Prepared remarks
Good day. Thank you for standing by. Welcome to the 2026 Q2 Skyward Specialty earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jordan Arnold, VP of Investor Relations. Please go ahead.
Thank you, Shannon. Good morning, everyone. Welcome to our second quarter 2026 earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer, Mark Haushill. We will begin the call with our prepared remarks. We will open the line for questions. Our comments may include forward-looking statements, which, by their nature, involve a number of risk factors and uncertainties which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed in our press release, as well as in our 10-K that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules, are included as part of our press release and available on our website under the Investors section. With that, I will turn the call over to Andrew.
Thank you, Jordan. Welcome to the Skyward team. We're pleased to have you on board. To our conference call participants, good morning. Thank you for joining us. The second quarter was simply outstanding. Diluted Operating Earnings Per Share increased 46% to $1.30. Our annualized Operating Return on Equity was an excellent 19%. Gross Written Premiums increased 13% over the prior year quarter, while Managed Premiums were up 18%. We continue to execute at an incredibly high level across Skyward Specialty and Apollo, delivering strong top-line growth and results that reinforce the strength, diversification, quality, and profitability of our business. Our niche strategy, in particular our business portfolio diversification, allows us to lean into markets where pricing, underwriting conditions, and returns remain attractive. We will continue to protect margins and play sensible defense in the softest parts of the market where pricing and terms are less attractive or loss cost inflation is uncertain. Our strong capital position provides significant flexibility as we continue to allocate capital with discipline. We believe share repurchases remain an attractive use of capital given our returns, earnings growth, and current valuation. During the quarter, we repurchased approximately $10 million of shares and in July increased our repurchase authorization to $100 million. With that, I'll turn it over to Mark to provide the financial details for the quarter. Mark?
Thank you, Andrew. Good morning. We are pleased with our second quarter performance, which included double-digit premium growth, continued excellent underwriting profitability, and attractive returns on capital. We reported net income of $49 million and operating income of $59 million. Diluted Operating Earnings Per Share was $1.30, an increase of 46% year-over-year. We continue to produce outstanding underwriting results, reporting a Combined Ratio of 89.5, inclusive of 1.9 points of catastrophe losses. The Ex-CAT Combined Ratio of 87.6 underscores the quality of our underwriting, the diversity of our business portfolio, and the operating leverage we are achieving as we continue to scale the business. For the first six months of 2026, operating income increased to $116 million, driving an Operating Return on Equity of 20.4%. Premium growth remained strong. Total Managed Premiums increased 18% to $1.1 billion during the quarter, while Gross Written Premiums increased 13% to $741 million. Within Skyward Specialty, Gross Written Premiums increased 14% to $668 million, led by continued momentum in Accident & Health, Global Agriculture, Credit & Surety, and Specialty Programs. Apollo Gross Written Premiums increased 6% to $73 million, driven by the specialty lines in Syndicate 1969, which grew 8% year-over-year. Apollo's fee generation continued to be a meaningful growth driver, with fee-generating gross written premiums increasing 29% to $318 million, including 80% growth in Platform Partner syndicates and 13% growth in capital-aligned syndicates. Underwriting fee income of $13 million during the quarter was excellent, as we are realizing the benefit of Apollo's capital-light business model. Given Apollo's seasonal production patterns, second quarter results are not necessarily indicative of longer-term growth trends. Our focus remains on long-term opportunity to grow Managed Premiums, expand both underwriting and fee-based earnings, and continue building scale within the platform. Turning to underwriting performance, Skyward Specialty delivered another outstanding quarter, reporting a Combined Ratio of 86.9 and an Ex-CAT Combined Ratio of 85.6. The Loss Ratio was 62.6, including 1.3 points of catastrophe losses. The non-CAT Loss Ratio of 61.3 was up 1.4 points year-over-year, driven by business mix, specifically A&H and Global Agriculture, both of which are higher loss ratio divisions. Loss emergence was in line with expectations and no development was recognized. The Expense Ratio improved by 2.7 points year-over-year to 24.3. The reduction in net policy acquisition costs is positively impacted by the A&H and Global Agriculture business just noted. For other operating and general expenses, we again delivered another quarter of meaningful improvement, driven by expense discipline and leverage from our technology, in particular the widespread benefits we are realizing from AI. Apollo reported a Combined Ratio of 97.6, including 5.4 points of catastrophe losses related primarily to the conflict in the Middle East. The non-CAT Loss Ratio of 54.7 for the quarter reflects strong underlying underwriting performance and disciplined portfolio management across the platform. Apollo's reported Expense Ratio was 37.5 for the quarter. The quarter included adjustments between net policy acquisition costs and other operating and general expenses. The year-to-date Expense Ratio of 34.9 and Combined Ratio of 91.3 provide a more representative view of Apollo's performance. Investment income continued to benefit from a larger asset base, inclusive of the addition of Apollo. Net investment income increased to $31 million in the quarter, up more than 60% from the prior year period, primarily due to $29 million of income from the fixed income portfolio. While the results from alternative and strategic investments remained pressured by lower valuations in certain limited partnership investments, these exposures represent only $68 million of our total $2.8 billion of invested assets. For the fixed income portfolio, we put new money to work at yields of 5.6%, and the embedded yield for the group portfolio was 5.3%. Our balance sheet remains exceptionally strong. Stockholders' equity increased to approximately $1.3 billion at June 30th, and book value per share increased 15% from year-end to $28.55. Financial leverage decreased by two points compared to the first quarter to 26%. During the quarter, we repaid $50 million of the $150 million term loan that matures at the end of 2027. We're rapidly moving towards our target debt-to-capital ratio of low 20s. We also repurchased 223,000 shares for approximately $10 million. In July, we announced that we increased our share repurchase authorization from $50 million to $100 million, reflecting our confidence in the quality of our business, earnings outlook, capital position, and improved leverage. I'll turn the call back over to Andrew.
Thank you, Mark. As discussed, our financial results for the quarter are once again excellent, reflecting the benefits of our diversified portfolio and niche strategy. The strength of our business mix is unique among commercial insurers and continues to differentiate Skyward and support attractive top line and earnings growth. As is visible over recent quarters, we continue to see meaningful growth opportunities in Accident & Health, Credit & Surety, and Global Agriculture, all businesses which are largely insulated from the pressures affecting the more traditional P&C markets. There are units within our reporting divisions with attractive opportunities for growth as well. Those include Healthcare Solutions within Professional Lines, power and renewables within Energy Solutions, political risk and political violence within Syndicate 1969, and a strong pipeline of Platform Partner syndicates to drive fee-based income growth. Additionally, the initiatives that bring together Skyward Specialty and Apollo are further providing unique and attractive opportunities for profitable growth. That said, market conditions remain more challenging in property, both global and E&S, and in miscellaneous professional. Some other areas, such as E&S liability, are clearly transitioning to a more price-competitive market. We continue to prioritize underwriting profitability over volume and are being selective in areas where competitive pressures or loss cost trends do not support our return objectives. Overall, our portfolio continues to demonstrate exactly what we intended when we constructed it: a business with multiple growth engines, less dependence on the traditional P&C cycle, and the flexibility to allocate capital toward the most attractive opportunities while remaining disciplined where market conditions warrant. Turning to our operational metrics. For Skyward Specialty, pure rate remained in the high single digits ex global property and low single digits, including the larger premium contribution from global property in the second quarter. Retention remained in the 70s, and we continue to see strong submission growth, which was in the teens once again this quarter. Apollo's risk-adjusted rate change moderated to a low single-digit decline. The business remains focused on maintaining rate adequacy and optimizing the portfolio with disciplined underwriting and selective growth in the most attractive opportunities. Similar to Skyward Specialty, Apollo's diversified portfolio provides multiple levers to grow, reposition, and deploy capital as market conditions evolve. This flexibility enables us to capitalize on attractive opportunities while remaining disciplined in areas where competitive pressures warrant a more defensive approach. To wrap up, we delivered another outstanding quarter and strong first six months as Skyward Group. Our niche strategy, diversified portfolio, disciplined underwriting and execution, and growing fee-based income continues to drive top-quartile financial performance. We're well-positioned to capitalize on opportunities in all market cycles and to continue to create significant long-term value for our shareholders. With that, I'll turn the call over to the operator to open it up for questions. Operator?
Questions and answers
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by. Our first question comes from Tracy Benguigui from Wolfe Research. Please go ahead.
Thank you. Good morning. The buyback this quarter made sense given the implied share price when that was done. Unlike most P&C insurers that sit on a ton of excess capital, you run a more efficient capital structure and have historically raised equity to fund growth. With the authorization that doubled to $100 million, how should we read it? Does this signal less underwriting capacity ahead? Now that you have delevered a bit, would you tap the debt markets to fund buybacks if the opportunity arises?
Hey, Tracy. This is Andrew, and I'll start, and Mark might join in here on this. Thanks for the question and good morning. Look, I think I would just start with the fundamentals. First off, we're growing at an attractive rate, we are generating excess capital. That just is true. I think that's a nice problem to have. It has a lot to do with our returns. Look, I think in the end, what we see is strong earnings growth and still an attractive valuation. We think buybacks are viable. We sort of took the preemptive move to reduce our leverage, really to create the headroom, right? Because you can't execute buybacks if we're starting at a leverage level that we really want to reduce, and I think we're doing a good job of that. I would just say that we'll stay opportunistic. We feel very good about our business. At the core, we're trading at roughly 12x our earnings guidance for 2026. We think at the most basic level, the company is immensely attractively valued, and that informs some of our thinking.
Wasn't sure if Mark was going to chime in.
No, he gave me the perfect signal, so I think he doesn't want to say any more.
Okay. Got it. Okay, perfect. This quarter, the topic of loss cost trends have come up a number of times. Just curious on your thoughts. I did notice that your underlying Loss Ratio did deteriorate year-over-year. If you could just touch on what you think about loss cost trends and if you're maybe choosing some higher loss picks.
Yeah. First off, the simple answer on the accident year is entirely mixed. The fact is that the growth from A&H and AG is earning in now, and that's the change. I think that there isn't anything more to it than that. I believe, Tracy, that we have been one of the most early and direct and action-oriented around our concerns around loss cost trends, particularly in Occurrence Liability and in particular anything that had Bodily Injury, Personal Injury exposure. We were talking about this a long time ago, and I think my point was just this simple, which is if you really cannot confidently know what your Loss Cost Inflation is, why would you grow into a market? If you think, hey, listen, I'm getting 10 points of rate because the market will give it to me, but 10 points of rate may actually not be enough rate to cover the Loss Cost Inflation because we've seen it move period on period. We have intentionally tried to steer our portfolio away from that. Even in Occurrence Liability lines, much of what we write is really not the Personal Injury intensively exposed stuff. Where we are exposed to it, we're trying, as any good underwriter should, to keep your limits short. I think that we obviously respect the commentary of others who are talking about this, but I really do think that we were one of the earliest to be talking about it and acting as far back as four years ago when people were thinking that occurrence liability was five points of loss inflation, and in certain areas, it's well over 10%. I think that we've been sensible stewards of our investors' capital in thinking about this.
Thank you.
Thanks, Tracy.
Thank you. Our next question comes from Andrew Kligerman from TD Cowen. Please go ahead.
Hey, good morning. First question is around the expense ratio. Just looking year-over-year at Skyward Specialty, you've taken it down from 27% to 24.3%. You mentioned, Andrew, in the prepared remarks, AI. Maybe you could talk about what you're doing there to get the expense ratio down and where it could go from here, from 24.3%. Maybe throw in Apollo's 37.5% and where that could go as well.
Good morning, Andrew. Thank you for the question. Let me just knock off the second part, the Apollo point. I would point to the first six months. I think that there were some adjustments that are flowing through that probably just make the six-month reference a better reference for you. Look, let me now sort of revert to Skyward Specialty and talk a little bit about the operating leverage and the expense ratio reduction. I will say, we're obviously being disciplined around any kind of cost and expenditure. We've long discussed our investment in technology. We've long discussed what we're doing in machine learning and predictive analytics. We've highlighted our success in different businesses. A&H is a great example. We've talked about SkyView, our award-winning underwriting workstation which is the single window pane that our underwriters access everything through. We've tried to put some new information out there for investors. You'll see in our investor deck, we talk about bionic underwriting, which is this idea of being able to automate the ingestion of everything that is submission related, with augmentation and agentic underwriting and learning to help the underwriters be far more efficient and effective. We give some statistics: 40% faster submissions to underwriters, 35% improvement in speed to quote. Half of our underwriting is benefiting from machine learning and predictive analytics. To bring it to life, within Surety, where we're clearly winning in comparison to our competitors, we are well down the path of using agentic AI at the individual principal level to manage our portfolio. We have built capabilities called SkyScore, which allows us to ingest all financial information without any human intervention to score every principal on 10 different dimensions and an aggregate score for our underwriters to be able to look at their portfolios and management. It's trended over time. It shows future-facing expectations on financial strength. At the individual opportunity level, underwriting a bond, we use agentic AI to ingest bond forms and contracts without any human intervention. We do 15-point checklists for bond forms, 12-point checklists for contracts against what we view as best practices. We're looking for things like force majeure and payment terms and termination conditions, and we're rating all of these key elements and delivering it to our underwriters. I've used this analogy: if you have an American football kickoff, instead of starting on your own 25-yard line, a touchback, we're starting the very first step of our underwriting process on the opponent's 20-yard line. I think you're seeing that not just in our results, like why Surety is growing profitably so much, but also you're seeing it in the expense ratio. I'm not going to set out any specific expectations or goals there. We're working hard at it. It requires investment, and it requires a capability inside the organization that has to be broad-based. It doesn't sit in one separate unit. It has to be across the organization. We have a lead, but that lead, if you let up, will be fleeting. We'll stay at it, and hopefully we'll continue to see the benefits flow through to our financials.
Got it. That's helpful. It sounds like, though, you can, Andrew, kind of keep the expense ratio level here as you continue to invest?
Yeah. I mentioned in the last call that doing this stuff is really expensive, and you are oftentimes doing things well in advance of realizing the benefits. If you don't have the ability to grow profitably, then there is a risk to back up on your expense ratio. I think we're at the other end of the spectrum. We have the ability to continue to fund the next piece and not have our expense ratio back up. That's how we see things right now, and I hope that the good trends that are visible in our results continue. Time will tell whether that's the case.
Makes sense. Then just my follow-up is around the global property area. You talked about, in your prepared remarks, the pricing pressure there. What do you like in global property? I know it's down 15% in the quarter; what were you seeing that you liked that you put on your books?
Well, actually, in this quarter, I think we added one account, just to be clear. We renewed mid-20s accounts and these are mostly longstanding accounts, and I think that we had a good retention rate there. There isn't a lot to like because one of our competitors described the marketplace as, frankly, irrational. I think that we're seeing that to be true. On the flip side, we have a world-class team. They've delivered really well. The facultative markets give us the opportunity to buttress the net pricing effects versus the gross pricing effects. When we talk about pricing, we're giving you gross numbers. Our net pricing effects are far lower because we write very large lines. We write the first layer above the self-insured retentions. We use facultative reinsurance to lay off at a time when the first line is a very large line because that's what soft markets do. The facultative markets allow us to retain profitability that looks far better than on a gross line basis. Our underwriters are great at it. So in a soft market, that's the one benefit that you get. I think we do it really well. We're entirely sensible, and you can see it in the facultative reinsurance that a business that went from $235 million in 2024 is going to be far smaller this year.
Thanks for that.
Thank you. Our next question comes from Michael Zaremski from BMO. Please go ahead.
Hey, great. Good morning. Maybe a couple Apollo questions, if I may. The 6% growth this quarter on premiums, is that seasonally impacted? I know 1Q was very strong at 45% or did anything in the operating environment change a bit?
Hey, Mike, good morning, and thank you for the question. The answer is absolutely. The most evident point is that the second quarter is a very large quarter for the property business on a global basis. Property is an area within Apollo's portfolio comparable to the Skyward Specialty portfolio that is being managed accordingly based on the market. I think what you're seeing is exactly what you identified, which is there's some seasonality running through, and as a result, I don't necessarily believe that the growth you see for the second quarter is indicative of how we can and will perform as a business. Time will tell on that as well.
That makes sense. I guess just probably for Mark, amortization expense came in around $14. I think the guide was $8.5. Any color there or any changes to the run rate we should be factoring in? Obviously understand this is non-cash.
Hey, Mike, it's Mark. The amortization of about $8.5 should be normalized. I'm scrambling, I don't know where you're getting your $14, but I'll follow up with you after that. $8's the run rate.
Okay, got it. Just, I think lastly, I asked this last quarter too, on the underwriting fee income again for Apollo. It came in around $23 million first half. The guide is still $30-$35 for full year. Just there's a seasonality in that as well, right? For the lower levels in the second half of the year.
Hey, Mike, this is Andrew. We like to set out guidance that we have a good level of confidence that we can achieve. I think that's playing through in our numbers. The team at Apollo has done an outstanding job across everything. You see that in the premiums under management and particularly the growth in the premiums that drive fees, which is really the third-party syndicate management piece of it, the Platform Partner syndicate piece. We feel pretty good about the progression there. I will say that when Mark referenced that number, it's really a net number. It's the fees that you see less the specific costs associated with those fees. We've also said that we believe that's a leveraged result. You see the costs are pretty flat quarter one to quarter two, and yet the fees have gone up. We think that there's leverage there. I just want to connect that the guidance there is really the net of that number, the gross fees less the cost.
That's right.
Got it. Just as a follow-up, Mark, my bad on the amortization. Yeah, in line with guides. Okay. Thank you for all the color.
Sure. Thank you, Mike.
Thank you. Our next question comes from Mark Hughes from Truist. Please go ahead.
Yeah, thank you. Good morning.
Hey, Mark.
In the A&H business, your distribution, your growth has been quite strong there. To what extent new distribution is driving that, new staff? Could you talk a little bit more about what's driving that operationally? When you reflect on the historical experience in the losses within A&H, is there more naturally a little more underlying variability, or should that be as predictable as the overall P&C exposures?
Hey, Mark. Good morning. Thanks for the question. On A&H, the growth is driven by product-market fit. We've always focused on medical cost management, and that is singularly our focus, particularly for smaller accounts. The thing that changed is we started a group captive concept, which opened up another market and has inflected positively for us. Distribution has evolved: early on, much of our distribution was through TPA relationships. Today, we're accessing most of our growth through retail brokers and firms that control benefits accounts. Our distribution feedback is that we are unique in what we're providing; there isn't another product like ours in the market. I don't think that will be like that forever, but growth recently has benefited from two large reinsurers pulling out who had awful results as a result of poorly performing MGAs, which has given more fuel to the market. Whether that flows directly to us or produces second-order effects isn't entirely clear, but it's another impetus. On talent, we're talent-driven. Mike Romica, our leader in that business, has done a world-class job. It's the unit where we have the most young talent coming into our company, and we've taken experienced talent from competitors. Talent tends to follow growth rather than lead it. Regarding volatility, our published NAIC results showed a 71 loss ratio in 2024 among our top 50 peers, which is among the best. Of course there's volatility, but it's not wild. Given the size of the business today, the range of outcomes is narrower than when the business was $80 million or $90 million. It's a short-tail business, so results are visible quickly.
Very good. Then, I'm not sure if you've touched on this earlier, but any update on the autonomous vehicle initiative within Apollo?
We're working hard, but I don't have anything formal to update you. We won't be shy when we have meaningful announcements. Chris Moore and the team at iBott are working closely with our U.S. team to target and pursue some business directly out of the United States, and hopefully we'll see outcomes in the near future.
Very good. Thank you.
Thank you.
Thank you. Our next question comes from Paul Newsome from Piper Sandler. Please go ahead.
Good morning. Thanks for the call. Stepping back, if we look at the first six months of premium change, quite a bit of mix change happening. If that mix change continues, how should we think of some of the basic metrics? I assume you're essentially pricing everything at the same kind of returns, does the tail extend given what we're doing? Are some of these, like A&H, have a higher Expense Ratio. How should we think of some of those basic metrics, assuming not necessarily next quarter, next year and thereafter if that mix change continues?
Paul, thanks. Great question. Since going public, we've been intentional around our portfolio construction. I hope investors appreciate how sensible we are being: we're not showing up and saying we've delivered 20%-25% growth in casualty because that's not possible sensibly while growing margins. We're being sensible. First, our tails are getting shorter; through the first six months inclusive of Apollo, more than 60% of our business has liability durations less than two years. Relative to Skyward Specialty, we would expect to see the Loss Ratio continue to rise slightly; Mark said he expects full-year accident years to be up a bit over prior year in aggregate, driven by mix from AG and A&H earning in, with a commensurate offset in our acquisition expense ratio. Combined Ratio expectations don't change materially, though geography and mix do. Apollo aids in diversification. We want to maintain balance; we do not intend to over-rotate. We will aim to keep no division larger than roughly 17% of our portfolio; staying below 20% for the largest division feels like the right risk spread. We'll be intentional and watchful as we move into next year and beyond.
Another big picture question: after you purchased Apollo, there was some thought you might reconsider how you use capital, using more Lloyd's syndicates, perhaps for U.S. businesses, changes in reinsurance. What's your most recent thinking about that structure moving between fee and risk businesses and from a big-picture perspective?
We like the highly aligned, underwriting capital-light model that Apollo has; it's a fantastic innovation and delivers high returns on capital. Our head of corporate development, Shakoor Khan, is working with Taryn on options: a whole-account quota share, whether into 1969 or a dedicated syndicate or another structure. We're still evaluating. One thing we're going to avail ourselves of is the internal reinsurance syndicate Apollo created in 1972 to more directly share in the economics of outwards reinsurance placement. We'll start rolling into next year using some portion of our outwards reinsurance into that as a small first step. Our thesis hasn't changed, and we'll act when we have confidence in the right structure and how to deploy any released capital.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from Randy Binner from Texas Capital. Please go ahead.
Hey, good morning. Thanks. I had a follow-up to Michael Zaremski's line of questioning on just kind of the fee income from Apollo. I guess we're getting a pretty good idea of what the pre-tax margin is. Maybe it's coming in in the 60s, by my calculation. Maybe you had a guide. The question though is the pre-tax margin we're seeing this year vis-à-vis that guide of $30 million-$35 million of pre-tax income, is that where that margin stays, or does that margin scale as that business grows now that it's a part of Skyward?
Hey, Randy. Thanks for the question. We're pleased to have you covering us. It's a business we believe has real earnings leverage, meaning that done the right way it can scale. Taryn and the team are working to manage this carefully. We're running about $4 million-$5 million of cost per quarter, and the relationship between growth, fees, and those underlying costs is not linear; there's leverage if we manage costs well. We're an important managing agent to Lloyd's; the work we're doing is new and valuable. As a process, we aren't updating guidance mid-year; we believe the guidance we provided is sensible and achievable. Our track record in the past three and a half years as a public company is that we've met guidance, and we'd like that to continue.
Understood. That's super helpful. I was thinking about it more kind of 2027, 2028, just longer term, if there's a lot of leverage, as you said, if that margin gets better. I had just another quick one on Apollo. I think you mentioned that the book there was seeing low single-digit decline in price, the underwritten book. Can you comment on how that compares to Lloyd's more broadly or put it in the context of that market?
Great question. I'd want James and Taryn to access Lloyd's class-level details. My sense is that we're doing better than Lloyd's broadly, but you have to unpack by class. Lloyd's has greater reinsurance concentration as a percentage of mix, and we don't write property cat similarly. We want pricing to be above loss cost trend. We may be shedding accounts where price looks good but underlying adequacy and underwriting quality isn't where we want it. If classes are soft, we move the portfolio to the highest quality business. There's a dynamic beyond pure rate.
Understood. That's helpful. Thanks for the answers.
Thank you.
Thank you. Our next question comes from Andrew Andersen from Jefferies. Please go ahead.
Hey, good morning. I wanted to go back on A&H for a second. You had mentioned some industry participants have struggled in stop loss and capacity has left some of that market. Are you seeing more growth there and better pricing, better terms, or simply more opportunities? And perhaps how has that changed your view of the appropriate loss ratio for that portfolio?
Great question. We're seeing more opportunity. Quarter on quarter we've been surprised to the upside. One-one is a big date; we'll see more visibility as we approach it. Some reinsurers who left the market because they were burned by MGAs created second-order effects that increased opportunity. Our growth is driven by product-market fit and effective medical cost management for smaller accounts. From a loss ratio perspective, this is a capital-light business and the allowable loss ratio sits above where we currently price. We haven't meaningfully changed our targeted loss ratio. In aggregate, it's a great position from growth and profit perspectives, and the short tail nature of the business is attractive.
Thanks. Just on the agriculture side, perhaps you could talk a bit about what's driving the growth there and maybe what you're seeing in terms of planting season and how that could shake out. Also some texture on ag, because I don't think it's U.S. MPCI, how should we think about that throughout the year?
Most of the growth in 2Q was premium true-ups, much related to the U.S. dairy livestock program. Our U.S. MPCI exposure is small, likely less than $50 million of our total premium. We focus on a diversified global book of subsidized programs where we can bound downside and achieve good outcomes. The growth you saw was driven by the U.S. dairy livestock price protection program. We're the ones who opened that market with a quota share reinsurance solution among major AIPs where we have relationships. We have quota share reinsurance support for a large portion of our book for the 7/1 renewal that allowed us to lock in profits via cede while providing upside for reinsurers. That validated our approach. The total market for the U.S. Dairy Livestock Program is about $2 billion and growing, and we're well-positioned to grow with it.
Thank you.
Thank you. Our next question comes from Bob Farnam from Brean Capital. Please go ahead.
Hey there, good morning. I wanted to continue on that question from Andrew. On the global ag book, where are your largest exposures outside of the U.S.? I was thinking because I'm not sure what, if any, impact there is from Europe with high temperatures, droughts, wildfires, and smoke and whatnot. I didn't know if that had much of an impact on your ag book.
Everything that's going on in the world—fertilizer pricing, weather—plays in. We have a well-diversified book including Canada, Brazil, China, and other Asian markets. There aren't many well-structured subsidized markets in Europe we access; our exposure there is smaller. We want market structures where we can participate and know we can achieve good outcomes while bounding downside; diversification is key. Fertilizer prices and weather are important factors in crop insurance globally, and they factor into why we've built this business the way we have.
Great. Thanks. Point taken. It's not just Europe that's having issues, it's everywhere. Thanks for the color on that.
Thank you.
Thank you. Our next question comes from Mark Hughes from Truist. Please go ahead.
Andrew, where do you think we are? How close are we to the bottom on property?
Mark, good question. The property market is broad—large to small, CAT to non-CAT, surplus lines to admitted—and it doesn't move in lockstep. There is likely too much capital chasing the market in many areas, particularly larger accounts and CAT, because it's easy for anyone with a model to show up and write business. That's part of why we've avoided CAT as a principal dimension: it comes and goes. It's hard to predict until major events occur. I think we are in a world where some participants are behaving irrationally, cutting prices significantly for multiple years, which is not sustainable. I wish I knew when cycles would shift, but they have short memories. We will remain sensible in how we deploy capital, let others overshoot if they choose, and protect our investors' capital.
Thank you.
Thank you.
Thank you. Our next question comes from Greg Peters from Raymond James. Please go ahead.
Hey, good morning. I'd probably touch on an area you haven't really talked much about yet, which is the investment income side of your results. Maybe you could go through some of the line items there. Obviously, there's some movement. Andrew, as you know, I'm probably going to call out the alternative strategic. I know there has been some management changes at one of your former money managers there. Just curious about how you're thinking about that small piece of the puzzle.
Hey, Greg, it's Mark. On the alternatives portfolio, we've talked about this for several quarters. We're disappointed in the results. We've been intentional in understanding the movements and underlying changes, but there's not a lot we can do about valuation movements in private funds. The alternatives exposure is about $65 million and it's disappointing, but small in the context of our $2.8 billion portfolio. For the rest of the portfolio, we've de-risked to generate consistent returns. About $2.5 billion of the $2.8 billion is in fixed income and short-term investments. We're happy with the risk-adjusted returns; we put new money to work at 5.6%. We don't want duration risk; we like the portfolio's current construction. We're working through the alternatives, but otherwise we like where we are and where we're putting money to work.
Got it. Just back to the market commentary. In one of your answers, you called out the surety business. We haven't talked about MGAs much this call, but I know one of your peers expressed some frustration with their surety business or the market. MGAs continue to be the talk of the town regarding whether they're behaving responsibly. Maybe you can close the loop and cover those two points for us.
Greg, thanks. First, a small number of players participate through MGAs in surety, but they're de minimis relative to the wider market and not impacting us materially. In surety, we believe we have the best team in the market and the best book of business—well-diversified across commercial and contract surety, trade, SBA, and non-SBA business. We're market-leading on product and technology, and other companies have called to ask how we do it. Talent, technology, product: that's the combination. That business was $7 million when I joined and today will cross $200 million in run-rate premium with outstanding returns and very low loss ratios. I don't need to pile on MGAs; there are excellent MGAs and some poor operators. Eventually, misbehavior will be exposed. We've already seen examples where reinsurers and participants have been burned. The timing of any broader correction isn't certain, but the stress in the market will show over time.
Thank you.
Thanks, Greg.
Thank you. Our next question comes from Meyer Shields from Keefe, Bruyette & Woods. Please go ahead.
Hey, good morning. This is Scott on for Meyer. Thanks for taking my question. You noted in the press release that the Apollo segment was impacted by some catastrophe losses in the Middle East. I'm just wondering, is Apollo taking advantage of rate increases as a result of the war? Are you staying more conservative in that area?
Thank you. It's a dynamic situation. Ceasefires while ships move through the strait are still being attacked; caution is warranted but we are seeking opportunities. We wrote accounts where we saw meaningful price movements but the exposure was second or third order relative to central action. We're being sensible: neither fully defensive nor aggressively leaning in. Our London team is managing this carefully. I hope extraordinary losses in political violence markets create a broad hardening rather than just a localized impact. We'll know more in the coming months.
Great. Thank you.
This concludes the question-and-answer session. I would now like to turn it back to Jordan for closing remarks.
Thanks everyone for your questions, for participating in our conference call, and for your continued interest in Skyward. I am available after the call to answer any additional questions you may have. We look forward to speaking with you again on our third quarter 2026 earnings call. Thank you, and have a wonderful day.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.