Bowhead Specialty Holdings Inc Stock

All right. Cave, go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. My name is Cave Montazeri, and I'll be your host today. We have senior leaders from Bowhead Specialty here to discuss how technology and AI are being deployed at a leading insurance company.

Bowhead has built a specialty carrier with both traditional craft underwriting and a growing digital model. What I'd like to talk about today and understand where technology is changing the speed, quality and economics of specialty insurance, and how investors should separate durable progress from broad industry noise.

Our panelists today include Brandon Mezick, Head of Digital Underwriting. Brandon has almost 20 years of experience in specialty insurance with leadership roles spanning underwriting, operations and business strategy. Brandon will tell us how Bowhead is using frontier technology to deliver a low-touch underwriting process for SME, E&S customers in construction and real estate and how the company plans to scale this further.

Also joining us today is Steve Feltner, who serves as Bowhead Chief Operating Officer. Steve will explain how technology can augment human underwriters in complex specialty lines where human judgment remains critical and can be supported by better tools, data and workflow design. Steve has 15 years of industry experience with a background that spans both technical and operational disciplines, giving him a broad perspective on the evolving needs of specialty insurance organizations.

Last but not least, Brad Mulcahey, the Chief Financial Officer, will tie it together, bring the financial implications and tell us why the company is excited about digital tools that did not exist when Bowhead IPO-ed just 2 years ago that are now embedded in the company's daily processes.

One little logistical note, please e-mail me any questions you might have that we can -- will have time at the end of this fireside chat to address or if you want to send me an IB on Bloomberg.

So let's start with Brandon. For investors who may be newer to the story, how do you define the difference between craft and digital inside Bowhead. Why do you have those two different platforms under the same roof? And where does technology create the most value?

Thank you for the question, Cave. First, I'd like to maybe start by thanking you and the folks at Deutsche Bank for hosting us this morning. We're really excited to tell our story in a longer form. So thank you again for the opportunity.

Maybe instead of starting with the differences, I'd start with something that unites both the craft and digital business, and that is our focus on underwriting profitability. That is the essential objective of Bowhead is at the core of everything that we do. But to your question on differences, a simple way to describe it might be in craft, our underwriters are making judgments that a model can't yet make reliably. Where in digital, decisioning is well defined, and we think speed and consistency improves the outcomes.

So in terms of technology in craft, the underwriters are synthesizing dozens of signals we get from submissions, from conversations with brokers, from conversations with customers that don't live in any kind of structured data set. So in terms of the value technology brings, it's really about augmentation, giving those underwriters faster access to information like loss histories or the exposure information for a customer or benchmarking pricing data. It eliminates the friction around judgment. It does not eliminate the judgment itself.

In terms of technology in digital, the risk parameters here are much tighter. The data is more complete, and we think the decisions then are more repeatable. So in terms of value in digital, technology can be the underwriter. Humans obviously are in the loop for edge cases and portfolio monitoring. But I would note that, these aren't two separate businesses that just happen to sit under one roof. The learnings and intelligence that we gain in each business informs how we think about the other. They really feed each other.

So Bowhead digital business today includes Baleen general liability for contractors and real estate plus Express cyber and miscellaneous Professional Liability. Why were those clients the right place to start? What makes them suitable to a more standardized workflow without compromising underwriting discipline?

We were really deliberate about this, the lines that we started with, as you mentioned, primary general liability in Baleen and cyber and MPL through Express, share at least 3 characteristics that we think make them really suitable for a standardized workflow. The first is data completeness. For these classes, the data that we need to make sound underwriting decisions are largely available at the time of submission. We're not really dependent on broker narratives to fill in gaps. We've got structured, exposure data, loss data. And in the case of cyber, great third-party security data that enriches the customer profiles we're trying to build.

The second is a defined risk appetite. These aren't lines of business where we're trying to underwrite something unusual. We have a clear appetite and those rules can be expressed in a way that a system can apply consistently. So it's not dumbing down the underwriting instead, it's controlling discipline.

And the third is we're building [indiscernible] portfolios in each of these businesses. At the smaller end of the market, the exposure units are more comparable to each other. For us, that means that things like a pricing model can be more reliably calibrated over time. That's one example.

I would just say that this doesn't -- we're not compromising underwriting discipline because when done correctly, a rules-based workflow eliminates the adverse selection that can creep in when individual underwriters are applying slightly different standards to the same risk.

So make that concrete, can you walk us through what digital submissions looks like today from intake to quote to buying? What parts of that process are now fully automated, what parts are low touch, where human judgment is still absolutely essential?

Sure. So it starts with intake in both Baleen and in Express, most submissions are sent in the old-fashioned way via e-mail. The moment that e-mail arrives, our systems do several things in parallel. They scan the applications and loss runs. They pull third-party data to enrich the information we have about a customer. Ultimately, that intake process yields a comprehensive customer profile that then gets compared to our appetite matrix.

This is then when the process is probably diverge between Baleen and Express. In Baleen, if the account fits our appetite and doesn't trigger a referral, a pricing engine and the document engines fire off practically automatically, both documents and specimen policies are assembled and those are sent back to the submitting broker without human intervention.

In Express, all of that relevant underwriting information is presented on a single pane of glass to the underwriter. As I mentioned in my remarks yesterday, that underwriter's review is structured to take less than 15 minutes per risk. After their review is complete, both documents and specimen policies are assembled and sent back to the submitting broker.

And here's where the processes converge again, if and when a customer decides to purchase, brokers visit a self-serve site to complete some compliance information. And once they collect and find an issue, we deliver a complete policy to their e-mail in under 5 minutes.

On the point about human intervention, we think it's essential in at least 4 places. First, in setting and updating the business rules that the system runs on; two, in reviewing edge cases that the system might not be confident about; three, evaluating risks that trigger those referrals I mentioned for things like loss activity; and then fourth, for portfolio monitoring at the aggregate level.

I would just say we think a lot about that workflow in the context of the experience we're delivering to brokers. We know brokers get especially frustrated when underwriters take a long time to even acknowledge their submission or offer any response. It's worse when an underwriter takes days to respond, ask a bunch of questions and then ultimately declines the risks. Our brokers do not have those experiences. If a risk is out of appetite, we tell you, but most often, we offer bindable quotes and we do it quickly.

Let's turn to Steve. On the craft side, how much of an underwriter is still consumed by lower value administrative work rather than actual risk selection and broker dialogue? Or have you already made the biggest gains in reducing that bridge?

Thanks, Cave. Like Brandon, I'll just take this chance to thank you and Deutsche Bank for hosting this event for us. But to answer your question, in craft, we think about this a bit differently than digital. We've deployed technology in our Casualty unit around submission intake, data enrichment and triage, but the objective isn't to abstract the work away from the underwriter, it's to set them up to do it better. The goal is a true single pane of glass. We want the underwriter to have everything they need in one place and not Google searching for basic information on an account.

In digital, the technology often summarizes and streamlines decisions for speed and consistency. In craft, we take a different approach. We tee up the data and structure it, but we preserve the underlying detail because these are more complex risks and the edge comes from the underwriters' ability to work through the nuance, not around it. So while some might call that administrative work, we don't. In our view, that is core to disciplined underwriting, and that's the balance we're after in craft, efficiency around the work, not simplification of the work itself.

So building on that, as triage capabilities improve, where does the value show up first? Is it better time allocation, stronger puts you bind on the submissions, you do touch with the ability to handle more top of the funnel volume with the same team. For triage, you actually see the benefit in that order, and that sequencing matters. So first, it shows up in time allocation. The earliest and most immediate benefit of better triage is simply giving time back to the underwriters. You're cutting out the noise, meaning low quality or out of appetite submissions so that they can spend more time on risk that actually warrant judgment.

Second, you see it in the quote to bind quality. Once underwriters are more focused on quality accounts, the hit rate improves. They're quoting more quality deals that are better structured, better priced and more aligned with our appetite. That's where you start to see real underwriting leverage come through.

Third and only then does it scale capacity. With cleaner intake and more efficient workflows, the same team can handle more top-of-funnel volume without adding headcount. The goal is to scale [indiscernible] not just volume for volume's sake. Efficiency is nice, capacity is valuable, but better risk selection and stronger quote to bind is what ultimately drives margin and long-term performance.

Can you give us a concrete example of a process change or a technology enhancement that has made Bowhead measurably faster, more accurate or more efficient? And one example of the craft side and one of the digital side.

Sure. This is Brandon. I'll start with digital and then turn it to Steve for example in craft.

The best example I can give you on the digital side is how we built the automation layer for Cyber Express. When we launched that business, we didn't start by telling that platform what to do. We started by watching what our underwriters actually did. We launched on a low-touch basis for all risks. And behind the scenes, we studied the underwriters' decisions, which forms they added or remove, which businesses they reclassified where they may be credited or debited a risk. Once we had enough data to see those patterns clearly, we encoded that into a rule set and then applied that to the simplest, most homogenous segment of the book where decisions were the most consistent. Those risks became fully automated, the more complex risks in Cyber Express paved in a human's hands.

I think this approach matters strategically because we know why the rules are what they are, we can update them when the environment changes, which it often does in cyber liability, and we have a baseline of human behavior to audit against as we move forward.

Steve, do you want to talk about examples in craft?

Yes, sure. And I'll provide two examples, if that's okay. So we recently deployed a tool to our underwriters that reads underlying policies, extracts and organizes terms and conditions and presents the information in a clean structured dashboard for the underwriter. Historically, this was an extremely manual process, underwriters would spend considerable time reading through lengthy underlying policy documents to determine what coverage they were following, where exclusions were endorsements differed and how the structure compared across carriers. That work is important, but it's also time intensive. What the technology does is accelerate the understanding, but not eliminate the judgment. So instead of spending hours locating and organizing the information, they can now spend their time interpreting the information and making better underwriting decisions.

Also, I just mentioned the platform we use in our Casualty unit for triage amongst other functionalities. Before committing to this platform, we ran a controlled pilot within our Casualty team, one group of underwriters using the platform and another continuing in the existing workflow. After just 1 month, the results were clear in the data. Underwriters using the platform produced roughly 30% more quotes than the control group. The real insight wasn't just higher output, it was better allocation of underwriting time. Getting to a no faster allowed our underwriters to spend more time reviewing quality risk and engaging with brokers, which in turn generally leads to more submissions.

[Operator Instructions] So back to Brandon. One structural advantage Bowhead had from the start is that you are building a new organization rather than inheriting decades of legacy systems and [indiscernible]. In practical terms, what does that allow you to do faster today, whether that is launching products, adding data sources, changing rules or integrating third-party tools?

The short answer is yes to all of those. We think the advantage is real and compounding. When you build a modern modular tech stack from day 1 without a legacy layer or trying to retrofit, we believe it's a huge advantage. Every capability we've added has been additive and not a replacement of something that isn't working. So just working through some of those dimensions first on product launches.

Once we complete the product design, which really takes a lot of time and requires extensive collaboration between disciplines, bringing a new digital product to market can happen in a few weeks rather than a few quarters in terms of the technology implementation. The infrastructure we have in place for things like intake pricing, issuance, data capture already exists. So a new product is essentially a new configuration on top of that infrastructure plus some distribution work, which is really important. We usually start with a soft launch to ensure that technology works as expected and to make sure there's a strong product market fit.

The second is around data sources, as you mentioned, adding a new third-party data source is a day's long integration, not like a month's long IT project. It matters a lot because the data ecosystem for underwriting is evolving quickly. Things like new cyber risk signals are available. There are new financial health indicators that are available. All of that help with underwriting decision-making and being able to plug those in quickly is a real advantage.

Third on rule changes, when market conditions shift and we need to update things like appetite or pricing, we can do that in the platform without messing with the underlying code. The underwriting team can change how we're treating a class or a geography and seeing it flow through submissions the next day.

Ultimately, I think this is what the market has long chased its speed without sacrificing underwriting quality. As I mentioned yesterday, most approaches have traded something away to get their large teams of low-cost labor, legacy systems being forced to do things they weren't designed for or asking people to work harder. Baleen was built on a different premise, being a digital-first company means that one of our competitive advantages is organizational agility. We make decisions faster. We iterate on our models more quickly, and we have really strong alignment between claims, actuarial, underwriting, technologists, product operations professionals. They share this common view of risk without the internal friction that might come with size. The carriers with the biggest budgets are playing in a very different game. We are not trying to out-scale them. We are, however, trying to out-think and out-execute them in the markets that we've chosen.

How do you measure if what you're doing is actually working? What are the most important metrics internally? Is it turnaround time, underwriter productivity, buying rates, expense efficiency, broker adoption, loss performance, anything else?

All of those guys. I would say that the expense ratio that you mentioned, it definitely matters and investors are right to focus on it. But internally, our view of technology effectiveness is a little more granular. We think about this across 3 dimensions. The first is maybe throughput and speed. Here, we're measuring things like time from submission to quote, how often we're converting those quotes into binds and how many risks are going straight through without human intervention. All of those are leading indicators on the platform's efficiency.

The second dimension is the quality. So here, we're looking at things like the accuracy rate on automated decisions. Here, we measure those against what a senior underwriter might do if they review that same file. We also look at things like the rate of midterm endorsements or corrections that we need to make driven by data errors or early loss indicators on the digital book versus craft. Here, back to quality, technology just shouldn't be faster. We think it should also be more accurate.

And then the third dimension we focus on is broker adoption and friction. So here, we're looking at things like the repeat submission rate of brokers and the speed that we're rolling out access across all of their networks of offices. The brokers aren't coming back, something about the experience isn't working, either speed or coverage or communication. We treat the way brokers are adopting us as a signal of the platform's quality.

Maybe just to wrap this up, we do measure a lot. There are two metrics that I would highlight that define the broker experience, and that is speed and quotability. In the first quarter, as I mentioned yesterday, we responded to 75% of submissions within 15 minutes and 100% of submissions within 1 business day. We also quoted 75% of our new business submissions in the first quarter. So to me, that means brokers are getting fast answers they can actually use.

Great. Let's talk about financials now. So your expense ratio fell below 30% in 2025, outperforming your previous guidance of low 30s. You're not expecting the expense ratio to be below 30% in 2026. So Brad, how should investors separate the benefit of scale from the benefit of actual automation?

Yes. Thanks, Cave. I think if we back up a little bit, our older guide, if you will, was the low 30s, so call it, 31%, 32% expense ratio. That came as Baleen had just started and Express was nearly an idea at the time. That previous target of low 30s, low 30% had some assumptions on continuing to scale. We are still early in the investment mode with digital and automation in general. We knew the digital strategy should be accretive to the craft expense ratio when it's fully mature. But as we invested in the digital platform before the premium was earned, it actually added pressure to the expense ratio.

So recently, we've trended below 30%, in fact, it was 28.4% in Q1. But as you know, we try not to overemphasize any individual quarter to look more at the longer-term trend. This recent trend below 30% is mostly from the continued scaling and tech initiatives on the craft side. We're still in investment mode in digital, but already seeing the benefits of those early investments Steve and Brandon mentioned. In fact, I'd say our confidence in the digital strategies impact on the expense ratio increases with each passing quarter, I wouldn't be surprised if we land well below 30% once digital is fully mature and up and running.

So there's a lot of excitement around AI. But the practical question is where it can be trusted what still needs guards. When you think about Bowhead's road map, where do you see the most credible use cases for AI in advanced analytics? And what governance standards need to be in place before these tools can play a more meaningful role in underwriting or claims?

This is Brandon. I'll maybe start with some use cases in underwriting and then turn it over to Steve to discuss the same in claims.

Within underwriting, I think there's this continuum that we think about based on credibility or maybe said another way, how much the output can be verified. So on one end, we see some really high credibility use cases. Those are things like document analysis, data extraction, like reading submissions, processing endorsement requests, generating loss runs. In all of these cases, the output is verifiable. You can catch the error if they make one and the efficiencies that you can gain are significant.

In the middle of that continuum, there are some use cases that we think are best operationalized with guardrails. One example might be a chat-like interface or an internal tool set, so helping underwriters the book or generate comparisons or even draft some endorsement language. Importantly, for all of those use cases, the output is going through a human review before it gets implemented or before it affects a transaction.

And then on the other end of that continuum, there are cases that we believe are least credible. And so an example there might be fully autonomous AI-generated terms on anything outside of a very narrow rules-based digital context, plus I think the regulatory clarity over those use cases just simply isn't there right now.

Steve, do you want to maybe share some insights on claims?

Yes, sure. And if it's okay, I'll use a similar framework to Brandon because claims like underwriting really operates along a credibility continuum as well. So at the high confidence end, you automate aggressively. So these are repeatable rules-based processes where speed and consistency matter the most. Examples in claims would be first notice of loss and taking classification, acknowledgment communications, drafting standardized correspondence like coverage letters. These are areas where automation makes process fast and more consistent without sacrificing judgment.

In the middle, that's where AI becomes a force multiplier. So here, technology is augmenting, not replacing the adjuster. Examples of this in claims would be risk and severity assessments, summarizing the incident defects, supporting coverage analysis with relevant policy language. In these cases, the adjuster remains fully in the loop, but is better informed and faster to act. And then there's some low credibility cases at the other end of the spectrum. These would be speculative use cases like AI predicting claims outcomes and autonomously paying or denying claims. Like Brandon said, we don't view these as credible today. There are some regulatory hurdles to get through there as well, particularly in our complex specialty lines.

So in summary, I think our approach here is very deliberate. We automate where confidence is high. We augment where judgment matters and avoid overreach where credibility just is [indiscernible].

Let's talk about cyber. So very interesting line because the risk environment can change very quickly, especially with the new development in AI. As you automate more of the smaller risk cyber workflow, how quickly does the technological feedback loop adjust to new risk entering the market?

This is Brandon again. I think that's exactly the right question for cyber, and it's why the way we design the system matters enormously. We've addressed this in a few ways. First, the cyber appetite rules are structured in a way that they can be updated quickly. As I mentioned previously, underwriters can change a parameter overnight. So when something like a new type of ransomware emerges, we're not waiting for an IT cycle to adjust eligibility criteria, for example.

Second, we use cyber risk signals at intake that update in near real time. So the risk assessment on a new submission always reflects current signals, not just what an insurer reported on an application from 90 days ago. In a class of business where exposures can change a lot between application and buying, we think that really matters.

And third, we're monitoring our cyber book continuously. If we see claim activity starting to cluster around a technology provider or a sector or industry, that triggers underwriting review. And we have this continuous feedback loop between claims, underwriting and actuarial that ensures we're making any necessary adjustments quickly.

Lastly, just on cyber, I appreciate that there are different views on cyber across the industry, different views make a market. Some carriers avoid large risks because they typically experience the largest claims. Other carriers may avoid small or medium-sized risks because of concerns about the sophistication of their cyber defenses. At Bowhead, we're in market for cyber risks across the customer continuum. We have platforms to underwrite both small risks quickly, which were designed by expert underwriters, and we have platforms to evaluate large complex customers, which are handled directly by some of the best underwriters in the industry. We don't change the way we underwrite based on size. Our essential approach and standards for things like eligibility are shared between craft and digital.

Great. And frankly, my last question before we open up for Q&A. In specialty insurance, do you think technology becomes a true moat or do vendor platforms eventually make everyone look more similar? Where does Bowhead believe this real edge comes from?

Yes. We think about this a lot. It's like the biggest long-term strategic question for us. I think the honest answer is technology alone is not a moat. The combination of technology, data, underwriting expertise, assembled and integrated over time is the moat, and that is really hard to replicate. Vendor platforms have done a good job of commoditizing certain activities like managing workflows or processing documents. And I do hope that over the next 5 years, the baseline technology standard across the industry does rise. It's great if it does, it does not worry us.

But what vendor platforms can't replicate. First is proprietary data. That proprietary data that we collect compounds every submission we process, every policy we find, every claim we pay creates a feedback loop that informs how we evaluate and price the next risk. The second thing that it doesn't commoditize is the underwriting culture and decision-making framework that we've built, how our underwriters interact with each other and with the platforms, what type of risks get preferred? How do we use data to help with decision-making? That institutional knowledge is ours. The tools might be available, but the underwriting judgment embedded in how you use them isn't.

So in summary, I would just say that our actual edge isn't any one piece of technology. Instead, it's a combination of decades of craft underwriting expertise and the technology infrastructure to scale it.

Operator, should we open it up with Q&A?

Sure. We have a question from Scott.

Scott Barishaw from Deutsche Bank. I just wanted to ask about, obviously, the focus of the call is technology use. And it's a couple of things around where do you see Baleen being as a percentage of total premium. So in the quarter, you guys did $11 million or so of premium, 300% increase. It's -- you guys do about $200-and-change million of premium. Like where can we think about this in the next couple of years? I looked at Cave's model, it kind of goes up a little bit in percentage. But like is there the possibility that this becomes a really bigger percentage of the total premium in the next few years?

Scott, I would say, yes, I wouldn't put any particular number on it. I would say that we expect that contribution to grow meaningfully. The drivers of that growth are real and durable. We have -- and we're activating more broker relationships. We are seeing more submissions. We're expanding the product pipeline. So I would say the 7% or so of total Bowhead GWP is our starting point and not our ceiling.

Okay. And so maybe just jump into sort of some of -- like we've spent a lot of time with some very tech forward insurtechs where they're on thousands of brokers, desktops. Like how is that process going for you guys? And are there any holdbacks from brokers saying not -- what -- has there been any pushback from brokers, I guess, would be the question for Baleen?

There hasn't. And I think one observation we made in our research and development phase was that brokers have portal fatigue. They do not like having to go to one or many portals to get one or many quotes. Their process, by and large, for the kind of business that Baleen targets is to, if you can believe it, send underwriters a submission via e-mail. And so our approach was to meet them where they are. But to work at the speed that those platforms portals can deliver, which is why we're so obsessed with this 15-minute turnaround time or less in Baleen and Express.

I would also say, Scott, the appetite of markets on most portals are limited. They might not have the same willingness to write hard-to-place customers in terms of nature of operations, venue or loss history. And so I think that's where some of the platforms struggle and where Baleen really fills the gap.

And then I guess my final question is thinking about Baleen as a part of Bowhead, is that -- I mean, you guys have an iconic CEO in Stephen Sills. Has that -- like can Cave and I go out and create Baleen? Or like are you guys at just such an advantage of being a part of such a unique company of Bowhead and having a CEO like that. Maybe talk about just sort of the benefit of being a part of Bowhead.

I think Baleen has been able to see the success that we have because we're a part of Bowhead. And I'm also happy to report that I think Bowhead is benefiting from the investments we're making in digital, as Brad mentioned. The way that we created Baleen within the company, I think, is a really unique story. Stephen said, I want you to effectively go on Mars to build this business. That approach, it sounds simple, but it is awfully hard to do in larger companies where there is a magnetic force to use what you have and to play by a certain set of rules. You're right, Stephen is an icon, he's a visionary. He's been incredible to build Bowhead and Baleen. But I do think Baleen benefits from being a part of Bowhead and vice versa.

Well, congrats on the success so far and look forward to seeing it continue.

If I may follow up on Scott's last point. Can you talk about Express because yesterday, during the call, you did mention this kind of like positive feedback loop where Express is on the craft business, some business that craft has [indiscernible] but couldn't do it because it was too small, not profitable enough. But then also Express, you could help also get more broker mind share and helping the craft. Could you maybe talk about that and give us a bit more details on that little feedback loop?

Yes. The example that I give is in previous versions of Bowhead, we would go and we launched our cyber offering initially. We were a market for access and for large customers. We would walk into a broker's office because we're wearing the Bowhead jersey, 25 brokers show up. to hear our pitch on cyber. And when we say we can offer access for large customers, I suspect we lost 30% of the room because they weren't handling excess for large customers.

Our story and our pitch to brokers today is very different. We say sort of like I did, we're a market for cyber. If you've got small risks, think of us, if you have large risks, also think of us. I think we are -- the message is simpler to brokers. I think it's more compelling. And we see the impacts of that in the craft submission numbers, which I think are being helped by the Express offerings and vice versa. So it is sort of this halo effect that we're experiencing. I think it all has to do with the simplicity of the message and how relevant our offerings are to brokers. do you have any more.

Do we have any more questions on the line?

Not at this time.

All right. Well, we've got one question by e-mail that I can address to Brad. So Bowhead was founded in 2020 as a remote-first hybrid company. How does that shape the company's culture and the type of talent you've been able to hire? Do you think you have attracted employees that are more likely to embrace change and new technologies?

Yes, good question. I think if we go back to 2020 and you think about when Bowhead started and the world was sort of ending, the type of people that came on board early were join a start-up in that environment were obviously highly entrepreneurial, thriving and change. Once that base was there, the tech person, I would say that we hired, I would say it's considered -- it could be called a builder, someone looking to make a difference, have an impact. We recruited a lot of people from larger organizations with really deep expertise, but there's too much bureaucracy, not enough accountability at those organizations. So that type of person obviously embraces new technology by definition.

More recently, we've been able to hire people who prefer our remote-first hybrid workplace over the return-to-office mandates that we're seeing out there. Obviously, this allows us to hire expertise regardless of their location. We trade large rent expenses for smaller travel expenses that we still get together regularly. But the secret to our success, as Brandon mentioned, people that are remote is applying that culture of expertise over the technology that we're building, especially on the digital strategy. The expertise we bring in on the craft business informs and perpetuates the digital business which then culminates in a better broker experience in both craft and digital. So we believe that better broker experience ultimately results in higher growth for the company.

That was a great way to end this little panel. So Brandon, Steve and Brad, thank you very much for your time and looking forward to keeping in touch.

Operator, we're ready to close the Q&A.

Thank you.

Hello, and welcome to Bowhead Specialty Q1 2026 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I'd like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin.

Thanks, Mariana. Good morning, and welcome to Bowhead's First Quarter 2026 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer; and Brad Mulcahey, our Chief Financial Officer. And as we have done in previous quarters, we have invited a key member of our management team to our earnings calls to share insights from their area of expertise. Today, we are joined by Brandon Mezick, our Head of Digital, who will walk us through Bowhead's Digital Underwriting initiatives, which cover Baleen Specialty and Bowhead Express.

Turning to our performance. Earlier this morning, we released our financial results for the first quarter of 2026. You can find our earnings release in the Investor Relations section of our website. And later this evening, you'll also be able to find our Form 10-Q on our website. I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings.

We expressly disclaim any duty to update any forward-looking statement, except as required by law. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, it's my pleasure to turn the call over to Stephen Sills.

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join us today. Bowhead delivered a strong start to 2026 with gross written premiums increasing 24% year-over-year to approximately $217 million. Once again, we delivered disciplined premium growth across all divisions, with casualty driving the largest growth complemented by strong execution in Baleen. Starting with Casualty, GWP increased more than 20% to $147 million in the quarter. We continue to grow in areas where terms and pricing were favorable, while contracting in areas where we saw downward pricing pressure due to an overabundance of supply.

This quarter, growth in casualty was driven by our excess portfolio. The major contributors included strong rate on our real estate book, new construction projects and an increase in manufacturing and hospitality business. Though we see some downward pressure from admitted carriers, nonrisk-bearing MGAs and broker sidecars, overall, while there are certainly exceptions, we still see the market exercising discipline in limit deployment and coverage expansion. That said, we continue to believe excess casualty remains the most favorable segment in our marketplace today.

Turning to professional liability, GWP increased 6% to approximately $28 million in the quarter. Our growth was primarily driven by our Cyber liability Express portfolio, which targets small and midsized accounts through our digital underwriting platform. Partially offsetting this growth was a reduction in our commercial public D&O portfolio, driven by lost renewals to markets who we believe have overaggressive appetites and little to no discipline.

In our Healthcare Liability division, GWP increased 28% to more than $30 million in the quarter. Growth was driven by our hospitals, senior care and miscellaneous medical facilities portfolios. While we remain disciplined in expanding the book and reducing average limits deployed, the market remains challenging, particularly in connection with coverage associated with sexual abuse and molestation.

Finally, we're pleased to report that Baleen generated over $11 million in premiums during the quarter, an encouraging start to the year that reinforces the confidence we have in our digital underwriting platform. As a reminder, we built Bowhead to deliver sustainable and profitable growth across market cycles, and we do so by delivering our products through two complementary underwriting platforms. The first is our craft underwriting platform, which is our foundation, led by experienced underwriters who specialize in complex, nonstandard, high-severity risks and who deliver tailored solutions for our brokers and insurers. The second is our digital underwriting platform comprised of Baleen and Express, which represents our cutting-edge approach to specialty flow business. As Shirley mentioned, we have Brandon Mezick, our Head of Digital, here with us today. Having launched our digital underwriting platform and is leading the expansion of our digital initiative, I'm pleased to pass the call over to Brandon to walk you through the details. Brandon?

Thanks, Stephen. I'll take a few minutes to describe our digital underwriting businesses, Baleen Specialty and Bowhead Express and why we believe they represent a long-term structural advantage for Bowhead. The core thesis is straightforward. Craft underwriting by its nature, is hyper cycle sensitive. As market conditions shift, the risk-adjusted opportunity set in large account E&S narrows. Digital underwriting gives us a durable complementary channel, one that is specifically designed to access the SME E&S market efficiently and we believe more profitably with less volatility.

The SME E&S market represents a massive opportunity, one that has historically required more underwriting effort than the returns justified because the right technology wasn't available. Our digital platforms change that equation, bringing technology-enabled efficiencies without sacrificing the underwriting discipline that defines Bowhead.

Starting with Baleen, we focus exclusively on the E&S market. We target customers who are not eligible for admitted products, and we work through binding and light brokerage teams at our wholesale partners. Our current product offering is targeted at SME E&S customers in construction and real estate, where we provide primary general liability coverage for hard-to-place risks with minimum premiums below $1,000. The process is nearly fully automated from the moment a submission arrives via e-mail and not a proprietary portal through quote generation and policy delivery, the workflow is straight through. We meet brokers where they are, and that simplicity is a competitive advantage.

In the SME E&S market, being first to quote matters enormously, and our brokers often tell us we are the first. In the first quarter, more than 75% of our new business submissions received a response within 15 minutes and 100% of submissions received a response within 1 business day. Those responses are overwhelmingly bindable quotes.

Our new business quote ratio was above 75% in the first quarter. And if a customer decides to purchase, we deliver a complete policy in under 5 minutes. The market has long wrestled with a fundamental tension, how to deliver speed without sacrificing underwriting quality. Various approaches have emerged in an attempt to resolve it. Some have leaned on large teams of low-cost labor to process volume. Others have relied on legacy systems that while familiar, were never built for the demands of today's market. Still others have simply asked their people to work harder and faster, substituting effort for infrastructure. Each of these approaches trades something essential away.

Baleen was built on a different premise. Our platform combines modern, modular technology with experienced underwriting judgment at every critical decision point. The result is a process that is both disciplined and scalable, rigorous and repeatable, deliberate and fast. What separates Baleen from our competitors is not just the workflow. It's the underwriting rigor embedded within it.

Behind the automation is a highly codified set of business rules governing eligibility, pricing and coverage built by experienced underwriters with direct input from our actuarial and claims teams. Third-party data is integrated at the point of submission to validate risk characteristics before any quote is generated and underwriters are engaged where judgment is required, but discretion, particularly on coverage, is intentionally constrained. This isn't a black box. It's a disciplined rules-based framework with experienced people behind it, underpinned by regular performance monitoring led by our actuarial and analytics teams.

The results reflect that. In the first quarter, Baleen generated over $11 million in premium, more than 3x the same period last year. New business submissions were up over 140%. New business quotes were up over 110% and new business bus were up over 260%. We're also seeing strong repeat engagement from broker partners, which tells us this is about consistency and ease of doing business, not just speed. Looking ahead, we see two clear avenues for continued growth. The first is broker expansion, both deepening relationships with our existing wholesale partners who have significant volumes of the business we want and extending into digitally native programmatic platforms where very few markets with our appetite and product set currently exist.

Those platforms experience real leakage when risks fall outside the standard appetite, and we are well positioned to fill that gap. The second is product development, guided by our wholesale partners who actively bring us opportunities. We have a disciplined internal process to evaluate each opportunity on its merits and a team that can move from concept to launch quickly. Last week, we launched a supported access offering for construction risks that is nearly frictionless for our wholesale partners. Both paths, broker expansion and product development expand our addressable market without requiring us to compromise on limits, coverage or what's made Baleen work. Turning now to BOHA! Express. This is a distinct model from Baleen, but relies on the same underlying technology. Bowhead Express is being built to serve smaller versions of the risks our craft business already underwrites. Express is generally low touch.

Nearly every risk is reviewed by an underwriter, but that review is structured to take less than 15 minutes per risk. We aggregate internal and third-party data upfront, so an underwriter sees everything they need at the outset. There are no additional data requests and practically no back and forth with our broker partners. This frees our underwriters from repetitive, low-value work and allows them to focus their judgment where it matters most. The result is significant operating leverage. A key objective with Express is radical simplification, streamlining our process to the point where we can introduce no-touch capabilities while maintaining underwriting integrity. Our offering in Cyber Express is a good example, where we've evolved into a no-touch model for the smallest, simplest risks. The products offered through Express use the same core policy framework as Craft, the same forms and the same endorsement philosophy, but with much less customization.

That means we're not introducing new underwriting exposure. We're simply applying a more efficient delivery model to a segment that was previously uneconomic for us to serve while driving more submissions to Craft as we deepen our relevance with brokers. In the first quarter, Express generated over $3 million in premium with a quote ratio of approximately 65%. The growth opportunity ahead for Express follows a similar pattern to Baleen. On the broker side, our existing wholesale partners have significant volumes of the business Express is designed to serve. To earn more of that flow, we are focused on being visible and delivering a great experience. On the product side, our road map is informed by two sources: our wholesale partners who actively tell us what they want us to build and our own craft underwriters who surface risks that Express could solve for.

We have a disciplined process to evaluate each opportunity and a team that can move quickly. Later this month, we expect to be launching a primary casualty offering for middle market construction risks, which is a segment where we've received considerable submission flow but have been unable to serve economically until Express. Each new product and each expanded appetite expands our addressable market, and we are well supplied with opportunities to pursue. Stepping back, I want to offer a clear framework for how we think about digital underwriting within Bowhead.

First, growth. Digital underwriting represents just under 7% of total Bowhead GWP in the first quarter, and we expect that contribution to grow as both of our Baleen and Express platforms scale throughout the year, driven by strong broker engagement and a product pipeline that continues to expand our addressable market. Second, economics. Our digital underwriting businesses are structurally designed for attractive unit economics, shorter limit profiles and smaller average risks mean lower expected severity. And because technology replaces manual steps, the expense ratio for digital should be lower than Craft as these platforms scale. Third, discipline. Digital underwriting at scale only works if the underwriting works. We believe our approach, codified rules designed by experienced underwriters, data enhancement and validation and actuarial oversight is the right framework. We monitor performance daily and early results are consistent with our long-term expectations. And finally, differentiation. We built and launched both businesses in a matter of months with strong alignment across the organization.

Our technology is modular and not legacy bound. That combination, the speed of execution, underwriting expertise and operational flexibility is difficult to replicate, particularly in large or more complex organizations. We're still early, but the first quarter results give us real confidence in both the model and the opportunity ahead. With that, I'll turn the call over to Brad to discuss our financial results.

Thanks, Brandon. Bowhead generated adjusted net income of $16 million in the first quarter of 2026, up approximately 40% year-over-year. Diluted adjusted earnings per share was $0.48 for the quarter and adjusted return on average equity was 14.1%. Our strong results were driven by top and bottom line growth. Gross written premiums increased 24% to approximately $217 million for the quarter. As Stephen mentioned, we achieved growth in each of our divisions with casualty continuing to be the largest driver and Baleen generating $11.4 million of premiums during the quarter. Our loss ratio for the quarter was 66.9%, unchanged from the same period in 2025.

Our current accident year loss ratio was flat as the impact of the loss picks we made in the fourth quarter of 2025 were offset by changes in our business mix. As I've mentioned in past earnings calls, the continuation of approximately $600,000 of prior accident year reserves is simply due to IBNR booked on additional premiums that were billed and fully earned in the current quarter, but relating to policies from prior accident years. This is not based on actual losses settling for more than reserved and does not represent an increase in estimated reserves on unresolved claims.

We are simply putting IBNR into the appropriate accident year regardless of when the premiums are billed and earned. As a reminder, since we're writing long-tail lines and have relatively short history of losses, when setting our loss reserves, we're heavily reliant on industry observed loss information over our own internal data. This reliance is evident in our high ratio of IBNR as a percentage of total reserves, which was 91% at the end of the quarter. Our expense ratio for the quarter was 28.4%, a decrease of 2 points compared to 30.4% year-over-year. The reduction was primarily driven by a 2.9 point decrease in our operating expense ratio, which is partially offset by a 1.2 point increase in our net acquisition ratio.

The decrease in our operating expense ratio was due to the continued scaling of our business as well as the prudent management of our expenses, including new estimates of deferrable costs. The increase in our net acquisition ratio was driven by the increase in broker commissions due to mix changes in our portfolio, especially as more premiums are sourced from wholesalers and the ceding fee we pay to American Family. These increases were partially offset by an increase in earned ceding commissions from our outward reinsurance treaties. Overall, the effect of our loss ratio and expense ratio contributed to a combined ratio of 95.3% for the quarter.

Turning to our investment portfolio, pre-tax net investment income increased approximately 44% year-over-year to $18 million for the quarter, primarily due to a larger investment portfolio resulting from increased free cash flow and our $150 million debt raise in late 2025. The investment portfolio had a book yield of 4.6% and a new money rate of 4.7% at the end of the quarter. The average credit quality of the investment portfolio was AA- at the end of the quarter, and the average duration increased from 3 years at the end of 2025 to 3.2 years at the end of the quarter.

As we mentioned during last quarter's earnings call, we expect to extend our duration slightly over the course of the year from 3 to 4 years to closer match the duration of our investments to the duration of our liabilities. Our effective tax rate for the quarter was 22.2%. As a note, our effective tax rate may vary due to items such as state taxes, stock-based compensation and nondeductible excess officer compensation. Total equity at the end of the quarter was $459 million. This resulted in a diluted book value per share of $13.80 at the end of the quarter. I also wanted to provide an update on our May 1 ceded reinsurance renewals, which apply to all of our departments, except for our cyber liability products.

Overall, we increased our quota share treaty from 26% in 2025 to 33.5%, while increasing our ceding commissions. We also had a decrease in our excess of loss treaty from 65% in 2025 to 57.5%. Our renewals continue to be placed with reinsurers with an AM Best financial strength rating of A or better. Finally, we expanded our agreement with American Family to support the around 20% GWP growth we're expecting this year. This update raises the $1 billion annual premium cap, which we are projected to exceed this year if we grow around 20%. For more details, please refer to the Form 8-K we filed earlier today. With that, we'll turn the call over for questions.

Thankyou. [Operator Instructions] Our first question comes from Rowland Mayor at RBC Capital Markets.

I wanted to quickly ask Brandon, the stats you cited on Baleen imply a pretty sharp increase in the bind rate year-over-year. Could you maybe elaborate on that change and how Baleen has iterated?

Sure. I think the major contributors to our buying rate include just simply the time we've spent in market. We are more well known to the brokers that we are working with. The process is more familiar. We're giving them a great experience. We've also invested a lot in distribution. We have a great head of distribution in Baleen that has us way more active and visible in the marketplace. And I think those two relevance and being top of mind are the biggest contributors for the buying rate increase year-over-year.

Okay. Perfect. And then I was wondering if we could go through the growth in the underwriting expenses and how we should think about it for the full year. It looks like in the first quarter, they were up about 8%. And should the remainder of 2026 be higher than that? Or is there any major investment down the road that we need to have?

Rowland, this is Brad. Just to be clear, are you talking in overall Bowhead or just in Baleen?

Overall Bowhead, I think it was up 7.8% year-over-year on the other underwriting expenses.

Yes. A couple of things going on there. Obviously, I think don't pay too much attention to one individual quarter. It's more the trend, but we are seeing the trend increase in our underwriting expenses. We've got investments, obviously, still hiring people. We -- on the acquisition side, we've got ceding expenses kind of, I think, offsetting some of that, some of our ceding commission coming from reinsurers. We are getting continued commission increases though from the book as we pivot to more of a wholesale source book, so kind of going the opposite direction there. And then obviously, the American Family ceding fee going up as we've talked about in the past. So I don't think there's anything in particular on the underwriting expenses, though to call out necessarily.

Our next question comes from Meyer Shields at Keefe, Bruyette & Woods.

Am I coming through?

We can hear you.

Sorry. Brad, you mentioned a reevaluation of deferrable costs. Was that an offset to operating expenses? Or is this just like a newer run rate going forward?

Thanks for the question, Meyer. On the overall expense ratio, we mentioned we updated an estimate on some of our deferrable internal costs that relate to acquisitions or acquisition costs. So that's a sort of, I would call it, a favorable timing item in Q1 that's going to normalize eventually in future quarters. So I think that's maybe the one item in Q1 I would highlight. But again, like I said, the expense ratio trend, we're comfortable with being under 30%. I don't want to read too much into one quarter. Obviously, it can be volatile.

Okay. That's helpful. And when we look at the changes that you went through on the 5/1 renewals, is the bottom line impact of that higher or lower net to gross written premium?

Yes, the headline on that is it's basically neutral to net income. There will be some puts and takes, obviously, as we see more premium, net earned premium will go down. But obviously, our losses will go down and our ceding commission should come up. There will also be maybe a little bit of pressure on investment income as we pay more to our reinsurers upfront. But otherwise, I think overall, it should be pretty much neutral to the bottom line.

Our next question comes from Cave Montazeri at Deutsche Bank.

First question is on the health care liability, which is a line we don't really talk about or spend much time on. There was some pretty strong growth this quarter. So -- could you maybe tell us, I guess, where are we in the underwriting cycle for health care liability? And if you can unpack some of the growth drivers in the sector and how we should think about growth going forward this year?

Sure. I think it's a marketplace in flux. There's -- the last several years have experienced an increase in sexual abuse and molestation claims. And part of that was driven by the creation of these reviver statutes that suddenly brought claims to light that then got reported. I think the marketplace is bifurcating some in that some people are just saying, well, it's behind us, and they're prepared to give full coverage for that. We think it's very situational in terms of attachment points and retentions.

So I think overall, we're going to continue to see growth in that space driven mostly by hospitals themselves. I think senior care also, some areas though, are still -- this goes back to different pockets again, that there are some areas where people just get really aggressive. And so it's difficult to say. I don't know how satisfying that answer was because it really goes on a risk-by-risk basis. People -- sometimes they get confronted, we believe, with having to make budgets for the month of the quarter and suddenly get a lot more aggressive. But we think our positioning, our reputation where we -- where people like capping us on their business, I think, holds us in good stead for increasing that -- our volume in that space.

Okay. And then my follow-up is on cyber. I'm just wondering how you protect yourself against tail risk as we see like new AI technologies like Anthropic because -- just wondering how you're thinking about the risk that some of those new technology could bring into the world of cyber insurance if, I guess, if cyber attacks become more frequent or more destructive.

Sure. We obviously think about it a lot. It is a concern on one level. But on the other hand, the type of business we're going after and the way we underwrite the business, we think, makes a big difference. Keep in mind that our large Fortune 500 type cyber risk is business that we have become less and less competitive on. And we've definitely lost ground in that space. We have picked up ground in the space that Brandon was talking about in the express area. And there, once again, the underwriting is key. that we believe things like having a multifactor authentication makes a big difference, making that an important screen of what it is we're looking at, whether they're -- whether they operate in the cloud or not. Those are -- so I think our underwriting, I think, will provide a lot of protection for us.

And also, I think there's -- the general conversation goes that the -- all these new cyber hacking tools are only available to the bad guys, but the good guys have them also. And so I'm sure there's going to be a battle going forward as fast as people evolve to try and hack systems, the good guys are finding ways to close systems. So for the time being, we're very comfortable with what we see, the way we do it. in the type of business we're writing.

Our next question comes from Pablo Singzon at JPMorgan.

Can you hear me?

Yes.

All right. Perfect. One first question for Brad. I just wanted to follow up on the deferable cost, right? Were these costs that you previously reported as OpEx will now amortize way back over time? And if yes, are you able to size how much the impact was in the first quarter?

Yes and yes. Yes. So they will amortize into the acquisition costs. And when we submit the Q later today, you'll see the full disclosure on how much that is. Happy to point that out to you later if you want.

And then second one for Brandon. So some insurers and brokers have said they're seeing more small case E&S moving back to admitted on the margin. It probably doesn't matter as much to you just given your growth rate of where you are. But I wonder, as you're looking out to the broader market, small case market, if you're seeing any of that trend?

We are -- especially as the property market continues to experience declines, we see admitteds playing more in the -- what is traditionally E&S segment. We're comfortable with the experience we're delivering to brokers. We're comfortable with the relationships we have with them. And we don't expect the emergence or reemergence of admitted markets to have any effect on the growth rate for digital.

And as a reminder, we do not write property insurance.

Our next question comes from Daniel Lee at Morgan Stanley.

My first one is just on the expense ratio. I know you guys are scaling and longer term, maybe I just wanted to think -- what's a good way to think about the expense ratio for -- as you guys continue to grow the business and maintain momentum with your tech investments and with Express. Is lower teams operating expense ratio possible in the long term for Bowhead?

Hey Dan, this is Brad. Thanks for the question. Yes, I think -- you're right. Look at it longer term, like I said, there can be volatility each quarter for the expense ratio. Below 30s in total is where we are comfortable at. Not really -- we haven't really talked about the split between acquisition and operating. But I think if you're below 30s for the remaining quarters of this year, I think that's probably pretty good.

My second question is also on the Casualty segment. I know construction projects has been a driver in the past, but with the market kind of softening now, how should we think about the business opportunities going forward for construction? Or how should we think about construction in 2026?

Sure. We're still seeing opportunities in that space. It's still an important driver of ours. Obviously, we can't predict what's going to be in the news, whether that starts to slow down construction projects or if interest rates were to spike. But at the current time, we're seeing a steady as she goes in the construction opportunities for our book.

Our next question comes from Paul Newsome at Piper Sandler.

A couple of broad questions. One is we focus a lot on pricing. I wanted to ask if you're seeing any changes in terms and conditions. I tend to think of that as a pretty important determinant of rational or irrational behavior in the market. Anything out there of notable with terms and conditions in the businesses that you're running?

I would say it's mostly in the pricing world that we're seeing changes like particularly in publicly traded D&O, we're seeing people doing risks at rate per million that we think are not wise. And that's caused a decrease in that business for us. We're -- I mentioned earlier about the SAM coverage, sexual abuse and moestation with health care. Different markets are somewhat sporadic on that in terms of when they give it and how they give it. But I would say the biggest driver to the extent that there's a driver of the market going south would be price. People maybe having good few years and thinking that they can still drive things lower. We don't see that in the casualty space. We're seeing -- still, we're seeing rate increases in that space. But we have not seen that much, I would say, in the broadening of coverage area. There's -- we've still seen a good market for our Baleen product that Brandon talked about that offers somewhat restricted coverage. But that hasn't -- the need or the desire for that product has not diminished.

That's great. Second question, just any updates? It doesn't sound like you are, but I just want to make sure any updates on capital management from philosophy here.

Yes, no updates other than maybe the reinsurance changes will help us. So that was something we plan to do. Anyway, the increase in our ceding quota share was more of a capital play than it was an appetite or anything like that. So I think the debt raise we did in Q4 of last year should be enough to last us at least through this year. Reinsurance changes help. We also have a credit facility available for $35 million with an accordion of $15 million. So I think we're good this year, absent anything growth much higher than we expected or something that would hopefully be good news. So I think we're set on capital.

That concludes the question-and-answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks.

Thank you. Bowhead delivered another strong quarter to start the year. Thank you to our Bowhead team members for your continued dedication and hard work. To everyone else joining us on the call today, we appreciate your support, and we'll speak to you along the way. Thank you.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.

Hello, and welcome to Bowhead Specialty's Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any questions, please disconnect at this time. With that, I would like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin.

Thanks, Marianna. Good morning, and welcome to Bowhead's Fourth Quarter 2025 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer; Brad Mulcahey, our Chief Financial Officer; and Derek Broaddus, our Head of Casualty.

As we introduced last quarter, we'll be inviting an additional member of our management team on our earnings calls to share insights from the area of expertise. Today, we are joined by Derek Broaddus, who heads our casualty team, Bowhead's largest division. Derek will walk us through Bowhead's casualty portfolio and offer his perspective on the casualty markets in which we operate.

Turning to our performance. Earlier this morning, we released our financial results for the fourth quarter of 2025. You can find our earnings release in the Investor Relations section of our website. And later this evening, you will also be able to find our Form 10-K on our website. I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors should not place undue reliance on any forward-looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward-looking statement, except as required by law.

Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website.

With that, it's my pleasure to turn the call over to Stephen Sills.

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join us today. I'm very proud of Bowhead's accomplishment in 2025. We delivered disciplined premium growth of 24% for the year, surpassing our original expectation of 20%. We also had a meaningful improvement in our expense ratio coming in below 30% for the year and better than the low 30s range we expected at the start of 2025. Together, these achievements resulted in an over 30% growth in our adjusted net income for the year and adjusted return on equity of 13.6% and diluted adjusted earnings per share of $1.65.

I'll begin with gross written premiums. Bowhead's GWP increased 21% in the fourth quarter to $224 million and 24% for the full year to approximately $863 million. We achieved disciplined premium growth from each of our divisions in the quarter and for the full year with casualty driving the increase. Given our emphasis on underwriting discipline and prioritizing profitability over volume, we're pleased to have delivered stronger-than-expected growth in the fourth quarter.

In Casualty, GWP increased approximately 26% in the fourth quarter to $133 million and 28% for the full year to $551 million. The growth in both periods was primarily driven by our excess casualty portfolio. Our fourth quarter growth came in stronger than expected, driven by construction project risks that were quoted earlier in the year, but delayed due to macroeconomic factors we discussed in previous earnings calls. The green lighting of these projects added just under 30% to our fourth quarter casualty premiums. While we like the profitability of the construction project business and expect new construction projects to continue, the nonrecurring nature of this business may create lumpiness in our GWP.

In our Professional Liability division, GWP increased approximately 4% in the fourth quarter to $48 million and 9% for the full year to $174 million. Our fourth quarter growth was primarily driven by our cyber liability portfolio, where we continue to target small and midsized accounts facilitated by our digital underwriting capabilities. Our full year growth was driven by commercial public D&O and miscellaneous errors and omissions.

In our Healthcare Liability division, GWP increased approximately 8% in the fourth quarter to $34 million and 14% for the full year to $116 million. Our growth in both periods was driven by our health care management liability and senior care portfolios. Additionally, our hospitals portfolio, which represents the largest portion of the division's full year premiums at almost 30%, continued to grow while we reduced our total limits deployed.

For Baleen, GWP increased 47% from Q3 to over $9.1 million. And we're proud of the fact that for the full year, Baleen generated over $21 million. The momentum we saw in the fourth quarter gives us confidence in Baleen's continued expansion and its anticipated contribution to our broader digital initiative. With a strong year behind us, I'm even more excited about Bowhead's future. As we've said before, Bowhead was built to deliver sustainable and profitable growth across market cycles, and we do that by delivering our products through 2 complementary underwriting models.

Our first model is our craft underwriting model, the foundation of our company. It is led by experienced underwriters who specialize in complex nonstandard, high-severity risks and who deliver tailored solutions for our brokers and insurers. Our second model is our digital underwriting model, which represents the technology-enabled low-touch approach to our specialty flow business. This model began with the launch of Baleen in the second half of 2024, focusing on small, harder-to-place risks with restricted coverage.

We then expanded this technology to handle the high volume of small and midsized submissions that were within our appetite, but historically, not cost effective for our craft underwriters to get to, a capability we call Express. Express automates the underwriting process that used to be repetitive and time-consuming, allowing our underwriters to make disciplined underwriting decisions within minutes. We first applied Express to our small and middle market cyber liability products in Q2, then broadened it to an E&O product in the second half of 2025.

While our craft model delivered over 97% of our GWP in 2025, we've been able to achieve our sub-30 expense ratio even before the digital model is fully scaled. For example, in 2025, head count grew just under 19% from 249 people to 296, while GWP grew 24%. And in the fourth quarter alone, head count increased less than 3%, while GWP grew 21%.

Together, Baleen and Express form our digital underwriting model, designed for speed, consistency and disciplined decision-making, all while preserving the underwriting culture that defines Bowhead. We look forward to introducing you to our Head of Digital on a future earnings call so you can hear directly from the team leader driving this effort.

Turning to our premium outlook for 2026. We continue to expect profitable premium growth of around 20% for the full year. While we anticipate the growth coming from each of our divisions, we believe the main source of this growth will be driven by our Casualty division, followed by the growth stemming from our digital capabilities.

With that, I'll turn the call over to Derek, who's been in the Casualty business over 30 years and won the Insurers 2025 E&S Underwriter of the Year Award. Derek, over to you.

Thank you for the introduction, Stephen, and good morning, everybody. Bowhead wrote its first casualty policy at the end of 2020. So we never wrote large limits for low premiums in the pre-2020 years. We were born in an uprate relatively low limit environment, which still largely exists today. When Bowhead began, the commercial casualty market had just emerged from a 15-year-plus soft market where pricing was suppressed and limits were abundant, all while social inflation was brewing in the background.

We think that the payback equation between limit and price in that time was way off. And because of the tail, we still don't think the bill has totally come due for the industry's pre-2020 prior year adverse development. As a 30-year veteran of the industry, I'm happy to say that it has never been a better time to be a casualty underwriter. Our trading partners ask us what differentiates Bowhead's approach to casualty.

Well, many of you have heard the insurance business is a people business. The best way to build a successful underwriting organization is to have the best underwriters in the business. Bowhead attracts top talent with our underwriting-first culture focusing on profitability over volume. Underwriters are also attracted to our straightforward distribution model, supporting and partnering with our trading partners. We are overwhelmingly surplus lines. We also are not distracted by fixing a book of business. We are laser-focused on managing and building our current portfolio.

It's worth mentioning here that while we remain a predominantly remote organization, we are constantly on video talking about risks with what we call roundtables. Our underwriters are accessible anytime, anywhere. It is an advantage to be able to hire talent no matter where they sit. Another meaningful benefit to this structure is that it is easy to include less senior underwriters from around the country in complicated underwriting meetings that might have been near impossible in a traditional office setting. No one is above being questioned or challenged at Bowhead. In fact, it's encouraged.

Additionally, Bowhead Casualty deliberately avoids classes that are well-known hotspots. Two examples are [ for-hire ] Commercial Auto. We don't write risks that are in the business of hauling people or things for others, and we have limited exposure to large national accounts. Our focus remains on profitable classes where we have expertise and experience. We manage limits carefully in today's market.

Our average excess limit deployed is just over $5 million rather than the $25 million blocks that were common pre-2020. Large excess towers that once required only a few markets to complete now require many markets at better pricing. We also avoid low price per million, high excess placements that require the deployment of large limits and are more exposed to loss than ever before due to social inflation and nuclear verdicts.

Bowhead's Casualty portfolio benefits from today's positive rate environment, lower required limit to participate on towers and the ability to exercise disciplined risk selection. We know that outsized awards and litigation funding are not going away. Social inflation is not a surprise to anyone anymore. Even with improved attachments, risk selection and rate still matter. In terms of our disciplined approach to underwriting, our focus is on deal fundamentals. We believe that walking away from deals that don't make sense is just as important, probably more important than any piece of new or renewal business.

Some might say knowing when to walk away is the toughest but most valuable underwriting skill there is. From a market perspective, in excess, limit discipline largely remains. Many excess towers continue to see limit compression from incumbents. This creates new opportunities for underwriters like Bowhead. However, one moderating influence on rate is the movement of admitted markets into the E&S space as was typical in past insurance cycles.

Also, nonrisk-bearing MGAs and broker sidecars are bringing more capacity into the U.S. casualty market. We agree with certain industry leaders when they say there is a fundamental misalignment of interest in some nonrisk-bearing underwriting facilities. Overall, we remain confident in our ability to grow profitably. We think the current market is competitive, but there is a relatively healthy balance of rate and limit management.

Our brand in casualty continues to grow and strengthen. Submissions are growing faster than we can quote and investments in technology, our digital platform and talent will allow us to capture more opportunities that fit our appetite.

With that, I'll pass the call over to Brad to discuss our financial results.

Thanks, Derek. Bowhead had generated adjusted net income of $15.5 million or $0.47 per diluted share and adjusted return on average equity of 14.1% in the fourth quarter of 2025. For the full year, Bowhead's adjusted net income increased 30.2% to $55.6 million or $1.65 per diluted share, and adjusted return on average equity was 13.6%. Our strong results were driven by top and bottom line growth.

Gross written premiums increased 21% to $224.1 million for the quarter and 24% for the full year to $862.8 million. Our growth story was consistent throughout the year. We achieved premium growth in each of our divisions, with Casualty continuing to be the largest driver and Baleen generating $21.4 million for the year. Due to the timing of our annual reserve review in Q4 each year, we consider our full year loss ratio a more meaningful metric.

For the full year, our 2025 loss ratio of 66.7% increased 2.3 points compared to 64.4% in 2024. The current accident year loss ratio increased 1.8 points due in part to higher expected loss ratios and trends after the annual reserve review as well as mix changes in the portfolio. The prior accident year loss ratio was unchanged as a result of the annual reserve review, but increased 0.5 points due to audit premiums recorded in 2025 that related to prior accident years.

As a reminder from previous earnings calls, the audit premium related reserves in the prior accident years is not based on actual losses settling for more than reserved and did not represent an increase in estimated reserves on unresolved claims. We're simply putting loss reserves into the appropriate accident year regardless of when the premiums are billed and earned. And remember, since we've only been in operations for 5 years and write long-tail lines, our actual loss experience is limited. Because of this, our annual reserve review is primarily based on inputs from industry data.

Our initial expected loss ratios are derived from a combination of internal pricing data and external benchmarks, while development patterns are mostly based on external benchmark patterns. We attempt to align all industry benchmarks to the nuances of our portfolio, including not writing risks that are in the business of hauling people or things for others and our lack of large national account exposures in casualty.

Additionally, the development patterns we use attempt to take into account our excess position in particular lines, which generally results in later development patterns than primary positions. The most recent annual reserve review in Q4 resulted in various adjustments that were smaller compared to our adjustments in Q4 2024. But most importantly, we had no prior accident year development in our aggregate net losses for 2025 as a result of this review.

As you will see in our 10-K, we reallocated prior accident year reserves by division to align more closely with the actuarially derived projected loss ratios and development patterns. These reallocations were primarily in professional liability, where we reduced the '21 accident year while increasing the newer accident years and in health care, where we reduced the '23 accident year and increase the '22 and '24 accident years. These were offset by a decrease in casualty for the '22 accident year to align with updated projected loss ratios, all resulting in no prior year development on an aggregate net basis.

More specifically, in Professional, the '21 accident year is performing well, resulting in a favorable $3.5 million reduction in IBNR. However, the limited experience in subsequent years, coupled with declining rates, warrants caution. The '22 accident year in particular, where our early experience is deviating from the industry development patterns was increased by $2.8 million at year-end. Similarly, in health care, the '23 accident year is performing well. But in the '22 year, our early experience is also deviating from the industry development patterns. This warranted a $2.2 million increase in the '22 accident at year-end, along with a $3.3 million increase in the '24 accident year out of an abundance of caution.

These adjustments to the industry development patterns are another example of conservatism in our reserving. We're reserving as if the industry patterns are correct for now and therefore, reallocating reserves in select areas.

Lastly, we increased some of the '25 accident year initial expected loss picks to align with actuarial estimates. In alignment with our conservative approach to reserving, we are carrying loss ratios in the '25 accident year above the industry estimates on a majority of our product groups. Overall, our actual experience of paid claims and reserves continues to be better than we actuarially expected. And at the end of the year, IBNR as a percentage of total reserves was 90%.

Turning to our expense ratio. We consider our full year ratio a more meaningful metric to monitor the trending of our expense ratio due to the inherent volatility quarter-to-quarter. For the year, our 2025 expense ratio of 29.8% decreased 1.6 points compared to 31.4% in 2024. The reduction was driven by a 2.3 point decrease in our operating expense ratio, which was partially offset by a 1.1 point increase in our net acquisition ratio. The decrease in our operating expense ratio was due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies.

The increase in our net acquisition ratio was driven by the increase in broker commissions due to mix changes in our portfolio and to a lesser extent, the increase in the ceding fee we paid to American Family. Overall, the effect of our loss ratio and expense ratio contributed to a combined ratio of 96.5% for the year. As a reminder, we don't write property and we don't write natural catastrophe-exposed risks.

Turning to our investment portfolio. Pretax net investment income for the quarter increased approximately 36% to $16.6 million and 44% for the year to $57.8 million. The increase was primarily due to a larger investment portfolio resulting from increased free cash flow. At the end of the year, our investment portfolio had a book yield of 4.6% and a new money rate of 4.5%. The average credit quality of our investment portfolio remained at AA and our duration increased from 2.9 years in Q3 to 3 years at the year-end.

Our effective tax rate for the year was 20.1%. As a note, our effective tax rate may vary due to items such as state taxes and stock-based compensation. Total equity was $449 million, giving us a diluted book value per share of $13.45 for the year, an increase of 22% from year-end 2024.

Turning to our expectations for 2026. We continue to expect a GWP growth of around 20% for the year. As Stephen mentioned, the growth should come from all divisions but led by continued momentum in our Casualty division and growth driven by our digital underwriting capabilities. From a ceded perspective, although our main quota share and XOL treaties renew in May later this year, we've renewed our cyber quota share treaty effective January 1 of this year at 65%, up from 60% in 2025 and increased our ceding commissions.

As a note, at each renewal, we consider various factors when determining our reinsurance coverage. While we may adjust our reinsurance program, including our retention to support capital needs, we expect our reinsurers to maintain a financial strength rating of A or better. Furthermore, we expect our 2026 loss ratio to be in the mid- to high 60s due to product mix and our reliance on industry loss trends.

Additionally, we expect our expense ratio to be below 30% for the full year due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. We expect our expense ratio in the first half of the year to be slightly higher than the second half due to payroll taxes. Therefore, we believe our combined ratio will be in the mid- to high 90s for the full year and return on equity to be in the mid-teens.

Turning to our investment portfolio. We expect to extend our duration slightly from 3 to 4 years. This change is not because we're predicting interest rates to decrease, but to closer match the duration of our investments to the duration of our liabilities. And lastly, from a capital perspective, in November, we issued $150 million of 7.75% senior unsecured notes that are scheduled to mature on December 1, 2030. We expect the proceeds to be sufficient for our year-end 2026 regulatory capital requirements, but we'll continue to assess throughout the year.

With that, we'll turn the call over for questions.

[Operator Instructions]

Our first question will come from Meyer Shields with KBW.

Great. Thanks so much. Brad, I appreciate all the detail on the prior year reserve development. Can you walk us through what that implies for price adequacy for 2026 for professional financial lines -- I'm sorry, for professional health care?

Meyer, thanks for the question. Yes, we detailed quite a bit on our prior accident year development, changes around in our IBNR in particular. We think we're priced well. We think pricing is coming in above trend. But we do have a couple of pockets that was just normal changes. I don't want to read too much into it. They were actually pretty small changes. So I don't think there's really a pricing impact from it. It's more just taking a conservative approach to the reserving and adjusting where it was warranted, nipping and tucking around the edges, if you will.

Okay. No, that's helpful. And I guess a question on Baleen. When -- right now, obviously, it's a very, very small percentage. But when -- as it grows, should we think of it as having the same loss ratio characteristics as Casualty? Is it going to be more evenly distributed? That's the wrong way of phrasing it. But when you look at the different segments, you've got different loss ratio profiles there. And I'm wondering how we should think of a mature Baleen in that context?

I think that -- this is Stephen. I think that the Baleen loss ratio will be superior to the general large casualty business. The -- I'm not as certain as when we get into the Express Casualty business, whether that will probably mirror more of what the larger casualty business is. But the Baleen business, based upon the restricted nature of the coverage, we think that, that will have a superior loss ratio.

Okay. Fantastic.

Your next question will come from Rowland Mayor at RBC Capital Markets.

I wanted to quickly ask on how you translate industry data into the loss ratio picks. I assume you're trying to be better than the industry and your business is much more niche, but how do you kind of get granular on that data and use it in your business?

Yes, Rowland, this is Brad. Thanks for the question. We've been doing this for a couple of years now. Obviously, we don't have enough data on our own to set our picks and development patterns. But we do have a third-party actuary who has very detailed proprietary information that they give us. So this is not Schedule P industry data that we're using. This is something that we can slice and dice, as I mentioned, we don't really have a big Fortune 1000 exposure in casualty, for example. That's given everybody a lot of heartburn.

So we're able to tailor these industry benchmarks to our portfolio to an extent. There's only so much you can do, obviously. So -- but we think that the proprietary information that we now have helps us. And looking backwards, it has been pretty accurate with foretelling what is happening in the casualty market and the other markets that we participate in. The development patterns are probably the one that we're starting to see our own data, but I don't know if we can say we have a trend in our data for that. So we are definitely using the industry development patterns. And I think that's adding a little bit more conservatism into our reserves as well. Does that help?

Yes. That's super helpful. And then I wanted to talk about the expense ratio target. You're now sub-30. I get there's going to be a step-up in acquisition costs from the deal in May and maybe some first half payroll taxes. But is there a place you're thinking about long term where you can get the expense ratio down to?

Yes. I think we have headwinds with our ceding fee going to American Family, as you point out, but we got a lot of tailwinds in the technology initiatives that we've put in place. We saw halfway through last year, we're starting to see the benefits of those a lot faster than we had thought, surprisingly so. So we're still going to squeeze as much as we can out of this expense ratio. But it is sort of a last year, low 30s. We were happy being in the low 30s, but this is sort of a new paradigm now with some of the tools out there. So hard to say where it will come in, but I think we're comfortable low 30s, and we'll do our best to get it even lower than that.

Your next question will come from Bob Huang with Morgan Stanley.

So my first question revolves around Casualty. I wanted just to follow up with something that you talked about a little earlier. As we -- I think previously, right, you've talked about the undisciplined nature of some of the underwriters, but also the risk of like these eye-watering verdicts from social inflation. As we go into 2026, like is there any sign that pricing environment and excess casualty maybe is beginning to plateau? Is the market significantly offering substantial growth in 2026 and beyond, just given where we are in the underwriting cycle for the casualty side?

Bob, this is Derek. I like directionally the limit discipline that we're seeing in the market. I think that's holding pretty well. I would say that there's a lumpy moderation going on. You're seeing some deals, in particular, that are still dealing with adverse development from prior. And then on other deals, you're seeing 5 years of compounded double-digit rate and great loss experience. So you're going to see a little bit of a mix of response from the market for those 2 different types of risks that are coming in. For the most part, though, as Brad said, I think directionally, we're seeing rate exceed loss trend.

Got it. Okay. No, that's very helpful. My second question is more of AI and automation. So when I look at Baleen on the automated underwriting side, is there a reason to believe that at some point in time, the technology on that side is advanced enough that you can essentially disintermediate brokers as in you're going directly to customers for that line of business or maybe even if that line of business gets bigger, like higher limits, can you skip the brokers and going directly to customers?

In the type of business we do, I don't see that happening anytime soon. I mean, carriers for as long as I've been in the business, have talked about could brokers been disintermediated. At the end of the day, the type of specialty insurance we do is not homogenous. It's not like a family automobile policy or a homeowners policy. There's a lot of complexity to it that I think needs a lot of explaining. And I think the broker brings a lot to the table. And even further than that, the wholesalers play a large role because many of the retailers who are good producers of the business are not experts in the nuances, the ins and outs of some of the specialty insurance.

So we don't see that going away anytime soon, number one. Number two, we think the biggest advantage at this time is the speed of being able to get to the business. I think we've mentioned before that close to -- in the casualty space, we don't even have the ability to get to 90% of our submissions that come in the door. It's just -- unless it's a premium that's maybe 50,000 or above, we don't have the resources to handle it. In the next several months, we're going to be getting -- we're going to be able to get our system online in Express where we'll start to be able to handle that business.

So it's a matter of being a great underwriter assist in doing the business to help us grow profitably. But the idea of disintermediating is not on our radar.

Your next question will come from Pablo Singzon with JPMorgan.

So first question for Brad. How much did mix contribute to the 1.8% [ attritional ] loss ratio uptick at '25? I think about '26, the reed loss pick should flow through at the same level. So if we use 66.7% in '25 as a base, how would you sort of frame the impact of any mix impacts in '26?

Pablo, thanks for the question. I don't really have an answer for that yet. You're right, we will use our '25 loss picks as sort of the starting point for 2026. But that doesn't mean it's set in stone at that level. We'll review these every quarter. And if we need to make changes, we will based on rate or anything else we're seeing or the industry changing as well. I think there is a -- we're probably reaching like the upper limit of how much mix plays into it as you see the casualty portfolio is such a bigger portion of the overall premium. But even with that -- within Casualty, there's mix.

So the primary casualty has a different loss pick from excess, for example. So there's mix within mix, if you will, and we just kind of have to see how that plays out. I wish I could give you a more precise number for next year, but that's the best I have.

Okay. And taking a step back, right, and I appreciate, Brad, you provided a lot of detail on the combined ratio. But I guess as I think about the overall number, it seems to me that all else equal, maybe the loss ratio should go up a bit, right, maybe for mix, acquisition expense will probably go up. And the question is, do you expect to fully offset those with a lower expense ratio? Or will it offset be only partial? And I know that's spitting hairs, but I guess just given where combined ratio is, even a 50 bps movement can be meaningful. So any perspective you can provide there?

Sure. I guess -- and Stephen, feel free to jump in. But I think the way that we approach this is we will try to get as low of an expense ratio as we can regardless of where the loss ratio is going. And we will let the loss ratio do what it does based on how we feel comfortable with our reserves regardless of what the expense ratio is doing. So hopefully, those 2 come together, and there will be some offset if the loss ratio does trend up.

We do have the benefit of older accident years that have lower loss picks. As those roll off, each year, you will see that impact the loss ratio. So I think that's why we're saying our target is the mid- to high 60s on the loss ratio. But I wouldn't read too much into that being a huge increase, but that's probably where I would stand on that.

Well said.

Your next question will come from Cave Montazeri with Deutsche Bank.

First question is on Baleen. It looks like growth is picking up nicely after what was arguably a slower-than-expected first half of the year. So I guess my question is, what's been working so well in the second half of 2025? And how should we think about growth in 2026 for Baleen specifically?

Well, part of it has to do with acceptance that there are certain entrenched markets and with relatively small premiums of, say, $5,000, there is not a ready acceptance to market them. So there's a certain amount of hanging around the net, if you will, and continuing getting our message out to brokers of what we're offering, how our policy form compares, how our commission level compares our service level, all those things and ultimately getting the message through until people start to try us, and it becomes more and more accepted.

And now as it starts to build, we've started to put more infrastructure behind it in terms of people -- more people going out and speaking to brokers about the business. And then success breeds success. They see that what we've done has -- it's been worth the effort to try us, and they're trying us more. And with adding more marketing people, we've been able to add more distribution points, and that's still building on itself.

But also even beyond Baleen, and we tried to make this clear earlier, but even beyond Baleen, building on that technology is enabling us to do that smaller business, not the restricted type business of Baleen, but the smaller business that we call Express, which is going to be another real plus, I think, in '26. Does that help?

Second question -- my second question is for Brad. On the investment portfolio, it's good to hear that you can increase the duration from 3 to 4 years. With your new money yield being below the book yield, would you also consider maybe going up the risk curve? You have a very defensive portfolio right now.

Yes. Thanks for the question, Cave. The answer is no on that one. When we discussed moving our duration up, we explicitly kind of agreed that we're not going to change the risk profile of the portfolio. We like the conservative position in it.

Your last question will come from Cameron Bianchi with Piper Sandler.

This is Cam on for Paul Newsome. Just one question for me. On the lower expense ratio guide for 2026, how much of that improvement would we say is attributable to scale versus mix?

Yes. Good question. I think the -- our previous guidance of low 30s, that was scale. I think the new guidance of being below 30%, that's the impact of the technology. And it's not just technology in the digital platform as well. There's -- we're deploying technology on the craft business as well that's helping with efficiencies. Our claims team is getting more efficient. So we're really seeing that across both. So I'd say the difference between the low 30s and where we actually end up would be that the impact of the non-scaling of the business, if you will.

That concludes the question-and-answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks.

Thank you. Bowhead delivered another strong quarter to end a great year. Before we go, I wanted to say thank you again to our colleagues and brokers for making 2025 such a successful year. Thank you, and we look forward to speaking to you along the way.

Thank you for joining today's session. The call has now concluded.

Hello, and welcome to Bowhead Specialty's Q3 2025 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin.

Thanks, operator. Good morning, and welcome to Bowhead's Third Quarter 2025 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer; Brad Mulcahey, our Chief Financial Officer; and Steve Feltner, our Chief Operating Officer. Before we jump into our performance and financial highlights, I wanted to introduce a new format we plan to use for today's call and going forward. Each quarter, we plan to invite an additional member of our management team to share insights from their areas of expertise.

Today, we are joined by Steve Feltner, our Chief Operating Officer, who will discuss our technology initiatives and other efficiencies that are enabling us to scale profitably while growing rapidly across market cycles. Turning to our performance. Earlier this morning, we released our financial results for the third quarter of 2025. You can find our earnings release in the Investor Relations section of our website. Our Form 10-Q will also be made available on our website later this evening. I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward-looking statement, except as required by law. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, it's my pleasure to turn the call over to Stephen Sills.

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join our call today. I'm pleased to share that Bowhead once again delivered consistent strong top and bottom line growth in Q3. Gross written premiums increased 17.5% year-over-year, while adjusted net income increased 25.5% and diluted adjusted earnings per share increased 23.7% to $0.47 a share. These results are a testament to our disciplined approach to underwriting, the continued expansion of our craft and flow underwriting operations and our commitment to operational excellence. Starting with GWP, Bowhead generated approximately $232 million in gross written premiums during the third quarter. Our Casualty division grew 20% to $145 million for the quarter. We believe the most favorable segment in the marketplace today is excess casualty business.

Our excess casualty book was the primary driver of our 20% growth. Given the recent industry adverse reserve development reported in casualty lines, I wanted to take a moment to revisit the 2 key areas we believe set us apart from the markets experiencing these challenges. First, our timing. We launched our casualty division at the end of 2020, giving us the opportunity to capitalize on the hardening E&S casualty market. While legacy carriers were grappling with pre-2020 losses, we entered the market being able to properly price business, a market that could be characterized by compounded rate increases stronger terms and conditions and lower average limit deployment. Second, our discipline. We are highly selective in the casualty risks we write and equally intentional about the risks we choose to avoid. In our business, picking winners is not as important as avoiding losers.

Our casualty division offers specialized primary and excess general liability coverage through a wholesale-only distribution channel, focusing on the construction, distribution, manufacturing, real estate and public entity segments. Our casualty division rarely writes Fortune 1000 business, which we believe has historically been underpriced. We also do not write primary commercial auto business as well as many of the other classes that have been the source of adverse reserve development for others over the past several years. Although we have auto exposure on our excess -- our form policies, we believe we appropriately price for this risk. With the timing of our casualty division launch, the specialized products we offer, the risks we deliberately avoid and our disciplined underwriting approach, we believe we have built a casualty underwriting operation positioned for profitable and sustainable growth.

Turning to our Healthcare Liability division. Our premiums increased 11% to $35 million driven by the growth in our health care management liability, hospitals and senior care portfolios. As we review both new and renewal submissions, we remain disciplined. When accounts conditions no longer meet our underwriting standards, we're prepared to let other carriers write those accounts. In our professional liability division, premiums increased 2% to $46 million for the quarter, driven by the growth in commercial, public D&O and cyber liability. This growth was partially offset by the decline in premiums written in our financial institutions portfolio, a sector we highlighted last quarter that suffers from an overabundance of competitors. The growth in our cyber liability portfolio was made possible by utilizing the technology driving Baleen's growth. Speaking of Baleen, we're pleased to report that we generated $6.2 million in premium during the quarter, which was 83% growth from Q2 and exceeded total premiums written by Baleen in the first half of 2025.

We're excited about the momentum we've achieved in the third quarter and look forward to reporting Baleen's continued strong growth in Q4. Turning to our views on the broader E&S market. I wanted to address the September E&S stamping data that came out of California, Florida and Texas. Together, these top E&S states reported a 1% decline in overall E&S premiums during the third quarter. However, the decline was primarily driven by the decrease in E&S property premiums, which as I've mentioned in the past, is a segment that Bowhead does not participate in. E&S casualty premiums, which are more relevant to Bowhead, continued to grow during the quarter, and we expect this trend to persist as complex risks continue to move into the E&S market. During the quarter, in casualty, we saw markets maintaining discipline in their deployment of limits and pricing. With carriers reporting recent adverse reserve development from prior accident years and increasing current accident year loss picks in casualty, we do not expect to see limits going back up or an across-the-board price drop anytime soon.

Further, the Everest AIG renewal rights deal should create an opportunity for the industry to re-underwrite a large segment of the business. Turning to the E&S construction project sector. We've seen a deceleration of new large residential projects due to the uncertainty around interest rates, building materials and labor costs. We're also seeing delays in infrastructure projects that receive public financing due to the government shutdown. The health care liability market continues to be a competitive sector, but we've seen encouraging developments in a couple of areas. First, our reputation within the health care industry is generating increased opportunities for us. And second, we're starting to see exclusions for sexual abuse and molestation gain traction. In professional liability, similar to last quarter, with the exception of commercial public D&O, we're continuing to see challenging market conditions, particularly in the financial institutions and large cyber liability account space.

As we mentioned earlier in the call, we're utilizing the technology driving Baleen's growth to cost effectively underwrite small and middle market cyber liability accounts, a space we believe to be very favorable. Finally, last quarter, I made a statement that I was confident that we can get our expense ratio below 30%. I'm proud to say that we achieved an expense ratio of 29.5% during the quarter. We're using technology to do more and streamline processes. It's helping us enhance decision-making, improve risk selection and support our distribution partners more effectively. In other words, we're managing expenses while also accelerating top line growth. Leading the charge in this area is Steve Feltner, our Chief Operating Officer. I'd like to now turn the call over to Steve to discuss these initiatives. Steve?

Thanks, Stephen, and good morning, everyone. Our expense ratio improved 40 basis points year-over-year, reflecting continued benefits from automation, workflow optimization and sharper execution. We streamlined submission intake, enriched underwriting data from third-party sources and enabled underwriters to more effectively triage opportunities. We've achieved this by delivering the information they need by the time we open the file. We are also optimizing our rating experience. For underwriters, it means efficient data integration and a clearer view of how each risk fits into the broader portfolio. For actuaries, it simplifies model development and maintenance, freeing up time to collaborate more closely with underwriters.

In claims, we are developing a system that will process incoming claims, provide initial assessments and help triage workload, allowing our claims professionals to focus where human judgment adds the most value. Our approach to operating leverage is about building a foundation that scales efficiently as we grow. We expect continued improvement in our operating expense ratio as we leverage the technology investments we've made over the past 18 months in our core functions. We want to grow premium without a commensurate increase in expense. That is the essence of sustainable profitability and long-term shareholder value. Bowhead has already made great strides in capturing efficiency gains, and we look forward to continuing our progress as we move through the quarters and years ahead. With that, I'll turn the call over to Brad. Brad?

Thanks, Steve. Bowhead generated adjusted net income of $15.8 million or $0.47 per diluted share and adjusted return on average equity of 15.1% for the third quarter of 2025. Our strong results were driven by top and bottom line growth. Gross written premiums increased approximately 18% to $232 million for the quarter. As Stephen mentioned, we achieved growth in each of our divisions with casualty continuing to be the largest driver and Baleen generating $6.2 million of premiums in the quarter. Turning to our loss ratio. The story is the same as the past. First, as a reminder, since we're writing long-tail lines with a short history of losses, when setting our loss reserves, we're heavily reliant on industry observed loss information over our own internal data. This reliance is evident in our high ratio of IBNR as a percentage of total reserves, which was 88.2% at the end of the quarter.

Second, product mix continues to affect our industry-reliant loss ratio because casualty products naturally have higher current accident year loss ratio assumptions. Since these products make up an ever larger portion of our net earned premium, our loss ratio has been trending higher. This mix change had the effect of increasing our current accident year loss ratio by 30 basis points from 64.5% in Q3 of last year to 64.8% this quarter. As I mentioned in the past few earnings calls, the change in our prior accident year loss ratio is simply due to IBNR booked on audit premiums that were billed and fully earned in the current quarter, but related to policies from prior accident years. This is not based on actual losses selling for more than reserve and does not represent an increase in estimated reserves on unresolved claims. We are simply putting loss reserves into the appropriate accident year regardless of when the premiums are billed and earned.

As we continue to grow and our history continues to develop, we expect the impact of the audit premiums to be less pronounced on our prior accident year reserves. As a result, our loss ratio for the quarter was 65.9%, a 1.4 point increase from 64.5% year-over-year. As we already mentioned, our expense ratio for the quarter was 29.5%, a decrease of 40 basis points year-over-year. The decrease was driven by the reduction in our operating expense ratio from the continued scaling of our business as well as the prudent management of our expenses. There is also an increase in our other insurance-related income that contributed to the reduction in our expense ratio from last year. These favorable improvements were partially offset by the increase in our net acquisition ratio, specifically the increase in the fee we paid to American Family and to a lesser extent, increasing brokerage commissions due to portfolio mix.

As we mentioned last quarter, we expect the increased fee we pay to American Family to be offset by the continued scaling of our business and the prudent management of our expenses. Overall, the loss ratio and expense ratio contributed to a combined ratio of 95.4% for the quarter. Turning to our investment portfolio. Net investment income increased 31% year-over-year to $15 million for the quarter, primarily due to higher balance of investments and higher yields on invested assets. Our investment portfolio had a book yield of 4.8% and a new money rate of 4.6% at the end of the quarter. The average credit quality of our investment portfolio remained at AA and our average duration was 2.9 years at the end of the quarter.

We expect net investment income to grow in the future as the balance of our investment portfolio continues to grow. Total equity was $431 million, giving us a diluted book value per share of $12.75 at the end of the quarter, an increase of 16% from year-end. Lastly, we announced earlier in the year that we would assess our capital needs and the appropriate source of capital based on our growth in 2025. Since we're growing faster than we anticipated at the time of the IPO and have available debt capacity in our capital structure, we are planning to access capital through resources other than the equity markets by the end of the year. With that, we'll turn the call over for questions.

[Operator Instructions] Our first question is from Meyer Shields from Keefe, Bruyette, & Woods.

Stephen, I was hoping for a little bit more color on, I guess, what we had talked about as maybe some green shoots in the various D&O and cyber markets. So you talked a little bit about growth. So I was hoping for a bigger picture of how pricing for those product lines is evolving.

Sure. Pretty much flat, maybe a little bit up, but it's still highly competitive and certainly a lot more competitive than what we're seeing in the casualty space and what we're seeing in the hospital space and the senior living space. But it's not an area that we're seeing or looking for big growth anytime soon. As I mentioned before, the financial institution space, which a few years back used to be viewed as kind of rarefied air. If there were 50 commercial D&O markets, there were maybe 20 financial institution markets. Now for some reason, I think a lot of people are piling into that space. I think it was last quarter, the quarter before, I mentioned a private equity firm that had a tower loss and they ended up securing a decrease on their renewal, and we stepped away from it. But it's still very competitive. I would not look for big growth from us in that space.

Okay. That's very helpful. And moving to health care. Are there markets for the sexual molestation cover that's being excluded? Is that something that Bowhead is interested in?

There is some talk of that with lower limits. That's been the source of some very serious, very large claims on a lot of health care systems. And for the most part, it's not totally excluded everywhere now. It's -- but the market is starting to accept that exclusion in that space going forward. But I think there will be some markets available, I believe, offering lower limits for that SAM coverage.

Great.

Our next question comes from Daniel Lee at Morgan Stanley.

Sorry, can you hear me?

Now we can.

This is Dan on for Bob. I guess I wanted to ask first on growth overall. I know the construction projects work was a...

Daniel, you cut out.

Can you hear me?

Yes, we can again.

Sorry. My first question is just on growth for the casualty business. I know the construction projects was a driver for top line previously, but given the construction market feels softer now, except for maybe data centers, can you talk about business opportunities going forward within construction?

Well, you're right. There is expected growth in the data center space. I'm not sure how much we'll participate in that because some of the terms and conditions that are being looked for are things that we may not find favorable, whether in terms of reinstatement of limits or things like that. But there will be plenty of other construction projects. We think that once the government shutdown ends, it will shake loose funds for projects that were planned. And so we still think that there's going to be plenty of opportunity in the future. One of the things, of course, we are concerned about is by planning too much in doing project business it becomes very, very lumpy. So we're available when the opportunities come, but it's less predictable in terms of future opportunities. But we do see the practice policies, we see opportunities there. And the construction will come. It's just going to be lumpy.

Got it. My second question is more on Baleen. As we head into 2026 as Baleen continues to ramp up, will you pursue more wholesale partnerships to kind of expand the distribution network or maybe potentially new product lines that you may consider adding for Baleen?

The question was adding...?

Wholesale partnerships or...

Yes. We'll keep it -- a couple of things. Let me talk around the whole subject. Baleen at the current time is wholesale only. We started out with a limited number of wholesalers. There will be opportunities to add more wholesalers down the road. But just as important as what we're doing with Baleen itself is the technology that we're using that technology, products that we're going to be using that for in the future and even what we're using it for right now. Keep in mind, it enabled us to go almost virtually no-touch in some very small business. and that's a lot of what we're seeing right now. That technology is enabling us to leverage our underwriting capabilities in risk that's starting to become a little bit larger, a little bit more complex. And one area that that's happening is in the small cyber space.

Companies we started out with companies less than $25 million in revenue, now moving up to $50 million in revenue that are now virtually no-touch. So whereas an underwriter by the time they started to look through all the material, the file gets set up, it took a certain amount of time, and we just didn't have the resources to be able to do that. What we're able to do what we're able to do now is leverage underwriters that are compensated less than the highest paid people in the company and enable them to spend a few minutes on the account for it to get underwritten and quoted. And we think that once we extend that into areas beyond cyber, such as small casualty business, where we actually get hundreds, if not thousands of submissions that are just too small for our appetite and capabilities today, we're ultimately not too long in the future, be able to start underwriting those in very short order.

Our next question is from Cave Montazeri at Deutsche Bank.

My first question, maybe I'll take such that Steve is on the line right now, and that's on the operating expense ratio. Thank you for the color on the call about the technology advancements that you're putting through to help on that front. How much of the improvement in the operating expense ratio this quarter was kind of due to these efficiencies, the technology-driven improvement? And where do you think that operating expense ratio can go to in 2026, 2027 or over the medium term?

Cave, this is Brad. Maybe I'll take a stab first at some of your trajectory questions and hand over to Steve to give some more color. But -- and thanks for joining us and initiating coverage recently, it's really hard, as you can imagine, to parse out how much of the efficiency gain is driving the expense ratio. But we are comfortable that that's what's driving it. Obviously, we've got the American Family fee going up. We've got commissions pretty steady, going up maybe a little bit. So there are some puts and takes in there. But when we look at our staff costs, in particular, there is no doubt that, that is driving some savings into our expense ratio because of these efficiencies that Steve mentioned. So hopefully, that helps. I'll hand over to Steve, if you want to give some color on those efficiencies.

Yes, sure. I'd love to. Thanks, Cave, for the question. Some of these initiatives we have in place, others are coming and we're working on in progress. I think as we continue down this road, the efficiencies will be had by the underwriters and other core functions. And as Brad mentioned, we'll continue to see the influence of that on our operating expense ratio as we go forward. We're kind of -- we're in the stage now where we're taking our processes and procedures up to industrial strength so we can continue to scale efficiently in the quarters and years ahead.

Okay. My follow-up question, Brad, is for you. Right at the end of your prepared remarks, you mentioned that you won't need to tap the equity market to fund growth for 2026. Could you maybe give us a bit more color just given that your net premium to equity is already above 1.2x, are you thinking about getting some kind of debt that has equity-like features?

Still TBD, I don't want to get into too many details on that. But I think what we are comfortable is we're not going to go to the equity markets to raise equity on this. We do think that net premium, the surplus ratio will continue the trajectory under 1 in the next couple of years. But stay tuned on the exact details of what we're looking at.

Okay.

Our next question comes from Pablo Singzon at JPMorgan.

Can you hear me?

Yes.

So first question, I want to get an update on your medium-term view of gross premium growth, right? So 18% this quarter is still a good number. It's off a tough comp in '24, but it is slower than the high 20s you're putting up in the first half of the year. So just any thoughts there, recognizing that you don't write property, right? So that's good. But any thoughts there? And I guess the related question is that as you grow the premium book, how much incremental expense you need to add, right? And here, I'm thinking more about underwriting teams to generate the growth you anticipate?

We're always on the lookout for places where we can grow in terms of new opportunities. We did that with environmental last year that's slowly growing. But back to the technology for one second, that's an area where there's some small environmental business that our technology will be able to enable us to really grow that business without adding to a lot more staff. But we're interested in new products along the way. American Family is open to discussions in opening new areas. So that is an area to grow. Having said that, there's still a lot more growth available, we think, in the casualty space whether it's Baleen-type growth, the small business that we're calling Express at this time and also in the health care space. So we don't think we're running out of runway by any means in what it is we have to do -- with what it is we've got on our plate right now. But we are open to new opportunities.

Understood. So it sounds like -- I don't want to put words in your mouth, Stephen, but it sounds like just given what you have now, you think the market is growing and without adding significant headcount or expense, you think the premiums will come your way? Is that sort of a fair assessment of where things stand?

Yes. I think when you talk about headcount, it's the type of headcount that we've been adding. When you look at the type of people that were necessary to start up the business versus now as we move down into smaller business, it's a different level of headcount. And so -- but in terms of how we see the growth and the number of headcount for the year going forward versus the year in the past, it will definitely be leveraged that the growth per headcount add will be a lot more going forward than in the past.

Understood. And this will be my third question. apologies this one in. But I think there's a broad view at this point that accident years during the hard markets post 2020 might not have as much margin as initially thought, right, mainly because loss trends just developed more favorably than what people had expected. So I guess, either for you, Stephen or Brad, do you agree with this, the sort of like, I'll call it, consensus view. Are you seeing it in your book in some way, right? I know it's a long tail, but maybe there's something that's shown in the page. And then I guess maybe for Brad, at what point would you actually start recognizing favorable or unfavorable reserve development, right? Again, recognizing that your book is quite young and you want to have credibility in the data.

Yes. I think your last thought is important that it's still young, and it is too early to say. I think over the last few years, people have been cutting limits while they're raising price. So maybe people who haven't cut limits fast enough or put out too much limits there could be some adverse development. I have no idea at this point in time. But it's certainly better than it was prior to when we got into the marketplace. Brad, do you want to add some more color on that?

Yes. I just mentioned everybody that we've seen on the more recent accident years that have come out with adverse development when we've looked at what we could see, we are comfortable that we're not in the same space. It's auto business or it's primary have or just not reflective of our book. That being said, we are doing -- in Q4, we do our annual review of our reserves with our external actuaries. So we'll have more color, I think, on reserves and some of our characteristics, how those are developing after year-end. But so far, so good from our perspective.

[Operator Instructions] Our next question comes from Paul Newsome at Piper Sandler.

I would like to revisit the capital question a little bit. Beyond debt and equity, are you also looking at other alternative sources of capital like reinsurance changes?

Paul, it's Brad. Yes, I mean that's always an option. when we look at our capital specifically for 2025, we have a requirement to maintain a certain level of capital for our RBC by the end of the year. So reinsurance options to meet that requirement are kind of limited, but we do look at reinsurance long term and do we have the optimal structure, both from a risk appetite as well as from a capital balance. But for now, I think the only thing we've really taken off of the schedule for the current year's capital raise is an equity rate, and we just wanted to be clear with everybody on that.

And different topic, the investment portfolio is obviously maturing, the liability line I would imagine you're still in a position where your float is growing as your book matures. Does that imply any changes prospectively as the float grows relative to equity capital that you might be making in the future?

I'm not sure I understand the question. Can you maybe restate it, Paul...?

You're float liability business, which means that the float will become an increasingly important part of what you do, and you'll have higher amount of float relative to your equity over time. I'm just curious if that potential change in the portfolio itself implies any changes in the investment portfolio perspective.

Got you. Okay. Sorry, I was thinking float on our own equity, but I got what you're saying. No, I don't think so. We're really happy with our portfolio as it is our investment portfolio. We are still adding to it quite a bit. As you mentioned, we write long-tail lines. So the benefit of that is collecting the premium and hopefully not paying a claim until much later in the policy. But we're still growing that portfolio. We think when we look at our returns, we focus on risk-adjusted returns. And we think on a risk-adjusted basis, our returns are best-in-class. So we're really happy with the current structure. We'll continue to assess it as obviously the interest rates change and the macro environment changes, but we're pretty happy with it.

Great. I appreciate the help as always.

That concludes the question-and-answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks.

Thank you. Bowhead delivered another quarter of strong results. Thank you to our Bowhead team members for your continued dedication. To everyone else joining us on the call today, we appreciate your support.