Skyward Specialty Insurance (SKWD) - 2024 Q4 - Earnings Call Transcript

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]