Skyward Specialty Insurance Group, Inc. (SKWD) Q3 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q3 2025 Skyward Specialty Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kevin Reed. Please go ahead.

Thank you, Lisa. Good afternoon, everyone, and welcome to our third quarter 2025 earnings conference call. Today, I am joined by Chairman and Chief Executive Officer, Andrew Robinson; and Chief Financial Officer, Mark Haushill. We will 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 schedules are included as part of our press release, and available on our website under the Investors section. With that, I turn the call over to Andrew.

Thank you, Kevin. Good afternoon, and thank you for joining us. Our third quarter results were exceptional, extending our outstanding and consistent track record of profitable growth and double-digit returns. We achieved a number of company-best, including $44 million in operating income, $38 million in underwriting income, and 89.2% combined ratio, and 52% growth in gross written premiums. Aside from these company records, we also grew earnings by over 40% and delivered an annualized return on equity of 19.7%. Our results highlight the strength, durability and execution excellence of our Rule Our Niche strategy. Also, our results again demonstrate our very intentional construction of our diversified portfolio of top-notch underwriting businesses, in particular, the sizable portion of our portfolio that is a less exposed to the P&C cycles. In this quarter, 5 of 9 divisions grew by over 25%, with our Agriculture unit as the largest contributor, which I will discuss later in this call. This quarter also underscored our prudence to walk away from business where necessary. Market conditions across much of the P&C market are now showing signs of increased competition. As always, our teams are responding with discipline, leaning in where market dynamics support our return thresholds, and stepping back where they do not. Lastly, before I turn the call over to Mark, I want to welcome Kevin Reed, our new Vice President of Investor Relations, who opened this call. Kevin is a deeply experienced IR professional, and we're pleased to have him lead this function, allowing Natalie, who has been outstanding, taking on double duty since our IPO, to fully focus on our other financial leadership responsibilities. With that, I'll turn the call over to Mark to discuss our financial results in greater detail. Mark?

Thank you, Andrew. We had an exceptional quarter, reporting adjusted operating income of $44 million or $1.05 per diluted share and net income of $45.9 million or $1.10 per diluted share. Gross written premiums grew by 52% in the quarter versus the prior year. One significant driver of our growth was our Agricultural unit, and more specifically, the growth of our product in the U.S. dairy and livestock industry. Setting aside Agriculture, gross written premiums grew at a strong mid-teens rate in aggregate compared to the prior year, driven by A&H, Captives, Surety, and Specialty programs with all 4 of these divisions growing by over 25%. Going forward, we expect quarterly growth to be somewhat uneven, as some of the divisions and units such as Ag, Captives, Specialty programs and A&H have very concentrated renewal cycles, driving meaningful quarterly differences as seen this quarter. There will be quarters where growth is lower than what we have reported in each of the first 3 quarters this year. Net written premiums grew by 64% and our net retention through 9 months of 65.1%, increased over 62.9% in the prior year. Turning to our underwriting results. Our combined ratio of 89.2% was driven by strong underlying results and a modest catastrophe quarter. The non-cat loss ratio of 60.2% improved 0.4 points compared to 2024. We continue to observe specific pockets of increased auto liability severity inflation, and -- to a lesser extent, auto exposed excess severity inflation, particularly in our construction unit. More broadly, given the wider loss inflation severity backdrop, we continue to maintain a selective position on growing our exposure in occurrence liability lines. Our shorter tail lines, including Property, Surety and Ag continue to emerge favorably as does our professional, Energy and E&S liability portfolio. Our reserve position continues to be strong if IBNR makes up 73% of our net reserves, while the duration of our liabilities continues to shorten. As a reminder, our ground-up review of our loss reserves will be completed in the fourth quarter. The expense ratio of 28.4% improved 0.5 points over the prior year quarter due to economies of scale, and was in line with our expectation of sub-30s. The $2.7 million increase in net investment income over the prior quarter was due to $5.3 million increase in income from our fixed income portfolio, resulting from higher yield, and a significant increase in the invested asset base. This was partially offset by losses in our alternative and strategic investments. Underlying marks on the private credit holdings and our alternative asset portfolio continued to generate some volatility in net investment income in the quarter. This portfolio now represents approximately 4% of our investment portfolio at September 30. Through 9 months, $32 million of capital was returned, and reinvested in our fixed income portfolio. During the quarter, we completed the monetization of our equity portfolio, and realized gains of $16.3 million. We redeployed the proceeds into fixed income securities. This repositioning aligns our portfolio with our long-term risk and return objectives, enhances predictability of investment income, and provides further flexibility to support future growth. In the third quarter, we put $62 million to work at 5.6%. Our embedded yield was 5.3% at September 30, up from 5% a year ago. Our financial leverage is modest, as we finished the quarter under a 11% debt-to-capital ratio. Finally, we continue to prepare for the Apollo acquisition, which we expect to close in the early first quarter of 2026, subject to regulatory approvals. Deal financing is progressing well and remains on track. And post close, we expect our leverage to be approximately 28%. We recognize that the equity research and investor community are working to model the impact of the Apollo acquisition. Once we are further along in the approval process likely in early December, we anticipate providing guidance on Apollo's 2026 financial metrics. During our fourth quarter call in February, we will provide additional guidance on the Skyward business. Our teams are engaged in a thoughtful plan of execution once the transaction closes. The combination will expand our specialty capabilities, deepen our bench of underwriting talent, and strengthen our ability to deliver superior long-term returns. Now I will turn the call back over to Andrew.

Thank you, Mark. The third quarter once again highlights the distinctiveness, strength, and consistency of our business and execution of our strategy. We continue to not only deliver excellent underwriting results and shareholder returns, but our top line growth and resulting earnings growth continue to stand out. These financial metrics clearly showcase that we are different from the rest of the P&C industry, and how we approach the market and the portfolio of businesses we have built. Given the unusually robust growth this quarter, I want to take a moment to discuss how we are managing through this changing market. This quarter, we grew by over 25% in 5 of our 9 divisions. That said, we also reduced our writings again in Global Property and in the construction unit of our Construction and Energy Solutions division as well as parts of our Professional Lines division. In these areas, opportunities to write business at pricing terms that meet our high return thresholds are simply challenged. Within those divisions, however, we've had excellent success growing specific units, such as healthcare professional liability and professional lines, and the energy unit in our Construction and Energy Solutions division. More broadly, Global Property and -- to a lesser extent, E&S Property and inland marine are becoming increasingly competitive. And in Casualty, we're being very selective given the loss inflation backdrop. And yet we still see opportunities in E&S Liability, and Captives, both of which are growing steadily as is our energy unit, which I noted a moment ago. Turning to our Ag unit, our success this year is the result of 3 years of effort to build a product that is unique, and to put in place a strategy to manage potential volatility. Demand for reinsurance capacity in dairy and livestock revenue protection has surged as producers and approved insurance providers have sought stable risk transfer solutions, amid price volatility in the market. The rewards for our creativity and innovation are now fully materializing. Our success story in Ag follows other divisions. In A&H, we have grown by 45% in the quarter and year-to-date. As we discussed in the past, we focus on the small employer market and medical cost management. We use AI predictive analytics in risk qualification and selection. Our pursued before pay claims approach has high impact for our customers, and we built captive capabilities that sit side-by-side with our single company stop-loss products. And our performance as per the recent NAIC A&H policy experience report on the 2024 calendar year highlights, we are 15 points better than the industry. In Surety this quarter, we resumed a stronger growth trajectory and continue to gain market share as federal funds began to flow. And yet we're not resting on our laurels. We launched an industry-first product called EndWell, which is an amortized, collateralized product for decommissioning obligations for the oil and gas industry. This launch comes amid challenges to find quality Surety solutions given the dislocation that has resulted from a handful of high-profile bankruptcy-driven losses over the past few years. Undoubtedly, like our prior launches in Surety, and in other divisions, we build a strong and profitable book around this product. Clearly, our innovation to Rule Our Niche and execution stands out, and is showing in both our growth and profitability, and allows us to navigate the more challenging P&C market in ways that others cannot. While our profitable growth is certainly externally differentiating, I continue to believe we're leading in how we're using technology to win. SkyView, which is short for Skyward Visual Underwriting Experience, our award-winning underwriting workstation allows us to multiply with great alacrity the deployment of new capabilities to our underwriters. We continue to make huge leaps forward in using bots to automate submission ingestion through generating high-impact narratives that summarize the key risk vectors of each account. And we're making strides in using GPTs to allow our underwriters and leaders to interrogate, investigate aspects of an account such as summarizing claims or more broadly summarizing performance insights on a book of business. We believe this continues to be a first mover and learning curve advantage that inures to us. And as long as we stay ahead of the AI arms race, we'll continue to lead and win. Finally, our operational metrics remain positive. Renewal pricing bounced up a tick from the prior quarter to mid-single digits plus peer rate. And again, we realized mid-digit exposure growth, both excluding Global Property. New business pricing continued to be in line with our in-force book. Retention remained in the mid-70s for the quarter, driven by business mix and intentional actions on auto, within our construction unit. And lastly, submission growth was consistent, growing in the mid-teens this quarter. We also remain incredibly excited about closing the Apollo acquisition and beginning to tackle the market together with our new colleagues, while we continue to operate independently until the transaction does close. The combination of our companies represents a significant step forward in our ability to innovate, lead with talent and technology, and build winning positions across the specialty insurance market. In summary, this was another excellent quarter for Skyward Specialty. We continue to drive top quartile underwriting results, and leverage the diversity of our portfolio to continue our impressive growth and earnings, while the broader P&C market becomes more challenging. With that, I'd now like to turn the call back over to the operator to open up for Q&A. Operator?

[Operator Instructions] The first question that I have today will be coming from the line of C. Gregory Peters of Raymond James.

I guess the logical place to start will be with your top line results. If we can put the Agricultural opportunity aside, just curious about some of the numbers we're seeing, Accident & Health, it has been strong all year, and the Captives are doing quite well, too. So maybe give us some perspective on where you're having some success in some of those other segments of your business is a good starting point?

Well, look, I think that as I said in the prepared remarks, I think we're just -- I'd start by saying we're being appropriately cautious, thoughtful. Describe it how you want in large chunks of what I would describe as the more traditional parts of the P&C market. It's just -- it's becoming more competitive and certainly more nuanced. I think the places we're writing business in those other divisions are done on smart terms and conditions. That said, look, I think that we just simply have connected in other parts of our business. You saw Surety has bounced back 26% growth this past quarter. And a lot of that really was we were still maintaining strong growth as compared to the industry on Surety, for the first half of the year, just it bounced back to an -- sort of a much more impressive level once the federal funds began to flow. And I highlighted a new product launch where we've had some really good success already. We're very bullish about the outlook on that, and that's sort of in the commercial Surety part of our business. On A&H, I think we've talked at length about, I did highlight the loss ratio number just to provide an external reference point. Again, I think it's the small account market, medical cost management focus, and the fact that we built an operating model that I think is really quite distinctive. And we're seeing that come through both in sort of traditional single company stop-loss accounts as well as on the group Captive side. Within Captives, on the P&C side, a lot of that really is just continuing to grow with the Captives we have in place. We -- it's been some number of quarters since we launched a new Captive, but the ones that we have seem to be continuing to add members. Of course, we're -- I think, more insulated to the market in total in terms of the price that we're able to put into the Captives, that's really much more sort of like a -- I would describe it as a stable, you're always keeping price up against loss trend, your Captive members understand that, and that seems to work really well. And so I think each one is unique, but I think the reasons are a lot about how we basically have built our business and our product? And the fact that through 9 months this year, nearly 50% of our business is in those categories that are not P&C cycle exposed. And I think that it's hard for me to sort of identify any other company who's got a portfolio that looks like ours.

I appreciate, Mark, your comments about holding back on providing '26 guidance on Apollo. But in the context of, Andrew, what you said about your business being somewhat better positioned for cycle management. Maybe you could spend a minute and talk about how the Apollo third quarter results look? And how they're positioned in the context of cycle management?

Yes, I mean, Greg, there really -- there's not a lot I can say, because to be honest, we do not have regulatory approval, and I -- there's like boundaries where -- well, I would be feel comfortable, I think others, including my General Counsel sitting my left, probably wouldn't. So, what I will say to you, Greg, is that no different than when we announced the transaction. We really, really like everything that the Apollo team has done. And I would say that on the sort of 1969 more specialty-focused syndicate, they're weighted pretty heavily towards specialty classes, and while they too are not immune to the market cycle, in many of their classes, they're definitely not seeing sort of some of the macro concerns, and certainly aren't heavily weighted towards property cat and things like that. As we've talked about, '71 is an entirely different business and is actually tied much more closely to the exposure growth of sort of digital economy emerging industries. And in that regard, it feels like that that's rather disconnected from the P&C market largely because that business is not being competed across the market. There's very, very few -- and I would dare say one, which is 1971 and the things that they do, real competitors in that category. So I think not unlike ours, there's aspects about their business that are somewhat insulated from some of the macro concerns that you all are asking about on your interactions with other companies.

[Operator Instructions] Next question coming from the line of Tracy Benguigui of Wolfe Research.

Most of the P&C insurers right now are sitting on too much excess capital, so much so, that it's too much to deploy for underwriting opportunities. So we've seen more muted growth, and Skyward is definitely more growthy, and we've clearly seen that this quarter. I would argue that maybe you're sitting on like lower levels of capital in a way that might be a good thing, because that means you will have a lot of discipline given more is at stake. So my question is, if we see more growth continuing at these more elevated levels going forward, I get it, it might be uneven by quarter. Where would this capital be coming from? I mean it feels like you don't have a lot of debt headroom. So would you access the equity markets? Or do you think the capital growth through retained earnings could sustain your growth ambitions?

I love the positivity relative to our growth outlook. Look, I think the first thing I'd say is through 3 quarters, in every one of the 3 quarters, I would argue we were differentiated on growth by a material level compared to maybe the companies you might regularly compare us to. Yes, I would acknowledge that this quarter is kind of an eye-popping number, 27% growth through the first 3 quarters this year, I will just say straight up is more growth than we expected. So that's a good thing. That just says that the things that we're doing have sensibly positioned us against the market opportunities. That said, look, I don't think that -- I think it's impractical to think that something like a 27% growth is kind of a reference number as we look out into the future. But should we find a situation where we are capital constrained, I'll highlight to you something that I said when we announced the Apollo transaction, which is one of the really interesting dimensions of Apollo is that they are a capital-light business. Their capital stack is effectively made up of 25% of their own capital, and 75% of other people's capital with clear alignment between them and their other capital providers. And we think that, that is always an interesting option that potentially could move not our business, but our economic model to have a greater portion that are fee-based. And I'm not saying that in any way, we are concerned about our capital. We don't think that investors give us enough credit for the fact that we are an incredibly capital-efficient organization, driven by the fact that we've intentionally constructed our business portfolio the way we have. I mean we are very capital efficient. But that said, we don't necessarily see any capital constraints. But that doesn't sort of set aside this potential point that we will be evaluating whether some portion of our underwriting income should be recaptured through fees over time.

I appreciate hearing the commentary about A&H, Surety, Captives and Agriculture growth. But could you touch on the 52% growth in specialty programs? I believe the segment includes Property, GL, Commercial Auto, Excess Liability and Workers' Comp. So among those lines, where were the growth standouts?

Yes. Great question. And I think let me just start with one notable point, which is through 9 months, if you look at our Specialty Programs premium as a percentage of our premium overall, it's 13.4%, right? And I'd remind you that a meaningful portion of that is through relationships where we have a meaningful ownership position. So I think we're doing this in a very sort of intentional, very thoughtful way. That said, the last few quarters, we've seen a lot of growth in programs. And as I've explained in the past, we added two programs. One was a Warranty Indemnity program, and that is one where we own a position in that entity. And the other is a long-standing personal relationship that I have, and that program is in Brownwater and Greenwater Marine. And those two programs, we started having some of the business come on to our books in -- I believe, around March of this year. And so by the time that we get through the first quarter here, we're going to continue to see growth on a relative basis in programs, that's going to be not inconsiderable through this quarter and through the next quarter. But by the time we get to the second quarter of next year, we're going to be lapping ourselves, and I don't think you're going to see that kind of growth numbers. As I've mentioned, like when you add a program, it can be chunky, and it can make your numbers look different or unique. But in this case, it's really quite controlled around two very important relationships for us.

[Operator Instructions] Our next question will be coming from the line of Matt Carletti of Citizens Capital Markets.

A lot of what I had has been asked and answered, but maybe just one if I can. Mark, you -- I think, Mark, it was you that mentioned how there's going to be more volatility quarter-to-quarter in the growth rates kind of around, which kind of lines of business have big renewal periods. Can you help us with that at all? Is there -- and should we think about certain quarters of the year is being kind of we're going to have our strongest growth in this quarter typically because of the big renewal books? And then there's another quarter that will be lighter? Or is it a little more -- you kind of see what you get as the renewals come?

I mean, look, the -- what we saw this quarter with the Ag, that's heavily a Q3 quarter, clearly. In terms of other businesses, A&H is weighted more towards the first quarter, Property towards the first half of the year. What else am I missing, Andrew? That's -- those are the three.

Yes, those are three that stand out. And then obviously, the Specialty programs is lumpy as well, based on when programs renew. What I'd say to you, Matt, is that -- because as I mentioned, I think, in response to Tracy's questions, like we ourselves are -- we're pretty elated with 27% growth through 9 months, it was more than we expected. I think as we come around to our guidance for next year, I think we'll try to be more specific in helping you better understand as we've digested all this and harmonizing. But Mark is right. I think that, look, in general, there's nothing particularly exciting happening in the fourth quarter, and by the way, there's a bunch of companies that are way behind plan, that are leaning in maybe a little bit even more competitively than otherwise they are. And that's not me sort of saying to you our fourth quarter is not going to be a strong fourth quarter or any of those things. But there's nothing unusual happening in the fourth quarter one way or another, and it is a more competitive quarter always as companies try to fill out their full year. So -- but once we get beyond that and we get to our guidance that we'll provide you in the new year, we'll say something about that to help you make sure that you're accounting for that in your plans on written premium as opposed to earned premium.

[Operator Instructions] Our next question is coming from the line of Meyer Shields of Keefe, Bruyette, & Woods.

Sort of stay on this topic, but I wanted to get a sense as to whether the Ag premium that you wrote in this quarter, does that have even earnings patterns over the course of the year? Or is it like the crop side of things where a lot of it's earned as written?

Meyer, it's Mark. Yes, we'll earn it ratably over the next 12 months for what we wrote this quarter. We don't exposure measure or exposure account for where there's lumpy premium recognition. You'll see it in the growth. But in terms of earnings, just assume it's flat through the rest of the next 12 months. Does that help?

It helps a tremendous amount.

That's true for our entire Ag book and other businesses that have kind of unique features like that like Surety and so forth, we apply that same approach consistently.

Related question, I just want to make sure I understood the comments about the lumpiness. You're just talking about the fact that these different niches have different renewal calendar dates, not that there's anything nonrecurring or fundamentally nonrecurring in the third quarter premium?

No, there's no -- there's no nonrecurring items here at all. If something comes up that's nonrecurring or we pull a policy forward or push back that's sizable, we would highlight that. But no, there's nothing unusual. Look, I think it's our way of basically just saying, look, we delivered 27% growth through the first 3 quarters. I'm sure across the universe of each of the companies that you cover, there's maybe one, if any, companies that look like that. And this quarter at 51%, 52% growth is just -- it kind of stands out. And we just -- we're simply just trying to make sure that you as research analysts and our investors understand that there is real lumpiness here, and it's evident through the first 3 quarters.

100%. You are very clear. I just wanted to make sure that I wasn't misinterpreting stuff. Last question, I guess, there was -- it's clearly understandable step-up in operating and general expenses on a year-over-year basis. And I assume that, that relates to the growth in gross written premium. Is this a good starting point going forward? The $52 million that we saw in the quarter?

Yes, Meyer, there's not going to be much movement quarter-over-quarter. So yes, I think that's a pretty good baseline. I missed the first part of the question.

I was just -- I'm assuming, and please correct me if I'm wrong, that the reason you had this like few step-up from $41 million to $52 million from the second quarter to the third, it's just associated with the gross written premiums. Obviously, we see it an acquisition expenses. So I just wanted to confirm that it's the right baseline for G&A expense as well?

Bear with me one second.

Yes, I think, Meyer, to try to make sure we're looking at what you're looking at, we -- I would suggest let's call -- can we take that off-line and make sure that we understand and give you an explanation. I will just highlight that we're -- our other underwriting expense is going down period-on-period. So as a -- on a ratio basis, so we're getting leveraged away from acquisition expense period-on-period. So I want to make sure that we're looking at what you're looking at.

[Operator Instructions] Our next question is coming from the line of Michael Zaremski of BMO Capital Markets.

Just on the overall retention levels that you all give us, which are helpful. I guess, in mid-70s, and I guess just at a high level, when we think of E&S business, we think of E&S kind of being in the 70s and more traditional being in the mid-80s, maybe higher. So I guess the fact that you guys are mid-70s, I guess I just want to make sure just means that the non-E&S portion of your book, just -- Specialty portion is just runs at a naturally lower retention level?

Yes, Mike, this is Andrew. Just to step back on this and remind you something that we've talked about in the past, there are three big drivers of our gross to net that make us look a little bit different than maybe others, and those three that we've always reminded of are one; our Global Property business. Remember, we have a very large line, and we have a strong long-standing quota share participation that allows us to have that large line. And that's one big part. The second is Captives, which is structurally that way. And then the third is A&H, where we've had historically on the stand-alone stop-loss business, a very sizable quota share support with a very attractive seed that allows us to effectively lock in a portion of our underwriting results. And then similarly, on the A&H Captives, the same dynamic happening. That said, in the other businesses, as things grow like Ag and so forth, there's very little reinsurance or in that case retrocessional reinsurance used. And so some of this is just straight up mix. And I wouldn't look at this quarter, I would look at the year-to-date, where I think we're sitting at about 65-ish percent, I believe, year-to-date. And I think as we get to the end of the year, that sort of end of year number will be a good proxy for your models for next year.

Pivoting to some of the comments Mark made on just kind of the overall reserve puts and takes. It seemed like nothing new there. Commercial Auto, and Construction were kind of called out as continuing to be as the industries also sees under pressure. But you also mentioned a 4Q review. So I just want to make sure there's probably nothing there. Are you saying that there might be a deeper dive in 4Q on some of these items?

Mike, it's Mark. It's just part of our process where -- and we've talked about this a lot in terms of our philosophy. Look, we do look and review our reserves each and every quarter. Our business doesn't move that quickly, where I think it's appropriate to respond every single quarter to what we see. All I'm just trying to foreshadow is that's when we will all -- we will do the deep dive review and any adjustments that we see, we'll make them in the fourth quarter. To your point, I feel great about where we are in terms of reserves. Our philosophy has not changed. We continue to be conservative, and that will continue. The industry, and you noted auto liability, yes, that's something that we've been looking at a lot. But the other part of what I said in my comments is what we've seen in terms of favorable emergence elsewhere. So short story, Mike, I feel great about where we are, but we'll update you in the fourth quarter with what happens.

Lastly, just a follow-up to Tracy's question on the premium growth versus equity levels. So -- loud and clear what you said there. I just want to -- just with the Apollo deal coming on, there's the financing terms and the timeline that you had given us in the past. Is there -- would you guys -- would you all tinker with any of the financing or timeline based on just this much better-than-expected growth or nothing to think through there?

No, nothing to shift through that, Mike. There's nothing about this quarter that changes how we're approaching things timeline. We still expect very early in the first quarter of next year -- very early in the first quarter of next year, and really nothing has changed. The financing has gone really well. We're in a great position. And yes, we're -- there's nothing about the execution that's noteworthy. We're in a great spot.

[Operator Instructions] Our next question will be coming from the line of Andrew Andersen of Jefferies.

Maybe kind of back on reserves and just loss inflation. I think the construction inflation comment was new. And we've heard from some other specialty companies of some construction defect claims, but maybe you could just expand a bit on what you were trying to get across with the construction inflation comment?

Yes. So Andrew, this is Andrew, and Mark may add to that. I think more of what we're seeing, to be honest, is I don't know how to be sort of too vivid about this, but we basically see the kind of severity that you might see in heavy auto now making its way into F-150 accidents. Construction, some of our book, the trades basically leading the site, an accident occurring. And what we're seeing is severity inflation that, to be honest, is just -- listen, I feel like I've been one of the earliest and most consistent protagonists on this, because this is not new. The way I know this isn't new, is because through 9 months this year, 11% of our book is auto. And we took the company public, it was 25%. And that 11% has probably gone about 80% rate since then. And so we're probably down on an exposure basis, well less than the 60% from a premium basis -- 40% from a premium basis. It's just that we keep seeing the loss inflationary dimensions emerge in areas that we're surprised by. And I don't mean like we're surprised like we're not responsible, prudent professionals about how we're looking at our business, like you're just simply surprised that, that a claim of this size and an injury of this could result in that kind of loss. And yet I have full confidence in our claims folks the way that they're executing. And it's really nothing much more complex than that. And I think that it should give everybody pause for -- even if you believe that you have ring-fenced the inflationary areas, I believe that anything that is personal injury exposed occurrence liability is further ground for considerable inflation. And you have to be incredibly thoughtful about how you're constructing your occurrence liability book. And I wouldn't read into anything more than what I just said, because that really is kind of the dimension. And you are right that we've been talking about construction now for a couple of quarters, but it has been auto-focused thing. And -- but that's been a theme that's been consistent for us for some number of quarters.

Then just on kind of the overall rate commentary, I think I heard mid-single-digit plus peer rate, and mid-single-digit exposure, both excluding Property. The mid-single digit --

Excluding Global Property, just Global Property, Andrew.

The exposure piece sounds fairly sizable. Could you maybe just help us frame how that stands relative to the first half of the year, the [ Global Property ] exposure?

Yes, great question. I highlighted in the last quarter as well. We ourselves were -- listen, I think we're all sort of trying to figure out what the economy -- what's happening in the economy. And I think in the second quarter, we similarly had a really surprisingly positive result on exposure growth. If you kind of look out over the past, I don't know, maybe 2 to 3 years, we've been bouncing between kind of like 2% and 4% on any quarter. And then the last couple of quarters, it's ticked up a bit. That's positive. I don't know if it tells us anything other than in some of our businesses, we recapture a tiny little bit of rate in exposure. I talked about Surety is somewhat unique as it relates to exposure. But we're just reporting out on what we're seeing. So I think that's a positive sign, right? I guess, certainly, you want to be able to grow premiums and exposure growth is a good way to grow premiums as long as you're priced properly.

[Operator Instructions] Our next question will be coming from the line of Paul Newsome of Piper Sandler.

Great. Just a couple of follow-ups. One was just a clarification. The debt-to-cap 21%, I assume that's -- I believe that's a decent amount above where you want it to be long term. Is it a fair assumption that after the deal, you'd be looking at basically retaining capital until that falls down into your more comfortable range?

Well, actually, Paul, I'm not uncomfortable at 28%, 28.5% at all, actually. We intentionally were under-levered, if you will to provide us with this flexibility. So yes, I'm not uncomfortable with it at all. The organic capital growth itself, as you just pointed out, will reduce the leverage and it will over time. So yes, a -- I'm not uncomfortable with the 28% and the organic capital generation over the next 12 months to 18 months will serve to reduce the deleverage ratio.

Then unrelated question, but a little bit of follow-up on reinsurance usage. It's looking like reinsurance is amongst the most competitive places. Can that be an advantage for you folks given the structure of your company? And what you've talked about previously?

Yes. This is Andrew. Look, I mean, I think if you go from top to bottom, our sort of purchase of reinsurance is pretty fairly spread. Our cat program, as you know, is not a monster cat program. Our spend is kind of mid-single digits plus kind of millions of dollars on cat. It's like, yes, the reinsurance markets becoming obviously more favorable to cedents. But I don't know if that -- listen, I think that it can be helpful, but it's not going to be a big [Technical Difficulty] improvement year-over-year.

Our next question will be coming from the line of Michael Phillips of Oppenheimer.

Andrew, maybe more of a theoretical question. How strong do you think the correlation is, if it even exists between the P&C pricing cycle and demand for captive formation?

That's a -- that's a really great question. So before we really kind of leaned in on Captives, we looked at this. And during -- if you allow us, I can follow up and try to dig out some of the information. But during the sort of the soft market period leading up to kind of, let's just call it 2019, 2020 kind of timeframe, Captive growth still was quite robust, and relative to the P&C market, very robust. There is no question to your point that a hard market environment appropriately should force -- in our case, we're talking group Captives, so mid-market kinds of risk, a company that really wants to have more direct financial connection to their cost of risk. Certainly, that becomes an impetus. But on the flip side, the retention in the Captives is very sticky, because you generally construct them in a way that is quite sort of measured and controlled renewal cycle to renewal cycle. And you're not -- you're already sort of self-selecting in risk that have an attention towards risk management, and have capabilities that the wider market on average doesn't have. And so we also think that in a softer market, you're more immune. This is the point about sort of its less cycle exposed, you're more immune to the P&C cycle than otherwise you would be even if you're riding P&C lines, which we are in our CapEx number.

You're saying you're more immune because of the retention piece?

Yes, because of the retention, and because the Captive members themselves are directly involved in seeing the experience, and so in that experience tends to be a much more stable, consistent, here's what's happening with exposure growth. Here's what's happening with losses. Here's what's happening with loss inflation, because they're eating their own cooking, right? I mean it's like they're risk managers and if they're good, they get the benefits. And if they're not good, they see the cost. And if they're just very consistent, which many of them are in our case, then you get a much more stable period-over-period kind of renewal.

Perfect, perfect. Helpful. I guess, one of the reason why I was asking the category?

It's one of the reasons we love the category. It's just -- we don't have the benefits of being travelers or Hartford writing small commercial. This is our version of kind of like stick to your writs kind of ballast for the business.

So it sounds like -- one of the reasons for the question is, should we get into a softer market, does that mean any kind of slight headwind to your growth in Captives? It sounds like that's not something you'd be concerned about?

We'll know when the time comes, but it's certainly not my top concern as compared to other things I'd be concerned about in the soft market.

Our next question will be coming from the line of Mark Hughes of Truist.

Andrew, the transactional E&S business, that's been a little slower growth. I think you talked about E&S liability being a good area for you. Does that fall under the transactional bucket or heading?

Yes.

And yes, what if --

We write -- as I think we've mentioned in the past, we -- our book there is -- it's a small, medium business, average premium between $40,000 to $50,000, on the property side, 50% to 60% of what we write, our primary and full limits and 40% to 50%, we're writing usually the primary and somebody else is writing the excess. And then on the liability side, it's a lot of million-dollar primaries and some supported and unsupported excess. Very little of what we write there has auto exposure. And that's the book. That's -- and so we talked about it, the property side, I just -- I'll just say it straight up, because we've listened to some other companies talk about this. Anybody who is presenting a case, and a few are presenting a case that property in the E&S market, even on the smaller side of it is -- from a rate perspective is going in a positive direction isn't starting from a position of good prudential pricing. And there's a couple out there with those commentary. On the liabilities side, I think consistent with what others have said, the sort of the primary million, primary GL is pretty competitive out there, some silliness from MGAs and so forth. And the excess is a better market. And for our part, our excess is either supported over our primary, if we're writing unsupported, the thing that we're generally writing is business that has very little auto exposure to it, and we're very thoughtful about sort of the personal injury, how heavy that personal injury, loss inflation profile of exposure looks, but the market is still pretty good.

Yes. What's been the -- just a very recent trend in property, is it kind of stepped down, and therefore, your -- you've adjusted your appetite? Or is it just continuing to drift downward?

Yes. Listen, I think that there's just -- I think Tracy might have made this point. They're just -- there's way too much capacity knocking around the property market. If you're writing cat and it doesn't have to be big limit cat, it doesn't be shared and layered. It's just -- if you're writing Tier 1 cat, you're writing against -- there's some just crazy stupidity out there, like just stuff that doesn't make any sense, and anybody who believes it makes sense is fooling themselves. And what happens is that good smart underwriters will say, and I've heard this from some of the other CEOs in the calls that they're saying there's just not opportunity there, so they go to the next thing, and they go to the next thing. So what happens as you -- you get an erosion in the market that just starts to find its way into other areas. To the point where, as I've mentioned in the past, for example, in our property book, we write fires our principal peril. We write really, really, really tough risk. We write the stuff that's in the E&S market for a reason. But when you start to see silly competition come to that part of the market, there's a price where we will write the business, and there's a price where we won't. And we're one of the best at it. I just -- I'll say straight up, we make a lot of money on the property side, we're super smart. And we're very sensible, we deliver a good product for our customers, but we charge an appropriate price for the exposure. And when the guys who come in, and don't know what they're doing in that, that's just problematic. And what's happening is that's happening in more and more categories across the property market. Yes, I still feel very good about our business, and our ability to navigate. So I wouldn't want to be anybody else other than us.

We now have a follow-up question coming from the line of Tracy Benguigui of Wolfe Research.

I'm just curious, given the uneven growth by segment, which should lead to some mix shift. I'm wondering how we should be thinking about your underlying loss ratio and expense ratio? Like, for instance, Surety is a low loss ratio, high expense ratio product and other products have different profiles.

Yes. It's an outstanding question, because we have it all in the book, right? We have examples like Surety, which is incredibly high acquisition expense, very low loss ratio. We have A&H, which is low acquisition expense, and low expense overall and high loss ratio, similar profile on the Ag side. And what I'd say is, is that, again, what we'll do is we'll come back in our guidance. But I think that through the first 3 quarters, you're seeing the earnings of that mix change coming through. But obviously, given, for example, the volume of Ag, how that sort of manifests itself on acquisition cost versus operating expense versus loss ratio, we'll come back in the guidance -- when we give our full year guidance early in the new year, Tracy. And until then, I don't think we really want to or are prepared to say much more.

This does conclude today's Q&A session. I would now like to turn the call back over to Kevin, for closing remarks. Please go ahead, Kevin.

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

This concludes today's program. You may all disconnect.