Bowhead Specialty Holdings Inc.BOW
Bowhead Specialty Holdings Inc. Income Taxes Disclosure
Income Taxes
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The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied in the years in which temporary differences are expected to be recovered or settled. The Company reduces deferred tax assets by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.
The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority. As of December 31, 2025, the Company recorded unrecognized tax benefits of $0.4 million, including immaterial accrued interest, related to uncertain tax positions associated with the federal and state research and development credits claimed on 2021 through 2024 tax returns. Interests and penalties related to uncertain tax positions are recorded as income tax expense within the Consolidated Statement of Operations and Comprehensive Income. No liability for unrecognized tax benefits was recorded in prior periods. As of December 31, 2025, none of the Company’s federal or state income tax returns are currently under examination by the IRS or state authorities.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, enacting significant changes to the 2017 Tax Cuts and Jobs Act (“TCJA”). Such changes include the restoration of 100% bonus depreciation, which was scheduled to phase out in 2027 under the TCJA. The OBBBA also permits immediate expensing of domestic research and development expenditures previously capitalized under the TCJA and modifies various components of the international tax framework. The legislation has multiple effective dates, with some provisions taking effect in 2025 and others phased in through 2027. The Company has recognized the effects of the enacted provisions and determined the legislation did not have a material impact on the company’s income tax expense or effective tax rate for the year ended December 31, 2025.
For the tax years ended December 31, 2025, 2024 and 2023, the Company calculated federal income tax on a consolidated basis, including BSHI, BSUI, BICI and BUSI. The Company does not file or pay income taxes in any foreign jurisdictions.
The income tax provision is as follows:
| Years Ended December 31, | 2025 | 2024 | 2023 | |||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Deferred income tax benefit | ||||||||||||||||||||
| Federal | $ | (6,524) | $ | (6,169) | $ | (4,362) | ||||||||||||||
| Total deferred income tax benefit | (6,524) | (6,169) | (4,362) | |||||||||||||||||
| Current income tax expense | ||||||||||||||||||||
| Federal | 20,207 | 17,652 | 11,182 | |||||||||||||||||
| State | (170) | 809 | 248 | |||||||||||||||||
| Total current income tax expense | 20,037 | 18,461 | 11,430 | |||||||||||||||||
Income tax expense | $ | 13,513 | $ | 12,292 | $ | 7,068 | ||||||||||||||
The following table represents the total taxes paid for the years presented, net of refunds:
| Years Ended December 31, | 2025 | 2024 | 2023 | |||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Income taxes paid | ||||||||||||||||||||
| Federal | $ | 23,000 | $ | 15,250 | $ | 13,500 | ||||||||||||||
| State | 427 | 1,161 | 511 | |||||||||||||||||
Total taxes paid | $ | 23,427 | $ | 16,411 | $ | 14,011 | ||||||||||||||
For the years ended December 31, 2025, 2024 and 2023, respectively, there was no single state jurisdiction where income taxes paid, net of refunds received, exceeded 5% of total income taxes paid, net of refunds received.
The effective tax rate on income from continuing operations was lower than the prevailing statutory federal income tax rate. Among the most significant book-to-tax adjustments were the following:
| Years Ended December 31, | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||
| Amount | % of Income Before Taxes | Amount(3) | % of Income Before Taxes(3) | Amount(3) | % of Income Before Taxes(3) | ||||||||||||||||||||||||
| ($ in thousands, except percent data) | |||||||||||||||||||||||||||||
Tax expense (benefit) at statutory tax rate of 21.0% | $ | 14,133 | 21.0 | % | $ | 10,612 | 21.0 | % | $ | 6,744 | 21.0 | % | |||||||||||||||||
| Tax effect of significant reconciling items: | |||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||
Stock-based compensation(1) | (767) | (1.1) | % | 562 | 1.1 | % | — | — | % | ||||||||||||||||||||
| Other permanent differences | 842 | 1.3 | % | 479 | 0.9 | % | 128 | 0.4 | % | ||||||||||||||||||||
State and local income tax, net of federal (national) income tax effect(2) | (169) | (0.3) | % | 639 | 1.3 | % | 196 | 0.6 | % | ||||||||||||||||||||
| Tax credits | (924) | (1.4) | % | — | — | % | — | — | % | ||||||||||||||||||||
| Changes in unrecognized tax benefits | 398 | 0.6 | % | — | — | % | — | — | % | ||||||||||||||||||||
Income tax expense | $ | 13,513 | 20.1 | % | $ | 12,292 | 24.3 | % | $ | 7,068 | 22.0 | % | |||||||||||||||||
(1) The Stock-based compensation reconciling item is attributable to the fair value of awards that vested in excess of the grant date fair value.
(2) For the year ended December 31, 2025, state income taxes in Illinois, Massachusetts and Texas made up a majority (greater than 50%) of the tax effect in this category. For the year ended December 31, 2024, state income taxes in California and Illinois made up a majority of the
tax effect in this category. For the year ended December 31, 2023, state income taxes in Illinois made up a majority of the tax effect in this category.
(3) Amounts and percentages presented for the years ended December 31, 2024 and 2023 are restated for the adoption of ASU 2023-09.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes, and the amount used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows:
| As of December 31, | 2025 | 2024 | ||||||||||||
| ($ in thousands) | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Unearned premium disallowance | $ | 15,187 | $ | 12,418 | ||||||||||
| Reserves for losses and loss adjustment expenses | 14,295 | 9,298 | ||||||||||||
| Unrealized losses on investments | — | 2,982 | ||||||||||||
| Share-based compensation | 2,049 | 890 | ||||||||||||
| Amortization of startup costs | 757 | 817 | ||||||||||||
| Depreciable assets | — | 337 | ||||||||||||
| Accrued benefits | 278 | 320 | ||||||||||||
| Accrued expenses | 186 | 116 | ||||||||||||
| Other | 117 | 64 | ||||||||||||
| State tax credits | 61 | — | ||||||||||||
| Capital loss carryforward | 5 | 9 | ||||||||||||
Total deferred tax assets | 32,935 | 27,251 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Deferred policy acquisition costs | $ | 7,410 | $ | 5,801 | ||||||||||
| Accrued bond discount | 618 | 1,092 | ||||||||||||
| Unrealized investment gains | 1,423 | 17 | ||||||||||||
| Other | 45 | 1 | ||||||||||||
| Depreciation | 963 | — | ||||||||||||
| Total deferred tax liabilities | 10,459 | 6,911 | ||||||||||||
Net deferred tax assets | $ | 22,476 | $ | 20,340 | ||||||||||
The Company is required to establish a valuation allowance for any gross deferred tax assets that are unlikely to reduce taxes payable in future years. For tax years 2025 and 2024, the Company has determined no valuation allowance is required based on positive current taxable income and future earnings projections.
As of December 31, 2025, the Company has zero federal net operating loss carryforwards. As of December 31, 2025, the company has capital loss carryforwards of less than $0.1 million, a portion of which will start to expire in 2026 and zero charitable contribution carryforwards.
As of December 31, 2025, the Company established an uncertain tax position of $0.4 million for the federal and state research and development credits claimed on 2021 through 2024 tax returns. At December 31, 2024, no liability for unrecognized tax benefits was recorded. At December 31, 2025 the uncertain tax position of $0.4 million includes estimated interest of $49.3 thousand. The Company’s federal and state tax returns remain subject to tax examinations for the years beginning in December 31, 2021 and forward. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023:
| As of and Years Ended December 31, | 2025 | 2024 | 2023 | |||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Gross uncertain tax positions, beginning of year | $ | — | $ | — | $ | — | ||||||||||||||
| Gross increases to tax positions for the current year | — | — | — | |||||||||||||||||
| Gross increases to tax positions for prior years | 349 | — | — | |||||||||||||||||
| Decreases due to lapse of statutes of limitations | — | — | — | |||||||||||||||||
| Decreases related to settlements | — | — | — | |||||||||||||||||
| Gross uncertain tax positions, end of year | $ | 349 | $ | — | $ | — | ||||||||||||||
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.