Skyward Specialty Insurance (SKWD) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter adjusted operating income increased by 47% to $49 million, with underwriting income reaching $41 million, marking all-time highs for both metrics [4][7] - Gross written premiums grew by 13% in the quarter and 24% for the year, with a return on equity of 18.9% and a return on tangible equity of 20.9% [4][5] - Fully diluted book value per share rose to $23.87, up 5% from the previous quarter and 26% for the year [5][12] Business Line Data and Key Metrics Changes - Significant growth was reported in Surety, A&H, and Specialty Programs, with over 20% growth in these areas [14] - The company experienced a reduction in the Construction & Energy Solutions segment due to intentional actions in commercial auto and construction, reducing commercial auto exposure by over 62% in the last 12 quarters [15] - The expense ratio for the quarter was 28.9%, consistent with the prior year, while the combined ratio improved to 88.5% [8][10] Market Data and Key Metrics Changes - The market is becoming increasingly competitive, particularly in property and casualty lines, with many companies struggling to navigate rising loss costs [5][6] - The company has diversified its portfolio, with over 58% of its business in short-tail lines and 48% in less cyclical lines [16] - Retention rates remained stable at 64.9%, with submission growth solidly in the teens [7][17] Company Strategy and Development Direction - The company aims to maintain its unique competitive position by focusing on niche markets, leveraging technology and AI, and building defensible positions around its business [6][19] - The Apollo transaction is expected to enhance growth areas, particularly in life sciences and autonomous vehicle insurance [12][19] - The company plans to opportunistically deploy excess capital for share repurchase programs [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning despite a challenging market backdrop, stating that it has never been better positioned for success [22] - The company anticipates continued strong growth in A&H and Surety, while expecting flatter growth in Specialty Programs [14] - Management highlighted the importance of maintaining a conservative approach to reserving, particularly in light of the evolving commercial auto landscape [46][47] Other Important Information - The company reported a strong reserve profile, with 74% of reserves in IBNR, the highest level in its history [9] - The alternative asset portfolio represented only 3.8% of the investment portfolio, with $44 million returned and reinvested into fixed income [11] - The company has resolved material weaknesses in IT controls, with no material weaknesses reported in its 10-K [12][66] Q&A Session Summary Question: Can you elaborate on the strong growth in Surety? - Management noted that the growth was driven by the release of federal funds and a well-diversified portfolio within Surety, avoiding exposure to home builders [25] Question: What is the company's appetite for externally underwritten business? - Management stated that the company will not engage in externally underwritten business, emphasizing a focus on niche growth and expertise [29] Question: How did Apollo perform in 2025 and expectations for 2026? - Apollo's financial results were similar to the company's, with a growth rate of about 20% and a combined ratio around 89 [36] Question: What are the expectations for the Uber partnership? - Management indicated that the Uber partnership is expected to generate premium dollars, but specifics will be provided in future updates [60] Question: What is the outlook for the captive division? - Management believes captives will continue to gain share in the P&C market, despite the current pricing backdrop [89]