Skyward Specialty Insurance Group, Inc.SKWD
Skyward Specialty Insurance Group, Inc. Fair Value Disclosure
Fair Value Measurements
The Company’s financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in its consolidated financial statements. In determining fair value, the market approach is generally applied, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities.
The Company uses data primarily provided by third-party investment managers or pricing vendors to determine the fair value of its investments. Periodic analyses are performed on prices received from third parties to determine whether the prices are reasonable estimates of fair value. The analyses include a review of month-to-month price fluctuations and, as needed, a comparison of pricing services’ valuations to other pricing services’ valuations for the identical security.
The Company classifies its financial instruments into the following three-level hierarchy:
Level 1 - Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement
date.
Level 2 - Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability through
corroboration with market data at the measurement date.
Level 3 - Unobservable inputs that reflect management’s best estimate of what market participants would use in
pricing the asset or liability at the measurement date.
The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying consolidated financial statements and in these notes:
U.S. government securities, mutual funds and common stock
The Company uses unadjusted quoted prices for identical instruments in an active exchange to measure fair value which represent Level 1 inputs.
Preferred stocks, municipal securities, corporate securities and miscellaneous
The Company uses a pricing model that utilizes market-based inputs such as trades in an illiquid market for a particular security or trades in active markets for securities with similar characteristics. The model considers other inputs such as benchmark yields, issuer spreads, security terms and conditions, and other market data. These represent Level 2 fair value inputs.
Commercial mortgage-backed securities, residential mortgage-backed securities and other asset-backed securities
The Company uses a pricing model that utilizes market-based inputs that may include dealer quotes, market spreads, and yield curves. It may evaluate individual tranches in a security by determining cash flows using the security’s terms and conditions, collateral performance, credit information benchmark yields and estimated prepayments. These represent Level 2 fair value inputs.
Fixed maturity securities, available for sale classified as Level 3
The Company has corporate securities and miscellaneous, other asset-backed securities that are managed by an independent asset manager and priced by an independent pricing provider. The provider estimates the value of the securities using the discount net present value of cash flows method using an unobservable discount rate. The discount rate spread represents the risk associated with future cash flows, including inflation, opportunity cost and the time value of money. This rate represents Level 3 fair value inputs.
The following table sets forth the range of the discount rate as of December 31, 2025 and 2024:
| 2025 | 2024 | |||||||||||||
| High | 11.10 | % | 8.00 | % | ||||||||||
| Low | 4.25 | % | 5.70 | % | ||||||||||
| Weighted average | 6.40 | % | 6.60 | % | ||||||||||
Mortgage loans
Mortgage loans have variable interest rates and are collateralized by real property. The Company determines fair value of mortgage loans using the income approach utilizing inputs that are observable and unobservable (Level 3). The unobservable input consists of the spread applied to a prime rate used to discount cash flows. The spread represents the incremental cost of capital based on the borrower’s ability to make future payments and the value of the collateral relative to the loan balance and is subject to judgment and uncertainty.
The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of December 31, 2025 and 2024:
| 2025 | 2024 | |||||||||||||
| High | 8.34 | % | 10.00 | % | ||||||||||
| Low | 6.55 | % | 7.00 | % | ||||||||||
| Weighted average | 7.74 | % | 7.93 | % | ||||||||||
Derivatives
Included in other assets are derivatives which consist of certain exchange traded options contracts entered into by the Company. The fair values of these options are measured using quoted prices in active markets on the relevant exchange, specifically utilizing either the volume-weighted average price of trades in similar contracts during a specified time window, or the last trade settlement price when no trades occur within that period. This method represents Level 1 inputs.
The following tables set forth the Company’s investments and derivatives within the fair value hierarchy at December 31, 2025 and 2024:
| December 31, 2025 | ||||||||||||||||||||||||||
| ($ in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Fixed maturity securities, available-for-sale: | ||||||||||||||||||||||||||
| U.S. government securities | $ | 44,468 | $ | — | $ | — | $ | 44,468 | ||||||||||||||||||
| Corporate securities and miscellaneous | — | 503,274 | 133,113 | 636,387 | ||||||||||||||||||||||
| Municipal securities | — | 102,116 | — | 102,116 | ||||||||||||||||||||||
| Residential mortgage-backed securities | — | 486,587 | — | 486,587 | ||||||||||||||||||||||
| Commercial mortgage-backed securities | — | 73,050 | — | 73,050 | ||||||||||||||||||||||
| Other asset-backed securities | — | 495,891 | 17,804 | 513,695 | ||||||||||||||||||||||
| Total fixed maturity securities, available-for-sale | 44,468 | 1,660,918 | 150,917 | 1,856,303 | ||||||||||||||||||||||
| Fixed maturity securities, held-to-maturity: | ||||||||||||||||||||||||||
| Other asset-backed securities | — | — | 33,603 | 33,603 | ||||||||||||||||||||||
| Total fixed maturity securities, held-to-maturity | — | — | 33,603 | 33,603 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Preferred stocks | — | 1,174 | — | 1,174 | ||||||||||||||||||||||
| Total equity securities | — | 1,174 | — | 1,174 | ||||||||||||||||||||||
| Mortgage loans | — | — | 9,902 | 9,902 | ||||||||||||||||||||||
| Short-term investments | 264,299 | — | — | 264,299 | ||||||||||||||||||||||
| Derivatives | 34,857 | — | — | 34,857 | ||||||||||||||||||||||
| Total | $ | 343,624 | $ | 1,662,092 | $ | 194,422 | $ | 2,200,138 | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| ($ in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Fixed maturity securities, available-for-sale: | ||||||||||||||||||||||||||
| U.S. government securities | $ | 26,486 | $ | — | $ | — | $ | 26,486 | ||||||||||||||||||
| Corporate securities and miscellaneous | — | 354,815 | 70,813 | 425,628 | ||||||||||||||||||||||
| Municipal securities | — | 84,716 | — | 84,716 | ||||||||||||||||||||||
| Residential mortgage-backed securities | — | 393,833 | — | 393,833 | ||||||||||||||||||||||
| Commercial mortgage-backed securities | — | 69,364 | — | 69,364 | ||||||||||||||||||||||
| Other asset-backed securities | — | 285,084 | 7,107 | 292,191 | ||||||||||||||||||||||
| Total fixed maturity securities, available-for-sale | 26,486 | 1,187,812 | 77,920 | 1,292,218 | ||||||||||||||||||||||
| Fixed maturity securities, held-to-maturity: | ||||||||||||||||||||||||||
| Other asset-backed securities | — | — | 38,717 | 38,717 | ||||||||||||||||||||||
| Total fixed maturity securities, held-to-maturity: | — | — | 38,717 | 38,717 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Common stocks | 64,251 | — | — | 64,251 | ||||||||||||||||||||||
| Preferred stocks | — | 1,164 | — | 1,164 | ||||||||||||||||||||||
| Mutual funds | 40,839 | — | — | 40,839 | ||||||||||||||||||||||
| Total equity securities | 105,090 | 1,164 | — | 106,254 | ||||||||||||||||||||||
| Mortgage loans | — | — | 26,490 | 26,490 | ||||||||||||||||||||||
| Short-term investments | 274,929 | — | — | 274,929 | ||||||||||||||||||||||
| Total | $ | 406,505 | $ | 1,188,976 | $ | 143,127 | $ | 1,738,608 | ||||||||||||||||||
The following tables set forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the years ended December 31, 2025 and 2024:
| ($ in thousands) | Fixed Maturity Securities, Available-For-Sale | Mortgage Loans | ||||||||||||
| Balance at December 31, 2024 | $ | 77,920 | $ | 26,490 | ||||||||||
| Total gains (losses) for the period recognized in net investment gains (losses) | (5,180) | (7) | ||||||||||||
| Issuances | — | 151 | ||||||||||||
| Settlements | — | (16,732) | ||||||||||||
| Transfers into Level 3 | 6,143 | — | ||||||||||||
| Purchases | 70,730 | — | ||||||||||||
| Sales/Disposals | (1,493) | — | ||||||||||||
| Total unrealized gains for the period recognized in accumulated comprehensive income (loss) | 2,797 | — | ||||||||||||
| Balance at December 31, 2025 | 150,917 | 9,902 | ||||||||||||
| Total losses for the period recognized in net investment gains attributable to the change in unrealized gains or losses relating to assets held as of period end | — | (201) | ||||||||||||
| ($ in thousands) | Fixed Maturity Securities, Available-For-Sale | Mortgage Loans | ||||||||||||
| Balance at December 31, 2023 | $ | — | $ | 50,070 | ||||||||||
| Total gains (losses) for the period recognized in net investment gains (losses) | (195) | 420 | ||||||||||||
| Issuances | — | 649 | ||||||||||||
| Settlements | — | (24,649) | ||||||||||||
| Purchases | 77,979 | — | ||||||||||||
| Sales/Disposals | (374) | — | ||||||||||||
| Total unrealized gains for the period recognized in accumulated comprehensive income (loss) | 510 | — | ||||||||||||
| Balance at December 31, 2024 | 77,920 | 26,490 | ||||||||||||
| Total gains for the period recognized in net investment gains (losses) attributable to the change in unrealized gains or losses relating to assets held as of period end | — | 411 | ||||||||||||
The Company measures certain assets, including investments in indirect loans and loan collateral, equity method investments and other invested assets, at fair value on a nonrecurring basis only when they are deemed to be impaired.
In addition to the preceding disclosures on assets and liabilities recorded at fair value in the Consolidated Balance Sheets, the Company is also required to disclose the fair values of certain other financial instruments for which it is practicable to estimate fair value. Estimated fair value amounts, defined as the quoted market price of a financial instrument, have been determined using available market information and other appropriate valuation methodologies. However, considerable judgments are required in developing the estimates of fair value where quoted market prices are not available. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.
The following methods and assumptions were used in estimating the fair value disclosures of other financial instruments:
Fixed maturity securities, held-to-maturity: Fixed maturity securities, held-to-maturity consists of senior and junior notes with target rates of return. As of December 31, 2025, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).
Investment in RedBird Capital Partners: Included in other long-term investments is an investment in a limited partnership with RedBird Capital Partners, which invests in Bishop Street Underwriters, LLC (“Bishop Street”), a managing general agent (MGA). The investment had a fair value of $55.6 million and $28.2 million at December 31, 2025 and 2024, respectively, which was determined using the net asset value. The Company employs procedures to assess the reasonableness of the fair value of the investment including obtaining and reviewing the audited financial statements. The unfunded commitment related to the investment was $18.3 million and $24.4 million at December 31, 2025 and 2024, respectively. The Company may sell its interest in the investment with the appropriate prior written notice and approval by the general partner. In accordance with Accounting Standard Codification 820-10, this investment is measured at fair value using the net asset value per share practical expedient and has not been classified in the fair value hierarchy. Net earned premiums related to this agreement for the years ended December 31, 2025 and 2024 were $41.5 million and $2.5 million, respectively.
Notes payable: The carrying value approximates the estimated fair value for notes payable as the notes payable accrue interest at current market rates plus a spread. The Company determines fair value using the income approach utilizing inputs that are observable (Level 2).
Subordinated debt: Subordinated debt consists of the Unsecured Subordinated Notes, due May 24, 2039 and have a fixed interest rate. The Company determines the fair value of these instruments using the income approach utilizing inputs that are observable (Level 2).
The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of December 31, 2025 and 2024:
| 2025 | 2024 | |||||||||||||||||||||||||
| ($ in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| Notes payable | ||||||||||||||||||||||||||
| FHLB Loan | $ | 57,000 | $ | 57,458 | $ | 57,000 | $ | 56,200 | ||||||||||||||||||
| Revolving Credit Facility | 114,500 | 114,500 | 43,000 | 43,000 | ||||||||||||||||||||||
| Term Loan Facility | 300,000 | 300,000 | — | — | ||||||||||||||||||||||
| Notes payable | $ | 471,500 | $ | 471,958 | $ | 100,000 | $ | 99,200 | ||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||||||||
| Unsecured subordinated notes | $ | 19,569 | $ | 21,020 | $ | 19,536 | $ | 20,541 | ||||||||||||||||||
| Subordinated debt, net of debt issuance costs | $ | 19,569 | $ | 21,020 | $ | 19,536 | $ | 20,541 | ||||||||||||||||||
Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 28, 2023 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.