PART I. FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, show growth in total assets to $1.75 billion and an increase in total stockholders' equity to $391.0 million, with net income of $11.4 million and strong operating cash flow of $47.7 million Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased to $1.75 billion from $1.65 billion at year-end 2024, primarily due to growth in the investment portfolio, while total liabilities rose to $1.36 billion and total stockholders' equity grew to $391.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total investments | $1,044,836 | $889,986 | | Total assets | $1,753,072 | $1,654,242 | | Reserve for losses and loss adjustment expenses | $845,224 | $756,859 | | Total liabilities | $1,361,709 | $1,283,800 | | Total stockholders' equity | $390,954 | $370,177 | Condensed Consolidated Statements of Income and Comprehensive Income For the three months ended March 31, 2025, the company achieved significant top-line growth, with gross written premiums increasing 26.3% to $174.8 million, and net income rising 62.9% to $11.4 million Q1 2025 vs Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Gross written premiums | $174,848 | $138,433 | | Net earned premiums | $109,816 | $82,981 | | Total revenues | $122,716 | $90,672 | | Net income | $11,425 | $7,012 | | Diluted EPS | $0.34 | $0.29 | Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity Total mezzanine equity and stockholders' equity increased from $370.4 million at the end of 2024 to $391.4 million as of March 31, 2025, driven by net income and other comprehensive income - Key drivers for the increase in equity during Q1 2025 were net income of $11.4 million, other comprehensive income of $7.4 million, and stock-based compensation and warrant expenses totaling $2.1 million12 Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $47.7 million for the first quarter of 2025, an increase from $41.9 million in the prior-year period, while net cash used in investing activities was significantly higher at $146.3 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,722 | $41,910 | | Net cash used in investing activities | ($146,329) | ($79,122) | | Net cash provided by financing activities | $0 | $2,839 | | Net change in cash | ($98,607) | ($34,373) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business model as a specialty P&C insurer operating primarily on an E&S basis through a strategic partnership with AmFam, with a $1.04 billion investment portfolio and a single reportable segment - The company operates as a specialty property and casualty insurer in the U.S., focusing on Casualty, Professional Liability, and Healthcare risks, primarily on an excess and surplus (E&S) basis16 - A key operational structure involves writing policies on AmFam Issuing Carriers' paper, with the company's subsidiary, BICI, assuming 100% of the premium through a Quota Share Agreement with AmFam18 - The company operates as a single operating and reportable segment, with the Chief Executive Officer acting as the chief operating decision maker (CODM)100 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 26.3% growth in gross written premiums in Q1 2025 to strong renewals and platform expansion, with the combined ratio improving to 97.3% and net investment income growing 64.0% to $12.6 million Results of Operations In Q1 2025, gross written premiums increased by 26.3% to $174.8 million, led by 33.7% growth in the Casualty division, while the combined ratio decreased by 0.8 points to 97.3% due to an improved expense ratio Key Operating Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Loss ratio | 66.9% | 65.5% | | Expense ratio | 30.4% | 32.6% | | Combined ratio | 97.3% | 98.1% | - Gross written premiums grew 26.3% to $174.8 million, driven by renewals and growth across all four divisions, particularly the Casualty division which grew 33.7%139141 - The 1.4 point increase in the loss ratio was driven by a 1.0 point increase in the current accident year loss ratio due to a portfolio mix shift towards the Casualty division and a 0.4 point impact from prior accident year reserve development145146 - The expense ratio decreased by 2.2 points, primarily due to a 2.9 point improvement in the operating expense ratio as net earned premiums grew faster than expenses147148 Reconciliation of Non-GAAP Financial Measures The company provides reconciliations for several non-GAAP measures, reporting Underwriting Income of $2.7 million and Adjusted Net Income of $11.5 million for Q1 2025 Non-GAAP Financial Measures (Q1 2025, in thousands) | Non-GAAP Measure | Value | Comparable GAAP Measure | GAAP Value | | :--- | :--- | :--- | :--- | | Underwriting Income | $2,656 | Income before income taxes | $14,470 | | Adjusted Net Income | $11,479 | Net Income | $11,425 | Liquidity and Capital Resources The company's primary sources of liquidity are premiums received and investment income, which are sufficient to cover operating needs, with $20.8 million in cash and investments at the holding company level and an undrawn $75 million credit facility - The company believes it has sufficient liquidity to meet operating needs for at least the next 12 months, with $20.8 million in cash and investments at the holding company level as of March 31, 2025169 - The company has a $75 million revolving credit facility maturing in April 2027, which was undrawn as of March 31, 2025170171 Critical Accounting Policies and Estimates Management identifies the reserve for losses and loss adjustment expenses as a critical accounting estimate, with total gross reserves of $845.2 million as of March 31, 2025, and reliance on actuarial methods for reserving due to less mature loss experience - Critical accounting estimates include reserves for losses and loss adjustment expenses, reinsurance recoverable, fair value measurements, and deferred income tax200 - Reserves for losses and loss adjustment expenses represent the estimated ultimate cost of all reported and unreported losses, with IBNR reserves accounting for 89.0% of net reserves as of March 31, 2025202205 - Due to less mature loss experience, the company primarily relies on a weighting of the initial expected loss ratio and actuarial methods such as the Reported Bornhuetter-Ferguson and Cape Cod Methods for reserving207 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk associated with its $1.09 billion fixed maturity securities portfolio, where a hypothetical 100 basis point increase in interest rates would decrease the portfolio's fair value by an estimated $29.9 million - The primary market risk is interest rate risk, with no material exposure to equity, foreign currency, or commodity risk222 Interest Rate Sensitivity Analysis (as of March 31, 2025) | Change in Interest Rates | Estimated Change in Fair Value ($ in thousands) | Estimated % Change in Fair Value | | :--- | :--- | :--- | | +200 basis points | $(58,969) | (5.4)% | | +100 basis points | $(29,921) | (2.7)% | | -100 basis points | $29,375 | 2.7% | | -200 basis points | $57,440 | 5.3% | - Credit risk from the investment portfolio is managed by investing in high-quality securities, with the fixed maturity portfolio having an average rating of 'AA' and 90.6% rated 'A' or better227 - Reinsurance credit risk is mitigated by selecting reinsurers with an A.M. Best rating of 'A' (Excellent) or better; 100% of reinsurance recoverables were with such reinsurers228 Controls and Procedures The company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the quarter, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025230 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting231 PART II. OTHER INFORMATION Legal Proceedings The company is subject to routine legal proceedings in the normal course of business but is not currently a party to any litigation expected to have a material adverse effect on its financial condition or results of operations - The company is not currently party to any legal proceedings that are expected to have a material adverse effect on its business, results of operations, or financial condition235 Risk Factors A new risk factor has been added concerning the potential adverse effects of evolving trade relations between the United States and other countries, including tariffs, which could create economic volatility and negatively impact the company's insureds and financial results - A new risk factor was disclosed regarding uncertainty in trade policies, treaties, and tariffs between the United States and other countries, which could adversely affect the company's insureds and financial results236 Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable237 Other Information During the first quarter of 2025, none of the company's directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan during the three months ended March 31, 2025240 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the principal executive and financial officers pursuant to the Sarbanes-Oxley Act of 2002 and Interactive Data Files (Inline XBRL)
Bowhead Specialty Holdings Inc.(BOW) - 2025 Q1 - Quarterly Report