downside of what's happening there sometimes is that when a carrier has 5 million dollars and they get pressure from markets up above to settle claims. Companies are being more willing to just throw their 5 million on the table and walk away from the claim and leaving it for the responsibility of the rest of the tower. Um and that I think is also led to the uh the rise in some of these claim settlements.

Great, thank you so much.

Thank you.

Our next question comes from Paul. Gnome with Piper Sandler, please unmute your line and go ahead.

Good morning. Um, we're hoping you could give me a little bit more thoughts and, um, guidance on how we should think about the investment income, but Outlook, uh, and specifically to the, but if if you mix shifts, how we should think about the, um, the reserve mix. So you got a long tail on a business. You got rapid growth

um,

I'm not certain exactly how I should put the numbers together when I'm thinking about.

how the underlying, uh, cash flows will grow, um, whether or not they sort of accelerate here because of the long tail, or if it's consistent with

Overall investment. So, um, size of the business growth. They thought she had there was I think really helpful.

Sure, PayPal. This is Brad. Um, I can talk talk on that 1. Um, I think it's reasonable like you said, longtail lines, investment income, should continue to grow due to increased, uh, balances, uh, being invested. Um, if I look back there, there is a little seasonality in, in q1. I think, uh, if you did the math on our queue, there would be about 60 million dollars of cash that went into the, um, Investment Portfolio.

It was free cash. Um, that's probably the low end because we have our bonus payments that are paid in cash in Q1. Um, you'll see in Q2 I think that number is about $80 million. Um, so that's maybe, you know, sort of a, you know, higher end or as we continue to grow, we will end up paying more claims, which would probably be the one variable in the future that would increase.

Um, but again, as premiums increase longtail lines, I think, um, you know, if you think about adding another, you know, somewhere between 60 and 90 million dollars to the portfolio, each quarter, um you know 5% or so new money rate, um, I think that's kind of how we're we're looking at it.

um, it, but we are, um,

material increasingly portfolio should be uh Raiders it all just about um

the size of the portfolio at this point.

You know, um, I can't control the rates, I can control the, the size and, and how we grow it. So, that's kind of what we focus on and I think it'll, it'll mostly come from from that.

Who knows where, where rates will go? That's your guess is probably better than mine. Honestly.

Um, very disappointing. You can't control the range. Thanks you for help.

Our next question comes from Matt kesy. With Citizens Capital, please unmute your line and go.

Hey, good morning.

Um, we could I want to ask a question on baen. Um, we can obviously see the numbers coming through, but I was hoping, maybe Stephen, you could give us a little bit of a, uh, qualitative rather than quantitative update on just how that's going and kind of, you know, your outlook.

Sure, uh, very positive on the Outlook. Uh, the numbers are not what we would have expected at this point in time. But the most important thing is the Technologies been developed. It works, we're able to, uh, ingest, uh, the submissions come up with quotes bind issue, policies, with very little human intervention. Uh, so as far as

I'm concerned, we're in a great position to be scaling the business. Uh, we believe that our uh, quote ratio, and our hit ratio on those quotes is appropriate for what it is that we're seeing. The thing that we're in the midst of doing, which will cause the business to scale, more is getting more submissions.

that, uh, getting people on, you know, $5,000 or $6,000 Premium Accounts to send them to an alternative market, uh, and we see that.

You know, coming along and um, I think you and everybody will be pleased with what they see, uh, going forward on this on this business. But but we're very pleased where we are today and uh, uh, we think it's on a good path.

Great. Thank you. Appreciate it.

Sure.

Our next question comes from Sid sha with Morgan Stanley.

Please unmute your line and go.

hey, this is Sid on for Bob, um,

Good morning. First question on the expense ratio, as we kind of think about you guys continuing to scale longer term and continuing to invest in technology for baling. Um, what should we think about? Like a good kind of run rate, um, going forward over the next year or so.

Hey said, this is Brad. Um, I could take that 1. I think you've seen it Trend down. Um, and I would say it's trending down, we're we're really happy with where it is now. Um, we're right on the cusp of of breaking 30% and I think that would be fantastic if we could get into a a Glide path below 30%. But, uh, we do acknowledge, um, I think, you know, we've got headwinds with our fee that we pay to American family going up in the future. Um, the acquisition ratio component of that is probably the 1 that, you know, where where you'll see that come through, um, our uh, our brokerage commissions as a percentage of our net premiums have actually stayed relatively flat. Um, but we do have some headwinds on that acquisition ratio with the, the American family fee, um, seating commissions as everybody knows haven't been great.

Um so some headwinds there as well but um I think we're we're happy with if you look at the Glide path where it's heading and we'll continue to keep um pressing as much as we can uh to get it below 30%.

Yeah, I'm confident we're going to get okay below 30 in the next quarter.

We'll get a run right below that.

Okay, awesome, that's super helpful. Um, and then next, when I think about your 3, um, craft segments, where do you guys think of as like the strongest growth opportunities over the next year? Or so, just giving all the. All the kind of um,

Market environment that you're seeing.

Well, in terms of absolute dollars, I think you'd have to say it's the casualty business.

Uh, you know, uh, continue to grow. We believe it's the largest market. Uh, and, uh,

It's an area that we've been adding talent.

Uh, to grow. And uh we think it's going to continue to grow very nicely.

Okay, awesome. Really appreciate the really appreciate the color.

Our last question comes from Pablo Sings with JP Morgan. Please go ahead.

Um, hi. Thank you. Um, so first question for Brad, uh, just given that we're now in the second half of the year, can you please remind us of the timing of board's annual assumption review, and if you could comment on how experienced as far in 25 is square against the assumptions you put in last year.

Yeah, thanks. How about? I'll, I'll maybe revisit what happened last year and how we look at it this year as well. Um, we do an annual review of our reserves with our external actuary in Q4 um, each quarter we look internally and uh, you know, always reserve the right to make whatever changes we deem necessary. But um, for the past, uh, you know, year and a half Q4 has been the year when we when we actually change lost picks.

um, right now we've got

I think about 17 individual, uh, reserving segments that have individual lost picks for each year. And um you know, that's why we say when when the loss ratio changes it's a mixed change. As those as the premium related to those 17, reserving segments moves around. You will see the loss ratio. Move each quarter in Q4. We'll get updated industry information from um our third party actuaries which as I mentioned, that kind of drives most of our loss picks because of our limited history.

Um, at that stage, we, we will um, you know, determine, you know. Um, how we how we absorb those into um, into our into our loss ratio last year? I think you saw, we did end up lowering the loss ratio because our, I think our rate was just so much higher than the loss Trends. Um, TBD what that looks like in Q4 this year. We, you know, um, there there are reserves. So even if the third party actuary comes along with lower loss picks, we met, uh, still still keep higher ones if we think that's prudent or not. But, um, that'll be a, a sort of a Q4 decision up until then, it's mostly mixed or, uh, as I said, if we see anything that, um, you know, Midway through the year, we want to change. We, we could do that as well.

Uh, thanks Brad. And then a second question on the uh, the follow up to the Investment Portfolio questions that we've had in the call. So I I think your new money yield is only 10 bits above the portfolio that needs based on what you disclose write 4.8 versus 4.7 so. So the question is, do you see any opportunities to boost the new money yield here or would it work? Would it be more reasonable to expect the portfolio yield to convert to 4.8? Of course, assuming no change in the overall interest rate environment. So

Yeah. I mean, we're looking at it every month and looking for um, opportunities and and uh, different sectors that have the best spread. So we're constantly looking for um, additional yield. And I think what you're seeing in the compression of a new money versus the portfolio yield is, um, just the success of doing that. Um,

You know, in the past year or so, uh, We've really repositioned the portfolio into um, for us a longer duration, compared to where we'd been in the past and into those spread sectors that we're seeing, uh, the best deals.

So, um, you know, time will tell where where rates go but we're really comfortable, where, where it is now, I would love to see it, get above um, 5%, but um not something that we're going to get fancy with or exotic with to go after to chase yield.

um, which I wish I had a better answer for you, uh, but that's kind of

Uh kind of where we are in the Investment Portfolio.

Uh, does that helpful? Thank you.

That concludes the question and answer portion. For today's call. I will now hand the call back to Stephen Sills. CEO for closing remarks.

Thank you.

Bowhead delivered, another quarter of impressive results.

Thank you to our bowhead team members for your continued dedication. And thank you to our shareholders for your continued support.

Speak to you along the way. Thank you.

Thank you for joining today's session. The call has now concluded.