Skyward Specialty Q3 2026 Earnings Call Transcript

Skyward Specialty (NASDAQ:SKWD) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Skyward Specialty reported strong Q3 2026 results with gross written premiums up 9% and fee-generating premiums up over 18%, alongside a 22% increase in diluted operating earnings per share to $1.28.

The company announced a leadership transition with Taryn McArg succeeding Mark Hauschel as CFO in March 2027, emphasizing a seamless transition and continued financial leadership.

Strategic initiatives included the launch of iBot in the U.S. and investment in Slingshot, an AI-native insurance platform, with a focus on expanding their Strategic Distribution Partners division.

Skyward Specialty maintained a strong underwriting performance with a combined ratio of 88.3 and an ex-catastrophe combined ratio of 86.8, despite competitive pressures in certain markets.

The company highlighted significant growth in the Accident and Health segment, doubling over the past two years, and reported strong results in the dairy livestock reinsurance sector despite external cost pressures.

Investment income rose 54% to $34 million due to higher yields, with a focus on strategic capital allocation to profitable business opportunities.

Management reaffirmed full-year growth guidance near the upper end of the original range and expressed confidence in future earnings growth despite a competitive market environment.

Full Transcript

OPERATOR

Hello and welcome to the third quarter Skyward Specialty earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded.

It is now my pleasure to introduce Vice President of Investor Relations, Jordan Arnold.

Jordan Arnold (Vice President of Investor Relations)

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

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

Andrew Robinson (Chief Executive Officer)

Good morning, everyone, and thank you for joining us. Before we begin, I’d like to take a minute to recognize an important leadership transition. As previously announced, Mark Hauschel will retire as Chief Financial Officer effective March 31, 2027. Mark has been an exceptional partner in helping build Skyward Specialty into the organization it is today, and we’re immensely grateful for his leadership and his contributions. I’m also pleased to formally introduce Taryn McArg, who will succeed Mark as CFO upon his retirement.

Taryn is a highly respected leader with deep financial and operating experience, and she’s already become an important contributor to our organization. We look forward to a seamless transition over the coming months and are excited about the future under her financial leadership. Turning to the quarter, our third quarter results were outstanding and further demonstrate the strength of our Rule Our Niche strategy, our outstanding execution, and our diversified portfolio that we have built. Gross written premiums were up 9% and fee-generating gross written premiums were up more than 18%. Diluted operating earnings per share increased 22% to $1.28, and through nine months our annual operating return on equity exceeded 20%.

We continue to benefit from multiple earnings growth engines across the organization, allowing us to allocate capital to the most attractive opportunities while remaining disciplined in areas where risk-adjusted returns are less compelling. As we have discussed for several years, the objective has been to build a truly diversified specialty insurance business so we can continue to deliver top quartile returns regardless of cycle, and that design continues to prove its value.

With that, I’ll turn the call over to Mark and Taryn to provide the financial details for the quarter.

Mark Hauschel (Chief Financial Officer)

Thank you, Andrew, and good morning, everyone. We delivered another strong quarter with solid growth across the business, excellent underwriting profitability, and continued momentum in our fee-based earnings. Importantly, we generated these results while remaining disciplined in areas where market conditions are becoming more competitive. Operating income was $58 million, or $1.28 per diluted share. Through nine months we’ve generated approximately $175 million in operating income and an annualized operating return on equity of over 20%, demonstrating the consistency of our earnings and the attractive returns we’re generating across the portfolio.

As Andrew mentioned, premium growth remains strong with gross written premiums up 9% to $803 million and fee-generating gross written premiums up over 18% to $517 million. Underwriting performance was excellent, with a consolidated combined ratio of 89.9 and an 88.1 ex-cat combined ratio. We are particularly pleased with these results given the increasingly competitive environment in certain property classes and continued loss cost pressures affecting parts of the casualty market.

Within Skyward Specialty, gross written premiums increased 10% to $668 million, led by continued momentum in Accident and Health, Global Agriculture, Credit and Surety, and Strategic Distribution Partners, partially offset in areas where competitive market conditions and pricing pressure have increased, particularly across portions of the property market and select casualty and liability classes. Growth in our agriculture business remains strong.

We experienced lower-than-expected take-up as higher input costs continue to pressure farmer cash flow and margins, impacting dairy and livestock growth. True-ups related to the 2025 and 2026 treaty year were the primary driver of lower net earned premiums in the quarter. The benefit of the data and monitoring capabilities we have built allowed us to identify and respond to the change in trend quickly. Skyward Specialty’s net earned premium growth year to date is over 13%. Our new dairy livestock reinsurance placed at 7/1 mitigated our exposures, reduced net written premiums, and locked in a portion of our profits via ceding commissions. Skyward Specialty reported a combined ratio of 88.3 and an ex-cat combined ratio of 86.8. The loss ratio was 62.6, including 1.5 points of catastrophe losses, primarily from convective storm activity. The non-cat loss ratio was 61.1, an increase of approximately 1 point year over year, driven primarily by business mix, specifically growth in Accident and Health and Global Agriculture.

Skyward Specialty’s expense ratio in the quarter improved to 25.7. Our year-to-date expense ratio of 25.4 has improved 1.7 points from the prior year period. Pure rate ex-property was in the mid-single digits, retention remains in the mid- to upper-70s, and we’re seeing elevated submission growth in the low 20s. Now I will turn the call over to Taryn to discuss Apollo results.

Taryn McArg (Deputy Chief Financial Officer)

Thank you, Mark. Good morning, all. Apollo gross written premiums increased 3% to $135 million in the quarter, driven by our Specialty Risk Syndicate 1969, which grew 11% year over year. This was partially offset by a modest decrease in our digital economy focused Ibot Syndicate 1971, reflecting the timing of a renewal as well as seasonally lower new business opportunities. Apollo’s fee generation continued to be a meaningful growth driver, with fee-generating gross written premiums increasing 18% to $517 million, including 70% growth in partner syndicates.

Underwriting fee income was $11 million, bringing the total for the first nine months to approximately $34 million. Growth across both aligned and partner syndicates demonstrates the benefit of Apollo’s capital-light business model as we expand both underwriting and fee-based earnings. Apollo reported a combined ratio of 90.5 and an ex-cat combined ratio of 87.7. The loss ratio was 58, including 2.8 points of catastrophe losses, also from convective storm activity. The 55 non-cat loss ratio reflects strong underlying underwriting performance across the business. Apollo’s expense ratio was 32.5 for the quarter. Lastly, while Apollo’s rate was slightly negative, rate adequacy continues to be strong. Retention remains in the mid-80s.

I’ll now pass back to Mark.

Mark Hauschel (Chief Financial Officer)

Thank you, Darren. Moving to reserves, we’re in the process of completing the Skyward Specialty ground-up review. Initial indications are positive with emergence as expected or better for Occurrence Liability, Property, Surety and A&H, with some pressure in exited portfolios for Commercial Auto and claims-made Professional Liability. Apollo emergence in the quarter was in line with our expectations. We continue to maintain a strong overall reserve position, with IBNR now making up 77% of our total reserves, the highest level in company history.

We did not recognize any prior-year reserve development during the quarter and will provide a more comprehensive update on our fourth-quarter call. Turning to investments, investment income continued to benefit from the addition of the Apollo portfolio and higher yields. Net investment income increased 54% to $34 million for the quarter, primarily due to $30 million of income from the fixed income portfolio. Results from alternative and strategic investments remain pressured by lower valuations in certain limited partnership investments. For the fixed income portfolio, we put new money to work at yields of 6.4%, and the embedded yield for the group portfolio was 5.5%.

Our balance sheet remains exceptionally strong. Book value per share increased more than 15% from December 2025 to $28.74. As we’ve seen over the last two years, certain areas of the market have softened and competitive conditions typically intensify in the fourth quarter. Despite that, we remain on track to deliver full-year growth near the upper end of our original guidance range of $2.65 billion to $2.8 billion. We remain bullish about our growth and, in turn, our earnings growth outlook.

We continue to have numerous attractive opportunities to profitably grow our business. Now I’ll turn the call back over to Andrew.

Andrew Robinson (Chief Executive Officer)

Thanks, Mark. The underlying story of the quarter is straightforward. Our business simply continues to perform: strong growth and profitability across a number of our specialty businesses, together with the continued expansion of our fee-based earnings streams, demonstrate the benefits of operating a diversified business with multiple avenues for profitable growth. As market conditions evolve, we remain focused on directing capital toward our most attractive opportunities and maintaining the underwriting discipline that has been a hallmark of Skyward Specialty. Growth remained broad-based across the portfolio, underscoring the strength of our ruler niche strategy. Our expertise, technology, leadership, and disciplined execution continue to create differentiated and defensible positions that drive outstanding absolute returns and sustain profitable earnings growth.

To highlight one, our Accident and Health business continues to be one of the best examples of high-quality growth, more than doubling over the past two years. Our 76% loss ratio ranked fourth-best amongst the 30 carriers writing more than $250 million of premium and outperformed the industry average of 91 by approximately 15 points. As reported in the NAIC’s 2025 Stop Loss Industry Analysis, AI embedded into our A&H underwriting process developed over the last five years continues to mature into a distinctive advantage.

Our focus on the smaller employer market, together with our distinctive IP and medical cost management delivered through single company and group captive products, is unique as demonstrated by our results. Recently we announced two strategic growth initiatives: the launch of iBot in the U.S. and a partnership and founding investment in Slingshot, an AI-native insurance platform for embedded insurance products. We intend to report these through our Strategic Distribution Partners division. As is visible by our growth in fee-generating premium from Apollo, the partner syndicate platform is an exciting and unique differentiator for Skyward Specialty. As existing syndicates scale and new partners join the platform, so does high-quality recurring fee income.

In the quarter, we launched two partner syndicates and continue to see a strong pipeline of future opportunities heading into 2027. We believe we are still in the early innings of realizing the full potential of this business and remain very encouraged by the opportunities ahead. To wrap up, we’re very pleased with our performance in the quarter and through the first nine months of the year. The diversity of our business continues to create opportunities to profitably grow where market conditions are attractive, and we’ll continue to defend our book in areas that are becoming more competitive. We’ve never been more confident in the quality of our portfolio, the positions we have built, the talent we have, and our leadership in the use of technology and AI, as demonstrated by our bionic underwriting and claims at Skyward Specialty and augmented underwriting at Apollo.

Altogether we are exceptionally well positioned to continue to deliver strong earnings growth and top-quartile financial returns for our shareholders. With that, I’ll turn the call over to the operator to open it up for questions. Operator,

OPERATOR

Thank you. As a reminder, to ask a question you will need to press Star 11 on your telephone, and we ask that you please limit yourself to one question and one follow-up question. One moment, please. Our first question comes from the line of Gregory Peters with Raymond James.

Gregory Peters (Analyst at Raymond James)

Good morning, everyone. So I guess, from a big-picture perspective, you’ve reaffirmed the premium guidance for this year. I was wondering, perhaps, if you could just segue and talk a little bit about what you think the outlook looks like for 2027 in terms of premium growth. And of course there’s the follow-up questions relating to what happened in the dairy business, and I think you called out iBot headwinds in Apollo. So it’s a three-part question.

Sorry about that.

Andrew Robinson (Chief Executive Officer)

All right, I’ll start. Greg, first off, thanks for the question and good morning. I think that we’re going to be giving guidance, and the specifics of the guidance will be provided in the fourth-quarter earnings call. I don’t think we really want to say much more than what we’ve already said. I think our results speak for themselves. Growth through the first nine months of the year continues to be low teens, and it’s in the places where I think investors should appreciate that we are delivering because those are in the places that, by their very nature, we have opportunities to deliver higher returns on capital.

And unsurprisingly, consistent with the Skyward way here, we always are leaning into kind of the next thing—the next thing that should help provide new avenues for earnings growth. Anything more specific than that we’ll talk about when we get to the fourth-quarter call. Listen, I’ll speak very quickly on the dairy livestock. This is really quite simple. We effectively saw just a change in take-up rate amongst farmers as diesel prices started to move. So if you look back to the first quarter of the year, diesel prices in January, February were kind of like in the $3.50–$3.70 range, and now you fast forward to October and we’re at $6.25. And as we got into the second quarter of the year it really started to accelerate.

The dairy livestock product offered through the federal government is a voluntary product—it’s the ability to lock in their profits—and as margins and cash flows were squeezed amongst farmers, we simply saw a lower uptake. I will tell you that, because of the data that we are using to monitor exposure, we think we are probably the first in the market—maybe even ahead of some of the cedents that we exchange that data with—in really seeing the trends, and you saw the effect of that coming through in the quarter in terms of our adjustment to net earned premium.

Notwithstanding that adjustment, I think the results are still outstanding on every dimension.

Gregory Peters (Analyst at Raymond James)

Great. Just the follow-up. Can you just speak to Apollo? And by the way, I didn’t—and the follow-up on that would just be—and then talk about the managed premium portion because that showed growth. So, yeah, please.

Andrew Robinson (Chief Executive Officer)

Yeah, I mean Taryn might want to jump in here, but I think that we were not giving any caution on iBot. I think that the commentary was just simply that the growth this quarter was where there was seasonality and new-business opportunities that we would ordinarily expect, and there was one account where there was just a change in the renewal terms that moved it out in time. Otherwise, I wouldn’t read into it because it’s a small number, and everything that we have said about iBot and seeing that as a unique and, quite honestly, acyclical—non-cyclical—growth platform still holds today.

Gregory Peters (Analyst at Raymond James)

Got it. And on the managed premium.

Andrew Robinson (Chief Executive Officer)

I think that we would, as a company, broadly expect our growth in managed premium—which includes the capture of the premium that drives our fee earnings growth—to outgrow our reported GWP, and we don’t see anything there that would give us pause to say that quite explicitly now. And we would expect to keep saying that as we look forward as well.

Gregory Peters (Analyst at Raymond James)

Got it. Thank you.

Andrew Robinson (Chief Executive Officer)

Thanks, Greg.

OPERATOR

Thank you. Your next question comes from the line of Alex Scott with Barclays.

Justin (Analyst at Barclays)

Good morning, this is Justin on for Alex. First question I just had was around growth. I understand there was a question on the livestock. I was just wondering, based on the comments that you made around the pressures on the cash flow, should we expect this to be more ongoing, or is the true-up impact more of a large-sized one-time? Would be curious if you can give a little color there. Thank you.

Andrew Robinson (Chief Executive Officer)

Okay. Well, again, as Andrew, I’ll jump in first. I think that we don’t know, right? I mean, you take a look at July to August, diesel prices went from under $5 to roughly $5.50. Then they jumped above six bucks, and you can see that genuinely affecting farmers. It’s really hard for us to say. There are some other things that are going on that will affect it. Farmers will want to lock in on profits as beef prices are high. What I can say to you quite specifically is that, as we rolled into the ’26 to ’27 treaty year, the expected earned premium that we would ordinarily book in this quarter—which is a direct byproduct of effectively the subject premium from our cedents that are placing quota share reinsurance with us—we in fact have haircutted that, with the expectation that a conservative position given the cost of diesel and the cost of input for farmers may affect their buying behavior.

But I think the most important thing I would say to you, and I would say to all on the call and to our investors, is the fundamentals of this remain outstanding. In this market, as far as we can tell, we have created this product. We are one of one, and it’s an incredibly profitable product. It’s uncorrelated for us. In fact, what we have built is so attractive to the retrocessional quota share reinsurance community that we are able to lock in a meaningful portion of our underwriting profits via retrocessional insurance, where we capture it on our ceding commission.

What we’ve manufactured is viewed as something that could not easily be replicated, and so guess what? We get paid for that. And certainly at some point here the input costs for farmers come down, and we’ll continue on the kind of high-growth trajectory that you’ve seen. And yet still, the growth in our ag driven by dairy livestock is still good growth. I mean, it’s just that we had this net earned premium adjustment in the quarter.

Taryn McArg (Deputy Chief Financial Officer)

Hi, it’s Taryn. You’re absolutely right. We’ve seen great growth in our fee-generating GWP through the year, and we expect that to continue in line with the guidance we’ve given. The fee income does lag a little bit, but the run rate through the year and the nine months to date is a good indicator of where the year is going to land. And then as we look to guidance for next year, we’ll give you a further view of what 2027 looks like.

OPERATOR

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

Scott (Analyst at KBW)

Good morning, this is Scott on for Meyer. Thanks for taking my question. My first question is on reinsurance purchasing plans for 2027. How are you guys thinking about both traditional reinsurance and the use of non-owned syndicate paper? Are you planning any changes relative to 2026?

Andrew Robinson (Chief Executive Officer)

Well, I think we’ll probably all try to gang-tackle this one. I think, generally speaking, most of our reinsurance—the big things—are relatively set for Skyward Specialty in the United States. There is certainly one specific area that we are looking at, and we’re active on that right now. Should some development there come to pass, we’ll certainly update you on the next earnings call. Unsurprisingly, as you would expect from any good management team, we’re in an environment where across the board in the insurance market there’s abundant capital, but the reinsurance market in particular—obviously the emergence of additional forms of third-party capital—opens up the aperture as to what’s possible. We’re spending time on that for sure as a company. I will note that I’ve said this in a prior call: we will avail ourselves of Syndicate 1972 for a portion of the placement of the U.S.-based reinsurance through 1972, which of course inures to our benefit as a company where we’re able to recapture some fees through that process.

And I think more broadly—Taryn, do you want to just add specifics to what you expect for ’27 there?

Taryn McArg (Deputy Chief Financial Officer)

Yeah, thanks, Andrew. So I think at this point we’re working through our plans for 2027, but in terms of structure and the way that reinsurance buying works at Skyward Specialty, I don’t see any changes moving into 2027. As we get closer and revisit where the market is at, we’ll firm up our plans.

Andrew Robinson (Chief Executive Officer)

I would also just make one additional point. While not reinsurance, as you very well know, 1969 and 1971 are both supported by third-party capital, and in both those, the capital is 75% of the total capital for those two syndicates. And every indication is that is also where we will land for next year as well.

Scott (Analyst at KBW)

Got it. Thanks for the detail. And then some peers have mentioned this quarter’s earnings seeing some E&S premium shift back to the admitted market. Have you guys observed any meaningful flow of premium back to the admitted market from E&S?

Andrew Robinson (Chief Executive Officer)

I’m going to take this one. No. We have listened to some of that commentary as well. I think some of that commentary we had heard from at least one broker who has both retail and wholesale platforms. No is the answer. If I go directly to our E&S business, strangely—and I’m happy to talk about this in more detail—property submissions this quarter were up 60% for our E&S property. And just another example: within the excess portion of the liability part of our E&S business, submissions were up 32%. I will tell you, consistent with some of the other messages you’ve heard, our average premium is down, our hit rates are down. I have specific examples of where competitors are doing things that are just downright kind of irresponsible and will come back around.

But straight up in terms of the amount of flow that we’re seeing, I think that part of that is that more business is being marketed. So maybe we don’t necessarily see what’s happening on the front end, but we’re seeing a very significant step up in flow. And the good news is, because we’re so far ahead in our use of technology, our ability to service that submission flow is really great, while—as you see in our results—simultaneously meaningfully reducing our expense ratio.

Scott (Analyst at KBW)

Great, thanks so much.

OPERATOR

Thank you. And our next question comes from the line of Matt Carletti with Citizens.

Matt Carletti (Analyst at Citizens)

Hey, thanks. Good morning, Andrew. You touched a little bit on a few of the kind of diversifying non-P&C lines. We touched on ag a bit and A&H. Can you talk about surety? You’re seeing good growth there—just kind of where you’re seeing success and how we should think about that going forward.

Andrew Robinson (Chief Executive Officer)

Yeah, I mean, thanks, Matt, and good morning. I will oftentimes say that surety is like genuinely maybe our—and certainly a patina—business. It’s just we have an amazing team, we keep adding talent, and quite honestly the growth is really, really broad based. And I mean that: we are on commercial surety. We’ve talked about some of our proprietary products, but not just in oil and gas. We’re seeing growth in judicial and fiduciary bonds. On the commercial side, we’ve seen a big step up in transactional commercial surety, which is very small bonds—stick to your ribs.

Some of the spaces that we occupy that others don’t, like bonds for the cannabis industry, we have a dominant position in. Meanwhile, oftentimes we’re turned to for some of the most interesting, creative things that are happening in the world of renewables as another area. I think across the board energy infrastructure is building and growing and creating opportunities for us, and I think that there will be more of that. On the contract side, we’re very broad based in terms of the trades that we serve. I think one of the most interesting things is that we have a really special relationship with, in particular, one distributor in the world of bonding on the federal side. With that we see opportunities. We’re in the process right now of getting licensed in Puerto Rico, where we see a really unique and special opportunity specifically tied to the federal world. And it’s broad based and the growth—I mean, listen, we’re the 14th largest surety in the country.

We’ll cross 200 million plus in premium. Our results are out in the public domain and they’re just amazing and outstanding. And I’m pretty confident that in the course of the next six weeks we’ll be adding an additional team that in itself will probably bring a following that we measure at a 20 million-ish kind of book of business. And so I couldn’t feel better about where we’re at. And I think the backdrop, given the diversity of that business and our ability to tap into multiple sources, is really distinct and unique for us.

Matt Carletti (Analyst at Citizens)

That’s great. Thank you for that color. One more, if I could. I think it’s been a few quarters now you announced kind of a partnership with Uber early around autonomous vehicles. And in listening to Uber, it sounds like they’ve put out some pretty aggressive timelines in terms of how many cities they expect to be live in kind of this year, next year, 2028. Can you maybe update us from your standpoint on how that’s going and how we should think about that?

Andrew Robinson (Chief Executive Officer)

Yeah, I think it’s going well, to be honest. And as I mentioned to you when we mentioned everybody when we launched that, I think that you have a little bit of a J-curve here. It’ll start slow and then it’ll inflect. It takes a while for the exposure to earn through. I also will say to you that it is our expectation—time is going to tell—that we will have other very high-profile announcements that should follow in this area that will broaden and widen the potential sources for growth all related to autonomy.

And so I think we feel great about it. I don’t think we want to commit any more than what we had said previously, which is we really start to see probably the ’28 fiscal year as being the point in time where we should probably start to see all those exposures really earn in, in a way that might be particularly visible for investors.

Matt Carletti (Analyst at Citizens)

Great, thank you. I appreciate it.

OPERATOR

Thank you. Our next question comes from the line of Mark Hughes with Truist.

Mark Hughes (Analyst at Truist)

Yeah, thank you. Good morning.

Andrew Robinson (Chief Executive Officer)

Good morning. Good morning, Mark.

Mark Hughes (Analyst at Truist)

Not to be too simple, but when we think about the earned premium for 4Q—obviously 3Q is about, what, 407; 2Q is 445—what’s the right starting point when we think about the earned? Yeah, just trying to get a sense of what, if any, recurring impact there might be and what that means for earned in the fourth quarter.

Andrew Robinson (Chief Executive Officer)

Yeah. Let me come at it, Mark, a little bit differently. We talked about it earlier. When I think about Skyward Specialty, the earned is up 13% for the nine months. Clearly there’s a nuance in the quarter relative to the adjustment that we made. Does that help? I think what Mark is pointing you towards is that there isn’t a reason to expect anything anomalous in the fourth quarter, and that earned premium through the nine months feels like a pretty good referencable number.

I mean, we can’t say whether it’s going to be 10 or 11 or 12 or 14 or 15, but we don’t expect an anomalous earned premium adjustment in the fourth quarter. I mean, I think about,

Mark Hauschel (Chief Financial Officer)

I’d say, to be more specific—and maybe to articulate for everybody—if you take a look at the dairy livestock ’25–’26 treaty year, effectively it’s a July 1 treaty year, and we have certainly seen quarters where exposure is above our expectations and we’ve seen quarters that are below our expectations. We try not to react to that until the end of the treaty year unless there’s something really quite anomalous going on. We did not react until after the treaty year concluded, which you saw.

But we also, as I mentioned in my earlier comments, preemptively reduced our expected annual premium for the subsequent treaty year, which was registered in our gross premium this quarter, just based on trying to take a bit more conservative position. And I think all that adds up to: we would never say that there’s not going to be a net earned premium trip in the fourth quarter, but it’s not something we would expect.

Mark Hughes (Analyst at Truist)

Okay, appreciate that clarity. Andrew, you talked about the competitive environment in the fourth quarter. Often there’s maybe a push at year-end to hit top-line budgets. How much of an impact are you seeing? Is that kind of theoretical or is it actually happening? And then are there any particular end markets where you’re seeing it more pronounced? Presumably property, but curious—any more thoughts on that front?

Andrew Robinson (Chief Executive Officer)

Yeah, it’s a great question. So I think that last year we definitely saw, we really saw a more competitive fourth quarter. I think the year before, which was really like the beginning of the year, probably two quarters into the turn on property, most visible in our case in global property, definitely saw a more competitive environment, but it was more focused than the prior year. I think that we’re seeing it — there’s multiple sides to this, so not to be too long-winded — we’re certainly seeing more submissions and I do believe that’s because more business is being marketed, but more business is being marketed and is getting a lot more competitive response.

I’ll just say, like in the third quarter as an example, while property submissions in the E&S business were up 60%, our hit ratio was simultaneously down by a third. Our average premium was down by 20%. You know, if I look at, you know, if I look like on primary liability side, our retention in the third quarter was down, was down 6 points. I’ll give you an example of — I don’t know if this is a fourth quarter thing or just more what I would consider to be ignorant, irresponsible sort of writing.

There’s one particular competitor that effectively has kind of a fast track on certain liability classes. And the question that they ask is, check “no” if you do not think you have an abuse exposure. And if somebody checks no, it removes the assault and battery exclusion at bind. Meanwhile, you see habitational Section 8 housing frequently being placed without assault and battery exclusions, sublimits. You know, I heard one carrier, one public carrier, like discovering that, you know, maybe we should be charging for that or for, you know, for human trafficking and so forth.

It’s like, welcome to the world of casualty, where as one of our competitor CEOs says, it’s not for the optimistic. This is a sophisticated part of the market where you should be really responsible with your capital. And we’ve seen increasingly more and more individual competitors, like the example I gave, that are not operating in a responsible way. Whether that is a fourth quarter phenomenon or heading into the fourth quarter and a lease up going into the new year, really hard to know. But regardless, those competitors will not be long for the market. That will end in tears, there’s no question about it.

You’re welcome.

OPERATOR

Thank you. And our next question comes from the line of Tracy Benguigui with Wolfe Research.

Tracy Benguigui (Analyst at Wolfe Research)

Morning. Nice to hear about two new partner syndicates. I saw the announcement on Redbridge with Generali. You’re not putting any of your own capital. These partnerships, these are all fee-based. And is it fair to assume that Generali is maybe a little bit larger than Apollo manages? And if that’s the case, should we—

Andrew Robinson (Chief Executive Officer)

Hey, Tracy, you broke up, but I think your question — and Taryn will answer this — I think you were asking whether we’re participating and whether the Generali profile is unique in terms of size. And I think Taryn’s probably best positioned to answer both those.

Taryn McArg (Deputy Chief Financial Officer)

Yeah. Hi, Tracy. So the two new syndicates — no, we’re not proposing to have participations behind those two as we have in the rest of our partner platform syndicates. We don’t participate. The Generali syndicate commences underwriting shortly. It is in line with the way that it’s projected to grow. It’s in line with a number of our other syndicates and the way that they would grow in early days. They start small and build from there. So I don’t think we’d see it as being the biggest in the next period anyway.

Andrew Robinson (Chief Executive Officer)

Tracy, I don’t know if we lost you, operator. If we have, maybe we can move on to another question and come back to Tracy if we have lost her.

OPERATOR

Certainly. Our next question comes from the line of Michael Zaremski with BMO Capital Markets.

Michael Zaremski (Analyst at BMO Capital Markets)

Thanks. Good morning. I guess just sticking with the pricing power environment, maybe you can kind of tease out — you know, no surprise, pricing is kind of decelerating a bit. I think you said ex property we’re in mid-singles. The last couple quarters were high single digits. Yep. Maybe tease out what’s causing the trend line.

Andrew Robinson (Chief Executive Officer)

Yeah, I mean, Mike, great question and thanks. I don’t give too much — one of the reasons that we don’t get overly specific and give you a point number is because there’s a lot of mix change that’s going on even in some of our businesses, like Professional Liability. Some of that’s even mix change where in the quarter we might be writing more miscellaneous and, for example, less healthcare professional. I wouldn’t overread that too much. I do think that we’re definitely in an incrementally more competitive environment.

I think more recently you probably see a bit more on GL, and I think excess probably coming down a point or two. But I don’t know if I would draw a trend line per se, because in our company you’re talking about a company that, in the U.S. in particular, nine different divisions. There’s a lot going on underneath there given the amount of premium we’re dealing with. Obviously this is not the largest company in the world, so small numbers can sometimes lead you to false negatives or even false positives as well.

Michael Zaremski (Analyst at BMO Capital Markets)

Okay, yeah, that’s helpful. Understood. Maybe touching on the commentary about IBNR levels moving up to kind of a record high 77%. I believe earlier in the year when you updated us — or 10-Q — it was probably mid-70s. And I think you also said that loss emergence initial indications are positive in occurrence liability as well. So just, I guess, are you guys trying to make an effort to kind of just continue to increase conservatism, or just any other color you might want to add to be helpful?

Andrew Robinson (Chief Executive Officer)

Mike, that’s a great coded question for asking whether we’re going to release reserves, and we’ll just — we’ll defer to the fourth quarter. I mean, Mark will comment, but, you know, we really do feel good about our reserve position overall as a company. You know, things that you’ll obviously get to see as the full-year financials come through. You know, our paid-to-incurreds through nine months are the lowest they’ve ever been. They’re running at like 62%.

I look at our paid-to-incurreds by line of business as compared to the high-quality guys that we compete with, and I see that both our IBNR and our paid-to-incurred are pretty damn favorable. And I think that there’s just confidence in terms of both our absolute position and kind of how we might even see our conservatism broadly compared against others. And look, not done with our reserve review for the year. That’ll be something obviously we’ll report out on when we get to the fourth quarter, but it was a good try — good data point on page. Thank you.

OPERATOR

Thank you. Our next question comes from the line of Paul Newsom with Piper Sandler.

Paul Newsom (Analyst at Piper Sandler)

You know the big hot buttons — just maybe as a round-out thing — updated thoughts on capital management, where you are today. You’ve got Apollo under your belt, I think probably pretty solidly, and maybe growth decelerates next year, so maybe less of a capital strain. So thoughts on capital management and how you would allocate things prospectively?

Mark Hauschel (Chief Financial Officer)

Hey Paul, it’s Mark. Look, we continue to generate excess capital, and the way we’ve said it to you, which still holds, is clearly we have about three choices and probably, in order, currently we would deploy capital first to the business. We clearly did that this quarter. Then we have the choice as to repaying — paying down debt — or buying back stock. Look, once we wrap up year-end we will then figure out or complete our analysis as to where we’re going to deploy the capital.

But I would say first to the business and right now I would lean more toward repaying debt. But we just kind of held true in the third quarter waiting for the fourth quarter to finish out to solidify our capital position.

Paul Newsom (Analyst at Piper Sandler)

Appreciate the help, guys. Thank you.

Mark Hauschel (Chief Financial Officer)

Thanks, Paul.

OPERATOR

Thank you. And our next question comes from the line of Andrew Kliegerman with TD Cowen.

Andrew Kliegerman (Analyst at UBS)

Hey, good morning. So I’d love to zero in a little bit more on the A and H segment where Premium was up 57%. Could you kind of dice it into how much of that was rate versus new business and maybe a little color on where you’re seeing the great opportunities? And then, Mark, I think I caught you in the comments early in the prepared remarks when talking about prior-year reserve analysis that A and H might have a little bit of negative. If so, maybe color on that, and then just in general the loss cost environment in A and H. I’d love some color there.

A lot of questions, but no, no, no, they’re great. Thank you.

Andrew Robinson (Chief Executive Officer)

Thank you, Andrew. Thanks for the questions as well. So on A and H, look, I think it’s a continued trend. Obviously, this is not unique to this quarter. This has been sort of a thing that has been quite visible in our results probably now for coming up on eight plus quarters. Listen, I think purely if you think about rate alone, you’re talking about high-teens rate, and you have, by the studies that I think most folks would use, inflation that is in the mid-teens, and so no surprise there — that’s kind of visible to everybody. There are levers, of course, that are available to us as a company that we utilize that effectively are kind of non-rate actions where maybe you’re carving out very specific drugs or lasering out specific exposures, and those have rate effects.

But those are broad numbers. Our retention is pretty high. A good day in the office for A and H, if you have a good book of business like we do, would be kind of in the 80s retention, and once you get below that you might be bleeding out business that you really want to keep due to competitive reasons. I think we’re in a pretty good place on retention, but that should give you a sense for rate less retention. And then what we’re adding as new business — we’re hitting our growth in really both areas.

Group Captives has certainly been a big driver of growth, and that’s both a combination of winning new captive mandates and new members coming into captives. And then our more historical product of single company solutions has also, probably over the course of the last six quarters or so, really been growing at a nice clip. And that’s historically the lion’s share of the business, but now that mix is changing with the Group Captives piece. As I mentioned in the opening remarks and I’ve talked about a lot, our focus is on smaller employers. Our focus is on medical cost management. So these are setups where the employers themselves have jointly committed to a set of things that we do with them to ensure that medical cost management is overseen and managed differently than you might ordinarily have elsewhere in the market. I think the results — it’s a short-tail line of business — that NAIC data I shared with you is out in the public domain.

Second year in a row that we’ve been sort of top five, and we’re very proud of the results.

Mark Hauschel (Chief Financial Officer)

Hey, and Andrew, it’s Mark. Let me clarify. No, I did not — I wasn’t referencing A and H in terms of pressure. What I said is we had seen some pressure in commercial auto and claims-made liability, not A and H, and in areas of business that we have exited. So these are areas that we had seen trend before, and we acted upon that.

Andrew Kliegerman (Analyst at UBS)

Great. So thanks for that clarification and great color. And my follow-up is around the expense ratio. It continuously gets better as you guys scale. So I’m kind of looking at Skyward Specialty at 25.7. Could that grind a little lower over the next few years? Any specifics there would be helpful. And then with Apollo being so new — and again, I get it’s seasonal — but at 32.5, do you see potential in Apollo as well for expense ratio and productivity?

Andrew Robinson (Chief Executive Officer)

Yeah, listen, I think that this is — I appreciate you bringing this up, Andrew, because I think it’s an area that we probably should highlight more and maybe hopefully get more credit for, because that expense ratio, recognizing we have a bit of a point more sitting outside in corporate, is genuinely outstanding. I believe we’d probably be the second or maybe at worst third lowest amongst sort of the public peers or broadly in the specialty market.

And look, I think that I would just go to what I said earlier. I gave examples of submission count up in some of our businesses by 30% to 60%, and yet we’re able to improve our service and not add headcount there. And that’s all being driven as a result of the advances we’ve made in AI, and it’s coming through. And those advances, by the way, aren’t just in underwriting. They include, obviously, claims and all of our support functions as well. After last quarter, I hope all of our investors were able to see it — I hope all of the research analysts who follow through will see it — we put out a very powerful video to demonstrate in cogent terms what bionic underwriting is. And you should assume that those investments directly correlate to our expense ratio improvement.

On Apollo, we’re making similar kinds of investments. But it is probably worth noting that oftentimes you are dealing with small pockets of teams serving very specific classes, and so investments can improve fidelity of risk selection and pricing, which James Slaughter is absolutely pushing and leading. And I certainly would expect that you would get a lot of expense leverage under different market conditions. Obviously, the headwinds here are a challenge for everybody.

So I think that we probably wouldn’t — we wouldn’t, we wouldn’t expect as much there as probably what you’re seeing coming through on the Skyward Specialty part of the business. Thank you.

OPERATOR

Thank you. I’ll now hand the call back over to Vice President of Investor Relations, Jordan Arnold, for any closing remarks.

Jordan Arnold (Vice President of Investor Relations)

Thanks, everyone, for your questions, for participating in the conference call, and for your continued interest in and support of Skyward. I am available after the call to answer any additional questions you may have. We look forward to speaking with you again in the new year on our fourth quarter 2026 earnings call. Thank you, and have a wonderful weekend.

OPERATOR

Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.

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