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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.