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美國
證券交易委員會
華盛頓特區 20549
__________________________________________
表格 10-Q
__________________________________________
（標記一）
☒根據1934年證券交易法第13或15(d)節的季度報告
截至季度結束日期的財務報告2024年9月30日
或者
☐
根據1934年證券交易法第13或15(d)節的轉型報告書
在從___________到___________的過渡期間

佣金文件號 001-41591

SKYWARD SPECIALTY INSURANCE GROUP, INC.
(根據其章程規定的註冊人準確名稱)
特拉華州
14-1957288
（設立或組織的其他管轄區域）
（聯邦稅號
唯一識別號碼）
800 Gessner Road, 600室
休斯頓, 得克薩斯州
77024-4284
(主要領導機構的地址)(郵政編碼)
(713) 935-4800
公司電話號碼，包括區號

根據法案第12（b）條註冊的證券：
每一類的名稱交易標誌在其上註冊的交易所的名稱
普通股，每股面值0.01美元SKWD納斯達克證券交易所 LLC

用勾號指明註冊人是否：（1）在過去的12個月中（或在要求註冊人提交此類報告的較短時間內）提交了1934年《證券交易法》第13條或第15（d）條要求提交的所有報告；以及（2）在過去的90天內是否受到此類申報要求的約束。 是的☒ 沒有☐
請勾選表示註冊代表已按照第405條規則（本章第232.405條）要求提交了在過去12個月（或更短的時間內，註冊代表需要提交和發佈這些文件）期間要提交的每個互動數據文件的電子化。 Yes  ☒否☐ 
請勾選註冊者是大型加速文件提交者、加速文件提交者、非加速文件提交者、小型報告公司還是新興增長公司。請參見《證交易法》規則120億.2 中「大型加速文件提交者」、「加速文件提交者」、「小型報告公司」和「新興增長公司」的定義。
大型加速報告人
☐
加速文件提交人
☐
非加速文件提交人  
☒
較小的報告公司
☐
新興成長公司
☒
如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。 ☐
請在以下方框內打勾，以表明註冊申報人是否爲外殼公司（如《證券交易法》第120億2條中所定義）。是☐否☒

截至2024年11月1日，註冊人持有 40,099,931股普通股。
1
目錄

目錄
10-Q表格項目和描述
三個 綜合收益（損失）的綜合收益（損失）簡明綜合損益表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。-月期結束 九月 2024年和2023年（未經審計）
三個及其他股東權益變動的簡明合併基本報表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。-月期結束 九月 2024年和2023年（未經審計）
的現金流簡明彙總表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。-月期結束 九月 2024年和2023年（未經審計）
2
目錄

第一部分 - 財務信息
項目1.財務報表
SKYWARD SPECIALTY INSURANCE GROUP, INC.及其子公司
簡明的合併資產負債表
2024年9月30日2023年12月31日
（金額在千元，股份和每股金額除外）（未經審計）
資產
投資：
持有至到期日的有價證券，可供出售，按公允價值計量（攤銷成本爲$1,359,700 和 $1,047,713）
$1,357,500 $1,017,651 
按攤餘成本計量的到期持有至到期日的證券（減允許貸款損失準備金後的淨額$239 和 $329）
39,321 42,986 
權益證券（公允價值）124,719 118,249 
按公允價值計量的抵押貸款36,267 50,070 
權益法投資102,111 110,653 
其他長期投資開多23,802 3,852 
短期投資，按公允價值計量206,358 270,226 
投資合計1,890,078 1,613,687 
現金及現金等價物105,573 65,891 
受限現金45,783 34,445 
應收保費淨額327,176 179,235 
再保險應收款，淨額686,725 596,334 
已轉讓未賺保險費236,962 186,121 
遞延保單獲得成本119,910 91,955 
延遲所得稅18,502 21,991 
商譽和無形資產，淨值87,607 88,435 
其他80,547 75,341 
資產總額$3,598,863 $2,953,435 
負債和股東權益
負債：
損失準備金和賠案調整費用$1,568,777 $1,314,501 
未賺保費692,452 552,532 
遞延讓渡佣金44,984 37,057 
再保險和保費應付款200,967 150,156 
爲他人持有的基金102,219 58,588 
應付賬款及應計費用73,001 50,880 
應付票據100,000 50,000 
減去債務發行成本的次級債務18,956 78,690 
負債合計2,801,356 2,292,404 
股東權益
普通股，每股面值爲 $0.0001；0.01每股面值，500,000,000 40,099,931 和 39,863,756股已發行並流通，分別爲
401 399 
額外實收資本716,095 710,855 
股票應收款項— (5,562)
累計其他綜合損失(1,703)(22,953)
1,102.082,714 (21,708)
股東權益總額797,507 661,031 
負債和股東權益總額$3,598,863 $2,953,435 
附註是合併財務報表不可缺少的一部分。
3
目錄

SKYWARD SPECIALTY INSURANCE GROUP, INC.及其附屬公司
經簡化的合併利潤及損失表
以及綜合收益（未經審計）
截至9月30日的三個月，截至9月30日的九個月
（金額在千元，股份和每股金額除外）2024202320242023
營收：
淨已賺保費$269,557 $227,033 $763,482 $604,211 
佣金和費用收入1,818 2,085 5,897 5,817 
淨投資收益19,521 13,089 59,956 26,318 
淨投資收益（損失）10,187 (2,984)16,665 3,328 
其他虧損(195)— (202)— 
總收入300,888 239,223 845,798 639,674 
費用：
損失和賠償支出170,521 138,536 473,489 377,841 
承保、收購和保險費用79,817 68,315 226,270 176,653 
利息支出2,229 2,632 7,405 7,250 
攤銷費用351 463 1,099 1,336 
其他支出1,117 1,482 3,350 4,061 
總支出254,035 211,428 711,613 567,141 
稅前收入46,853 27,795 134,185 72,533 
所得稅費用10,185 6,084 29,763 15,814 
淨利潤36,668 21,711 104,422 56,719 
歸屬於參與證券的淨利潤。— — — 1,492 
歸屬於普通股股東的淨收益$36,668 $21,711 $104,422 $55,227 
綜合收益
淨利潤$36,668 $21,711 $104,422 $56,719 
其他綜合收益:
投資未實現收益和損失：
投資未實現收益（損失）的淨變動，稅後31,396 (8,722)24,527 (5,309)
重新分類調整，不再持有的證券損失，稅後(1,963)(3,667)(3,277)(4,879)
其他綜合收益（損失）總額29,433 (12,389)21,250 (10,188)
綜合收益$66,101 $9,322 $125,672 $46,531 
每股數據：
基本每股收益$0.91 $0.59 $2.61 $1.56 
攤薄每股收益$0.89 $0.57 $2.53 $1.50 
加權平均普通股股數
基本40,098,345 36,743,393 40,039,269 35,502,843 
攤薄41,428,557 38,403,843 41,302,108 37,830,431 
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents

SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Three months ended September 30,
($ in thousands, except share amounts)20242023
Common shares:
Balance at beginning of period40,096,132 37,674,063 
Issuance of shares3,799 3,458 
Balance at September 3040,099,931 37,677,521 
Common stock:
Balance at beginning of period$401 $377 
Balance at September 30$401 $377 
Additional paid-in capital:
Balance at beginning of period$713,542 $642,988 
Issuance of common stock2,553 2,304 
Balance at September 30$716,095 $645,292 
Stock notes receivable:
Balance at beginning of period$(5,233)$(6,718)
Employee equity transactions5,233 1,093 
Balance at September 30$— $(5,625)
Accumulated other comprehensive loss:
Balance at beginning of period$(31,136)$(41,284)
Other comprehensive gain (loss), net of tax29,433 (12,389)
Balance at September 30$(1,703)$(53,673)
Retained earnings (accumulated deficit):
Balance at beginning of period$46,046 $(72,685)
Net income36,668 21,711 
Balance at September 30$82,714 $(50,974)
Total stockholders’ equity$797,507 $535,397 
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents

SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Nine months ended September 30,
($ in thousands, except share amounts)20242023
Preferred shares:
Balance at beginning of year— 1,969,660 
Preferred stock conversion to common shares— (1,969,660)
Balance at September 30— — 
Common shares:
Balance at beginning of year39,863,756 16,599,666 
Issuance of shares236,175 4,772,742 
Preferred stock conversion to common shares— 16,305,113 
Balance at September 3040,099,931 37,677,521 
Preferred stock:
Balance at beginning of year$— $20 
Preferred stock conversion to common shares— (20)
Balance at September 30$— $— 
Common stock:
Balance at beginning of year$399 $168 
Issuance of common stock2 — 
Preferred stock conversion to common shares— 161 
Proceeds from equity offerings, net— 48 
Balance at September 30$401 $377 
Treasury stock:
Balance at beginning of year$— $(2)
Preferred stock conversion to common shares— 2 
Balance at September 30$— $— 
Additional paid-in capital:
Balance at beginning of year$710,855 $577,289 
Issuance of common stock5,240 6,179 
Preferred stock conversion to common shares— (143)
Proceeds from equity offerings, net— 61,967 
Balance at September 30$716,095 $645,292 
Stock notes receivable:
Balance at beginning of year$(5,562)$(6,911)
Employee equity transactions5,562 1,286 
Balance at September 30$— $(5,625)
Accumulated other comprehensive loss:
Balance at beginning of year$(22,953)$(43,485)
Other comprehensive income (loss), net of tax21,250 (10,188)
Balance at September 30$(1,703)$(53,673)
Retained earnings (accumulated deficit):
Balance at beginning of year$(21,708)$(105,417)
Cumulative effect on adoption of ASU No. 2016-13— (2,276)
Net income104,422 56,719 
Balance at September 30$82,714 $(50,974)
Total stockholders’ equity$797,507 $535,397 
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents

SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30,
($ in thousands)20242023
Cash flows from operating activities
Net income$104,422 $56,719 
Adjustments to reconcile net income to net cash provided by operating activities178,793 161,820 
Net cash provided by operating activities283,216 218,539 
Cash flows from investing activities:
Purchase of fixed maturity securities, available-for-sale(425,642)(342,088)
Purchase of illiquid investments— (1,156)
Purchase of equity securities(14,156)(22,436)
Purchase of equity method investments(22,377)— 
Investment in direct and indirect loans18,445 (3,313)
Purchase of property and equipment(3,148)— 
Sales and maturities of investment securities142,184 110,695 
Distributions from equity method investments— 1,704 
Proceeds from equity method and other long-term investments10,054 — 
Change in short-term investments63,868 (72,891)
Change in receivable/payable for securities34 14,442 
Cash provided by deposit accounting2,775 8,631 
Other, net— (1,421)
Net cash used in investment activities(227,963)(307,833)
Cash flows from financing activities:
Employee share purchases— 1,287 
Repayment of stock notes receivable5,561 — 
Proceeds from long term borrowings107,000 50,000 
Payments on long term borrowings and trust preferred(116,794)(50,000)
Proceeds from initial public offering— 66,262 
Net cash (used in) provided by financing activities(4,233)67,549 
Net increase (decrease) in cash and cash equivalents and restricted cash51,020 (21,745)
Cash and cash equivalents and restricted cash at beginning of period(1)
100,336 125,011 
Cash and cash equivalents and restricted cash at end of period(1)
$151,356 $103,266 
Supplemental disclosure of cash flow information:
Cash paid for interest$6,943 $8,503 
Cash paid for federal income taxes$22,480 $10,000 
(1)The sum of cash and cash equivalents and restricted cash from the consolidated balance sheets
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents
SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO(UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of Skyward Specialty Insurance Group, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the disclosures required by GAAP for complete consolidated financial statements. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a more complete description of the Company’s business and accounting policies. In the opinion of management, all adjustments necessary for a fair statement of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited annual consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.
2.    Investments
The following tables set forth the amortized cost and the fair value by investment category at September 30, 2024 and December 31, 2023:
($ in thousands)Gross
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair Value
September 30, 2024
Fixed maturity securities, available-for-sale:
U.S. government securities$29,416 $460 $(235)$— $29,641 
Corporate securities and miscellaneous497,305 12,109 (11,307)— 498,107 
Municipal securities102,865 1,245 (4,624)— 99,486 
Residential mortgage-backed securities399,951 8,757 (11,413)— 397,295 
Commercial mortgage-backed securities66,704 1,050 (1,525)— 66,229 
Other asset-backed securities263,459 4,433 (1,150)— 266,742 
Total fixed maturity securities, available-for-sale$1,359,700 $28,054 $(30,254)$— $1,357,500 
Fixed maturity securities, held-to-maturity:
Other asset-backed securities$39,560 $4 $(1,450)$(239)$37,875 
Total fixed maturity securities, held-to-maturity$39,560 $4 $(1,450)$(239)$37,875 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.     Investments (continued)
($ in thousands)Gross
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Loss		Allowance for Credit LossesFair Value
December 31, 2023
Fixed maturity securities, available-for-sale:
U.S. government securities$44,685 $202 $(721)$— $44,166 
Corporate securities and miscellaneous392,773 6,408 (15,761)— 383,420 
Municipal securities98,266 655 (6,143)— 92,778 
Residential mortgage-backed securities292,568 3,556 (14,498)— 281,626 
Commercial mortgage-backed securities31,411 449 (1,926)— 29,934 
Other asset-backed securities188,010 1,221 (3,504)— 185,727 
Total fixed maturity securities, available-for-sale$1,047,713 $12,491 $(42,553)$— $1,017,651 
Fixed maturity securities, held-to-maturity:
Other asset-backed securities$43,315 $— $(1,969)$(329)$41,017 
Total fixed maturity securities, held-to-maturity$43,315 $— $(1,969)$(329)$41,017 
The following table sets forth the amortized cost and fair value of available-for-sale fixed maturity securities by contractual maturity at September 30, 2024:
($ in thousands)Amortized
Cost		Fair Value
Due in less than one year$35,936 $35,733 
Due after one year through five years346,637 344,147 
Due after five years through ten years202,691 205,283 
Due after ten years44,322 42,071 
Mortgage-backed securities466,655 463,524 
Other asset-backed securities263,459 266,742 
Total$1,359,700 $1,357,500 
Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Also, changing interest rates, tax considerations or other factors may result in portfolio sales prior to maturity.
The Company’s fixed maturity securities, held-to-maturity, at September 30, 2024 consisted entirely of asset backed securities that were not due at a single maturity date.
At September 30, 2024, the Company had U.S. government agencies mortgage-backed fixed maturity securities, with a carrying value of approximately $62.4 million pledged as collateral for a loan (the “FHLB Loan”) from the Federal Home Loan Bank of Dallas (“FHLB”) pursuant to an Advances and Security Agreement between the Company and FHLB (the “Advances and Security Agreement”). In accordance with the terms of the FHLB Loans, the Company retains all rights regarding these pledged securities.
At September 30, 2024, the Company had assets with fair values of approximately $27.7 million pledged as collateral for the performance obligations under reinsurance agreements. In accordance with the terms of the trust agreements, the Company retains all rights regarding these securities, of which $24.9 million are residential mortgage-backed securities, $2.2 million of short-term investments and $0.6 million of cash and cash equivalents and other assets.
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.     Investments (continued)
The following tables set forth the gross unrealized losses and the corresponding fair values of investments, aggregated by length of time that individual securities had been in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023:
Less than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
September 30, 2024
Fixed maturity securities, available-for-sale:
U.S. government securities$— $— $6,264 $(235)$6,264 $(235)
Corporate securities and miscellaneous11,689 (57)158,937 (11,250)170,626 (11,307)
Municipal securities9,899 (77)47,299 (4,547)57,198 (4,624)
Residential mortgage-backed securities19,453 (193)105,880 (11,220)125,333 (11,413)
Commercial mortgage-backed securities— — 17,731 (1,525)17,731 (1,525)
Other asset-backed securities31,803 (113)38,198 (1,037)70,001 (1,150)
Total fixed maturity securities, available-for-sale72,844 (440)374,309 (29,814)447,153 (30,254)
Fixed maturity securities, held-to-maturity:
Other asset-backed securities— — 35,749 (1,450)35,749 (1,450)
Total fixed maturity securities, held-to-maturity:— — 35,749 (1,450)35,749 (1,450)
Total$72,844 $(440)$410,058 $(31,264)$482,902 $(31,704)
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.     Investments (continued)
Less than 12 Months12 Months or MoreTotal
($ in thousands)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
December 31, 2023
Fixed maturity securities, available-for-sale:
U.S. government securities$7,342 $(25)$25,604 $(696)$32,946 $(721)
Corporate securities and miscellaneous26,742 (570)174,947 (15,191)201,689 (15,761)
Municipal securities16,815 (290)47,269 (5,853)64,084 (6,143)
Residential mortgage-backed securities37,634 (602)103,495 (13,896)141,129 (14,498)
Commercial mortgage-backed securities4,942 (74)15,290 (1,852)20,232 (1,926)
Other asset-backed securities27,887 (106)75,253 (3,398)103,140 (3,504)
Total fixed maturity securities, available-for-sale121,362 (1,667)441,858 (40,886)563,220 (42,553)
Fixed maturity securities, held-to-maturity:
Other asset-backed securities— — 41,017 (1,969)41,017 (1,969)
Total fixed maturity securities, held-to-maturity:— — 41,017 (1,969)41,017 (1,969)
Total$121,362 $(1,667)$482,875 $(42,855)$604,237 $(44,522)
The Company regularly monitors its available-for-sale fixed maturity securities that have fair values less than cost or amortized cost for signs of impairment, an assessment that requires significant management judgment regarding the evidence known. Such judgments could change in the future as more information becomes known, which could negatively impact the amounts reported. Among the factors that management considers for fixed maturity securities are the financial condition of the issuer including receipt of scheduled principal and interest cash flows, and intent to sell, including if it is more likely than not that the Company will be required to sell the investments before recovery.
As of September 30, 2024, the Company had 505 lots of fixed maturity securities in an unrealized loss position. The Company does not have an intent to sell these securities and it is not more likely than not that the Company will be required to sell these securities before maturity or recovery of its cost basis. The Company determined that no credit impairment existed in the gross unrealized holding losses because the credit ratings of these securities were consistent with the credit ratings when purchased and/or at origination, there were no adverse changes in financial condition of the issuer and no adverse credit quality events in underlying assets. The Company attributed the unrealized losses to the changes in interest rates.
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.     Investments (continued)
The following table sets forth the components of net investment gains (losses) for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Gross realized gains
Fixed maturity securities, available-for sale$575 $156 $1,405 $860 
Equity securities1,591 3,959 3,165 6,000 
Other62 — 80 1 
Total2,228 4,115 4,650 6,861 
Gross realized losses
Fixed maturity securities, available-for sale(11)(381)(871)(837)
Equity securities(280)(245)(2,571)(5,006)
Other(128)(82)(152)(84)
Total(419)(708)(3,594)(5,927)
Net unrealized gains (losses) on investments
Equity securities7,512 (6,417)14,802 2,367 
Mortgage loans866 26 807 27 
Net investment gains (losses)$10,187 $(2,984)$16,665 $3,328 
The following table sets forth the proceeds from sales of available-for-sale fixed maturity securities and equity securities for the nine months ended September 30, 2024 and 2023:
Nine months ended September 30,
($ in thousands)20242023
Fixed maturity securities, available-for sale$17,540 $25,465 
Equity securities22,993 38,581 
The following table sets forth the components of net investment income for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Income:
Fixed maturity securities, available-for sale$15,461 $9,180 $41,099 $23,439 
Fixed maturity securities, held-to-maturity939 1,067 3,295 3,321 
Equity securities591 769 1,969 2,539 
Equity method investments(1,144)(4)2,596 (6,772)
Mortgage loans1,158 1,249 4,165 3,997 
Indirect loans(401)(761)(1,874)(4,009)
Short-term investments and cash3,709 3,165 11,370 8,140 
Other836 (115)2,360 (106)
Total investment income21,149 14,550 64,980 30,549 
Investment expenses(1,628)(1,461)(5,024)(4,231)
Net investment income$19,521 $13,089 $59,956 $26,318 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.     Investments (continued)
The following table sets forth the change in net unrealized gains (losses) on the Company’s investment portfolio, net of deferred income taxes, included in other comprehensive loss for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Fixed maturity securities$37,257 $(15,706)$26,898 $(12,933)
Deferred income taxes(7,824)3,317 (5,648)2,745 
Total$29,433 $(12,389)$21,250 $(10,188)
3.    Fair Value Measurements
The Company’s 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 management’s best estimate of what market participants would use in
pricing the asset or liability at the measurement date.
The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying consolidated financial statements and in these notes:
U.S. government securities, mutual funds and common stock
The Company uses unadjusted quoted prices for identical instruments in an active exchange to measure fair value which represent Level 1 inputs.
Preferred stocks, municipal securities, corporate securities and miscellaneous
The Company uses a pricing model that utilizes market-based inputs such as trades in an illiquid market for a particular security or trades in active markets for securities with similar characteristics. The model considers other inputs such as benchmark yields, issuer spreads, security terms and conditions, and other market data. These represent Level 2 fair value inputs.
Commercial mortgage-backed securities, residential mortgage-backed securities and other asset-backed securities
The Company uses a pricing model that utilizes market-based inputs that may include dealer quotes, market spreads, and yield curves. It may evaluate individual tranches in a security by determining cash flows using the security’s terms and conditions, collateral performance, credit information benchmark yields and estimated prepayments. These represent Level 2 fair value inputs.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.    Fair Value Measurements (continued)
Fixed maturity securities, available for sale and equity securities classified as Level 3
The Company has corporate securities and miscellaneous, other asset-backed securities and preferred stock that are managed by an independent asset manager that uses an independent pricing model to estimate the value of the securities it manages. These represent Level 3 fair value inputs.
Mortgage loans
Mortgage loans have variable interest rates and are collateralized by real property. The Company determines fair value of mortgage loans using the income approach utilizing inputs that are observable and unobservable (Level 3). The unobservable input consists of the spread applied to a prime rate used to discount cash flows. The spread represents the incremental cost of capital based on the borrower’s ability to make future payments and the value of the collateral relative to the loan balance and is subject to judgement and uncertainty.
The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of September 30, 2024 and December 31, 2023.
September 30, 2024December 31, 2023
High10.92 %9.50 %
Low3.61 %3.25 %
Weighted average7.47 %7.05 %
The following tables set forth the Company’s investments within the fair value hierarchy at September 30, 2024 and December 31, 2023:
September 30, 2024
($ in thousands)Level 1Level 2Level 3Total
Fixed maturity securities, available-for-sale:
U.S. government securities$29,641 $— $— $29,641 
Corporate securities and miscellaneous— 456,797 41,310 498,107 
Municipal securities— 99,486 — 99,486 
Residential mortgage-backed securities— 397,295 — 397,295 
Commercial mortgage-backed securities— 66,229 — 66,229 
Other asset-backed securities— 259,378 7,364 266,742 
Total fixed maturity securities, available-for-sale29,641 1,279,185 48,674 1,357,500 
Fixed maturity securities, held-to-maturity:
Other asset-backed securities— — 37,875 37,875 
Total fixed maturity securities, held-to-maturity— — 37,875 37,875 
Equity securities:
Common stocks74,526 — — 74,526 
Preferred stocks— 1,418 5,817 7,235 
Mutual funds42,958 — — 42,958 
Total equity securities117,484 1,418 5,817 124,719 
Mortgage loans— — 36,267 36,267 
Short-term investments206,358 — — 206,358 
Total$353,483 $1,280,603 $128,633 $1,762,719 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.    Fair Value Measurements (continued)
December 31, 2023
($ in thousands)Level 1Level 2Level 3Total
Fixed maturity securities, available-for-sale:
U.S. government securities$44,166 $— $— $44,166 
Corporate securities and miscellaneous— 383,420 — 383,420 
Municipal securities— 92,778 — 92,778 
Residential mortgage-backed securities— 281,626 — 281,626 
Commercial mortgage-backed securities— 29,934 — 29,934 
Other asset-backed securities— 185,727 — 185,727 
Total fixed maturity securities, available-for-sale44,166 973,485 — 1,017,651 
Fixed maturity securities, held-to-maturity:
Other asset-backed securities— — 41,017 41,017 
Total fixed maturity securities, held-to-maturity:— — 41,017 41,017 
Equity securities:
Common stocks67,425 — — 67,425 
Preferred stocks— 7,358 — 7,358 
Mutual funds43,466 — — 43,466 
Total equity securities110,891 7,358 — 118,249 
Mortgage loans— — 50,070 50,070 
Short-term investments270,226 — — 270,226 
Total$425,283 $980,843 $91,087 $1,497,213 
The following tables set forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the nine months ended September 30, 2024 and 2023:
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.    Fair Value Measurements (continued)
($ in thousands)Fixed Maturity Securities, Available-For-Sale Equity SecuritiesMortgage Loans
Balance at December 31, 2023$— $— $50,070 
Total gains for the period recognized in net investment gains (losses)— — 971 
Issuances— — 187 
Settlements— — (6,919)
Balance at March 31, 2024$— $— $44,309 
Total gains for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$— $— $952 
Total losses for the period recognized in net investment gains (losses)— — (1,030)
Issuances— — 449 
Settlements— — (58)
Balance at June 30, 2024$— $— $43,670 
Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$— $— $(1,031)
Total (losses) gains for the period recognized in net investment gains (losses)(118)246 866 
Total unrealized gains for the period recognized in accumulated comprehensive income (loss)1,592 — — 
Transfers into Level 323,533 — — 
Purchases23,820 5,571 — 
Sales/Disposals(153)— — 
Issuances— — 8 
Settlements— — (8,277)
Balance at September 30, 2024$48,674 $5,817 $36,267 
Total gains for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$— $246 $829 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.    Fair Value Measurements (continued)
($ in thousands)Mortgage Loans
Balance at December 31, 2022$52,842 
Total gains for the period recognized in net investment gains (losses)22 
Issuances892 
Settlements(11,421)
Balance at March 31, 2023$42,335 
Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$(14)
Total losses for the period recognized in net investment gains (losses)(21)
Issuances30 
Settlements(9,582)
Balance at June 30, 2023$32,762 
Total gains for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$3 
Total gains for the period recognized in net investment gains (losses)26 
Issuances26,530 
Settlements— 
Balance at September 30, 2023$59,318 
Total losses for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end$26 
The transfers into Level 3 during the three and nine months ended September 30, 2024 were the result of securities that began receiving valuations from asset managers that utilized unobservable inputs at the end of the period.
The Company measures certain assets, including investments in indirect loans and loan collateral, equity method investments and other invested assets, at fair value on a nonrecurring basis only when they are deemed to be impaired.
In addition to the preceding disclosures on assets and liabilities recorded at fair value in the consolidated balance sheets, the Company is also required to disclose the fair values of certain other financial instruments for which it is practicable to estimate fair value. Estimated fair value amounts, defined as the quoted market price of a financial instrument, have been determined using available market information and other appropriate valuation methodologies. However, considerable judgements are required in developing the estimates of fair value where quoted market prices are not available. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.
The following methods and assumptions were used in estimating the fair value disclosures of other financial instruments:
Fixed maturity securities, held-to-maturity: Fixed maturity securities, held-to-maturity consists of senior and junior notes with target rates of return. As of September 30, 2024, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).
Notes payable: The carrying value approximates the estimated fair value for notes payable as the notes payable accrue interest at current market rates plus a spread. The Company determines fair value using the income approach utilizing inputs that are observable (Level 2). The Company estimates the fair value of the FHLB Loan by discounting cash flows using a borrowing rate currently available to the Company for loans with similar terms (Level 3).
Subordinated debt: Subordinated debt consists of two debt instruments, the Junior Subordinated Interest Debentures, due September 15, 2036, and Unsecured Subordinated Notes, due May 24, 2039. The carrying value of the Junior Subordinated Interest Debentures approximates the estimated fair value as the instrument accrues interest at current market rates plus a spread. Unsecured Subordinated Notes have a fixed interest rate. The Company determines the fair value of these instruments using the income approach utilizing inputs that are observable (Level 2).
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.    Fair Value Measurements (continued)
The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
($ in thousands)Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Notes payable
FHLB Loan$57,000 $57,000 $— $— 
Revolving credit facility$43,000 $43,000 $50,000 $50,000 
Notes payable$100,000 $100,000 $50,000 $50,000 
Subordinated debt
Junior subordinated interest debentures$— $— $59,186 $59,794 
Unsecured subordinated notes18,956 21,535 19,504 21,378 
Subordinated debt, net of debt issuance costs$18,956 $21,535 $78,690 $81,172 
Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.
4.    Mortgage Loans
The Company has invested in Separately Managed Accounts (“SMA1” and “SMA2”). As of September 30, 2024 and December 31, 2023, the Company held direct investments in mortgage loans from various creditors through SMA1 and SMA2.
The Company’s mortgage loan portfolios are primarily senior loans on real estate across the U.S. The loans earn interest at a fixed spread above a prime rate, mature in approximately 2 to 3 years from loan origination and the principal amounts of the loans range between 64% to 80% of the property’s appraised value at the time the loans were made.
The carrying value of the Company’s mortgage loans as of September 30, 2024 and December 31, 2023 were as follows:
($ in thousands)September 30, 2024December 31, 2023
Commercial$14,697 $14,469 
Retail13,638 16,072 
Hospitality7,932 12,744 
Industrial— 6,785 
$36,267 $50,070 
The following table sets forth the Company’s gross investment income for mortgage loans for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Commercial$376 $588 $1,685 $1,637 
Retail513 364 1,473 1,375 
Hospitality269 204 1,007 497 
Office— — — 203 
Multi-family— 93 — 285 
$1,158 $1,249 $4,165 $3,997 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.    Mortgage Loans (continued)
The uncollectible amounts on loans, on an individual loan basis, are determined based upon consultations and advice from the Company’s specialized investment manager and consideration of any adverse situations that could affect the borrower’s ability to repay, the estimated value of underlying collateral, and other relevant factors. The Company writes off the uncollectible amount in the period it was determined to be uncollectible. There was no write-off for uncollectible amounts during the three and nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024 no mortgage loans were in the process of foreclosure and there were no mortgage loans that were not producing income for the previous 12 months. As of December 31, 2023, approximately $7.1 million of mortgage loans were in the process of foreclosure.
5.    Equity Method Investments and Other
The following table sets forth the carrying value and ownership percentage of the Company’s equity method investments as of September 30, 2024 and December 31, 2023:
($ in thousands)September 30, 2024December 31, 2023
Carrying ValueOwnership %Carrying ValueOwnership %
Arena Special Opportunities Fund, LP units$38,137 15.9 %$41,046 16.2 %
JVM Funds LLC units17,831 10.1 %20,061 10.1 %
Arena SOP LP units2,530 12.6 %2,463 12.3 %
RISCOM4,689 20.0 %4,121 20.0 %
Hudson Ventures Fund 2 LP units4,634 2.5 %4,669 2.5 %
Dowling Capital Partners LP units652 5.0 %1,708 6.2 %
Brewer Lane Ventures Fund II LP units756 2.4 %560 2.5 %
$69,229 $74,628 
The following table sets forth the components of net investment income (loss) from equity method investments for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Dowling Capital Partners LP units$67 $172 $1,449 $777 
RISCOM493 468 1,168 773 
Brewer Lane Ventures Fund II LP(31)(25)(87)(54)
Hudson Ventures Fund II LP units(594)551 (436)138 
JVM Funds LLC(261)(252)(1,280)(893)
Universa Black Swan LP units— (84)— (988)
Arena SOP LP units(612)(1,160)67 (3,938)
Arena Special Opportunities Fund, LP units(206)326 1,715 (2,587)
$(1,144)$(4)$2,596 $(6,772)
The following table sets forth the unfunded commitment of equity method investments as of September 30, 2024 and December 31, 2023:
($ in thousands)September 30, 2024December 31, 2023
Brewer Lane Ventures Fund II LP units$4,227 $4,610 
Hudson Ventures Fund 2 LP units447 848 
Dowling Capital Partners LP units386 386 
$5,060 $5,844 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.    Equity Method Investments and Other (continued)
The difference between the cost of an investment and its proportionate share of the underlying equity in net assets is allocated to the various assets and liabilities of the equity method investment. The Company amortizes the difference in net assets over the same useful life of a similar asset as the underlying equity method investment. For investment in RISCOM, a similar asset would be agent relationships. The Company amortizes this difference over a 15-year useful life.
The following table sets forth the Company’s recorded investment in RISCOM compared to its share of underlying equity as of September 30, 2024 and December 31, 2023:
($ in thousands)September 30, 2024December 31, 2023
Investment in RISCOM:
Underlying equity$3,370 $2,620 
Difference1,319 1,501 
Recorded investment balance$4,689 $4,121 
The following table sets forth the Company’s recorded investment in JVM Funds LLC compared to its share of underlying equity as of September 30, 2024 and December 31, 2023:
($ in thousands)September 30, 2024December 31, 2023
Investment in JVM Funds LLC:
Underlying equity$17,188 $19,304 
Difference643 757 
Recorded investment balance$17,831 $20,061 
Investment in Indirect Loans and Loan Collateral
As of September 30, 2024 and December 31, 2023, the Company held indirect investments in collateralized loans and loan collateral through SMA1 and SMA2.
The carrying value of the SMA1 and SMA2 as of September 30, 2024 and December 31, 2023 were as follows:
($ in thousands)September 30, 2024December 31, 2023
SMA1$20,915 $30,816 
SMA211,967 5,209 
Investment in indirect loans and loan collateral$32,882 $36,025 
6.    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 nine months ended September 30, 2024, the Company drew an additional $50.0 million on the Revolving Credit Facility and used the
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.    Notes Payable & Subordinated Debt (continued)
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 Facility is payable quarterly. The interest rate on the Revolving Credit Facility is the Secured Overnight Financing Rate (“SOFR”) plus a margin of between 150 and 190 basis points based on the ratio of debt to total capital and a credit spread adjustment of 10 basis points. At September 30, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25%, plus a margin of 1.60%.
The Company was subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating and minimum liquidity. As of September 30, 2024, the Company was in compliance with all covenants.
Debentures
In August 2006, the Company received $58.0 million of proceeds from a debenture offering through a statutory trust, Delos Capital Trust (the “Trust”). The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of $59.8 million issued by the Company and cash of $1.8 million from the issuance of Trust common shares purchased by the Company equal to 3% of the Trust capitalization. On March 15, 2024, the Company redeemed the Debentures and paid $1.4 million of accrued interest.
7.    Income Taxes
The following table sets forth the Company’s income tax expense and effective tax rates for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Income tax expense$10,185 $6,084 $29,763 $15,814 
Effective tax rate21.7 %21.9 %22.2 %21.8 %
The effective tax rate will differ from the statutory rate of 21 percent due to permanent differences for disallowed expenses for tax and beneficial adjustments for tax-exempt income, dividends-received deduction and non-deductible expenses.
The Company paid federal income taxes of $8.5 million and $22.5 million during the three and nine months ended September 30, 2024, respectively, and $10.0 million during the nine months ended September 30, 2023.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.    Losses and Loss Adjustment Expenses
The following table sets forth the reconciliation of unpaid losses and loss adjustment expenses (“LAE”) as reported in the condensed consolidated balance sheets as of and for the nine months ended September 30, 2024 and 2023:
Nine months ended September 30,
($ in thousands)20242023
Reserves for losses and LAE, beginning of period$1,314,501 $1,141,757 
Less: reinsurance recoverable on unpaid claims, beginning of period(455,484)(435,986)
Reserves for losses and LAE, beginning of period, net of reinsurance859,017 705,771 
Incurred, net of reinsurance, related to:
Current period474,289 378,811 
Prior years— — 
Total incurred, net of reinsurance474,289 378,811 
Paid, net of reinsurance, related to:
Current period82,653 67,267 
Prior years224,760 187,256 
Total paid307,413 254,523 
Net reserves for losses and LAE, end of period1,025,893 830,059 
Plus: reinsurance recoverable on unpaid claims, end of period542,884 438,652 
Reserves for losses and LAE, end of period$1,568,777 $1,268,711 
9.    Commission and Fee Income
Skyward Underwriters Agency, Inc. (“SUA”), a subsidiary of the Company, is a managing general insurance agent and reinsurance broker for property and casualty and accident and health risks in specialty niche markets. Commission and fee income is primarily generated from SUA for the placement of insurance policies on either a third-party insurance or reinsurance company.
The following table sets forth the Company’s disaggregated revenues from contracts with customers for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
SUA commission revenue$1,436 $1,357 $3,125 $3,599 
SUA fee income1,027 672 2,437 1,933 
Other(645)56 335 285 
Total commission and fee income$1,818 $2,085 $5,897 $5,817 
The Company’s contract assets from commission and fee income as of September 30, 2024 and December 31, 2023 were $2.4 million and $1.0 million, respectively.
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10.    Underwriting, Acquisition and Insurance Expenses
The following table sets forth the components of underwriting, acquisition and insurance expenses for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Amortization of policy acquisition costs$37,365 $34,071 $105,273 $78,442 
Other operating and general expenses42,452 34,244 120,997 98,211 
Total underwriting, acquisition and insurance expenses$79,817 $68,315 $226,270 $176,653 
11.    Reinsurance
Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide the Company with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. The Company remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations.
The following tables set forth the effects of reinsurance on written and earned premiums and losses and loss adjustment expenses for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,
20242023
($ in thousands)WrittenEarnedWrittenEarned
Direct premiums$347,444 $349,980 $308,215 $299,294 
Assumed premiums52,570 69,436 47,517 51,665 
Ceded premiums(131,692)(149,859)(75,036)(123,926)
Net premiums$268,322 $269,557 $280,696 $227,033 
Ceded losses and LAE incurred$108,152 $103,753 
Nine months ended September 30,
20242023
($ in thousands)WrittenEarnedWrittenEarned
Direct premiums$1,118,683 $1,012,550 $947,977 $845,200 
Assumed premiums236,194 202,408 190,247 139,522 
Ceded premiums(502,326)(451,476)(441,650)(380,511)
Net premiums$852,551 $763,482 $696,574 $604,211 
Ceded losses and LAE incurred$300,725 $255,855 
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11.     Reinsurance (continued)
The following table sets forth the components of reinsurance recoverables and ceded unearned premium as of September 30, 2024 and December 31, 2023:
20242023
($ in thousands)September 30, 2024December 31, 2023
Ceded unpaid losses and LAE$542,884 $455,484 
Ceded paid losses and LAE131,812 122,287 
Loss portfolio transfer14,324 20,858 
Allowance for credit losses(2,295)(2,295)
Reinsurance recoverables$686,725 $596,334 
Ceded unearned premium$236,962 $186,121 
The Company entered into agreements with several of its reinsurers, whereby the reinsurer established funded trust accounts with the Company as the sole beneficiary. These trust accounts provide the Company additional security to collect claim recoverables under reinsurance contracts and the Company does not carry these on the balance sheet because the Company will only have custody over these accounts upon the failure of the reinsurer to pay amounts due. At September 30, 2024, the market value of these accounts was approximately $196.4 million. The trust amount will be adjusted periodically, by mutual agreement, based on claim payments and loss reserve recoverables.
Certain ceded reinsurance contracts that transfer only significant timing risk and do not transfer sufficient underwriting risk are accounted for using the deposit method of accounting. The Company’s deposit asset at September 30, 2024 and December 31, 2023 was $27.1 million and $29.9 million, respectively, and was included in other assets on the condensed consolidated balance sheets.
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings Per Share
The following table sets forth the compilation of basic and diluted net earnings per share for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands, except for share and per share amounts)2024202320242023
Numerator
Net income$36,668 $21,711 $104,422 $56,719 
Less: Undistributed income allocated to participating securities— — — (1,492)
Net income attributable to common stockholders (numerator for basic earnings per share)36,668 21,711 104,422 55,227 
Add back: Undistributed income allocated to participating securities— — — 1,492 
Net income (numerator for diluted earnings per share under the two-class method)$36,668 $21,711 $104,422 $56,719 
Denominator
Basic weighted-average common shares40,098,34536,743,39340,039,26935,502,843
Dilutive effect of preferred shares———959,124
Dilutive effect of stock notes—706,794—684,017
Dilutive effect of stock units932,030799,982895,468609,601
Dilutive effect of options398,182153,674367,37174,846
Diluted weighted-average common share equivalents41,428,55738,403,84341,302,10837,830,431
Basic earnings per share$0.91 $0.59 $2.61 $1.56 
Diluted earnings per share$0.89 $0.57 $2.53 $1.50 
The Company’s preferred shares participate in dividends and distributions with common stock on an as-converted basis and represent a participating security. Instruments awarded to employees that provide the holder the right to purchase common stock at a fixed price were included as potential common shares, weighted for the portion of the period they were granted, if dilutive.
The following table presents anti-dilutive instruments that were excluded from the calculation of diluted weighted-average common share equivalents during the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
2024202320242023
Stock units7,1525,069165,0724,546
Options162561364,714
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SKYWARD SPECIALTY INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12.    Earnings Per Share (continued)
The following table presents common share equivalents of contingently issuable instruments that were excluded from basic earnings per share in the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
2024202320242023
Common shares—932,588— 932,588
13. Related Party Transactions
RISCOM
RISCOM provides the Company with wholesale brokerage services. RISCOM and the Company also have a managing general agency agreement. The Company holds a 20% ownership interest in RISCOM.
Net earned premium and gross commission expense related to these agreements for the three and nine months ended September 30, 2024 and 2023 were as follows:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Net earned premium$27,456 $31,649 $79,511 $73,750 
Commissions6,448 6,119 19,682 19,122 
Premiums receivable as of September 30, 2024 and December 31, 2023 were $16.2 million and $10.6 million, respectively.
Other
Advisory and professional services fees and expense reimbursements paid to various affiliated stockholders and directors for the three and nine months ended September 30, 2024 were $0.2 million and $0.4 million, compared to $0.5 million and $3.1 million, respectively, for the three and nine months ended September 30, 2023.
See Note 4 and 5 for investments involving affiliated companies and additional related party transactions.
14.    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 Company’s 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 this time, the Company does not have reason to believe any such significant claims exist.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The term “Skyward Specialty” as used below refers only to Skyward Specialty Insurance Group, Inc. and the terms “our Company,” “we,” “us,” and “our” as used below refer to Skyward Specialty Insurance Group and its consolidated subsidiaries. The term “third quarter” as used below refers to the three and nine months ended September 30 for the time period then ended. We discuss certain key metrics which provide useful information about our business and the operational factors underlying our financial performance. Many of these metrics are generally standard among insurance companies and help to provide comparability with our peers. Select insurance, accounting, operating and financial terms for Skyward Specialty are defined in the sections entitled “Select Insurance and Financial Terms” and “Key Operating and Financial Metrics” included in our 2023 Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
The discussion and analysis below include certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk Factors" in our 2023 Form 10-K. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.
The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2024, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our 2023 Form 10-K.
The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).
Overview
Founded in 2006, Skyward Specialty is a specialty insurance holding company incorporated in Delaware. We have one reportable segment through which we offer 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. We focus our business on markets that are underserved, dislocated and/or for which standard insurance coverages are insufficient or inadequate to meet the needs of businesses, including our customers and prospective customers operating in these markets. Our customers typically require highly specialized, customized underwriting solutions and claims capabilities. As such, we develop and deliver tailored insurance products and services to address each of the niche markets we serve.
Each of our eight distinct underwriting divisions has dedicated underwriting leadership supported by high-quality technical staff with deep experience in their respective niches. We believe this structure and expertise allows us to serve the needs of our customers effectively and be a value-add partner to our distributors, while earning attractive risk-adjusted returns.
All of our insurance company subsidiaries are group rated and have financial strength ratings of “A” (Excellent) with stable outlook from the A.M. Best Company.
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Results of Operations
The following table summarizes our results for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Gross written premiums$400,014 $355,732 $1,354,877 $1,138,224 
Ceded written premiums(131,692)(75,036)(502,326)(441,650)
Net written premiums$268,322 $280,696 $852,551 $696,574 
Net earned premiums$269,557 $227,033 $763,482 $604,211 
Commission and fee income1,818 2,085 5,897 5,817 
Losses and LAE170,521 138,536 473,489 377,841 
Underwriting, acquisition and insurance expenses79,817 68,315 226,270 176,653 
Underwriting income(1)
$21,037 $22,267 $69,620 $55,534 
Net investment income$19,521 $13,089 $59,956 $26,318 
Net investment gains (losses)$10,187 $(2,984)$16,665 $3,328 
Income before income taxes$46,853 $27,795 $134,185 $72,533 
Net income$36,668 $21,711 $104,422 $56,719 
Adjusted operating income(1)
$29,405 $25,029 $93,432 $56,532 
Loss and LAE ratio63.3 %61.0 %62.0 %62.5 %
Expense ratio28.9 %29.2 %28.9 %28.3 %
Combined ratio92.2 %90.2 %90.9 %90.8 %
Adjusted loss and LAE ratio(1)
63.4 %61.1 %62.1 %62.7 %
Expense ratio28.9 %29.2 %28.9 %28.3 %
Adjusted combined ratio(1)
92.3 %90.3 %91.0 %91.0 %
Annualized return on equity19.3 %16.4 %19.1 %15.8 %
Annualized return on tangible equity(1)
21.8 %19.7 %21.7 %19.4 %
Annualized adjusted return on equity(1)
15.5 %18.9 %17.1 %15.8 %
Annualized adjusted return on tangible equity(1)
17.5 %22.8 %19.4 %19.4 %
(1) See “Reconciliation of Non-GAAP Financial Measures” in this Item 2
Reconciliation of Non-GAAP Financial Measures
Adjusted Operating Income
The following table provides a reconciliation of adjusted operating income to net income for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
2024202320242023
($ in thousands)Pre-taxAfter-taxPre-taxAfter-taxPre-taxAfter-taxPre-taxAfter-tax
Income as reported$46,853 $36,668 $27,795 $21,711 $134,185 $104,422 $72,533 $56,719 
Less (add):
Net investment gains (losses)10,187 8,048 (2,984)(2,357)16,665 13,165 3,328 2,629 
Net impact of LPT318 251 266 210 800 632 970 766 
Other loss(195)(154)— — (202)(160)— — 
Other expenses(1,117)(882)(1,482)(1,171)(3,350)(2,647)(4,061)(3,208)
Adjusted operating income$37,660 $29,405 $31,995 $25,029 $120,272 $93,432 $72,296 $56,532 
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Underwriting Income
The following table provides a reconciliation of underwriting income to income before federal income tax for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Income before federal income tax expense$46,853 $27,795 $134,185$72,533
Add:
Interest expense2,229 2,632 7,4057,250 
Amortization expense351 463 1,0991,336
Other expenses1,117 1,482 3,3504,061
Less:  
Net investment income19,521 13,089 59,95626,318
Net investment gains (losses)10,187 (2,984)16,6653,328
Other loss(195)— (202)—
Underwriting income$21,037 $22,267 $69,620$55,534
Adjusted Loss Ratio / Adjusted Combined Ratio
The following table provides a reconciliation of the adjusted loss and LAE ratio and adjusted combined ratio to the loss and LAE ratio and combined ratio for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Net earned premiums$269,557$227,033$763,482$604,211
    
Losses and LAE170,521138,536473,489377,841
Pre-tax net impact of loss portfolio transfer318266800970
Adjusted losses and LAE$170,839$138,802$474,289$378,811
Loss ratio63.3 %61.0%62.0 %62.5 %
Less: Net impact of LPT(0.1)%(0.1)%(0.1)%(0.2)%
Adjusted loss ratio63.4 %61.1 %62.1 %62.7 %
Combined ratio92.2 %90.2 %90.9 %90.8 %
Less: Net impact of LPT(0.1)%(0.1)%(0.1)%(0.2)%
Adjusted combined ratio92.3 %90.3 %91.0 %91.0 %
Tangible Stockholders’ Equity
The following table provides a reconciliation of tangible stockholders’ equity to stockholders’ equity for the periods ended September 30, 2024 and 2023:
($ in thousands)20242023
Stockholders’ equity$797,507$535,397
Less: Goodwill and intangible assets87,60788,808
Tangible stockholders’ equity$709,900$446,589
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Annualized Adjusted Return on Equity
The following table provides a reconciliation of annualized adjusted return on equity to annualized return on equity for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Numerator: annualized adjusted operating income$117,619 $100,116 $124,576 $75,376 
Denominator: average stockholders’ equity$760,564 $529,038 $729,269 $478,530 
Annualized adjusted return on equity
15.5 %18.9 %17.1 %15.8 %
Annualized Return on Tangible Equity
Annualized return on tangible equity for the three and nine months ended September 30, 2024 and 2023 reconciles to annualized return on equity as follows:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Numerator: annualized net income$146,672 $86,844 $139,229 $75,625 
Denominator: average tangible stockholders’ equity$672,826 $440,043 $641,248 $389,191 
Annualized return on tangible equity
21.8 %19.7 %21.7 %19.4 %
Annualized Adjusted Return on Tangible Equity
Annualized adjusted return on tangible equity for the three and nine months ended September 30, 2024 and 2023 reconciles to annualized return on equity as follows:
Three months ended September 30,Nine months ended September 30,
($ in thousands)2024202320242023
Numerator: annualized adjusted operating income$117,619 $100,116 $124,576 $75,376 
Denominator: average tangible stockholders’ equity$672,826 $440,043 $641,248 $389,191 
Annualized adjusted return on tangible equity
17.5 %22.8 %19.4 %19.4 %
Underwriting Results
Premiums
The following tables present gross written premiums by underwriting division for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,
($ in thousands)20242023Change% Change
Global Property & Agriculture$54,360 $48,775 $5,585 11.5 %
Industry Solutions74,089 79,798 (5,709)(7.2 %)
Captives53,630 41,886 11,744 28.0 %
Programs54,434 41,735 12,699 30.4 %
Transactional E&S44,885 30,699 14,186 46.2 %
Accident & Health43,490 39,554 3,936 10.0 %
Professional Lines40,310 48,259 (7,949)(16.5 %)
Surety34,816 24,977 9,839 39.4 %
Total gross written premiums(1)
$400,014 $355,683 $44,331 12.5 %
(1) Excludes exited business

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Nine months ended September 30,
($ in thousands)20242023Change% Change
Global Property & Agriculture$279,721 $247,195 $32,526 13.2 %
Industry Solutions236,460 226,680 9,780 4.3 %
Captives184,137 127,249 56,888 44.7 %
Programs166,256 143,032 23,224 16.2 %
Transactional E&S132,791 90,948 41,843 46.0 %
Accident & Health128,479 112,819 15,660 13.9 %
Professional Lines120,655 114,420 6,235 5.4 %
Surety106,395 75,899 30,496 40.2 %
Total gross written premiums(1)
$1,354,894 $1,138,242 $216,652 19.0 %
(1) Excludes exited business
The increase in gross written premiums for the third quarter and first nine months of 2024, when compared to the same 2023 periods, was driven by double-digit premium growth primarily from our transactional E&S, programs, captives, surety and global property & agriculture underwriting divisions.
During the third quarter and first nine months of 2023, the Company cancelled a quota share reinsurance contract. The following table provides a reconciliation of the impact of the cancellation of the quota share reinsurance contract on ceded written premiums, net retention, net written premiums and net earned premiums for the three and nine months ended September 30, 2023:
Three months ended September 30,
20242023%
(unaudited)As ReportedAs ReportedAdjustmentAdjustedChange
Ceded written premiums$(131,692)$(75,036)$(50,462)$(125,498)4.9%
Net retention67.1%78.9%64.7%
 NM (1)
Net written premiums$268,322$280,696$(50,462)$230,23416.5%
Net earned premiums$269,557$227,033$(13,145)$213,88826.0%
Nine months ended September 30,
20242023%
As ReportedAs ReportedAdjustmentAdjustedChange
Ceded written premiums$(502,326)$(441,650)$(50,462)$(492,112)2.1%
Net retention62.9%61.2%56.8%
 NM (1)
Net written premiums$852,551$696,574$(50,462)$646,11232.0%
Net earned premiums$763,482$604,211$(13,145)$591,06629.2%
(1) Not meaningful
Net written premiums for the third quarter of 2024 were $268.3 million compared to $280.7 million for the same 2023 period. Net written premiums for the first nine months of 2024 were $852.6 million compared to $696.6 million for the same 2023 period. Excluding the impact of the quota share reinsurance contract cancellation, net written premiums for the third quarter and first nine months of 2024 increased 16.5% and 32.0%, respectively, when compared to the same 2023 periods, primarily driven by the same reasons that drove the increases in gross written premiums discussed above.
Net earned premiums for the third quarter of 2024 were $269.6 million compared to $227.0 million for the same 2023 period. Net earned premiums for the first nine months of 2024 were $763.5 million compared to $604.2 million for the same 2023 period. Excluding the impact of the quota share reinsurance contract cancellation, net earned premiums for the third quarter and first nine months of 2024 increased 26.0% and 29.2%, respectively, when compared to the same 2023 periods, primarily driven by the same reasons that drove the increases in gross written premiums discussed above.
For additional information regarding our reinsurance programs, see the “Reinsurance” discussion included in this Item 2.
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Losses and LAE
The following tables set forth the components of the loss and LAE ratios and adjusted loss and LAE ratios for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,
20242023
($ in thousands)
Losses
and LAE
% of
Net Earned
Premiums
Losses
and LAE
% of
Net Earned
Premiums
Losses and LAE:
Non-cat loss and LAE(1)
$163,385 60.6 %$137,802 60.7 %
Cat loss and LAE(1)
7,454 2.8 %1,000 0.4 %
Prior accident year development - LPT
(318)(0.1)%(266)(0.1)%
Total losses and LAE$170,521 63.3 %$138,536 61.0 %
Adjusted losses and LAE(2):
Non-cat loss and LAE(1)
$163,385 60.6 %$137,802 60.7 %
Cat loss and LAE(1)
7,454 2.8 %1,000 0.4 %
Total adjusted losses and LAE(2)
$170,839 63.4 %$138,802 61.1 %
(1) Current accident year
(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2

Nine months ended September 30,
20242023
($ in thousands)
Losses
and LAE
% of
Net Earned
Premiums
Losses
and LAE
% of
Net Earned
Premiums
Losses and LAE:
Non-cat loss and LAE(1)
$462,835 60.6 %$367,767 60.9 %
Cat loss and LAE(1)
11,454 1.5 %11,044 1.8 %
Prior accident year development - LPT
(800)(0.1)%(970)(0.2)%
Total losses and LAE$473,489 62.0 %$377,841 62.5 %
Adjusted losses and LAE(2):
Non-cat loss and LAE(1)
$462,835 60.6 %$367,767 60.9 %
Cat loss and LAE(1)
11,454 1.5 %11,044 1.8 %
Total adjusted losses and LAE(2)
$474,289 62.1 %$378,811 62.7 %
(1) Current accident year
(2) See "Reconciliation of Non-GAAP Financial Measures" included in this Item 2
The loss ratios for the third quarter and first nine months of 2024 increased 2.3 points and improved 0.5 points, respectively, when compared to the same 2023 periods. The third quarter of 2024 was impacted by higher catastrophe losses, primarily from Hurricanes Helene and Beryl. The non-cat loss and LAE ratio for the third quarter of 2024 was comparable to the same 2023 period. The non-cat loss and LAE ratio for the first nine months of 2024 improved 0.3 points when compared to the same 2023 period, primarily driven by the shift in the mix of business.
Expense Ratio
The following tables set forth the components of the expense ratios for the three and nine months ended September 30, 2024 and 2023:
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Three months ended September 30,
20242023
($ in thousands)Expenses% of
Net Earned Premiums		Expenses% of
Net Earned Premiums
Net policy acquisition expenses $37,365 13.9 %$34,071 15.0 %
Other operating and general expenses 42,452 15.7 %34,244 15.1 %
Underwriting, acquisition and insurance expenses 79,817 29.6 %68,315 30.1 %
Less: commission and fee income (1,818)(0.7 %)(2,085)(0.9 %)
Total net expenses $77,999 28.9 %$66,230 29.2 %
Nine months ended September 30,
20242023
($ in thousands)Expenses% of
Net Earned Premiums		Expenses% of
Net Earned Premiums
Net policy acquisition expenses $105,273 13.9 %$78,442 13.0 %
Other operating and general expenses 120,997 15.8 %98,211 16.3 %
Underwriting, acquisition and insurance expenses 226,270 29.7 %176,653 29.3 %
Less: commission and fee income (5,897)(0.8 %)(5,817)(1.0 %)
Total net expenses $220,373 28.9 %$170,836 28.3 %
The expense ratios for the third quarter and first nine months of 2024 were comparable to the same 2023 periods.
The expense ratios for all periods presented exclude the impact of IPO related stock compensation and secondary offering expenses, which are reported in other expenses in our condensed consolidated statements of operations and comprehensive income.
Investment Results
Beginning January 1, 2024, we simplified the investment portfolio classifications to align with our strategy and the underlying risk characteristics of the portfolio. The prior period has been reclassified to conform to the current period presentation.
The following table sets forth the components of net investment income and net investment gains (losses) for the three and nine months ended September 30, 2024 and 2023:
Three months ended September 30,Nine months ended September 30,
$ in thousands2024202320242023
Short-term investments & cash and cash equivalents $4,537 $3,022 $13,645 $8,007 
Fixed income15,458 9,48841,72224,867
Equities596 6501,9741,332
Alternative and strategic investments(1,070)(71)2,615(7,888)
Net investment income$19,521 $13,089 $59,956 $26,318 
Net unrealized gains (losses) on securities still held$8,378$(6,391)$15,609$2,394
Net realized gains1,8093,4071,056934
Net investment gains (losses)$10,187 $(2,984)$16,665 $3,328 
Net investment income for the third quarter and first nine months of 2024 increased $6.4 million and $33.6 million, respectively when compared to the same 2023 periods.
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The increase in income from our fixed income portfolio for the third quarter and first nine months of 2024, when compared to the same 2023 periods, was due to (i) a larger asset base as we continued to increase our allocation to this part of our investment portfolio and (ii) a higher book yield of 5.0% at September 30, 2024 compared to 4.2% at September 30, 2023. The increase in income from short-term investments for the third quarter and first nine months of 2024 when compared to the same 2023 periods, was due to higher investment yields and a larger asset base. The increase in income from alternative and strategic investments for the first nine months of 2024 was driven by the increase in the fair value of limited partnership investments when compared to the same 2023 period. Net investment income for the third quarter of 2024 and 2023 was impacted by a decline in the fair value of limited partnership investments.
When a fixed maturity has been determined to have an impairment, the impairment charge is separated into an amount representing the credit loss, which is recognized in earnings as a realized loss and on the balance sheet as an allowance for credit losses netted with the amortized cost of fixed maturities. Future increases in fair value, if related to credit factors, are recognized through earnings limited to the amount previously recognized as an allowance for credit losses. The amount related to non-credit factors is recognized in accumulated other comprehensive income and future increases or decreases in fair value, if not credit losses, are included in accumulated other comprehensive (loss) income. We reviewed our available-for-sale fixed maturities at September 30, 2024 and determined that no credit impairment existed in the gross unrealized holding losses. See Note 2, “Investments” to our condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional information.
Investments
Composition of Investment Portfolio
The following table sets forth the components of our investment portfolio at carrying value at September 30, 2024 and December 31, 2023:
20242023
($ in thousands)
Carrying Value
% of Total
Carrying Value
% of Total
Cash and cash equivalents$105,573 5.3 %$65,891 3.9 %
Short-term investments206,358 10.3 %270,259 16.1 %
Fixed income1,393,767 69.9 %1,067,721 63.6 %
Equities124,719 6.2 %118,249 7.0 %
Alternative and strategic investments165,234 8.3 %157,458 9.4 %
Total portfolio$1,995,651 100.0 %$1,679,578 100.0 %
Fixed income
Our fixed income portfolio primarily consists of investment grade fixed income securities, which are predominantly highly-rated and liquid bonds, and commercial mortgage loans.
The following table sets forth the components of our fixed income securities at September 30, 2024 and December 31, 2023:
20242023
($ in thousands)Carrying Value
% of Total
Carrying Value
% of Total
U.S. government securities$29,641 2.1 %$44,166 4.1 %
Corporate securities and miscellaneous498,107 35.8 %383,420 35.9 %
Municipal securities99,486 7.1 %92,778 8.7 %
Residential mortgage-backed securities397,295 28.5 %281,626 26.4 %
Commercial mortgage-backed securities66,229 4.8 %29,934 2.8 %
Other asset-backed securities266,742 19.1 %185,727 17.4 %
Total fixed income portfolio, available-for-sale1,357,500 97.4 %1,017,651 95.3 %
Commercial mortgage loans$36,267 2.6 %$50,070 4.7 %
Total fixed income portfolio$1,393,767 100.0 %$1,067,721 100.0 %
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The weighted average credit rating of our available-for-sale fixed income portfolio was “AA-” by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) at September 30, 2024 and December 31, 2023. The following table sets forth the credit quality of our available-for-sale fixed income portfolio at September 30, 2024 and December 31, 2023, as rated by Standard & Poor’s or equivalent designation:
20242023
($ in thousands)Fair Value% of TotalFair Value% of Total
AAA$531,730 39.2 %$493,252 48.6 %
AA150,040 11.1 %105,906 10.4 %
A419,722 30.9 %233,487 22.9 %
BBB232,416 17.1 %154,096 15.1 %
BB and Lower23,592 1.7 %30,910 3.0 %
Total fixed income portfolio, available-for-sale$1,357,500 100.0 %$1,017,651 100.0 %
Our commercial mortgage loans are primarily senior loans on real estate across the U.S.
The average duration of our fixed income portfolio was approximately 3.89 years and 4.24 years, respectively, as of September 30, 2024 and December 31, 2023.
Equities
The equities portfolio primarily consists of domestic preferred stocks, common equities, exchange traded funds, limited partnerships, limited liability corporations and other types of equity interests, 95.3% of which are publicly traded.
Alternative and strategic investments
Alternative investments consists of promissory notes, limited partnerships, joint ventures and equity interests. The underlying investments are primarily floating rate senior secured loans, comprised of short duration, collateralized, asset-oriented credit investments. The limited partnerships and joint ventures are subject to future increases or decreases in asset value as asset values are monetized and the income is distributed. Strategic investments consists of equity interests in private entities within the insurance industry.
Other Items
Income Taxes
Income tax expense for the three and nine months ended September 30, 2024 was $10.2 million and $29.8 million, respectively, compared to $6.1 million and $15.8 million, respectively, for the same 2023 periods. Our effective tax rates for the three and nine months ended September 30, 2024 were 21.7% and 22.2%, respectively, compared to 21.9% and 21.8%, respectively, for the same 2023 periods. For additional information, see Note 7 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.
Liquidity and Capital Resources
Sources and Uses of Funds
Our most significant source of cash is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period, net of the related commission amount for the policies. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that generally earn interest and dividends. We also use cash to pay for operating expenses such as salaries, rent and taxes and capital expenditures such as technology systems. We use reinsurance to manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.
The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums and proceeds from investment income are sufficient to cover cash outflows in the foreseeable future.
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Our cash flows for the nine months ended September 30, 2024 and 2023 were:
($ in thousands)20242023
Cash and cash equivalents provided by (used in):
Operating activities $283,216 $218,539 
Investing activities (227,963)(307,833)
Financing activities (4,233)67,549 
Change in cash and cash equivalents and restricted cash$51,020 $(21,745)
The increase in cash provided by operating activities in 2024 and 2023 was primarily due to positive cash flow from our insurance operations. Cash from operations can vary from period to period due to the timing of premium receipts, claim payments and reinsurance activity. Cash flows from operations in each of the past two years were used primarily to fund investing activities.
Net cash used in investing activities in 2024 was primarily driven by purchases of fixed maturity securities, partially offset by sales and maturities of investment securities and sales of short-term investments. Net cash used in investing activities in 2023 was primarily driven by purchases of fixed maturity securities and short-term investments.
Net cash used in financing activities in 2024 was driven by net payments on debt.
Credit Agreements
FHLB Loan
On August 30, 2024, we entered into a loan (“the FHLB Loan”) with the Federal Home Loan Bank of Dallas (the “FHLB”) pursuant to its 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. We used the proceeds to fund the redemption of the March 15, 2024 draw on the Revolving Credit Facility and redeem $7.0 million of the March 29, 2023 draw on the Revolving Credit Facility (see “Revolving Credit Facility” below for additional information regarding the redemption).
Revolving Credit Facility
On March 29, 2023, we entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of participating banks. The Revolving Credit Facility provides us with up to a $150.0 million revolving credit facility and a letter of credit sub-facility of up to $30.0 million.
On March 14, 2024, we drew $50.0 million on the Revolving Credit Facility and used the proceeds and existing cash to fund the redemption of the Debentures (see “Debentures” below for additional information regarding the redemption).
On August 30, 2024, we fully redeemed the March 15, 2024 draw on the Revolving Credit Facility and redeemed $7.0 million of the March 29, 2023 draw on the Revolving Credit Facility. As of September 30, 2024, we had $43.0 million outstanding under the Revolving Credit Facility with another $107.0 million of undrawn capacity.
Interest on the Revolving Credit Facility is payable quarterly. The interest rate on the Revolving Credit Facility is the SOFR plus a margin of between 150 and 190 basis points based on the ratio of debt to total capital and a credit spread adjustment of 10 basis points. At September 30, 2024, the six-month SOFR on the Revolving Credit Facility was 4.25%, plus a margin of 1.60%.
We are subject to covenants on the Revolving Credit Facility based on minimum net worth, maximum debt to capital ratio, minimum A.M. Best Rating and minimum liquidity. As of September 30, 2024, we are in compliance with all covenants.
Debentures
In August 2006, we received $58.0 million of proceeds from a debenture offering through a statutory trust, Delos Capital Trust (the “Trust”). The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Trust Preferred”) with a principal amount of $59.8 million issued by us and cash of $1.8 million from the issuance of Trust common shares purchased by us equal to 3% of the Trust capitalization. On March 15, 2024, the Company redeemed the Debentures and paid $1.4 million of accrued interest.
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Subordinated Debt
In May 2019, we issued unsecured subordinated notes (the “Notes”) with an aggregate principal amount of $20.0 million. Interest on the subordinated notes is 7.25% fixed for the first eight years and 8.25% fixed thereafter. Early retirement of the debt ahead of the eight-year commitment requires all interest payments to be paid in full, as well as the return of all capital. Principal payment is due at maturity on May 24, 2039 and interest is payable quarterly.
At September 30, 2024 the ratio of total debt outstanding, including the FHLB Loan, the Revolving Credit Facility and the Notes, to total capitalization (defined as total debt plus stockholders’ equity) was 13.0% and at December 31, 2023, the ratio of total debt outstanding, including the Term Loan, the Revolver, the Trust Preferred and the Notes, to total capitalization was 16.3%.
Share Repurchase Program
In October 2024, the Board of Directors approved a share repurchase program authorizing the repurchase of up to $50.0 million of our common stock. The shares may be repurchased from time to time in open market purchases, privately-negotiated transactions, block purchases, accelerated share repurchase agreements or a combination of methods, including through Rule 10b5-1 trading plans. The timing, manner, price and amount of any repurchases under the share repurchase program will be determined by us in our discretion. The share repurchase program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time.
Reinsurance
We strategically purchase reinsurance from third parties which enhances our business by protecting capital from severity events (either large single event losses or catastrophes) and reducing volatility in our earnings. Our reinsurance contracts are predominantly one year in length and renew annually throughout the year. At each annual renewal, we consider several factors that influence any changes to our reinsurance purchases, including any plans to change the underlying insurance coverage we offer, updated loss activity, the level of our capital and surplus, changes in our risk appetite and the cost and availability of reinsurance treaties.
We purchase quota share reinsurance, excess of loss reinsurance, and facultative reinsurance coverage to limit our exposure from losses on any one occurrence. The mix of reinsurance purchased considers efficiency, cost, our risk appetite and specific factors of the underlying risks we underwrite.
•Quota share reinsurance refers to a reinsurance contract whereby the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission.
•Excess of loss reinsurance refers to a reinsurance contract whereby the reinsurer agrees to assume all or a portion of the ceding company’s losses for an individual claim or an event in excess of a specified amount in exchange for a premium payable amount negotiated between the parties, which includes our catastrophe reinsurance program.
•Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.
For the three and nine months ended September 30, 2024 our net retention on a written basis (calculated as net written premiums as a percentage of gross written premiums) was 67.1% and 62.9%, respectively, compared to 78.9% and 61.2%, respectively, for the same 2023 periods.
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The following is a summary of our reinsurance programs as of September 30, 2024:
Line of BusinessMaximum Company Retention
Accident & Health$0.90 million per occurrence
Commercial Auto(1)
$1.00 million per occurrence
Excess Casualty(1)(2)
$1.25 million per occurrence
General Liability(1)
$1.50 million per occurrence
Professional Lines(2)
$5.21 million per occurrence
Property(3)
$3.50 million per occurrence
Representation and Warranty$3.25 million per occurrence
Surety(2)
$4.00 million per occurrence
Workers’ Compensation(2)
$2.33 million per occurrence
(1) Legal defense expenses can force exposure above the maximum company retention for Excess Casualty, Commercial Auto and General Liability.
(2) Reinsurance is subject to a loss ratio cap or aggregate level of loss cover that exceeds a modeled 1:250-year PML event.
(3) Catastrophe loss protection is purchased up to $36.0 million in excess of $15.0 million retention, which provides cover for a 1:250-year PML event.
Credit and Financial Strength Ratings
On August 1, 2024, A.M. Best upgraded Skyward Specialty’s financial strength rating to A (Excellent) from A- (Excellent) and revised the outlook to stable from positive.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of this quarterly report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our management, including the CEO and CFO, as of September 30, 2024, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position.
Item 1A. Risk Factors
There have been no material changes in our risk factors in the quarter ended September 30, 2024 from those disclosed in our 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
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Item 5. Other Information
During the quarter ended September 30, 2024, certain of our executives entered into written plans during an open insider trading window for the purchase or sale of our securities that are intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and our policies regarding transactions in our securities.
The material terms of these trading plans are set forth in the table below.
Name (Title)
Date of AdoptionNature of Trading ArrangementDuration of Trading ArrangementAggregate Number of Securities
Andrew Robinson (Chief Executive Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 22,796 shares(1)
Andrew Robinson (Chief Executive Officer)
9/10/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 5/30/2025
Up to 60,358 shares
Mark Haushill (Chief Financial Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 5,699 shares(1)
John Burkhart (President, Specialty Lines and Industry Solutions)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 5,065 shares(1)
Kirby Hill (President, Captives, Programs, Alternative Risks)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 5,445 shares(1)
Dan Bodnar (Chief Information & Technology Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 2,532 shares(1)
Dan Bodnar (Chief Information & Technology Officer)
9/11/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 6/30/2025
Up to 2,699 shares
Sean Duffy (Chief Claims Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 4,305 shares(1)
Sean Duffy (Chief Claims Officer)
9/11/2024Rule 10b5-1(c) Trading Arrangement
3/17/2025 – 12/31/2025
Up to 5,625 shares
Sandip Kapadia (Chief Actuary & Analytics Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 2,532 shares(1)
Sandip Kapadia (Chief Actuary & Analytics Officer)
9/12/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 3/31/2025
Up to 5,362 shares
Tom Schmitt (Chief People & Administrative Officer)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 3,799 shares(1)
Tom Schmitt (Chief People & Administrative Officer)
9/3/2024Rule 10b5-1(c) Trading Arrangement
3/3/2025 – 12/31/2025
Up to 6,300 shares
Leslie Shaunty (General Counsel & Secretary)
8/8/2024Rule 10b5-1(c) Trading Arrangement
1/2/2025 – 1/31/2025
Up to 2,532 shares(1)
(1) The number of shares of common stock sold under the Rule 10b5-1 trading arrangement will be limited to such number of shares necessary to satisfy applicable tax obligations upon the vesting of covered securities and is not yet determinable.
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Item 6. Exhibits
(a)Exhibits.
Exhibit NumberExhibit Description
3.1
3.2
4.1
31.1
31.2
32.1
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

(b)Financial Statement Schedules. All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Skyward Specialty Insurance Group, Inc.
Date: November 7, 2024
By:/s/ Andrew Robinson
Andrew Robinson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 7, 2024
By:/s/ Mark Haushill
Mark Haushill
Chief Financial Officer
(Principal Financial and Accounting Officer)
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