Bowhead Specialty Holdings Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis below contains forward-looking statements. All statements other than statements of historical facts contained in this report, including, but not limited to, statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. Certain of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. However, not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate, and including, without limitation, statements relating to our future performance. Forward-looking statements reflect our current expectations concerning future results and events, and are subject to known and unknown risks and uncertainties, many of which are beyond our control. Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this report as a result of various factors, including, among others:

• our inability to accurately assess our underwriting risk;
• intense competition for business in our industry;
• our inability to maintain our strategic relationship with AFMIC;
• a decline in AmFam’s financial strength rating or financial size category;
• exposure to certain risks arising out of our reliance on insurance retail agents, brokers and wholesalers as distribution channels;
• inadequate losses and loss expense reserves to cover our actual losses;
• unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies;
• our reinsurers’ failure to reimburse us for claims on a timely basis, or at all;
• adverse economic factors and their impact on our growth and profitability;
• existing or future regulation and our ability to comply with these regulations;
• the loss of one or more key personnel;
• disruptions of our operations due to security breaches, loss of data, cyber-attacks and other information technology failures;
• increased costs as a result of operating as a public company; and
• other risks and uncertainties discussed under the heading “Risk Factors” in Part II, Item 1A. of this report.

Please refer to “Risk Factors” in Part II, Item 1A. of this report for additional discussion of the foregoing factors and risks.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

Overview

We were founded in September 2020, backed by capital provided by GPC Partners Investments (SPV III) LP (“GPC Fund”), a private equity fund managed by Gallatin Point, and our strategic partner, AmFam, to take advantage of favorable pricing environments, and to address a growing and unmet demand from brokers and policyholders for specialized insurance solutions and quality service in complex lines of business. Our principal objective is to create and sustain superior returns for our stockholders by generating consistent, underwriting profits across our product offerings and through all market cycles, while prudently managing capital.

We offer commercial specialty property and casualty (“P&C”) insurance products to policyholders that vary in size, industry and complexity, focusing on casualty, professional liability, and healthcare liability risks. We provide “craft” underwriting solutions, which require deep underwriting and claims expertise in order to produce attractive financial results. In May 2024, we supplemented our “craft” solution with our “flow” underwriting operation, which is a streamlined, tech-enabled low touch form of underwriting, focused on small, niche and hard-to-place risks. Our policies are primarily written on a non-admitted, or E&S basis, which is free of rate and policy form restrictions, and provides the flexibility to rapidly adjust to emerging market opportunities. We distribute our products through carefully selected relationships with leading distribution partners in both the wholesale and retail markets.

The policies we write are issued on AmFam paper under their own name through BSUI, our managing general agency, in exchange for a Ceding Fee, and reinsured 100% to BICI, our wholly-owned insurance company subsidiary. This mutually beneficial partnership with AmFam has enabled us to grow quickly, but prudently, to take advantage of favorable market conditions, and allows us to deploy capital efficiently.

We built a nimble, remote-friendly organization that is able to attract best-in-class talent nationwide, who are committed to operational excellence and superior service. We are led by a highly experienced and respected underwriting team with a disciplined approach to underwriting and decades of individual, successful underwriting experience. We are supported by a collaborative culture that spans all functions of our business, which allows us to provide a consistent, positive experience for all our partners. We believe that our current market opportunity, differentiated expertise, relationships, culture and leadership team position us well to continue to grow our business profitably.

Components of Our Results of Operations

Gross written premiums

Gross written premiums are the amounts received, or to be received, for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by new business submissions, binding of new business submissions into policies, renewals of existing policies and average size and premium rate of bound policies.

Ceded written premiums

Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses. The volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to increase or decrease retention levels and policy limits.

Net written premiums

Net written premiums are gross written premiums less ceded written premiums.

Net earned premiums

Net earned premiums represent the earned portion of our net written premiums. Our insurance policies generally have a term of one year but occasionally could be as long as ten years, and premiums are earned pro rata over the term of the policy.

Net losses and loss adjustment expenses

Net losses and loss adjustment expenses represent the costs incurred for insured losses, which include losses under a claims made or occurrence policy, paid or unpaid, expenses for settling claims, such as attorneys’ fees, investigation, appraisal, adjustment, defense costs and a portion of operating expenses allocated to claim resolution, net of any losses ceded to reinsurers. Net losses and loss adjustment expenses also include a provision for claims that have occurred but have not yet been reported to the insurer. These expenses are a function of the amount and type of insurance contracts the Company writes and the loss experience associated with the underlying coverage. In general, our net losses and loss adjustment expenses are affected by:

• the occurrence, frequency and severity of claims associated with the particular types of insurance contracts that we write;
• the mix of business written by us;
• changes in the legal or regulatory environment related to the business we write;
• trends in legal defense costs;
• inflation in the cost of claims, including inflation related to wages, medical costs, and building materials, as well as inflation related to the increase in the severity of claims above general economic inflation (i.e., social inflation); and
• the reinsurance agreements we have in place at the time of a loss.

Net losses and loss adjustment expenses are based on actual losses and expenses, as well as an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Net losses and loss adjustment expenses may be paid out over a period of years.

Net acquisition costs

Net acquisition costs are principally comprised of commissions we pay to our brokers, a Ceding Fee we pay to AmFam on net premiums assumed and premium-related taxes, which are net of ceding commissions we receive on business ceded through our reinsurance agreements. Net acquisition costs are deferred and amortized ratably over the terms of the related agreements.

Operating expenses

Operating expenses represent the general and administrative expenses of our operations including employee compensation and benefits, technology costs, office rent and professional service fees such as legal, accounting and actuarial services.

Net investment income

We earn interest income on our portfolio of invested assets, which are comprised of fixed maturity securities, short-term investments and cash and cash equivalents.

Net realized investment losses

Net realized investment losses are a function of the difference between the amortized cost of securities sold and the proceeds received by the Company upon the sale of a security. Unrealized investment gains (losses) on fixed maturity securities are recorded within accumulated other comprehensive gain (loss) on the Condensed Consolidated Balance Sheets.

Other insurance-related income

Other insurance-related income represent fees associated with the issuance of policies and revenue we receive for providing insurance-related services.

Non-operating expenses

Non-operating expenses represent expenses related to various transactions that we consider to be unique and non-recurring in nature, such as expenses related to our IPO, secondary offerings, and other such offerings or registrations.

Warrant expense

Warrant expense represents compensation cost for warrants issued to AmFam for the right to purchase shares of the Company’s common stock.

Credit facility interest expenses and fees

Credit facility interest expenses and fees represent certain costs associated with the Credit Agreement, which provides for a senior secured revolving credit facility.

Foreign exchange (gains) losses

Foreign exchange (gains) losses represent the remeasurement of a non-U.S. dollar operating expense to U.S. dollars due to the fluctuations in the exchange rate. The change in the liability due to the fluctuations in the exchange rate are included within the Condensed Consolidated Statements of Income and Comprehensive Income at the end of each period.

Income tax expense

Currently, income tax expense primarily relates to federal income taxes. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.

Key Operating and Financial Metrics

We discuss certain key metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.

Loss ratio, expressed as a percentage, is the ratio of net losses and loss adjustment expenses to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of net acquisition costs and operating expenses, less other insurance related income, to net earned premiums.

Combined ratio, expressed as a percentage, is the sum of loss ratio and expense ratio.

Return on equity is net income as a percentage of average beginning and ending mezzanine equity and stockholders’ equity.

Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding the impact of net investment income, net realized investment losses, other insurance-related income, non-operating expenses, warrant expense, credit facility interest expenses and fees, foreign exchange losses, and certain strategic initiatives. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of underwriting income to income before income taxes, which is the most directly comparable financial metric prepared in accordance with U.S. GAAP.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of net realized investment losses, non-operating expenses, foreign exchange (gains) losses, and certain strategic initiatives. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted net income to net income, which is the most directly comparable financial metric prepared in accordance with U.S. GAAP.

Adjusted return on equity is a non-GAAP financial measure defined as adjusted net income as a percentage of average beginning and ending mezzanine equity and stockholders’ equity. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted return on equity to return on equity, which is the most directly comparable financial metric prepared in accordance with U.S. GAAP.

Diluted adjusted earnings per share is a non-GAAP financial measure defined as adjusted net income divided by the weighted average common shares outstanding for the period, reflecting the dilution that may occur if equity based awards are converted into common stock equivalents as calculated using the treasury stock method. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of diluted adjusted earnings per share to diluted earnings per share, which is the most directly comparable financial metric prepared in accordance with U.S. GAAP.

Results of Operations

Three Months Ended September 30, 2025 compared to Three Months Ended September 30, 2024

The following table summarizes our results of operations for the three months ended September 30, 2025 and 2024:

($ in thousands, except percentages and per share data)

NM - Percentage change is not meaningful.

(1) Non-GAAP financial measure. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measure in accordance with the most comparable U.S. GAAP measure.

(2) For the three months ended September 30, 2025 and 2024, net income and adjusted net income are annualized to arrive at return on equity and adjusted return on equity.

Premiums

The following table presents gross written premiums by underwriting division for the three months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Gross written premiums increased $34.5 million, or 17.5%, to $231.5 million for the three months ended September 30, 2025 from $197.0 million for the three months ended September 30, 2024. The increase in gross written premiums was driven by our increasing renewal book and the continued growth in our platform across all four divisions. Our Casualty division led the growth, primarily from our Excess Casualty portfolio, followed by the growth in our Baleen Specialty division.

For the three months ended September 30, 2025 and 2024, E&S(1) business made up 81.5% and 82.0% of gross written premiums, respectively, while admitted business made up 18.5% and 18.0%, respectively. The 0.5 point decrease in the proportion of E&S premiums was primarily attributable to an increase in admitted business written in our Casualty division related to real estate excess liability coverage written through a risk purchasing group.

Net written premiums increased $20.7 million, or 16.1%, to $149.0 million for the three months ended September 30, 2025 from $128.3 million for the three months ended September 30, 2024. The increase in net written premiums was primarily due to the growth in gross written premiums for the three months ended September 30, 2025. This growth was partially offset by the increase in ceded written premiums as a result of the May 1, 2025 increase in our quota share and excess of loss cession rates, covering all lines except cyber liability.

Net earned premiums increased $23.2 million, or 22.1%, to $128.4 million for the three months ended September 30, 2025 from $105.2 million for the three months ended September 30, 2024. The increase in net earned premiums was primarily due to the earning of increased gross written premiums offset by the earning of increased ceded written premiums under our ceded reinsurance treaties.

(1) E&S % previously disclosed did not include business written on a facultative reinsurance basis, which is free of rate and policy form restrictions, and provides the flexibility to rapidly adjust to emerging market opportunities.

Loss Ratio

The following table summarizes the components of our loss ratio for the three months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Our loss ratio was 65.9% for the three months ended September 30, 2025 compared to 64.5% for the three months ended September 30, 2024, or an increase of 1.4 points.

The 0.3 point increase in our current accident year loss ratio was driven by changes in our portfolio mix. During the three months ended September 30, 2025, our Casualty division, which has comparatively higher current accident year industry loss ratios, comprised a larger proportion of our net earned premiums compared to the prior period.

The 1.1 point increase in our prior accident year loss ratio was due to expected loss ratios applied to audit premiums fully earned in the period but associated with prior accident years. The increase was not based on actual losses settling for more than reserved, and did not represent an increase in estimated reserves on unresolved claims.

Expense Ratio

The following table summarizes the components of the expense ratio for the three months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Our expense ratio was 29.5% for the three months ended September 30, 2025 compared to 29.9% for the three months ended September 30, 2024, which was a decrease of 0.4 points. The decrease in our expense ratio was primarily driven by the 1.2 point decrease in our operating expenses ratio and a 0.3 point increase in other insurance-related income, which contributed to the lowering of our expense ratio. These improvements were partially offset by the 1.1 point increase in our net acquisition costs ratio.

The decrease in our operating expenses ratio was due to the continued scaling of our business, where net earned premiums grew at a higher rate than our expenses, as well as the prudent management of our expenses.

The increase in our net acquisition costs ratio was driven by an increase in the Ceding Fee and, to a lesser extent, earned broker commissions due to changes in our portfolio mix. Gross acquisition costs as a percentage of gross earned premiums was 16.5% for the three months ended September 30, 2025 compared to 15.8% for the three months ended September 30, 2024, and ceded earned commissions as a percentage of ceded earned premium was 29.1% for the three months ended September 30, 2025 compared to 29.0% for the three months ended 2024.

Combined Ratio

The combined ratio was 95.4% for the three months ended September 30, 2025, compared to 94.4% for the three months ended September 30, 2024. The 1.0 point increase was due to the 1.4 point increase in our loss ratio, partially offset by the 0.4 point decrease in our expense ratio.

Return on Equity(2)

Return on equity was 14.5% for the three months ended September 30, 2025, compared to 13.7% for the three months ended September 30, 2024. The 0.8 point increase was primarily driven by the 25.5% increase in net income during the three months ended September 30, 2025, compared to the three months ended September 30, 2024, partially offset by the increase in average mezzanine equity and stockholders’ equity driven by the increase in retained earnings and accumulated other comprehensive income (loss).

Investing Results

Net investment income increased $3.5 million to $15.0 million for the three months ended September 30, 2025 from $11.5 million for the three months ended September 30, 2024. The increase in net investment income is primarily due to a higher average balance of investments during the three months ended September 30, 2025, and higher yields on invested assets.

Income Tax Expense

Income tax expense was $3.9 million for the three months ended September 30, 2025, compared to $3.7 million for the three months ended September 30, 2024. Our effective tax rate was 20.6% for the three months ended September 30, 2025, compared to 23.6% for the three months ended September 30, 2024. The effective tax rate differs from the statutory tax rate of 21.0% primarily due to estimated non-deductible excess officer compensation, state taxes, and non-deductible expenses, partially offset by research and development credits net of related uncertain tax positions and expected excess tax benefits on the vesting of stock-based compensation.

(2) For the three months ended September 30, 2025 and 2024, net income is annualized to arrive at return on equity.

Nine Months Ended September 30, 2025 compared to Nine Months Ended September 30, 2024

The following table summarizes our results of operations for the nine months ended September 30, 2025 and 2024:

($ in thousands, except percentages and per share data)

NM - Percentage change is not meaningful.

(1) Non-GAAP financial measure. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measure in accordance with the most comparable U.S. GAAP measure.

(2) For the nine months ended September 30, 2025 and 2024, net income and adjusted net income are annualized to arrive at return on equity and adjusted return on equity.

Premiums

The following table presents gross written premiums by underwriting division for the nine months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Gross written premiums increased $127.8 million, or 25.0%, to $638.7 million for the nine months ended September 30, 2025 from $510.9 million for the nine months ended September 30, 2024. The increase in gross written premiums was driven by our increasing renewal book and the continued growth in our platform across all four divisions. Our Casualty division led the growth, primarily from our Excess Casualty portfolio.

For the nine months ended September 30, 2025 and 2024, E&S(1) business made up 80.0% and 80.3% of gross written premiums, respectively, while admitted business made up 20.0% and 19.7%, respectively. The 0.3 point decrease in the proportion of E&S premiums was primarily attributable to an increase in admitted business written in our Casualty division related to real estate excess liability coverage written through a risk purchasing group.

Net written premiums increased $83.4 million, or 25.2%, to $414.6 million for the nine months ended September 30, 2025 from $331.2 million for the nine months ended September 30, 2024. The higher 25.2% increase in net written premiums compared to the 25.0% increase in gross written premiums is primarily due to the reduction in premiums ceded to our excess of loss reinsurance treaty. This reduction was mainly driven by the decrease in average limits deployed across our Casualty, Professional Liability, and Healthcare Liability divisions, which reduced the amount of gross premiums subject to our excess of loss reinsurance treaty.

Net earned premiums increased $79.1 million, or 28.4%, to $357.4 million for the nine months ended September 30, 2025 from $278.2 million for the nine months ended September 30, 2024. The increase in net earned premiums was primarily due to the earning of increased gross written premiums offset by the earning of increased ceded written premiums under our ceded reinsurance treaties.

(1) E&S % previously disclosed did not include business written on a facultative reinsurance basis, which is free of rate and policy form restrictions, and provides the flexibility to rapidly adjust to emerging market opportunities.

Loss Ratio

The following table summarizes the components of our loss ratio for the nine months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Our loss ratio was 66.3% for the nine months ended September 30, 2025 compared to 65.1% for the nine months ended September 30, 2024, or an increase of 1.2 points.

The 0.6 point increase in our current accident year loss ratio was driven by changes in our portfolio mix. During the nine months ended September 30, 2025, our Casualty division, which has comparatively higher current accident year industry loss ratios, comprised a larger proportion of our net earned premiums compared to the prior period.

The 0.6 point increase in our prior accident year loss ratio was driven by expected loss ratios applied to audit premiums fully earned in the period but associated with prior accident years. The increase was not based on actual losses settling for more than reserved, and did not represent an increase in estimated reserves on unresolved claims.

Expense Ratio

The following table summarizes the components of the expense ratio for the nine months ended September 30, 2025 and 2024:

($ in thousands, except percentages)

Our expense ratio was 30.1% for the nine months ended September 30, 2025 compared to 31.9% for the nine months ended September 30, 2024, a decrease of 1.8 points.

The decrease in our expense ratio for the nine months ended September 30, 2025 was primarily driven by the 2.4 point decrease in our operating expenses ratio, and a 0.3 point increase in other insurance-related income, which contributed to the lowering of our expense ratio. These improvements were partially offset by the 0.9 point increase in our net acquisition costs ratio.

The decrease in our operating expenses ratio was due to the continued scaling of our business, where net earned premiums grew at a higher rate than our expenses, as well as the prudent management of our expenses.

The increase in our net acquisition costs ratio was driven by an increase in earned broker commissions due to changes in our portfolio mix and, to a lesser extent, the increase in Ceding Fee. Gross acquisition costs as a percentage of gross earned premiums was 16.2% for the nine months ended September 30, 2025 compared to 15.6% for the nine months ended September 30, 2024, and ceded earned commissions as a percentage of ceded earned premium was 29.0% for the nine months ended September 30, 2025 compared to 29.0% for the nine months ended September 30, 2024.

Combined Ratio

The combined ratio was 96.4% for the nine months ended September 30, 2025, compared to 97.0% for the nine months ended September 30, 2024. The 0.6 point decrease was due to the 1.8 point decrease in the expense ratio, partially offset by the 1.2 point increase in the loss ratio.

Return on Equity(2)

Return on equity was 13.0% for the nine months ended September 30, 2025, compared to 11.8% for the nine months ended September 30, 2024. The 1.2 point increase was mainly due to a 58.1% increase in net income in the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. This increase was partially offset by a $122.3 million increase in average mezzanine equity and stockholders’ equity, primarily due to the $131.0 million of net proceeds received from the IPO in the nine months ended September 30, 2024, along with the increase in retained earnings and accumulated other comprehensive income (loss).

Investing Results

Net investment income increased $13.3 million to $41.3 million for the nine months ended September 30, 2025 from $27.9 million for the nine months ended September 30, 2024. The increase in net investment income is primarily due to a higher average balance of investments during the nine months ended September 30, 2025 and higher yields on invested assets.

Income Tax Expense

Income tax expense was $10.5 million for the nine months ended September 30, 2025, compared to $7.6 million for the nine months ended September 30, 2024. Our effective tax rate was 21.3% for the nine months ended September 30, 2025, compared to 23.7% for the nine months ended September 30, 2024. The effective tax rate differs from the statutory tax rate of 21.0% primarily due to estimated non-deductible excess officer compensation, state taxes, and non-deductible expenses, partially offset by research and development credits net of related uncertain tax positions and expected excess tax benefits on the vesting of stock-based compensation.

(2) For the nine months ended September 30, 2025 and 2024, net income is annualized to arrive at return on equity.

Reconciliation of Non-GAAP Financial Measures

Underwriting Income

We define underwriting income as income before income taxes excluding the impact of net investment income, net realized investment losses, other insurance-related income, non-operating expenses, warrant expense, credit facility interest expenses and fees, foreign exchange losses, and certain strategic initiatives. Underwriting income represents the pre-tax profitability of the Company's underwriting operations and allows us to evaluate our underwriting performance without regard to net investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting income should not be viewed as a substitute for income before income taxes calculated in accordance with U.S. GAAP, and other companies may define underwriting income differently.

Underwriting income for the three and nine months ended September 30, 2025 and 2024 reconciles to income before income taxes as follows:

($ in thousands)

($ in thousands)

(1) Strategic initiatives for the nine months ended September 30, 2024 represents costs incurred to set up our Baleen Specialty division, which is recorded in operating expenses within the Condensed Consolidated Statements of Income and Comprehensive Income. The costs incurred primarily represent expenses to implement the new platform and processes supporting the Baleen Specialty division.

Adjusted Net Income

We define adjusted net income as net income excluding the impact of net realized investment losses, non-operating expenses, foreign exchange losses, and certain strategic initiatives. Adjusted net income excludes the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. We calculate the tax impact only on adjustments that would be included in calculating our income tax expense using the estimated tax rate at which we received a deduction for these adjustments. We use adjusted net income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net income should not be viewed as a substitute for net income calculated in accordance with U.S. GAAP, and other companies may define adjusted net income differently.

Adjusted net income for the three and nine months ended September 30, 2025 and 2024 reconciles to net income as follows:

($ in thousands)

($ in thousands)

(1) Strategic initiatives for the nine months ended September 30, 2024 represents costs incurred to set up our Baleen Specialty division, which is recorded in operating expenses within the Condensed Consolidated Statements of Income and Comprehensive Income. The costs incurred primarily represent expenses to implement the new platform and processes supporting the Baleen Specialty division.

Adjusted Return on Equity

We define adjusted return on equity as adjusted net income as a percentage of average beginning and ending mezzanine equity and stockholders’ equity. We use adjusted return on equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on equity should not be viewed as a substitute for return on equity calculated in accordance with U.S. GAAP, and other companies may define adjusted return on equity differently.

Adjusted return on equity for the three and nine months ended September 30, 2025 and 2024 reconciles to return on equity as follows:

($ in thousands, except percentages)

($ in thousands, except percentages)

(1) For the three and nine months ended September 30, 2025 and 2024, net income and adjusted net income are annualized to arrive at return on equity and adjusted return on equity.

Diluted Adjusted Earnings Per Share

We define diluted adjusted earnings per share as adjusted net income divided by the weighted average common shares outstanding for the period, reflecting the dilution that may occur if equity based awards are converted into common stock equivalents as calculated using the treasury stock method. We use diluted adjusted earnings per share as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Diluted adjusted earnings per share should not be viewed as a substitute for diluted earnings per share calculated in accordance with U.S. GAAP, and other companies may define diluted adjusted earnings per shares differently.

Diluted adjusted earnings per share for the three and nine months ended September 30, 2025 and 2024 reconciles to diluted earnings per share as follows:

($ in thousands, except share and per share data)

41

($ in thousands, except share and per share data)

Liquidity and Capital Resources

Sources and Uses of Funds

BSHI is organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance company subsidiary, BICI, domiciled in the State of Wisconsin, BSUI, our wholly-owned managing general agency, and BUSI, our wholly-owned services company subsidiary.

Prior to the IPO, BSHI received capital contributions from BIHL. Following our secondary offering on October 25, 2024, since BIHL is no longer a holder of our common stock, BSHI may receive cash through (i) drawing on the Facility (as defined below) that we entered into on April 22, 2024, (ii) issuance of equity and debt securities, (iii) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions and (iv) dividends from our insurance company subsidiary. We also may use the proceeds from these sources to contribute funds to our insurance company subsidiary in order to support premium growth, pay dividends and taxes and for other business purposes.

We file a consolidated U.S. federal income tax return with our subsidiaries, and under our tax allocation agreement, each participant is charged or refunded taxes according to the amount that the participant would have paid or received had it filed on a separate return basis with the Internal Revenue Service.

Our insurance company subsidiary, BICI, is licensed and domiciled in the State of Wisconsin. Under Wisconsin law, BICI is required to maintain specified levels of statutory capital and surplus and is restricted by law as to the amount of dividends it can pay without the approval of regulatory authorities. BICI is restricted from paying dividends by the lesser of: (i) 10% of statutory capital and surplus as of the preceding December 31, or; (ii) the greater of: (A) statutory net income for the calendar year preceding the date of the dividend distribution, minus realized capital gains for that year, or (B) aggregate of net income for the three years preceding the date of the dividend or distribution, minus realized capital gains for those calendar years and minus dividends paid or credited and distributions made within the first two of the preceding three calendar years. As of December 31, 2024, the maximum dividend that BICI could pay without the approval of regulatory authorities was $16.1 million. Insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amounts calculated under any applicable formula would be permitted. State insurance regulatory authorities that have jurisdiction over the payment of dividends by our insurance company subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect.

As of September 30, 2025, our holding company had $1.0 million in cash and investments. We believe we have sufficient liquidity available at our holding company and subsidiaries to meet our operating cash needs and obligations for at least the next 12 months.

Revolving Credit Facility

On April 22, 2024, the Company entered into a Credit Agreement with certain lenders and JPMorgan Chase Bank, N.A., as administrative agent, swingline lender and issuing bank. The Credit Agreement provides for a Facility in the aggregate principal amount of $75 million, which includes a $5 million sub-facility for letters of credit. All obligations under the Facility and obligations in respect of certain cash management services and swap agreements with the lenders and their affiliates are (i) unconditionally guaranteed by certain of the Company’s subsidiaries and (ii) secured by a first-priority perfected lien in substantially all of the Company’s and the subsidiaries guarantors’ assets. The Credit Agreement contains certain customary covenants, including financial maintenance covenants. The Company was in compliance with all of the Facility’s covenants as of September 30, 2025. The Facility matures on the earlier of April 22, 2027, or 91 days prior to the MGA Agreement termination date where no MGA Agreement replacement is found. The Company may request that the lenders extend the maturity date by an additional year, provided that the request is made no earlier than 90 days and no later than 55 days prior to the first or second anniversary of the effective date of the Facility.

As of September 30, 2025, we did not have any borrowings outstanding under the Facility.

Cash Flows

Our most significant source of cash is from premiums received, which, for most policies, we receive at the beginning of the coverage period, net of the related commission for the policies. Our most significant cash outflows include claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that generally earn interest. We also use cash to pay ceded reinsurance premiums, net of ceding commissions received, and for payment of ongoing operating expenses, such as employee compensation and benefits, technology costs, office rent and professional service fees.

The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period. We believe that cash receipts from premiums and proceeds from net investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the nine months ended September 30, 2025 and 2024 were as follows:

($ in thousands)

The increase in cash provided by operating activities in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was primarily due to the growth in our business operations compared to the timing of claim payments and subsequent reinsurance recoveries, which occur later than cash collections on premiums.

For the nine months ended September 30, 2025, net cash used in investing activities was $242.7 million due to growth in our business operations. For the nine months ended September 30, 2025, funds from operations were used to purchase fixed maturity securities of $530.1 million. During the nine months ended September 30, 2025, we received proceeds from sales and maturities of fixed maturity securities and short-term investments of $291.4 million. Net cash used in investing activities also includes purchases of property and equipment of $4.1 million.

For the nine months ended September 30, 2024, net cash used in investing activities was $324.7 million due to growth in our business operations. For the nine months ended September 30, 2024, funds from operations and net proceeds from the IPO were used to purchase fixed maturity securities and short-term investments of $468.3 million. During the nine months ended September 30, 2024, we received proceeds of $146.2 million from sales of fixed maturity securities and short-term investments. Net cash used in investing activities also includes purchases of property and equipment of $2.6 million.

For the nine months ended September 30, 2025, net cash provided by financing activities was nil, and for the nine months ended September 30, 2024, net cash provided by financing activities was $133.8 million, which primarily reflected net proceeds from the IPO.

Reinsurance

We purchase various forms of reinsurance to manage loss exposures and safeguard our capital. Through reinsurance, we transfer certain exposures to a reinsurer, and in return, the reinsurer receives a portion of the premium, less a ceding commission paid to us. We strategically use a combination of quota share and excess of loss reinsurance treaties to retain risk, while providing balance sheet protection from larger losses. We may also place facultative reinsurance on specific risks we deem prudent.

A quota share reinsurance treaty is an agreement where reinsurers assume a percentage of the company’s losses in exchange for a negotiated percentage of premium. An excess of loss reinsurance treaty is an agreement where reinsurers agree to assume a portion of losses for a specific event in excess of a specified amount in return for a negotiated premium. Reinsurance needs are determined with principal input from our Chief Underwriting Officer, based on a multitude of factors, including risk appetite, market conditions, loss history and reinsurance capacity.

We place reinsurance through our insurance company subsidiary, BICI, which reinsures 100% of the premium placed by BSUI with the AmFam Issuing Carriers. In turn, BICI strategically transfers exposures to third-party reinsurers utilizing different structures depending on the line of business.

We generally offer up to $15 million of limit on our insurance policies and seek not to retain more than $5 million, utilizing reinsurance to achieve that objective. At each renewal, we consider various factors when determining our reinsurance coverage, including (i) plans to change the underlying insurance coverage we offer, (ii) trends in loss activity, (iii) the level of our capital and surplus, (iv) changes in our risk appetite and (v) the cost, terms and availability of reinsurance coverage. We may adjust our reinsurance program, including our levels of retention based on these factors.

As of September 30, 2025, we had the following significant reinsurance programs:

• For all lines, except cyber liability, we use a quota share reinsurance treaty, where 26.0% of the exposure is ceded to reinsurers, and an excess of loss reinsurance treaty, which cedes 65.0% of losses in excess of $5 million up to $15 million to our reinsurers.
• Cyber liability, as a specialized line of business, is placed under a separate quota share structure, where we cede 60.0% of the exposure to reinsurers. There is no separate excess of loss reinsurance program for our cyber liability line of business.
• Effective March 1, 2025, we renewed our quota share treaty covering a portion of our commercial auto exposure in excess of $1 million up to $5 million within our Casualty book of business.

Our reinsurance treaties are currently subject to caps, which currently range from 250% to 350% of the subject matter ceded premium, and should these caps be exceeded we would retain any losses in excess of those caps.

Our reinsurance treaties typically have 12- or 18-month terms. While we intend to renew on similar terms as expiring to maintain our desired level of net risk appetite, during each renewal cycle, we may change our coverage terms or the composition of our reinsurance panel. Currently, the quota share reinsurance treaty for cyber liability generally renews on January 1 while the remainder of our reinsurance treaties renew on May 1.

All reinsurance involves credit risk, since we maintain the direct obligation to pay losses incurred by our policyholders up to our policy limits. Accordingly, when selecting our reinsurers, a potential reinsurer’s financial strength is the paramount consideration. All of our reinsurance business is placed with reinsurers that have an A.M. Best rating of “A” (Excellent) or better. As of September 30, 2025, we have an allowance for credit losses of $0.2 million for our reinsurance balance.

The following table summarizes our top five reinsurers, their A.M. Best financial strength rating and percent of our total reinsurance recoverable as of September 30, 2025:

Contractual Obligations and Commitments

We have entered into software service agreements that have purchase obligations depending on the amount of premiums written. At September 30, 2025, the fixed and determinable portion of these purchase obligations were approximately $9.1 million for the years 2025 - 2029. The obligations may increase depending on the amount of premium written by the Company over the respective years.

We have entered into a sublease agreement for our office in New York and a lease agreement for our office in Chicago. On December 1, 2024, the company exercised its option to extend the Chicago lease, which will expire on August 31, 2028, with a renewal option to extend. These leases are classified as operating leases. These leases expire in December 2027 and August 2028, respectively. Although the Chicago operating lease agreement contains an option to extend the length of the lease term, the Company is not reasonably certain it will exercise this option. As of September 30, 2025, the discounted operating lease liability was $3.3 million.

Financial Condition

Mezzanine Equity and Stockholders’ Equity

As of September 30, 2025, total mezzanine equity and stockholders’ equity was $431.0 million compared to $370.4 million as of December 31, 2024. The $60.6 million increase was primarily due to net income generated during the period, a decrease in the net unrealized loss position on available for sale investments, which shifted to a net unrealized gain in the current period, and net activity related to stock-based compensation plans.

Dividend Declarations

We did not declare any dividends during the nine months ended September 30, 2025 or the year ended December 31, 2024.

Investment Portfolio

We seek to maintain a diversified portfolio of fixed income instruments that prioritize capital preservation, with a secondary focus on generating predictable investment income. Our asset allocation strategy focuses on high-quality fixed income instruments, with no equity or alternative investment exposure. One of the primary features of our asset allocation is maintaining sufficient readily available funds to pay claims and expenses. Our portfolio consists entirely of cash, cash equivalents, and investment grade fixed income securities.

We actively manage and monitor our investment risk, balancing the goals of capital preservation and income generation with our need to comply with relevant insurance regulatory frameworks and the capital framework agreements with AmFam. Our board of directors reviews and approves our investment policy and strategy on a regular basis, and considers investment activities, performance against benchmarks and new investment opportunities as they arise.

As of September 30, 2025, the majority of our investment portfolio, or $1,149.6 million, was comprised of fixed maturity securities that are classified as available for sale and carried at fair value with unrealized gains (losses) recognized in accumulated other comprehensive gain (loss) within our Condensed Consolidated Balance Sheets. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 2.9 years and an average rating of “AA” at September 30, 2025. Our fixed income investment portfolio had a book yield of 4.8% and a market yield of 4.6% as of September 30, 2025, compared to 4.6% and 4.9%, respectively, as of December 31, 2024.

As of September 30, 2025 and December 31, 2024, the amortized cost and estimated fair value of our fixed maturity, and short-term investments were as follows:

($ in thousands, except percentages)

($ in thousands, except percentages)

46

The table below summarizes the credit quality of our fixed maturity securities as of September 30, 2025 and December 31, 2024:

($ in thousands, except percentages)

As of September 30, 2025 and December 31, 2024, the amortized cost and estimated fair value of our available for sale investments in fixed maturity securities summarized by contractual maturity were as follows:

($ in thousands, except percentages)

($ in thousands, except percentages)

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.

Restricted Assets

We are required to maintain assets in trust accounts to support the obligations of the AmFam Quota Share Agreement. The assets held in trust include fixed maturity securities, short-term investments and cash and cash equivalents, as collateral for transactions with AmFam. The Company is entitled to interest income earned on these restricted assets, which is included in net investment income in the Condensed Consolidated Statements of Income and Comprehensive Income.

The fair value of our restricted assets were as follows:

($ in thousands)

Critical Accounting Policies and Estimates

We identified the following accounting estimates as critical to the understanding of our financial position and results of operations:

• reserve for losses and loss adjustment expenses;
• reinsurance recoverable;
• fair value measurements of financial assets and liabilities; and
• deferred income tax.

Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. For a detailed discussion of our accounting policies, see Note 1, “Nature of Operations and Significant Accounting Policies,” in our condensed consolidated financial statements.

Reserve for Losses and Loss Adjustment Expenses

Reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at the balance sheet date. We do not discount our reserves for losses to reflect estimated present value. We estimate the reserves using individual case-basis valuations of reported claims and various actuarial procedures. Those estimates are based on our historical information, industry and peer group information and our estimates of future trends in variable factors such as loss severity, loss frequency and other factors such as inflation. We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us. Additionally, during the loss settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward. Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates. Accordingly, the ultimate settlement of losses and loss adjustment expenses may vary significantly from the estimate included in our condensed consolidated financial statements.

We categorize our reserves for unpaid losses and loss adjustment expenses into two types: case reserves and reserves for incurred but not yet reported (“IBNR”).

Case reserves are established for individual claims that have been reported to us. We are notified of losses by our insureds, their agents or our brokers. Based on the information provided, we establish case reserves by estimating the ultimate losses from the claim, including defense costs associated with the ultimate settlement of the claim. Our claims department personnel use their knowledge of the specific claim along with advice from internal and external experts, including underwriters and legal counsel, to estimate the expected ultimate losses.

With the assistance of an independent actuarial firm, we estimate the cost of losses and loss adjustment expenses related to IBNR based on an analysis of several commonly accepted actuarial loss projection methodologies. The IBNR that we book represents management’s best estimate.

The following tables summarize our gross and net reserves for unpaid losses and loss adjustment expenses as of September 30, 2025 and December 31, 2024:

($ in thousands, except percentages)

($ in thousands, except percentages)

The process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to several variables. In establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses, consideration is given to several actuarial methods. A first step is to select an initial expected ultimate loss and allocated loss adjustment expense (“ALAE”) ratio for each reserving group. This is done with assistance from our actuarial consultants. Consideration is given to inputs from our underwriting and claims departments, internal pricing data and industry benchmarks provided by our actuarial consultants. The actuarial methods utilize, to varying degrees, the initial expected loss ratio, analysis of industry and internal claims reporting and payment patterns, paid and reported experience, industry loss experience and changes in market conditions, policy forms, exclusions and exposures. The actuarial methods used to estimate loss and loss adjustment expense reserves are:

• Reported and/or Paid Loss Development Methods — Ultimate losses are estimated based on historical or industry loss reporting (or payout) patterns applied to current reported (or paid) loss and ALAE. Reported losses are the sum of paid and case losses. When there is insufficient historical data, industry development patterns are used.
• Reported and/or Paid Bornhuetter-Ferguson Method — Ultimate losses are estimated as the sum of cumulative reported (or paid) losses and estimated IBNR (or unpaid) losses. IBNR (or unpaid) losses are estimated based on historical or industry reporting (or payout) development patterns and the initial expected ultimate loss and ALAE ratio.
• Reported and/or Paid Cape Cod Method — Ultimate losses are estimated as the sum of cumulative reported (or paid) losses and estimated IBNR (or unpaid) losses. IBNR (or unpaid) losses are estimated based on historical or industry reporting (or payout) development patterns and a loss + ALAE ratio based on adjusted experience to date.

Since our loss experience is less mature, we are primarily relying on a weighting between the initial expected loss and ALAE ratio and the indications resulting from the Reported Bornhuetter-Ferguson and Cape Cod Methods.

Our reserves are driven by several important factors, including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions. Our reserve estimates reflect current inflation in legal claims’ settlements and assume we will not be subject to losses from significant new legal liability theories. Our reserve estimates assume that there will not be significant changes in the regulatory and legislative environment. The impact of potential changes in the regulatory or legislative environment is difficult to quantify in the absence of specific, significant new regulation or legislation. In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful.

Although we believe that our reserve estimates are reasonable, it is possible that our actual loss experience may not conform to our assumptions. Specifically, our actual ultimate loss ratio could differ from our initial expected loss ratio or our actual reporting and payment patterns could differ from our expected reporting and payment patterns, which are based on our own data and industry data. Accordingly, the ultimate settlement of losses and the related loss adjustment expenses may vary significantly from the estimates included in our financial statements. We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us. Such adjustments are included in the results of current operations.

The table below quantifies the impact of potential reserve deviations from our carried reserve as of September 30, 2025 and December 31, 2024. We applied a sensitivity factor to net reserves for unpaid losses and loss adjustment expenses by underwriting division below. We believe that potential changes such as these would not have a material impact on our liquidity.

($ in thousands)

($ in thousands)

(1) The U.S. corporate income tax rate of 21% is used to estimate the potential impact to mezzanine equity and stockholders’ equity.

The amount by which estimated losses differ from those originally reported for a period is known as “development”. Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims. Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on unresolved claims. We reflect favorable or unfavorable development of loss reserves in the results of operations in the period the estimates are changed.

Reinsurance Recoverable

We purchase various forms of reinsurance to manage loss exposures and safeguard our capital. Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties. We may also place facultative reinsurance on specific risks we deem prudent.

A quota share reinsurance treaty is an agreement where reinsurers assume a percentage of the company’s losses in exchange for a negotiated percentage of premium. An excess of loss reinsurance treaty is an agreement where reinsurers agree to assume a portion of losses for a specific event in excess of a specified amount in return for a negotiated premium. The negotiated premium is based on the assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses.

The recognition of reinsurance recoverables requires two key estimates as follows:

• The first estimate is the amount of loss reserves to be ceded to our reinsurers. This amount consists of our case reserves and IBNR. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates” above and Note 1, “Nature of Operations and Significant Accounting Policies” in our condensed consolidated financial statements for further discussion.
• The second estimate is the amount of the reinsurance recoverable balance we believe will ultimately not be collected from reinsurers. We are selective in choosing reinsurers, buying reinsurance from reinsurers with an A.M. Best rating of “A” (Excellent) or better. The amount we ultimately collect may differ from our estimate due to the ability and willingness of reinsurers to pay claims, which may be negatively impacted by factors such as insolvency, contractual disputes over contract language or coverage and/or other reasons. In addition, economic conditions and/or operational performance of a particular reinsurer may deteriorate, and this could also affect the ability and willingness of a reinsurer to meet their contractual obligations

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined based on a fair value hierarchy that prioritizes the use of observable inputs over the use of unobservable inputs and requires the use of observable inputs when available. The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:

• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
• Level 2: Significant other observable inputs other than Level 1 inputs, such as quoted prices in active markets for similar assets or liabilities, quoted prices in inactive markets for identical assets or liabilities, or other inputs that are directly or indirectly observable through market-corroborated inputs, such as interest rates, yield curves, prepayment speeds, default rates, or loss severities.
• Level 3: Significant unobservable inputs used to measure fair value to the extent that relevant observable inputs are not available, and that reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the measurement date.

See Note 3, Fair Value Measurements, in our condensed consolidated financial statements for further discussion regarding our fair value disclosures.

Deferred Income Taxes

We record deferred income taxes as assets or liabilities on our condensed consolidated balance sheets to reflect the net tax effect of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred tax assets and liabilities are measured by applying enacted tax rates in effect for the years in which such differences are expected to reverse. Our deferred tax assets result from temporary differences primarily attributable to unearned premium reserves, unrealized losses on investments and loss reserves. Our deferred tax liabilities result primarily from deferred policy acquisition costs. We review the need for a valuation allowance related to our deferred tax assets each quarter. We reduce our deferred tax assets by a valuation allowance when we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized. The assessment of whether or not a valuation allowance is needed requires us to use significant judgment. See Note 11, “Income Taxes” in our condensed consolidated financial statements for further discussion regarding our deferred tax assets and liabilities.

Recent Accounting Pronouncements

Refer to Note 1, “Nature of Operations and Significant Accounting Policies,” in our condensed consolidated financial statements for further discussion regarding our recent accounting pronouncements.

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. The primary component of market risk affecting us is interest rate risk associated with our investments in fixed maturity securities. We do not have material exposure to equity prices, foreign currency exchange rate risk or commodity risk.

Interest Rate Risk

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Fluctuations in interest rates have a direct effect on the market valuation of our fixed maturity securities. When market interest rates rise, the fair value of our securities decreases. Conversely, as interest rates fall, the fair value of our securities increases. Changes in interest rates will have an immediate effect on comprehensive loss and mezzanine equity and stockholders’ equity, but will not ordinarily have an immediate effect on net income. We manage this interest rate risk by investing in securities with varied maturity dates.

We had fixed maturity securities, short-term investments and cash and cash equivalents with a fair value of $1,249.8 million as of September 30, 2025 and $1,024.2 million as of December 31, 2024 that were subject to interest rate risk. The table below illustrates the sensitivity of the fair value of our fixed maturity securities, short-term investments and cash and cash equivalents to selected hypothetical changes in interest rates as of September 30, 2025 and as of December 31, 2024.

($ in thousands, except percentages)

52

Actual results may differ from the hypothetical change in market rates assumed in this disclosure. This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value.

Credit Risk

Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations. We have exposure to credit risk as a holder of fixed maturity securities. Our investment policy is designed to primarily invest in debt instruments of high credit quality issuers and to manage the amount of credit exposure with limits on particular ratings categories, limits for any one issuer and limits for sectors and regions. We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. The majority of our investment portfolio is invested in high credit quality, investment grade fixed maturity securities. As of September 30, 2025, our fixed maturity portfolio has an average rating by at least one nationally recognized rating organization of “ AA,” with approximately 92.0% rated “A” or better. We purchase fixed maturity securities based on our assessment of the credit quality of the underlying assets without regard to insurance.

In addition, we are subject to credit risk as we cede a portion of our risks to reinsurers. Although our reinsurers are obligated to reimburse us to the extent we cede risk to them, we are ultimately liable to our policyholders on all risks we have ceded. As a result, reinsurance contracts do not limit our ultimate obligations to pay claims covered under the insurance policies we issue and we might not collect amounts recoverable from our reinsurers. We address this credit risk by selecting reinsurers that have an A.M. Best rating of “A” (Excellent) or better at the time we enter into the agreement and by performing, along with our reinsurance broker, periodic credit reviews of our reinsurers. As of September 30, 2025, 100% of our reinsurance recoverables were either derived from reinsurers rated “A” (Excellent) by A.M. Best, or better.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this Quarterly Report on Form 10‑Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) occurred during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

There have been no material changes in our risk factors in the quarter ended September 30, 2025 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025.