Bowhead Specialty (BOW)

Specialty insurance company Bowhead Specialty Holdings (NYSE:BOW) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 23.3% year on year to $143.9 million. Its GAAP profit of $0.45 per share was 14.2% above analysts’ consensus estimates.

Company Overview

Named after the Arctic bowhead whale known for navigating challenging waters, Bowhead Specialty Holdings (NYSE:BOW) is a specialty insurance company that provides customized coverage for complex and high-risk commercial sectors.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Bowhead Specialty's competitors include other specialty insurance providers such as Markel Corporation (NYSE:MKL), RLI Corp (NYSE:RLI), W.R. Berkley Corporation (NYSE:WRB), and Arch Capital Group (NASDAQ:ACGL).

Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and other value-added services. Bowhead Specialty’s annualized revenue growth rate of 42.1% over the last two years was incredible for an insurance business.

This quarter, Bowhead Specialty reported robust year-on-year revenue growth of 23.3%, and its $143.9 million of revenue topped Wall Street estimates by 1.2%.

Net premiums earned made up 90.7% of the company’s total revenue during the last three years, meaning Bowhead Specialty lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.

Bowhead Specialty’s net premiums earned has grown at a 37.9% annualized rate over the last two years, much better than the broader insurance industry but slower than its total revenue.

In Q3, Bowhead Specialty produced $128.4 million of net premiums earned, up a hearty 22.1% year on year and in line with Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio sums the costs of underwriting (salaries, commissions, overhead) as well as what an insurer pays out in claims (losses) and divides it by net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last two years, Bowhead Specialty’s combined ratio has increased by 3.7 percentage points, going from 92.8% to 96.5%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

In Q3, Bowhead Specialty’s combined ratio was 95.4%, close to analysts’ expectations. This result was 1 percentage points worse than the same quarter last year.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float–premiums collected but not yet paid out–are invested, creating an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

To investors’ benefit, Bowhead Specialty’s BVPS grew at an incredible 74.5% annual clip over the last two years.

Over the next 12 months, Consensus estimates call for Bowhead Specialty’s BVPS to grow by 13.5% to $12.84, solid growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Bowhead Specialty has no debt, so leverage is not an issue here.

It was good to see Bowhead Specialty beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its net premiums earned slightly missed. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $24.35 immediately following the results.

Updated: December 4, 2025 at 11:40 PM EST

Before deciding whether to buy Bowhead Specialty or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There is a lot to like about Bowhead Specialty. Although the company’s worsening combined ratio shows the business has become less productive, its net premiums earned growth was exceptional over the last two years. On top of that, its BVPS growth was exceptional over the last two years.

Bowhead Specialty’s P/B ratio based on the next 12 months is 1.9x. Scanning the insurance landscape today, Bowhead Specialty’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $34.57 on the company (compared to the current share price of $25.97), implying they see 33.1% upside in buying Bowhead Specialty in the short term.