Skyward Specialty Insurance Group Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Record Q2 financial performance: Adjusted operating income was $37.1 M ($0.89 per diluted share) with a pretax underwriting income of $31.2 M, the highest in company history, and a combined ratio of 89.4%.
  • Positive Sentiment: Gross written premiums rose 18% driven by agricultural, credit, accident & health, captives and specialty programs, as the company strategically scaled areas with stronger rate environments and moderated exposure in softening segments like global property.
  • Negative Sentiment: Net investment income fell to $18.6 M due to volatility in alternative assets (private credit, oil & gas and real estate), though these holdings are now under 5% of the portfolio and fixed-income reinvestments yield just under 6%.
  • Positive Sentiment: Continued investment in AI and the SkyView platform aims to multiply underwriter productivity and strengthen the competitive moat in specialty insurance markets.
  • Neutral Sentiment: Maintained conservative reserving and cycle management by holding casualty exposure flat, setting loss picks at the conservative end in high-volatility lines like agriculture, and keeping reserves above actuarial indications.
AI Generated. May Contain Errors.
Earnings Conference Call
Skyward Specialty Insurance Group Q2 2025
00:00 / 00:00

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the second quarter '2 thousand twenty five Skyward Specialty Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question, you will need to press star one one on your telephone keypad.

Operator

At this time, I would like to turn the conference over to Natalie Schoolcraft of Investor Relations. Ma'am, please begin.

Natalie Schoolcraft
Natalie Schoolcraft
VP - IR at Skyward Specialty Insurance Group

Thank you, Howard. Good morning, everyone, and welcome to our second quarter twenty twenty five earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson and Chief Financial Officer, Mark Hochel. We will begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today may include forward looking statements, which by their nature involve a number of risk factors and uncertainties, which may affect future financial performance.

Natalie Schoolcraft
Natalie Schoolcraft
VP - IR at Skyward Specialty Insurance Group

Such risk factors may cause actual results to differ materially from those contained in our projections or forward looking statements. These types of factors are discussed in our press release as well as in our 10 ks that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non GAAP measures, along with other supplemental financial schedules, are included as part of our press release and available on our website under the Investors section. With that, I will turn the call over to Andrew. Andrew?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you, Natalie. Good morning, and thank you for joining us. We're pleased to report another outstanding quarter with adjusted operating income of $37,100,000 or $0.89 per diluted share, driven by $31,200,000 of pretax underwriting income, our best in company history. Year to date annualized return on equity continues to be excellent at 19.1%. Gross written premiums grew 18% for the quarter and our 89.4% combined ratio also accompany best are a direct result of our diversified business portfolio and the strong execution of our Rule Our Niche strategy. We continue to generate profitable growth in areas less exposed to the cycles impacting the broader P and C market. Our portfolio mix, risk selection and operational agility are allowing us to grow where conditions are attractive and moderate where they are not, all while delivering top quartile returns, maintaining our low volatility and not extending our average liability duration. Our growth this quarter is particularly notable as we pulled back again in Global and E and S property in response to increasingly softening conditions.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And we elected to hold our current liability exposure base roughly flat in spite of an overall positive rate environment simply due to our view that the loss inflation continues to be a serious headwind and we want to be selective in the areas we seek to grow our casualty business. In contrast, our growth in areas including ag, credit and A and H demonstrates again that we are exceptionally well positioned to adapt and reallocate capital elsewhere in our portfolio to continue to grow underwriting income. We are built not just for today's environment, but for all cycles to deliver long With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Thank you, Andrew.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

We had another strong quarter reporting adjusted operating income of $37,100,000 or $0.89 per diluted share and net income of $38,800,000 or $0.93 per diluted share. Gross written premiums grew by 18% for the quarter. Agriculture and credit, accident and health, captives and specialty programs contributed meaningfully to the growth this quarter. Net written premiums grew by 14% and our net retention through six months of 60.9% was in line with the prior year of 61.2%. Turning to our underwriting results, our second quarter combined ratio was 89.4% and included 1.4 points of cat losses, principally from convective storms in the South and Midwest.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

The non cat loss ratio of 59.9% for the quarter improved 0.7 points compared to 2024 and is the best in company history. While in pockets, we observed auto liability and to a lesser extent general liability severity trends, we also have units where auto and GL continue to emerge favorably. It's for this reason we're being selective on growing exposure in occurrence liability lines. Our shorter tail lines, including property and surety, continue to emerge favorably as does our professional portfolio. There was no net reserve development this quarter.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Our reserve position continues to be strong as IBNR makes up more than 70% of our net reserves, while the duration of our liabilities continues to shorten. In line with our conservative reserving philosophy, we maintained our margin above actuarial indications. The expense ratio of 28.1% improved 0.9 points over the prior year quarter and was in line with our expectations of sub-30s. The business mix shift continued to impact acquisition costs for the quarter, but was offset by two points of improvement over the prior year in our other operating and general expense ratio, which benefited from the scale of our business. Operating income benefited from our company best underwriting results in the quarter, but was impacted by a reduction in investment income to $18,600,000 as a result of our alternative asset portfolio.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

These positions primarily in private credit have lagged expectations and this quarter was no exception. Due to the accounting treatment, we marked the underlying positions to market quarterly and as we have seen that can and has resulted in some volatility. This quarter, our oil and gas and real estate impact real estate holdings impacted our net investment income. As we've previously discussed, this portfolio is in redemption and on June 30, it comprised less than 5% of our investment portfolio. Through six months, $30,000,000 of capital was returned and reinvested in our fixed income portfolio.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Excluding alternative investments, net investment income increased 23.5% over the prior year due to the 30% increase in income from our fixed income portfolio, driven by a higher portfolio yield and a significant increase in the invested asset base. In the second quarter, we put $170,000,000 to work at just under 6%. Our embedded yield was 5.3% at June 30 versus 4.8% a year ago. Our financial leverage is modest as we finished the quarter just shy of 12% debt to capital ratio. And given our undrawn capacity from our revolver and our current leverage, we have ample debt financing flexibility.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Lastly, I wanted to make everyone aware that we will be filing an amended 10 ks around the same time as we filed the second quarter 10 Q. To be clear, this is administrative and simply adds a standard sentence to E and Y's unqualified opinion. Now I'll turn the call back over to Andrew.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you, Mark. Our outstanding second quarter performance reflects the strength of our diversified portfolio, our underwriting discipline in light of softening conditions across several lines and our ability to adapt quickly to evolving market conditions. We continue to grow with precision, targeting segments where our expertise, data and technology and underwriting discipline give us a durable advantage. We are seeing sustained momentum across several key areas of our business, including agriculture, credit, and A and H, where our specialized knowledge and capabilities are key differentiators. As a reminder, in agriculture, we serve markets that have government subsidized programs and we have constructed a well diversified global portfolio.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

In this quarter, we continue to see opportunities in The U. S. Dairy and livestock program and we were able to close several new accounts. As we have built this portfolio, we have accumulated depth of knowledge and insight that we believe is distinct. Similarly, we provided a product to this market that we also believe is unique, and we have now achieved the size to selectively utilize a proprietary hedging strategy to mute the potential volatility.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Moreover, we are currently booking this portfolio the most conservative outcome we can reasonably expect, and so we are bullish about the future contribution as we continue to earn in the growth from ag. In credit, increased economic uncertainty is reshaping risk profiles, and we continue to experience favorable pricing and conditions. We believe that both the credit and agriculture markets offer opportunities profitable growth. Our Accident and Health division started the year strong, and the second quarter was a continuation of that trend, principally driven by a group captive offering to the medical stop loss market. Just as a reminder, we are not competing against companies focused on large accounts.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Our focus is on smaller accounts, generally with 500 lives or less. That said, the poor performance in the large group market has been a contributor to the improving conditions in the market we serve. In surety, we had moderate growth largely driven by reduced federal funding, including that flowing to states and munis. We remain bullish in our surety outlook, and we believe we are well positioned to continue to grow this market leading business. In transactional E and S, as noted in my earlier comments, we shrunk our property book in response to increasingly competitive market conditions, but this is more than offset by the growth in our liability book, and we continue to see selective opportunities to grow in Lynn Marine.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

In Specialty Programs, our growth was driven by those program managers where we have an ownership position, which is roughly 70% of our total division. This ownership is a further measure of alignment in addition to the underwriting performance compensation structures we employ when we delegate authority. Two programs added over recent quarters contributed meaningfully to the growth this quarter, and growth in specialty programs will be lumpy, driven principally by program adds. The growth in our Captives division is a result of new insureds joining existing captives. As these companies seek more control over their risk programs, our ability to partner on unique solution opens new capital efficient revenue streams.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

These are sticky, relationship driven opportunities that align well with our long term strategy. Professional lines growth was flat as we continue to experience competition in miscellaneous E and O, and we've been very selective in management liability. We are leaning into opportunities in healthcare, which is an attractive market and where we are exceptionally well positioned with an extraordinary team of deeply technical underwriters. We are staying disciplined in global property given the current market backdrop. Our account retention was in the high 80s as we continue to maintain a cautious, deliberate approach, participating where pricing and terms reflect the true risk and stepping back where they do not.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And finally, in Construction and Energy Solutions, these were impacted by further intentional actions in construction, particularly commercial auto and a selective approach to other casualty. Nonetheless, in energy, we are very pleased with the consistent growth and profitability, including in the renewables market. Turning to our operational metrics. Renewal pricing was consistent with the prior quarter at mid single digit pure rate and an encouraging mid digit exposure growth, both excluding Global Property. New business pricing continued to be in line with our in force book.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Retention dipped slightly to the mid-70s for the quarter, driven by business mix and construction, as noted earlier. Lastly, we continue to see strong submission growth, which was in the mid teens this quarter. We've doubled down on our investment in augmenting the deep expertise of our underwriters and claims professionals with advanced technology, as demonstrated by our award winning SkyView platform. We believe that we are in a leading position using AI in this regard, particularly in the specialty insurance markets where we compete. We have every business seeking to leverage the powerful advancements we've been implementing in specific units, including A and H, healthcare, miscellaneous E and O and energy.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Given the AI arms race, I believe our early mover advantage will compound and contribute to the competitive moat we're building around every division and unit in our company. Altogether, we delivered another outstanding quarter, and our results reflect the strength of our strategy, the quality of our execution and the resilience of our business model. Our deep expertise, disciplined underwriting and focus on complex underserved markets continues to differentiate us. We are seeing the market shift in real time. Certain areas continue to soften, while others remain dislocated and underserved.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

These are the environments where Skyward thrives. Our ability to adapt with discipline and precision to grow where conditions support our return thresholds and moderate where they do not is exactly why we built the portfolio we have. Our Ruler in Each strategy is not just a tagline. It is a blueprint for durable top quartile performance through the market cycles. We remain committed to this strategy and confident in our ability to execute it.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

I'd now like to turn the call back over to the operator to open it up for Q and A. Operator?

Operator

Star 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the key, simply press 11 again. Again, if you have a question or comment at this time, please press 11 on your telephone keypad. Our first question or comment comes from the line of Greg Peters from Raymond James. Your line is open, sir.

C. Gregory Peters
C. Gregory Peters
MD - Insurance at Raymond James

Good afternoon, everyone. So, Andrew, in your comments, you spoke a lot about where you're seeing growth and where you're pulling back, effectively outlining your cycle management strategy. Maybe you could spend some additional time talking to us about these key lines of growth, the ag business, the credit, the captives and the programs. I think you said that you're assuming some higher loss picks just on like the ag business for to take out volatility risk. Maybe you can just talk to us about how you're approaching the reserving side as you grow these businesses.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yeah, I mean, I think Greg, you for the question. And yeah, saying good afternoon, that kind of feels weird every one of our calls is in the morning. So good afternoon. Look, I think that what I'd point to you, Greg, is that if you step back over the arc of sort of the last five years and particularly during our time as a public company, we have been very consistent in building and launching new businesses, scaling and seeing great outcomes. And I don't think that in any instance we have done anything different with the businesses you just mentioned in terms of our reserving philosophy.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

I think that we take a overall, of course, you know, we take a conservative position. I think that our bias towards lines that we believe have volatility will take even a more conservative position in the range in particular as we're getting going. And I think in this case, I just highlight Ag because it's a line that has a bit of volatility. And so our picks reflect sort of the conservative end of that. And that's in addition to some of the things that we're doing to take the volatility out.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

I would also say to you that while we highlighted the growth areas that you just mentioned, there's no shortage of growth inside of the divisions that maybe as a headline don't have growth. So my point to what we're seeing in healthcare solutions or inside of our energy division with renewables, there's plenty of pockets of growth that just aren't rising to what we're drawing out in these calls. And so I think to your point, cycle management, it's not just cycle management, it's also what we're seeing in terms of loss inflation and we don't want to lean into exposure growth where we see a very heavy dose of loss inflation. Think all those things contribute and some of that isn't expressly visible in our comments, but sort of below the division level reporting.

C. Gregory Peters
C. Gregory Peters
MD - Insurance at Raymond James

Yes, that's good detail. I appreciate that. For my follow-up question, I'm going to go to the investment side. And I know in the comments, talked about the alternatives and strategics just representing 5%. That's been run off for a while now.

C. Gregory Peters
C. Gregory Peters
MD - Insurance at Raymond James

I think that percentage of the mix investments that's come down pretty substantially. But as we think about going forward, maybe you could talk about how you're looking at those results and when you frame out projections, what are you thinking about for that line and for the broader investment income piece?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Great question. So let me just say this, obviously we're not happy with results at top to bottom on the growth and underwriting are outstanding. And we have one item where we didn't meet our own internal expectations nor your expectations. I think that that is a bit of a red herring in terms of the performance of our business, and we think it's just not something that people should get distracted by because we have had volatility. I think that at the point that we took the company public, our alts were north of 20% of our portfolio.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

We have done everything that we said that we were going to do, which included that every dollar investing was going to go into our core fixed income. Obviously, we've grown our investment base at a faster pace than we thought. We've been helped by a decent yield environment. And we've taken the right steps in managing down this portfolio. Mark mentioned in his prepared remarks, 30,000,000 of redemption in the first half of this year.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

I feel great about what we've done. Am I happy with the volatility in this quarter?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

No, I'm not happy with the volatility in this quarter, but that's the way business is sometimes. And I'm very confident that we have roughly 30 positions remaining in this portfolio. We're on top of it. And I do suspect that there will be quarters ahead where the volatility will work to our advantage coming the other way. And otherwise, I don't think there's really much that we want to say about the alts because it's not part of our investment strategy going forward.

C. Gregory Peters
C. Gregory Peters
MD - Insurance at Raymond James

Fair enough. Thanks for the color and detail.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Thanks, Greg.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Appreciate it, Greg.

Operator

Thank you. Our next question or comment comes from the line of Michael Zaremski from BMO Capital Markets. Mr. Zaremski, your line is open.

Michael Zaremski
Michael Zaremski
MD & Senior Equity Research Analyst at BMO Capital Markets

Hey, morning. Sorry, I, made the mistake too. Good afternoon. Good afternoon. Thanks for the comments on the alignment with some of your MGAs that you have ownership stakes in.

Michael Zaremski
Michael Zaremski
MD & Senior Equity Research Analyst at BMO Capital Markets

I guess, yeah, we can see that from the stats disclosure that there's a number of MGAs that are aligned with Skyward. So with that, just curious, like, you can kind of shed more light on how those relationships came to be, And is there just any further color just so we just understand the inner workings of how aligned you are with those MGAs? Thanks.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yeah. Thanks, Mike. Well, is our longest standing relationship and what I would consider to be, while they're not formally part of our company, they're virtually that way, where we own a 20% stake and we have refusal rights and so forth. And by the way, that one relationship is nearly two thirds of our total premium in that division, and they're compensated effectively the same way we compensate our underwriters. So that's just sort of good news.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

The second is a partnership that we launched with an MGA that is growing and developing where we are a direct investor. We have an active role there. We have special rights that benefit us. Quite honestly, we outlined our philosophy with them before we entered into that partnership, and they viewed the distinctiveness of having that formal commitment from us as being something that was distinctive for them in terms of building their business. And so that's turned out to be a win win.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And that's really the principal two sources. Nearly all of our new program adds, I think minus one, has come through that partnership. And so you can describe that how you wish, but 15% of our premium falls into the delegated authority program administrator, MGA kind of market. But those relationships are deeply strategic, they're not transactional. And I think they're quite different because we're, I think, as appropriately cynical of delegating authority as any excellent underwriting company should be.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And I've listened to the comments of some of our peers around this, and I think we would share all those views. That said, I think we've struck the right tone here and relationship with the folks that we do business with.

Michael Zaremski
Michael Zaremski
MD & Senior Equity Research Analyst at BMO Capital Markets

Okay. That's great disclosure and color. I guess switching gears on the pricing commentary. I believe you gave us pricing excluding property for the first time. Right?

Michael Zaremski
Michael Zaremski
MD & Senior Equity Research Analyst at BMO Capital Markets

And so, I think we all know property pricing was, decelerated, right? So I just want to make sure when we apples to apples, if we look at your last quarter or previous quarters pricing commentary that didn't include global property. Am I understanding that correctly?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Are, Mike, you're absolutely correct. Only global property, all other property lines. And I think you've probably heard enough, Mike, from others that property across the board is feeling some effects, larger account into the markets, greater effect. Net rate, when we report out rate, we report out gross generally because effectively the gross rate for us versus net rate tends to be equivalent. In global property, it's a little different because of the way we structure and use reinsurance, particularly FAC, but our net rate was a negative high single digits pure rate for the quarter.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And I will tell you that our pricing right now for Global Property is sitting roughly equivalent to where it was in the 2023. And it's come down fast. I will tell you that if you were to draw the line at this particular moment, Mike, we feel incredibly good about the technical rate of that book and how that would perform at that rating level. But the way that rates have moved, it's like we'll be one quarter forward and we might be having a different conversation. It's been that intensive a drop off. So I think it's a very dynamic situation.

Michael Zaremski
Michael Zaremski
MD & Senior Equity Research Analyst at BMO Capital Markets

Okay, yep, got it. And lastly, on the headcount, if we look at the 10 ks came out a while ago, but 10 ks I think headcount was, I believe, plus 15%, a little higher than, or no, maybe it was low double digits, sorry, a little below 20 three's level. High level, would you kind of expect headcount to decel a bit but still kind of be close to 10% if the year goes as planned or just kind of and I'm assuming that headcount also doesn't include some of those MGA ownership and MGA relationships that that that you don't wholly own.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yeah, mean, one thing I would say to you is that our, I mean, again, proportion of the premium that's coming from delegated authorities has been knocking around between like 1315%. So that's been relatively consistent. So while it was a higher growth quarter there, it didn't really move sort of the overall portfolio. Look, I think that the one thing I would just highlight first is that our OUE, our controllable expenses, as Mark noted in his prepared remarks, is down two points from last year. It was our best ever, I think it was 13.1%, which is pretty darn good.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Of course, I believe that we're getting economies of scale. I mentioned our use of technology, we believe that that's an important contributor. Our vision for the way that we believe, in particular on underwriting and claims, and I'll start with underwriting, is that we have the ability to multiply the productivity of our underwriters over time because of the things that we're doing in AI, which I would describe as, I wanna use a football analogy, instead of starting with a touchback on your own 30 yard line, your first offensive play is on your competitors', your opponent's 20 yard line. So you're kind of getting far down the field. So that really means that our underwriters have the ability to be very productive.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And that's where one of the places that we want to see a lot of leverage, because great underwriters are hard to come by. So if we can amplify the ones we have, and some of that's coming through right now. You're seeing that in our numbers right now.

Operator

No worries. Our next question or comment comes from the line of Alex Scott from Barclays. Your line is open.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Hey, first one I had for you guys is on the captive piece of the premiums that I was expecting to slow a little bit more because I figured maybe there was a little more sensitivity there to softening market, capacity is a little easier to come by, maybe less demand for captives. The growth was very good actually. And so I'm just interested if you could provide a little more color around what's driving that, if there is sensitivity to sort of the cycle in the market or if there's something more idiosyncratic about it?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Well, look, I think the thing that's driving it to be very direct is we have one and I talked about this in the past, Alex, that we have one very innovative property focused captive in the automotive dealers market that uses on the ground weather technology to fundamentally change the risk management and controls. And that proposition is a winning proposition. And so to be honest, in a market that effectively hasn't changed, I believe within that market there's also a decent amount of moral hazard with what happens when property is damaged at dealership, that we've really, I think we've built a proposition that is pretty darn powerful, that is attracting, I would characterize as the very best sort of operators in that market, and that's been the principal driver. And it's great because there aren't a lot of really great examples of property captives out there in general, and this is now in its fourth year. And I would almost say that at this particular moment, we're really starting to stretch our legs on that.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And it's partnership that we have with a technology company called Understory Weather that I it's really I think it's very distinct and unique.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Got it. Okay. And I also wanted to ask about the ANH growth. Can you just talk a little bit about exposure to things like medical cost inflation? We all see the health insurers and what they're saying, and there's been a fair amount of pressure there.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

On the other hand, I know you guys have a pretty differentiated and unique way that you're going about it at the small end of the stop loss market in particular. So maybe you could just help us think through that and how you're being thoughtful about the growth into this business that's faced a little bit of headwind.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yes. Thanks, Alex. So I think just backing up the growth as I think I mentioned in my opening remarks was driven by the group captive portion of that business, obviously a theme emerging here. But I think that with the group captives, really accelerates our approach to medical cost management. And because the captives are directly tied to the performance, I think that you find the participants engaged in wanting to lean in.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And so we've talked a lot about reference based pricing, which uses Medicare based pricing. We talked about working outside the major PBMs. We actually have specific programs in place for very expensive drugs where we can get access to those drugs through special relationships. And all that's very dynamic, given obviously what's going on in the world right now. But we feel like we're in a pretty darn good position.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

The thing that's really stood out though is that, and I've talked about this in the past, but we absolutely are a company that when we see these extraordinarily large bills coming from the providers on behalf of our clients, instead of what is the traditional process generally in the market of pay and pursue. Like if there's a bill that comes through that's $2,000,000 oftentimes that gets paid and then there's an effort to negotiate afterwards. We are not doing that. We are negotiating the payment before we actually pay. And the foundation of that is oftentimes a legal foundation.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And we've had great success, and it has been an immense benefit to our customers and to the members and the group captives. And so we have that formula. We think we have distinct IP around that. That's in addition to all the other interesting things that we do. But that's been part of our formula and you can see it in the results to be direct.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Got it. Thank you.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Meyer Shields from KBW. Mr. Shields, your line is open.

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

Great. Thanks. I think it's still morning in Houston. But setting that aside, Andrew, you talked about the limited growth in surety because of, I guess, declining infrastructure spend. Is any of that impacting loss activity on the surety side?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

No. Surety is it's been unbelievable, to be honest. We have an extraordinarily, extraordinarily good team, very responsible. We've equipped them with fantastic tools. Our claims leader and surety, our new claims leader, so we just went through a succession, is a lawyer who has actually recently won a landmark case that the surety industry took note of.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And quite honestly, I love our mix. I mean, all the things that we did, we brought in a fantastic team from a competitor around fiduciary and judicial bonds. We've been growing that at a fantastic rate. The oil and gas market is, in commercial surety, is incredibly stressed due to some major losses, reinsurers have backed away. In this quarter that we're in now, we're going to be announcing probably the most innovative product to hit that market, which I'm excited about.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Very dislocated market, but a product where we believe we have a solution that will not add unusual growth for us unusual risk for us, but really provide a solution to the market. So I think we are incredibly smart and measured about how we're playing things. And I'll also tell you, Mara, I believe that the federal funding, given sort of our key trading partners there, which there are very small handful of distributors, that really trade in that sort of that federal part of the market is going to bounce back the second half of the year. So 8% growth could return to something higher, not to say that 8% growth in surety is not incredibly respectable to begin with. So all this is to say, feel great about it, and there's nothing on the loss front at this time that would indicate there's any sort of change in our performance.

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, fantastic. If I can touch briefly on commercial auto, I know Mark, you made some comments about, I think severity. I was hoping to get a better handle on whether there were any reserve movements in commercial auto and whether the current book loss picks are changing for 2025?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Hey, Mayor. Good question. No, so loss picks are not changing. And my comments were relative to emergence indicated to indicated. So we are booked higher than indicated.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

So there are no change in loss picks, But what I will say to add to my commentary, look, in the quarter, the favorable emergence in our E and S and surety and professional lines frankly was quite a bit more than I would have expected, the favorable. The pockets that we saw on severity really wasn't that unexpected, but didn't change our picks at all. Does that make sense?

Meyer Shields
Managing Director at Keefe, Bruyette & Woods (KBW)

It does. Thank you so much.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you, Bear.

Operator

Thank you. Our next question or comment comes from the line of Andrew Anderson from Jefferies. Your line is open, sir.

Andrew Andersen
Andrew Andersen
VP - Equity Research at Jefferies Financial Group

Hey. Good morning. Could you expand a bit on the sentence being added to the amended filing?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Sure. It was exciting. So what happened is there was a clear sentence within the when the EMIs opinion that merely refers to their control opinion. Somehow it was dropped in the case. So it's just an administrative thing.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

And actually I'm kind of glad you did ask. It changes nothing. Changes nothing with respect to the unqualified opinion. It's just a requirement that we file, refile the 10 ks. And the only part that will be refiled will be the opinion and the financial statements, not the entire K. And Andrew, just to

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

give you some context about how this emerged, because we are recently we became an accelerated filer, we were selected to basically have an internal audit on auditing us, that audit came back very well. But this was the one item that emerged.

Andrew Andersen
Andrew Andersen
VP - Equity Research at Jefferies Financial Group

Okay, and has this been I think you're still working on resolving the weakness throughout the year, '25. Has that been completed?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

So, good question. Look, we won't get formal sign off, if you will, until issues their opinion 04/25. Internally, we are working on the remediation with respect to the material weakness. We believe it's been remediated, but until the end of the year when the opinions are actually issued, will be at the point in time where that would be lifted.

Andrew Andersen
Andrew Andersen
VP - Equity Research at Jefferies Financial Group

Okay, thanks. Maybe switching just to the session rate, it was up year over year and quarter over quarter. I would have thought it would have been a little bit lighter year over year given less property growth. Anything kind of one off there? And how should we think about that in the back half of the year?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Well, the way I think about it is the way we referred to it earlier. We guided to about a 60% ratio. It can move around quarter over quarter due to the way we book reinsurance treaties at inception. So when we renew treaties, we seeded upfront as opposed to over time. And the second quarter is typically when you see a dip in retention ratio.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

It's pretty much in line with what we've done year over year, quarter over quarter. So I wouldn't read anything more into that other than Andrew has talked a lot about captives. You do know that our retention ratio on captives is lower than I would say the non captive or the property business. So as the captives grow, our retention ratio could move a little bit. But I feel good about the 60.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And Andrew, includes within A and H where there's been a lot of growth. So there's some mix going on here, but we said it plenty of times, we're gross line underwriters, we want to take more risk and where we have an opportunity to do that, we will. And an example of that is that as we've grown and diversified our surety portfolio, we've upped our retention. We came through a renewal this year, we upped our retention again because we weren't we don't want to swap dollars at sort of the bottom million dollars there. So you'll find, as you see our annual sort of disclosures around this, that in general we try to eat more of our own cooking where we can, but some of these things are more structural.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

In this case, really it is the captive species working its way through.

Andrew Andersen
Andrew Andersen
VP - Equity Research at Jefferies Financial Group

Okay. Thank you. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Matt Carletti from Citizens Capital Markets. Your line is open.

Matt Carletti
Managing Director at Citizens JMP

Thanks. Good morning.

Matt Carletti
Managing Director at Citizens JMP

Just quick one. Andrew, you guys have always done a great job of bringing on teams and building out new niches. Since we last spoke last quarter, you started an aviation unit. Could you just tell us a little bit about the focus there? I know it's I think you referenced kind of underserved markets, so I'm going to go out on a limb and say it's not major airlines But what sorts of risks are you looking at there?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yes. Yes, we're not as you described. So the background on this, Matt, is actually a little more straightforward. We had in place a relationship with a programming administrator focused on what I would describe as really kind of a small part of the aviation market, a lot of personal aircraft and such. So you can really think about sort of truly the non commercial end of things.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And we really, really like that team. And we had an inside line to effectively bring the business in house by buying it. It was not a marketed process. It was a convenient means to create a process for over time for succession. And we did that with a belief as well that we could invest and grow the business.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

So the book we acquired circa $20,000,000 we probably believe that that's something that we can grow and not deteriorate margins at all by probably up to like $50,000,000 And it fits really well with the kind of things that we look for. It's quite niche there's just a small number of competitors there and we think we have a great team and we're going to bring the Skyward sort of the chemistry that we can bring to catalyze these things around technology and hopefully build a really great little business for ourselves.

Matt Carletti
Managing Director at Citizens JMP

Wonderful. Appreciate the color. Thanks.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Andrew Kligerman from TD Cowen. Your line is open.

Andrew Kligerman
Managing Director at TD Securities

Hey, nice to talk to you. Going back on the retention item, so it looks like over the last few years you've been around, I don't know, low 60s in terms of retention. Part A, I'd like to understand the dynamic of the impact of captives on the retention. Maybe you could, in that area, give us a sense of how much you retain on those premiums. And then secondly, it's a little bit on the low end, where do you see that 62 ish percent annually going over time?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

That's a great question and thanks for that. We've been asked this question enough that we probably need to provide a bridge as part of our standing materials. On the P and C side, which is the larger part of the captives, generally speaking, the captives retain the first anywhere between 3 and $50,000 and $500,000 And you can think of from an eightytwenty perspective, 80% of the premiums in that layer and then 20% is above that. And then to the extent that the captives have excess, then that basically grows to us less what goes into our excess treaty. So that's why it really does skew us down.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

The other, as we've mentioned in the past Andrew, is global property. We have a very large line, two thirds of that is quota shared. And in this market right now that we're in, where the brokers are moving lots of these accounts to far longer stretches instead of like a very layered program, like people talk about shared and layered, they're becoming these very long stretches. So we not only bring a large quota share capacity to that, but we also then will offer a line where we have to use FAC to get to our net line. So those are dynamics that one is due to business mix, the other is due to market dynamics.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

So it's hard to answer your question. If you unpack those items, our net retentions in our business are kind of in the low 80s ish kind of number, which isn't all that different than kind of my experience of what maybe a company that doesn't have our business mix might ordinarily look like.

Andrew Kligerman
Managing Director at TD Securities

That was very helpful, thank you. Then maybe shifting over, Andrew, you were talking about the casualty business and pulling back in some areas, but you were seeking grow in some areas of casualty as well. Was kind of curious what you think looks somewhat attractive at this stage.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yeah, look, I think that within our E and S business, we've had just I mean, the results are just outstanding, and they continue to emerge outstanding, right? But I think that on the sort of the primary GL side, where we compete, premium is $45,000 So you can classify that however you want. I'd say it's a good market, but you see these individual instances of just really stupid behavior. And I ask all of our underwriters to send to me every week examples of things that are being done in the market that are dumb. So you find that I think that the E and S market on the primary GL, it's pretty good market with occasional just craziness going on.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

The access market, as you've heard from everybody, is really strong pricing. What we're trying to do is we're trying to make sure that we are writing the kind of occupancies and classes where we're steering clear from where we see the inflation trends really like the teeth of that biting. Away from sort of the E and S business, our energy business inside of our industry solutions has a long history of delivering very comfortable 80s combined ratios on a fully loaded basis. And they have systematically sort of added new areas. We've gone into renewables very successfully.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

We're looking at power now And I feel very good. And those tend to be, we're not seeing the kind of inflation trends there. And what we're staying away from are the places where we see the inflation trends. Because even if you can get twelve, thirteen, 15 or more, and we see a lot of other companies in our competitive set who are growing in those markets, I don't want to have exposure growth in an area where, yeah, you think it might be 8%, 9%, 10% loss inflation, but three years from now it's 12%, 13%, 14%. So we're trying to steer clear from those things.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And that's why when I made my comments, Mark made his comments, this is what we mean about being really selective. So we have certain places where our exposure growth in occurrence liability is actually quite substantial and then we have other places where it's shrinking.

Andrew Kligerman
Managing Director at TD Securities

Appreciate the insights.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Mark Hughes from Truist Securities. Your line is open.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yes, thank you. Good day. Mark, the cat loss assumption either for the third quarter or the full year, given kind of the mix change, the deceleration in property, how should we think about cat losses?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Mark, I don't I I I don't see any change to the guidance that we've given.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

And that's, what, roughly two points for the full year?

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Is that

Mark Hughes
Mark Hughes
Analyst at Truist Securities

is that right? Okay.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

That's right.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

How about how about current accident year loss picks? A little bit better this quarter. Is this the right level on a go forward, or how should we think about

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

You know what, Mark? No, we're not moving loss picks. It's just business mix.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Yeah, Barga, I would just refer back to the guidance that we gave at the beginning of the year. We like that guidance. We're pleased that we're over delivering against that guidance. We think that that's a sensible approach, but we would refer folks back to guidance. I know that some companies want to see perpetual raise in estimates.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

We give you our guidance and we'll do that on an annual basis and we'll stick to that. If we're performing well, we'll over deliver. And up to this point, we've been over delivering.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yeah, very good. How about when we think about the mix, I think you had Andrew referred to some lumpiness in the programs and maybe some seasonality or I'm saying maybe some seasonality in other businesses. Is there anything when we think about 3Q, you talked about adding programs recently that influences the trend on written. Anything about 3Q or 4Q we should keep in mind, either tough comps or easy comps from last year's second half that might be useful to understand as we're looking at it?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Well, we had a good second half last year. We had a good first half last year as well. And we had a

Andrew Andersen
Andrew Andersen
VP - Equity Research at Jefferies Financial Group

good first half this year as well.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

So we've had good first halves and second I wouldn't overplay the the programs piece. I think that it should be kind of in that 15% of our portfolio. Again, one relationship makes up a big chunk of that. I mentioned the lumpiness because we added two programs in the course of the last three quarters, and you're seeing some of that crystallize in this quarter. Beyond that, I wouldn't really overplay it.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

I think that as we stand here now, I think that, look, it's a very different market. You're observing that. Some companies are doing less well and other companies are doing better. Where I see our performance right now as I look at the third quarter, I think that the third quarter is going be a very good third quarter. Fourth quarter, it's always you never know, right?

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Because it's all about kind of this desperation breed bad behavior as people are trying to close out their financial years. We're just going to stick to our knitting and do the things that we do well. But I think, I'd say to you generally, I think the third quarter should be a good third quarter. And it's not going to be driven by programs. It's going to be driven by the fact that we have the right businesses across the board that should be taking advantage of the market, taking advantage of the market, and us being sensible in the places that are more challenged.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yeah, I appreciate that. Thank you.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

And I'll say one other thing, Mark.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yeah.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

It's hard to focus on one individual thing. I believe that we are distinct in this marketplace, particularly a company of our size, where we are blessed with the portfolio that we have, with no business that's more than 16% of our premium, if I remember correctly, and no business less than 8% of our premium. They're all at scale. And our ability to sort of press down in different places is unique and distinct to us. And so while others might put up big growth on things like casualty because the rate is there, Well, you have to acknowledge that the rate is there because the starting point is problematic, and because the loss inflation is problematic.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Where we're like, yeah, we want to put up growth when those opportunities present, but we want to also be confident in the starting point, the loss inflation, and all the other things that go along with that. So we don't feel pressure to grow only where pricing is offered. We have this portfolio that allows us to put down our capital in a way that many others don't.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yeah, yeah, understood. Appreciate it, Andrew. Thank you.

Andrew Robinson
Andrew Robinson
CEO & Chairman of Board at Skyward Specialty Insurance Group

Thank you.

Mark Haushill
Mark Haushill
Executive VP & CFO at Skyward Specialty Insurance Group

Thanks, Mark.

Operator

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Natalie Skulcek for any closing remarks.

Natalie Schoolcraft
Natalie Schoolcraft
VP - IR at Skyward Specialty Insurance Group

Thanks, everyone, for your questions, for participating in our conference call, and for your continued interest in and support of Skyward Specialty. I'm available after the call to answer any additional questions that you may have. We look forward to speaking with you again on our third quarter earnings call. Thank you and have a wonderful day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

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