CEO Robinson says Skyward aims to be the “best”, not the biggest

Skyward Specialty CEO Andrew Robinson says the firm will continue to remain patient in its strategy of waiting for the right talent to become available in executing plans for expansion, and that delivering the best results possible is its priority over pursuing scale.

The CEO made those comments while speaking to The Insurer TV live at Nasdaq MarketSite after the firm floated shares publicly for the first time, with the stock popping by more than 27 percent, to $19.10 per share.

“We're very strategically minded,” Robinson said, in outlining where the company could look to expand, now that it is publicly-traded.

“We have our view as to the parts of the market that we do want to enter. And when we do that, we're not just broadly saying, ‘Okay, well, let's go find the person to lead it in that moment of time’. We know the people that we would like to lead new businesses that we're going to enter, we've been in discussion with those people, oftentimes for many quarters,” he explained.

“It's a very targeted approach, to try and identify people who match the thinking of our company, have the underwriting track record and leadership that fits, and we're patient. We’ll wait.”

Nonetheless, Robinson said he expects his firm to have some upcoming announcements regarding the expansion of some underwriting divisions, which he said was the “normal course” for Skyward.

“If we look out sort of some period of time, I would not say that this is not a story where we need to be the biggest,” Robinson said.

“We think there are terrific examples of other companies out there, who are long term durable underwriting companies [that have] performed incredibly well and the market has recognized that and valued those in a disproportionate way.

“We're trying to build one of those truly great specialty insurance companies that is durable at all parts of the market cycle, we're trying to be a top quartile underwriter, and a company that will be, if we do our job, be highly valued,” Robinson continued.

“And so it's not the biggest, it's about being really the very best in the things that we do.”

M&A potential: ‘Not really a feature of our playbook’

Robinson noted that the Skyward management team has significant experience with M&A transactions, but that the Houston-based carrier would be more likely to explore organic opportunities.

“The way I would characterize it is we have an incredible amount of momentum and [with] all the organic things that we're doing today, [that] M&A is not really a feature of our playbook,” Robinson explained.

The executive made those comments just as some have speculated there could be an uptick in carrier M&A this year, and just as Argo is in the closing stages of a sale process that has attracted the likes of PE-backed Core Specialty, among others.

“There's a lot of experience on this team, myself included, having done a lot of transactions of all sizes, and I certainly have plenty of scar tissue on bad decisions, where you have balance sheets that don't perform as you would think that are part of the transaction,” he cautioned.

The chief executive highlighted his firm’s deal to buy Aegis Surety from MGA roll-up platform K2 Insurance Services, which has since positioned Skyward as a top-25 writer of surety.

“That really worked out great and I love that underwriting division. If those kinds of opportunities present [themselves], we'll certainly take advantage of that, but I don't see us doing large scale M&A,” he explained.

“And if we're going to bring on balance sheet risk, it's going to be an exceptionally high bar because the worst thing that we could do as an organization is undo all the great things that we've created in the organic momentum that we have in our business.”

Skyward portfolio diversification “durable” in face of downturn

Robinson also shared his views on current market conditions, highlighting the fact that there is no monolithic market, but “a series of micro cycles”.

“We have eight underwriting divisions that are not all operating in the same market. Some are stronger markets where pricing is more attractive, others are weaker, some have better exposure growth, others have less exposure growth,” Robinson explained.

“We're obviously heading into a period where the fiscal tightening here in the US will start to take root and may have an effect on some of our businesses differently than others.

When asked what his top concerns for the year ahead were, Robinson said that virtually all insurance businesses are going to have to contend with fiscal tightening and a potential recession, while arguing that Skyward’s portfolio is well-positioned for a possible downturn.

“I believe that the backdrop of a tighter reinsurance market [and] clearly an inflationary environment - the underwriters understand that we're in a tougher liability, social inflation environment. And I think that those things are really conducive to a company like ours. That kind of backdrop inures to the benefit of the best underwriters, which we would view ourselves.”

The CEO joined a chorus of executives who have in recent times described a “flight to quality” playing out amid volatile market conditions.

“Capital will move to where the best underwriters are, for sure, in general, but in times like this, I think that that's particularly true. I think all that's conducive to sort of holding market pricing in the aggregate, which is positive, but I think it'll go to the best underwriters to a greater extent than then it might go to the market more widely.

“And we see that as [a] positive, we see that's going to give us a run that could last for a couple of years where pricing is really supportive, and we think that we can continue to grow our business and grow our margins during that period without a great deal of concern.”

Social inflation among biggest concerns

However, Robinson did prominently flag social inflation as a major concern, citing litigation funding that has fuelled the plaintiffs bar and led to soaring claims costs.

“I would say [that is] one item that is squarely on our radar,” he commented.

“It's a whole sort of industry of activity that is structurally just unsound,” Robinson explained.

“It's as unsound as the Florida property market has been for the last 15 years and in some way that will have to be remedied. It's not a backdrop that you can just price your way out of, [and] it's likely not a backdrop that you can risk-select your way out of.”

“You have this issue that's emerged around social inflation that I think people can see much more cogently now. That would be something I would highlight that's really important, not just for us as a company, but as an industry that I'm concerned about.”

Robinson said that it is “hard to always envisage” unforeseen scenarios, or Black Swan events such as a pandemic in the middle of a hard market or the outbreak of war, such as between Russia and Ukraine, but that his firm’s portfolio “is particularly durable” to the possibility of an economic downturn.

“We don't have a lot of businesses that are as recessionary-exposed, we certainly don't have the moral hazard that can go with a recessionary environment nearly as much in our business,” Robinson commented.