SKWD Corrects Audit Dates, Faces IT Control Weakness Despite Strong Earnings

Ticker: SKWD · Form: 10-K/A · Filed: 2025-09-05T00:00:00.000Z

Sentiment: mixed

Topics: 10-K/A, Internal Controls, Audit Opinion, ITGCs, Financial Reporting, Insurance, Material Weakness

Related Tickers: SKWD

TL;DR

**SKWD's strong 2024 earnings are overshadowed by a material IT control weakness, making it a risky bet until remediation is proven.**

AI Summary

Skyward Specialty Insurance Group, Inc. (SKWD) filed a 10-K/A to correct typographical errors in Ernst & Young LLP's audit opinions, specifically reverting the dates to March 3, 2025. The filing explicitly states that it does not modify the consolidated financial position, results of operations, or cash flows. For the fiscal year ended December 31, 2024, SKWD reported net earned premiums of $1,056,722,000, a significant increase from $829,143,000 in 2023. Net income attributable to common stockholders rose to $118,828,000 in 2024 from $84,307,000 in 2023. However, Ernst & Young LLP issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2024, due to a material weakness related to ineffective implementation of information technology general controls (ITGCs) in user access for financial reporting systems. Despite this, EY issued an unqualified opinion on the consolidated financial statements for the same period. The company's reserves for unpaid losses and loss adjustment expenses stood at $1.8 billion as of December 31, 2024, up from $1.31 billion in 2023, representing a critical audit matter due to estimation uncertainty.

Why It Matters

This 10-K/A highlights a critical distinction for investors: while Skyward Specialty Insurance Group, Inc. (SKWD) delivered strong financial performance with net income up 41% to $118.8 million in 2024, the identified material weakness in IT general controls poses a significant operational risk. This could impact investor confidence, as it suggests potential vulnerabilities in financial data integrity, even though the financial statements themselves received an unqualified opinion. Competitors with robust internal controls may gain an advantage in investor perception, as SKWD must now demonstrate effective remediation to mitigate future risks and maintain market trust.

Risk Assessment

Risk Level: high — The risk level is high due to the identified material weakness in internal control over financial reporting as of December 31, 2024. Ernst & Young LLP issued an adverse opinion on internal controls, specifically citing 'ineffective implementation of information technology general controls ("ITGCs") in the area of user access for systems that support the Company's financial reporting processes.' This deficiency creates a 'reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.'

Analyst Insight

Investors should exercise caution and monitor SKWD's progress in remediating the identified material weakness in ITGCs. While the financial statements received an unqualified opinion, the control deficiency could lead to future financial reporting issues. Consider waiting for evidence of effective remediation before making significant investment decisions.

Financial Highlights

revenue
$1,056,722,000
net Income
$118,828,000
eps
$2.97
revenue Growth
+27.5%

Revenue Breakdown

SegmentRevenueGrowth
Commercial Property and Casualty Products Insurance$1,056,722,000+27.5%

Key Numbers

Key Players & Entities

FAQ

Why did Skyward Specialty Insurance Group, Inc. file a 10-K/A?

Skyward Specialty Insurance Group, Inc. filed this Amendment No. 2 on Form 10-K/A solely to correct typographical errors in Ernst & Young LLP's opinion on internal control over financial reporting and opinion on the financial statements, reverting both opinion dates back to March 3, 2025.

What was the net income for Skyward Specialty Insurance Group, Inc. in 2024?

For the fiscal year ended December 31, 2024, Skyward Specialty Insurance Group, Inc. reported net income attributable to common stockholders of $118,828,000, an increase from $84,307,000 in 2023.

What is the primary risk identified in Skyward Specialty Insurance Group, Inc.'s 10-K/A?

The primary risk identified is a material weakness in Skyward Specialty Insurance Group, Inc.'s internal control over financial reporting as of December 31, 2024, specifically related to the ineffective implementation of information technology general controls (ITGCs) in user access for systems supporting financial reporting processes.

Did Ernst & Young LLP issue an unqualified opinion on Skyward Specialty Insurance Group, Inc.'s financial statements?

Yes, Ernst & Young LLP issued an unqualified opinion on Skyward Specialty Insurance Group, Inc.'s consolidated financial statements for the period ended December 31, 2024 and 2023, stating they present fairly, in all material respects, the financial position and results of operations.

What were Skyward Specialty Insurance Group, Inc.'s net earned premiums in 2024?

Skyward Specialty Insurance Group, Inc. reported net earned premiums of $1,056,722,000 for the year ended December 31, 2024, an increase from $829,143,000 in 2023.

How does the material weakness in ITGCs affect Skyward Specialty Insurance Group, Inc. investors?

For investors, the material weakness in ITGCs at Skyward Specialty Insurance Group, Inc. means there is a reasonable possibility that a material misstatement of the company's financial statements could occur and not be prevented or detected on a timely basis, potentially impacting the reliability of future financial reports.

What is the value of Skyward Specialty Insurance Group, Inc.'s reserves for unpaid losses and loss adjustment expenses as of December 31, 2024?

As of December 31, 2024, Skyward Specialty Insurance Group, Inc.'s reserves for unpaid losses and loss adjustment expenses totaled $1,782,383,000, which was a significant increase from $1,314,501,000 in 2023.

What is the impact of this 10-K/A on Skyward Specialty Insurance Group, Inc.'s previously reported financial results?

This Amendment No. 2 on Form 10-K/A explicitly states that it does not modify or update in any way the consolidated financial position, results of operations, or cash flows of Skyward Specialty Insurance Group, Inc. from the Original Form 10-K filed on March 3, 2025.

What is the definition of a material weakness in internal control over financial reporting for Skyward Specialty Insurance Group, Inc.?

As defined in the filing, a material weakness for Skyward Specialty Insurance Group, Inc. is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

What should Skyward Specialty Insurance Group, Inc. do to address the material weakness?

Skyward Specialty Insurance Group, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of effectiveness. They will need to implement and test new or improved controls related to ITGCs in user access for financial reporting systems to remediate the identified material weakness.

Risk Factors

Industry Context

Skyward Specialty operates in the specialty insurance segment, focusing on commercial property and casualty products. This niche market often involves higher risk and complexity, requiring specialized underwriting expertise. The industry is characterized by intense competition, regulatory oversight, and sensitivity to economic cycles and catastrophic events.

Regulatory Implications

The adverse opinion on internal controls over financial reporting is a significant concern for regulators. It suggests potential weaknesses in governance and compliance that could lead to increased scrutiny, potential fines, or mandated remediation efforts by regulatory bodies.

What Investors Should Do

  1. Monitor management's remediation plan for the identified ITGC material weakness. Investors should look for clear timelines and evidence of effective implementation to restore confidence in internal controls.
  2. Analyze the trend and adequacy of loss reserves. The significant increase in reserves for unpaid losses and LAE warrants close examination of the underlying assumptions and potential for future reserve development.
  3. Evaluate the company's ability to manage growth effectively. While revenue growth is strong, the operational challenges highlighted by the internal control issues suggest a need for robust systems and processes to support expansion.
  4. Assess the impact of the adverse internal control opinion on future audits and regulatory compliance. This could lead to increased audit fees or additional compliance burdens.

Key Dates

Glossary

10-K/A
An amended annual report filed with the SEC to correct or supplement information previously filed in a Form 10-K. (This filing is an amendment to Skyward Specialty's annual report, indicating corrections were made.)
Internal Control Over Financial Reporting (ICFR)
A process designed by a company's management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. (A material weakness was identified in Skyward's ICFR, leading to an adverse audit opinion.)
Information Technology General Controls (ITGCs)
Controls that relate to all or many application systems and support the effective functioning of information technology and application controls. They include controls over data center operations, system software acquisition and maintenance, access security, and application system development and maintenance. (The material weakness identified by EY specifically relates to ineffective ITGCs in user access.)
Material Weakness
A deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. (This is the classification given to the ITGC issue identified by EY.)
Unqualified Opinion
An auditor's statement that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. (Ernst & Young LLP issued an unqualified opinion on Skyward's consolidated financial statements, despite the adverse opinion on internal controls.)
Adverse Opinion
An auditor's opinion that the financial statements are presented unfairly, or that they are not in accordance with the applicable financial reporting framework. (Ernst & Young LLP issued an adverse opinion on Skyward's internal control over financial reporting.)
Loss Adjustment Expenses (LAE)
Expenses incurred by an insurance company in the process of investigating, settling, and defending claims. (These expenses are grouped with unpaid losses in the reserves, a critical audit matter for Skyward.)

Year-Over-Year Comparison

The 10-K/A filing primarily corrects typographical errors in audit opinion dates, confirming the original unqualified opinion on financial statements and the adverse opinion on internal controls. Key financial metrics show significant year-over-year growth, with net earned premiums increasing by 27.5% to $1.06 billion and net income rising to $118.8 million. However, the material weakness in ITGCs and the critical audit matter related to loss reserves represent new or emphasized risks compared to previous disclosures.

Filing Stats: 4,577 words · 18 min read · ~15 pages · Grade level 17.5 · Accepted 2025-09-05 16:29:24

Key Financial Figures

Filing Documents

Financial Statements

Item 8. Financial Statements Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Skyward Specialty Insurance Group, Inc. Opinion on Internal Control Over Financial Reporting We have audited Skyward Specialty Insurance Group, Inc.'s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Skyward Specialty Insurance Group, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. Management has identified a material weakness that existed as of December 31, 2024, related to the ineffective implementation of information technology general controls ("ITGCs") in the area of user access for systems that support the Company's financial reporting processes. Further, the Company's related process-level IT dependent manual and automated controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs, were also deemed ineffective. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of opera

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 . Summary of Significant Accounting Policies A. Description of Business Skyward Specialty Insurance Group, Inc. (the "Company"), an insurance holding company, is a Delaware corporation that was organized in 2006. It is a specialty insurance company operating in one segment delivering commercial property and casualty products insurance coverages through its underwriting divisions. The Company has four wholly owned insurance company subsidiaries based in the United States: Great Midwest Insurance Company ("GMIC") underwrites insurance on an admitted basis and is a certified surety bond company listed with the U.S. Department of the Treasury. Houston Specialty Insurance Company ("HSIC"), a subsidiary of GMIC, underwrites insurance on a non-admitted basis. Imperium Insurance Company ("IIC"), a subsidiary of HSIC, underwrites insurance on an admitted basis. Oklahoma Specialty Insurance Company ("OSIC"), a subsidiary of IIC, underwrites insurance on a non-admitted basis. The Company has a wholly owned captive reinsurance company subsidiary, Skyward Re, that is domiciled in the Cayman Islands and assumed net reserves for certain divisions, related to a retroactive reinsurance contract, from the Company's insurance companies and retroceded the net reserves to a third-party reinsurer. The Company has three non-risk bearing wholly owned subsidiaries, (i) Skyward Underwriters Agency, Inc. ("SUA"),a managing general insurance agent and reinsurance broker for property and casualty risks in specialty niche markets, (ii) Skyward Service Company an entity which provides various administrative services to the Company's subsidiaries, and (iii) Skyward Specialty No. 1 Limited, a Lloyd's corporate member au

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