Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD), a leading specialty insurance provider, has reported its financial results for the first quarter of 2024, showcasing its ability to navigate the evolving market landscape and deliver strong shareholder returns.
In the first quarter of 2024, Skyward Specialty reported net income of $36.8 million, or $0.90 per diluted share, compared to $15.6 million, or $0.42 per diluted share, in the same period of the prior year. On an adjusted operating basis, the company reported income of $30.9 million, or $0.75 per diluted share, compared to $15.5 million, or $0.42 per diluted share, in the prior year quarter. This impressive performance was driven by the company's strategic focus on underwriting discipline, prudent risk management, and effective capital allocation.
Skyward Specialty's annual net income for the full year 2023 was $85.9 million, while its annual revenue reached $895.4 million. The company's annual operating cash flow was $338.2 million, and its annual free cash flow was $335.0 million, further demonstrating its financial strength and ability to generate consistent cash flows.
Business Overview
Skyward Specialty is a specialty insurance holding company that offers a broad array of commercial property and casualty products and solutions on a non-admitted (or E&S) and admitted basis, predominantly in the United States. The company's focus on underserved, dislocated, and inadequately covered markets has allowed it to develop tailored insurance products and services to address the unique needs of its customers.The company's eight distinct underwriting divisions, each with dedicated underwriting leadership and deep industry expertise, have been instrumental in its success. This structure enables Skyward Specialty to serve its customers effectively and be a value-add partner to its distributors, while earning attractive risk-adjusted returns.
Operational Highlights
In the first quarter of 2024, Skyward Specialty reported impressive growth across its underwriting divisions. Gross written premiums increased by 27% year-over-year, with the company's captives, transactional E&S, surety, global property and agriculture, and professional lines divisions each growing by over 20%. This growth was driven by new business opportunities, increased rates, and the company's ability to capitalize on market dislocations.The company's combined ratio for the quarter was 89.6%, a 0.6 percentage point improvement compared to the same period in the prior year. This was primarily due to a 0.5 percentage point improvement in the current accident year non-catastrophe loss ratio, which was driven by a favorable shift in the company's business mix.
Skyward Specialty's annualized adjusted return on equity and annualized adjusted return on tangible equity for the first quarter of 2024 were 18.3% and 21.1%, respectively, further demonstrating the company's ability to generate strong shareholder returns.
Investment Performance
Skyward Specialty's investment portfolio continues to be a source of strength, with net investment income increasing by $13.7 million to $18.3 million in the first quarter of 2024, compared to the same period in the prior year. This was driven by growth in the company's fixed income portfolio, as well as higher yields on short-term investments and cash.As of March 31, 2024, the company's investment portfolio had a carrying value of $1.76 billion, with a well-diversified mix of fixed income securities, equities, and alternative and strategic investments. The weighted average credit rating of the company's available-for-sale fixed income portfolio was "AA-" as of the same date.
Reinsurance and Risk Management
Skyward Specialty strategically utilizes reinsurance to manage its risk exposure and protect its capital. In the first quarter of 2024, the company renewed its property catastrophe reinsurance program, increasing its net retention from $12 million to $15 million and the overall coverage from $28 million to $36 million. This demonstrates the company's disciplined approach to managing its risk profile and maintaining a strong balance sheet.Liquidity and Capital Position
Skyward Specialty's balance sheet remains strong, with total assets of $3.19 billion and stockholders' equity of $692.3 million as of March 31, 2024. The company's debt-to-capital ratio was 14.7% as of the same date, providing ample financial flexibility to support its growth initiatives.The company's cash and cash equivalents, including restricted cash, totaled $115.3 million as of March 31, 2024, up from $100.3 million as of the end of the prior year. Skyward Specialty's strong liquidity position and cash flow generation capabilities allow it to invest in strategic opportunities and maintain a robust capital base to support its long-term growth.
Outlook and Guidance
Skyward Specialty has not provided specific financial guidance for the full year 2024. However, the company's management has expressed confidence in its ability to continue delivering profitable growth and attractive shareholder returns, driven by its diversified portfolio, disciplined underwriting, and focus on specialized market segments.Risks and Challenges
While Skyward Specialty has demonstrated its ability to navigate the evolving market landscape, the company faces several risks and challenges, including:1. Competitive pressures: The specialty insurance market is highly competitive, and the company must continuously adapt its strategies to maintain its competitive edge.
2. Regulatory changes: Shifts in the regulatory environment, particularly in the non-admitted insurance market, could impact the company's operations and profitability.
3. Catastrophe exposure: As a property and casualty insurer, Skyward Specialty is exposed to the risk of large-scale catastrophic events, which could adversely affect its financial results.
4. Talent retention: The company's success is heavily dependent on its ability to attract and retain top-tier underwriting and claims talent, which is critical in the specialty insurance industry.