All right. Well, hey, good afternoon, everyone, and it's a pleasure to have Andrew Robinson here with us, Chairman and CEO of Skyward Insurance Group. And I'm gonna jump into the questions. Just a reminder, if you'd like to stay in the group session, just stay on, and we will move into the group. Now, you're welcome to send a chat to me, and I'll read off any questions that you might have, or you can ask Andrew the questions directly in the group. So just wanted to make that clear. Andrew, great to see you.
Thank you.
I think maybe I'll just jump right into the questions.
Perfect.
Okay. So for us, those of us new to the story, Andrew, help us understand what differentiates Skyward from other specialty commercial insurers. We're familiar with ruling your niche. You know, you've talked about a strong defensible market position, a competitive moat. Help us understand those variables.
Yeah, look, I, I think that, you know, I'd like to think that, that there are similarities amongst really great companies, right? So, you know, that similarities hopefully allows those companies to sort of deliver outstanding results, you know, build companies that are a great place to work, and so forth. And so in, in that regard, I think we're actually quite similar to some of the, the best that are out there. The idea behind rule your niche is, is a couple different facets. It's just the fundamentals are that we are always thinking through the lens of: where are the parts of the market that are more complex from an insurance, from a risk transfer perspective, where we can do something that, you know, we can earn, you know, really great underwriting result?
You know, we talk about that specifically in terms of being a top-quartile underwriter in everything we do. But importantly, where we have a point of view about how to do it in a way that allows us to have this, this kind of defensible position or competitive moat. Inevitably, it is about looking at parts of the market that are, you know, higher acuity, complex, difficult to serve, and it is ultimately about products, people, and the way that we use technology. And in every instance, there are varying sort of degrees of each of those pieces that you know, allow us to have, you know, really strong positions.
Top-down, we try to construct our portfolio in a way that is really balanced, and I do think that if you were to ask me, one of the two most distinctive things about our business, it is that. You know, we're a business that's about $1.6-$1.7 billion in premium, but we are quite intentional about the diversification of our portfolio. We think very explicitly about having balance, such that, at any point in time, we have multiple options as to where we can press on the accelerator if, in fact, we're pressing or tapping on the brakes in other parts of our business. And I think the diversification, you see it in that we get-
While we are gross line underwriters, you know, we are a true underwriting company, we actually are very efficient deployers of capital, you know, in terms of just the amount of capital for the level of premium, and that's a direct by-product of our portfolio. And that includes even just simple things like, roughly half of our business is short-tail liabilities, less than two years, and half is we call medium-tail liabilities, two to five years. That's very intentional. We try to keep that in relative balance. So there are things like that that are top-down. And the other thing I would just say differentiates us, that I certainly-
It's something that you have to get closer to us to understand, is that we are, we are darn people-centric, and I, I think in a, in a relatively short period of time, we've accumulated a, a roster of unbelievable, genuinely unbelievable, underwriting talent. And you know, I do talk about in terms of A-plus talent, but the people who come to us are the kind of people that kind of really match into our culture, you know, and help to sort of promote the kind of things that are important, and we are really good at keeping them, right? Last year, you know, we had an industry-leading 7%, voluntary attrition, which amongst specialty carriers in particular, is difficult because it's, you know, there's just a dearth of talent, and there's such a competition.
So, if I was to highlight two things, I would, I would tell you, you know, we're probably quite similar in a lot of attributes to the, to the better, the best players. But a couple things that are unique is, given our size, the diversification and the way we've constructed our portfolio, and I certainly think the talent that we've accumulated, given our size, is, is second to none in the industry.
Yeah, and maybe just drill a little bit more. I know you said you need to be close to the company, but exceptional underwriting and claims talent is something you've outlined in some of your presentations. Where are these people coming from? What makes them exceptional?
Yeah, so well, I'll give you the most recent example to bring it to life. And I'll say this: you know, who we target are almost always people that are known to us, where we have a really good view into their underwriting track record, their marketplace following, you know, who they are as a person. And other things, you know, just the patterns of underwriting if they're underwriters. And a great recent example is in the fourth quarter of last year, you know, we had been on almost a three-year effort to add a media liability team into our professional lines business, and we targeted three teams. There was one team that we really wanted, and came the fourth quarter of last year, we were able to get the team that we wanted.
They came across, and part of their coming across is an interesting story, right? So the team came from Intact, and it just so happens that our Chief Claims Officer and our Chief People Officer, Intact is formerly OneBeacon, as you probably know.
Mm-hmm.
We were the Chief People Officer and Chief Claims Officer at OneBeacon, so there were relationships there. But what won the day for us was when the head of the media liability team reached out to a woman who runs our healthcare professional liability team, who joined about two years ago, who also spent time at OneBeacon, to understand whether all the promises that we describe are just a bunch of window dressing or will be fulfilled. And a lot of that has to do with how quickly we're able to deploy technology, how advanced we are in the technology that we can make available, the way the organization surrounds teams when they come on board to help them promote their success. And importantly, will we make the investments that sort of follow after that?
Sarah Logue, our head of professional liability—our head of our healthcare professional liability team, was like: "I've never experienced anything like this. Not only have they done exactly what they said they would do, we're actually investing more in the business as I've put forward some additional opportunities." And sure enough, not only do we bring that team across, but right after that, and just in this -- I think it's this week, in fact, we announced a very serious expansion of that team by adding, you know, another sort of cadre of really talented people, including one of the top claims people in the media liability space. And a lot of this had to do with, these people had choices, right?
What they're doing is they're just, they're just diligencing, like, are these guys at Skyward really as good as they say they are? And listen, we're not perfect by any measure, but you know, the way that we've committed ourselves, you know, to sort of strategically growing in specific areas and being, in some cases, multi-year conversations with the people or teams that we're going after, and then when it comes time for them to make a decision, you know, we don't hide from things. We want them to understand by talking to others who have come on board what that experience has been like, and that just becomes self-fulfilling.
It's something that is unique and quite honestly, I think that it has been probably the reason that we have brought on so many talented people in such a short period of time. It's almost as if it has snowballed, where you get the premier talent, and that just builds on itself.
That's awesome. Maybe pivoting, 'cause I wanna still come back to the differentiation, but maybe pivoting to your business mix a bit, you said you're shifting the mix toward more profitable lines. I saw that in a recent presentation. Which lines are you focusing on? What does the mix look like in terms of products?
Yeah, so, well, the most notable change is that, you know, we have disproportionately, over the course of the last three years, grown our transactional E&S underwriting division, our surety underwriting division, and our professional underwriting division. And our professional underwriting division, it's important to say this, 'cause I think there tends to be a bit of confusion, 'cause sometimes people will associate professional with public D&O, which is not, you know, what our business is. It's a, you know, it's a combination of a variety of claims-made businesses, including the healthcare professional component, which I just mentioned to you. And to put that in context, when I joined, we had a professional business. It was a business that we've since left, title agents, insurance agents and brokers, lawyers' professional liability, all of which we exited.
We had no transactional E&S business, and we had about $6 million of surety business. On a run rate basis, those three businesses together are well in excess of $400 million. So, you know, in three and a half years, we've built enviable positions in, you know, three important businesses, where we earn really attractive returns on capital. Surety is a pretty astonishing one, 'cause I don't think there is an analog to our story, where, you know, we are in a very short period of time a top 25 surety.
And by the way, when you look at, you know, the list of the others in the top 25, most of them are either, you know, very large international players or, or household names here in the U.S., and then, you know, you've got- you've got Skyward, right? So it's a pretty, it's a pretty amazing accomplishment. And all three of those businesses are places where, you know, we started with people that we knew, and we added more people that we knew, and it kind of snowballed.
Like in the case of surety, great example, you know, we started not just adding regional teams, but we added, you know, teams from others around fiduciary and judicial bonds, you know, Small Business Administration bonds, and just all these areas of kind of, you know, very specific points of focus that really rounded out our portfolio. We certainly have become, you know, a place where great surety underwriters wanna come work. That there's no question about. So, you know, those three businesses have really kind of been a core piece of it. You know, other parts that have been a core piece are captives. We certainly have seen as the market has -- kind of been hard here for a while, and you know, everybody's experiencing on, you know, and every insurer is experiencing a higher cost of insurance.
What we've done is we've kind of leaned in on group captives, where we've created captive solutions that sit side by side with our guaranteed cost solutions within our energy business, and within construction. That's been a great success of leveraging our expertise on underwriting and claims, but providing an alternative product to guaranteed costs. So that's certainly been a big growth area. You know, all of our businesses have grown to a certain extent, right? When we report out, it's almost inevitable. We're like, "Well, in this quarter, everything grew, and 7 out of our 8 underwriting divisions grew at double-digit, and five of the eight or six of the eight grew at this," and that, that's kind of been consistent here for a multiple number of quarters. I think it's a lot more nuanced today.
As a company, we're probably trying to do a bit more around the parts of our business that are less P&C cycle exposed, and so for us, that would include things like surety, our A&H business, our agribusiness would be the kinds of things that we wanna lean in harder, and they're less exposed to the cycles. And simultaneously, you know, I think that the sort of loss cost inflation and the social inflation, particularly as it relates to personal injury, would have us being, let's call it, more diligent on the growth around, broadly around the casualty part of our portfolio.
And we're -- I wouldn't say that we're sort of not excited about the growth, I just think that the, you know, the assessment as to the confidence of the underwriting profitability is tested against, I think, a far tougher sort of social inflation, loss cost inflation, you know, backdrop that, you know, that we're challenging ourselves to make sure that we feel comfortable with.
Makes a lot of sense. And I think along those lines, you've cited low underwriting volatility. Now, is that just something with low cat exposure limits, or is it just-
Great question.
Most of the business?
It's a great. Yeah, no, that's a great question. I first thing I'd say to you is that sort of at a macro level, 56% of our book is short tail liabilities, less than two years, right? Which is, you know, in itself is fantastic as you think about sort of, you know, your reserve and confidence, and so forth. Within that, 26% of our business is property, so we have a very considerable share, you know, more than the commercial insurance market in total dedicated to property. Yet, you know, a combination of both that we are not an intentional cat writer.
You know, as the market, you know, really buoyed last year on, on, you know, pricing of tier one cat, you know, unlike some of our other peers, we just didn't build a portfolio around that, and we didn't because we couldn't see a way to rule our niche, right? It was, you know, it's capacity swapping. It'll, it'll, it'll be very good while the pricing is good, and when the pricing is not good, if you're disciplined, you let the business go, and that's not -- that doesn't fit with our model, so we didn't load up on that. But the way that we, we approach it is that, a portion of our business, our transactional E&S property business, it's fire is the principal peril. We're writing hard technical risks that are, that are really about fire as the peril.
But where we have cat exposure, for example, in global property, which is not immaterial, I just think we're not only great underwriters, but even, even moreover, we're really good managers of aggregate. So, you know, for us, we make sure that that we're really just not concentrated in terms of our aggregate exposure, in ways that can give us an outsized loss. And importantly, to your point, you just look at our cat results as compared to any cohort you want, and we are always amongst the very best, and yet we still have 26% of our business in property, which is a real sort of unique profile that that I think no other company really has, that you might compare us to.
That's really interesting. And then just in terms of the policy limits that your business is, right, are there anything you could say around that?
Yeah, setting aside global property, which I'll talk about in a second, you know, our policy limits are short. You know, we're certainly primary insurance writers for the most part. Generally speaking, when we write excess, we're writing supporting ourselves. We do write some, you know, monoline excess, but we're writing, you know, $5 million limits. We don't write $10 million limits. We keep things short. And, you know, that's just our belief as to, you know -- I'd rather be more sensitive to the loss, but understand it fast, so that you can make adjustments.
On Global Property, which I think is the one part of our business that is somewhat distinct from other parts of our business, you know, we write the primary insurance layer of very large global corporations. So these are oftentimes companies that have multi-billion dollar exposures, and what we're writing is we're writing the primary layer that sits right above the self-insured retention, so call that the primary $100 million. It is the most technical, the toughest sort of part of the layer of the program to write. It's also the area where you can make a lot of money if you do it really well. And our sort of angle on that is, first off, we write it only out of one location, so it's not like it's distributed.
You know, we have presence in London, presence. Everything comes into Houston, where our team is. We have very large limits, and the reason we have large limits is 'cause we have longstanding quota share partners. And this is not unimportant for us, 'cause we are oftentimes, despite the fact that we're a small company, oftentimes we are writing amongst, if not the largest, limit on that primary insurance, which gives us a pretty considerable balance of power in terms of, you know, price and terms. And it's not unusual for us to write the, you know, those parts of the programs on non-concurrent terms, where our terms are more restrictive than others, but we're also providing a lot of capacity into that. And these are. You know, we're talking about 125 accounts, right?
It's not, you know, it's not a huge number of accounts, and, you know, $225 million of, you know, of business. But, but in that, you know, these are accounts that, by and large, are accounts that we've supported for a long time, right? You know, if we, if we grow our account base by 10 accounts in a year, you know, that's a relatively considerable number. So it's actually a rather stable business in that regard, and, and somewhat unique, but it's taken us, you know, before I joined the organization, you know, sort of the, the stability in building that, that, you know, really formed a big part of our success.
You know, during the course of the last four years since I've been in the organization, it's been hardened, is what I would say, as opposed to in other parts of our business, which have really been created.
Interesting line. So are you pretty much -- you know, just real quickly, are you pretty much across the spectrum of small and large accounts, depending on-
It's, in that business, it's purely large accounts.
Okay.
So you're really thinking about, like, the Global 1000.
Well, the whole-
Where we would touch middle-size accounts would be in our transactional E&S, in our inland marine, and where we write property in our industry solutions, focused on construction and energy, and those are the other places. But they would be more sort of where we're more, I'd say, middle-market focused.
I see. I see. So mostly it's, you know, depending on the line, it's mid to large?
Correct. Yeah, we are not a small accounts company. We took the decision early on that the sort of true small business market was not for us for a whole range of reasons, not the least of which is that whether you're on the standard line side, you know, nobody's gonna compete against great companies like Hartford and Travelers. And in the, you know, the binding authority business, you know, these are well-established, data-rich, data-intensive things. And what we're looking for is, you know, opportunities where we can get really creative around, you know, understanding exposure. And you know, if it's a quite specialized area, that actually gives nobody an advantage in terms of data.
So, you know, we think about things, I think, in a way that allows us to enter into a market and not be disadvantaged. I think in the small commercial market, it was just something that, you know, when I directed us in terms of our strategy, it was a pretty high bar to convince me that, you know, we could be successful there.
That makes a ton of sense. Maybe shifting over to the expense ratio, Andrew, you came in at 28.7. That was up a little bit prior to the first quarter of the year ago, but you know, I think that was due to business mix. But you're under 30, which is pretty amazing.
Yes, it is.
I mean, for your size, that's pretty amazing. How do you do it? Can you sustain it? Maybe even just throwing in surety, I'm of the understanding that-
Oh, my God, yeah.
The costs are much higher there, so as you kind of grow that, it could push up. But do you see yourself as a sub-30 combined-
We do. We do. We have said that, and, you know, it's more than just finger-crossing to try to make sure that we're there. You know, we have two competing kind of features to, you know, to try to maintain that sub-30. One, as you rightly noted, you know, the mix is balancing towards, you know, higher expense ratio businesses, right? If you're growing in surety, or you're growing in professional liability, or you're growing in transactional E&S, that's, by the way, you know, all those are very high commission businesses, right? So, you know, in that regard, they eat up, they just eat up a lot of the dollars.
Right, yeah.
On one hand, but, you know, with more attractive loss ratios and more attractive overall combined ratios, you know, that's certainly one. And the second thing is that we have been, you know, considerably investing in our business, and that's, you know, that's people and technology and so forth. So, you know, we're oftentimes asked, like, "Okay, you know, where will you be?" And I answer the question, just the way you asked it to me, which is we're gonna be sub-30. Certainly there are dollars in our business that have not, you know, they've not earned the revenue against them, so probably our -- you know, if you just stopped investing, our, our sort of implicit expense ratio would be lower.
But look, we think, you know, investing around making sure that we have an information advantage, that our insights, around, how to improve the fidelity of risk selection, you know, the fidelity of pricing and, and adjudicating optimal claims outcomes, that's a never-ending thing. Like, that's just a part of our DNA, and, and I don't think it'll ever stop. And so I think sub-30 is the place that we wanna be, and the leverage we're gonna seek to get is on, on the expense ratio side. And, you know, so I just think that that's generally, you know, how we think about it. But you, but you're right. I -- you know, there's, there is, you know, amongst our peers, there's one just, you know, standout player in terms of expense ratio, and their business is very different.
Then there's probably one other very well-respected specialty carrier who's got an expense ratio just like us, and then most others are quite a bit higher. You know, so, you know, for us, it should be a source of advantage.
Yeah. I mean, so despite your investing and some of your higher commission businesses, you're committed to that. Maybe no specific number, like 28.7 last quarter, but sub-30.
Sub-30. Yeah, sub-30. I think that that's-
That's awesome.
That's right. And you asked, you know, you asked a little bit about why, and, you know, it's not one thing, right? I mean, you know, anybody who's been around insurance enough knows that it truly is a game of nickels, right? I mean, this is not like -- there is no get-rich scheme, get rich quick if you're gonna be a risk-taker, right? It's like you vacuum up every single nickel you can. And in our case, you know, we have pretty efficient sort of core operating platforms. Our ability to bring in, you know, new data services, new, you know, predictive analytics into our environment, you know, is done really quite efficiently. So, you know, from just a sort of a core operating platform, you know, I think we're pretty darn efficient.
I think the thing that is rather unique is the ways that we have put leverage into our business that I don't think others have yet. So a great example of that, you know, a very recent example of that, is that nearly every one of our businesses now are using GenAI to ensure that they have a great view into every submission on a narrated sort of, you know, very simplified basis. So if you're getting a, you know, a 20-30-page submission and you're an underwriter and you've got to peruse that, it's a heck of a lot easier to get a page-and-a-half narrative to be able to sort through whether you should spend time on that risk or not, and that's a great example of just, you know, adding efficiency.
A really great example of where we've bent the curve in one of our businesses is in professional liability. Miscellaneous E&O is our largest line of business, and Jim Mormile, our leader for that business, you know, concluded that, you know, we've kind of filled out our footprint with the best production underwriters that there are in the industry, and yet we don't wanna add more. So the question is, you know, how do we basically make them even more productive?
And a big part of that was we invested very heavily in our predictive analytics to be able to identify the portion of our renewal book that we could serve up, you know, automated renewals, you know, with a narrow set of questions, you know, principally focused on, you know, anything that's changed in the underlying exposure, with really great analytics that drive price elasticity, where you can get the most dollars, you know, on the renewal rate. And today we have, you know, 86% of our PIF and 50% of our premium for that line of business, you know, running through that renewal engine.
And, our top underwriting, you know, production underwriter, you know, has doubled her, you know, her production off the back of that, which, by the way, she's done not only 'cause she writes a book that happens to be very sort of fit for that, but importantly, she's now searching for, like, all the business that actually fits into that renewal underwriting box, really well because it makes her even more efficient. And so there's a great example where, you know, we're just bending the curve on traditional things without giving up a dollar of efficacy in terms of our ability to drive, you know, really high-quality underwriting margin in that business.
That's great. And then maybe -- I see you've got, like, maybe four minutes remaining, so I could ask this one. You've talked in recent quarters, or actually on the loss ratio, you know, the expense ratio sounds great. You did 60.9% loss ratio, down 1.9% from the first quarter of 2023. Could you talk to us a bit about the loss cost trends and how you're able to increase profitability, where you see that going this year, next year, and beyond?
Yeah. Well, I will tell you that most of what you're seeing run through our loss ratio is really almost a direct by-product of mix shift. So, you know, if you write more surety at, you know, let's say we book it at a 25-ish, you know, you're just gonna get the benefit of, you know, that running through as a larger portion of your, you know, of your book as you're growing that. And so really what you're seeing here is just mix shift running through. We've been rather cautious, I would say, in terms of taking the benefits of what we're seeing around emergence and certainly booking our, you know, our, the benefit of pricing over and above the loss cost trend that we're assuming. So, so, so I just wanna sort of -- that's the context of what you're seeing.
You know, I think that the loss cost environment is, at least for our business, we book at an aggregate, it's about 5%-6%. And yet I think most parts of our business are actually rather stable in loss cost inflation, minus one thing. And by the way, part of that has to do with the business mix you write. So if you're writing a large property book transactionally in E&S at actual cash value, you don't have the susceptibility to, you know, what's been going on in terms of just the increasing cost of, you know, repairing a building if it, you know, something happens to it.
Of course, the area that we're all watching is sort of the impacts of social inflation, and that has multiple facets, right? Not just the headline, sort of nuclear verdicts and litigation financing. It transcends down to, I'd say, more attritional things with the way the plaintiff bar is acting and behaving to, you know, really bad behavior between the plaintiff bar and doctors, you know, to take situations and just take advantage, right? Both in terms of what's being billed, but in fact, actually, you know, we see awful situations of people who, you know, will get a, you know, a spinal fusion because they're convinced that they personally will pocket $500,000 on, you know, on the back of that.
And it's behavior that, you know, there's always been some of that, but, you know, the increasing sort of presence of what happens as soon as you have, you know, a representative of the plaintiff bar, you know, involved, soon as that representation happens, things change. I think that it's an area that goes back to, you know, why I think we're being sort of extra diligent and scrupulous around, you know, the way that we would think about growing in areas that we think are more susceptible to social inflation.
And operator, I know we've got five minutes between the next one. Would it make sense for me to do a quick follow-up with Andrew right now? And then everybody, again, please stay on the line, and you're welcome to ask questions to Andrew, as we go into the group session. But maybe I'll just say one thing, Andrew. It looks like you did last quarter, like a sub-90 combined ratio, so maybe you're, you know, you're getting the loss ratio down. But per your point, the commissions are going up a little bit. I mean, you feeling good about that going forward, keeping it that-
I-
I mean, that's-
I feel really good about our business. Like, the reason we're sub-90 last quarter, well, I think, look, we're executing, right? We're doing what we said we were gonna do. I think we got a benefit of maybe a little better expense ratio than we thought. I think our sort of ex-cat loss ratio is right where we would want it to be at this particular point, right? We still wanna improve. And we had a light cat quarter, right? You know, and, you know, that's just -- it's that combination of things. You know, it'd be great if that continues to repeat.
I'd say that, you know, we probably have the potential to do that more frequently in terms of, you know, upside performance than going the other way, right? And I think this will be an interesting quarter, right? And then I'm certainly watching our cat results through two months in a week. There's been a lot of convective activity, you know, for the first two months of the quarter. And I'm curious myself, 'cause, you know, there's not a lot of people writing about it, you know, what that looks like as, you know, as earnings come around this quarter. I certainly know where we are, and I'm looking forward to seeing, you know, how that shapes up amongst our peer group.
Okay. Well, Andrew, thanks for the great insights. Again, everybody, stick around and ask a few questions. I've got plenty, though. I'm finding this very interesting. So, all right. We'll move to the group session. Andrew, stick around, and I think our operator will funnel everyone in. Cool stuff. So you're gonna head up to-