Skyward Specialty Insurance (SKWD) - 2025 Q2 - Quarterly Report

Part I - Financial Information Financial Statements This section presents Skyward Specialty Insurance Group, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2025, and for the three and six-month periods then ended, including Balance Sheets, Statements of Operations, Stockholders' Equity, Cash Flows, and notes Condensed Consolidated Balance Sheets Total assets increased to $4.34 billion as of June 30, 2025, from $3.73 billion, driven by investments and receivables, while total liabilities and stockholders' equity also grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $4,336,392 | $3,729,478 | | Total Investments | $2,080,507 | $1,870,820 | | Premiums receivable, net | $518,441 | $321,641 | | Total Liabilities | $3,436,477 | $2,935,479 | | Reserves for losses and LAE | $1,918,753 | $1,782,383 | | Unearned premiums | $814,063 | $637,185 | | Total Stockholders' Equity | $899,915 | $793,999 | Condensed Consolidated Statements of Operations and Comprehensive Income Net income for H1 2025 increased to $80.9 million from $67.8 million, driven by a 20.6% rise in net earned premiums, with diluted EPS reaching $1.94 Key Performance Indicators (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Earned Premiums | $295,542 | $257,583 | $595,908 | $493,925 | | Total Revenues | $319,903 | $279,942 | $648,430 | $544,910 | | Income Before Income Taxes | $49,795 | $40,355 | $101,230 | $87,332 | | Net Income | $38,839 | $30,970 | $80,897 | $67,754 | | Diluted EPS | $0.93 | $0.75 | $1.94 | $1.65 | | Comprehensive Income | $46,220 | $29,113 | $100,351 | $59,571 | Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased to $899.9 million by June 30, 2025, from $794.0 million, primarily due to $80.9 million in net income and $19.5 million in other comprehensive income - Retained earnings increased by $80.9 million due to net income for the six months ended June 30, 2025; accumulated other comprehensive loss decreased from $(22.1) million to $(2.7) million, mainly due to net unrealized gains on investments[16] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $184.9 million in H1 2025, while $169.3 million was used in investing activities, with no financing cash flows Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $184,940 | $115,220 | | Net Cash Used in Investing Activities | $(169,301) | $(97,824) | | Net Cash Used in Financing Activities | $0 | $(9,465) | | Net Increase in Cash | $15,639 | $7,931 | Notes to Condensed Consolidated Financial Statements This section details accounting policies, including a credit loss allowance change, investment portfolio breakdowns, updated segment reporting with a new Agriculture and Credit (Re)insurance division, and information on reinsurance, taxes, and contingencies - Effective June 30, 2025, the company updated its accounting policy to recognize changes in the allowance for credit losses in 'net investment gains (losses)' rather than 'net investment income'; prior periods were conformed to this presentation[23][24] - The company has one reportable segment, now composed of nine distinct underwriting divisions, with a new Agriculture and Credit (Re)insurance division added in Q1 2025 and other divisions renamed or reorganized[67][98] - The company is assessing the impact of the newly enacted 'One Big Beautiful Bill Act' (OBBBA), which includes significant changes to the U.S. tax framework with multiple effective dates[76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2025 financial results, highlighting 17.3% gross written premium growth, a 90.0% combined ratio, and sufficient liquidity with an 11.7% debt-to-capital ratio Key Operating Metrics | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Gross Written Premiums | $1,120.2M | $954.9M | | Net Written Premiums | $682.5M | $584.2M | | Net Income | $80.9M | $67.8M | | Combined Ratio | 90.0% | 90.1% | | Annualized Return on Equity | 19.1% | 19.6% | Underwriting Results Gross written premiums grew 17.3% to $1.12 billion in H1 2025, driven by strong divisional performance, while the combined ratio slightly improved to 90.0% despite a higher loss ratio Gross Written Premiums by Underwriting Division - H1 2025 vs H1 2024 (in thousands) | Division | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Agriculture and Credit (Re)insurance | $159,420 | $79,913 | 99.5% | | Accident & Health | $123,658 | $84,989 | 45.5% | | Specialty Programs | $148,630 | $111,822 | 32.9% | | Captives | $145,362 | $130,507 | 11.4% | | Surety | $78,535 | $71,484 | 9.9% | | Global Property | $130,678 | $145,543 | (10.2%) | Combined Ratio Components - H1 2025 vs H1 2024 | Ratio | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Loss and LAE Ratio | 61.9% | 61.3% | | Expense Ratio | 28.1% | 28.8% | | Combined Ratio | 90.0% | 90.1% | Investment Results Net investment income decreased to $37.9 million in H1 2025 due to alternative investment losses, partially offset by higher fixed income returns, with the total portfolio growing to $2.22 billion - Net investment income decreased in H1 2025 due to losses in alternative & strategic investments, which was partially offset by higher income from the fixed income portfolio, where the book yield increased to 5.3% from 4.4% YoY[117][118] - A provision for credit losses of $6.2 million was recognized for two available-for-sale corporate securities due to deteriorating conditions and credit concerns[119] Investment Portfolio Composition (in thousands) | Asset Class | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Fixed income | $1,639,632 | $1,318,708 | | Short-term investments | $214,338 | $274,929 | | Alternative and strategic investments | $168,536 | $170,929 | | Cash and cash equivalents | $136,617 | $121,603 | | Equities | $58,001 | $106,254 | | Total portfolio | $2,217,124 | $1,992,423 | Liquidity and Capital Resources Net cash from operations increased to $184.9 million in H1 2025, with a debt-to-total capitalization ratio of 11.7% and no shares repurchased under the $50.0 million program - Cash from operating activities increased to $184.9 million in H1 2025 from $115.2 million in H1 2024, primarily due to positive cash flow from insurance operations[129] - The ratio of total debt to total capitalization was 11.7% at June 30, 2025, down from 13.1% at year-end 2024[139] - In October 2024, the Board approved a $50.0 million share repurchase program; as of June 30, 2025, no shares had been repurchased under this plan[140] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk have occurred since the December 31, 2024 Annual Report on Form 10-K - There have been no material changes in market risk since the 2024 year-end 10-K filing[146] Controls and Procedures Disclosure controls and procedures were ineffective as of June 30, 2025, due to a material weakness in ITGCs related to user access, though remediation efforts are ongoing - A material weakness related to ineffective IT general controls (ITGCs) in user access for financial reporting systems continues to exist as of June 30, 2025[148] - Due to the material weakness, the CEO and CFO concluded that disclosure controls and procedures were not effective[148] - Remediation activities are in progress, focusing on reviewing and enhancing access controls, strengthening system access procedures, and employee training; significant resources will continue to be invested to improve ITGCs[149][150] Part II - Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, which are not expected to materially adversely affect its financial position - The company is involved in ordinary course legal proceedings and does not expect them to have a material adverse effect on its financial position[154] Risk Factors No material changes to the company's risk factors have occurred in H1 2025 compared to prior disclosures - No material changes in risk factors have occurred in H1 2025 compared to those previously disclosed in the 2024 Form 10-K and Q1 2025 Form 10-Q[155] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[156] Other Information Tom Schmitt, Chief People Officer, entered a Rule 10b5-1 Trading Arrangement on May 9, 2025, allowing sale of up to 8,485 shares Rule 10b5-1 Trading Arrangement | Name (Title) | Date of Adoption | Duration of Trading Arrangement | Aggregate Number of Securities | | :--- | :--- | :--- | :--- | | Tom Schmitt (Chief People Officer) | May 9, 2025 | 11/10/2025 – 6/9/2026 | Up to 8,485 shares | Exhibits This section lists exhibits filed with the Form 10-Q, including certifications by the Principal Executive and Financial Officers, and Inline XBRL documents