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 [5][9] - Gross written premiums grew by 13% in the quarter and 24% for the year, exceeding mid-teens return on equity objectives with a reported 18.9% for the year [5][9] - Fully diluted book value per share rose to $23.87, a 5% increase from the previous quarter and a 26% increase for the year [6] Business Line Data and Key Metrics Changes - Significant growth was observed in Surety, A&H, and Specialty Programs, each exceeding 20% growth in the quarter [15] - The retention rate remained stable at 64.9% year-over-year, with net written premiums growing by 25% for the year [9] - The combined ratio improved by 7.3 points to 88.5%, reflecting net favorable development and a modest catastrophe quarter [9][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 [8][15] - The company has evolved nearly 50% of its business portfolio to less cyclical lines, enhancing its competitive position [8] Company Strategy and Development Direction - The company aims to maintain a unique competitive position by focusing on niche markets, attracting top talent, and leveraging technology and AI [8][20] - The Apollo transaction is expected to enhance growth areas, particularly in life sciences and autonomous vehicle insurance [20][23] - The company plans to opportunistically deploy excess capital for share repurchase programs, reflecting confidence in its share price [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's positioning for sustained top-quartile shareholder value despite a challenging market backdrop [8][24] - The company is well-prepared for 2026, with a strong balance sheet and conservative reserve management [12][39] - Management highlighted the importance of maintaining a diversified portfolio to mitigate risks associated with market fluctuations [17][41] Other Important Information - The company reported a strong reserve profile, with 74% of reserves in IBNR, the highest level in its history [10][12] - The alternative asset portfolio's disappointing performance was noted, but it represents only 3.8% of the total investment portfolio [12] 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 that mitigates risks associated with specific sectors [25][26] Question: What is the company's stance on externally underwritten business? - Management firmly stated that the company will not engage in externally underwritten business, emphasizing a focus on niche markets and expertise [29][31] Question: How did Apollo perform in 2025, and what are the 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 [38][39] Question: What are the expectations for the loss ratio moving forward? - Management indicated that the increase in the underlying loss ratio is due to growth in higher loss ratio businesses, but overall performance will remain consistent with guidance [66] Question: Any updates on California wildfires and recoveries? - Management reported minimal losses associated with the wildfires, with recoveries being satisfactory and not material enough to impact the P&L [96] Question: What is the outlook for the captive division amid pricing cycles? - Management noted that captives continue to gain market share, even during soft market years, and the current pricing backdrop influences strategic decisions [93]