Good day, and thank you for standing by. Welcome to the Q3 2025 Skyward Specialty Earnings Conference Call. 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 results, including $44 million in operating income, $38 million in underwriting income, a combined ratio of 89.2%, 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, particularly the sizable portion that is less exposed to the P&C cycles. This quarter, 5 of 9 divisions grew by over 25%, with our Agriculture unit being the largest contributor, which I will discuss later in this call. We also prudently walked away from business where necessary, as 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. Kevin is a deeply experienced IR professional, and we're pleased to have him lead this function, allowing Natalie, who has been outstanding, after 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.

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 Agriculture 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 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 from 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, as 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 by 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 a $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 as of 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% as of September 30, up from 5% a year ago. Our financial leverage is modest, as we finished the quarter under an 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. 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 amidst 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 a high impact for our customers, and we built captive capabilities that sit side-by-side with our single company stop-loss products. 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, just 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 agility 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. We're making strides in using GPTs to allow our underwriters and leaders to interrogate and 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 benefits us. 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 align 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. 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 closes. 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.

The first question today will come from 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?

I think we're being appropriately cautious and thoughtful. The traditional parts of the property and casualty market are becoming more competitive and nuanced. We're writing business in those other divisions under smart terms and conditions. Additionally, Surety experienced 26% growth this past quarter, maintaining strong growth compared to the industry, especially once federal funds began to flow. We recently launched a new product in the commercial Surety segment, which has shown good success, and we're optimistic about its outlook. As for Accident and Health, we've discussed it extensively; I mentioned the loss ratio to provide an external reference point. Our focus on the small account market, medical cost management, and our distinctive operating model is yielding results. We're experiencing growth in traditional single company stop-loss accounts and on the group Captive side. Although it’s been a while since we launched a new Captive, those we have in place are continuing to add members. We're relatively insulated in terms of pricing stability in the Captives, and our members understand that pricing reflects loss trends. Each Captive is unique, but our business and products are structured in a way that supports this growth. Notably, nearly 50% of our business this year is in categories not exposed to the property and casualty cycle, which makes our portfolio quite distinctive compared to others.

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, Greg, there's not much I can share because we do not have regulatory approval. There are limits to what I feel comfortable discussing, and my General Counsel likely feels similarly. What I can tell you is that, similar to when we announced the transaction, we appreciate everything that the Apollo team has accomplished. Their 1969-focused syndicate is heavily oriented towards specialty classes. While they are not immune to market cycles, many of their classes are not facing the macro concerns that others are, particularly as they are not heavily involved in property catastrophe. As we've mentioned, the 1971 business is quite different and is more closely related to the growth of emerging digital economy industries. Because of this, it seems to be largely disconnected from the traditional P&C market, which is not seeing significant competition in this area. There are very few real competitors, and I would argue that 1971 stands out in what they do. Like us, parts of their business are somewhat insulated from the macro concerns you’ve been asking about regarding other companies.

Next question coming from 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 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 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 appreciate the optimism regarding our growth outlook. Over the last three quarters, I believe we have significantly outperformed our peers in terms of growth. I must acknowledge that this quarter’s 27% growth over the first three quarters of the year exceeded our expectations, which is a positive sign indicating our strategic initiatives are well-aligned with market opportunities. However, I think it’s unrealistic to consider a 27% growth rate as a benchmark for the future. If we were to face a situation of limited capital, I would point out that in relation to the Apollo transaction, they operate with a unique capital structure consisting of 25% of their own funds and 75% from external sources, which aligns their interests with those investors. This model could offer a valuable alternative for us, potentially shifting a larger portion of our operations toward fee-based income. I want to clarify that we have no current concerns regarding our capital situation and believe that investors may not fully recognize our efficiency as a capital-intensive organization, a result of the way we've deliberately structured our business. While we are operating with solid capital efficiency and do not foresee capital constraints, we will consider whether to gradually transition some of our underwriting income to fee-based models 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, that's a great question. I want to highlight that over the past nine months, our Specialty Programs premium represents 13.4% of our overall premium. A significant part of this comes from relationships where we hold a substantial ownership stake. Recently, we have experienced considerable growth in our programs, having added two new ones. One is a Warranty Indemnity program, where we have a stake in the entity, and the other stems from a long-standing personal relationship of mine in the Brownwater and Greenwater Marine program. We started bringing some of that business onto our books around March of this year. As we move through the first quarter, we expect to see continued relative growth in programs, which should be significant for this and the next quarter. However, by the second quarter of next year, the growth will be more challenging to achieve as we will be comparing against ourselves. I should note that adding a program can lead to notable fluctuations in our numbers. However, in this instance, the growth is very well managed around these two key relationships.

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, I think it was you that mentioned how there will be more volatility quarter-to-quarter in the growth rates kind of around which lines of business have big renewal periods. Can you help us with that at all? Should we think about certain quarters of the year as being strong in this quarter typically because of the big renewal books? 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?

Look, what we saw this quarter with 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. Those are the three that stand out.

Yes, those are three that stand out. Obviously, the Specialty programs are also lumpy based on when programs renew. What I'd say to you, Matt, is that we ourselves are 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. There’s nothing particularly exciting happening in the fourth quarter. By the way, there are 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 that 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. 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.

Our next question is from 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 has even earnings patterns over the course of the year? Or is it like the crop side of things where a lot of it is 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 are no nonrecurring items here at all. If something arises that is nonrecurring or if we alter a policy significantly, we would make that known. But there is nothing unusual. We are essentially saying that we achieved 27% growth in the first three quarters. Among all the companies you cover, there might be very few that have similar results. This quarter's growth of 51% to 52% really stands out. We want to ensure that you, as research analysts and our investors, recognize that there is real variability here, which has been clear throughout the first three quarters.

100%. You are very clear. I just wanted to make sure that I wasn't misinterpreting stuff. Last question, I guess, there was a clear step-up in operating and general expenses on a year-over-year basis, and I assume 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 is not going to be much movement quarter-over-quarter. So yes, I think that's a pretty good baseline.

I assume the increase from $41 million to $52 million from the second quarter to the third is related to the growth in gross written premiums. We see it in acquisition expenses, so I wanted to confirm if this is also the right baseline for general and administrative expenses.

Bear with me one second.

Yes, I think, Meyer, to try to make sure we're looking at what you're looking at; I suggest we discuss that offline. I highlight that our other underwriting expenses are going down period-on-period. So on a ratio basis, we’re getting leveraged away from acquisition expenses period-on-period. So I want to make sure that we’re looking at the same figures.

Our next question will be coming from the line of Michael Zaremski of BMO Capital Markets.

Just on the overall retention levels you all provided, which are helpful. I believe the retention is in the mid-70s, and at a high level, when considering the E&S business, we see it in the 70s, while more traditional segments are generally in the mid-80s or higher. So the fact that your retention is in the mid-70s suggests that the non-E&S portion of your business, particularly the Specialty segment, naturally has a 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 strong long-standing quota share participation that allows us to have that large line. That’s one big part. The second is Captives, which is structurally that way. And 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. Similarly, on the A&H Captives, the same dynamic is 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. Some of this is simply straight up mix. 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. 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 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 see under pressure. You also mentioned a 4Q review. So I 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. As part of our process, we regularly review our reserves every quarter. However, our business doesn't change quickly enough to warrant adjustments every single quarter based on what we observe. I want to emphasize that we will conduct a comprehensive review and make any necessary adjustments in the fourth quarter. I feel confident about our reserves, and our conservative philosophy remains unchanged. We've been closely monitoring areas like auto liability, and I also mentioned the positive developments we've noticed elsewhere. In summary, I feel very positive about our current position, and we will provide an update in the fourth quarter on any changes.

Lastly, I want to follow up on Tracy's question regarding premium growth compared to equity levels. I understand your points clearly. With the Apollo deal approaching, will there be any adjustments to the financing terms or the timeline you previously provided, considering the unexpectedly strong growth?

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, and really nothing has changed. The financing has gone really well. We're in a great position. There's nothing about the execution that's noteworthy. We're in a great spot.

Our next question will be from 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. This is Andrew, and Mark may add to that. To be honest, what we're observing is that the severity of claims typical in heavy auto accidents is now appearing in F-150 accidents as well. In construction, there are instances where accidents are occurring on site, often led by the trades. We are experiencing inflation in severity that is surprising. I've been one of the early and consistent voices highlighting this issue because it's not a new concern. The data shows that 11% of our business is now auto, down from 25% when we went public, and since then, that portion has likely seen an 80% rate. Therefore, our exposure is well below 60% on a premium basis, around 40% less from a premium perspective. Yet, we continue to encounter unexpected loss inflation in certain areas. This doesn't imply negligence or lack of professionalism on our part; rather, it’s surprising how large claims and serious injuries can lead to significant losses. I trust our claims team and their execution. The main point is that even if you think you've addressed inflation in certain areas, any personal injury-related liability can lead to substantial inflation. It's crucial to be very careful when building your liability book. I don’t want to imply anything beyond this, as this is the core issue. While we have been discussing construction for a few quarters, our focus has primarily been on auto, which has been a consistent theme for several 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 exposure piece sounds fairly sizable. Could you maybe just help us frame how that stands relative to the first half of the year, in terms of growth?

Yes, that's a great question. As I mentioned last quarter, we're all trying to understand the current economic situation. In the second quarter, we experienced surprisingly strong results regarding exposure growth. Over the past couple of years, we’ve been fluctuating between 2% and 4% each quarter, but recently, we've seen a slight uptick, which is encouraging. This may indicate that in some of our businesses, we're managing to regain a small amount of rate in exposure. I noted that Surety has some unique aspects when it comes to exposure. We're simply reporting what we're observing, and I view this as a positive development. Growing premiums is important, and exposure growth is an effective method for achieving that, provided we're pricing correctly.

Our next question will be from Paul Newsome of Piper Sandler.

Great. Just a couple of follow-ups. One was just a clarification. The debt-to-cap is 21%, which I assume is a decent amount above your long-term target. Is it fair to assume that after the deal, you would be focused on retaining capital until that ratio decreases to a more comfortable range?

Well, actually, Paul, I'm not uncomfortable at 28.5% at all. We intentionally were under-levered, if you will, to provide us with this flexibility. I'm not uncomfortable with it at all. The organic capital growth itself, as you just pointed out, will reduce the leverage over time. So yes, I'm not uncomfortable with the 28%, and the organic capital generation over the next 12 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 among the most competitive places. Can that be an advantage for you folks given the structure of your company? What you've talked about previously?

Yes, this is Andrew. If you consider our reinsurance purchases, they are fairly distributed. Our catastrophe program, as you may know, is not extensive. Our expenses are in the mid-single digits, plus several million dollars for catastrophe. The reinsurance markets are becoming more favorable for cedents. While this could be beneficial, I don't anticipate it will lead to a significant 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 great question. Before we focused on Captives, we examined this. If you allow me, I can follow up and find some more information. During the soft market period leading up to around 2019-2020, Captive growth was quite strong, especially compared to the P&C market. A hard market environment should undoubtedly encourage group Captives, particularly for mid-market risks, where companies desire a more direct financial connection to their risk costs. This serves as an impetus. However, the retention within the Captives is very stable, as they are typically structured with a measured and controlled renewal process. You are selecting risks that demonstrate a focus on risk management and capabilities that the broader market generally lacks. We believe that in a softer market, you are more insulated. This is the point regarding its reduced exposure to market cycles; you are more resilient to the P&C cycle than you would be otherwise, even while engaging in P&C lines, which we consider in our CapEx projection.

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. That experience tends to be a much more stable, consistent, here’s what's happening with exposure growth, losses, and loss inflation because they're eating their own cooking. 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. If they're just very consistent, which many of them are in our case, you get a much more stable period-over-period kind of renewal.

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

It's one of the reasons we love the category. 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 risk' kind of ballast for the business.

Our next question will be from Mark Hughes of Truist.

Andrew, the transactional E&S business, that's been 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.

What has been the recent trend in property? Has it decreased, leading to a change in your appetite, or is it still gradually declining?

Yes, I believe there's excessive capacity in the property market right now. When it comes to writing catastrophe coverage, it doesn't necessarily require a large limit or to be shared and layered. In the Tier 1 catastrophe space, there are irrational decisions being made; what some are doing simply doesn't make sense. Those who think it does are misled. Intelligent underwriters recognize that there are limited opportunities, as I've heard from other CEOs, and they move on to other options. As the market contracts, this will impact various areas, particularly where we write fire as our main risk. We take on challenging risks and participate in the excess and surplus market for a reason. However, when we see foolish competition entering our segment, there’s a certain price at which we will consider the business and another at which we will not. I want to emphasize that we are profitable on the property side and act prudently while offering a solid product to our customers, charging a fair price for the risk we take. The entry of inexperienced players is concerning and is increasingly prevalent across the property market. Nonetheless, I remain confident in our business and our capacity to adapt. I wouldn’t want to be in anyone else's position besides ours.

We now have a follow-up question coming from 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, low expense overall, and high loss ratio; similar profile on the Ag side. What I'd say is that, again, we will 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. Obviously, given, for example, the volume of Ag, how that manifests itself on acquisition cost versus operating expense versus loss ratio, we’ll come back in the guidance when we provide our full year guidance early in the new year. 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.