Skyward Specialty Insurance Begins U.S. IPO Effort (Pending:SKWD)

A Quick Take On Skyward Specialty Insurance Group

Skyward Specialty Insurance Group (SKWD) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm provides specialty property & casualty insurance services in the United States.

SKWD is growing revenue but comprehensive income has fluctuated significantly.

I’ll provide a final opinion when we learn more IPO details.

Skyward Overview

Houston, Texas-based Skyward Specialty Insurance Group was founded to provide commercial P&C insurance services as both a non-admitted (excess & surplus) or admitted insurance coverage provider.

Management is headed by Chief Executive Officer Mr. Andrew Robinson, who has been with the firm since May 2020 and was previously Co-CEO of Groundspeed Analytics and Chairman of Clara Analytics, two insurance technology companies.

The chart below shows the company’s various lines and gross written premium breakdowns:

The company’s primary offerings include:

• General liability

• Excess liability

• Professional liability

• Commercial auto

• Group accident and health

• Property

• Surety

• Workers’ compensation

As of September 30, 2022, Skyward has booked fair market value investment of $577 million from investors including The Westaim Corporation, Caffrey Partners, Mt. Whitney Securities and others.

Skyward – Client Acquisition

The firm targets a variety of market segments through retail brokers and wholesale broker partners.

It also administers certain programs through third-party captive managers.

Underwriting, Acquisition & Insurance expenses as a percentage of total revenue have trended higher as revenues have increased, as the figures below indicate:

Underwriting, Acq. & Insurance Expenses	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended September 30, 2022	29.1%
2021	25.2%
2020	26.5%

Click to enlarge

(Source – SEC)

The Underwriting, Acquisition & Insurance expense efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Underwriting, Acquisition & Insurance spend, fell to 0.4x in the most recent reporting period, as shown in the table below:

Underwriting, Acq. & Insurance Expenses	Efficiency Rate
Period	Multiple
Nine Mos. Ended September 30, 2022	0.4
2021	0.7

Click to enlarge

(Source – SEC)

Skyward’s Market & Competition

According to a 2021 market research report by Insurance Business America, the E&S market premiums in the U.S. market in 2020 was $41.7 billion.

This represents a 14.9% increase over the 2019 result of $37.5 billion.

The main drivers for this expected growth were a low interest rate environment, increased claims costs, and increasingly frequent weather events, among others.

Also, those factors are expected to remain in effect in the near future with the topic of ransomware potentially becoming a more important factor in many insurance policies.

Major competitive or other industry participants include:

• Markel Corporation

• W. R. Berkley Corporation

• American Financial Group

• Tokio Marine Holdings

• CNA Financial

• Hiscox, Ltd.

• RLI Corp.

• Intact Financial Corporation

• Argo Group International Holdings

• Kinsale Capital Group

• James River Group Holdings

Skyward Specialty Insurance Group Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue

• Increasing gross profit

• Variable profit before income taxes

• Fluctuating cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 455,053,000	12.9%
2021	$ 550,181,000	21.7%
2020	$ 451,972,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 161,517,000	5.5%
2021	$ 195,770,000	118.0%
2020	$ 89,790,000
Gross Margin
Period	Gross Margin
Nine Mos. Ended September 30, 2022	35.49%
2021	35.58%
2020	19.87%
Profit (Loss) Before Income Taxes
Period	Profit (Loss) Before Income Taxes	PBIT Margin
Nine Mos. Ended September 30, 2022	$ 23,819,000	5.2%
2021	$ 48,309,000	8.8%
2020	$ (94,532,000)	-20.9%
Comprehensive Income (Loss)
Period	Comprehensive Income (Loss)	Net Margin
Nine Mos. Ended September 30, 2022	$ (29,969,000)	-6.6%
2021	$ 30,741,000	6.8%
2020	$ (67,441,000)	-14.8%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended September 30, 2022	$ 124,913,000
2021	$ 175,285,000
2020	$ 44,709,000
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

As of September 30, 2022, Skyward had $30.7 million in cash and $1.9 billion in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was $161.9 million.

Skyward Specialty Insurance Group IPO Details

Skyward intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure will likely differ.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds to us from this offering to make capital contributions […] to our insurance company subsidiaries in order to grow our business and the remainder for general corporate purposes.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says the firm is not a party to any legal proceedings that would have a material adverse effect on its financial condition or operations.

The listed bookrunners of the IPO are Barclays, Keefe, Bruyette & Woods and other investment banks.

Commentary About Skyward’s IPO

SKWD is seeking U.S. public capital market investment to fund its general growth initiatives.

The company’s financials have shown increasing topline revenue, growing gross profit, fluctuating profit before income taxes and variable cash flow from operations.

Free cash flow for the twelve months ended September 30, 2022, was $161.9 million.

Underwriting, Acquisition & Insurance expenses as a percentage of total revenue have trended higher as revenue has increased; its Underwriting, Acquisition & Insurance efficiency multiple has dropped to 0.4x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings for reinvestment back into the company’s growth initiatives.

The market opportunity for providing specialty insurance services in the U.S. is large and expected to grow as asset values grow.

Barclays is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 14.0% since their IPO. This is an upper-tier performance for all major underwriters during the period.

When we learn more about the IPO’s pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.