Company Overview - The company was founded in September 2020, backed by GPC Partners Investments and AmFam, to address a growing demand for specialized insurance solutions [122]. - The company offers commercial specialty property and casualty insurance products, focusing on casualty, professional liability, and healthcare liability risks [123]. - The company has a strategic partnership with AmFam, allowing for efficient capital deployment and rapid growth in favorable market conditions [124]. - The company aims to create superior returns for stockholders by generating consistent underwriting profits across all market cycles [122]. Premiums and Revenue - Gross written premiums are influenced by new business submissions, binding of new business, renewals, and average premium rates [126]. - Net written premiums are calculated as gross written premiums less ceded written premiums, which are impacted by reinsurance contracts [128]. - Gross written premiums increased by $34.5 million, or 17.5%, to $231.5 million for the three months ended September 30, 2025, compared to $196.976 million for the same period in 2024 [152]. - Net written premiums rose by $20.7 million, or 16.1%, to $149.0 million for the three months ended September 30, 2025, from $128.3 million in 2024 [153]. - Net earned premiums increased by $23.2 million, or 22.1%, to $128.4 million for the three months ended September 30, 2025, compared to $105.2 million in 2024 [154]. - Total revenues grew by $27.2 million, or 23.3%, to $143.9 million for the three months ended September 30, 2025, from $116.8 million in 2024 [152]. Profitability Metrics - The loss ratio, expressed as a percentage, is the ratio of net losses and loss adjustment expenses to net earned premiums [143]. - The combined ratio, expressed as a percentage, is the sum of the loss ratio and expense ratio, indicating overall underwriting profitability [144]. - Underwriting income is defined as income before income taxes excluding the impact of net investment income and certain expenses [145]. - Adjusted net income excludes the impact of net realized investment losses and non-operating expenses, providing a clearer view of operational performance [146]. - The loss ratio was 65.9% for the three months ended September 30, 2025, an increase of 1.4 points from 64.5% in 2024 [156]. - The expense ratio decreased to 29.5% for the three months ended September 30, 2025, from 29.9% in 2024, driven by improved operating expense management [159]. - The combined ratio was 95.4% for the three months ended September 30, 2025, compared to 94.4% in 2024, reflecting a 1.0 point increase [162]. - Return on equity improved to 14.5% for the three months ended September 30, 2025, up from 13.7% in 2024, primarily due to the increase in net income [163]. Investment Performance - Net investment income rose by $3.5 million to $15.0 million for the three months ended September 30, 2025, from $11.5 million in 2024, attributed to higher average investment balances and yields [164]. - Net investment income rose by $13.3 million to $41.3 million for the nine months ended September 30, 2025, from $27.9 million in 2024 [182]. - The investment portfolio as of September 30, 2025, was primarily comprised of fixed maturity securities totaling $1,149.6 million, with a weighted average effective duration of 2.9 years and an average rating of "AA" [224]. - The fixed income investment portfolio had a book yield of 4.8% and a market yield of 4.6% as of September 30, 2025, compared to 4.6% and 4.9% respectively as of December 31, 2024 [224]. - The fixed maturity portfolio had an average rating of "AA" as of September 30, 2025, with approximately 92.0% rated "A" or better [254]. Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2025, was $271,438,000, an increase of 16.5% from $232,865,000 in 2024 [205]. - The company had $1.0 million in cash and investments as of September 30, 2025, indicating sufficient liquidity for the next 12 months [199]. - The company entered into a $75 million revolving credit facility on April 22, 2024, with no borrowings outstanding as of September 30, 2025 [201][202]. - The increase in cash provided by operating activities was primarily due to business growth and the timing of claim payments [205]. Reserves and Claims - The gross reserves for unpaid losses and loss adjustment expenses as of September 30, 2025, totaled $1,035,171 thousand, compared to $756,859 thousand as of December 31, 2024, indicating a 36.8% increase [234]. - The case reserves as of September 30, 2025, were $124,219 thousand, accounting for 12.0% of total gross reserves, while IBNR reserves were $910,952 thousand, making up 88.0% [234]. - The reserve for losses and loss adjustment expenses is estimated using individual case valuations and various actuarial procedures, reflecting significant judgment and assumptions about future trends [230]. - The company categorizes reserves into case reserves for reported claims and IBNR for incurred but not yet reported claims, with IBNR representing 88.0% of total gross reserves as of September 30, 2025 [231]. Tax and Regulatory Matters - Income tax expense was $10.5 million for the nine months ended September 30, 2025, compared to $7.6 million in 2024, with an effective tax rate of 21.3% [183]. - The maximum dividend that the insurance subsidiary could pay without regulatory approval was $16.1 million as of December 31, 2024 [198]. - The company did not declare any dividends during the nine months ended September 30, 2025, or the year ended December 31, 2024 [221]. Risk Management - The company manages interest rate risk by investing in securities with varied maturity dates to mitigate potential losses [250]. - The company has exposure to credit risk primarily through its holdings in fixed maturity securities, focusing on high credit quality issuers [254]. - The company performs periodic credit reviews of reinsurers to manage credit risk effectively [255]. - The company utilizes a fair value hierarchy for asset valuation, with Level 1 inputs being unadjusted quoted prices in active markets, Level 2 inputs being observable market data, and Level 3 inputs being unobservable inputs [244].
Bowhead Specialty Holdings Inc.(BOW) - 2025 Q3 - Quarterly Report