Skyward Specialty's Q3 2025: Contradictions Emerge on Captives Growth, Capital Efficiency, and Retention

Date of Call: October 30, 2025

Financials Results

• EPS: $1.10 per diluted share (net income); adjusted operating income $1.05 per diluted share — earnings grew by over 40% YOY

Guidance:

• Apollo acquisition expected to close early Q1 2026, subject to regulatory approval; deal financing on track and unchanged.
• Company will provide Apollo 2026 financial metrics likely in early December once further along in approvals.
• Additional Skyward guidance to be provided on the February (Q4) earnings call.
• Expect uneven quarterly growth going forward due to concentrated renewal cycles across divisions.
• Full reserve ground-up review to be completed and disclosed in Q4.

Business Commentary:

• Exceptional Financial Performance:
• Skyward Specialty reported adjusted operating income of $44 million or $1.05 per diluted share and net income of $45.9 million or $1.10 per diluted share in Q3 2025.
• The company's combined ratio was 89.2%, an improvement of 0.4 points over the prior year.

• This performance was driven by strong underlying results, a modest catastrophe quarter, and the strategic execution of their Rule Our Niche strategy.

• Premium Growth and Strategic Focus:

• Skyward Specialty's gross written premiums grew by 52% in Q3 2025, compared to the prior year.
• The growth was led by the Agriculture unit, specifically within the dairy and livestock industry, along with strong contributions from A&H, Captives, and Specialty programs.

• This growth reflects Skyward's focus on constructing a diversified portfolio with a significant portion less exposed to P&C cycles.

• Construction and Specialty Programs:

• Within the Specialty Programs segment, Skyward experienced a significant increase in premiums, with growth attributed to new programs like Warranty Indemnity and Brownwater and Greenwater Marine.

• The company noted the controlled nature of this growth, driven by specific relationships and expected to moderate in future quarters as these programs become fully integrated.

• Operational Leverage and Strategic Acquisitions:

• Skyward's financial leverage remains modest at under 11% debt-to-capital ratio, with planned leverage post-Apollo acquisition expected to rise to approximately 28%.
• The acquisition is positioned to enhance Skyward's specialty capabilities and bench of underwriting talent, strengthening their ability to deliver superior long-term returns.

Sentiment Analysis:

Overall Tone: Positive

• Andrew: "Our third quarter results were exceptional... company-best... 52% growth in gross written premiums... grew earnings by over 40% and delivered an annualized return on equity of 19.7%." Mark: "We had an exceptional quarter, reporting adjusted operating income of $44 million..." — management repeatedly described the quarter as exceptional and highlighted record metrics.

Q&A:

• Question from Charles Peters (Raymond James & Associates, Inc.): If we put the Agricultural opportunity aside, where are you having success in other segments (A&H, Captives, Surety, Specialty programs)?
  Response: Core growth outside Ag driven by A&H, Captives and a Surety rebound (Surety +26% this quarter); these businesses benefit from distinctive products/operating models and about half of YTD business is in categories less exposed to the P&C cycle.

• Question from Charles Peters (Raymond James & Associates, Inc.): Can you discuss Apollo's third quarter results and how Apollo is positioned for cycle management?
  Response: Limited comment pending regulatory approval; Apollo's '1969' syndicate is specialty-focused and relatively insulated from broad P&C cycle pressures, while '1971' targets digital-economy risks with few competitors.

• Question from Tracy Benguigui (Wolfe Research, LLC): If elevated growth persists, where would incremental capital come from given limited debt headroom — equity or retained earnings?
  Response: No immediate capital constraint; retained earnings expected to support growth and Apollo's capital-light model (≈25% own capital, 75% third-party) provides optionality to shift economic mix toward fee-based structures if desired.

• Question from Tracy Benguigui (Wolfe Research, LLC): The 52% growth in specialty programs — which lines were standouts among Property, GL, Commercial Auto, Excess Liability and WC?
  Response: Growth concentrated in two recently added programs (a Warranty Indemnity program and Brownwater/Greenwater Marine); program-related growth is lumpy and will be easier to compare after lapping next year.

• Question from Matthew Carletti (Citizens JMP Securities, LLC): Can you help with the seasonality/renewal timing — which quarters typically show strongest growth?
  Response: Growth is lumpy by renewal calendar: Ag weighted to Q3, A&H toward Q1, Property toward the first half; Q4 is competitive but nothing unusual this year; guidance next year will clarify seasonality further.

• Question from Meyer Shields (Keefe, Bruyette, & Woods): Does the Ag premium written this quarter have even earnings patterns or is it earned as written?
  Response: Ag premiums written this quarter will be earned ratably over the next 12 months.

• Question from Meyer Shields (Keefe, Bruyette, & Woods): Is the lumpiness you described due to renewal calendar timing rather than nonrecurring items in Q3 premium?
  Response: Correct — no nonrecurring items; lumpiness is driven by renewal timing across niches and programs.

• Question from Meyer Shields (Keefe, Bruyette, & Woods): The step-up in operating and general expenses (Q2 $41M to Q3 $52M) — is $52M a good baseline going forward?
  Response: Yes — $52M is a reasonable baseline with little quarter-to-quarter movement; management will follow up offline on any line-item detail.

• Question from Michael Zaremski (BMO Capital Markets): Your retention is mid-70s; does that reflect E&S vs traditional mix and lower retention in non-E&S lines?
  Response: Lower net retention is largely mix-driven (Global Property quota share, Captives and A&H quota share support); YTD net retention ~65% is a better proxy for modeling next year.

• Question from Michael Zaremski (BMO Capital Markets): You mentioned a 4Q reserve review — is that a deeper dive and should we expect adjustments?
  Response: Q4 will include a full ground-up reserve review per process; management is comfortable with current conservative reserve positioning and will disclose any adjustments in Q4.

• Question from Michael Zaremski (BMO Capital Markets): Does the stronger-than-expected growth change the Apollo financing or timeline?
  Response: No — financing and timing unchanged; still expect very early Q1 2026 close and financing has progressed well.

• Question from Andrew Andersen (Jefferies LLC): Can you expand on the construction inflation comment and what you're seeing in construction-related severity?
  Response: Severity inflation is emerging in construction-related liability (similar to auto severity trends); occurrence personal-injury exposure is showing higher severity and requires selectivity when growing occurrence liability lines.

• Question from Andrew Andersen (Jefferies LLC): You said mid-single-digit rate and mid-single-digit exposure excluding Global Property — how does exposure now compare to H1?
  Response: Exposure growth has ticked up recently versus historical quarterly levels of ~2–4%; recent quarters show modestly higher exposure growth but it's not a definitive trend yet.

• Question from Jon Paul Newsome (Piper Sandler & Co.): Post-deal leverage around 28% — will you retain capital until it falls to your long-term target?
  Response: Management is comfortable with ~28% post-close; they intentionally stayed under-levered and expect organic capital generation over 12–18 months to reduce leverage.

• Question from Jon Paul Newsome (Piper Sandler & Co.): Given reinsurance is competitive, can that be an advantage for you given your structure?
  Response: Reinsurance market is more favorable to cedents, but Skyward's cat spend is mid-single-digits and the impact is helpful but not a material year-over-year game changer.

• Question from Michael Phillips (Oppenheimer & Co.): Is there a correlation between P&C pricing cycle and demand for captive formation?
  Response: Captive formation has been robust across soft and hard markets; captives are sticky and less cycle-exposed because members closely manage risk and renewals are stable.

• Question from Mark Hughes (Truist Securities, Inc.): Does E&S liability fall under the transactional E&S business and how is that segment performing?
  Response: Yes — transactional E&S includes E&S liability; primary million-dollar GL is competitive while excess is a better market; Skyward focuses on business with limited auto exposure and is selective.

• Question from Mark Hughes (Truist Securities, Inc.): What is the recent trend in property pricing and appetite?
  Response: Property capacity is high and pricing competitive; Skyward remains disciplined and selective — will only write at prices that meet return thresholds.

• Question from Tracy Benguigui (Wolfe Research, LLC): With mix shifts from uneven growth by segment, how should we think about underlying loss and expense ratios?
  Response: Mix impacts ratios materially (e.g., Surety low loss/high acquisition, A&H low acquisition/high loss); management will quantify effects when they provide full-year guidance in the new year.

Contradiction Point 1

Growth in Captives

It involves differing explanations for the growth in the captives segment, which is crucial for understanding the company's strategic direction and market positioning.

Does the P&C pricing cycle influence captive formation demand? - Michael Phillips (Oppenheimer & Co. Inc., Research Division)

2025Q3: Captive growth is robust despite a soft market. Retention is high and stable due to members managing their risk directly. - Andrew Robinson(CEO)

Why was captives' growth strong despite sensitivity to the cycle? - Taylor Scott (Barclays)

2025Q2: Captives growth is driven by a unique property-focused captive using weather technology, offering substantial benefits. This captive is attracting high-quality operators, differentiating it in a stable market. - Andrew Robinson(CEO)

Contradiction Point 2

Capital Efficiency and Future Growth

It involves differing perspectives on Skyward Specialty's ability to access capital for growth and the company's capital efficiency, which are critical for supporting future growth and investor expectations.

How would the company fund its growth, and would equity markets be an option? - Tracy Benguigui(Wolfe Research, LLC)

2025Q3: While we have grown more than expected this year, we are capital-efficient. Apollo is capital-light, which could provide fee-based economic models. Our focus is on growth and we don't see current capital constraints. - Andrew Robinson(CEO)

How should we view the significant growth in crop and A&H relative to seasonality? - Matt Carletti(Citizens)

2025Q1: We are capital-efficient. Apollo is capital-light, which could provide fee-based economic models. - Andrew Robinson(CEO)

Contradiction Point 3

Retention Levels in Non-E&S Portions of the Book

It involves differing perspectives on retention levels in Skyward Specialty's non-E&S portions of the book, which are critical for understanding the company's customer loyalty and revenue stability.

How does retention level relate to non-E&S portions of the book? - Michael Zaremski(BMO Capital Markets Equity Research)

2025Q3: We have high retention due to our Global Property business, Captives, and A&H. Overall, retention is about 65% year-to-date, and this will be a good proxy for next year. - Andrew Robinson(CEO)

How is submission growth in your E&S business, and how are you addressing increased competition? - Gregory Peters(Raymond James)

2025Q1: Retention improved to 93% in 2022, up from 91% in 2021, and we expect retention to improve again in 2023. - Andrew Robinson(CEO)

Contradiction Point 4

Pricing Trends in Global Property

It involves changes in financial forecasts, specifically regarding pricing trends in the global property segment, which are critical indicators for investors.

Is the increase in operating and general expenses from premium growth? - Meyer Shields(Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: Pricing is down high-single digits, but risk-adjusted pricing remains strong. - Andrew Robinson(CEO)

How are you addressing the pricing environment in global property amid soft market conditions? - Andrew Kligerman(TD Cowen)

2025Q1: Pricing is down high-single digits, but risk-adjusted pricing remains strong. - Andrew Robinson(CEO)

Contradiction Point 5

Pricing Strategy and Growth Focus

It involves a shift in pricing strategy and growth focus that could impact the company's competitive positioning and revenue trajectory.

Where is Skyward Specialty seeing success in Accident & Health and Captives? - Charles Peters(Raymond James & Associates, Inc., Research Division)

2025Q3: We are being cautious and thoughtful in traditional parts of the P&C market due to increased competition. We are writing business in these divisions on smart terms. - Mark Haushill(CFO)

Is pricing adequate for casualty lines, particularly liability?Is this a growth area for Skyward in 2025? - Mark Hughes(Truist Securities)

2024Q4: We're being cautious, especially given the uncertainty in loss inflation. We're focusing on lines less affected by bodily injury. There's a lot of growth in occurrence liability lines, but we're not confident the inflation is stable. - Andrew Robinson(CEO)