NYSE:BOW Bowhead Specialty Q2 2024 Earnings Report $40.00 -1.37 (-3.31%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$39.94 -0.05 (-0.14%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Bowhead Specialty EPS ResultsActual EPS$0.28Consensus EPS $0.27Beat/MissBeat by +$0.01One Year Ago EPSN/ABowhead Specialty Revenue ResultsActual Revenue$98.90 millionExpected Revenue$94.28 millionBeat/MissBeat by +$4.62 millionYoY Revenue Growth+51.00%Bowhead Specialty Announcement DetailsQuarterQ2 2024Date8/6/2024TimeBefore Market OpensConference Call DateTuesday, August 6, 2024Conference Call Time8:30AM ETUpcoming EarningsBowhead Specialty's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Bowhead Specialty Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 6, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Bowhead Specialty Second Quarter 2024 Earnings Call. Our host for today's call is Shirley Yap, Chief Accounting Officer and Head of Investor Relations. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. Operator00:00:23Ms. Yap, you may begin. Speaker 100:00:25Thanks, operator. Good morning, and welcome to Bowhead's Q2 2024 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer and Brad Mckay, our Chief Financial Officer. Financial results for the Q2 of 2024 were released earlier this morning. Speaker 100:00:50You can find your earnings release in the Investor Relations section of our website. Before we begin, I'd like to remind everyone that this call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Speaker 100:01:25You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward looking statements except as required by law. Additionally, we will be referencing certain non GAAP financial measures on this call. Reconciliations of these non GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, I'll turn the call over to Steven. Speaker 100:01:58Steven? Speaker 200:01:59Thank you, Shirley, and thanks again to our stockholders and analysts for joining us on our first earnings call as a public company. Before I get started, I'd like to take a moment to thank all of the Bowhead team members who helped us through our initial public offering. On May 23, we began our 1st day of trading on the New York Stock Exchange under the symbol BOW. We are very excited to begin this new chapter in the company's evolution. We founded Bowhead just under 4 years ago and are incredibly proud of the hard work our over 200 employees have contributed to the company's rapid success to date. Speaker 200:02:40For those who weren't able to join us on the road show, I wanted to reiterate who we are and highlight our key differentiators. We were growing specialty insurance company operating substantially within the specialty excess and surplus lines market. About 80% of our premium is in the growing and profitable E and S market, where being free of rate and form restrictions provides the flexibility to rapidly adjust to emerging market opportunities. For our company to be successful, underwriting must come first. From the top down, underwriting profitability is our north star. Speaker 200:03:19It is ever present within our people and our culture. This strong in house underwriting culture is complemented with a fully integrated and accountable value chain, product development, actuarial, claims, legal, operations, IT and our long term distribution relationships must all work together seamlessly for us to be successful. This accountable value chain allows us to deliver our custom solutions to clients while consistently generating underwriting profits. Not only are we successful today, but we were designed to deliver differentiated profitability across market cycles, not just in hard markets. We've created primary and excess capabilities across our products as part of our cycle management strategy. Speaker 200:04:12Within the lines that we write today, our highly experienced underwriters or subject matter experts with a proven track record of generating underwriting profits. Underwriting authority has to be earned even for experienced underwriters just joining our team. For each line, we spend considerable time discussing and agreeing on how risk should be evaluated and we encourage close collaboration throughout the organization. We also have long standing relationships with our select group of distribution partners, which is based on expertise, service and mutual benefit. We believe that dealing with Bowhead is a privilege, not a right. Speaker 200:04:55Furthermore, we have a highly experienced and entrepreneurial management team backed up by the depth of over 200 people across the country. We operate in a hybrid model that enables us to bring on the best people regardless of where they reside. This is my 3rd time starting and running a public traded specialty insurance business. And this group is easily as good as any team I've been a part of. Critical to investors, we have a clean balance sheet with no reserves for maximum years prior to 2020 and no property cat exposures. Speaker 200:05:32We have no intangibles, no complicated LPTs and a simple and conservative investment portfolio. Lastly, we have a track record of robust growth with attractive profitability and strong returns. I believe that we have supportive market conditions and that our platform and balance sheet, including the capital we raised in our IPO positions us well for continued profitable growth. With that introduction to Bohin, let me turn it over to Brad Mulcahy, our CFO, to discuss the details of Speaker 300:06:07our quarter. Brad? Thanks, Stephen. We ended the quarter with an adjusted net income of $7,900,000 or $0.28 per diluted share with an adjusted return on average equity of 11.7%. Gross written premiums accelerated more than 50 percent to a record of $175,500,000 We saw premium growth from each of our divisions with casualty growing the most and representing portion of the book compared to last year. Speaker 300:06:37Rate improvement, particularly in casualty, continues to contribute to the increase in our top line. The loss ratio for the quarter ended at 65.5 percent, an increase of 4.6 points from the prior year. I would like to highlight that in light of our high levels of IBNR, which was 92% of our net loss reserves at the end of this quarter, we've currently elected to utilize loss ticks informed by industry data rather than only using internal data from our limited operating history. These expected loss ratios are unchanged from Q1 and the movement in the aggregate loss ratio from last year reflects a shift in the mix of our business to a greater percentage of our book being in casualty, where industry loss ratios have deteriorated as others have reported. During the quarter, we did not take down any reserves nor did we experience any loss activity in excess of our own expectations. Speaker 300:07:35The expense ratio for the quarter ended at 33.8%, an increase of 1.9 points from the prior year. The acquisition expense ratio increased slightly by 0.3 points to 8.4 percent due to the change in product mix. The operating expense portion of the ratio increased 1.6 points to 25.4% due to our continued investment in the business as well as certain one time IPO related costs, the largest being $1,300,000 of stock based compensation related to management's profit interest. Excluding this one time non cash item, our expense ratio trend decreased since Q1 of 2024 from 32.6% to 32.3%, despite our continued investment in the start up of Valeen, which Steven will discuss later. Overall, the effect of the loss ratio and expense ratio contributed to a combined ratio of 99.3% for the quarter. Speaker 300:08:36Before moving on from the underwriting results, during the quarter, net written premiums were impacted by the start of a new ceded reinsurance treaty. This treaty allows Bo Head to cede a portion of its auto exposure within the excess casualty book. The premium retention impact of this treaty will vary each quarter as the underlying exposure varies. But for Q2, the impact was about a 1 point reduction in retained premium. Now turning to our investment book. Speaker 300:09:08Pretax net investment income more than doubled to $8,800,000 in the current quarter. Our portfolio increased more than 30% since year end, which was influenced by an additional $131,000,000 of net IPO proceeds. Excluding the IPO proceeds, which were not invested for the full quarter, the portfolio had a book yield of 4.6 percent while the new money rate was 5.5% at the end of the quarter. This combination of new money rate above the roll off yields and an increasing asset base positions the company well for future investment income growth. In addition, credit quality of the portfolio remains at AA and duration increased from 1.9 years to 2.1 years in the Q2, again excluding the impact of the IPO proceeds. Speaker 300:09:58The effective tax rate for the 2nd quarter was 25.3%. We expect tax rates to be consistent with this range in the future. And lastly, our stockholders' equity was 339,900,000 and book value per share was $10.41 at the end of the quarter, an increase of 30% from year end. With that, Stephen, I'll turn it back to you Speaker 200:10:20for your thoughts on the quarter. Thanks, Brad. Let me provide my observations about the state of the market and the growth of each of our 3 divisions, casualty, healthcare and professional liability. I'll also give a brief update on our growth initiative, Bayline, which is our streamlined underwriting platform for hard to place smaller dollar E and S policies. As Brad mentioned, on a consolidated basis, Bowhead wrote $175,000,000 of premium, growth of over 50% compared to a year ago, which was driven by strength across each of our divisions. Speaker 200:10:59Looking at our book, the mission and quote growth remains strong at levels in line with overall premium growth. We also quoted more business than last year indicating that the submission growth is within our appetite. We've note that while submissions are important, they are only one of several growth drivers at our disposal in addition to rate, new business wins and future operational efficiencies. By division, casualty was the lion's share of our premium growth, up over $50,000,000 or close to 80% compared to a year ago. This growth was driven by the strong rate environment due to the disruptions in the marketplace dynamics from older accident years. Speaker 200:11:45We believe that these favorable tailwinds for Bowhead will continue for the foreseeable future. Additionally, in Q3, we're expanding our casualty team to include environmental underwriting expertise, which we expect to offer in the Q4. Our Healthcare Liability division grew by over 46%, driven by good rate and retention on renewals plus strong new business. Our professional liability business, which includes cyber, grew by 7%. We continue to see pressure in the public D and O space. Speaker 200:12:21While the market is competitive, our public D and O book increased by 4% from last year. Overall, we continue to see a long runway for the favorable market we're experiencing. To be very clear, Bowhead is not reaching for growth, but in the current environment, the gross dynamics are attractive given the risk adjusted returns we can generate. Lastly, before I open the call for questions, let me give a brief update on Bayline, a new division we launched late in the Q2 of 2024. Bayline focuses on small, hard to place risks written 100% on a non admitted basis. Speaker 200:13:04It is a streamlined low touch flow underwriting operation that supplements the craft solutions we offer today. This is a business that we believe has significant growth potential. But with this being a low touch flow underwriting model is one that we plan to execute gradually. In line with our deliberate measured and limited rollout, baleen premium for the Q2 of 2024 was minimal. While we don't expect valine to contribute meaningfully during 2024, we plan to report valine's first full quarter premium during our Q3 earnings call. Speaker 200:13:44With that, I'll conclude my remarks and turn the call over for questions. Operator00:14:24Your first question comes from Meyer Shields with KBW. Your line is open. Speaker 400:14:32Great. Fantastic. So I want to start by asking about distribution and I guess the pace of additional agency appointments over the course of the quarter? Speaker 200:14:47Thank you. I think we need to look at it by different lines of business. Recall that we're kind of in 16 different lines even though there's 3 divisions. So the number that are being increased, let's say, in casualty is considerably smaller than what we might find in private commercial business. So it really varies. Speaker 200:15:15But each time we open somebody, we're looking for commitments that they're going to support us versus just having access to us. Speaker 400:15:26Okay. That's helpful. You talked a little bit about the pricing pressure in some components of professional lines. And I was wondering whether or how much that's impacting the relative loss ratios between professional lines and casualty? Speaker 200:15:47I'm not sure I follow between when you say between professional lines and casualty, we're seeing when we look back at what we've seen on professional lines, we think that's developing very favorably. We certainly have going back to our early years, open litigation. I think there's been a history of 40%, 50% dismissal on security class actions. So there's still things that are open, but we're very comfortable with that. Casualty, the biggest concern has been the auto business. Speaker 200:16:31Keep in mind, we don't write auto on a primary basis, on a primary casualty. On the excess, it is covered within those policies. And as was mentioned earlier, We bought an auto carve out, which we think will lower the volatility from auto claims. Speaker 400:16:54Okay. No, I understand that. Just when we look at the loss ratio, I think the increase year over year is predominantly because there's more casualty in the book and casualty all equals a higher loss ratio than professional lines. And I'm wondering whether the change in pricing in professional lines and the change in pricing in casualty, how that's moderating the delta of the loss ratio between those two segments? Speaker 200:17:20The loss ratio will be has been going up, not that we're booking more on a case basis, but the because of the mix, using the formula we've been using with the advice of outside independent actuaries, because of the relative flatness in the professional book versus the large growth in the casualty book, I think we're showing higher loss ratios because of that mix. Operator00:18:00Your next question comes from Matt Carletti with Citizens. Your line is open. Speaker 500:18:06Hey, thanks. Good morning. Speaker 300:18:09Stephen, I Speaker 500:18:09was hoping you could dig into the casualty growth a little bit Speaker 400:18:12and give us a little bit Speaker 500:18:13of color on some of the maybe the underlying lines. Are there a small handful of areas of the business that are really driving the growth? Or is it pretty broad based across all the different products you offer in that segment? Speaker 200:18:28We've started to move away from and certainly not or at least in terms of the mix, The mix has become more than just construction. It was at the beginning, there was a Speaker 400:18:42lot of Speaker 200:18:43heavy project business, construction business. We've added substantially to the team of casualty underwriters and that's led to an increase in the number of the amount of casualty outside of construction that's growing. We've recently in the last month or 2, we've added several very high ranking casualty underwriters to the organization, which we believe will be a plus in terms of the followings that they have that will attract more business to us. Speaker 500:19:27Great. And then another one, if I could, is smaller business, but the cyber business. Have you seen anything following the CrowdStrike incident, not thinking about the loss side of it, I think we have our hands around that, but more so just reaction in the market, whether it be from an underwriting perspective or from a demand perspective from potential buyers? Speaker 200:19:49Well, we think there is more demand. And I think the whereas we're comfortable with what we're seeing in terms of what's been reported to us with claims and things like that. But I do think the industry is starting to evaluate more the potential of catastrophe losses. I think as what's been reported in the insurance press, I think it's very manageable the way this claim is. People are talking about $1,500,000,000 $2,000,000,000 But what would have happened if all these people's computers were turned into bricks and how that would have affected the industry. Speaker 200:20:33And I think everybody is trying to get their arms around how that's going to be evaluated in the future. Keep in mind that overwhelmingly large part of our cyber book is on the excess side and it's relatively high level excess on larger accounts. So we're comfortable in the way we're seeing, but we are going to see I'm pretty sure we're going to see an uptick in demand for the coverage. Operator00:21:18Your next question comes from Pablo Singzon with JPMorgan. Your line is open. Speaker 600:21:25Hi, good morning. Some insurers have been adding reserves to post 2020 accident years. Are you surprised by that trend? And did you see those sort of movements in the industry data when you did your review in late 'twenty three? Speaker 300:21:38Yes. Hi, Pablo. This is Brad. Thanks for the question. I think we were initially surprised by that, but as we looked at it more, most of that's happening on the primary side or sorry, on the we're in the surplus excess surplus line size. Speaker 300:21:54So we don't see that happening here. We're able to react quicker with rates than some of those other carriers have that were in the earlier markets. So, I don't think we really see that over here on our side. The industry data, when we talk about using industry data in our reserves, It's data that informs our own data. So we have some of our own limited history and we just complement it with that industry data. Speaker 300:22:27So what we see is cut as specifically as we can to our book and just kind of complements what we see. So we're happy with our reserves and the experience that we're seeing as we mentioned. Speaker 200:22:42Yes, I think our mix is different from what you're seeing in the group that's adding to reserves, the mix of type of business. Keep in mind, as Brad said, we're more excess than primary. Our limits are much smaller than what's typically been put out in the past. Remember, a lot of the opportunity that's coming to us is people going down from $25,000,000 capacity and the rates that they got on that. And then also, as Brad said, the surplus lines versus admitted. Speaker 200:23:20We don't write auto per se, commercial auto, commercial trucking. Obviously, as I said before, we pick up some of it and we write casualty, but we're not writing primary trucking risk or even excess pure trucking risk. Speaker 600:23:42Yes. Thanks, Stephen. That makes sense. And then just second and last for me. Maybe this is better for Brad. Speaker 600:23:48So I think at the end of the quarter, you had 180,000,000 of cash on the balance sheet. How much of that do you expect to reinvest into fixed income assets over time and at what pace? Thank you. Speaker 300:24:00Yes. Thanks, Pablo. I think what you're seeing is the IPO proceeds that we mentioned. We got those in late May. And obviously takes a while to invest $130,000,000 in the bond market during the summer. Speaker 300:24:14So we expect we always have a little bit of cash laying around. We have some pretty big bills to pay our reinsurers in particular, but most of that is in process for being invested. I think Q3, you'll see a better kind of run rate without that IPO noise in our cash versus investment split. Speaker 600:24:36Yes. And sorry, just to put a bullet on this, how much cash do you think you need to run the company at, right, so on a run rate basis, how much cash you need to hold at the HoldCo? Thanks. Speaker 300:24:47How much cash do we need to run as opposed to what we said at the holding company? That's the question. Speaker 600:24:52Yes. Sorry, I should have phrased it better. So not clearly cash is in an excess position, right? But on a go forward basis, and you mentioned that you need to hold some amount of cash, right? What is that amount of cash you need to hold as a go forward basis? Speaker 600:25:06Thank you. Speaker 300:25:06It really varies every quarter. So what we do is we basically invest everything that we don't need and that number changes every month. We do it twice a month actually. So it kind of I wish I could give you a solid number, but it really truly changes Speaker 700:25:24every quarter. Got it. Thank you. Operator00:25:30Your next question comes from Scott Laniak with RBC Capital. Your line is open. Speaker 700:25:39Yes, good morning. Thanks. Just wanted to follow-up just on the last question just about capital levels and if there is a is there a premium to surplus level ratio that you're targeting over time? And also how are you thinking about use of debt? Anything that you can kind of share on that? Speaker 700:25:56Not talking about next quarter, I'm just talking about kind of longer term over the next year or 2. Speaker 300:26:03Yes, I think if you look at our premium surplus ratio in Q2, it's obviously going to be a little bit high because we have the excess, the upside to IPO in there. So I would look more towards our Q1 number or our prior full year number to get kind of a run rate for that. The other question on the debt, you'll notice we did execute a revolving credit facility in Q2 that gives us the opportunity to add debt. We think the business the next time we need capital that might be a route to go just to have a little bit better returns on the business to add some debt, but I think we're a little ways from that. Speaker 700:26:46Yes. Okay. That's helpful. And then anything you can share on just what you're seeing on rate versus loss trust, loss cost trend across the book, just by I don't know if you can share by segment or anything like that. And if there was any major change versus Q1, I know casualty rates have been ticking up pretty much across the industry. Speaker 700:27:05So if there's any color you can share on any different areas, the rate versus loss trend? Speaker 200:27:13Yes, we're seeing it varies as you suggest by division. Casualty, we're seeing the strongest rate change, followed by the healthcare business and then by the professional lines business. And as was mentioned earlier, we use industry picks that but we're not seeing a change in our business in terms of loss trends from what we've originally expected. Speaker 700:27:51Okay. So is it ticking up by much in the casualty areas, Q2 versus Q1? Is it a few points or is it more than that or? Speaker 200:28:04We would say, yes, that it is kicking up a lot. Speaker 700:28:13Okay. All right. Appreciate the answers. Yes. Speaker 200:28:17Sure. Okay. Operator00:28:21At this time, there are no further questions in queue. I'd like to turn the call back over to our presenters for any further remarks. Speaker 200:28:30Thank you, Morgan. I'd like to thank everyone for joining us on our first earnings call as a public company, including Bowhead's team members that made this all possible. We're very excited about the opportunity ahead of us and look forward to executing on our strategy. Our differentiated underwriting model puts us in a position to generate strong growth at attractive returns within the large and underserved E and S market. Thanks again, and we'll talk to you along the way. Operator00:29:02This concludes the Bowhead Specialty Second Quarter 2024 earnings call. Thank you for attending and have a wonderful rest of your day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBowhead Specialty Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Bowhead Specialty Earnings HeadlinesBowhead Specialty Holdings Inc. (NYSE:BOW) Receives $37.17 Consensus Price Target from BrokeragesApril 21, 2025 | americanbankingnews.comBowhead Specialty (NYSE:BOW) Research Coverage Started at Piper SandlerApril 19, 2025 | americanbankingnews.comTrump’s Secret Social Security Plan?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Piper Sandler Initiates Coverage of Bowhead Specialty Holdings (BOW) with Overweight RecommendationApril 17, 2025 | msn.comStock Of The Day Holds Up As Insurance Stocks Keep Lofty RankingApril 11, 2025 | investors.comBowhead Specialty to Announce First Quarter 2025 Earnings on May 6, 2025April 8, 2025 | businesswire.comSee More Bowhead Specialty Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Bowhead Specialty? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Bowhead Specialty and other key companies, straight to your email. Email Address About Bowhead SpecialtyBowhead Specialty (NYSE:BOW) provides specialty property and casualty insurance products in the United States. It underwrites casualty insurance solutions for risks in the construction, distribution, heavy manufacturing, real estate, and hospitality segments; professional liability insurance solutions for financial institutions, private and public directors and officers liability insurance, errors and omissions liability insurance, and cyber segments; and healthcare solutions for hospitals, senior care providers, managed care organizations, miscellaneous medical facilities, and healthcare management liability segments. The company distributes its products through distribution partners in wholesale and retail markets. Bowhead Specialty Holdings Inc. was formerly known as Bowhead Holdings Inc. and changed its name to Bowhead Specialty Holdings Inc. in March 2024. The company was founded in 2020 and is based in New York, New York. Bowhead Specialty Holdings Inc. operates as a subsidiary of Bowhead Insurance Holdings LP.View Bowhead Specialty ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 8 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Bowhead Specialty Second Quarter 2024 Earnings Call. Our host for today's call is Shirley Yap, Chief Accounting Officer and Head of Investor Relations. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. Operator00:00:23Ms. Yap, you may begin. Speaker 100:00:25Thanks, operator. Good morning, and welcome to Bowhead's Q2 2024 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer and Brad Mckay, our Chief Financial Officer. Financial results for the Q2 of 2024 were released earlier this morning. Speaker 100:00:50You can find your earnings release in the Investor Relations section of our website. Before we begin, I'd like to remind everyone that this call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Speaker 100:01:25You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward looking statements except as required by law. Additionally, we will be referencing certain non GAAP financial measures on this call. Reconciliations of these non GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, I'll turn the call over to Steven. Speaker 100:01:58Steven? Speaker 200:01:59Thank you, Shirley, and thanks again to our stockholders and analysts for joining us on our first earnings call as a public company. Before I get started, I'd like to take a moment to thank all of the Bowhead team members who helped us through our initial public offering. On May 23, we began our 1st day of trading on the New York Stock Exchange under the symbol BOW. We are very excited to begin this new chapter in the company's evolution. We founded Bowhead just under 4 years ago and are incredibly proud of the hard work our over 200 employees have contributed to the company's rapid success to date. Speaker 200:02:40For those who weren't able to join us on the road show, I wanted to reiterate who we are and highlight our key differentiators. We were growing specialty insurance company operating substantially within the specialty excess and surplus lines market. About 80% of our premium is in the growing and profitable E and S market, where being free of rate and form restrictions provides the flexibility to rapidly adjust to emerging market opportunities. For our company to be successful, underwriting must come first. From the top down, underwriting profitability is our north star. Speaker 200:03:19It is ever present within our people and our culture. This strong in house underwriting culture is complemented with a fully integrated and accountable value chain, product development, actuarial, claims, legal, operations, IT and our long term distribution relationships must all work together seamlessly for us to be successful. This accountable value chain allows us to deliver our custom solutions to clients while consistently generating underwriting profits. Not only are we successful today, but we were designed to deliver differentiated profitability across market cycles, not just in hard markets. We've created primary and excess capabilities across our products as part of our cycle management strategy. Speaker 200:04:12Within the lines that we write today, our highly experienced underwriters or subject matter experts with a proven track record of generating underwriting profits. Underwriting authority has to be earned even for experienced underwriters just joining our team. For each line, we spend considerable time discussing and agreeing on how risk should be evaluated and we encourage close collaboration throughout the organization. We also have long standing relationships with our select group of distribution partners, which is based on expertise, service and mutual benefit. We believe that dealing with Bowhead is a privilege, not a right. Speaker 200:04:55Furthermore, we have a highly experienced and entrepreneurial management team backed up by the depth of over 200 people across the country. We operate in a hybrid model that enables us to bring on the best people regardless of where they reside. This is my 3rd time starting and running a public traded specialty insurance business. And this group is easily as good as any team I've been a part of. Critical to investors, we have a clean balance sheet with no reserves for maximum years prior to 2020 and no property cat exposures. Speaker 200:05:32We have no intangibles, no complicated LPTs and a simple and conservative investment portfolio. Lastly, we have a track record of robust growth with attractive profitability and strong returns. I believe that we have supportive market conditions and that our platform and balance sheet, including the capital we raised in our IPO positions us well for continued profitable growth. With that introduction to Bohin, let me turn it over to Brad Mulcahy, our CFO, to discuss the details of Speaker 300:06:07our quarter. Brad? Thanks, Stephen. We ended the quarter with an adjusted net income of $7,900,000 or $0.28 per diluted share with an adjusted return on average equity of 11.7%. Gross written premiums accelerated more than 50 percent to a record of $175,500,000 We saw premium growth from each of our divisions with casualty growing the most and representing portion of the book compared to last year. Speaker 300:06:37Rate improvement, particularly in casualty, continues to contribute to the increase in our top line. The loss ratio for the quarter ended at 65.5 percent, an increase of 4.6 points from the prior year. I would like to highlight that in light of our high levels of IBNR, which was 92% of our net loss reserves at the end of this quarter, we've currently elected to utilize loss ticks informed by industry data rather than only using internal data from our limited operating history. These expected loss ratios are unchanged from Q1 and the movement in the aggregate loss ratio from last year reflects a shift in the mix of our business to a greater percentage of our book being in casualty, where industry loss ratios have deteriorated as others have reported. During the quarter, we did not take down any reserves nor did we experience any loss activity in excess of our own expectations. Speaker 300:07:35The expense ratio for the quarter ended at 33.8%, an increase of 1.9 points from the prior year. The acquisition expense ratio increased slightly by 0.3 points to 8.4 percent due to the change in product mix. The operating expense portion of the ratio increased 1.6 points to 25.4% due to our continued investment in the business as well as certain one time IPO related costs, the largest being $1,300,000 of stock based compensation related to management's profit interest. Excluding this one time non cash item, our expense ratio trend decreased since Q1 of 2024 from 32.6% to 32.3%, despite our continued investment in the start up of Valeen, which Steven will discuss later. Overall, the effect of the loss ratio and expense ratio contributed to a combined ratio of 99.3% for the quarter. Speaker 300:08:36Before moving on from the underwriting results, during the quarter, net written premiums were impacted by the start of a new ceded reinsurance treaty. This treaty allows Bo Head to cede a portion of its auto exposure within the excess casualty book. The premium retention impact of this treaty will vary each quarter as the underlying exposure varies. But for Q2, the impact was about a 1 point reduction in retained premium. Now turning to our investment book. Speaker 300:09:08Pretax net investment income more than doubled to $8,800,000 in the current quarter. Our portfolio increased more than 30% since year end, which was influenced by an additional $131,000,000 of net IPO proceeds. Excluding the IPO proceeds, which were not invested for the full quarter, the portfolio had a book yield of 4.6 percent while the new money rate was 5.5% at the end of the quarter. This combination of new money rate above the roll off yields and an increasing asset base positions the company well for future investment income growth. In addition, credit quality of the portfolio remains at AA and duration increased from 1.9 years to 2.1 years in the Q2, again excluding the impact of the IPO proceeds. Speaker 300:09:58The effective tax rate for the 2nd quarter was 25.3%. We expect tax rates to be consistent with this range in the future. And lastly, our stockholders' equity was 339,900,000 and book value per share was $10.41 at the end of the quarter, an increase of 30% from year end. With that, Stephen, I'll turn it back to you Speaker 200:10:20for your thoughts on the quarter. Thanks, Brad. Let me provide my observations about the state of the market and the growth of each of our 3 divisions, casualty, healthcare and professional liability. I'll also give a brief update on our growth initiative, Bayline, which is our streamlined underwriting platform for hard to place smaller dollar E and S policies. As Brad mentioned, on a consolidated basis, Bowhead wrote $175,000,000 of premium, growth of over 50% compared to a year ago, which was driven by strength across each of our divisions. Speaker 200:10:59Looking at our book, the mission and quote growth remains strong at levels in line with overall premium growth. We also quoted more business than last year indicating that the submission growth is within our appetite. We've note that while submissions are important, they are only one of several growth drivers at our disposal in addition to rate, new business wins and future operational efficiencies. By division, casualty was the lion's share of our premium growth, up over $50,000,000 or close to 80% compared to a year ago. This growth was driven by the strong rate environment due to the disruptions in the marketplace dynamics from older accident years. Speaker 200:11:45We believe that these favorable tailwinds for Bowhead will continue for the foreseeable future. Additionally, in Q3, we're expanding our casualty team to include environmental underwriting expertise, which we expect to offer in the Q4. Our Healthcare Liability division grew by over 46%, driven by good rate and retention on renewals plus strong new business. Our professional liability business, which includes cyber, grew by 7%. We continue to see pressure in the public D and O space. Speaker 200:12:21While the market is competitive, our public D and O book increased by 4% from last year. Overall, we continue to see a long runway for the favorable market we're experiencing. To be very clear, Bowhead is not reaching for growth, but in the current environment, the gross dynamics are attractive given the risk adjusted returns we can generate. Lastly, before I open the call for questions, let me give a brief update on Bayline, a new division we launched late in the Q2 of 2024. Bayline focuses on small, hard to place risks written 100% on a non admitted basis. Speaker 200:13:04It is a streamlined low touch flow underwriting operation that supplements the craft solutions we offer today. This is a business that we believe has significant growth potential. But with this being a low touch flow underwriting model is one that we plan to execute gradually. In line with our deliberate measured and limited rollout, baleen premium for the Q2 of 2024 was minimal. While we don't expect valine to contribute meaningfully during 2024, we plan to report valine's first full quarter premium during our Q3 earnings call. Speaker 200:13:44With that, I'll conclude my remarks and turn the call over for questions. Operator00:14:24Your first question comes from Meyer Shields with KBW. Your line is open. Speaker 400:14:32Great. Fantastic. So I want to start by asking about distribution and I guess the pace of additional agency appointments over the course of the quarter? Speaker 200:14:47Thank you. I think we need to look at it by different lines of business. Recall that we're kind of in 16 different lines even though there's 3 divisions. So the number that are being increased, let's say, in casualty is considerably smaller than what we might find in private commercial business. So it really varies. Speaker 200:15:15But each time we open somebody, we're looking for commitments that they're going to support us versus just having access to us. Speaker 400:15:26Okay. That's helpful. You talked a little bit about the pricing pressure in some components of professional lines. And I was wondering whether or how much that's impacting the relative loss ratios between professional lines and casualty? Speaker 200:15:47I'm not sure I follow between when you say between professional lines and casualty, we're seeing when we look back at what we've seen on professional lines, we think that's developing very favorably. We certainly have going back to our early years, open litigation. I think there's been a history of 40%, 50% dismissal on security class actions. So there's still things that are open, but we're very comfortable with that. Casualty, the biggest concern has been the auto business. Speaker 200:16:31Keep in mind, we don't write auto on a primary basis, on a primary casualty. On the excess, it is covered within those policies. And as was mentioned earlier, We bought an auto carve out, which we think will lower the volatility from auto claims. Speaker 400:16:54Okay. No, I understand that. Just when we look at the loss ratio, I think the increase year over year is predominantly because there's more casualty in the book and casualty all equals a higher loss ratio than professional lines. And I'm wondering whether the change in pricing in professional lines and the change in pricing in casualty, how that's moderating the delta of the loss ratio between those two segments? Speaker 200:17:20The loss ratio will be has been going up, not that we're booking more on a case basis, but the because of the mix, using the formula we've been using with the advice of outside independent actuaries, because of the relative flatness in the professional book versus the large growth in the casualty book, I think we're showing higher loss ratios because of that mix. Operator00:18:00Your next question comes from Matt Carletti with Citizens. Your line is open. Speaker 500:18:06Hey, thanks. Good morning. Speaker 300:18:09Stephen, I Speaker 500:18:09was hoping you could dig into the casualty growth a little bit Speaker 400:18:12and give us a little bit Speaker 500:18:13of color on some of the maybe the underlying lines. Are there a small handful of areas of the business that are really driving the growth? Or is it pretty broad based across all the different products you offer in that segment? Speaker 200:18:28We've started to move away from and certainly not or at least in terms of the mix, The mix has become more than just construction. It was at the beginning, there was a Speaker 400:18:42lot of Speaker 200:18:43heavy project business, construction business. We've added substantially to the team of casualty underwriters and that's led to an increase in the number of the amount of casualty outside of construction that's growing. We've recently in the last month or 2, we've added several very high ranking casualty underwriters to the organization, which we believe will be a plus in terms of the followings that they have that will attract more business to us. Speaker 500:19:27Great. And then another one, if I could, is smaller business, but the cyber business. Have you seen anything following the CrowdStrike incident, not thinking about the loss side of it, I think we have our hands around that, but more so just reaction in the market, whether it be from an underwriting perspective or from a demand perspective from potential buyers? Speaker 200:19:49Well, we think there is more demand. And I think the whereas we're comfortable with what we're seeing in terms of what's been reported to us with claims and things like that. But I do think the industry is starting to evaluate more the potential of catastrophe losses. I think as what's been reported in the insurance press, I think it's very manageable the way this claim is. People are talking about $1,500,000,000 $2,000,000,000 But what would have happened if all these people's computers were turned into bricks and how that would have affected the industry. Speaker 200:20:33And I think everybody is trying to get their arms around how that's going to be evaluated in the future. Keep in mind that overwhelmingly large part of our cyber book is on the excess side and it's relatively high level excess on larger accounts. So we're comfortable in the way we're seeing, but we are going to see I'm pretty sure we're going to see an uptick in demand for the coverage. Operator00:21:18Your next question comes from Pablo Singzon with JPMorgan. Your line is open. Speaker 600:21:25Hi, good morning. Some insurers have been adding reserves to post 2020 accident years. Are you surprised by that trend? And did you see those sort of movements in the industry data when you did your review in late 'twenty three? Speaker 300:21:38Yes. Hi, Pablo. This is Brad. Thanks for the question. I think we were initially surprised by that, but as we looked at it more, most of that's happening on the primary side or sorry, on the we're in the surplus excess surplus line size. Speaker 300:21:54So we don't see that happening here. We're able to react quicker with rates than some of those other carriers have that were in the earlier markets. So, I don't think we really see that over here on our side. The industry data, when we talk about using industry data in our reserves, It's data that informs our own data. So we have some of our own limited history and we just complement it with that industry data. Speaker 300:22:27So what we see is cut as specifically as we can to our book and just kind of complements what we see. So we're happy with our reserves and the experience that we're seeing as we mentioned. Speaker 200:22:42Yes, I think our mix is different from what you're seeing in the group that's adding to reserves, the mix of type of business. Keep in mind, as Brad said, we're more excess than primary. Our limits are much smaller than what's typically been put out in the past. Remember, a lot of the opportunity that's coming to us is people going down from $25,000,000 capacity and the rates that they got on that. And then also, as Brad said, the surplus lines versus admitted. Speaker 200:23:20We don't write auto per se, commercial auto, commercial trucking. Obviously, as I said before, we pick up some of it and we write casualty, but we're not writing primary trucking risk or even excess pure trucking risk. Speaker 600:23:42Yes. Thanks, Stephen. That makes sense. And then just second and last for me. Maybe this is better for Brad. Speaker 600:23:48So I think at the end of the quarter, you had 180,000,000 of cash on the balance sheet. How much of that do you expect to reinvest into fixed income assets over time and at what pace? Thank you. Speaker 300:24:00Yes. Thanks, Pablo. I think what you're seeing is the IPO proceeds that we mentioned. We got those in late May. And obviously takes a while to invest $130,000,000 in the bond market during the summer. Speaker 300:24:14So we expect we always have a little bit of cash laying around. We have some pretty big bills to pay our reinsurers in particular, but most of that is in process for being invested. I think Q3, you'll see a better kind of run rate without that IPO noise in our cash versus investment split. Speaker 600:24:36Yes. And sorry, just to put a bullet on this, how much cash do you think you need to run the company at, right, so on a run rate basis, how much cash you need to hold at the HoldCo? Thanks. Speaker 300:24:47How much cash do we need to run as opposed to what we said at the holding company? That's the question. Speaker 600:24:52Yes. Sorry, I should have phrased it better. So not clearly cash is in an excess position, right? But on a go forward basis, and you mentioned that you need to hold some amount of cash, right? What is that amount of cash you need to hold as a go forward basis? Speaker 600:25:06Thank you. Speaker 300:25:06It really varies every quarter. So what we do is we basically invest everything that we don't need and that number changes every month. We do it twice a month actually. So it kind of I wish I could give you a solid number, but it really truly changes Speaker 700:25:24every quarter. Got it. Thank you. Operator00:25:30Your next question comes from Scott Laniak with RBC Capital. Your line is open. Speaker 700:25:39Yes, good morning. Thanks. Just wanted to follow-up just on the last question just about capital levels and if there is a is there a premium to surplus level ratio that you're targeting over time? And also how are you thinking about use of debt? Anything that you can kind of share on that? Speaker 700:25:56Not talking about next quarter, I'm just talking about kind of longer term over the next year or 2. Speaker 300:26:03Yes, I think if you look at our premium surplus ratio in Q2, it's obviously going to be a little bit high because we have the excess, the upside to IPO in there. So I would look more towards our Q1 number or our prior full year number to get kind of a run rate for that. The other question on the debt, you'll notice we did execute a revolving credit facility in Q2 that gives us the opportunity to add debt. We think the business the next time we need capital that might be a route to go just to have a little bit better returns on the business to add some debt, but I think we're a little ways from that. Speaker 700:26:46Yes. Okay. That's helpful. And then anything you can share on just what you're seeing on rate versus loss trust, loss cost trend across the book, just by I don't know if you can share by segment or anything like that. And if there was any major change versus Q1, I know casualty rates have been ticking up pretty much across the industry. Speaker 700:27:05So if there's any color you can share on any different areas, the rate versus loss trend? Speaker 200:27:13Yes, we're seeing it varies as you suggest by division. Casualty, we're seeing the strongest rate change, followed by the healthcare business and then by the professional lines business. And as was mentioned earlier, we use industry picks that but we're not seeing a change in our business in terms of loss trends from what we've originally expected. Speaker 700:27:51Okay. So is it ticking up by much in the casualty areas, Q2 versus Q1? Is it a few points or is it more than that or? Speaker 200:28:04We would say, yes, that it is kicking up a lot. Speaker 700:28:13Okay. All right. Appreciate the answers. Yes. Speaker 200:28:17Sure. Okay. Operator00:28:21At this time, there are no further questions in queue. I'd like to turn the call back over to our presenters for any further remarks. Speaker 200:28:30Thank you, Morgan. I'd like to thank everyone for joining us on our first earnings call as a public company, including Bowhead's team members that made this all possible. We're very excited about the opportunity ahead of us and look forward to executing on our strategy. Our differentiated underwriting model puts us in a position to generate strong growth at attractive returns within the large and underserved E and S market. Thanks again, and we'll talk to you along the way. Operator00:29:02This concludes the Bowhead Specialty Second Quarter 2024 earnings call. Thank you for attending and have a wonderful rest of your day.Read morePowered by