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

Financial Data and Key Metrics Changes - The company reported net income of $42 million and adjusted operating income of $37.3 million, with adjusted operating income of 90¢ per diluted share, marking the best reported metrics in company history [5][8] - 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 [8][9] - 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 [9][10] Business Line Data and Key Metrics Changes - The A and H division and global agriculture unit showed extraordinary growth, contributing significantly to overall growth, while transactional E and S, surety, and specialty programs also contributed positively [6][15] - 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 [9] - The expense ratio improved to 28.1%, with expectations to maintain a sub-30% target for the year [10][11] Market Data and Key Metrics Changes - The company experienced a decrease in global property premiums but maintained a strong account retention rate of over 95% [19] - Bid bond requests in the surety segment increased by 19% year-over-year, indicating robust demand despite a reduction in bonding activity for federal contractors [21] - Submission growth was strong, with a 59% increase in RFP submission count for the Accident and Health division year-over-year [72] Company Strategy and Development Direction - The company is focused on diversifying its portfolio and reallocating capital to underwriting units that offer the greatest returns, particularly in high-return areas less exposed to property and casualty cycles [6][15] - The strategy includes leveraging technology and talent, particularly in the use of AI and predictive analytics for risk selection and pricing [18] - The company aims to continue generating top quartile returns across market cycles, emphasizing the importance of underwriting discipline [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow earnings in agriculture and accident health divisions, highlighting unique solutions and strong demand [15][16] - The company is monitoring various economic factors, including tariffs and federal funding reductions, which may impact loss cost trends and overall market conditions [29][34] - Management remains optimistic about maintaining strong underwriting returns despite potential market softening, with a focus on durable business relationships [96][98] Other Important Information - The company reported a net investment income of $19.3 million for the quarter, with an embedded yield of 5.2% [11][12] - The effective tax rate for the quarter was 18.2%, expected to be between 21-22% for the full year [12][13] - The company is addressing a material weakness in IT controls, with new procedures being implemented [13] Q&A Session Summary Question: Growth opportunities in agriculture and credit insurance - Management highlighted the hiring of industry veteran James Tran to lead agriculture efforts, with a focus on a diversified global portfolio [25][26] 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 sees 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 [47][48] Question: Government-related business size - Management indicated that government-related business accounts for approximately $20 million of the book, with a focus on federal contractors [73][74] Question: Submission growth and quality - Management confirmed strong submission growth, particularly in E and S, with a notable increase in RFP submissions for A&H [68][72] Question: Hiring climate and strategy - Management is evaluating hiring plans based on business performance, proceeding cautiously in uncertain market conditions [109][110]