Skyward Specialty Insurance Group, Inc. reported first quarter 2023 net income of $15.6 million, or $0.42 per diluted share, compared to $16.3 million, or $0.50 per diluted share, for the same 2022 period. Adjusted operating income(1) for the first quarter of 2023 was $15.5 million, or $0.42 per diluted share, compared to $19.8 million, or $0.61 per diluted share, for the same 2022 period.
Highlights for the quarter included:
- Gross written premiums increased 27.5%.
- Underwriting income(1) of $17.8 million compared to $11.4 million for the first quarter of 2022.
- Combined ratio of 90.2% compared to 91.9% for the first quarter of 2022.
- Current accident year non-cat loss and LAE ratio of 61.1% compared to 63.5% for the first quarter of 2022.
| (1) See “Reconciliation of Non-GAAP Financial Measures” |
Skyward Specialty CEO Andrew Robinson commented, “Our strong momentum from year-end 2022 continued in the first quarter of 2023 with gross written premium growth of 27.5% and a 90.2% combined ratio. Despite a high catastrophe quarter for the industry, we were minimally impacted with only 1.8 points of catastrophe losses, a testament to our disciplined underwriting and diversified business mix.”
“We continue to execute our ‘Rule our Niche’ strategy, launching our global agriculture and inland marine underwriting units in the first quarter. We also continued to invest in underwriting teams and talent throughout the organization. Our first quarter results demonstrate that we are well positioned to continue to deliver value to our shareholders and business partners throughout 2023.”
Results of Operations
Underwriting Results
| Premiums | |||||||||||
| ($ in thousands) | Three months ended March 31 | ||||||||||
| unaudited | 2023 | 2022 | % Change |
||||||||
| Gross written premiums | $ | 360,498 | $ | 282,642 | 27.5% | ||||||
| Ceded written premiums | $ | (158,357 | ) | $ | (147,241 | ) | 7.5% | ||||
| Net retention | 56.1% | 47.9% | NM(1) | ||||||||
| Net written premiums | $ | 202,141 | $ | 135,401 | 49.3% | ||||||
| Net earned premiums | $ | 182,831 | $ | 141,726 | 29.0% | ||||||
| (1)Not meaningful | |||||||||||
The quarter to date 2023 increase in gross written premiums, when compared to the same 2022 period, was primarily driven by double-digit premium growth in our transactional E&S, global property and agriculture, professional lines, surety and captives underwriting divisions.
| Combined Ratio | Three months ended March 31 |
|||||
| (unaudited) | 2023 | 2022 | ||||
| Non-cat loss and LAE(1) | 61.1 | % | 63.5 | % | ||
| Cat loss and LAE(1) | 1.8 | % | 0.0 | % | ||
| Prior accident year development - LPT(2) | (0.1 | )% | 0.0 | % | ||
| Loss Ratio | 62.8 | % | 63.5 | % | ||
| Net policy acquisition costs | 11.6 | % | 9.5 | % | ||
| Other operating and general expenses | 16.6 | % | 19.1 | % | ||
| Commission and fee income | (0.8 | )% | (0.2 | )% | ||
| Expense ratio | 27.4 | % | 28.4 | % | ||
| Combined ratio | 90.2 | % | 91.9 | % | ||
| Adjusted Underwriting Ratios | ||||||
| Adjusted loss ratio(2) | 62.9 | % | 63.5 | % | ||
| Expense ratio | 27.4 | % | 28.4 | % | ||
| Adjusted combined ratio(2) | 90.3 | % | 91.9 | % | ||
| (1)Current accident year | ||||||
| (2)See “Reconciliation of Non-GAAP Financial Measures” | ||||||
The loss ratio for the first quarter of 2023 improved 0.7 points when compared to the same 2022 period. Catastrophe losses from wind and hail events, including tornadoes, added 1.8 points to the current quarter loss ratio compared to the first quarter of 2022, which was not impacted by catastrophe losses. The non-cat loss and LAE ratio improved 2.4 points when compared to the same 2022 period primarily driven by the continued run-off of exited business and the shift in the mix of business.
The expense ratio for the quarter improved 1.0 point when compared to the same 2022 period. The improvement was driven by (i) improvement in the other operating and general expenses ratio due to the increase in earned premiums and (ii) an increase in commission and fee income when compared to the same 2022 period. Partially offsetting the improvement was an increase in the net policy acquisition expense ratio due to the shift in our mix of business.
The expense ratio for the first quarter 2023 excludes the impact of IPO related stock compensation which is reported in other expenses in our condensed consolidated statements of operations and comprehensive (loss) income.
Investment Results
| Net Investment Income (Loss) | ||||||||
| $ in thousands | Three months ended March 31 |
|||||||
| (unaudited) | 2023 | 2022 | ||||||
| Short-term and money market investments | $ | 1,780 | $ | 3 | ||||
| Core fixed income | 6,339 | 2,987 | ||||||
| Opportunistic fixed income | (3,141) | 11,447 | ||||||
| Equities | (333) | 710 | ||||||
| Net investment income(1) | $ | 4,645 | $ | 15,147 | ||||
| Net unrealized gains (losses) on securities still held | $ | 3,767 | $ | (5,369) | ||||
| Net realized (losses) gains | $ | (2,806) | $ | 931 | ||||
| (1)excludes income from operating cash of $1 and $2, respectively. | ||||||||
Net investment income for the first quarter 2023 decreased $10.5 million when compared to the same 2022 period. Increased income from core fixed income and short-term and money market investments was offset by losses in opportunistic fixed income. The increase in income from our core fixed income portfolio was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) higher net investment yields of 3.7% compared to 2.7% for the same 2022 period. The increase in income from short-term and money market investments was due to (i) a larger asset base driven by the addition of the net IPO proceeds and (ii) higher investment yields of 3.5% compared to 0.0% for the same 2022 period. The opportunistic fixed income portfolio was impacted by a decline in the fair value of certain limited partnership investments.
Stockholders’ Equity
Stockholders’ equity was $507.1 million at March 31, 2023 which represents an increase of 20.3% when compared to stockholders’ equity of $421.7 million at December 31, 2022. The increase in stockholders’ equity was primarily due to net IPO proceeds of $62.4 million and net income.
Conference Call
At 10 a.m. central time May 10, 2023, Skyward Specialty management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion at investors.skywardinsurance.com under Events & Presentations. Additionally, investors can access the earnings call via conference call by registering via the conference link. Users will receive dial-in information and a unique PIN to join the call upon registering.
Non-GAAP Financial Measures
This release contains certain financial measures and ratios that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). We refer to these measures as “non-GAAP financial measures.” We use these non-GAAP financial measures when planning, monitoring, and evaluating our performance.
We have chosen to exclude the net impact of the Loss Portfolio Transfer (“LPT”), all development on reserves fully or partially covered by the LPT and amortization of deferred gains associated with recoveries of prior LPT reserve strengthening in certain non-GAAP metrics, where noted, as the business subject to the LPT is not representative of our continuing business strategy. The business subject to the LPT is primarily related to policy years 2017 and prior, was generated and managed under prior leadership, and has either been exited or substantially repositioned during the reevaluation of our portfolio. We consider these non-GAAP financial measures to be useful metrics for our management and investors to facilitate operating performance comparisons from period to period. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered supplemental in nature and is not meant to be a substitute for revenue or net income, in each case as recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as comparative measures. For more information regarding these non-GAAP financial measures and a reconciliation of such measures to comparable GAAP financial measures, see the section entitled “Reconciliation of Non-GAAP Financial Measures.”
