Four years ago, Skyward Specialty’s financial strength rating from AM Best was A- with a negative outlook.
This year, Skyward was upgraded to an A with a stable outlook. Skyward CEO Andrew Robinson talked with Leader’s Edge about the steps the specialty insurance provider took to get that A rating, how the company implements its “rule our niche” strategy by partnering with brokers to bolster its expertise in highly specific areas like accident & health or transactional E&S, and the importance of technology in its business, including successful implementation of generative AI.
Q
Give us a bird’s eye view of your path from A- to A.
A
When I came in a little over four years ago, getting to an A rating was something that was really important to the success of this organization over the long term. The negative outlook was a byproduct of the very choppy performance of the company in the past and a not particularly strong balance sheet.
We had a rights offering capital raise to strengthen the balance sheet. We executed a legacy liability transaction to effectively wall off the legacy liabilities. There was a lot of parsing through the business to get the operating performance into the right place. That meant shutting down entire underwriting divisions, specific classes of business, and simultaneously investing in the parts of our business that were part of the future of the organization—all within the first 12 months. And then over the course of the last three years, we’ve just consistently improved our financial performance, strengthened our balance sheet, and got our enterprise risk management into a really top-notch position. The diversification of our business makes the risk profile of our business far more attractive, and we were fortunate enough to get a ratings team from AM Best who really took time to understand some of the unique things about our organization.
Q
What does the phrase “rule our niche” mean? What are the key pieces of that strategy?
A
Our whole notion of “rule our niche” is that our focus as a company is towards parts of the market where real specialization and expertise are critically important—where distribution partners are seeking a company whose underwriters and whose products are built around very specific parts of the market that are technical in nature or expertise is required.
The “rule our niche” concept not only takes that, but we’re asking ourselves some really critical questions. Do we have line of sight to being a top quartile underwriter in this area?
Can we do it right? Is it something where we can actually afford the investment? And then, importantly, can we build positions that are durable and defensible—meaning that it’s less likely that business will move away from us during soft market times just for price. We’ll bring other things to the table, part of which is expertise.
Q
What place do agents and brokers have in working together with you to rule a niche?
A
They are immensely important. We tend to partner with folks where we can have very substantial relationships, because they themselves are experts. We write a small number of classes that require real expertise, and they’re not to be participated in in a light or passing capacity.
A great example is crane and rigging. The brokers that we have very meaningful relationships with have real expertise. And so those books tend to be larger and quite substantive—the value of expertise is really appreciated by clients. When we talk about “rule our niche,” our partnerships with our brokers are where that takes hold.
Q
How has technology factored into your business strategy? Have you had issues with integration?
A
Prior to joining Skyward, I spent four years in venture capital and then running a technology company, so I have direct experience and a background in technology.
One of the first orders of business, going back to when I arrived a little over four years ago, was to get our technology stack in a position where we would be ready to effectively grow and add business, but also most importantly, be ready to be able to integrate in new services, whether they be new sources of risk data, predictive analytics or some kind of tool that improves your operations.
Well, we built our technology stack in a way that allows us to integrate services really fast and really efficiently. We’ve integrated well over 30 services during my four-year tenure. That said, when it comes to the really substantive stuff—this is where data and predictive analytics come into play—most of what we have been able to get value out of we generate ourselves. To your question, fortunately we have a technology stack that’s agnostic as to whether we’re sourcing something from the outside or building a service internally.
Q
One thing a lot of companies in every industry struggle with is employee retention. How has Skyward approached this issue?
A
Across the industry, everybody recognizes that there is a war for talent. It’s particularly true on the brokerage side, but it’s absolutely true on the carrier side. It’s even more true in the specialty insurance market—there’s a dearth of talent. And I think it’s fair to say that where that sort of specialty expertise is required, the industry is doing the least to actually regenerate talent.
Last year, for 45% of the people that we hired, we gave employee referral bonuses to our staff. So we’re really working our networks. And the culture is everything. You may be aware that we’ve won Business Insurance “Best Places to Work in Insurance” a couple of years in a row now and our Glassdoor ratings are among the highest in the industry. We work really hard on talent and culture.
Q
What challenges have you encountered taking your first steps into reinsurance?
A
Our view on reinsurance is really simple. There are markets that we really like, and sometimes we look at those and the barriers to entry on the primary insurance side are too great for us to participate. So we look at the opportunity from the lens to view how we can participate as a reinsurer.
Oftentimes, acting as a quota share reinsurer allows us to apply the “rule our niche” strategy and build a position that’s legitimately defensible. We actually started already with our global ag business. This was a category we wanted to get into, but the cost and effort to do that as a primary insurer was too great, so we chose to do it as a reinsurer. Similarly, on the mortgage reinsurance side, there’s a small number of private mortgage insurers. That’s too big of a barrier for us to go after.
What you can take away from this is: here’s our participation in two very specialized areas. It doesn’t look like mainstream reinsurance. And so over time, as we potentially do more in reinsurance, it will be similarly specialized.
Q
Generative AI has been seen as something of a miracle cure-all across almost every industry nowadays. Has Skyward used generative AI?
A
Like everybody, we’re experimenting. We have a private version of ChatGPT where we get all the benefits of the public training, but everything else that we do at this point is for our own purpose.
I’ll give you an example. Today, every single submission that we get runs through a process to create a very short, simple, easy-to-consume narrative for our underwriters. So if you’re getting an 80-page submission, we’re able to condense it down to a two-page narrative that is focused on the critical things, so they can look at that risk and quickly assess whether it is something we should spend time on in our business.
We’ve fed our underwriting guidelines into generative AI, and we’ve built out the submission narrative that goes to the underwriters to include five rating factors for this risk—essentially evaluating the risk at hand based on five different dimensions in our underwriting guidelines. Armed with this data, our underwriters are even more informed at a first look.
We also set out at the beginning of the year something we call OKRs—objectives and key results. OKRs are very common in the technology world as a way to set specifics about what’s important for your business. So at the beginning of the year, we cascade down our corporate OKRs to every employee in the organization. This year, every single employee has a personal OKR regarding generative AI, which is that they have to personally experiment and identify a specific use case within their role to which generative AI can be applied. So we’re going to have 540 employees at the end of this year who will have personally taken that up and at least experimented enough with AI to have a point of view about how we could use generative AI specifically for their role.
