Skyward Specialty Insurance Group, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, Shannon.

Good morning, everyone. Welcome to our second quarter 2026 earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer, Mark Haushill. We will begin the call with our prepared remarks. We will open the line for questions. Our comments may include forward-looking statements, which, by their nature, involve a number of risk factors and uncertainties which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release, as well as in our 10-K that was previously filed with the Securities and Exchange Commission.

Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules, are included as part of our press release and available on our website under the Investors section. With that, I will turn the call over to Andrew.

Thank you, Jordan. Welcome to the Skyward team. We're pleased to have you on board. To our conference call participants, good morning. Thank you for joining us. The second quarter was simply outstanding. Diluted Operating Earnings Per Share increased 46% to $1.30. Our annualized Operating Return on Equity was an excellent 19%. Gross Written Premiums increased 13% over the prior year quarter, while Managed Premiums were up 18%. We continue to execute at an incredibly high level across Skyward Specialty and Apollo, delivering strong top-line growth and results that reinforce the strength, diversification, quality, and profitability of our business. Our rule our niche strategy, in particular, our business portfolio diversification, allows us to lean into markets where pricing, underwriting conditions, and returns remain attractive.

We will continue to protect margins and play sensible defense in the softest parts of the market where pricing and terms are less attractive or loss cost inflation is uncertain. Our strong capital position provides significant flexibility as we continue to allocate capital with discipline. We believe share repurchases remain an attractive use of capital given our returns, earnings growth, and current valuation. During the quarter, we repurchased approximately $10 million of shares and in July increased our repurchase authorization to $100 million. With that, I'll turn it over to Mark to provide the financial details for the quarter.

Mark? Thank you, Andrew. Good morning.

We are pleased with our second quarter performance, which included double-digit premium growth, continued excellent underwriting profitability, and attractive returns on capital. We reported net income of $49 million and operating income of $59 million. Diluted Operating Earnings Per Share was $1.30, an increase of 46% year-over-year. We continue to produce outstanding underwriting results, reporting a Combined Ratio of 89.5, inclusive of 1.9 points of catastrophe losses. The Ex-Cat Combined Ratio of 87.6 underscores the quality of our underwriting, the diversity of our business portfolio, and the operating leverage we are achieving as we continue to scale the business. For the first six months of 2026, operating income increased to $116 million, driving an Operating Return on Equity of 20.4%. Premium growth remained strong. Total Managed Premiums increased 18% to $1.1 billion during the quarter, while Gross Written Premiums increased 13% to $741 million.

Within Skyward Specialty, Gross Written Premiums increased 14% to $668 million, led by continued momentum in Accident & Health, Global Agriculture, Credit & Surety, and Specialty Programs. Apollo Gross Written Premiums increased 6% to $73 million, driven by the specialty lines in Syndicate 1969, which grew 8% year-over-year. Apollo's fee generation continued to be a meaningful growth driver, with fee-generating gross written premiums increasing 29% to $318 million, including 80% growth in Platform Partner syndicates and 13% growth in capital-aligned syndicates. Underwriting fee income of $13 million during the quarter was excellent, as we are realizing the benefit of Apollo's capital-light business model. Given Apollo's seasonal production patterns, second quarter results are not necessarily indicative of longer-term growth trends.

Our focus remains on long-term opportunity to grow, Managed Premiums, expand both underwriting and fee-based earnings, and continue building scale within the platform. Turning to underwriting performance, Skyward Specialty delivered another outstanding quarter, reporting a Combined Ratio of 86.9 and an Ex-Cat Combined Ratio of 85.6. The Loss Ratio was 62.6, including 1.3 points of catastrophe losses. The non-CAT Loss Ratio of 61.3 was up 1.4 points year-over-year, driven by business mix, specifically A&H and Global Agriculture, both of which are higher loss ratio divisions. Loss emergence was in line with expectations and no development was recognized. The Expense Ratio improved by 2.7 points year-over-year to 24.3. The reduction in net policy acquisition costs is positively impacted by the A&H and Global Agriculture business just noted.

For other operating and general expenses, we again delivered another quarter of meaningful improvement, driven by expense discipline and leverage from our technology, in particular, the widespread benefits we are realizing from AI. Apollo reported a Combined Ratio of 97.6, including 5.4 points of catastrophe losses related primarily to the conflict in the Middle East. The non-CAT Loss Ratio of 54.7 for the quarter reflects strong underlying underwriting performance and disciplined portfolio management across the platform. Apollo's reported Expense Ratio was 37.5 for the quarter. The quarter included adjustments between net policy acquisition costs and other operating and general expenses. The year-to-date Expense Ratio of 34.9 and Combined Ratio of 91.3 provide a more representative view of Apollo's performance. Investment income continued to benefit from a larger asset base, inclusive of the addition of Apollo.

Net investment income increased to $31 million in the quarter, up more than 60% from the prior year period, primarily due to $29 million of income from the fixed income portfolio. While the results from alternative and strategic investments remained pressured by lower valuations in certain limited partnership investments, these exposures represent only $68 million of our total $2.8 billion of invested assets. For the fixed income portfolio, we put new money to work at yields of 5.6%, and the embedded yield for the group portfolio was 5.3%. Our balance sheet remains exceptionally strong. Stockholders' equity increased to approximately $1.3 billion at June 30th, and book value per share increased 15% from year-end to $28.55. Financial leverage decreased by two points compared to the first quarter to 26%. During the quarter, we repaid $50 million of the $150 million term loan that matures at the end of 2027.

We're rapidly moving towards our target debt-to-capital ratio of low 20s. We also repurchased 223,000 shares for approximately $10 million. In July, we announced that we increased our share repurchase authorization from $50 million to $100 million, reflecting our confidence in the quality of our business, earnings outlook, capital position, and improved leverage. I'll turn the call back over to Andrew.

Thank you, Mark. As discussed, our financial results for the quarter are once again excellent, reflecting the benefits of our diversified portfolio and rule our niche strategy. The strength of our business mix is unique amongst commercial insurers and continues to differentiate Skyward and support attractive top line and earnings growth. As is visible over recent quarters, we continue to see meaningful growth opportunities in Accident & Health, Credit & Surety, and Global Agriculture, all businesses which are largely insulated from the pressures affecting the more traditional P&C markets. There are units within our reporting divisions with attractive opportunities for growth as well. Those include Healthcare Solutions within Professional Lines, power and renewables within Energy Solutions, political risk and political violence within Syndicate 1969, and a strong pipeline of Platform Partner syndicates to drive fee-based income growth.