Skyward Specialty Insurance Group, Inc. Q1 FY2025 earnings call

• The first quarter performance was strong with net income of $42 million and adjusted operating income of $37.3 million, the best in company history. Growth of 17% was due to the diversified portfolio and 'Rule Our Niche' strategy.
• The A and H division and Global Agriculture unit were standouts. The Global Agriculture unit has a well-diverse global portfolio with unique solutions, and the accident health division had growth driven by captive offerings and medical cost management.
• Investment results included net investment income of $19.3 million, with the fixed income portfolio showing growth. The alternative and strategic investments portfolio had a loss of $2.1 million.
• Property reinsurance programs were renewed on April 1 with satisfactory terms and structures.

Skyward Specialty Insurance Group, Inc. reported net income of $42 million and adjusted operating income of $37.3 million for the first quarter of 2025, driven by $28.5 million of underwriting income. Gross written premiums grew by 17% for the quarter. The agriculture and credit insurance and reinsurance division accounted for 16% of gross written premiums in the quarter, with an expected 10-12% contribution for the full year. The first quarter combined ratio was 90.5%, with a non-cat loss ratio of 60.2% (best in company history) and an expense ratio of 28.1%. Net investment income was $19.3 million, with the fixed income portfolio contributing $16.7 million. The debt to capital ratio was 12%, and the effective tax rate was 18.2%.

• Expected mid-teens growth for the year, consistent with prior guidance. - Expense ratio expected to increase somewhat over the remainder of the year but still targeting sub-thirties. - Full-year effective tax rate expected to be between 21-22%.

• Market softening in some lines poses risks. - Economic uncertainty with potential moral hazard and cost shifting. - Material weakness in IT controls, though no impact on financial statements, needs remediation.

Q: Give color on growth opportunities in agriculture and credit insurance?

A: Agriculture has a global portfolio led by a seasoned veteran, with unique solutions and treaty opportunities lined up. Credit insurance is diversified, focusing on mortgage initially and now expanding, but currently more defensive due to economic backdrop.

Q: Impact of environment and tariffs on loss cost trend?

A: Overall loss cost trend in portfolio is 5-6%, with different countermeasures in various businesses, watching multiple factors like safety, cost shifting, and credit environment.

Q: Is first quarter acquisition expense ratio a good proxy for the rest of the year?

A: First quarter is a pretty good proxy, but expected to tick up a bit, with consideration of business mix and acquisition cost from different lines.