10-K: Skyward Specialty Reports Full Year 2024 Results: Premium Growth Outpaces Expectations, Internal Control Weakness Identified

Skyward Specialty Insurance Group reports strong premium growth for 2024, but identifies a material weakness in internal control over financial reporting.

Summary

• Skyward Specialty Insurance Group, Inc. reported its financial results for the fiscal year ended December 31, 2024.
• Gross written premiums increased by 19.4% to $1,743.2 million.
• Net written premiums grew by 23.4% to $1,123.6 million.
• Net earned premiums increased by 27.4% to $1,056.7 million.
• The combined ratio was 92.3%, indicating an underwriting profit.
• Net income was $118.8 million, and adjusted operating income was $126.7 million.
• The company identified a material weakness in its internal control over financial reporting related to information technology general controls.
• The company is implementing measures to remediate the identified material weakness.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. Strong financial performance is tempered by the identification of a material weakness in internal controls. The company's proactive approach to remediation is a positive sign.

Positives

• Significant growth in gross written premiums, net written premiums, and net earned premiums.
• Underwriting profit indicated by a combined ratio below 100%.
• Net income and adjusted operating income both show positive results.
• The company is taking steps to address the identified material weakness in internal control.

Negatives

• A material weakness was identified in internal control over financial reporting related to information technology general controls.

Risks

• The identified material weakness in internal control over financial reporting could affect the reliability of future financial reporting.
• Failure to remediate the material weakness in a timely manner could negatively affect investor confidence and the stock price.
• The company's operating results and stock price may be volatile.

Future Outlook

The company aims to deliver long-term value for shareholders by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles.

Management Comments

• The company seeks to lead in its chosen market niches and establish sustainable competitive positions in these markets.
• The company consistently strives for excellence in risk selection, pricing, and claims outcomes, and to amplify these critical functions with the use of advanced technology and analytics.

Industry Context

The specialty lines property & casualty insurance market consists of many markets and sub-markets. Each market is characterized by distinct customer needs and product and services to meet those needs, and specific economic and structural features. We face competition in our underwriting divisions from other specialty and standard insurers as well as program administrators.

Comparison to Industry Standards

• Some of our notable competitors include: Markel Corporation; W.R. Berkley Corporation; American Financial Group Inc.; Tokio Marine Holdings, Inc.; CNA Financial Corporation; Hiscox, Ltd.; RLI Corp.; Intact Finance Corporation; and Kinsale Capital Group, Inc.
• The company's financial strength ratings of A (Excellent) from the A.M. Best Company (A.M. Best) with stable outlook is a key competitive advantage.

Legal Proceedings

• The company is party to legal proceedings which arise in the ordinary course of business.
• The company believes that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on its consolidated financial position.

Related Party Transactions

• The company has related party transactions with RISCOM, an entity in which it holds a 20% ownership interest.
• Other advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors.

Stakeholder Impact

• Shareholders: The company aims to deliver long-term value for shareholders by generating best-in-class underwriting profitability and book value per share growth across P&C market cycles.
• Customers: The company is committed to providing quality claims handling service while engaging customers through the entire claims resolution process.
• Employees: The company aims to be an employer of choice, and strives to create a culture committed to fostering a rich diversity of thought, background and perspective.

Next Steps

• The company will continue to implement measures designed to remediate the control deficiencies contributing to the material weakness.
• The company will continue to expand investments in IT security, including additional end-user training, using layered defenses, identifying and protecting critical assets, strengthening monitoring and alerting, and engaging experts.

Key Dates