Q2 2025 Skyward Specialty Insurance Group Inc Earnings Call

Speaker #2: Good day, ladies and entlemen, and thank you for standing by. Welcome to the second quarter of 2025 Skyward Specialty Earnings Conference call. At this time, all participants are in a listen-only mode.

Speaker #2: After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press Star 1-1 on your telephone keypad.

Speaker #2: At this time, I would like turn the conference over to Natalie Schoolcraft of Investor Relations. Ma'am, please begin.

Speaker #3: Thank you, Howard. Good morning, everyone, and welcome to our second quarter 2025 earnings conference call. Today, I am joined by our chairman and chief executive officer, Andrew Robinson.

Speaker #3: 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.

Speaker #3: Our comments today may include forward-looking statements, which, by their nature, involve a number of risk factors and uncertainties that may affect future financial performance.

Speaker #3: Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release, as well as in our 10-K that was previously filed with the Securities and Exchange Commission.

Speaker #3: Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules, are included as part of our press release and are available on our website under the Investor section.

Speaker #3: With that, I will turn the call over to Andrew. Andrew?

Speaker #4: Thank you, Natalie. Good morning, and thank you for joining us. We're pleased to report another upstanding quarter with adjusted operating income of $37.1 million or 89 cents per diluted share, driven by $31.2 million of pre-tax underwriting income, our best-in-company history.

Speaker #4: Year-to-date annualized return on equity continues to be excellent at 19.1%. Gross written premiums grew 18% for the quarter, and our 89.4% combined ratio also accompanied best.

Speaker #4: Our direct result of our diversified business portfolio and the strong execution of our ruler niche strategy. We continue to generate profitable growth in areas less exposed to the cycle's impacting the broader P&C market.

Speaker #4: Our portfolio mix, risk selection, and operational agility are allowing us to grow where conditions are attractive and moderate where they are not, all while delivering top quartile returns, maintaining our low volatility, and not extending our average liability duration.

Speaker #4: Our growth this quarter is particularly notable as we pulled back again in global and E&S property in response to increasingly softening conditions. We elected to hold our current liability exposure base roughly flat, in spite of an overall positive rate environment, simply due to our view that loss inflation continues to be a serious headwind. We want to be selective in the areas we seek to grow our casualty business.

Speaker #4: In contrast, our growth in areas including ag, credit, and A&H demonstrates again that we are exceptionally well-positioned to adapt and reallocate capital elsewhere in our portfolio to continue to grow underwriting income.

Speaker #4: today's environment, but for all cycles, to deliver long-term outperformance. With that, I'll turn the call over to Mark to discuss our financial results in greater detail.

Speaker #4: Mark?

Speaker #5: Thank you, Andrew. We had another strong quarter, reporting adjusted operating income of $37.1 million, or $0.89 per diluted share, and net income of $38.8 million, or $0.93 per diluted share.

Speaker #5: Gross written premiums grew by 18% for the quarter. Agriculture and credit, accident and health, captives, and specialty programs contributed meaningfully to the growth this quarter.

Speaker #5: Net written premiums grew by 14% and our net retention through six months of $60.9%. It in line with the prior year of $61.2%. Turning to our underwriting results, our second quarter combined ratio was 89.4%,

Speaker #5: We are built not just for 1.4 points of CAT losses sensibly from convective storms in the South and Midwest. The non-CAT loss ratio of 59.9% for the quarter improved 0.7 points compared to 2024 and is the best in company history.

Speaker #5: While in pockets, we observed auto liability and, to a lesser extent, general liability severity trends. We also have units where auto and GL continue to emerge favorably.

Speaker #5: It's for this reason we're being selective in growing exposure and occurrence liability lines. Our shorter-tail lines, including property and surety, continue to emerge favorably, as does our professional portfolio.

Speaker #5: There was no net reserve development this quarter. Our reserve position continues to be strong as IBNR makes up more than 70% of our net reserves, while the duration of our liabilities continues to shorten.

Speaker #5: In line with our conservative reserving philosophy, we maintained our margin above actuarial indications. The expense ratio of 28.1% improved 0.9 points over the prior year quarter and was in line with our expectations of sub-30s.

Speaker #5: The business mix shift continued to impact acquisition costs the quarter, but was offset by two points of improvement over the prior year and our other operating and general expense ratio, which benefited from the scale of our business.

Speaker #5: Operating income benefited from our company best underwriting results in the quarter, but was impacted by a reduction in investment income to $18.6 million as a result of our alternative asset portfolio.

Speaker #5: These positions, primarily in private credit, have lagged expectations in this quarter with no exception. Due to the accounting treatment, we marked the underlying positions to market quarterly, and as we have seen, that can and has resulted in some volatility.

Speaker #5: This quarter, our oil and gas and real estate impact holdings impacted our net investment income. As we've previously discussed, this portfolio is in redemption and, on June 30th, it comprised less than 5% of our investment portfolio.

Speaker #5: Through six months, $30 million of capital was returned and reinvested in our fixed income portfolio. Excluding alternative investments, net investment income increased 23.5% over the prior year, due to the 30% increase in income from our fixed income portfolio driven by a higher portfolio yield and a significant increase in the invested asset base.

Speaker #5: In the second quarter, we put $170 million to work at just under 6%. Our embedded yield was 5.3% at June 30th, versus 4.8% a year ago.

Speaker #5: Our financial leverage is modest, as we finished the quarter just shy of a 12% debt to capital ratio. Given our undrawn capacity from our revolver and our current leverage, we have ample debt financing flexibility.

Speaker #5: Lastly, I wanted to make everyone aware that we will be filing an amended 10-K around the same time as we file the second quarter 10-Q.

Speaker #5: To be clear, this is administrative and simply adds a standard sentence to E&Y's unqualified opinion. Now, I'll turn the call back over to Andrew.

Speaker #4: Thank you, Mark. Our outstanding second quarter performance reflects the strength of our diversified portfolio, our underwriting discipline in light of softening conditions across several lines, and our ability to adapt quickly to evolving market conditions.

Speaker #4: We continue to grow with precision, targeting segments where our expertise, data, and technology, and underwriting discipline give us a durable advantage. We are seeing sustained sustained momentum across several key areas of our business, including agriculture, credit, and A&H, where our specialized knowledge and capabilities are key differentiators.

Speaker #4: As a reminder, in agriculture, we serve markets that have government-subsidized programs and we have constructed a well-diversified global portfolio. In this quarter, we continue to see opportunities in the US, dairy, and livestock program, and we are able to close several new accounts.

Speaker #4: As we have built this portfolio, we have accumulated a depth of knowledge and insight that we believe is distinct. Similarly, we've ided a product to this market that we also believe is unique and we have now achieved the size to selectively utilize a proprietary hedging strategy to mute the potential volatility.

Speaker #4: Moreover, we are currently booking this portfolio at the most conservative outcome we can reasonably expect until we are bullish about the future contribution as we continue to earn in the growth from ag.

Speaker #4: In credit, increased economic uncertainty is reshaping risk profiles, and we continue to experience favorable pricing and conditions. We believe that both the credit and agriculture markets offer opportunities for profitable growth.

Speaker #4: Our accident health division started the year strong and the second quarter was a continuation of that trend, principally driven by a group captive offering to the medical stop-loss market.

Speaker #4: Just as a reminder, we are not competing against companies focused on large accounts. Our focus is on smaller accounts, generally with 500 lives or less.

Speaker #4: That said, the poor performance in the large group market has been a contributor to the improving conditions in the market we serve. In surety, we had moderate growth, largely driven by reduced federal funding, including that flowing to states and unions.

Speaker #4: We remain bullish in our surety outlook, and we believe we are well-positioned to continue to grow this market-leading business. In transactional E&S, as noted in my earlier comments, we shrunk our property book in response to increasingly competitive market conditions.

Speaker #4: But this was more than offset by the growth in our liability book, and we continue to see selective opportunities to grow in Linn Marine.

Speaker #4: In specialty programs, our growth was driven by those program managers where we have an ownership position, which is roughly 70% of our total division.

Speaker #4: This ownership is a further measure of alignment in addition to the underwriting performance compensation structures we employ when we delegate authority. Two programs added over recent quarters contributed meaningfully to the growth this quarter, and growth in specialty programs will be lumpy driven principally by program ads.

Speaker #4: The growth in our captives division is a result of new insureds joining existing captives. As these companies seek more control over their risk programs, our ability to partner on unique solutions opens new capital efficient revenue streams.

Speaker #4: These are sticky, relationship-driven opportunities that align well with our long-term strategy. Professional lines growth was flat as we continued to experience competition and miscellaneous C&O.

Speaker #4: And we've been very selective in management liability. We are leaning into opportunities in healthcare, which is an attractive market and where we are exceptionally well-positioned with an extraordinary team of deeply technical underwriters.

Speaker #4: We are staying disciplined in global property given the current market backdrop. Our account retention was in the high 80s as we continue to maintain a cautious, deliberate approach—participating where pricing and conditions reflect the true risk and stepping back where they do not.

Speaker #4: And finally, in construction and energy solutions, these were impacted by further intentional actions in construction, particularly commercial auto and a selective approach to other casualty.

Speaker #4: Nonetheless, in energy, we are very pleased with the consistent growth and profitability, including in the renewables market. Turning to our operational metrics, renewal pricing was consistent the prior quarter at mid-single-digit pure rate and an encouraging mid-digit exposure growth, both excluding global property.

Speaker #4: New business pricing continued to be in line with our enforced book. Retention dips slightly to the mid-70s for the quarter driven by business mix and construction, as noted earlier.

Speaker #4: Lastly, we continue to see strong submission growth, which was in the mid-teens this quarter. We've doubled down on our estment in augmenting the deep expertise of our underwriters and claims professionals with advanced technology as demonstrated by our award-winning Skyview platform.

Speaker #4: We believe that we are in a leading position using AI in this regard, particularly in the specialty insurance markets where we compete. We have every business seeking to leverage the powerful advancements we've been implementing in specific units, A&H, healthcare, miscellaneous E&O, and energy.

Speaker #4: Given the AI arms race, I believe our early-mover advantage will compound and contribute to the competitive moat we're around every division and unit in our company.

Speaker #4: Altogether, we delivered another outstanding quarter, and our results reflect the strength of our strategy, the quality of our execution, and the resilience of our business model.

Speaker #4: Our deep expertise, disciplined underwriting, and focus on complex underserved markets continues to differentiate us. We are seeing market shift in real time. Certain areas continue to soften, while others remain dislocated and underserved.

Speaker #4: These are the environments where Skyward thrives. Our ability to adapt with discipline and precision to grow where conditions support our return thresholds and moderate where they do not is exactly why we built the portfolio we have.

Speaker #4: Our ruler niche strategy has not just a tagline. It is a blueprint for durable top quartile performance through the market cycles. We remain committed to this strategy and confident in our ability to execute it.

Speaker #4: I'd now like to turn the call back over to the operator to open it up for Q&A. Operator?

Speaker #6: Ladies and gentlemen, once again, if you a question or comment at this time, please press Star 1-1 on your telephone keypad. If your question has been answered or ou wish to remove yourself from the queue, simply press Star 1-1 again.

Speaker #6: Again, if you have a question or comment at this time, please press Star 1-1 on your telephone keypad. Please stand by while we compile the Q&A roster.

Speaker #6: Our first question or comment comes from the line of Greg Peters from Raymond James. Your line is open, sir.

Speaker #7: Good afternoon, everyone. So Andrew, in your comments, you spoke a lot about where you're seeing growth and where you're pulling back. It's effectively outlining your cycle management strategy.

Speaker #7: Maybe you could spend some additional time talking to us about these key lines of growth, the ag business, the credit, the captives, and the programs.

Speaker #7: I think you said that you're you're assuming some some power loss picks just on like the ag business for for to to take out volatility risk.

Speaker #7: Maybe you can just talk to us about how you're approaching the reserving side as you grow these businesses.

Speaker #8: Yeah. I mean, I think, Greg, you ow thank you for the question. And yeah, saying good afternoon, that kind of feels weird because every one of our calls is in the morning.

Speaker #8: So good noon. Look, I think that what I point to you, Greg, is that if ou step back over the arc of sort of the last five years and particularly during our time as a public company, we have been very consistent in building and launching new businesses scaling and seeing great outcomes.

Speaker #8: And I don't think that in any instance we have done anything different with the businesses you just mentioned in terms of our reserving philosophy. I think that we take an overall, of course, as you know, we take a conservative position.

Speaker #8: I think that our bias towards lines that we believe have volatility will take an even more conservative position in the range. In particular, as we're getting going, and I think in this case, I just highlight AG because it's a line that has a bit of volatility.

Speaker #8: And so our picks reflect sort of the conservative end of that. And that's in addition to some of the things that we're ing to take the volatility out.

Speaker #8: I would also say to you that while we highlighted the growth areas that you just mentioned, there's no shortage of growth inside of the divisions that maybe as a headline don't have growth.

Speaker #8: my point to what we're seeing in healthcare solutions or inside of our energy division with renewables, you know there's plenty of pockets of growth that just aren't rising to what we're drawing out in these calls.

Speaker #8: And so I ink to your point, cycle management. It's not just cycle management; it's also what we're seeing in terms of loss inflation. We don't want to lean into exposure growth where we see a very thin market. All of those things contribute, and some of that isn't expressly visible in our comments, but sort of below the division-level reporting.

Speaker #8: heavy dose of loss inflation. I

Speaker #7: Yeah. That's good detail. I appreciate that. For my follow-up question, I'm going to go to the investment side. You know, and I know in the comments you talked

Speaker #7: the alternatives and strategics just representing 5%. That's been in runoff for now for a while now. I think that percentage the mix investments that's come down pretty substantially.

Speaker #7: But you know, as we think about going forward, you know maybe you could talk you know how you're looking at those results and you know when you frame out projections, what do ou what are you thinking about for that line?

Speaker #7: And for the broader investment income piece.

Speaker #8: Great question. So let me just say this. You know, obviously, we're not happy with results at top to bottom on the growth and underwriting are outstanding, and we have you ow one item where you know we didn't meet our own internal expectations, nor your expectations.

Speaker #8: I think that that is a bit of a red herring in terms of the performance of our business, and we think it's just not something that people should get distracted by because we have had volatility.

Speaker #8: I think that at the point that we took the company public, our alts were north of 20% of our portfolio. We have done everything that we said that we were going to do, which included that every dollar of investing was going to into our core fixed income.

Speaker #8: Obviously, we've grown our investment base at a faster pace than we thought. We've been helped by you all, by a decent yield environment. And we've taken the right steps in managing down this portfolio.

Speaker #8: Mark mentioned it as prepared remarks: $30 million of redemption in the first half of this year. I feel great about what we've done.

Speaker #8: You know, am I happy with the volatility in this quarter? No, I'm not happy with the volatility in this quarter, but you know that's the way business is sometimes.

Speaker #8: And I'm very confident that you know we have roughly 30 positions remaining in this portfolio. We're on top of it. and you know I do suspect that there will be quarters ahead where you know the volatility will will work to our advantage coming the other way.

Speaker #8: and and otherwise, I don't think there's really much that we want to say about the alts because it's not part of our estment strategy going forward.

Speaker #7: Yeah. Fair enough. Thanks for the color and detail.

Speaker #8: Thank you.

Speaker #4: Thanks, Greg.

Speaker #8: Appreciate it, .

Speaker #9: Thank you. Our next question comes from the line of Michael Zarimsky from BMO Capital Markets. Mr. Zarimsky, your line is open.

Speaker #10: Hey. Morning. Sorry. I made the mistake too. Good afternoon.

Speaker #8: Good afternoon.

Speaker #10: Thanks for the comments. On the alignments with some of your MGAs that you have ownership stakes in, that I guess, yeah, we can see that from the stats disclosure that there's a number of MGAs that are aligned with Skyward.

Speaker #10: So is that just curious, like if you can kind of shed more light on how those relationships came to be? And is there just any further color just so we just understand the inner workings of how aligned you are with those MGAs?

Speaker #10: anks.

Speaker #8: Yeah. Thanks, Mike. Well, one is our longest-standing relationship. And you know what I would consider to be you know while they're not formally part of our company, they're virtually that way.

Speaker #8: Where we own a 20% stake in you know we have we have refusal rights and so forth. And by the ay, that one relationship is nearly two-thirds of our total premium in you know in that division.

Speaker #8: And they're ensated you know effectively the same way we compensate our underwriters. So that that's just sort of good news. The second is is a partnership that we launched with a an MGA that is growing and developing where we are a direct investor we have an active role there.

Speaker #8: We have special rights that benefit us. And you know, quite honestly, where we outlined our philosophy with them before we entered into that partnership.

Speaker #8: And they viewed the distinctiveness of having that formal commitment from us as being something that was distinctive for them in terms of, you know, building their business.

Speaker #8: And so that's turned out to be a win-win and that's really you know that's really the principal two sources. And nearly all of our new program ads, I think, minus one has come through that partnership.

Speaker #8: And so you know, you can describe that how you wish. You know, 15% of our premium falls into the delegated authority program administrator MGA kind of market, but those relationships are deeply strategic.

Speaker #8: They're not transactional. And I think they're quite different because we, you know, we're I think as appropriately cynical of delegating authority as any excellent underwriting company should be.

Speaker #8: And I've listened to the comments of some of our peers around this, and I think we would share all those views. That said, I think we've struck the right the right tone here and relationship you know with the with the folks that we do business with.

Speaker #10: Okay. That's great. Just to provide some disclosure and context regarding pricing commentary, I believe you mentioned pricing excluding property for the first time, right?

Speaker #10: And so I ink we all know property pricing was decelerated, right? So I just want to make sure when we apples to apples, if we look at your last quarter or previous quarters, pricing commentary, that didn't include global property.

Speaker #10: Am I understanding that correctly?

Speaker #8: You are, you are, Mike, you're absolutely correct. Only global property. All other property lines, and I think you know, you've probably heard enough, Mike, from others. And you know that property across the board is feeling some effects.

Speaker #8: The larger account into the markets greater effect. Our net rate, so when we report our rate, we report out gross generally because effectively the gross rate for us versus net rate tends to be equivalent.

Speaker #8: In global property, it's a little different because of the way we structure and use reinsurance, particularly FAC, our net rate was a negative high single digits pure rate for the for the quarter.

Speaker #8: And I will tell you that our pricing right now for global property is sitting roughly equivalent to where it was in the second quarter of '23.

Speaker #8: And it's come down fast. I will tell you that we we if you were to draw the line at this particular moment, Mike, we feel incredibly good about the technical rate of that book and how that would perform.

Speaker #8: At that at that rating level, but the way that rates have moved, it's like we'll be one month one quarter forward and we might be having a different conversation.

Speaker #8: It's been that intense of a drop-off. So you know, so I think it's a very dynamic situation.

Speaker #10: Okay. Yep. Got it. And lastly, on the headcount, ou know if we look at the 10-K came out a while ago, but you ow 10-K, I think headcount was, I believe, plus 15%, a little higher than the or no, maybe it was a low double digits, sorry.

Speaker #10: A little below '23's level. Is you know would you you ow high level, would you kind of expect headcount to decel a bit but still kind of be close to 10% if if if if the year goes as planned or just kind of and I'm assuming that headcount also doesn't include some of those MGA ownership and MGA relationships that that you don't wholly own?

Speaker #8: Yeah. I mean, well, one thing I would say to you is that is that our I an, just again, our our the proportion of the premium that's coming from you know delegated authorities is has been knocking around between like 13 and 15 percent.

Speaker #8: So that's been relatively consistent. So while it was a growth quarter, there you know that it didn't really move sort of the overall portfolio.

Speaker #8: Look, I think that that the one thing I would just highlight first is that you ow our OUE, our controllable expenses, as Mark noted and has prepared remarks, is down two points from last year.

Speaker #8: It was our best ever. I think it's 13.1%, which is pretty darn good. You know, of course, I believe that we're getting economies of scale.

Speaker #8: I mentioned our use of technology. We believe that that's an important contributor. I Our vision for the way that we believe in particular on underwriting and claims, and I'll start with underwriting, is that we have the ability to multiply the productivity of our underwriters over time because of the things that we're doing in AI, which I would describe as going use a football analogy instead of starting you know with a touchback on your own 30-yard line, your first offensive play is on your competitors you know and your ponent's 20-yard line.

Speaker #8: So you're kind of etting far down the field. And so that that really means that our underwriters have the ability to be very productive.

Speaker #8: And you know that's one of the places where we want to see a lot of leverage, because great underwriters are hard to come by.

Speaker #8: So if we can amplify the ones we have, and some of that's coming through right now, you're seeing that in our numbers.

Speaker #10: Thank ou.

Speaker #8: Thank you, Mike.

Speaker #9: Thank you. Our next question to comment.

Speaker #8: I agree.

Speaker #9: No worries. Our next question comes from the line of Alex Scott from Barclays. Your line is open.

Speaker #11: Hey. First one I have for you guys is on the captive piece of the premiums. That you ow I was expecting to slow a little bit more because I figured maybe there was a little more sensitivity there to you know softening market, you know capacities, a ittle easier to come by, maybe you know less demand for captives.

Speaker #11: The growth was was very good, actually. And so I'm just interested if you could provide a little more color around you know what what's driving that, if you know if there is sensitivity to to sort of the cycle and the market or if there's something more idiosyncratic about it.

Speaker #8: Well, look, I think the thing that's driving it, to be very direct, is we have one—and I talked about this in the past, Alex—that we have one very innovative property-focused captive.

Speaker #8: And the automotive dealers' market that uses on-the-ground weather technology to fundamentally change the risk management and controls. And that proposition is a winning proposition.

Speaker #8: And so to be honest, in a market that effectively hasn't changed, I believe, within that market, there's also a decent amount of moral hazard with you know, with what happens when property is you know, is damaged you know at a at a dealership.

Speaker #8: That we've really, I ink we've we've built a proposition that is pretty darn powerful, that is attracting you ow I would characterize as the very best you know sort of operators in that market.

Speaker #8: And that's been the principal driver. And it's great because there aren't a lot of really great examples of property captives out there in general.

Speaker #8: And this is this is now in its fourth year. And I would almost say that at this particular moment, you know we're really starting to stretch our legs on that.

Speaker #8: And it's a and it's a nership that we have with a technology company company called Understory Weather that that I it's really, I think it's very distinct and unique.

Speaker #9: Got it. Okay. Now, I also wanted to ask about the A&H growth. Can you just talk a little bit about exposure to things like medical costs inflation, you ow we all see the the health insurers and what they're saying and you know there's been a fair amount of pressure there.

Speaker #9: On the other hand, I know you guys have a pretty differentiated and unique way that you're going about it at the small end of the stop-loss market in particular.

Speaker #9: So maybe you could just help us think through that and how you know you're being thoughtful about the growth into this, I guess, business that's faced a little bit of headwind.

Speaker #8: Yeah. Thanks, Alex. So so I think just backing , the growth, as I as I think I mentioned in my my opening remarks, was driven by the group captive portion of that business.

Speaker #8: Obviously, a theme emerging here. But I think that with the group captives, the the it really accelerates our approach to medical cost management and because the captives are directly tied to the you know, to the performance I think that that that you find the participants engaged in wanting to lean in.

Speaker #8: And so you know we've ked a lot about you know a reference-based pricing, you know which uses you know which Medicare-based pricing. We talked about you ow working outside the major PBMs.

Speaker #8: We we actually have specific programs in place for you know for very expensive drugs where we can get access to those drugs through special relationships and all that's very dynamic given, obviously, what's going on you know in the world right now.

Speaker #8: But we feel like we're in a pretty darn good . The thing that's ally stood out, though, is that we and I I've I've talked about this in the past, but we we absolutely are a company that when we see these extraordinarily large bills coming from the providers, on behalf of our clients, instead what is the traditional process you know generally in the market of you know pay and pursue, like if there's a a bill that comes through that's $2 million, you know oftentimes that gets paid and then and then then there's an effort to negotiate afterwards.

Speaker #8: We are not doing that. We we are negotiating the the payment before we actually pay. And and and the the the foundation of that is oftentimes a a legal foundation.

Speaker #8: And we've had great success, and it has been an immense benefit to our customers and to the members in the group captives. And so we have that formula.

Speaker #8: We think we have distinct IP around that. That's an addition to all the other interesting things that we do. But that's been you know that's been part of our formula.

Speaker #8: And you can see it in the results. To be direct.

Speaker #9: Got it. Thank ou.

Speaker #8: Thank ou.

Speaker #9: Thank you. Our next question to comment comes from the line of Myers Shields from KBW. Mr. Shields, your line is open.

Speaker #12: Great. Thanks. I think it's still morning in Houston. But setting that aside, Andrew, you talked about the limited growth in surety because of, I guess, declining infrastructure spend.

Speaker #12: Is any of that impacting loss activity on the surety side?

Speaker #8: No. No. Surety is it's been unbelievable, to be honest. We have we have an extraordinarily extraordinarily good team. Very responsible. We've we've equipped them with fantastic tools.

Speaker #8: Our claims leader in surety, our new claims leader - so we just went through a succession - is a lawyer who is actually recently won a a landmark case that the surety industry took note of.

Speaker #8: And quite honestly, I love our mix, right? I an, all the things that we did, you know we we we brought in a fantastic team, from a competitor around you know fiduciary and judicial bonds.

Speaker #8: We've been growing at a fantastic rate. The oil and gas market and commercial surety are incredibly stressed due to some major losses; reinsurers are backed up.

Speaker #8: In this quarter that we're in now, we're going to be announcing probably the most innovative product to hit that market, which I'm excited about.

Speaker #8: Very dislocated market, but we believe we have a product that will not add unusual growth for us or unusual risk for us.

Speaker #8: But really provide a solution in the market. So I think we are incredibly smart and measured about how we're playing things. And I'll also tell you, Mayor, I believe that the federal funding given sort of our key trading partners there, of which there are very small handful of distributors, that that really trade in that sort of that federal part of the market is going to bounce back the second half of the year.

Speaker #8: So, 8% growth, you know, could return to something higher. Not to say that 8% growth in surety is not incredibly respectable to begin with.

Speaker #8: So all this is to say, feel great about it, and there's nothing on the loss front at this time that would indicate there's any sort of change in our performance.

Speaker #12: Okay. Fantastic. If I can touch briefly on commercial auto, I know Mark, you made some comments about, I think, severity. I was hoping to get a better handle on whether there were any reserve loops in commercial auto, and whether the current book loss picks are changing for 2025.

Speaker #8: Hey, Mayor. Good question. No, so loss picks are not changing. My comments were relative to emergence indicated to indicated. So we are booked higher than indicated.

Speaker #8: So there are no change in loss picks, no. But what I will say to add to my commentary, look, the in the quarter, the favorable emergence in in our E&S and surety and professional lines frankly was was quite a more than I would have expected.

Speaker #8: The favorable pockets that we saw on severity really weren't that unexpected, but it didn't change our picks at all. Does that make sense?

Speaker #9: It does. Thank you so much.

Speaker #8: Thank you, Mayor.

Speaker #9: Thank you. Our next question comes from the line of Andrew Anderson from Jefferies. Your line is open, sir.

Speaker #11: Hey, good morning. Could you expand a bit on the sentence being added to the amended filing?

Speaker #8: Sure. That was exciting. What happened is there was a clear sentence within the opinion when E&Y's opinion merely refers to their control opinion.

Speaker #8: Somehow it was dropped in the case. So it's just an administrative thing. And I actually, I'm kind of glad you did ask. It changes nothing.

Speaker #8: It changes nothing. With respect to the unqualified opinion, it's just a requirement that we refile the 10-K. And the only part that will be refiled will be the opinion and the financial statements.

Speaker #8: Not the entire case. And Andrew, just to give you some context about how this emerged, because you know because we are recently you know we became an accelerated filer EY, we were selected to basically have an internal audit on EY auditing us and that audit came very well.

Speaker #8: But this was the one item that emerged.

Speaker #9: Okay. And has this been, I think you're still working on resolving the weakness throughout the year 2025? Has that been completed?

Speaker #8: So, another good question. Look, we won't get formal sign-off, if you will, until EY issues their opinion for 2025. Internally, we are working on the remediation.

Speaker #8: With respect to the material weakness, we we we believe it's been remediated. But until the end of the year, when the opinions are actually issued, that that will be at the point in time where that would be lifted.

Speaker #9: Okay. Thanks. Maybe maybe switching just to the session rate. It was up year over year. And in quarter over quarter, I would have thought it would have been a little bit lighter year over year given less property growth.

Speaker #9: Anything kind of kind one-off there and how should think about that in the the back half of the year?

Speaker #8: Well, the way I think about it is is the way we refer to it earlier. We've guided to about a 60% ratio. It can move around quarter over quarter due to the way we book reinsurance treaties at inception.

Speaker #8: So when we renew treaties, we seed it upfront as opposed to over time. The second quarter is typically when you see a dip in the retention ratio.

Speaker #8: It's pretty much in line with what we've done year over year, quarter over quarter. So I wouldn't read anything more into that other than Andrew's talked a lot about captives.

Speaker #8: You do know that our retention ratio on captives is lower than, I would say, the non-captive or the property business. So, as the captives grow, our retention ratio could move a little bit.

Speaker #8: But I feel good about the $60.

Speaker #9: And Andrew, that includes that within A&H where there's been a lot of growth. So there's some mix going on here. But, you know, we've said plenty of times, you know, we're gross line underwriters; we want to take more risk.

Speaker #9: You know, and where we have an opportunity to do that, we will. And, you know, an example of that is that as we've grown and diversified our surety portfolio, we've upped our retention.

Speaker #9: You know we came through a renewal this year. We upped our retention again because we didn't want to swap dollars at the sort of the bottom million dollars there.

Speaker #9: So you'll find, as you see our annual sort of disclosures around this, that in general, we try to eat more of our own cooking where we can.

Speaker #9: Some of these things are more structural. In this case, really, it is the captive piece working its way through. Okay. Thank you.

Speaker #8: Thank you.

Speaker #9: Thank you. Our next question to comment comes from the line of Matt Carletti from Citizens Capital Markets. Your line is open.