Company Overview - The company was founded in September 2020, backed by GPC Partners Investments and AmFam, aiming to generate consistent underwriting profits across market cycles [118]. - The organization is designed to attract top talent nationwide, emphasizing operational excellence and superior service [121]. - The company has a strategic partnership with AmFam, allowing for efficient capital deployment and rapid growth [120]. Underwriting and Premiums - Gross written premiums are influenced by new business submissions, binding of new business, renewals, and average premium rates [122]. - The company introduced a "flow" underwriting operation in May 2024, focusing on small, niche, and hard-to-place risks [119]. - Gross written premiums increased by $56.8 million, or 32.4%, to $232.4 million for the three months ended June 30, 2025, compared to $175.5 million for the same period in 2024 [150]. - Net written premiums rose by $36.8 million, or 32.8%, to $148.9 million for the three months ended June 30, 2025, from $112.1 million in 2024 [151]. - Gross written premiums increased by $93.2 million, or 29.7%, to $407.2 million for the six months ended June 30, 2025, compared to $313.9 million for the same period in 2024 [168]. - Net written premiums rose by $62.7 million, or 30.9%, to $265.6 million for the six months ended June 30, 2025, from $202.9 million in 2024 [169]. - Net earned premiums increased by $55.9 million, or 32.3%, to $229.0 million for the six months ended June 30, 2025, compared to $173.1 million in 2024 [170]. Financial Performance - Total revenues increased by $34.4 million, or 34.7%, to $133.3 million for the three months ended June 30, 2025, compared to $98.9 million in 2024 [150]. - Net income surged by $6.8 million, or 123.1%, to $12.3 million for the three months ended June 30, 2025, from $5.5 million in 2024 [150]. - Total revenues grew by $66.4 million, or 35.0%, to $256.0 million for the six months ended June 30, 2025, from $189.6 million in 2024 [168]. - Net income surged by $11.2 million, or 89.5%, to $23.8 million for the six months ended June 30, 2025, compared to $12.5 million in 2024 [168]. Ratios and Profitability - The loss ratio is defined as the ratio of net losses and loss adjustment expenses to net earned premiums [140]. - The expense ratio is calculated as the ratio of net acquisition costs and operating expenses, less other insurance-related income, to net earned premiums [140]. - The combined ratio is the sum of the loss ratio and expense ratio, providing insight into overall underwriting profitability [140]. - The loss ratio was 66.2% for the three months ended June 30, 2025, compared to 65.5% for the same period in 2024, reflecting a 0.7 point increase [154]. - The expense ratio decreased to 30.6% for the three months ended June 30, 2025, down from 33.8% in 2024, a reduction of 3.2 points [157]. - The combined ratio improved to 96.8% for the three months ended June 30, 2025, compared to 99.3% in 2024, a decrease of 2.5 points [160]. - Return on equity increased to 12.4% for the three months ended June 30, 2025, up from 8.2% in 2024, driven by a significant rise in net income [161]. - The loss ratio increased to 66.5% for the six months ended June 30, 2025, up from 65.5% in 2024, reflecting a 1.0 point increase [171]. - The expense ratio decreased to 30.4% for the six months ended June 30, 2025, down from 33.2% in 2024, a reduction of 2.8 points [174]. - The combined ratio improved to 96.9% for the six months ended June 30, 2025, compared to 98.7% in 2024, a decrease of 1.8 points [178]. - Return on equity increased to 12.2% for the six months ended June 30, 2025, up from 9.4% in 2024, driven by an 89.5% increase in net income [179]. Investment Income - Net investment income rose by $4.9 million to $13.7 million for the three months ended June 30, 2025, compared to $8.8 million in 2024 [162]. - Net investment income rose by $9.8 million to $26.2 million for the six months ended June 30, 2025, from $16.4 million in 2024 [180]. Cash and Liquidity - The company had $21.0 million in cash and investments as of June 30, 2025, indicating sufficient liquidity for at least the next 12 months [198]. - The company entered into a $75 million revolving credit facility on April 22, 2024, with no borrowings outstanding as of June 30, 2025 [199][201]. - For the six months ended June 30, 2025, net cash provided by operating activities increased to $156.7 million from $113.4 million in 2024, reflecting growth in business operations [204]. - Net cash used in investing activities for the six months ended June 30, 2025, was $212.5 million, up from $168.2 million in 2024, primarily due to purchases of fixed maturity securities totaling $374.6 million [205][206]. Reserves and Risk Management - The reserves for unpaid losses and loss adjustment expenses totaled $950,719 as of June 30, 2025, up from $756,859 as of December 31, 2024, indicating a 25.6% increase [233]. - The gross reserves for incurred but not reported (IBNR) losses accounted for 87.7% of total reserves as of June 30, 2025, compared to 90.6% as of December 31, 2024 [233]. - The company strategically uses a combination of quota share and excess of loss reinsurance treaties to manage risk and protect its balance sheet [208]. - The company is selective in choosing reinsurers, ensuring they have an A.M. Best rating of "A" (Excellent) or better to mitigate credit risk [245]. - The company regularly reviews and adjusts its reserve estimates based on new information and experience, which may lead to material differences from initial estimates [236]. Investment Portfolio - The investment portfolio as of June 30, 2025, comprised $1,113.1 million in fixed maturity securities, with a weighted average effective duration of 2.8 years and an average rating of "AA" [223]. - The book yield of the fixed income investment portfolio was 4.7% and the market yield was 4.8% as of June 30, 2025, compared to 4.6% and 4.9% respectively as of December 31, 2024 [223]. - The fair value of fixed maturity securities increased to $1,113,093 as of June 30, 2025, an increase from $879,989 as of December 31, 2024, representing a growth of 26.5% [225]. - The percentage of AAA rated securities decreased slightly from 28.1% to 27.5%, while AA rated securities dropped from 43.8% to 34.2% [225]. - The fixed maturity portfolio had an average rating of at least "AA," with approximately 91.4% rated "A" or better as of June 30, 2025 [253]. Tax and Regulatory Matters - Income tax expense was $3.6 million for the three months ended June 30, 2025, compared to $1.9 million in 2024, with an effective tax rate of 22.5% [163]. - The maximum dividend that the insurance subsidiary could pay without regulatory approval was $16.1 million as of December 31, 2024 [197]. - The company did not declare any dividends during the six months ended June 30, 2025, or the year ended December 31, 2024 [220].
Bowhead Specialty Holdings Inc.(BOW) - 2025 Q2 - Quarterly Report