Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD) Q4 2024 Results Conference Call February 26, 2025 9:30 AM ET Company Participants Natalie Schoolcraft - Vice President of Investor Relations Andrew Robinson - Chairman and Chief Executive Officer Mark Haushill - Chief Financial Officer Conference Call Participants Mark Hughes - Truist Securities Matt Carletti - Citizens JMP Charlie Rodgers - Jefferies Alex Scott - Barclays Rowland Mayor - Oppenheimer Andrew Kligerman - TD Cowen Operator Thank you for sta ...

Financial Data and Key Metrics Changes - The company reported adjusted operating income of $0.80 per diluted share for Q4 2024, driven by strong underwriting and investment results [6] - For the full year, adjusted operating income was $2.87 per diluted share, up over 28% compared to 2023 [7] - Book value per share increased by 18% to $19.79, with a full-year return on equity of 16.3% [7] - Gross written premiums grew by 21% for the quarter and 19% for the year, with net written premiums increasing by 23% for the year [10] - The adjusted combined ratio for Q4 was 91.6%, including 2.2 points of catastrophe losses [11] Business Line Data and Key Metrics Changes - Surety, programs, captives, transactional E&S, and agriculture contributed significantly to growth in Q4 [10] - The non-cat loss ratio for Q4 was 60.5%, consistent with prior periods [11] - The company shifted its portfolio to less P&C cycle-exposed areas, which is yielding positive results [8][21] Market Data and Key Metrics Changes - The company experienced a 19% full-year top-line growth despite challenging market conditions [8] - Retention rates improved to 64.5%, up from 62.4% the previous year [10] - Submission growth was solidly in the teens, slightly down from over 20% in prior quarters [25][56] Company Strategy and Development Direction - The company remains focused on executing its niche strategy and generating top quartile returns across market cycles [21] - Emphasis is placed on growth in high-return areas less exposed to P&C cycles, including A&H, surety, captives, mortgage, credit, and agriculture [21] - The company is cautious about growth in casualty lines due to rising loss inflation and is being selective in its growth strategy [32][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong position and growth potential for 2025, expecting net income between $138 million and $150 million [18] - The company anticipates gross written premium growth in the low to mid-teens for 2025 [18] - Management highlighted the importance of maintaining a strong reserve position and the successful transition to accident year reporting [12][81] Other Important Information - The company has rebuilt its actuarial data and improved the fidelity of its accident year data [13] - The investment strategy has led to a significant increase in net investment income, with a focus on fixed income [15] - The company has a low debt to capital ratio of 13%, providing ample financing flexibility [17] Q&A Session Summary Question: How do you see the adequacy of pricing in the casualty market? - Management noted that while there are significant rate increases in occurrence liability lines, they will take a cautious approach to growth in this area due to concerns about loss inflation [32][36] Question: How do you view M&A opportunities? - Management stated that while they are more active in looking at M&A opportunities, the bar is set high to avoid disrupting the successful organic growth engine [46][47] Question: Can you provide an update on submission flows? - Management indicated that submission growth remains strong, with no significant concerns about the quality of submissions [56] Question: What is the status of the commercial auto portfolio? - Management confirmed that they are nearing completion of their work on the commercial auto portfolio, with a cautious approach due to industry challenges [62][113] Question: How does the business mix shift impact the expense ratio? - Management acknowledged that while acquisition costs may rise, they aim to maintain an expense ratio below 30% [70] Question: What new units are expected to launch in 2025 or 2026? - Management confirmed that they are working on new initiatives but emphasized the importance of attracting the right talent for successful launches [75] Question: Can you walk us through the reserve change from policy year to accident year? - Management explained that the transition to accident year reporting was necessary for improved accuracy and is now the industry norm [81][82]

Core Insights - Skyward Specialty Insurance (SKWD) reported a revenue of $304.4 million for Q4 2024, marking a year-over-year increase of 23.6% and exceeding the Zacks Consensus Estimate of $299.9 million by 1.50% [1] - The company's EPS for the same quarter was $0.80, up from $0.61 a year ago, and also surpassed the consensus EPS estimate of $0.77 by 3.90% [1] Financial Performance Metrics - Expense ratio stood at 28.9%, slightly better than the average estimate of 29.1% from six analysts [4] - Loss ratio was reported at 66.9%, compared to the average estimate of 65.3% from six analysts [4] - Combined ratio was 95.8%, higher than the six-analyst average estimate of 94.3% [4] - Net investment income was $20.73 million, below the average estimate of $21.05 million, but represented a year-over-year increase of 48% [4] - Net earned premiums reached $293.24 million, exceeding the average estimate of $282.61 million and reflecting a year-over-year increase of 30.4% [4] - Commission and fee income was $0.81 million, below the average estimate of $0.95 million, but showed a significant year-over-year increase of 226.3% [4] - Net investment losses were reported at -$10.41 million, worse than the estimated -$8.93 million [4] Stock Performance - Skyward's shares have returned +18.6% over the past month, contrasting with a -1.8% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Core Insights - Skyward Specialty Insurance (SKWD) reported quarterly earnings of $0.80 per share, exceeding the Zacks Consensus Estimate of $0.77 per share, and up from $0.61 per share a year ago [1][2] - The company achieved revenues of $304.4 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.50%, compared to $246.3 million in the same quarter last year [3] - Skyward has consistently outperformed consensus EPS estimates over the last four quarters, with a surprise of 3.90% in the latest report [2][3] Earnings Performance - The latest earnings report represents a 3.90% surprise, following a previous quarter where the company reported earnings of $0.71 per share against an expectation of $0.64, resulting in a surprise of 10.94% [2] - The company has surpassed consensus revenue estimates three times in the last four quarters [3] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.81, with expected revenues of $309.61 million, and for the current fiscal year, the consensus EPS is $3.41 on revenues of $1.29 billion [8] - The estimate revisions trend for Skyward is currently favorable, leading to a Zacks Rank 2 (Buy), indicating expected outperformance in the near future [7] Industry Context - The Insurance - Property and Casualty industry is currently ranked in the top 22% of over 250 Zacks industries, suggesting a positive outlook for companies within this sector [9] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [6]

Core Viewpoint Skyward Specialty Insurance Group, Inc. reported strong financial results for the fourth quarter and full year of 2024, showcasing significant growth in net income, adjusted operating income, and gross written premiums, while also highlighting strategic diversification in its product offerings. Financial Performance - Fourth quarter 2024 net income was $14.4 million, or $0.35 per diluted share, down from $29.3 million, or $0.74 per diluted share in the same period of 2023 [1] - Full year 2024 net income reached $118.8 million, or $2.87 per diluted share, compared to $86.0 million, or $2.24 per diluted share in 2023 [1] - Adjusted operating income for Q4 2024 was $33.2 million, or $0.80 per diluted share, up from $24.3 million, or $0.61 per diluted share in Q4 2023 [2] - Full year adjusted operating income was $126.7 million, or $3.06 per diluted share, compared to $80.8 million, or $2.11 per diluted share in 2023 [2] Underwriting Results - Gross written premiums for Q4 2024 were $388.4 million, a 20.8% increase from $321.6 million in Q4 2023 [3][5] - For the full year, gross written premiums totaled $1.743 billion, up 19.4% from $1.460 billion in 2023 [3][5] - Net retention improved to 69.8% in Q4 2024 from 66.6% in Q4 2023, and for the full year, it increased to 64.5% from 62.4% [3] Combined Ratio and Loss Ratios - The adjusted combined ratio for Q4 2024 was 91.6%, compared to 90.9% in Q4 2023 [5][6] - The loss ratio for Q4 2024 was 66.9%, up from 61.1% in Q4 2023, primarily due to higher catastrophe losses [6][7] - The non-cat loss and LAE ratio improved slightly to 60.5% in Q4 2024 from 60.9% in Q4 2023 [4] Investment Results - Net investment income for Q4 2024 was $20.7 million, an increase from $14.0 million in Q4 2023, driven by higher yields and larger asset bases [9][10] - For the full year, net investment income rose to $80.7 million from $40.3 million in 2023 [10] Stockholders' Equity - Stockholders' equity was $794.0 million at December 31, 2024, a slight decrease of 0.4% from $797.5 million at September 30, 2024 [11] - Book value per share increased by 18% to $19.79 compared to December 31, 2023 [5] Strategic Initiatives - The company launched new units in 2024, including Media Liability, Life Sciences, Mortgage and Credit, and Renewable Energy, as part of its diversification strategy [2] - Six out of eight divisions reported double-digit growth over the prior year, contributing to the overall premium growth [2]

Core Insights - Skyward Specialty Insurance (SKWD) is positioned to continue its earnings-beat streak, having surpassed earnings estimates by an average of 16.07% in the last two quarters [1][2]. Earnings Performance - In the most recent quarter, Skyward reported earnings of $0.71 per share, exceeding the expected $0.64 per share by 10.94%. In the previous quarter, it reported $0.80 per share against an expectation of $0.66 per share, resulting in a surprise of 21.21% [2]. Earnings Estimates - Recent estimates for Skyward have been increasing, with a positive Earnings ESP (Expected Surprise Prediction) indicating a strong likelihood of another earnings beat. The current Earnings ESP stands at +2.59% [3][6]. Zacks Rank and Predictive Power - The combination of a positive Earnings ESP and a Zacks Rank of 2 (Buy) suggests a high probability of an earnings beat. Stocks with this combination have historically produced positive surprises nearly 70% of the time [4][6]. Upcoming Earnings Report - Skyward's next earnings report is anticipated to be released on February 25, 2025 [6].

Core Insights - Skyward Specialty Insurance (SKWD) is expected to report quarterly earnings of $0.77 per share, reflecting a 26.2% increase year-over-year, with revenues projected at $299.9 million, a 21.8% increase compared to the previous year [1] Earnings Estimates - Over the past 30 days, the consensus EPS estimate has been adjusted downward by 1.6%, indicating a reassessment by analysts [2] - Changes in earnings estimates are crucial for predicting investor reactions, as empirical studies show a strong correlation between earnings estimate revisions and short-term stock performance [3] Key Metrics - Analysts estimate 'Revenues- Net investment income' to be $21.05 million, a 50.3% increase from the prior-year quarter [5] - The forecast for 'Revenues- Net earned premiums' is $282.61 million, indicating a 25.6% increase year-over-year [5] - The 'Expense ratio' is expected to reach 29.1%, down from 29.6% in the previous year [5] - The average 'Loss ratio' is projected at 65.3%, up from 61.1% in the same quarter last year [6] - The consensus for the 'Combined ratio' stands at 94.3%, compared to 90.7% reported in the same quarter last year [6] Stock Performance - Over the past month, shares of Skyward have returned +13.1%, outperforming the Zacks S&P 500 composite's +2.6% change [7] - Currently, SKWD holds a Zacks Rank 2 (Buy), suggesting potential outperformance in the near future [7]

Group 1 - Skyward Specialty Insurance Group, Inc. (NASDAQ: SKWD) is currently trading at a premium compared to its historical valuation and its peers [1] - The company does not distribute dividends, which may not appeal to long-term investors [1]

Core Viewpoint - Skyward Specialty Insurance (SKWD) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook driven by an upward trend in earnings estimates [1][4]. Earnings Estimates and Ratings - The Zacks rating system is based solely on a company's changing earnings picture, tracking the Zacks Consensus Estimate for EPS from sell-side analysts [2]. - The recent upgrade reflects an improvement in Skyward's earnings outlook, which is expected to lead to increased buying pressure and a rise in stock price [4][6]. Impact of Earnings Revisions - There is a strong correlation between changes in earnings estimates and near-term stock price movements, with institutional investors using these estimates to determine fair value [5][7]. - For Skyward, the rising earnings estimates indicate an improvement in the company's underlying business, which should positively influence its stock price [6]. Specific Earnings Data - For the fiscal year ending December 2024, Skyward is projected to earn $3.07 per share, representing a 45.5% increase from the previous year [9]. - Over the past three months, the Zacks Consensus Estimate for Skyward has increased by 0.7%, reflecting analysts' growing confidence in the company's performance [9]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 (Strong Buy) stocks historically generating an average annual return of +25% since 1988 [8]. - Skyward's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [10][11].

Financial Performance - Gross written premiums for Q4 2024 reached $388.4 million, an increase of $66.8 million, or 20.8% compared to 2023[4] - Net income for Q4 2024 was $14.4 million, with adjusted operating income of $33.2 million[4] - For 2025, the company expects net income to be between $138.0 million and $150.0 million, with a combined ratio between 91.0% and 92.0%[4] - The company anticipates growth in gross written premiums to be in the low to mid-teens for 2025[3] - The adjusted combined ratio for Q4 2024 was 91.6%, including catastrophe losses of 2.2 points[4] - The adjusted loss ratio for Q4 2024 was 62.7% after excluding the net impact of the LPT[17] - The company reported net investment income of $20.7 million for Q4 2024[4] Loss Reserves and Expenses - The company strengthened LPT loss reserves by $25.3 million as of December 31, 2024[1] - The company expects total losses and loss adjustment expenses from the January California wildfires to be less than $10.0 million, net of reinsurance[2] - The company received $11.7 million in cash from the commutation of the LPT with R&Q[1]