Skyward Specialty Insurance (SKWD) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $42 million and adjusted operating income of $37.3 million, with adjusted operating income of $0.90 per diluted share, marking the best performance in company history [4][6]. - Gross written premiums grew by 17% for the quarter, while net written premiums increased by 20%, with a net retention rate of 64.1%, up from 62.6% the previous year [6][7]. - The first quarter combined ratio was 90.5%, including 2.2 points of catastrophe losses, with a non-cat loss ratio of 60.2%, the best in company history [7][8]. Business Line Data and Key Metrics Changes - The Agriculture and Health division and the global agriculture unit showed extraordinary growth, contributing significantly to overall growth [5][13]. - The newly added agriculture and credit insurance and reinsurance division accounted for 16% of gross written premiums, expected to stabilize at 10% to 12% for the full year [7][11]. - Transactional E&S, surety, and specialty programs also contributed positively to growth, with double-digit growth reported in these areas [19][22]. Market Data and Key Metrics Changes - The company observed a decrease in global property premiums but maintained a strong account retention rate of over 95% [18][22]. - Bid bond requests increased by 19% year-over-year, indicating robust demand despite a reduction in bonding activity for federal contractors [20][22]. - The company noted a competitive environment with increasing submission activity, particularly in the E&S area, where submissions were materially above 20% [64][66]. Company Strategy and Development Direction - The company emphasizes a diversified portfolio and the ability to adapt quickly to market conditions, focusing on high-return areas less exposed to property and casualty cycles [13][14]. - The strategy includes leveraging technology and talent, particularly in the agriculture and health sectors, to drive growth and maintain competitive advantages [16][17]. - The company aims to continue generating top quartile returns across market cycles, supported by strong underwriting results and consistent earnings growth [23]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow earnings in the agriculture unit, citing favorable market conditions and unique solutions developed for clients [13][14]. - The company is monitoring various economic factors, including tariffs and federal funding reductions, which could impact loss cost trends and overall performance [30][34]. - Management remains cautious but optimistic about the future, expecting to deliver mid-teens growth despite economic uncertainties [45][46]. Other Important Information - The company reported a net investment income of $19.3 million, with an embedded yield of 5.2% as of March 31 [9][10]. - The effective tax rate for the quarter was 18.2%, lower than the previous year, with expectations for a full-year rate between 21-22% [10][11]. - The company is addressing material weaknesses in IT controls, with new procedures being implemented to ensure compliance [11]. Q&A Session Summary Question: Growth opportunities in agriculture and credit insurance - Management highlighted the hiring of industry veteran James Tran to lead the agriculture unit, which is active in multiple countries and has significant treaty opportunities lined up for Q3 [25][27]. Question: Loss cost trends and tariffs - Management indicated that the overall loss cost trend is estimated to be in the 5-6% range, with efforts to limit exposure to high inflation categories [30][31]. Question: Seasonality of growth in crop and A&H - Management noted that the first quarter typically shows high growth due to significant renewals, with expectations for lower growth in the second quarter [42][44]. Question: Favorable emergence in reserves - Management reported favorable emergence in accident years 2020 and after, particularly in MAT, property surety, and professional liability [46][47]. Question: Government-related business size - Management indicated that government-related business constitutes about $20 million of their book, with a focus on private and public-private contracts [69]. Question: Submission growth and quality - Management confirmed strong submission growth, particularly in E&S, with a notable increase in RFP submissions for A&H, indicating a compelling market proposition [68][66]. Question: Hiring climate and strategy - Management is evaluating hiring plans based on business performance, proceeding cautiously in uncertain market conditions [102][104].