Financial Analysis

Commitments and Contingencies Litigation The Company is named as a defendant in various legal actions arising from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the losses and loss adjustment expense reserves. Also, from time to time, the Company is a defendant in various legal actions that relate to bad faith claims, disputes with third parties or that involve alleged errors and omissions. The Company records accruals for these items to the extent the losses are probable and reasonably estimable. Although the ultimate outcome of these matters cannot be determined at this time, based on present information, the availability of insurance coverage and advice received from outside legal counsel, the Company believes the resolution of any such matters will not, individually or in the aggregate, have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows. Indemnification In conjunction with the sale of business assets and subsidiaries, the Company has provided indemnifications to certain buyers. Certain indemnifications cover typical representations and warranties related to the responsibilities to perform under the sales contracts. The amount of potential exposure covered by the indemnifications is difficult to determine because the indemnifications cover a variety of matters, operations and scenarios. Certain of these indemnifications have no time limit. At thi …

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Notes Payable & Subordinated Debt FHLB Loan On August 30, 2024, the Company entered into the FHLB Loan pursuant to the Advances and Security Agreement. The FHLB Loan is a 4.5-year term loan in the principal amount of $57.0 million. The FHLB Loan provides for interest-only payments during its term, with principal due in full at maturity. The interest rate is fixed over the term of the loan at 4.00%. The FHLB Loan is fully secured by a pledge of specific investment securities of HSIC. The Company used the proceeds to fund redemptions of the draws on the Revolving Credit Facility (see Revolving Credit Facility below for additional information regarding the redemption). Revolving Credit Facility The Company entered into an agreement to obtain a new unsecured revolving credit facility (the Revolving Credit Facility) with a syndicate of participating banks during the first quarter of 2023. The Revolving Credit Facility provided the Company with up to a $150.0 million revolving credit facility and a letter of credit sub-facility of up to $30.0 million. As of December 31, 2023, the Company drew $50.0 million on the Revolving Credit Facility. During the first quarter of 2024, the Company drew an additional $50.0 million on the Revolving Credit Facility and used the proceeds to pay off the principal on its existing Debentures (defined below). On September 6, 2024, the Company redeemed $57.0 million of the draws on the Revolving Credit Facility. Interest on the Revolving Credit Faci …

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The following table sets forth the Companys disaggregated revenues from contracts with customers for the years ended December 31, 2024, 2023 and 2022: ($ in thousands) 2024 2023 2022 SUA commission revenue $ 3,595 $ 2,864 $ 3,224 SUA fee income 2,928 2,732 1,597 Other 180 468 378 Total commission and fee income $ 6,703 $ 6,064 $ 5,199 …

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Stock Based Compensation On September 23, 2022, the Compensation Committee of the Companys Board of Directors (Compensation Committee) approved the Companys 2022 Long-Term Incentive Plan (the 2022 Plan), which became effective on January 12, 2023 and replaced the Companys prior Long Term Incentive Plan (the 2020 Plan). The 2022 Plan provides for the granting of restricted stock, restricted stock units, performance stock units, stock options as well as cash-based performance awards, to select employees and non-employee directors of the Company. The 2022 Plan stated that 3,200,656 shares of common stock were available for issuance. In November 2024, the Compensation Committee approved a program to permit the Companys Board of Directors to defer receipt of their annual restricted stock units awards to the fifth anniversary of the grant date, the tenth anniversary of the grant date, or the date of separation of service from the Company. This program will become available for the Directors who opt into the provisions for their 2025 grant. The following table sets forth the Companys equity awards, target payout ranges and authorized target restricted stock and stock units for the years ended December 31, 2024, 2023 and 2022: Award Payout Range Requisite Service Period Target Stock and Stock Units Year ended December 31, 2024 Market condition awards 0%150% 3 years 32,058 Performance condition awards 0%150% 3 years 76,881 Service condition awards N/A 14 years 124,025 232,964 Year end …

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Fair Value Measurements The Companys financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in its consolidated financial statements. In determining fair value, the market approach is generally applied, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. The Company uses data primarily provided by third-party investment managers or pricing vendors to determine the fair value of its investments. Periodic analyses are performed on prices received from third parties to determine whether the prices are reasonable estimates of fair value. The analyses include a review of month-to-month price fluctuations and, as needed, a comparison of pricing services valuations to other pricing services valuations for the identical security. The Company classifies its financial instruments into the following three-level hierarchy: Level 1 - Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. Level 2 - Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date. Level 3 - Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. The following …

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Goodwill and Intangible Assets The following tables set forth the carrying amount and changes in the balance of goodwill by reporting unit at December 31, 2024 and 2023: ($ in thousands) Accident and Health Surety Industry Solutions Other Total Goodwill Gross balance at December 31, 2023 $ 91,577 $ 6,781 $ 10,204 $ 3,879 $ 112,441 Accumulated impairment at December 31, 2023 (44,821) (1,886) (46,707) Net balance at December 31, 2024 $ 46,756 $ 6,781 $ 10,204 $ 1,993 $ 65,734 ($ in thousands) Accident and Health Surety Industry Solutions Other Total Goodwill Gross balance at December 31, 2022 $ 91,577 $ 6,781 $ 10,204 $ 3,879 $ 112,441 Accumulated impairment at December 31, 2022 (44,821) (1,886) (46,707) Net balance at December 31, 2023 $ 46,756 $ 6,781 $ 10,204 $ 1,993 $ 65,734 The following tables set forth the carrying amount and changes in the balance of other intangible assets at December 31, 2024 and 2023: ($ in thousands) Agent Relationships Non-competes Trademarks Licenses Total Other Intangible Assets Gross balance at December 31, 2023 $ 24,491 $ 1,117 $ 999 $ 14,019 $ 40,626 Accumulated amortization at December 31, 2023 (16,808) (1,117) (17,925) Amortization (1,087) (1,087) Net balance at December 31, 2024 $ 6,596 $ $ 999 $ 14,019 $ 21,614 ($ in thousands) Agent Relationships Non-competes Trademarks Licenses Total Other Intangible Assets Gross balance at December 31, 2022 $ 24,441 $ 1,117 $ 999 $ 14,019 $ 40,576 Accumulated amortization at December 31, 2022 (15,547) ( …

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Income Taxes The following table sets forth the components of the Companys income tax expense for the years ended December 31, 2024, 2023 and 2022: ($ in thousands) 2024 2023 2022 Current income tax expense $ 42,626 $ 14,736 $ 120 Deferred tax (benefit) expense related to temporary differences (8,715) 9,382 10,267 Total income tax expense $ 33,911 $ 24,118 $ 10,387 The Companys provision for income taxes generally does not deviate substantially from the statutory tax rate. The effective tax rate may vary slightly from the statutory rate due to tax adjustments for tax-exempt income, dividends-received deduction and non-deductible expenses. The following table sets forth the differences between income taxes expected at the federal statutory income tax rate of 21% and the reported income tax expense for the years ended December 31, 2024, 2023 and 2022: 2024 2023 2022 ($ in thousands) Amount Percentage Amount Percentage Amount Percentage Income tax expense at federal statutory rate $ 32,075 21.0 % $ 23,121 21.0 % $ 10,454 21.0 % Tax advantaged investments (239) (0.2) (295) (0.3) (324) (0.7) Other 2,075 1.4 1,292 1.2 257 0.6 Total income tax expense $ 33,911 22.2 % $ 24,118 21.9 % $ 10,387 20.9 % The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023: ($ in thousands) 2024 2023 Deferred tax assets: Unearned premiums $ 18,178 $ 15,365 Losses …

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Leases The Company determines if a contract contains a lease at inception and recognizes a right-of-use asset, within other assets, and lease liability, within accounts payable and accrued liabilities, based on the present value of future lease payments. In cases where its leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available on the inception date to determine the lease liability. The Companys leases are primarily for office facilities which have been classified as operating leases. Its leases have remaining lease terms ranging from less than 1 year to 6 years, some of which include options to extend the leases. Lease expense for the years ended December 31, 2024, 2023, and 2022 was $2.1 million, $2.8 million and $2.6 million, respectively. The following table provides information regarding the Companys leases as of December 31, 2024 and 2023: (in thousands) 2024 2023 Operating lease right-of-use assets $ 3,135 $ 4,905 Operating lease liabilities 3,213 5,228 Operating lease weighted-average remaining lease term 4.39 years 4.55 years Operating lease weighted-average discount rate 5.01 % 3.95 % The following table presents the Companys lease expenses for the years ended December 31, 2024, 2023 and 2022: (in thousands) 2024 2023 2022 Operating lease expense $ 1,714 $ 2,583 $ 2,414 Short-term lease expense 421 184 220 Total lease expense $ 2,135 $ 2,767 $ 2,634 Operating cash outflows from operating lea …

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Recent Accounting Pronouncements Recent Accounting Standards Adopted In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). ASU 2023-07 requires segment disclosures for (i) significant segment expenses that are regularly provided to the chief operating decision maker (CODM), (ii) how the CODM uses the reported measure(s) of segment profitability in assessing segment performance and resource allocation and (iii) the title and position of the CODM. This update states that entities with a single reportable segment are required to provide full segment disclosures. The guidance became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This update is applied retrospectively to all prior periods presented. The Company has added additional segment disclosures as required by ASU 2023-07, see Note 12 for the additional disclosures required by this ASU. Recent Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). ASU 2023-09 requires public companies, on an annual basis, to provide enhanced rate reconciliation disclosures, including disclosures of specific categories and additional information that meets a quantitative threshold. This update also requires public companies to, among other things, disaggregate income taxes paid by federal, state and foreign taxes. The guid …

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Employee Benefit Plan The Company sponsors the 401(k) Plan (the Plan). The Plan, available to substantially all its employees, is subject to provisions of the Employee Retirement Income Security Act of 1974. The Company matches employee contributions on a discretionary basis. During the years ended December 31, 2024, 2023 and 2022, the Company contributed $3.2 million,$2.9 million, and $2.4 million in matching contributions to the Plan, respectively. …

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Related Party Transactions RISCOM RISCOM provides the Company with wholesale brokerage services. RISCOM and the Company also have a managing general agency agreement. The Company holds a 20% ownership interest in RISCOM. Net earned premium and gross commission expense related to these agreements for the years ended December 31, 2024, 2023 and 2022 were as follows: ($ in thousands) 2024 2023 2022 Net earned premium $ 108,130 $ 99,736 $ 91,051 Commissions 25,372 24,177 23,472 Premiums receivable as of December 31, 2024 and 2023 were $12.6 million and $10.6 million, respectively. Other Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the years ended December 31, 2024, 2023 and 2022 were $0.6 million, $3.6 million and $3.4 million respectively. See Notes 5, 6 and 10 for investments involving affiliated companies and additional related party transactions. See Note 11 for related party transactions related to the Companys common and preferred shares. …

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Commission and Fee Income Skyward Underwriters Agency, Inc. (SUA), a subsidiary of the Company, is a managing general insurance agent and reinsurance broker for property and casualty and accident and health risks in specialty niche markets. Commission and fee income is primarily generated from SUA for the placement of insurance policies on either a third-party insurance or reinsurance company. The following table sets forth the Companys disaggregated revenues from contracts with customers for the years ended December 31, 2024, 2023 and 2022: ($ in thousands) 2024 2023 2022 SUA commission revenue $ 3,595 $ 2,864 $ 3,224 SUA fee income 2,928 2,732 1,597 Other 180 468 378 Total commission and fee income $ 6,703 $ 6,064 $ 5,199 The following table sets forth the Companys opening and closing balances of contract assets from commission and fee income for the years ended December 31, 2024 2023 and 2022: ($ in thousands) Contract Assets Balance at December 31, 2022 $ 1,292 Balance at December 31, 2023 976 Balance at December 31, 2024 1,416 …

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Segment The Company has one reportable segment through which it 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 segment is made up of eight distinct underwriting divisions, or continuing business, and has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches. The Company defines its segment on the basis of the way in which internally reported financial information is regularly reviewed by the Chief Operating Decision Maker (CODM) to analyze financial performance, make decisions and allocate resources. The Companys CODM is the chief executive officer. The accounting policies of the segment are the same as those described in Note 1 Summary of Significant Accounting Policies of this Form 10-K. The CODM assesses performance for the segment and decides how to allocate resources based on gross written premiums by net underwriting division, underwriting income, and income before income taxes that also is reported on the consolidated statements of operations as consolidated income before income taxes. The measure of segment assets is reported on the balance sheet as total consolidated assets. Gross written premiums by underwriting division, net underwriting income, and consolidated net income are used to monitor budget versus actual results. The chief operating decision maker also uses net unde …

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Summary of Significant Accounting Policies A. Description of Business Skyward Specialty Insurance Group, Inc. (the Company), an insurance holding company, is a Delaware corporation that was organized in 2006. It is a specialty insurance company operating in one segment delivering commercial property and casualty products insurance coverages through its underwriting divisions. The Company has four wholly owned insurance company subsidiaries based in the United States: Great Midwest Insurance Company (GMIC) underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S. Department of the Treasury. Houston Specialty Insurance Company (HSIC), a subsidiary of GMIC, underwrites insurance on a non-admitted basis. Imperium Insurance Company (IIC), a subsidiary of HSIC, underwrites insurance on an admitted basis. Oklahoma Specialty Insurance Company (OSIC), a subsidiary of IIC, underwrites insurance on a non-admitted basis. The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, that is domiciled in the Cayman Islands and assumed net reserves for certain divisions, related to a retroactive reinsurance contract, from the Companys insurance companies and retroceded the net reserves to a third-party reinsurer. The Company has three non-risk bearing wholly owned subsidiaries, (i) Skyward Underwriters Agency, Inc. (SUA),a managing general insurance agent and reinsurance broker for property and casualty risks in specialty nic …

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Stockholders Equity Reverse Stock Split On September 23, 2022, the Board of Directors approved a 4-for-1 reverse stock split of the Companys common stock. The reverse stock split became effective January 3, 2023. All share and per share information included in the accompanying consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to reflect the reverse stock split of common stock for all periods presented. Initial Public Offering The Company completed its initial public offering (IPO) on January 18, 2023 with 4,750,000 shares offered by the Company at a price of $15.00 per share. The Companys net proceeds from the IPO were approximately $62.0 million, after deducting underwriting discounts and specific incremental expenses directly attributable to the IPO. Upon the closing of its IPO, the Company filed an amended and restated certificate of incorporation which, among other things, increased the number of authorized shares consisting of 500,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. Preferred Shares Conversion The Preferred Shares had preference in liquidation over common stock in the amount of the face value of $50.00 per share and any declared but unpaid dividends to related common shares at the applicable conversion rate. The Preferred Shares provided the holder the option at any time to convert the Preferred Shares into common …

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Subsequent Events On January 31, 2025, Skyward Re commuted its existing Loss Portfolio Transfer and Adverse Development and Retrocession Agreement, dated April 1, 2020 with R&Q pursuant to a Commutation Agreement and received $11.7 million in cash. At December 31, 2024, the Company (i) strengthened LPT loss reserves and increased the paid loss reinsurance recoverable by $25.3 million, (ii) increased the allowance for estimated uncollectible reinsurance by $13.6 million which was subsequently written-off during the year ended December 31, 2024, and (iii) recognized a deferred gain of $2.0 million.

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