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BS

Bowhead Specialty Holdings Inc. (BOW)·Q4 2024 Earnings Summary

Executive Summary

  • Strong Q4: total revenues rose 44% YoY to $119.3M with net income $13.6M ($0.41 diluted EPS) and combined ratio improved to 92.7% from 100.5% a year ago; adjusted EPS was $0.42 .
  • Premium momentum: Gross written premiums (GWP) grew 26% to $184.8M, led by Casualty +43% YoY; Healthcare +9% and Professional +7% YoY; Baleen “flow” underwriting scaled to $1.2M GWP in Q4 (+175% q/q) .
  • Profit drivers/headwinds: Loss ratio improved to 62.6% in Q4; investment income +80% YoY to $12.2M; expense ratio 30.1%; FY actuarial review reallocated PY reserves across divisions but aggregate 2024 had no PYD; IBNR stood at 90.7% of net reserves (reserve conservatism) .
  • 2025 outlook maintained: Management continues to target ~20% premium growth, mid‑60s loss ratio, low‑30s expense ratio, mid‑90s combined, and mid‑teens ROE; cyber quota share cede lowered to 60% (from 64%) with higher ceding commissions; fronting fee to AmFam increases to 2.75% in Q2 (net ~2 pts of earned premium) .
  • Estimates: S&P Global consensus was unavailable due to rate limits at time of analysis; beat/miss vs Street cannot be determined (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Broad-based premium growth with clear Casualty tailwinds: “We increased premiums by 56% for the year through rate increases, improved terms and conditions and bringing on new business, all while reducing our average limits” . Q4 GWP +26% to $184.8M; Casualty +43% YoY to $105.9M .
  • Underwriting profitability improved: Q4 loss ratio 62.6% (vs 69.2% LY), expense ratio 30.1% (vs 31.3% LY), combined ratio 92.7% (vs 100.5% LY) .
  • Investment income strength: Net investment income +79.8% YoY to $12.2M on higher asset base/yields; portfolio book yield 4.6%, new money 4.9%, duration ~2.2 years, AA average rating .

What Went Wrong

  • Mix-driven higher full‑year loss ratio: FY loss ratio increased to 64.4% from 63.0% on greater Casualty mix with higher accident-year loss picks; actuarial review used industry benchmarks given limited own loss history .
  • Professional/Healthcare growth moderated in Q4: Professional Liability +6.5% YoY and Healthcare +8.8% YoY, reflecting competitive conditions and nuanced pricing; management letting undisciplined business go, particularly higher up D&O towers .
  • Reinsurance/fronting cost headwind: Fronting fee to AmFam rising to 2.75% in Q2 2025 (incremental ~0.5 pt effect; nets to ~2% of earned premium after expenses), partially offset by improved cyber quota share terms (cede down to 60%, higher ceding commissions) .

Financial Results

Income Statement Summary

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$82.8 $98.9 $114–$119 (prelim) $119.3
Net Income ($USD Millions)$4.8 $5.5 $11.5–$12.5 (prelim) $13.6
Adjusted Net Income ($USD Millions)$5.8 $7.9 $12.0–$13.0 (prelim) $14.1
Diluted EPS ($)$0.20 $0.20 $0.34–$0.37 (prelim) $0.41
Diluted Adjusted EPS ($)$0.24 $0.28 $0.36–$0.39 (prelim) $0.42

Notes: Non-GAAP reconciliations provided by the company .

Margins and Ratios (Quarterly)

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Loss Ratio (%)69.2 65.5 64.5 62.6
Expense Ratio (%)31.3 33.8 29.9 30.1
Combined Ratio (%)100.5 99.3 94.4 92.7

Segment Breakdown (GWP)

DivisionQ4 2023 ($M)Q4 2023 (% of Total)Q4 2024 ($M)Q4 2024 (% of Total)
Casualty$74.050.6%$105.957.3%
Professional Liability$43.229.5%$46.024.9%
Healthcare Liability$29.119.9%$31.717.2%
Baleen Specialty——%$1.20.6%
Total GWP$146.3100.0%$184.8100.0%

KPIs and Balance Sheet Highlights

KPIQ3 2024Q4 2024
Net Investment Income ($M)$11.5 $12.2
Portfolio Yield (Book / New Money)4.7% / 4.7% (Q3 end) 4.6% / 4.9% (YE)
Avg Duration / Rating~2.2 yrs / AA 2.2 yrs / AA
ROE / Adj. ROE (Qtr annualized)—14.8% / 15.3%
Book Value per Share / Diluted BVPS ($)$11.00–$11.25 / $10.80–$11.00 (prelim guidance at 9/30) $11.34 / $11.03
IBNR as % of Net Loss Reserves>91% (9/30) 90.7% (12/31)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Premium GrowthFY 2025~20% growth target communicated at IPO/2024 updates ~20% growth for 2025 Maintained
Loss RatioFY 2025Mid‑60s baseline from 2024 framework Mid‑60s; gradual change as older years roll off Maintained/clarified drivers
Expense RatioFY 2025“Low 30s” expectation reiterated in 2024 Low 30s; H1 higher due to payroll/RSUs Maintained with H1 cadence
Combined RatioFY 2025Mid‑90s framework (implied) Mid‑90s expected Maintained
ROEFY 2025Mid‑teens (framework) Mid‑teens Maintained
Cyber Quota Share1/1/202564% cede in 2024 60% cede; higher ceding commissions Improved terms
Fronting Fee (AmFam)Effective Q2 2025~2.0% prior 2.75% (incremental ~0.5 pt; nets ~2% of earned premium after expenses) Higher fee (headwind)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Excess Casualty tailwindsStrong pricing; towers collapsing; GWP +79% in Q2 Casualty; Q3 Casualty growth led overall Sustainable multi‑year opportunity; rates catching up to social inflation/nuclear verdicts Positive, sustained tailwind
Professional Liability competitionCompetitive market; growth mainly in cyber; letting undisciplined business go Large‑public D&O remains competitive; focus on private/smaller public and cyber Mixed; disciplined stance
Healthcare LiabilityMixed: favorable hospitals; competition in others Expect growth in 2025; issues like abuse/molestation claims elevating severity; rates catching up Improving in select sublines (hospitals)
Baleen (“flow” underwriting)Launched late Q2; scaling class codes; deliberate ramp Q4 GWP $1.2M (+175% q/q); momentum expected to ramp in H2’25 Building momentum
Environmental liability productsAnnounced Q3; first product released Oct 1 First of three products launched; diversification of Casualty Early stage expansion
Reserves/IBNR postureIBNR >91% at 9/30; no changes to picks in Q2/Q3 No aggregate PYD in 2024; IBNR 90.7% at YE; divisional reallocation (Prof favorable, Casualty unfavorable) Conservative/steady
InvestmentsBook/new money ~4.7% in Q3; duration ~2.2y AA NII +80% YoY; book 4.6%/new 4.9%; duration 2.2y AA Supportive income
Reinsurance2024 program stable in Q3 Cyber cede cut to 60%; higher cede commissions; consider retention changes at renewals Slight improvement in terms
Property Cat exposureNo property written; no hurricane/wildfire exposure No wildfire impact; no property risk Insulated from CATs

Management Commentary

  • CEO Stephen Sills on disciplined growth and cycle positioning: “We increased premiums by 56% for the year through rate increases, improved terms and conditions and bringing on new business, all while reducing our average limits… With our disciplined approach to underwriting and our expanding craft and flow platforms, we believe we positioned ourselves well for sustainable and profitable growth across market cycles.”
  • CFO Brad Mulcahey on reserves and actuarial review: “We had no prior accident year development in our aggregate net losses for 2024… [We] reallocated prior reserves by division… $9M net unfavorable in Casualty… offset by $9.5M net favorable in Professional lines.”
  • 2025 outlook reiterated: “We continue to expect a premium growth of around 20%… expect our 2025 loss ratio to remain in the mid‑60s… expense ratio to remain in the low 30% range… combined ratio… mid‑90s… ROE… mid‑teens.”

Q&A Highlights

  • Loss ratio cadence: Sequential decline from Q3 to Q4 reflects mix and current-year pick updates; management emphasizes full‑year loss ratio as the better indicator; net impact of changes viewed as positive .
  • Talent and expansion: Recruiting focused on excess and primary casualty; Baleen is more tech‑driven and scalable with fewer people .
  • Healthcare trajectory: Expect growth in 2025, particularly hospitals; severity influences (abuse/molestation) driving rate needs .
  • Excess casualty sustainability: Management expects several more years of opportunity given social inflation and nuclear verdicts .
  • Expense ratio/fees: Fronting fee increase incremental ~0.5 pt; expected to be offset by scale; acquisition ratio may rise but managed via G&A leverage .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 were unavailable at the time of this analysis due to an S&P Global daily request limit error; therefore, we cannot provide a definitive beat/miss vs. Street for revenue, EPS, or EBITDA. Values that would normally be compared to consensus are omitted pending data availability.
  • Implication: Given strong YoY growth in revenues (+44%) and adjusted EPS (+75%) with sequential margin improvement, Street estimates may need to reflect higher investment income run-rate and sustained casualty tailwinds, while incorporating headwinds from higher fronting fees and mix-driven loss ratio baseline .

Key Takeaways for Investors

  • Underwriting quality and mix: Combined ratio improved to 92.7% with a lower Q4 loss ratio; reserve posture remains conservative (IBNR ~91%) and aggregate 2024 PYD was zero—supportive for forward profitability .
  • Casualty growth runway: Management sees multi‑year opportunity in excess casualty as pricing/rates continue to react to social inflation and large verdicts; this should drive above‑market GWP growth and support margins .
  • Balanced growth strategy: Baleen “flow” underwriting scaling (q/q +175% to $1.2M) and environmental liability product expansion diversify growth vectors beyond core casualty .
  • 2025 framework intact: ~20% premium growth target with mid‑60s loss ratio and low‑30s expense ratio should yield mid‑90s combined and mid‑teens ROE—watch H1 expense cadence and reinsurance renewals .
  • Reinsurance dynamics: Cyber quota share improved (cede 60% with higher ceding commissions), but fronting fee step‑up to 2.75% in Q2 is a modest headwind largely offset by scale .
  • Investment income tailwind: Higher yields and fully invested IPO proceeds lifted NII; with book 4.6% and new money 4.9%, portfolio income should remain supportive absent rate compression .
  • Focus points for next quarter: Monitor casualty rate/limit trends, Professional Liability competitive intensity, Healthcare hospital growth, Baleen ramp (H2’25), and any reserve signal changes at mid‑year actuarial reviews .

Appendix: Additional Detail and Reconciliations

  • Q4 2024 non‑GAAP reconciliation: Adjusted net income $14.099M vs net income $13.607M, primarily adding back non‑operating expenses and FX, net of tax .
  • Expense ratio components (Q4 2024): Net acquisition 8.5%, operating 21.9%, other insurance‑related income −0.3% = total 30.1% .
  • Balance sheet: Diluted BVPS $11.03 at YE 2024 (vs $10.97 at Q3); investments $890.0M; total equity $370.2M .