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United States securities and exchange commission logo
May 19, 2022
Andrew Robinson
Chief Executive Officer
Skyward Specialty Insurance Group, Inc.
800 Gessner Road, Suite 600
Houston, TX 77024
Re: Skyward Specialty
Insurance Group, Inc.
Draft Registration
Statement on Form S-1
CIK No. 0001519449
Submitted April 22,
2022
Dear Mr. Robinson:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1
General
1. Please provide us with
supplemental copies of all written communications, as defined in
Rule 405 under the
Securities Act, that you, or anyone authorized to do so on your behalf,
have presented or
expect to present to potential investors in reliance on Section 5(d) of the
Securities Act, whether
or not you retained, or intend to retain, copies of those
communications. Please
contact Tonya K. Aldave at (202) 551-3601 to discuss how to
submit the materials,
if any, to us for our review.
Market, Industry and Other Data, page ii
2. We note you indicate
that the prospectus includes market and industry data from industry
Andrew Robinson
FirstName LastNameAndrew Robinson
Skyward Specialty Insurance Group, Inc.
Comapany
May NameSkyward Specialty Insurance Group, Inc.
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publications and that those sources generally state that the
information they provide has
been obtained from sources believed to be reliable, but that the
accuracy and completeness
of the information are not guaranteed. Please revise to clarify that,
notwithstanding the
foregoing, you believe that this information is reliable.
Prospectus Summary, page 1
3. We note your disclosure on page 6 that as of December 31, 2021, "95.7%
of
[your] reinsurance recoverables were either derived from reinsurers
rated A- (Excellent)
by A.M. Best, or better." Please revise for consistency with your
disclosure in the table on
page 97 where you state that $116,822,000 in reinsurance recoverables,
or approximately
21.8% of the total $536,327,000 in reinsurance recoverables, was
attributed to Randall
& Quilter and eCaptive PC1-IC, two reinsurers that are "unrated" by
the AMB Best
Ratings.
Use of Proceeds, page 44
4. Please state the approximate amount intended to be used for each
purpose listed in the
second sentence of the third paragraph, or tell us why you are unable
to do so.
Management's Discussion and Analysis of Financial Condition
Loss Portfolio Transfer, page 50
5. Please disclose the identity of "a third party reinsurer" referenced
in the first sentence of
this section.
Reconciliation of Non-GAAP Financial Measures, page 58
6. Please tell us why it is appropriate to exclude the entire impact of
your loss portfolio
transfer (LPT) in your non-GAAP measures when you disclose on page 50
and elsewhere
that the LPT relates to business that has been predominantly exited.
For the portions of the
business not exited, it appears that the removal of the LPT impacts
results in the removal
of normal, recurring, cash operating expenses of your business. See
Question 100.01 of
the Compliance and Disclosure Interpretations on Non-GAAP Financial
Measures. In
your response, specifically tell us how your adjusted loss ratio
presented on page 56 is
meaningful if the entire net impact of the LPT is removed when
presumably the net earned
premiums on business not "predominantly exited" are included in the
denominator of the
ratio.
7. Please revise your reconciliations of Adjusted operating income and
Underwriting income
to describe and quantify the components of the "Other income and
(expenses)"
adjustment.
Credit Agreements, page 62
8. Please disclose your counterparties for the "Revolver" and the "Term
Loan" described on
pages 62 and 63 of the prospectus. In addition, tell us if you have
filed these agreements
Andrew Robinson
FirstName LastNameAndrew Robinson
Skyward Specialty Insurance Group, Inc.
Comapany
May NameSkyward Specialty Insurance Group, Inc.
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and described their material terms.
Industry
Cyclicality of the Industry, page 78
9. We note your discussion about the cyclicality of the insurance
industry. Please specify the
current state of the insurance industry and, if necessary, add
tailored risk factor
disclosure. In that regard, please clarify in the risk factor heading,
"[t]he insurance
business is historically cyclical in nature," where the industry is in
the cycle, so that
investors may assess the risk.
Business
Reinsurance, page 95
10. Please refer to the table on page 97 and disclose the percentage of
coverage ceded to each
reinsurer and the nature and amount of collateral in trust under the
contracts.
Reserves, page 98
11. Please tell us why development related to accident years 2019 and 2020
(and presumably
2018 included in the "Prior" accident year totals) is characterized as
relating to the LPT
when the LPT relates to policies years 2017 and prior. To the extent
that this development
relates to exited lines, revise your disclosure to clarify and explain
why you continue to
incur losses on exited lines.
Loss Portfolio Transfer, page 99
12. Please disclose the "third party reinsurer domiciled in Bermuda"
referenced in the first
sentence of this section or advise. In addition, if this is a material
agreement not made in
the ordinary course of business, file it as an exhibit to the
registration statement or advise
why you are not required to do so.
Executive Compensation, page 122
13. Please advise why you have not also included a separate table for the
non-equity incentive
plan compensation, which is included as a separate column in your
summary
compensation table. Refer to Item 402(d) of Regulation S-K.
Employee Benefit and Equity Incentive Plans, page 126
14. Once you have an estimated offering price or range, please explain to
us how
you determined the fair value of the common stock underlying your
equity issuances and
the reasons for any differences between the recent valuations of your
common
stock leading up to the IPO and the estimated offering price. This
information will help
facilitate our review of your accounting for equity issuances
including equity
compensation.
Andrew Robinson
FirstName LastNameAndrew Robinson
Skyward Specialty Insurance Group, Inc.
Comapany
May NameSkyward Specialty Insurance Group, Inc.
19, 2022
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Principal and Selling Stockholders, page 136
15. Please identify the natural persons who have voting or dispositive
power with respect to
the shares of the entities listed under 5% and Greater Shareholders.
Exclusive Forum, page 141
16. We note the disclosure here that the federal district court will be
the exclusive forum for
the resolutions of any complaint asserting a cause of action arising
under the Securities
Act. Your risk factor disclosure on page 40 under "[o]ur certificate
of incorporation and
bylaws," seems to indicate that the discussed exclusive forum
provision for disputes in the
Court of Chancery of the State of Delaware applies to Securities Act
claims. Please revise
for consistency or advise.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Stock Based Compensation, page F-17
17. If true, please revise your policy disclosure to highlight that
compensation for awards with
market conditions is not reversed if the service was delivered but the
market condition not
attained consistent with the guidance in ASC 718-10-30-14 while any
compensation for
awards with a performance conditions would be reversed if the
performance condition
ultimately is not achieved consistent with the guidance in ASC
718-10-30-12. If your
policy does not conform with the referenced guidance, tell us the
impact of applying it.
4. Goodwill and Intangible Assets, page F-20
18. Revise to disclose the facts and circumstances leading to the
impairment of goodwill
during 2021 and 2020, and the method of determining fair value for the
reporting unit
used in the impairment caluclations. Refer to ASC 350-20-50-2.
5. Investments, page F-23
19. Please tell us why the amortized cost and fair value of your held to
maturity asset-backed
securities are the same at both December 31, 2021 and 2020. In your
response, tell us:
when you acquired these securities; and
the market rate of interest for these securities at:
o acquisition;
o December 31, 2020; and
o December 31, 2021
20. On page F-26 you disclose that the proceeds from the sales of your
held to maturity fixed
maturity securities were approximately $0.0 million in 2021 and $7.7
million in 2020.
Please tell us whether you actually sold these securities or whether
the proceeds are the
result of maturities or prepayment on the loans underlying your
asset-backed securities. If
you sold any held to maturity securities, provide us your analysis as
to how these sales do
Andrew Robinson
FirstName LastNameAndrew Robinson
Skyward Specialty Insurance Group, Inc.
Comapany
May NameSkyward Specialty Insurance Group, Inc.
19, 2022
May 19,
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not taint held to maturity classification for your remaining
investments as stipulated in
ASC 320-10-35-8 and 35-9.
6. Fair Value Measurements, page F-27
21. Please revise to describe the inputs and techniques used in
determining the fair value of
your level 2 invesments by major asset class. Refer to ASC
820-10-50-2.bbb.
13. Temporary Equity and Stockholders' Equity, page F-38
22. Please provide your analysis supporting classification and valuation
of your Series A
Convertible Preferred Stock as temporary equity as of December 31,
2020. Also tell us
how you accounted for the change in conversion rate from $1.74 per
common share to
$1.51 per common share at December 31, 2021. Refer to specific
guidance in your
response.
14. Income Taxes, page F-39
23. Please tell us why you do not have a larger valuation allowance
against your net deferred
tax assets at both December 31, 2020 and 2021. In this regard, your
accumulated deficit at
December 31, 2020 and losses in 2020 appear to be indicative of a
history of losses and a
significant piece of negative evidence that is difficult to overcome
with an apparent one
year of profitability in 2021 (see ASC 740-10-30-23). Given that you
did not record a
significant valuation allowance reversal in 2020, in your response,
also tell us why a
significant valuation allowance was not recorded against your deferred
tax assets at
December 31, 2019.
15. Losses and Loss Adjustment Expenses, page F-41
24. Please revise the rollforwards of your reserves for losses and LAE
beginning at the bottom
of page F-41 to correct the apparent footing and decimal placement
errors. In this regard,
for example, it appears that your net reserves at the beginning of
2021 should be $481,602
thousand, not $48 thousand.
Short Duration Contract Disclosures, page F-42
25. You disclose on page F-46 that your property and commercial auto
liability lines
contributed 25.1% and 24.2% of your premiums written during 2021. You
also state on
page F-42 that the prior year loss development of your multi-line and
short tail lines was
due to commercial auto claims, and favorable loss emergence in your
property and
accident and health product lines, respectively. Please tell us your
consideration of ASC
944-40-50-4H in determining the level of disaggregation for your
incurred and paid loss
development tables, as these lines within your tables appear to have
both a significant
proportion of your business as well as differing development patterns.
Andrew Robinson
Skyward Specialty Insurance Group, Inc.
May 19, 2022
Page 6
16. Premiums, page F-46
26. Please reconcile the gross written premiums by line presented on page
F-46 with your
disclosures by line on pages 4 and 83.
Schedule VI - Supplemental Information Concerning Property-Casualty Insurance
Operations,
page F-62
27. Please tell us why the following amounts presented in this schedule are
inconsistent with
those presented in your financial statements:
The total of 2021 current and prior year losses and loss adjustment
expenses of
$366,348,000 does not agree with the $354,411,000 presented on the
face of your
statement of operations on page F-6.
The total of 2020 current and prior year losses and loss adjustment
expenses of
$351,398,000 does not agree with the $362,182,000 presented on the
face of your
statement of operations on page F-6.
Paid claims and claim adjustment expenses of $249,739,000 in 2021
does not agree
with the $237,802,000 needed to properly roll forward your net
reserve balance in the
table beginning at the bottom of page F-41.
Exhibits
28. Refer to your disclosure on page 134 under "Transactions with the Westaim
Corporation
and its affiliates" section. Please file the investment management
agreement with Arena
Investors as an exhibit to your registration statement or tell us why you
have not filed it.
You may contact Rolf Sundwall at (202) 551-3105 or Mark Brunhofer at
(202) 551-
3638 if you have questions regarding comments on the financial statements and
related
matters. Please contact Tonya K. Aldave at (202) 551-3601 or Susan Block at
(202) 551-
3210 with any other questions.
Sincerely,
FirstName LastNameAndrew Robinson
Division of Corporation
Finance
Comapany NameSkyward Specialty Insurance Group, Inc.
Office of Finance
May 19, 2022 Page 6
cc: Patrick J. O'Malley, Esq.
FirstName LastName