Yahoo Finance Skyward Specialty Insurance Group Inc (SKWD) Q1 2024 Earnings Call Transcript Highlights: ...
Adjusted Operating Income: $0.75 per diluted share
Gross Written Premiums: Increased by 27%
Combined Ratio: 89.6%
Annualized Adjusted Return on Equity: 18.3%
Annualized Adjusted Return on Tangible Equity: 21.1%
Net Income: $36.8 million, or $0.90 per diluted share
Net Investment Income: $18.3 million, up $13.7 million from the previous year
Investment in Fixed Income: $98 million at 5.4% yield
Short-term Investments: Approximately $298 million with a yield over 5%
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Reported a strong Q1 with adjusted operating income of $0.75 per diluted share, reflecting robust financial performance.
Gross written premiums grew by 27%, indicating significant business expansion across all underwriting divisions.
Achieved a combined ratio of 89.6%, demonstrating efficient underwriting and profitability.
Annualized adjusted return on equity and tangible equity were impressive at 18.3% and 21.1% respectively, highlighting strong shareholder returns.
Net investment income increased significantly by $13.7 million compared to the same period in 2023, driven by improved portfolio yield and increased invested asset base.
Negative Points
The expense ratio increased by 1.3 points compared to the first quarter of 2023, reflecting higher operational costs.
Retention dipped into the 70s, influenced by a business mix shift towards lower retention divisions and trimming of the commercial auto portfolio.
Faced challenges in the competitive marketplace, requiring nuanced strategies to capture profitable growth.
Reported minimal catastrophe losses, which while beneficial in the short term, may not fully test the company's risk management strategies under more adverse conditions.
Concerns about the sustainability of commercial auto growth due to high loss cost inflation and challenging market conditions.
Q & A Highlights
Q: Can you provide more detail about the investment income and its future run rate given the changes and new money movements? A: Andrew Robinson, CEO, explained that the investment strategy is straightforward. The core fixed income's invested asset base and embedded yield are key indicators. The company has been investing at rates above 5% and plans to continue deploying all free cash flow into fixed income. The future run rate of investment income will depend on these factors, although specific figures were not disclosed.
Q: How is the competitive environment affecting your business, particularly in terms of underwriting talent and market segments? A: Andrew Robinson, CEO, noted that the market is nuanced, with different behaviors in various segments like property and casualty. He highlighted that the company's strategy of attracting top talent and investing in specific market segments has been successful, allowing them to grow profitably and deliver attractive returns despite the competitive landscape.
Q: What impact has the mix shift towards higher expense ratio businesses had on the company's financials? A: Andrew Robinson, CEO, acknowledged that while the mix shift towards businesses like transactional E&S and surety has led to higher expense ratios due to higher commissions, these segments offer better risk profiles and capital efficiency. This strategic shift aligns with the company's goal of maintaining a diversified portfolio to mitigate risks associated with market cycles.
Q: Could you discuss the company's approach to managing casualty inflation, particularly in commercial auto? A: Andrew Robinson, CEO, explained that the company has been proactive in managing casualty inflation by tightening terms, pulling back limits, and focusing on risk selection and pricing. In commercial auto, they have implemented strategies like adjusting deductibles and leveraging telematics to mitigate risks associated with high loss cost inflation.
Q: What are your expectations for the net to gross written premium ratio for 2024, and how does it compare to previous quarters? A: Mark Haushill, CFO, indicated that the net to gross written premium ratio is expected to remain in the low 60s, consistent with previous quarters. He reassured that this ratio aligns with the company's expectations and strategic planning.
Q: How is Skyward Specialty managing the potential risks associated with a lower interest rate environment on its investment portfolio? A: Mark Haushill, CFO, stated that the company is maintaining a cautious approach by keeping the investment portfolio's duration around four years and monitoring interest rate movements. They are prepared to adjust their investment strategy if necessary to continue achieving attractive returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
