Skyward Specialty Insurance Group, Inc.

Good day, and thank you for standing by. Welcome to the first quarter 2024 Skyward Specialty Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Natalie Schoolcraft, Head of Investor Relations. Please go ahead.

Thank you, Liz. Good morning, everyone, and welcome to our first quarter 2024 earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer, Mark Hochul. We'll begin the call today with our prepared remarks, and then we will open the lines for questions. Our comments today 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 information, are included as part of our press release and available on our website, skywardinsurance.com, under the Investors section. With that, I will turn the call over to Andrew. Andrew?

Thank you, Natalie. Good morning, everyone, and thank you for joining us. We started 2024 strong, reporting Q1 adjusted operating income of 75 cents per diluted share. Gross written premiums grew 27%. Our continued strong growth is a direct reflection of our strategy to have a well-diversified portfolio of underwriting divisions that allow us to allocate capital to those areas we believe offer the best opportunity for profitable growth and shareholder returns. I'll remind our analysts and investors that growth during 2023 was not the byproduct of writing new property CAD. We see limited property CAD opportunities that fit with our rule or niche strategy in which we aim to build defensible positions that allow us to deliver top quartile underwriting profitability across all market cycles. Our combined ratio was 89.6% and our annualized adjusted return on equity and tangible equity were 18.3% and 21.1% respectively. Altogether, these metrics reflect the power of our ruler in each strategy and our outstanding execution across all eight underwriting divisions and the functions that support our underwriters. Operationally, rate, retention, and submission flow in the quarter continue to be strong, and we continue to find opportunities to profitably grow our business. I'll talk more about these later in the call. With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark?

Thank you, Andrew. For the quarter, we reported net income of $36.8 million, or $0.90 per diluted share, compared to $15.6 million or 42 cents per diluted share for the same period a year ago. On an adjusted operating basis, we reported income of 31 million or 75 cents per diluted share compared to 15.5 million or 42 cents per diluted share for the same period a year ago. In the quarter, gross written premiums grew by approximately 27%. All of our underwriting divisions contributed to the growth and are captives Transactional E&S, surety, professional lines, global property and agriculture divisions were each up over 20%. Turning to our underwriting results, the first quarter combined ratio of 89.6% improved 0.6 points compared to the first quarter of 2023. The half point improvement in the current accident year non-CAT loss ratio to 60.6% was principally driven by changing mix of business. During the quarter, catastrophe losses were minimal and accounted for less than half a point on the combined ratio compared to the first quarter of 2023, which was impacted by 1.8 points of CAT losses. Excluding the deferred benefit of the LPT, there was no net impact from prior year development. In Q1, as has been the case in the quarters leading up to being a public company and since going public, we increased our conservatism to an already strong loss reserve position. The expense ratio increased 1.3 points compared to the first quarter of 2023 and was in line with the full year 2023. We've talked in prior quarters regarding our business makeshift and investing in the business, so this is in line with our expectations and target of a sub-30 expense ratio. Turning to our investment results, net investment income was $18.3 million in the quarter, an increase of $13.7 million compared to the same period of 2023. During the quarter, you will note we changed how we disclose our investment portfolio and the net investment income results. We will speak to the portfolio in four categories, short-term investments in cash and cash equivalents, fixed income, equities, and alternative and strategic investments. This change was driven by a couple of factors. Our desire to simplify how we talk about the portfolio, more traditional presentation in line with the industry, and more reflective of our strategy and the underlying risk characteristics of the portfolio. Consistent with our investment strategy to deploy all free cash flow to fixed income, In the first quarter, we put $98 million to work at 5.4%. The net investment income from our fixed income portfolio increased $5 million from $7.4 million in the prior quarter, driven by improving portfolio yield and the significant increase in the invested asset base. Our embedded yield was 4.7% at March 31st versus 4.0% a year ago and 4.6% at December 31st. At March 31st, we had approximately $298 million in short-term investments, and our yield on short-term investments continued to be north of 5%. Lastly, April 1st is when we renew our property reinsurance programs. All these renewals were orderly, and we are satisfied with the terms and structure of these programs. We increased our property cap treaty net retention from $12 to $15 million and the cover increased from $28 million to $36 million. We were able to improve the terms of the treaty while retaining the same model return period as the expiring treaty. With that, I will turn the call back over to Andrew for concluding remarks.

Thank you, Mark. Operationally, we had another strong quarter. We continue to realize pure pricing increases in the high mid-single digits, which is above our estimated lost cost trends. Our new business pricing was up again over our in-force book, an indicator that new business profitability is attractive and should contribute to margin expansion. We also continue to see strong submission activity, which was up over 30% from the prior year quarter. Retention dipped into the 70s, driven by business mixed shift towards lower retention divisions, such as transactional E&S, as well as some continued trimming of our commercial auto portfolio, which in Q1 was 14.7% of our writings, compared to 18.3% in the prior year quarter. Let me turn to the competitive marketplace for a moment. From our vantage point, it is most certainly an increasingly nuanced market for capturing profitable growth. But we continue to identify and invest in market segments that are attractive and where execution of our strategy allows us to profitably grow and deliver attractive returns for our shareholders. In Q1, We launched a new media liability unit within professional lines with a team of expert underwriting and claims professionals, each of whom has a distinctive standing and broker following in the marketplace. We remain confident in our ability to continue to attract the very best talent and our most professionals with advanced technology and data analytics that has proven to be the winning formula for our success as our results in Q1 further reinforce. And as visible in our results, whether it be the talent ads this past year in surety or transactional E&S, or the launch of global agriculture or inland marine, our investments are clearly paying off for our shareholders. Finally, we recently published our first ever annual people report. Our people are the lifeblood of our success, and it is what makes Skyward truly unique. The report provides a wonderful view into our company and we encourage our investors to visit our website to access this report or contact Natalie if you'd like to have a printed copy. I'd like to now turn the call back over to the operator to open it up for Q&A. Operator?

As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question will come from the line of Mark Hughes with Truist Securities.

Yeah, thank you. Good morning.

Good morning, Mark.

Andrew, you mentioned 30% submission growth is very strong.

Over 30%.

Over 30%. Okay. Even stronger. Any way to break that out? I assume there's underlying submission growth. Your expanded underwriting capacity presumably is contributing to that. Any way to kind of break that out, maybe compare it to what you had been seeing in earlier quarters?

Yeah, if you're asking for a sort of a same store sales versus kind of like new capacity, we don't share that. But let me just say this. There's no question that that, you know, obviously us bringing on talent that has a marketplace following inevitably leads to business following those in some cases, you know, the enforced books that that those underwriters had in their in their in their prior in their prior roles. What I can tell you is that if you look across our businesses, by and large, same store sales are up pretty materially. If you think about same store sales, meaning our same underwriters, and then growth is also a contribution of the underwriters we've had. And I think they're in appropriate sort of balance. But we're not going to go further than disclosing just, you know, because what's important here is, are we investing in a way that's sensible for our business? that's driving profitable growth, and we're seeing that data correspond.

Yeah. To expand, when you say nuance, I think you've touched on a lot of interesting points. What do you mean when you say nuance? If you could expand on that, that would be great.

All of us obviously take in the various things that are being discussed around the marketplace, particularly this time of year during earnings reviews and so forth. I think there's almost very general views put out there about what's happening in different parts of the market, what's happening casually versus what's happening in property. I have to tell you that it is just very specific to a circumstance. you know, we have, um, I would describe it at least three, if not four quite discreet points of focus in property, right? We have global property, inland marine, and then our transactional ENS, I would describe a portion of our book as sort of highly technical and a portion of it that's closer to sort of general property. And I can tell you that each of those four areas are behaving very differently. And so that's what we mean by nuance. You know, at the same time, um, you know, on the liability side, everybody's talking about like, well, casually, could it be an attractive market because prices are moving and prices are moving because, you know, people are recognizing that lost cost inflation and maybe the starting point in the lost cost relative to price may not be as favorable as people think. Meanwhile, like when we think about our business, I'll take transactionally and as an example, okay, in the last month, a carrier that was in lifeguard services pulled out of the market, right? Well, of course, we write lifeguards in our ENS business. Well, suddenly, we're seeing this like dramatic flow of lifeguard services. And instead of the market that pulled out that is a $7,500 minimum premium, we have a $30,000 minimum premium. Instead of the possibility of providing, you know, abuse and molestation, and assault and battery, you know, we have absolute exclusions on those things. And so, their pullout allows us to then go pick the business the way that we want. And we see those opportunities happening all the time. But it's not like that is a indicative sort of window into everything. It's a very specific underwriting category by category. And it's the kind of market that plays to great underwriters, which I believe we have. And so When I talk about nuance, that's what I mean. And I think it's a market that's a hell of a lot more favorable to a company like us than many of the other guys that are out there.

Yeah, very good. I'll ask you the blunt, simple question. There's talk about casualty accelerating as a general matter. Do you see that in 2024?

Yeah, so what I'd say is when we look across our casualty occurrence, ex-workers comp, sort of all the various touch points, again, I don't think there's one overriding theme. But what I can tell you is that we definitely see prices moving. In our case, we took some actions here over the last couple of quarters to start to tighten terms in very specific areas, and also to pull back limits. And we've been able to do that. You know, we're making sure that the retention is holding, but we think that we found the balance. So that, to me, feels like at least amongst the competitors that we see, and the competitors in a lot of those cases I consider to be very, very good competitors. They're amongst the better to best, seem to be operating in a similar way. So I think that's promising. You know, that said, look, you know, I think, you know, hard marketing casually is all relative, right? I mean, you know, you have to believe that you're at a technically strong starting point and then your price is in excess of lost cost trend. And, you know, I don't think that's uniform, right? I think there are places and there's certainly plenty of opportunities that we see. I just gave you one earlier. But I don't believe it's a uniform market. And that is very much what I mean by nuance. And I think, again, I think it's a great market for the best underwriters.

Appreciate that detail. Thank you.

Our next question comes from the line of Paul Newsome with Piper Sandler.

Good morning. Good morning. Give me a little bit more detail. about investment income and just trying to get to some sort of run rate thought. There's a lot of changes happening obviously with the new money moving around and moving a little bit out of that opportunity to fix income portfolio. So the same thoughts that kind of help us get a sense of where that maybe long-term trend will be, run rate will be once everything is done.

Hey, Mark, let me see if I can translate that. You're looking for a run rate of investment income in the future, assuming that we've received the flows from opportunistic. I just want to make sure I understand what you're asking.

Yeah, that's right. I mean, assuming that you've got the flows out of the opportunistic plus kind of where is it, you know, what's going on with your money rate and what you're putting into the traditional fund, it's always been a challenge to kind of figure out where exactly the right midpoint slash run rate is for investment income.

Well, I mean, the way I think about it is pretty simple. If you look at the invested asset base for core fixed income, you know what our embedded yield is. I think the yield, I don't know what interest rates are going to do. We've been investing at over 5%. for the better part of a year, and all of our cash flow will continue to go to fixed income. That's where it's going. Does that answer your question?

A little bit. I can take it offline, too, as well. Maybe back to the sort of competitive environment question. I think the concerns have been primarily that E&S is where the softening is. and, um, but especially is not necessarily ENS. Maybe you could talk a little bit further about sort of what is really kind of a true ENS that might be, um, of a concern, if at all, or what could be, is really not even in that box at all.

Um, I don't know if I want to proffer on the entire industry. Um, We've said it before, I'll say it again. What we write in the surplus lines market, I would consider to be true surplus lines. So I've heard some of the questions about what's happening with the admitted carriers as business. We don't write the stuff that's ENS like. That just isn't us. We're writing stuff that's in the ENS market for a reason. Now certainly if there's less flow coming into the ENS market, then our part of the market becomes more competitive, right? Because that's where the surplus lines writers would look. And I also get all the same data that you guys get about the early views on the major states and so forth. Look, here are the facts, Paul. We grew 43% in transactional ENS in this quarter, and we grew 27% in professional lines. Those two areas are pure surplus lines areas. And so Um, you know, I would say that that's a pretty good indicator that regardless of what's happening in the market, uh, I'll just reinforce it. You know, our strategy is a very specific strategy and we seem to be executing well, and it seems to be paying off. Do I believe that, you know, 27% growth is, you know, just like last year's 28% growth is that, you know, is that a, a number you can sort of take to the bank? No, absolutely not. I mean, let's just, uh, it just speaks to the excellent execution of our organization. and our ability to sort of pick off opportunities like the example I gave earlier. But I would just tell you, I feel like we're in a market where we can continue to win, we can continue to grow the profitability and the shareholder returns, and we can continue to grow at a level that is meaningfully enough different than sort of the cross section of the competitors that we're competing with in the market. And I've highlighted for you in the past who those are, some of the pure play specialty carriers plus the primary insurance or specialty arms of, you know, the larger sort of multi-line Bermudians. And so I feel good about where we're at, and I think the market is still conducive for us.

Okay. That's great, Colin. So I appreciate the help as always.

Our next question comes from the line of C. Gregory Peters with Raymond James.

Well, good morning, everyone. Good morning, Greg.

Hey, Greg.

So a lot of comments from you on market conditions. Your gross written premium was quite strong in the quarter. I want to go back to your comments about property and sort of integrate that with your discussion on reinsurance, the renewal and the increased retention. As we go through 24, how should we think about your growth in your property book as it relates to frequency and severity of cat losses? It seems like you haven't had a lot of exposure to date, so I'm just curious if the profile is changing there.

Yeah, no, it's a great question. Thanks, Greg. Let me just start and say something about the treaty, because I think it's important. So last year, we had an attachment point at 12, and we moved that to 15 million. On a model basis, that's a one and 10-year attachment point. So we effectively kept our same attachment point. Our exhaustion point, while we added $8 million a cover, is in excess the same sort of point. It's in excess of a one and 250 event. Um, and so, uh, well, that tells you that we've added some exposure from last year, which is no surprise because we, we grew property, right? You know, properties been, uh, you know, 25 plus percent of our book pretty consistently. And so as our book grows, uh, properties grow. And so, uh, unsurprisingly, we're adding exposure and we're all we're doing is we're keeping our, um, you know, our cat cover roughly in line on a return period basis. And of course, that tower that we buy is relatively small to the size of our property portfolio. To your point, we write a well-diversified book of property. So look, I don't think anything's going to change in terms of frequency or severity of exposure to storms. I think you already saw that in the first quarter. There was a lot of convective activity again. relatively light quarter for us. There's still a lot of convective activity going on. We'll see how Q2 turns out. And then I think as we get into the hurricane season, look, a lot of that is just what paths things take and so forth. But I can say pretty confidently right now in Q1 that if we were to have a material event or a set of material events to the industry, I think that what we'd see in terms of our results would be very favorable on a relative basis to in general and then of course since we buy a an attachment point that's a relatively conservative attachment point I think our net results would be very good as well so so I feel good about all that you would you would ask some questions about market so let me before I say anything more did I did that address your question on frequency and severity and growth and exposure yes you did you want me to want to just comment on the property market please do Okay, so, you know, it's an interesting market, right? You know, I don't think everything falls into the line of this narrative, well, you know, property pricing is attractive across the board and, you know, casually maybe the new opportunity. Again, I think it's much more nuanced. I'll take our global property as an example. We lost a very large account in Q1. Actually, we chose not to write it. This is a large global company, and we had the largest line on the primary insurance above their retention. So think about the primary $100 million that sits above a retention that is measured in tens of millions of dollars. Great example, the broker did a great job, which is split out the international exposure from the US exposure. International exposure made up about 40% of the insured values. that international exposure was primarily inside of their retentions. Well, a bunch of competitors came in and provided pricing at a 40% lower rate because theoretically exposure went down. Well, that was just silly. That's just like a ridiculous approach. And so there's an example of hungry, hungry companies out there writing things in ways that I just don't think are sensible. And we just let that account go. And by the way, we had that account for a very long time. It sets an example where you're like, okay, you know, people are basically putting out lines on big accounts to try to basically grow quickly. And that's okay. That's fine. You know, we expect a little bit of that. We've won a few in global property over the quarter as well to offset that for sure. And then I look at places like Marine, you know, we steer clear of things like, you know, the stock throughput stuff, because it's just, it's a commodity area, and there's way too many MGAs in there. And so, you know, what we've found in Marine is that we're competing against the same competitors who seem to be very sensible. You know, maybe a little bit of change in terms and conditions, which we're incredibly tight on, but by and large, the market feels pretty darn good. When I look at our property ENS, transactional ENS in property, submissions were just absolutely booming, like booming still. And so, you know, we're still seeing plenty of opportunity. You know, for us, on the hard technical stuff, if you're, let's say, writing a risk related to something in the wood sector, which is a very low frequency but very high severity, like we're not backing up a bit. And so we, we have our line, uh, we haven't really seen a lot of, a lot of companies who are, you know, sort of poaching into that line. So a lot of that stuff sticking, uh, and then in the general property, uh, part of the, of our book, you know, I'd say pricing is pretty darn rich. And so if you get a little bit of competition there, you know, to be able to give up some price, you can do that and still feel great that, you know, you're able to drive a very attractive return from, from that portfolio. And so those four examples are things that should give you a sense that not everything is behaving in kind of one uniform way. And again, we set up our business, Greg, as you know, to have an incredibly well-diversified portfolio so that we're not stuck in single market cycles and that we can push down where we see the opportunities. And I think that our results talk to sort of the benefit of that strategy.

That's great color. Just to clean up, it's my follow-up question on your answers there. You mentioned limits, what your company is writing out in the marketplace. Maybe you could just close the loop for us on limits and just sort of remind us what your net limits are, broadly speaking, and then maybe by a couple of more important segments.

Yeah, so in property, generally speaking, our max net limit is about $3.5 million. So, yeah, so that applies across the entire piece.

And the other segments, too?

Yeah, that would apply everywhere. So that would apply when we write property and industry solutions in Inland Marine, certainly in Enas, and And then when in global property, I think I've explained in the past that what we've had is long-term quota share support that allows us to be one of the largest lines in the marketplace in writing the primary of those programs. And that long-term support is obviously where we're keeping a very considerable portion of that aligned to sort of the $3.5 million net.

That's great information. Thanks for the detail.

Sure. Thanks, Greg.

Our next question comes from the line of Matt Carletti with Citizens JMP.

Thanks. Good morning. Good morning, Matt.

Good morning. You know, there's been a lot of focus, I'd say, industry-wide right on reserves the past several quarters. You guys are in kind of a shrinking group of companies, a rare company. that's showing a lot of stability there. And I think in your opening comments, I picked up a comment about even kind of increasing the conservatism. Could you just kind of go behind the scenes a little bit and update us on what you're seeing there, kind of what some of the indications are and how you might be reacting to those?

Well, I'll start and Mark can jump in. But look, just to be very specific, in this quarter, to Mark's comment in the prepared remarks, our emergence in the quarter was favorable, yet we didn't recognize any of that. And I think probably the simplest way to describe how we think about things is, of course, we are looking at the level of reserve redundancy in our book, and we're also looking at the maturity of that redundancy, right? So you can have redundancy, but the question is, is that redundancy showing up in greener years or more mature years? And so we're constantly watching those two things. And we've been asked probably since we started engaging with you and the other analysts and our investors from pre-IPO to today, When will you release reserves? And our answers are the same, which is we're not going to tell you. And quite honestly, we don't know, right? Because we have a bias, as we have said all along, to build a conservative position and then to demonstrate to ourselves that that conservative position is consistent and predictable along the lines of what we're expecting. And I think we've done a really good job, but we also think that we're able to deliver attractive results for our shareholders while not sort of stretching ourselves on the liability side of the balance sheet in any way. And so, you know, I would just say to you, I feel like it's a good news story and that You know, our hope, as I've always said, and our belief based on everything that we're seeing is that our actual results are better than our reported results. And at some point that should inure to the benefit of our investors.

That makes a lot of sense. Maybe a follow up to shifting gears. I want to go back to the net investment income discussion, Paul's question. Sure. Maybe if I just take a different look at it. I mean, I look at this quarter kind of the new disclosures, right, and the alternatives, it didn't really have an impact, right? I think it was 100,000 die. So I look at that 18 million you reported, it looks pretty clean to me. Am I right in thinking about like that's a very sustainable number going forward and that obviously the changes from there would be, you know, more cash flow coming in at higher yields, and that works over time, but at least there's a leaping off point. There's no reason to think that that's not a good leaping off point.

Matt, thank you. I agree. I think that's a good way to look at it. I would highlight the fact that short-term rates could change quickly, right, over short-term. So, yeah, I look at that $17 million in the quarter as pretty consistent, but again, it depends on what happens with short-term rates. And look, we've been focused on deploying the cash in short-term. We've got a pretty good situation where we're generating more cash that we're putting to work.

Our plan is to be fully deployed by the end of 24th. Matt, I would just add one thing. You know that our assets grew by $400 million year over year. So this point last year, $400 million. To Mark's point, like, I don't know how many times we said our plan is to fully deploy our cash by da-da-da-da-da-da-da. And, you know, we're generating so much cash, we've not been able to put it to work. And in this case, Mark made the point, which is we've been blessed with, you know, with short-term rates that are really great. If that changes, that's one that's one variable here that's uncertain. But the you know, the fact is, is that the invested assets are growing at a pretty a pretty attractive clip. And and, you know, that that, of course, is something that we're trying to respond to. But, you know, it's you can only deploy so quickly, you know, within sort of the bounds of how it is that we've we've set our near term investment strategy.

Yeah, very, very, very high class problem. Yeah. Thank you for the color. Appreciate it. Thank you. Thanks, Matt.

Our next question comes from the line of Meyer Shields with KBW.

Chris, thanks. Good morning.

One quick question.

Hey, good morning, Mayor. I'm surprised you're awake because you were cranking them out early into the morning, I saw. So well done to be here.

Well, thank you. My bloodstream is 95% coffee right now. Are you seeing any change in the inflation rate for claims on short-tailed lines like property or in the marine? No. Okay. Second question, just on comments you made earlier, Andrew, with regard to non-renewals and commercial auto. So we're definitely hearing a lot of talk of sustained or accelerating commercial auto rate increases. And I was hoping you could talk to, at least conceptually, why non-renewal made more sense than just jacking up rates.

Okay. i i know that certainly at this exact same call last year and maybe even maybe even the call before that i kept making the point that as it relates to commercial auto if we are seeing you know high single digits 10-ish lost cost inflation um And now we kind of see that unabating. And I can give you a granular kind of view as well in a moment, Mary, but like that feels unsustainable when you keep saying that over and over and over, right? So, okay, so what are you going to get 11 or 12% rate, but you're in a 10% lost cost inflation environment. That is not the kind of marketplace that we want to grow into. And I think that what has happened here with elements of the plaintiff bar and social inflation finding its ways into different things. I'll give you a simple example. Sorry, this week we received a first ever first notice of loss with a Stowers demand, a time limit demand attached to the first notice of loss, right? And by the way, it was a pretty heavily prepared document from a plaintiff lawyer. That just feels like a different day. Now, whether there's validity to it or not, just the effort to respond to a first notice of loss like that is in itself a heavy lift, but it is an indication as to what's happening in this marketplace. And we just, on the personal injury part of the market, um you know if we can if we can lean up on the accelerator and tap on the brake uh we're going to do so and then then ultimately it's up to the states as to whether they can reform you know the the the legal environment the tort environment to make it more reasonable because it is just It's out of control. And everybody who's close to it understands it viscerally. And so we've been studying it and studying and studying it. And I think I indicated that we were going to ease up on exposure. And we have been easing up on exposure. And that premium doesn't even fully reflect the lower exposure because the rate that we've been getting for each unit that we write is higher than the average rate for the rest of our business. So that's the thinking behind it.

Okay, perfect. That's very helpful. And one last quick one, if I can. Updated expectations maybe for the net to gross written premium ratio for 2024. First quarter came in a little higher than I expected.

No, I mean, Mayor, it's Mark. It's in line with where we were in the first quarter. Low 60s is what we're looking for. So I think it's right where we thought it would be.

Mayor, I'd remind you that there was a little bit of noise for you and others as well. There was a little bit of noise last year. We had a quarter share contract that ran through first and second quarter that we unwound in the third quarter. And so there's some geography issues that play through. But I also do think that when we set guidance for the full year, we were quite explicit saying that our full year 23 Gross to net is a reasonable planning assumption for your models.

Yeah, perfect. I just wanted to see the update. That's very helpful. Thank you so much.

Thank you. Thanks, Bear.

Our next question comes from the line of Yaron Kinnar with Jefferies.

Thank you. Good morning. Good morning. Good morning. Good morning. I just want to start with maybe a quick one. The Baltimore Bridge collapse, do you have any exposure to that? uh no none okay um then maybe a broader conceptual question with regards to the mixed shift um obviously benefited the underlying loss ratio to an extent but we also see that coming back a little bit through a higher expense ratio so team maybe talk through in a more holistic sense like what the benefit of the mixed shift is maybe beyond the underlying uh combined ratio is it a better capital efficiency? Is it a better long-term risk profile? What do you see about that mix that is attractive to you?

Well, look, great question, by the way. And the answer is it's parts of all the things that you talked about. So, you know, if you really look at a lot of where the growth has been coming from, you know, we've driven a lot of growth from surety. We've driven certainly a lot of growth from our transactional ENFs. You are correct. They are higher expense ratio business. Part of that is they're, you know, in the case of E&S, it's wholesale, so your commissions are higher there. Surety is obviously the highest commissions. And, yes, we're comfortable with that tradeoff. We think that both our sort of belief that that sort of profile of risk exposure and then ultimately loss has less of some of the things that, for example, we were just talking about, which is, you know, kind of uncertainty around loss inflation on personal injury. And that's included, by the way, for what we write in our general liability within transactional E&S, I would characterize that same way. And then, by the way, in the case of surety and others, they're incredibly good applications of our capital, very diversifying And quite honestly, you know, one of the reasons that I believe that, you know, we're able to sort of achieve the kind of capital leverage that we've been able to achieve. So it is all those things. I think the other part of it is we keep just coming back to it. We want to have a well-diversified portfolio, right? So, you know, for example, if we could press down faster and harder in A&H, because for us that's great diversification, we would. There's boundaries to our ability to grow profitably there at maybe the same speed we can in certain areas. That may change a year from now, but that's what we're seeing right now.

Thanks. That's helpful. If I could also sneak in one comment slash question, and forgive if I missed this, I did not see disclosures of premiums by division in the press release last night. If you chose to remove those, I'm just curious as to why, just considering that so much of the story, I think, at Skyward is about exceptional premium growth and understanding the drivers for that growth is helpful for us in the investment community.

You're on. Hey, it's Mark. A good question. We will be including in the press release going forward. The queue will be out tomorrow, so it's there. It was just a matter of it will be in the queue. We'll have it in the press releases going forward, but you'll see it in the queue tomorrow.

And, Jeroen, just for your benefit, not to sort of throw a bunch of numbers at you, but industry solutions through 16%, global property and ag, 35%. Programs, 7%. A&H, 14%. Captives, 49%. professional lines, 27%, surety, 37%, and transactional ENS, 43%. Awesome.

Thank you so much.

And apologies for the oversight. We will correct that. Thank you for that. You're right in that observation.

Our next question comes from the line of Bill Karkash with Wolf Research.

Thanks. Good morning, Andrew and Mark.

Bill.

As investors analyze the interplay between your growth and returns, how much of that is an outcome versus something that you're actively managing to? I appreciate your comments around the nuanced market with attractive opportunities for the best underwriters, and it seems like you're focused on identifying those areas where you're competing beyond just price, but it would be helpful if you could sort of address how important of a lever pricing as you manage to your targets?

Yeah, I mean, implicitly, thank you, by the way. It's a great question. I think implicit in your question, if I'm correct, is just the, hey, what happens if you got double the price, but you got less growth? How does that look? And I think our general philosophy is as follows, which is that we've stated in unambiguous terms that, you know, we're targeting a 15 plus percent return on equity. And I think that one, and by the way, we've been consistently kind of, you know, showing up, you know, at or above that number. And our sense here is as long as we can add units and we believe the units kind of fit with our strategy that the, you know, our ability to sort of capture value some in some of our businesses keep that value for a long time right you know sure do be a great example of that that that's a good proposition for our shareholders right areas like transactionally NS are more transactional they're you know it's sort of a lower retention business you might you might write an account for a couple of years you know and then you might not write it again and so but I just will tell you that that the watermark for us is is you know trying to make sure that we're writing above a 15 return and if we can add more units there we generally will do so um and you know and then the good news is if we do that well you might get some expense leverage you might get some capital leverage that ends up giving you you know a bit more juice in terms of your roes that kind of aren't formulae

That's very helpful. Thank you. And then following up on your success onboarding underwriting talent and enjoying incremental business that's come with that, how concerned are you about competitors potentially poaching some of that talent in the future? Have you seen evidence of that? Maybe speak to your success rate in retaining the talent that you have onboarded.

It's a really excellent question. What I can tell you is that our voluntary attrition last year was 7%. And we share data with a consortium of other insurers, not just on retention, but on a range of people, HR matters. And by our measure, that's kind of close to the best, if not the best out there. And I think as you get into the specialty space, I think the war for talent is much greater than, for example, if you're in personal lines are small commercial so because they're just there's a dearth of talent and and it is specialty right which means that generally speaking people are good narrow technical you know focus areas and so forth they're harder to come by and so so I feel very good about our yes I think the war for talent continues and and and yes we are concerned it is one of the reasons and and listen we beat the drum on this all the time it's one of the reasons that we are so so focused on the people dimensions of our business it is born from like a genuine interest starting with me and the other members of our elt that this is the kind of company that we want to have you know a company that is very people-centric um but i also think there's just like a practical competitive consideration which is if we create a culture that people feel genuinely part of and connected to and personal owners in, um, that is probably the best defense that we possibly can have. And, uh, and I will say there's always, I mean, the MGAs are just, it's crazy, right? There's just spot market, um, sort of pricing for talent. That's not rational. Uh, when you look at the economics of our industry, um, uh, but you know, that's just the nature of the beast. If there's a dearth of talent, that's going to happen. And then ultimately, we rely on the ecosystem that we've built. And I will say to you, and I really do encourage this, go look at our annual people report. If you're not part of our organization, it's the best way to have a window into our organization. And I think that from that, you will understand why we're certainly not, it's not a topic that we're ignorant of. But we've done the things that we should be doing to put ourselves in a great position as it relates to that.

Thank you. That's very helpful. And then if I could squeeze in one last one. How focused are you on downside risk estimates from a lower rate environment? Is there a point maybe if you could share any thoughts with us where you look to protect yourself? from lower rates and the actions that you take potentially lock in relatively more attractive higher rates.

So, Bill, just for our clarification, you're talking about on the asset side investments, correct?

Yes. Yes. Sorry about that. Yeah, that's correct.

You know, Bill, look, we kept our duration right at about four. No real interest in extending it. We'll see how rates move during the year. But I think where we are in our duration, I like it. And I think the returns are fine. We're not going to react immediately.

We'll just see how the interest rates play out. Bill, I'd add one thing. We've been blessed with the interest rate environment that we're in. And so as Mark has commented, every time we put our free cash flow to work in our core fixed income it's going to very, very, very high quality, you know, very high quality assets. And so, you know, like if the rates start to back up, you know, the first place that we would look is, can we start to blend in slightly, you know, lower credit? And that we're not talking about, you know, like jumping in the junk, just like moving down, you know, the investment grade credit and having a bit more of the lower end of that. And then, you know, if we ever, God forbid, find ourselves in that 0% interest rate environment where new money yields were 2%, I think at that point you both have to reconsider how you think about the way that you talk about your returns on capital, because obviously it's a different cost of capital environment, but also you kind of reevaluate your investment strategy in a different context. I feel like we have a long way to go before that, and we keep growing our embedded yield. And even if interest rates were 4% in the medium term, that's still an attractive place for us to continue to have an allocation to the high-quality core fixed income.

That's very helpful, Culler. Thank you for taking my questions. Sure. Sure.

Our next question comes from the line of Michael Zremski with BMO.

Hey, thanks. I think I can ask one more. A lot of good questions. So, you know, given the majority of our questions are on cash and inflation, you've given us some good color. Now, Andrew, you talked about kind of, I think it might have been your prepared remarks, about pulling back some limits and tightening some terms. I believe that I'm assuming you guys have had excellent margin experience and reserve experience that's more on the commercial auto side. But maybe you can clarify that, or maybe it is just all casualty. And just also maybe more broadly from a macro standpoint, are there maybe certain states that you guys feel are more social inflationary, if that's a word, and you've looked to kind of pull back on or any other gauges you guys kind of look at to try to keep social inflation in check?

Yeah, no, great question. I think for us, my comments on the terms and limits actually were principally around the general liability and excess. And of course, excess, you'll pick up both auto exposure as well as general liability employers liability as well exposure and so you know a lot of this is around you know things like additional insurance and and and where that comes into play and so we've taken you know just work you know obviously like every good underwriter right you you watch you see you look for early indicators you try to turn the crank if you see something that's popping that you're like, well, I want to make sure that, you know, we're moving on that before everything is fully baked. And so that was really more of a reference to that. You know, I think relative to auto, we've gone pretty far down the path of, you know, even down to things like in one part of our business, if you're not, you know, using telematics is not turned on and an accident occurs that, you know, you get knocked back to, the statutory minimum limited available. You know, we had things around reporting times and the deductible to the insured. I mean, some, you know, because we write that on an ENS basis. So I think we've done pretty much what we can do on auto, you know, outside of risk selection and price. As it relates to venue, look, I think that in theory, every venue could be a political or could be a judicial hellhole, right, as opposed to you know, the ones that are always publicized as judicial households, look, very few of our claims end up in a, you know, in front of a jury. But I think the truth is, is that there is, there's certainly great exposure to juries not being representative of how a particular jurisdiction is viewed on its level of conservatism. That said, I mean, I saw a case yesterday where Now, you say it was it was this week. I can't remember the specifics, but I'll pull it out for you where the jury did like a crazy award, like a 30 million dollar award. And the judge basically pulled it back to a million to the to the, you know, to the to the coverage level of a million dollars. Right. So the jury went wild and the judge kind of stepped in. That was in Pennsylvania. And so, you know, there's certainly reasons to say that. kind of the conservativism of the jurisdiction can really make a difference, and that's an example. What I will say to you is that it's not a state-by-state, it's a county-by-county kind of thing at this point, and so it would be hard to enumerate it, but this is something that we absolutely watch and we're trying to address in terms of where it is that we're taking on exposure.

That's helpful, Collin. That's all I have. Thank you. Thank you. Thanks, Mike.

That concludes today's question and answer session. I'd like to turn the call back to Natalie Schoolcraft for closing remarks.

Thanks, everyone, for your questions, for participating in our conference call, and for your continued interest in and support of thyroid specialty. I am available after the call to answer any additional questions that you may have. We look forward to speaking with you again on our second quarter earnings call. Thank you and have a wonderful day.

This concludes today's conference call. Thank you for participating. You may now disconnect.