We came across a bullish thesis on Skyward Specialty Insurance Group, Inc. (SKWD) on Substack by Busy Investor Stock Reports. In this article, we will summarize the bulls’ thesis on SKWD. Skyward Specialty Insurance Group, Inc. (SKWD)’s share was trading at $43.72 as of Jan 30th. SKWD’s trailing and forward P/E were 13.37 and 13.12 respectively according to Yahoo Finance.
A close-up of a hand signing a property casualty insurance product contract.
Skyward Specialty Insurance Group (SKWD) is a high-quality insurer focused on niche markets, providing tailored underwriting solutions for complex risks that traditional insurers often avoid. With a market cap of $1.74 billion and a stock price of $43.48, the company generates over $1 billion in annual revenue, positioning itself as a leader in the excess and surplus (E&S) insurance market. Skyward operates through two segments: admitted insurance (45%), which consists of state-regulated policies, and non-admitted insurance (55%), which allows greater flexibility in pricing and coverage for specialized risks. This blend enables the company to maintain superior underwriting profitability while capitalizing on industry tailwinds.
Skyward’s disciplined underwriting sets it apart in an industry where many competitors struggle with profitability. Measured by the combined ratio, Skyward has consistently outperformed industry averages. In 2023, while many property and casualty (P&C) insurers reported underwriting losses with a combined ratio of 101.5%, Skyward achieved a stellar 90.7% ratio, reflecting its ability to generate consistent profits. This success stems from its expertise in specialized insurance niches, where pricing power and underwriting discipline create sustainable advantages. Unlike general insurers that chase growth indiscriminately, Skyward prioritizes profitability, exiting lines that do not meet its standards, such as its recent withdrawal from personal auto insurance. The company further strengthens its competitive position through advanced technology, leveraging data analytics to refine risk assessment and maintain its edge in the evolving insurance landscape.
The E&S market’s expansion provides another compelling growth driver. Over the past decade, E&S premiums have nearly doubled, rising from 5.2% of total P&C premiums in 2013 to 9.2% in 2023, surpassing $115 billion in total premiums. While growth has moderated from the 32.3% surge in 2021, it remains robust at 14.5% in 2023. Factors such as insurers pulling back from high-risk areas, increasing natural disasters, and rising demand for specialized coverage continue to fuel the sector’s expansion. Skyward is well-positioned to capture an outsized share of this growth, given its historical ability to expand faster than the broader E&S market while maintaining superior underwriting results.
Recent stock weakness, driven by concerns over potential claims from California wildfires, presents an opportunity for investors. While natural disasters pose short-term risks, Skyward’s disciplined pricing and risk management ensure it remains well-compensated for such exposures. The company’s ability to navigate these challenges reinforces its long-term investment appeal. Valuation-wise, insurance companies are often assessed based on price-to-book ratios, with the industry averaging around 1x book value. Given Skyward’s profitability and book value per share growth of 23% annually over the past three years, a 2.5x price-to-book multiple is justified. Assuming book value continues to grow at a conservative 16% per year, Skyward’s stock could reach $107.23 by 2029, representing a 19% CAGR from current levels. With a strong management team, industry tailwinds, and disciplined execution, Skyward Specialty Insurance presents a compelling investment case with significant upside potential.
Skyward Specialty Insurance Group, Inc. (SKWD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held SKWD at the end of the third quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of SKWD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SKWD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.