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Bowhead Specialty Holdings Inc

Bowhead Specialty Holdings Inc. Reports Third Quarter 2024 Results

NEW YORK--(BUSINESS WIRE)--Nov. 5, 2024-- Bowhead Specialty Holdings Inc. (NYSE: BOW), a growing specialty lines insurance group focused on providing casualty, professional liability and healthcare liability insurance products, today announced financial results for the third quarter ended September 30, 2024*.

Third Quarter 2024 Highlights

  • Gross written premiums increased 32.3% to $197.0 million.
  • Net income of $12.1 million, or $0.36 per diluted share.
  • Adjusted net income(1) of $12.5 million, or $0.38 per diluted share(1).
  • Return on equity of 13.7% and adjusted return on equity(1) of 14.2%.
  • Book value per share of $11.17 and diluted book value per share of $10.97.

__________________
(1) Non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable U.S. GAAP measures.

Bowhead Chief Executive Officer, Stephen Sills, commented, “We are pleased to share our third quarter results, which reflect the continued execution of our market cycle strategy. Premium growth in the quarter was 32% year over year. Our Casualty division had a standout quarter, as we continue to see favorable underwriting and pricing conditions. We also experienced double-digit premium growth in our Healthcare Liability and Professional Liability divisions. As mentioned in the past, underwriting comes first here at Bowhead. From the top down, underwriting profitability is our North Star and is embedded in our people and our culture. Looking ahead, with our disciplined approach to underwriting and our expanding “craft” and Baleen Specialty “flow” platforms, we believe we’re well positioned for sustainable and profitable growth across market cycles.

Underwriting Results

The 32.3% increase in gross written premiums to $197.0 million in the third quarter of 2024 was driven by renewals, new business and continued growth in our platform across all divisions:

  • Our Casualty division led the growth with a 41.7% increase to $120.2 million, which included $4.4 million of additional gross written premium ($3.3 million from a net earned premium basis) from an unusually large audit premium on one insured;
  • Healthcare Liability increased 29.0% over the same period to $31.4 million; and
  • Professional Liability increased 13.1% to $45.0 million.
  • Late in the second quarter of 2024, we launched a new division called Baleen Specialty, which focuses on small, hard-to-place risks written 100% on a non-admitted basis. Baleen is a streamlined, low touch “flow” underwriting operation that supplements the “craft” solutions we offer today. In line with our deliberate, measured and limited roll out, Baleen Specialty generated $0.4 million of gross written premiums for the third quarter of 2024.

Our loss ratio of 64.5% in the third quarter of 2024 utilized the same industry loss ratios used since the fourth quarter of 2023. The decrease from 65.5% in the second quarter of 2024 was primarily driven by mix changes in the portfolio, as well as the large audit premium being fully earned and associated with older accident years that had lower loss pick assumptions. There were no changes to loss picks or prior year reserves during the quarter. As of September 30, 2024, incurred but not reported liabilities comprised 91.2% of our net loss reserves.

Our expense ratio of 29.9% in the third quarter of 2024 decreased from 33.8% in the second quarter of 2024, or 32.3% excluding the one-time stock-based compensation acceleration expense of $1.3 million in the second quarter of 2024. The decrease was driven by continued prudent management of operating expenses, as well as the impact of the large audit premium increasing net earned premium.

__________________
* Comparisons in this release are made to September 30, 2023 financial results unless otherwise noted.

Investment Results

Net investment income was $11.5 million, driven by the increase in our investment portfolio and higher yields on invested assets. Our IPO proceeds were fully invested during the quarter. Our investment portfolio had a book yield and new money rate of 4.7% at the end of the quarter.

The weighted average effective duration of our investment portfolio, which included cash equivalents, was 2.2 years and had an average rating of “AA” at September 30, 2024.

Summary of Operating Results

The following table summarizes the Company’s results of operations for the three months ended September 30, 2024 and 2023:

 

Three Months Ended September 30,

 

 

2024

 

 

 

2023

 

 

$ Change

 

% Change

 

($ in thousands, except percentages and per share data)

Gross written premiums

$

196,976

 

 

$

148,919

 

 

$

48,057

 

 

32.3

%

Ceded written premiums

 

(68,643

)

 

 

(49,581

)

 

 

(19,062

)

 

38.4

%

Net written premiums

$

128,333

 

 

$

99,338

 

 

$

28,995

 

 

29.2

%

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Net earned premiums

$

105,180

 

 

$

70,874

 

 

$

34,306

 

 

48.4

%

Net investment income

 

11,491

 

 

 

5,188

 

 

 

6,303

 

 

121.5

%

Net realized investment losses

 

(18

)

 

 

—

 

 

 

(18

)

 

NM

 

Other insurance-related income

 

108

 

 

 

31

 

 

 

77

 

 

248.4

%

Total revenues

 

116,761

 

 

 

76,093

 

 

 

40,668

 

 

53.4

%

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

Net losses and loss adjustment expenses

 

67,824

 

 

 

42,796

 

 

 

25,028

 

 

58.5

%

Net acquisition costs

 

9,163

 

 

 

5,617

 

 

 

3,546

 

 

63.1

%

Operating expenses

 

22,386

 

 

 

16,376

 

 

 

6,010

 

 

36.7

%

Non-operating expenses

 

487

 

 

 

—

 

 

 

487

 

 

NM

 

Warrant expense

 

792

 

 

 

—

 

 

 

792

 

 

NM

 

Credit facility interest expenses and fees

 

252

 

 

 

—

 

 

 

252

 

 

NM

 

Foreign exchange losses

 

37

 

 

 

40

 

 

 

(3

)

 

(7.5

)%

Total expenses

 

100,941

 

 

 

64,829

 

 

 

36,112

 

 

55.7

%

 

 

 

 

 

 

 

 

Income before income taxes

 

15,820

 

 

 

11,264

 

 

 

4,556

 

 

40.4

%

Income tax expense

 

(3,728

)

 

 

(2,556

)

 

 

(1,172

)

 

45.9

%

Net income

$

12,092

 

 

$

8,708

 

 

$

3,384

 

 

38.9

%

 

 

 

 

 

 

 

 

Key Operating and Financial Metrics:

 

 

 

 

 

 

 

Adjusted net income(1)

$

12,520

 

 

$

8,819

 

 

$

3,701

 

 

42.0

%

Loss ratio

 

64.5

%

 

 

60.4

%

 

 

 

 

Expense ratio

 

29.9

%

 

 

31.0

%

 

 

 

 

Combined ratio

 

94.4

%

 

 

91.4

%

 

 

 

 

Return on equity(2)

 

13.7

%

 

 

24.8

%

 

 

 

 

Adjusted return on equity(1)(2)

 

14.2

%

 

 

25.1

%

 

 

 

 

Diluted earnings per share

$

0.36

 

 

$

0.36

 

 

 

 

 

Diluted adjusted earnings per share(1)

$

0.38

 

 

$

0.37

 

 

 

 

 

__________________

NM - Percentage change is not meaningful.
(1)

Non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable U.S. GAAP measures.

(2)

For the three months ended September 30, 2024 and 2023, net income and adjusted net income are annualized to arrive at return on equity and adjusted return on equity.

 
 

Condensed Consolidated Balance Sheets

 

September 30,
2024

 

December 31,
2023

 

($ in thousands, except share data)

Assets

 

 

 

Investments

 

 

 

Fixed maturity securities, available for sale, at fair value (amortized cost of $892,953 and $569,013, respectively)

$

891,252

 

 

$

554,624

 

Short-term investments, at amortized cost, which approximates fair value

 

10,002

 

 

 

8,824

 

Total investments

 

901,254

 

 

 

563,448

 

 

 

 

 

Cash and cash equivalents

 

132,893

 

 

 

118,070

 

Restricted cash and cash equivalents

 

28,822

 

 

 

1,698

 

Accrued investment income

 

7,118

 

 

 

4,660

 

Premium balances receivable

 

46,706

 

 

 

38,817

 

Reinsurance recoverable

 

225,011

 

 

 

139,389

 

Prepaid reinsurance premiums

 

146,133

 

 

 

116,732

 

Deferred policy acquisition costs

 

26,463

 

 

 

19,407

 

Property and equipment, net

 

7,438

 

 

 

7,601

 

Income taxes receivable

 

325

 

 

 

1,107

 

Deferred tax assets, net

 

16,277

 

 

 

14,229

 

Other assets

 

9,222

 

 

 

2,701

 

Total assets

$

1,547,662

 

 

$

1,027,859

 

 

 

 

 

Liabilities

 

 

 

Reserve for losses and loss adjustment expenses

$

679,568

 

 

$

431,186

 

Unearned premiums

 

427,096

 

 

 

344,704

 

Reinsurance balances payable

 

54,162

 

 

 

40,440

 

Income taxes payable

 

29

 

 

 

42

 

Accrued expenses

 

14,696

 

 

 

14,900

 

Other liabilities

 

7,285

 

 

 

4,510

 

Total liabilities

 

1,182,836

 

 

 

835,782

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

Performance stock units

 

155

 

 

 

—

 

 

 

 

 

Stockholders' equity

 

 

 

Common stock

 

327

 

 

 

240

 

($0.01 par value; 400,000,000 shares authorized, 32,658,823 and 24,000,000 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively)

 

 

 

Additional paid-in capital

 

316,334

 

 

 

178,543

 

Accumulated other comprehensive loss

 

(1,293

)

 

 

(11,372

)

Retained earnings

 

49,303

 

 

 

24,666

 

Total stockholders' equity

 

364,671

 

 

 

192,077

 

Total mezzanine equity and stockholders' equity

 

364,826

 

 

 

192,077

 

 

 

 

 

Total liabilities, mezzanine equity and stockholders' equity

$

1,547,662

 

 

$

1,027,859

 

 

Gross Written Premiums

The following table presents gross written premiums by underwriting division for the three months ended September 30, 2024 and 2023:

 

Three Months ended September 30,

 

2024

 

% of Total

 

2023

 

% of Total

 

$ Change

 

% Change

 

($ in thousands, except percentages)

Casualty

$

120,223

 

61.0

%

 

$

84,865

 

57.0

%

 

$

35,358

 

41.7

%

Professional Liability

 

44,962

 

22.9

%

 

 

39,754

 

26.7

%

 

 

5,208

 

13.1

%

Healthcare Liability

 

31,358

 

15.9

%

 

 

24,300

 

16.3

%

 

 

7,058

 

29.0

%

Baleen Specialty

 

433

 

0.2

%

 

 

—

 

—

%

 

 

433

 

NM

 

Gross written premiums

$

196,976

 

100.0

%

 

$

148,919

 

100.0

%

 

$

48,057

 

32.3

%

 

Loss Ratio

The following table summarizes current and prior accident loss ratios for the three months ended September 30, 2024 and 2023:

 

Three Months Ended September 30,

 

2024

 

2023

 

Net Losses and
Loss Adjustment
Expenses

 

% of Net Earned
Premiums

 

Net Losses and
Loss Adjustment
Expenses

 

% of Net Earned
Premiums

 

($ in thousands, except percentages)

Current accident year

$

67,824

 

64.5

%

 

$

42,617

 

60.1

%

Prior accident year reserve development

 

—

 

—

%

 

 

179

 

0.3

%

Total

$

67,824

 

64.5

%

 

$

42,796

 

60.4

%

 

Expense Ratio

The following table summarizes the components of our expense ratio for the three months ended September 30, 2024 and 2023:

 

Three Months Ended September 30,

 

2024

 

2023

 

Expenses

 

% of Net Earned
Premium

 

Expenses

 

% of Net Earned
Premium

 

($ in thousands, except percentages)

Net acquisition costs

$

9,163

 

 

8.7

%

 

$

5,617

 

 

7.9

%

Operating expenses

 

22,386

 

 

21.3

%

 

 

16,376

 

 

23.1

%

Less: Other insurance-related income

 

(108

)

 

(0.1

)%

 

 

(31

)

 

—

%

Total expense ratio

$

31,441

 

 

29.9

%

 

$

21,962

 

 

31.0

%

 

Net Investment Income

The following table summarizes the sources of net investment income for the three months ended September 30, 2024 and 2023:

 

Three Months Ended September 30,

 

 

2024

 

 

 

2023

 

 

($ in thousands)

U.S. government and government agency

$

3,793

 

 

$

1,224

 

State and municipal

 

467

 

 

 

387

 

Commercial mortgage-backed securities

 

761

 

 

 

375

 

Residential mortgage-backed securities

 

1,955

 

 

 

256

 

Asset-backed securities

 

719

 

 

 

1,044

 

Corporate

 

1,611

 

 

 

925

 

Short-term investments

 

134

 

 

 

186

 

Cash and cash equivalents

 

2,273

 

 

 

916

 

Gross investment income

 

11,713

 

 

 

5,313

 

Investment expenses

 

(222

)

 

 

(125

)

Net investment income

$

11,491

 

 

$

5,188

 

Reconciliation of Non-GAAP Financial Measures

This earnings release contains certain financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We use these non-GAAP financial measures when planning, monitoring and evaluating our performance. Management believes that each of the non-GAAP financial measures described below provides useful insight into our underlying business performance.

  • Adjusted net income is defined as net income excluding the impact of net realized investment gains, non-operating expenses, foreign exchange (gains) losses, and certain strategic initiatives. Adjusted net income excludes the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. We calculate the tax impact only on adjustments which would be included in calculating our income tax expense using the estimated tax rate at which we received a deduction for these adjustments.
  • Adjusted return on equity is defined as adjusted net income as a percentage of average beginning and ending mezzanine equity and stockholders’ equity.
  • Diluted adjusted earnings per share is defined as adjusted net income divided by the weighted average common shares outstanding for the period, reflecting the dilution that may occur if equity base awards are converted into common stock equivalents as calculated using the treasury stock method.

You should not rely on these non-GAAP financial measures as a substitute for any U.S. GAAP financial measure. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered supplemental in nature and not as a replacement for or superior to the comparable U.S. GAAP measures. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as comparative measures.

Adjusted net income

Adjusted net income for the three months ended September 30, 2024 and 2023 reconciles to net income as follows:

 

Three Months Ended September 30,

 

2024

 

2023

 

Before income
taxes

 

After income
taxes

 

Before income
taxes

 

After income
taxes

 

($ in thousands)

Income as reported

$

15,820

 

$

12,092

 

 

$

11,264

 

$

8,708

 

Adjustments:

 

 

 

 

 

 

 

Net realized investment gains

 

18

 

 

18

 

 

 

—

 

 

—

 

Non-operating expenses.

 

487

 

 

487

 

 

 

—

 

 

—

 

Foreign exchange (gains) losses

 

37

 

 

37

 

 

 

40

 

 

40

 

Strategic initiatives(1)

 

—

 

 

—

 

 

 

101

 

 

101

 

Tax impact

 

—

 

 

(114

)

 

 

—

 

 

(30

)

Adjusted net income

$

16,362

 

$

12,520

 

 

$

11,405

 

$

8,819

 

_________________

(1)

Strategic initiatives for the three months ended September 30, 2023 represents costs incurred to set up our Baleen Specialty division, which is recorded in operating expenses within the Condensed Consolidated Statements of Income and Comprehensive Income. The costs incurred primarily represent expenses to implement the new platform and processes supporting the Baleen Specialty division. See “Business— Our Strategy”

 

Adjusted return on equity

Adjusted return on equity for the three months ended September 30, 2024 and 2023 reconciles to return on equity as follows:

 

Three Months Ended September 30,

 

 

2024

 

 

 

2023

 

 

($ in thousands, except percentages)

Numerator: Adjusted net income(1)

$

50,081

 

 

$

35,275

 

Denominator: Average mezzanine equity and stockholders' equity

 

352,368

 

 

 

140,533

 

Adjusted return on equity

 

14.2

%

 

 

25.1

%

________________

(1)

For the three months ended September 30, 2024 and 2023, net income and adjusted net income are annualized to arrive at return on equity and adjusted return on equity.

 

Diluted adjusted earnings per share

Diluted adjusted earnings per share for the three months ended September 30, 2024 and 2023 reconciles to diluted earnings per share as follows:

 

Three Months Ended September 30,

 

2024

 

2023

 

($ in thousands, except share and per share data)

Numerator: Adjusted net income

$

12,520

 

$

8,819

Denominator: Diluted weighted average shares outstanding

 

33,263,958

 

 

24,000,000

Diluted adjusted earnings per share

$

0.38

 

$

0.37

 

About Bowhead Specialty Holdings Inc.

Bowhead Specialty is a growing specialty insurance business providing casualty, professional liability and healthcare liability insurance products. We were founded and are led by industry veteran Stephen Sills. The team is composed of highly experienced and respected industry veterans with decades of individual, successful underwriting and management experience. We focus on providing “craft” solutions in our specialty lines and classes of business that we believe require deep underwriting and claims expertise in order to produce attractive financial results.

We pride ourselves on the quality and experience of our people, who are committed to exceeding our partners’ expectations through excellent service and expertise. Our collaborative culture spans all functions of our business and allows us to provide a consistent, positive experience for all of our partners.

Conference Call

The Company will host a conference call to discuss its results on Tuesday, November 5, 2024, beginning at 8:30 a.m. Eastern Time. Interested parties may access the conference call through a live webcast, which can be accessed via this link, by visiting the Company’s Investor Relations website, or by dialing (877) 407-3949 (toll-free) or (215) 268-9917 (international). Please join the live webcast or dial in at least 10 minutes before the start of the call.

A replay of the event webcast will be available on the company’s Investor Relations website for one year following the call.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in press release are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "seeks," "future," "outlook," "prospects" "will," "would," "should," "could," "may," "can have" or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. These risks include those described in the Company’s filings made with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this press release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events or otherwise.

Investor Relations Contact:
Shirley Yap, Head of Investor Relations
investorrelations@bowheadspecialty.com

Source: Bowhead Specialty Holdings Inc.