BOW 10-Q

Bowhead Specialty Holdings Inc. (BOW)

10-Q 2024-11-05 For: 2024-09-30

View Original

Added on April 07, 2026


Delaware									87-1433334
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

452 Fifth Avenue, New York, New York									10018
(Address of Principal Executive Offices)									(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BOW	New York Stock Exchange


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income and Comprehensive Income	4
	Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	56
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
SIGNATURES


	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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	($ in thousands, except share and per share data)
Revenues
Gross written premiums	$	196,976	$	148,919	$	510,948	$	361,367
Ceded written premiums	(68,643)		(49,581)		(179,710)		(121,639)
Net written premiums	128,333		99,338		331,238		239,728
Change in net unearned premiums	(23,153)		(28,464)		(52,991)		(51,818)
Net earned premiums	105,180		70,874		278,247		187,910

Net investment income	11,491		5,188		27,928		12,589
Net realized investment losses	(18)		—		(16)		—
Other insurance-related income	108		31		171		94
Total revenues	116,761		76,093		306,330		200,593

Expenses
Net losses and loss adjustment expenses	67,824		42,796		181,162		113,664
Net acquisition costs	9,163		5,617		23,267		15,148
Operating expenses	22,386		16,376		65,761		45,456
Non-operating expenses	487		—		2,185		—
Warrant expense	792		—		1,125		—
Credit facility interest expenses and fees	252		—		477		—
Foreign exchange losses	37		40		67		21
Total expenses	100,941		64,829		274,044		174,289

Income before income taxes	15,820		11,264		32,286		26,304

Income tax expense	(3,728)		(2,556)		(7,649)		(6,041)

Net income	$	12,092	$	8,708	$	24,637	$	20,263

Other comprehensive income
Change in unrealized loss on investments (net of income tax (expense) benefit of $(2,928), $854, $(2,679), $735, respectively	11,016		(3,211)		10,079		(2,765)
Total comprehensive income	$	23,108	$	5,497	$	34,716	$	17,498

Earnings per share:
Basic	$	0.37	$	0.36	$	0.88	$	0.84
Diluted	$	0.36	$	0.36	$	0.87	$	0.84

Weighted average shares outstanding:
Basic	32,658,823		24,000,000		28,119,193		24,000,000
Diluted	33,263,958		24,000,000		28,352,420		24,000,000


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			Gross Unrealized
As of September 30, 2024	Amortized Cost		Gains		Losses		Fair Value
	($ in thousands)
Fixed maturity securities
U.S. government and government agency	$	309,181	$	747	$	(54)	$	309,874
State and municipal	68,779		163		(3,566)		65,376
Commercial mortgage-backed securities	61,453		1,082		(680)		61,855
Residential mortgage-backed securities	174,766		3,473		(3,769)		174,470
Asset-backed securities	82,743		732		(475)		83,000
Corporate	196,031		2,161		(1,515)		196,677
Total	$	892,953	$	8,358	$	(10,059)	$	891,252


			Gross Unrealized
As of December 31, 2023	Amortized Cost		Gains		Losses		Fair Value
	($ in thousands)
Fixed maturity securities
U.S. government and government agency	$	252,294	$	579	$	(332)	$	252,541
State and municipal	55,984		—		(5,264)		50,720
Commercial mortgage-backed securities	26,573		29		(1,166)		25,436
Residential mortgage-backed securities	79,032		680		(5,010)		74,702
Asset-backed securities	42,964		32		(963)		42,033
Corporate	112,166		80		(3,054)		109,192
Total	$	569,013	$	1,400	(15,789)		$	554,624


As of	September 30, 2024		December 31, 2023
	($ in thousands)
U.S. government and government agency	$	211,665	$	142,297
State and municipal	30,928		19,585
Commercial mortgage-backed securities	33,354		9,333
Residential mortgage-backed securities	96,991		35,313
Asset-backed securities	39,714		23,798
Corporate	103,839		49,632
Restricted fixed maturity securities	516,491		279,958
Restricted short-term investments	10,002		4,864
Restricted cash and cash equivalents	28,822		1,698
Restricted assets	$	555,315	$	286,520


	Less than 12 Months				12 Months or Greater				Total
As of September 30, 2024	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in thousands)
Fixed maturity securities
U.S. government and government agency	$	30,291	$	(17)	$	15,195	$	(37)	$	45,486	$	(54)
State and municipal	523		(3)		46,911		(3,563)		47,434		(3,566)
Commercial mortgage-backed securities	843		(2)		17,194		(678)		18,037		(680)
Residential mortgage-backed securities	13,139		(46)		31,982		(3,723)		45,121		(3,769)
Asset-backed securities	19,846		(66)		10,604		(409)		30,450		(475)
Corporate	14,733		(28)		55,009		(1,487)		69,742		(1,515)
Total	$	79,375	$	(162)	$	176,895	$	(9,897)	$	256,270	$	(10,059)


As of September 30, 2024	Level 1		Level 2		Level 3		Total
	($ in thousands)
Fixed maturity securities
U.S. government and government agency	$	308,625	$	1,249	$	—	$	309,874
State and municipal	—		65,376		—		65,376
Commercial mortgage-backed securities	—		61,855		—		61,855
Residential mortgage-backed securities	—		174,470		—		174,470
Asset-backed securities	—		83,000		—		83,000
Corporate	—		196,677		—		196,677
Total fixed maturity securities	308,625		582,627		—		891,252
Short-term investments	10,002		—		—		10,002
Total investments	$	318,627	$	582,627	$	—	$	901,254


	September 30, 2024		September 30, 2023
	($ in thousands)
Gross reserves for losses and loss adjustment expenses, beginning of year	$	431,186	$	207,051
Reinsurance recoverable on unpaid losses, beginning of year	136,273		63,381
Net reserves for unpaid losses and loss adjustment expenses, beginning of year	$	294,913	$	143,670

Net incurred losses and loss adjustment expenses related to:
Current accident year	181,162		113,028
Prior accident years	—		636
	181,162		113,664
Net paid losses and loss adjustment expenses related to:
Current accident year	2,106		1,028
Prior accident years	17,071		6,344
	19,177		7,372

Net reserves for unpaid losses and loss adjustment expenses, end of period	$	456,897	$	249,962
Reinsurance recoverable on unpaid losses, end of period	222,671		114,368
Gross reserves for losses and loss adjustment expenses, end of period	$	679,568	$	364,330


Three Months Ended September 30, 2024	Written Premiums		Earned Premiums		Losses and Loss Adjustment Expenses
	($ in thousands)
Assumed	$	196,976	$	161,683	$	102,805
Ceded	(68,643)		(56,503)		(34,981)
Net	$	128,333	$	105,180	$	67,824


Three Months Ended September 30, 2023	Written Premiums		Earned Premiums		Losses and Loss Adjustment Expenses
	($ in thousands)
Assumed	$	148,919	$	106,262	$	63,631
Ceded	(49,581)		(35,388)		(20,835)
Net	$	99,338	$	70,874	$	42,796


Reinsurer	A.M. Best Rating	September 30, 2024	December 31, 2023
Renaissance Reinsurance U.S. Inc	A+	29.7%	29.8%
Endurance Assurance Corporation	A+	23.8%	24.4%
Markel Global Reinsurance Company	A	21.7%	24.5%
Ascot Bermuda Limited	A	9.3%	7.3%
American Family Connect Property and Casualty Insurance Company	A	6.7%	4.2%
Partner Reinsurance Company of the U.S.	A+	5.2%	8.5%
All other reinsurers	At least A	3.6%	1.3%
Total		100.0%	100.0%


As of	September 30, 2024
	($ in thousands)
Contractual maturities:
Remaining 2024	$	385
2025	1,421
2026	1,331
2027	1,331
Later years	—
Total undiscounted future minimum lease payments	4,468
Less: Discount impact	325
Total discounted operating lease liability	$	4,143


	Number of RSUs	Weighted Average Grant-Date Fair Value
Granted and unvested at December 31, 2023	—	$	—
Granted	772,026	17.13
Vested	—	—
Forfeited	(6,175)	17.00
Granted and unvested at September 30, 2024	765,851	$	17.13


						Inputs

Expected term (in years)						3.0
Expected volatility						27.0%
Expected dividend yield						—%
Risk-free interest rate						4.6%


Nine Months Ended September 30, 2024	Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses
	($ in thousands)
Assumed	$	510,948	$	428,556	$	272,011
Ceded	(179,710)		(150,309)		(90,849)
Net	$	331,238	$	278,247	$	181,162


Nine Months Ended September 30, 2023	Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses
	($ in thousands)
Assumed	$	361,367	$	278,811	$	166,021
Ceded	(121,639)		(90,901)		(52,357)
Net	$	239,728	$	187,910	$	113,664


	Number of PSUs	Weighted Average Grant-Date Fair Value
Granted and unvested at December 31, 2023	—	$	—
Granted	129,411	10.04
Vested	—	—
Forfeited	—	—
Granted and unvested at September 30, 2024	129,411	$	10.04


	Initial Warrants	Overallotment Warrants
Expected term (in years)	10.0	10.0
Expected volatility	34.0%	34.0%
Expected dividend yield	—%	—%
Risk-free interest rate	4.4%	4.5%


Brokers	2024	2023
AmWINS Group, Inc.	23.3%	11.9%
Ryan Specialty Group Holdings, Inc.	22.2%	29.0%
Marsh & McLennan Companies	12.8%	14.0%


Underwriting Division	2024		2023
	($ in thousands)
Casualty	$	81,211	$	58,786
Professional Liability	25,467		24,261
Healthcare Liability	21,331		16,291
Baleen Specialty	324		—
Net written premiums	$	128,333	$	99,338


	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:
Underwriting income(1)	$	5,807		$	6,186		$	(379)	(6.1)	%
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


	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	%


	Nine Months Ended September 30,
	2024			2023			$ Change		% Change
	($ in thousands, except percentages and per share data)
Gross written premiums	$	510,948		$	361,367		$	149,581	41.4	%
Ceded written premiums	(179,710)			(121,639)			(58,071)		47.7	%
Net written premiums	$	331,238		$	239,728		$	91,510	38.2	%

Revenues
Net earned premiums	$	278,247		$	187,910		$	90,337	48.1	%
Net investment income	27,928			12,589			15,339		121.8	%
Net realized investment gains	(16)			—			(16)		NM
Other insurance-related income	171			94			77		81.9	%
Total revenues	306,330			200,593			105,737		52.7	%

Expenses
Net losses and loss adjustment expenses	181,162			113,664			67,498		59.4	%
Net acquisition costs	23,267			15,148			8,119		53.6	%
Operating expenses	65,761			45,456			20,305		44.7	%
Non-operating expenses	2,185			—			2,185		NM
Warrant expense	1,125			—			1,125		NM
Credit facility interest expenses and fees	477			—			477		NM
Foreign exchange (gains) losses	67			21			46		219.0	%
Total expenses	274,044			174,289			99,755		57.2	%

Income before income taxes	32,286			26,304			5,982		22.7	%
Income tax expense	(7,649)			(6,041)			(1,608)		26.6	%
Net income	$	24,637		$	20,263		$	4,374	21.6	%

Key Operating and Financial Metrics:
Underwriting income(1)	$	10,790		$	13,743		$	(2,953)	(21.5)	%
Adjusted net income(1)	28,588			20,359			8,229		40.4	%
Loss ratio	65.1		%	60.5		%
Expense ratio	31.9		%	32.2		%
Combined ratio	97.0		%	92.7		%
Return on equity(2)	11.8		%	22.7		%
Adjusted return on equity(1)(2)	13.7		%	22.8		%
Diluted earnings per share	$	0.87		$	0.84
Diluted adjusted earnings per share(1)	$	1.01		$	0.85


As of September 30, 2024	Fair Value		% of Total Fair Value
	($ in thousands, except percentages)
Rating
AAA	$	184,621	20.7	%
AA	476,056		53.4	%
A	158,636		17.8	%
BBB	71,939		8.1	%
Total	$	891,252	100.0	%


	As of September 30, 2024
	Gross		% of Total		Net		% of Total
	($ in thousands, except percentages)
Case reserves	$	62,865	9.3	%	$	40,395	8.8	%
IBNR	616,703		90.7	%	416,502		91.2	%
Total reserves	$	679,568	100.0	%	$	456,897	100.0	%


	Potential Impact as of September 30, 2024
Underwriting Division	Net Reserves for Unpaid Losses and Loss Adjustment Expenses		7.5% Higher		Pre-tax Income		Mezzanine Equity and Stockholders’ Equity(1)		7.5% Lower		Pre-tax Income		Mezzanine Equity and Stockholders’ Equity(1)
			($ in thousands)
Casualty	$	265,704	$	285,632	$	(19,928)	$	(15,743)	$	245,776	$	19,928	$	15,743
Professional Liability	116,322		125,046		(8,724)		(6,892)		107,598		8,724		6,892

Healthcare Liability	74,844		80,458		(5,613)		(4,435)		69,231		5,613		4,435
Baleen Specialty	27		29		(2)		(2)		25		2		2


	Potential Impact as of December 31, 2023
Underwriting Division	Net Reserves for Unpaid Losses and Loss Adjustment Expenses		7.5% Higher		Pre-tax Income		Mezzanine Equity and Stockholders’ Equity(1)		7.5% Lower		Pre-tax Income		Mezzanine Equity and Stockholders’ Equity(1)
			($ in thousands)
Casualty	$	160,708	$	172,761	$	(12,053)	$	(9,522)	$	148,655	$	12,053	$	9,522
Professional Liability	85,739		92,169		(6,430)		(5,080)		79,309		6,430		5,080

Healthcare Liability	48,466		52,101		(3,635)		(2,872)		44,831		3,635		2,872


	As of September 30, 2024						As of December 31, 2023
	Estimated Fair Value		Estimated Change in Fair Value		Estimated % Increase (Decrease) in Fair Value		Estimated Fair Value		Estimated Change in Fair Value		Estimated % Increase (Decrease) in Fair Value
	($ in thousands, except percentages)
200 basis point increase	$	905,560	$	(41,480)	(4.4)	%	$	545,278	$	(22,070)	(3.9)	%
100 basis point increase	926,111		(20,930)		(2.2)	%	556,058		(11,290)		(2.0)	%
No change	947,041		—		—	%	567,348		—		—	%
100 basis point decrease	967,970		20,930		2.2	%	578,978		11,631		2.1	%
200 basis point decrease	987,858		40,817		4.3	%	590,836		23,488		4.1	%


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Bowhead Specialty Holdings Inc. (incorporated by reference to E xhi bit 3.1 to the Company ’s Quarterly Repo rt on Form 10-Q filed with the SEC on August 8, 2024)
3.2						Amended and Restated Bylaws of Bowhead Specialty Holdings Inc. (incorporated by reference to Exhibit 3.2 to the Company ’s Quarterly Report on Form 10-Q filed with the SE C on August 8, 2024)
31.1*						Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certifications of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certifications of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101						Interactive Data Files (formatted as Inline XBRL)
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)
*						This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.


	BOWHEAD SPECIALTY HOLDINGS INC.

Date: November 5, 2024	By:	/s/ Stephen Sills
	Name:	Stephen Sills
	Title:	Chief Executive Officer and President


Date:November 5, 2024	By:	/s/ Brad Mulcahey
	Name:	Brad Mulcahey
	Title:	Chief Financial Officer and Treasurer