ProSight Global, Inc. Annual Report 2019

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FY2019 Annual Report · ProSight Global, Inc.

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2019

ANNUAL REPORT

Contents

Letter to Shareholders
Financial Highlights
Our Philosophy
Our Leadership
Our People
Our Culture
Future of ProSight
10K

2019 Annual Report

Letter to Shareholders

Sustainable growth for the future of ProSight.

“Awesome.” It’s a word that means a lot at

ProSight, and in many ways describes our

performance in 2019. We built ProSight to be an

insurance company focused on specialized

niches, designed to deliver differentiated offerings

that are considered valuable by our customers.

From our expert underwriters and in-house claims

staff to our outstanding IT professionals,

everything we do is centered around providing

customers with valuable solutions and an

awesome experience.

Our customer contact center is a great example of

ProSight providing both value and an awesome

experience to our customers. In 2019, we

received our 10,000th customer feedback survey,

which unsurprisingly has a top rating of

“Awesome.” I am proud to share that since we

began tracking our customers’ experiences with

us, 92% of our surveys have come back with this

“We’ve come to this point by staying
true to who we are while continuously
striving to perform.”

Larry Hannon, CEO & President

top rating. These incredible responses don’t

What we do to make the experience with

happen by accident—they happen because we’ve

ProSight different matters, and our outstanding

built our company to focus on value and

customer contact center results are just one

experience. There are no scripts or time-

example of all the incredible work our employees

constraint goals to get a call complete at ProSight,

put in to making ProSight successful.

just a group of customer care associates that

want to make a difference by getting a customer’s

issues resolved as effectively as possible.

I am

fortunate that I get to regularly spend time with

our customer care team, and as it is whenever I

spend time with any of our employees, I am

always invigorated and enthused to see how they

make a difference for our customers and

distribution partners.

2019 Annual Report

YoY GWP Growth1

16.7%

Net Investment
Income Growth

23.1%

Throughout this annual report, you will see that we
have showcased our team and highlighted some of
our favorite moments. Headlined by our IPO in
July, 2019 was a banner year of achievements for
ProSight:

o July 25th: our first day of trading under the ticker

symbol PROS

o Record GWP of $900M. We added 6 new niches

to the 35 that we entered the year writing1

o Record adjusted operating income of $57.6M2

o Record net investment income of $68.9M.

We will continue to prioritize and invest in

technology to both achieve better operational

efficiencies and even more importantly, to enhance

the experience for our customers and distribution

partners. We will also continue to invest in the

culture of ProSight, ensuring that our employees

are able to grow their expertise, skills and careers

as they make a difference to our customers every

day. Finally, we recognize the responsibility we

have to society and the communities where we live,

operate, and offer insurance protection. This

responsibility will become increasingly important in

o 99% “Awesome/Good” customer feedback rating

how we make a difference to the businesses and

o Adjusted operating ROE of 12.4%2

people we serve.

o Supported over 120 local families through our

annual holiday gift drive

o Celebrated 120 ProSight employees during our

Recognition Reveal events

Moving forward from the achievements of 2019,
there is no denying the health and economic
challenges facing our nation and the world. As we
navigate these trying and uncertain times, it is
more crucial than ever that we stay true to our
values in order to fulfill our obligations to our
customers, partners, and employees.

2020 has brought with it new challenges and

unforeseen circumstances, but at ProSight, we are

ready to face them head on. I’m proud of our team’s

leadership and initiative, transitioning to a 100%

remote work environment that balanced the health

and safety of our employees with our obligations to

our customers and distribution partners. I am

confident that we will all persevere through this

adversity together.

Thank you for your investment in ProSight—in our

values and our people—and I wish you and your

families health and safety in 2020 and beyond.

"We're on the right path — it's time to
keep walking."

Larry Hannon, CEO & President

Larry Hannon

CEO & President

Going forward, we will remain focused on our
customer niches strategy, and look to expand into
new niches and customer segments in a
disciplined and profitable manner.

2019 Annual Report

1 As of December 31, 2019 and excludes terminated niches and other. Other
for YTD 2019 GWP was $68.2M. Other includes GWP from certain niches
that are no longer part of our ongoing business. All GWP from exited niches
are included in “Other” which consists of (i) primary and excess workers’
compensation coverage for exited Self-Insured Groups (ii) niches exited prior
to 2018, many with a concentration in commercial auto, (iii) certain fronting
arrangements in which all premium written is ceded to a third party, (iv)
participation in industry pools, and (v) emerging new business.

2 Adjusted operating ROE, adjusted combined ratio and adjusted loss ratio
are non-GAAP measures. See 10K for reconciliation of net income to
adjusted operating income.

Financial Highlights

Strong financial and operational performance.

Adjusted Operating ROE1

Market Cap2

Gross Written Premium3

12.4%

(2018: 14.4%)

$694M

$900M

(stock price: $16.13/share)

(2018: $771M)

Net Investment Income

Cash and Investments

$69M

(2018: $56M)

$2,193M

(2018: $1,830M)

Adjusted Combined Ratio1

Adjusted Loss Ratio1

98.0%

(2018: 96.6%)

61.4%

(2018: 59.6%)

Rating
A- (Excellent)

by A.M.Best

1 Adjusted operating ROE, adjusted combined ratio and adjusted loss ratio are non-GAAP measures. See
page 61 in the 10K for adjusted operating ROE definition. See page 62 in the 10K for reconciliations of
combined ratio to adjusted combined ratio and loss ratio to adjusted loss ratio. See page 82 in the 10K for
reconciliation of net income to adjusted operating income.

2 Market cap calculated off of closing stock price on December 31, 2019.

3 As of December 31, 2019 and excludes terminated niches and other. Other for YTD 2019 GWP was
$68.2M. Other includes GWP from certain niches that are no longer part of our ongoing business. All GWP
from exited niches are included in “Other” which consists of (i) primary and excess workers’ compensation
coverage for exited Self-Insured Groups (ii) niches exited prior to 2018, many with a concentration in
commercial auto, (iii) certain fronting arrangements in which all premium written is ceded to a third party, (iv)
participation in industry pools, and (v) emerging new business.

2019 Annual Report

Our Philosophy

We are PROS
We are experts that focus on and specialize in niches.

What we DO

o Our structure and expertise around the customer niche
enables us to create solutions for our customers that
help their business thrive

o We deliver our offerings through limited and expert

distribution partners specific to each customer niche

o Our profit-first underwriting philosophy and

disciplined approach to growth contribute to our
financial strength

What we BELIEVE

ProSight was built on the foundation that insurance
companies can, and should, provide valuable

solutions to customers—solutions that truly address
customers’ unique business needs.

What we VALUE

o Our team-oriented, results-driven culture built

o Our underwriting expertise, which helps drive

around supporting our customers

our profitability

o An acute focus on customer niches: refined
homogeneous groups of customers with
limited fragmentation

o The drive to provide the best customer
experience in the business—coupling
technology with a human touch

o Differentiation through innovative products,

services and third-party solutions

o Partnership with expert, limited distribution and
the institutionalization of those relationships

2019 Annual Report

Our People

The competitive value of a balanced workforce.

2019 Annual Report

Our Culture
Results-oriented environment focused
on delivering value for customers.

“We don’t want ProSight to be a company
you just work for. We want ProSight to be
your company—a place you help create.”

Kari Hilder, Chief HR Officer

Employee Development
Designed to Generate Success

Summit Series
Quarterly meetings in which the executive team shares
business objectives, corporate news, and other pertinent
information to employees.

ProSight Expedition Program
In-house, curated development program designed to
provide employees with comprehensive training to advance
their professional development.

Climber Composite Score
Development tool for employees, focused on ProSight’s
core competencies, that aides in continued personal and
professional improvement.

Clip-In Training Sessions
Lunch and learns, hosted by the executive team, that provide
employees with the opportunity to gain valuable insights into
leadership on a personal and professional level.

2019 Annual Report

Recognition Driven
by Performance

“RECOGNITION REVEAL” Day

Corporate celebration for employee performance

that allows for individual recipients to be recognized
by their fellow peers, as well as by the c-suite

executive team.

Ongoing recognition for top talent
within the organization

Gold Carabiner Award
C-suite recognition for employees who consistently
deliver unrivaled value to our customer, while
achieving a high Climber Composite Score.

Customer Experience Award
Monthly recognition for customer care associates who
are making a difference by delivering an awesome
experience to our customers.

Mountaineer Award
C-suite recognition for employees whose performance
goes “above and beyond” expectations and
represent the best of ProSight’s culture.

Bowline Expeditioner Award
Expanded leadership recognition for a cross-
department team that delivers exceptional work for
the organization and for our customers.

Blue Carabiner
Peer-to-peer recognition for performance, service to
our customers and contributions to ProSight—all
nominations are reviewed by c-suite team.

2019 Annual Report

Celebrating the
Future of ProSight
Continuing to deliver value for our
customers and shareholders.

“We are well-positioned to achieve
sustained profitability over the long-term,
allowing us to deliver true value to our
customers and shareholders.

Larry Hannon, CEO & President

The Next Step in Our Journey

o Bolster Our Talent Roster
o Sustain Company Prestige

o Maximize Shareholder Value

o Increase Focus on ESG Strategy

IPO Completion
July 29, 2019

2019 Annual Report

10K10K

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 1

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38996

ProSight Global, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

35-2405664
(I.R.S. Employer
Identification No.)

412 Mt. Kemble Avenue
Suite 300
Morristown, NJ 07960
(973) 532-1900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:
Common Stock, Par Value $0.01 per share

Trading Symbol(s)
PROS

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.

Large accelerated filer
Non-accelerated filer

☐
☒

Accelerated filer
Smaller reporting company
Emerging growth company

☐
☐
☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

As of June 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the registrant’s equity was not listed on a domestic

exchange or over-the-counter market. The registrant’s common stock began trading on the New York Stock Exchange on July 25, 2019.

There were 43,058,266 shares of Common Stock ($0.01 par value) outstanding as of February 21, 2020.

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EXPLANATORY NOTE

This Amendment No. 1 (“Amendment No. 1”) amends the Annual Report on Form 10-K of ProSight Global, Inc. (the
“Company”) for the fiscal year ended December 31, 2019, originally filed with the Securities and Exchange Commission
(the “SEC”) on February 24, 2020 (the “Original Filing”). This Amendment No. 1 is being filed solely to correct the
following:

• Table of Contents: the Table of Contents is being amended and restated as an incorrect version was included in

the Original Filing; and

• Part III, Item 11 “Executive Compensation” the Summary Compensation Table is being amended and restated
to correct certain amounts provided for Anthony Piszel and Robert Bailey, which were inadvertently misstated
in the Original Filing.

In connection with the filing of this Amendment No. 1 and pursuant to the rules of the SEC, we are including with this
Amendment No.1 new certifications by our principal executive and principal financial officers. Accordingly, Item 15 of
Part IV has also been amended to reflect the filing of these new certifications.

This Amendment No. 1 does not reflect events occurring after the Original Filing and does not modify or update in any
way the disclosures contained in the Original Filing except as set forth above.

Table of Contents

ProSight Global, Inc.
Index to Annual Report on Form 10-K

Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Part II
Item 5.

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Part III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Part IV
Item 15.
Item 16.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures

Page

5
27
49
49
49
50

50
52
56
88
90
140
140
140

142
150

159
162
166

166
173
174

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K (“Annual Report”) includes certain forward-looking statements that are

subject to risks, uncertainties and other factors, including in the sections entitled “Business,” “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking
statements include statements relating to future developments in our business or expectations for our future financial
performance and any statement not involving a historical fact. Forward-looking statements use words such as
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “should,” “seek,” and other words and terms of similar
meaning. Our actual results could differ materially from those anticipated in these forward-looking statements as a result
of many factors. Forward-looking statements in this Annual Report include, but are not limited to, statements about:

•

our strategies to continue our growth trajectory, expand our distribution network and maintain underwriting
profitability;

future growth in existing niches or by entering into new niches;

our loss expectations and expectation to decrease our loss ratio; and

our expectations with respect to the ultimate financial obligations to the buyers of our U.K. operations

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be

beyond our control. We caution you that forward-looking statements are not guarantees of future performance or
outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the
forward-looking statements contained in this Annual Report. In addition, even if our results of operations, financial
condition and cash flows, and the development of the market in which we operate, are consistent with the forward-
looking statements contained in this Annual Report, those results or developments may not be indicative of results or
developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop
as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to
differ from those reflected in forward-looking statements include:

•

the performance of and our relationship with third-party agents and vendors we rely upon to distribute
certain business on our behalf;

the adequacy of our loss reserves;

the effectiveness of our risk management policies and procedures;

potential technology breaches or failure of our or our business partners’ systems;

adverse changes in the economy which could lower the demand for our insurance products;

our ability to effectively start up or integrate new product opportunities;

cyclical changes in the insurance industry;

the effects of natural and man-made catastrophic events;

our ability to adequately assess risks and estimate losses;

the availability and affordability of reinsurance;

changes in interest rates, government monetary policies, general economic conditions, liquidity and overall
market conditions;

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•

changes in the business, financial condition or results of operations of the entities in which we invest;

increased costs as a result of operating as a public company, and time our management will be required to
devote to new compliance initiatives;

our ability to protect intellectual property rights;

the impact of government regulation, including the impact of restrictions on our business activities under
the Bank Holding Company (“BHC”) Act;

our status as an emerging growth company;

the absence of a previous public market for shares of our common stock; and

potential conflicts of interests with our principal stockholders.

We discuss many of these risks in greater detail under the section titled “Risk Factors” in Part I, Item 1A of this
Annual Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We
qualify all of the forward-looking statements in this Annual Report by these cautionary statements. Except as required by
law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.

References to the "Company," "ProSight," "we," "us," and "our" are to ProSight Global, Inc. and its
consolidated subsidiaries unless the context otherwise requires. References to “insurance subsidiaries” are to New York
Marine and General Insurance Company (“New York Marine”), Gotham Insurance Company (“Gotham”) and
Southwest Marine and General Insurance Company (“Southwest Marine”) unless the context otherwise requires.

Item 1. Business

Overview

PART I

We are an entrepreneurial specialty insurance company that since our founding in 2009 have built products,

services and solutions with the goal of significantly improving the experience and value proposition for our customers.
Our main office is located in Morristown, New Jersey and our common stock is publicly traded on the New York Stock
Exchange (“NYSE”) under the symbol “PROS”.

We are led by a highly experienced and entrepreneurial team with decades of insurance leadership experience at

the Company and other leading insurers. We write property and casualty (“P&C”) insurance with a focus on
underwriting specialty risks by partnering with a select number of distributors, often on an exclusive basis. We have a
diverse business mix covering specialty niches within the eight customer segments in which we operate. We market and
distribute our insurance product offerings in all 50 states within the United States of America, on both an admitted and
non-admitted basis. We are focused on delivering consistent underwriting profitability with low volatility of
underwriting results.

Our History

We were founded in 2009 by members of the current management team and secured capital commitments from
affiliates of each of The Goldman Sachs Group, Inc. (“Goldman Sachs”) and TPG Global, LLC (“TPG”). We established
our insurance operating platform and acquired our insurance subsidiaries through the acquisition of New York Marine
and General Insurance Company (“New York Marine”) in 2010. We write insurance out of three subsidiaries: New York
Marine, Gotham Insurance Company (“Gotham”) and Southwest Marine and General Insurance Company (“Southwest
Marine”). New York Marine is admitted in 50 states, Washington D.C., Puerto Rico and the Virgin Islands. Southwest

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Marine is licensed in 49 states and Washington D.C. and is eligible to write on a non-admitted basis in New York.
Gotham is admitted in New York and is eligible to write on a non-admitted basis in 49 states and Puerto Rico.

The insurance subsidiaries participate in a risk sharing pool managed by ProSight Specialty Management
Company (“PSMC”). This structure allows us to leverage the efficiencies of having a single vehicle managing operations
and providing back-office services across our business. All premiums, losses and expenses written by our insurance
subsidiaries are pooled and then are allocated to these three insurance subsidiaries in accordance with their respective
pool participation percentages. The pool participation percentages are 80% for New York Marine, 15% for Gotham and
5% for Southwest Marine.

In 2011, we formed a Bermuda holding company structure and acquired several entities in the United Kingdom

in order to build Lloyd’s Syndicate 1110 (“Syndicate”). By 2016, however, we concluded that our business model’s
emphasis on niche expertise and exclusive distribution, as well as our high profit expectations, made for an inappropriate
fit with the Lloyd’s marketplace on a cost-effective basis. In 2017, we placed the Syndicate into run-off, and then
entered into a two-phase sale transaction to exit our U.K. operations, which closed in October 2017 and March 2018. See
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting
Our Results of Operations on this Annual Report on Form 10-K.

Prior to July 25, 2019, the Company was a wholly-owned subsidiary of ProSight Global Holdings Limited
(“PGHL”), a Bermuda holding company. Effective July 25, 2019, prior to the completion of the Company’s initial
public offering (“IPO”), PGHL merged with and into the Company, with the Company surviving the merger (the
merger). The prior holders of PGHL’s equity interests (other than holders of PGHL profit interests known as “P Shares”)
received in the aggregate, as merger consideration, the right to receive 6.46 shares of the Company’s common stock for
each such outstanding PGHL equity interest. The total merger consideration was 38,851,369 shares of the Company’s
common stock, which then comprised 100% of the shares of the Company’s outstanding common stock. All P Shares
then outstanding were forfeited in connection with the IPO.

As a result of the merger, the assets and liabilities of the Company include, effective July 25, 2019, the assets

and liabilities of PGHL. In addition, on July 24, 2019, in connection with the merger, the Company’s duly adopted
amended and restated certificate of incorporation (the “Certificate of Incorporation”) became effective, providing for,
among other things, the authorization of 200,000,000 shares of common stock and 50,000,000 shares of preferred stock.
All share and per share amounts in the audited consolidated financial statements and related notes have been restated for
all historical periods presented to give effect to the merger and related conversion of shares, including reclassifying an
amount equal to the change in value of common stock to additional paid-in capital, as well as the effectiveness of the
Certificate of Incorporation.

Prior to the merger, PGHL’s subsidiaries ProSight Specialty International Holdings Limited (“PSIH”) and

ProSight Specialty European Holdings Limited (“PSEH”) were merged with and into the Company, effective February
5, 2019. Additionally, effective February 5, 2019, ProSight Specialty Bermuda Limited (“PSBL”) became a wholly-
owned subsidiary of the Company. Prior to February 5, 2019, PSBL was a wholly-owned subsidiary of PSEH.

Our Customer Segments and Niches

We define ourselves by the customer segments and niches we serve. We deliver our value and risk solutions

through coverages, services we provide and third-party solutions that are attractive to our customers. We utilize our
expertise in underwriting and claims to opportunistically pursue profit opportunities.

We currently write insurance coverage in eight customer segments across a broad range of specialty lines of

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insurance industry. On January 28, 2020, the Company announced that it will expand its insurance solutions portfolio
into the captive insurance market.

From time to time we reallocate existing niches to new or different customer segments in order to align them
more efficiently, for reasons that may include the evolution of business or customers in that niche, the establishment or
discontinuance of related niches, changes in responsibilities of our management team handling the segments, among
others. All historical customer segment information is presented in accordance with the current composition of our
customer segments and such reallocation of premium amounts, and as a result some customer segment information may
differ from amounts previously reported.

Over time, the composition of business within our customer segments evolves as we identify certain niches that

present opportunities to develop distinct customer solutions with attractive profit potential and others that were at one
time attractive but may become less so. We believe our ability to remain nimble during changing market conditions is
one of our key competitive advantages.

Our eight customer segments are described below:

Media and Entertainment

Our Media and Entertainment customer segment offers solutions to customers engaged directly in the film

production and live media. We provide full support for our Media and Entertainment customers’ commercial insurance
needs, including package policies (property and general liability), umbrella and excess, auto, workers’ compensation,
and specialized productions (cast, props, sets and wardrobe). Our Media and Entertainment customers benefit from our
experience and expertise through our offerings of differentiated coverages and can take advantage of innovative products
such as SecureMed® and Music Mends®.

Our expertise in this customer segment comes from understanding the specific risks and requirements our

media customers face, such as the unique equipment they employ. This expertise has enabled us to develop innovative
solutions for our Media and Entertainment customers, which helps our customers manage risk. Our niches in the Media
and Entertainment customer segment currently are:

• Film. Providing specialized inland marine, general liability, workers’ compensation, umbrella and excess,
auto, property, and crime coverage for feature films, documentaries, commercials, music videos, episodic
television shows and student films, ranging from small independent productions to Hollywood
blockbusters, wherever they may shoot.

• Live Entertainment. Providing workers’ compensation, general liability, umbrella and excess, auto, inland
marine, property, and crime coverage for a wide range of live events, concerts, festivals and theatre,
including the associated staging, rental and service technicians.

Gross written premium (“GWP”) for our Media and Entertainment customer segment was $124.9 million and
$119.9 million in the years ended December 31, 2019 and 2018, respectively. Prior to September 30, 2019, our Motor
Sports and Country Clubs niches were part of our Media and Entertainment customer segment. Such niches are now part
of our Sports customer segment.

Real Estate

Our Real Estate customer segment is designed to support the ownership and/or management of buildings,
multifamily residential properties or mixed-use urban buildings. We write property, general liability, umbrella and
excess and course-of-construction policies for our Real Estate customers and differentiate ourselves through offerings
such as Building and Tenant Protection Plus and our manufactured housing endorsement. We address our insureds’
unique needs through various specialized offerings, including flexible policy periods, project specific policies and all
line solutions covering special considerations, such as hotel amenities.

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We believe that our Real Estate customer segment generates value for our customers because our industry

expertise and flexible platform enable us to confidently underwrite risks that many of our competitors seemingly avoid
due to the uniqueness of the risks involved. Within our Real Estate customer segment, we currently tackle complex risks
in the following niches:

• Builders Risk. Providing inland marine coverage for buildings while under construction.

• Hotels. Providing general liability, property, and umbrella coverage to the owners and operators of

franchise hotels focused on business travelers.

• Manufactured Housing. Providing general liability, property, auto, inland marine, and crime coverage to

manufactured housing communities (not including campgrounds or temporary trailer parks).

• Metrobuilders. Providing general liability, property, and umbrella coverage to general contractors who

build exclusively in the five boroughs of New York City.

• Property Managers. Providing general liability, property, and umbrella coverage to property managers of

mixed-use buildings in and around the five boroughs of New York City.

• Residential. Providing property, general liability, and umbrella coverage to residential building owners and

property managers.

•

Self Storage. Providing general liability, business owners policy, property, umbrella, and crime and fidelity
coverages for franchise self-storage facilities.

GWP for our Real Estate customer segment was $167.6 million and $132.7 million in the years ended

December 31, 2019 and 2018, respectively.

Professional Services

We offer professional liability and commercial insurance products to customers that sell professional advice or

services, generally requiring a specialized license. Products offered include professional liability, umbrella, surety and
excess, package lines and specialized banking covers. Our specialized approach to addressing this customer segment
includes solutions to address risks facing Professional Services customers through the application of background checks,
data protection, data compromise and risk management services. Niches in the Professional Services customer segment
where we put our industry expertise to work currently include:

• Accountants. Providing professional liability coverage to small and medium-sized accounting firms.

• Credit Unions. Providing crime, professional liability, property, general liability, workers’ compensation,

auto, umbrella, and inland marine coverages to small and mid-sized credit unions.

• Customs Brokers. Providing marine, commercial package and continuous U.S. Customs and Border

Protection bonds for importers and property broker bonds for freight forwarders.

• Lawyers. Providing professional liability coverage to law firms across the United States ranging from local

and regional firms to firms with national and international practices, many of which are listed in the
AmLaw 200, a listing of the largest 200 law firms in the United States by gross revenue.

• Pest Control. Providing general liability, property, inland marine, and crime coverage to customers in the

pest control industry.

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GWP for our Professional Services customer segment was $119.3 million and $110.5 million in the years ended

December 31, 2019 and 2018, respectively.

Transportation

Our Transportation customer segment is defined by several subsets, but generally involves the transportation of
either passengers or freight and covers a diverse group of niches which are described below. We write a wide variety of
P&C coverage for our Transportation customers, including commercial auto liability and physical damage, umbrella and
excess, general liability, property, inland marine and workers’ compensation.

In addition to our tailored coverage, our Transportation products are differentiated by technology and other

services, such as application of proprietary risk management technology, data protection services, background checks
and drug testing programs. Our niches in the Transportation customer segment where we apply our differentiated
solutions and expertise currently include:

• Charter Bus. Providing auto, excess or umbrella, and general liability coverage to customers in the charter

bus business, sightseeing and tour operations or hotel and employee haul operations.

•

Intermodal Transportation. Providing auto and general liability to customers with ten or more units in the
business of local and line haul freight delivery (within a 100-mile radius) of non-hazardous commodities to
regular destinations.

School Bus. Providing auto, umbrella, general liability, excess liability, property, inland marine, and crime
coverage to school bus operators.

• Taxis. Providing auto liability and excess liability coverage to customers ranging from single operators to

large sophisticated fleets.

GWP for our Transportation customer segment was $112.2 million and $92.2 million in the years ended

December 31, 2019 and 2018, respectively. Prior to September 30, 2019, our Propane & Fuel Dealers niches were part
of our Transportation customer segment. This niche is now part of our Marine and Energy customer segment.

Construction

Our Construction customer segment focuses primarily on customers in several key areas of the construction

trade. We offer property, general liability, workers’ compensation, commercial auto and excess coverage to our
Construction customers as well as a variety of proprietary covers, such as OOPS® Coverage.

Our Construction customer segment makes use of our flexible platform given the variety of risks presented by

the numerous members of the construction trade which require specialized coverage. Our niches in the Construction
customer segment where we have identified and created solutions for previously underserved customers currently
include:

• Construction Managers. Providing professional liability, excess liability, general liability, and property

coverage to construction managers, who are largely responsible for the planning and coordination of large-
scale projects but generally do not assume the risk of a general contractor.

• Cranes. Providing general liability, workers’ compensation, excess, and auto coverage to crane rental

companies.

• Federal Contractors. Providing general liability, workers’ compensation, auto, and umbrella coverage to

general contractors whose revenue is primarily derived from federal, state or municipal government-funded
projects.

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• Luxury Home Builders. Providing general liability and excess liability coverage to general contractors who

focus on building high value homes.

• Marine Contractors. Providing workers’ compensation, marine liability package, marine umbrella,

protection and indemnity, auto, inland marine, and property coverage to general contractors who serve the
maritime industry.

•

Scaffolding. Providing an all lines solution including general liability, workers’ compensation, excess, and
auto coverage to scaffolding rental companies.

Specialty Trade Contractors. Providing general liability and umbrella and excess coverage to large trade
contractors who specialize in a single construction trade but who, as general contractors, still sub-contract
the vast majority of the project.

GWP for our Construction customer segment was $117.9 million and $101.9 million in the years ended

December 31, 2019 and 2018, respectively.

Consumer Services

Our Consumer Services customer segment works with a number of consumer-centric organizations, including

many not-for-profit organizations. We provide our Consumer Services customers with workers’ compensation, package,
umbrella and excess and commercial auto coverage.

Our Consumer Services customer segment primarily focuses on identifying and crafting policies and solutions
for the nuanced risks generated from the manner in which these customers’ employees or volunteers engage with their
customers or clients. We offer differentiated solutions to our Consumer Services customers through our diversity of
offerings and products and services, specific to each niche. Our niches in the Consumer Services customer segment
currently include:

• Auto Dealers. Providing property, umbrella, crime, and general liability coverage to franchised auto

dealers and truck dealers with new car sales.

• Franchise Equipment Dealers. Providing auto, workers’ compensation, property, umbrella, inland marine,
general liability, and crime coverage to dealers that engage in the sale or long-term leasing of construction
equipment.

• Professional Employer Organizations. Providing workers’ compensation coverage to providers of human
resources solutions to small and medium sized employers that lack the infrastructure to provide human
resources services internally.

• Restaurants, Bars and Taverns. Providing general liability, liquor liability and property coverage to

restaurants, bars and taverns. We believe our proprietary coverage extensions and services provide
additional value to our customers.

•

Social Services. Providing workers’ compensation, general liability, property, auto, umbrella, crime, and
inland marine coverage to nonprofit organizations that serve their communities.

• Parking Facilities. Providing general liability, auto, property, inland marine, umbrella, workers’

compensation, garage keepers’ legal liability, and professional liability coverages to owners of parking
garages, valet companies, park and rides, airport parking, and parking lots.

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•

Snow & Ice Removal. Offering general liability, employee benefits liability, and stop gap liability
coverages for snow and ice management contractors who service private premises such as office
complexes, schools, residential driveways, and convenience stores.

• Animal Welfare. Providing general liability, auto, property, inland marine, umbrella, crime and fidelity,

professional liability, and directors and officers liability coverages to animal rescue shelters, that primarily
foster cats and dogs.

GWP for our Consumer Services customer segment was $133.7 million and $107.1 million in the years ended

December 31, 2019 and 2018, respectively.

Marine and Energy

We offer a broad array of very specialized coverages to customers that own or service assets in the maritime

trades, the upstream energy space both on and off shore and the growing solar energy sector. Our policies in the Marine
and Energy customer segment generally focus on third party liabilities arising out of property damage and bodily injury,
but, consistent with our overall approach to insurance, we also cover more subtle, distinctive risks that arise in each
niche. Our differentiators in the Marine and Energy customer segment include our cost of iron endorsement and
equipment rental coverage.

We view the Marine and Energy customer segment as being well-suited to our emphasis on using industry

expertise and highly tailored coverages to create value for our customers. For example, we recognize that solar
contractors often face risk of professional liability arising out of their design of solar energy production systems and we
view this distinct risk profile as an opportunity to craft customized coverages for such customers. Our niches in the
Marine and Energy customer segment where we generate bespoke solutions currently include:

• Ocean Marine. Providing marine umbrella and excess, property, protection and indemnity, pollution

liability, marine cargo, vessel hull and machinery, marine liability, inland marine, maritime employers
liability, workers’ compensation, and charterer’s liability coverage to customers with over the water or
maritime exposures.

• Petroleum Services. Providing auto, umbrella, general liability, inland marine, workers’ compensation,

property, and crime coverage to exploration, production and contracting companies in the upstream energy
sector.

•

Solar Energy. Providing workers’ compensation, general liability, auto, umbrella, property, inland marine,
and crime coverage to solar energy contractors.

• Propane & Fuel Dealers. Providing auto, general liability workers’ compensation, excess liability,

property, inland marine, and crime coverage to wholesale distributors of propane and fuel oil and retail
distributors of propane and fuel oil to homes, farms and commercial establishments.

GWP for our Marine and Energy customer segment was $94.1 million and $83.0 million in the years ended

Sports

We use our deep industry expertise to offer a wide range of flexible coverages that meet the complex and

evolving needs of our Sports customer segment. The world of sports presents unique and challenging risks,
whether for racetracks, driving schools, water sports, private country clubs or public golf courses. We created
comprehensive insurance and risk management solutions from participant and spectator liability to shell
corporations for professional athletes in the public eye.

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Our policies focus on general liability, workers’ compensation, participant accident, commercial auto, excess

liability and drone liability. Differentiators and added value services include e-waivers, a more efficient process to
collect, store and manage waivers, as well as payment programs that allow racetracks and motorsport facilities to take
rain-out credits in advance. Our niches in the Sports customer segment include Aquatic Recreation, Country Clubs,
Sports and Motor Sports. Our niches in the Sports customer segment where we develop such tailored coverages currently
include:

• Motor Sports. Providing general liability, property, workers’ compensation, umbrella and excess, auto,

inland marine, and crime coverage for motor sporting events.

•

Sports. Providing workers’ compensation, general liability, umbrella and excess, auto, inland marine,
property, and crime coverage for a wide range of sporting events, venues and athletes and athletic
participants.

• Country Clubs. Providing property, general liability, umbrella, auto, workers’ compensation, crime, and

inland marine coverage to private golf and country clubs, public golf courses, golf management companies,
associations, as well as tennis, swimming and other recreational clubs.

• Aquatic Recreation. Providing general, watercraft and marine liability, as well as crew and hull coverage to
rental and watersports companies involved in parasail, jet ski, and water ski/wakeboard instruction, among
others.

GWP for our Sports customer segment was $30.1 million and $23.6 million in the years ended December 31,
2019 and 2018, respectively. Prior to September 30, 2019, our Motor Sports and Country Clubs niches were part of our
Media and Entertainment customer segment. Such niches are now part of our Sports customer segment.

Other

“Other” includes all GWP from exited niches, developing customer segments that remain immaterial, certain
fronting reinsurance arrangements, and participation in pools and associations. “Other” GWP primarily consists of the
following components:

• Primary and excess workers’ compensation coverage for self-insured groups sourced through Midlands, a

managing general underwriter (“MGU”) that was acquired by a third-party insurance carrier in
January 2019. We wrote business sourced through Midlands since our acquisition of New York Marine in
2010, including $69.1 million of GWP for the year ended December 31, 2019. Because we acquired this
business in connection with our founding and did not develop it organically, the business sourced through
Midlands lacked the differentiation that we would develop as part of any new niche we have entered since
our founding. Due to these factors, coupled with certain unfavorable general market conditions for excess
workers’ compensation, we decided to exit this niche in the first quarter of 2019. As a result, we do not
anticipate any future premiums from this business after the first quarter of 2019 beyond premium
adjustments from existing policies.

• Niches which we have terminated, the majority were focused on commercial auto such as Long Haul

Trucking, Towing, Chauffeured Transportation, Settlement Carriers and Pizza Delivery.

• Participation in industry pools and associations, the largest of which is the National Council on

Compensation Insurance (“NCCI”).

GWP related to “Other” was $68.2 million and $124.2 million in the years ended December 31, 2019 and 2018,

respectively.

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Our Competitive Strengths

We believe that the following competitive strengths have supported our success to date and provide a

foundation for future growth:

• Focus on profitable niches of the market where we have industry leading expertise and can deliver
value to our customers. We have been selective in developing our niches within customer segments for
which we have in-house expertise and will continue to focus on providing differentiated products, services
and solutions that truly serve customer needs and offer attractive and profitable growth opportunities. We
have a strong focus on fragmented and underserved markets which we believe have an attractive risk-
adjusted return profile. We choose to avoid markets that are susceptible to commoditization by incumbent
industry participants. We have specific and unique expertise such as underwriting knowledge and data, loss
mitigation techniques, customer access, and claims handling for each niche that we believe are difficult to
replicate. We believe that this expertise enables us to accurately price risk, deliver profitable underwriting
results, and retain this profitable business. We have aligned our organization accordingly such that our
underwriting, operational and claims personnel are dedicated to specific niches within a given customer
segment, which differentiates us and we believe is an important component of our financial performance.
Our niche focus provides several important benefits to our underwriting results:

• Homogeneous insureds. We believe that the inherent homogenous nature of insureds within a
relatively narrow and descriptive niche means that collectively the actuarial result will be more
credible and more susceptible to analysis, should results suggest that improvements or changes are
required.

• Expertise in execution. Unlike many of our competitors, our communication is delivered directly to

the underwriter or MGU who deals exclusively with the applicable customer rather than through layers
of generic management and geographic leadership teams to underwriters that only occasionally touch
such a niche.

• Predetermined aggregations and exposure profiles at the niche level. When we launch a new niche,
significant diligence and research is performed. This allows us to impose aggregation limits, price
targets for catastrophic loss loads and/or buy appropriate reinsurance before the first account is written
in the niche, which we believe results in a more predictable and profitable growth pattern for our
niches.

• Creation of products, services and solutions that deliver a high value proposition to our

customers. We believe we will continue to succeed by proactively developing what we refer to as
“differentiators,” which can be in the form of products, services, or solutions that are tailored to our
customers. We often partner with our customers and distributors when developing differentiators and
leverage their particular knowledge of their own needs and the needs of their customers, respectively.
Unlike typical insurance companies, we co-own the intellectual property associated with the differentiators
developed with our distributors during the term of our contractual relationships, allowing for a better
alignment of incentives. We have dozens of differentiators across our niches, with many differentiators
applicable to multiple niches. Examples of our differentiators include a customer solution called
SecureFleet®, which provides video camera devices for commercial vehicles to monitor driver behavior and
manage claim activity. This solution is available to customers across multiple niches. We believe our
customers place meaningful value on the collective offering of differentiators we provide, which
distinguishes us in the market. In addition, we aim for and achieve an exceptional customer service
experience, as supported by over ten thousand survey responses since June 2017 with 92% rating the
experience as “awesome” and 99% as “awesome” or “good”.

• Sophisticated underwriting tools that deliver prompt underwriting responses and profitable
results. We have developed a multi-faceted pricing strategy that is tightly integrated into niche
development, from inception to maturity. Pricing begins when a new niche is identified and submitted for

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internal review and approval by underwriting and actuarial management, which we believe produces a
filtering mechanism that helps us pursue only the opportunities best aligned with our strategy. For those
niches that make it through the submission process, targets and metrics are established immediately to
monitor the early development of the niche. We believe such monitoring allows for early detection of
anomalies which can then quickly be remedied by the underwriting team. We employ our ProSight Climber
GPS application to conduct such monitoring and review of our underwriting and reserving decisions on a
real-time basis. Each niche undergoes a detailed annual pricing analysis that is utilized in the niche review
process. These reviews incorporate a wide range of inputs such as trend, development, price change,
underwriting changes, and claims results. We are highly selective in choosing which new opportunities to
pursue; we estimate that we decline approximately 80% of the opportunities we evaluate. We believe that
this comprehensive and collaborative approach results in profitable growth for us.

• Long-standing and selective relationships with our distribution partners. We have designed an
innovative distribution model with a highly targeted customer focus by engaging a limited number of
distribution partners. For each niche, we partner with either a single or a select group of specialist
distributors who have a deep understanding of our customers and their risk profiles. Each of our
distribution partners undergoes a rigorous due diligence process before they are selected. In many of our
niches, our agency and brokerage relationships are structured so that we work with a particular distribution
partner on an exclusive basis. More than 70% of our 2019 GWP was produced on such an exclusive basis.
Our goal is to structure distribution relationships so that we are aligned with the distributor towards
achieving scale and underwriting profit in our customer segments, and they are compensated accordingly.
By offering exclusivity and an aligned compensation structure, we incentivize our distributors to deliver
value to our customers and offer them an advantage over generalist agents.

• Highly entrepreneurial culture and management team with a track record of success. We have a

seasoned and entrepreneurial management team with decades of experience. Each member of our executive
management team has served in a senior leadership role at a major insurance company prior to joining the
Company, and our founders all have extensive careers in underwriting. Our current leadership team has
founded and built the Company from the ground up and has strong alignment of interest with stockholders.

We are led by our Chief Executive Officer (“CEO”), Lawrence Hannon, a founding member of the Company.

Mr. Hannon has more than 29 years of underwriting and operational experience in the insurance industry. Prior to
becoming Chief Executive Officer in May 2019, Mr. Hannon served as Chief Operating Officer. Prior to joining the
Company, Mr. Hannon was the Chief Sales & Marketing Officer at Fireman’s Fund Insurance Company and previously
spent fourteen years at Chubb Limited in various leadership and underwriting positions.

Our Chief Underwriting and Risk Officer (“CURO”), Robert Bailey, is a founding member of the Company and

responsible for underwriting, risk management and reinsurance. Mr. Bailey has more than 30 years of underwriting
experience in the insurance industry. Prior to joining the Company, Mr. Bailey was the Chief Underwriting Officer of
Commercial Lines at Fireman’s Fund Insurance Company and previously spent seven years at Cigna in various
leadership and underwriting positions.

Our Chief Financial Officer (“CFO”), Anthony S. Piszel, joined the Company in 2012. Mr. Piszel has more than

39 years of experience in the financial services industry including as Chief Financial Officer of public companies. He
previously was Chief Financial Officer at CoreLogic, First American Corporation, Freddie Mac, and Health Net,
Controller of Prudential Financial and Audit Partner at Deloitte & Touche. Mr. Piszel also served as a practice fellow at
the Financial Accounting Standards Board.

Our Chief Legal Officer (“CLO”), Frank D. Papalia, joined the Company in 2011. Mr. Papalia has over
33 years of legal and business experience in the insurance industry and, prior to joining the Company, served as General
Counsel and Member of the Management Board of PARIS RE Holdings, a publicly traded reinsurance group.
Mr. Papalia was also General Counsel of AXA RE from 2003 to 2006 and Vice President and Counsel with AXA
Financial.

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We have instilled this entrepreneurial mentality throughout all levels of our Company. Our employees are
encouraged to be proactive, to service our customers and distributors and ensure the success of our Company. We
believe our people are our greatest strength, and we work consistently to foster a culture emphasizing customer focus,
professional growth, accountability, and performance. This mentality is built into the mechanisms of our employee
assessment and compensation. For example, to assess performance, we developed our proprietary “Climber Portal”, a
cloud-based, branded internet suite that includes a nine-factor competency-based review system in which employees and
their managers assess performance based on skills-strength and actual contributions. In this manner, performance is
documented throughout the year in an ongoing interactive dialogue.

• Deep investment in and innovative approach to technology. Technology is a core competency of the

Company and at the heart of how we deliver our high value customer proposition. We have an exclusively
configured, scalable, and digitally-enabled technology platform built for growth, data integrity, and
efficiency, which allows us to deploy the necessary technologies to respond quickly to business
opportunities. We have invested in the development of a modern core insurance system for policy
administration and billing that forms the foundation of our customer facing digital technologies. As a
result, we can rapidly develop flexible, customer facing solutions. We have demonstrated our ability to
develop and deploy digital products for our agents and customers that are delivered via the web over
desktop and mobile devices. We consider our ability to meet ever increasing customer demands for
anytime, anywhere access as a competitive strength compared to traditional and emerging carriers.

The key features of our technology, which support our business model are: (i) We are not burdened by multiple

legacy systems and are therefore able to quickly respond to changing industry dynamics and focus our information
technology (“IT”) investments on innovation. (ii) Our core customer-facing policy administration and billing systems,
“ProSight Premiere”, have been architected and developed by us, and are internally maintained, to meet the needs of our
growing insurance business. (iii) Through our exclusive enterprise data warehouse and financial reporting system
“ProSight Climber GPS”, we have the ability to access and mine data to manage our business and help inform our
underwriting and reserving decisions on a real-time basis. (iv) Our application programming interface (“API”)-enabled
core systems and strong mobile development capabilities allow our customers and agents to interact with us in an easy
and efficient manner. Our interactive platform, ProSight Online, is available to all of our customers and allows them to
view policy, billing, claims and loss information, all from a mobile device. (v) Our unified cloud infrastructure enables
us to operate our platform efficiently, deploy new services rapidly, and scale for the future.

• Scalable platform built for continued growth. We have built our systems, processes and technology

platform to be easily scalable with limited incremental marginal cost, as we see multiple opportunities to
grow our business at a rate that is well in excess of the broader P&C insurance industry. Our licensing,
infrastructure and applications have been designed to support a significantly larger book of business, and
also have the ability to manage a high volume of small business customers through our proprietary direct to
consumer technology platform. We currently have a competitive expense ratio that we expect to decrease
over time as we expand our premium base and diversify our distribution channels that are available to
cover the largely fixed costs of maintaining this infrastructure. Our absence of legacy infrastructure and
systems means we can direct our spending towards expanding our technology leadership rather than
maintenance and upkeep of outdated technology.

Our Strategy

Our objective is to leverage our competitive strengths to achieve profitable and sustainable growth. We have

built a large, diversified and seasoned in-force book of business. Our strategy is built on the following principles:

• Utilize our specialized products, services and solutions to continue our growth trajectory in markets
where we exhibit expertise. We have been selective in developing our target niches and will continue to
focus on providing differentiators within niches that we believe offer attractive and profitable growth
opportunities. We expect future growth to come from three primary areas. (i) We have robust growth
opportunities in existing niches where we seek to deepen our presence. We have historically experienced
profitable growth in these lines. (ii) We expect to selectively enter new niches within our existing customer

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segments, particularly those where we have developed expertise and a new adjacent niche provides a
unique opportunity. (iii) We expect to remain nimble during changing market conditions and enter new
customer segments as we identify a sector of the marketplace that presents an attractive opportunity.
Generally, we believe that our differentiation and the value propositions we generate for our customers
through our niche-by-niche growth strategy creates a profit opportunity for us.

• Expand multi-pronged distribution network to best serve our customers in the most efficient and
effective manner. We have the ability to deliver our products through three channels: (i) third party
partnerships via retail agents or MGUs with whom we customarily have long-standing relationships;
(ii) our owned brokerage arm, ProSight Specialty Insurance Brokerage; and (iii) our proprietary direct to
consumer technology platform. We do not experience any channel conflicts as each one of our specialized
niches is only distributed through one channel. When developing a niche, we choose the channel that is
most suited to reach the target customer.

• Maintain strong underwriting discipline and profitability. We seek to maintain underwriting

profitability while pursuing sustainable growth through a robust risk selection process. Our underwriting
teams are led by experts in the niches we serve and we target niche markets that are homogeneous blocks
of actuarially credible businesses that have performed at favorable loss ratios. We will continue to focus
exclusively on business with an attractive risk-adjusted return profile and will not participate in markets
that are commoditized and where we cannot add incremental value. All of the underwriting authority and
guidelines, for every niche and customer segment, are determined and approved by our CURO. The
majority of our GWP from customer segments are executed by the Company’s underwriters who are
experts in their specific niche, while the remainder is handled by our MGUs, subject to the authority that
the CURO has delegated to them. All of our underwriting authority delegated to MGUs is subject to
stringent guidelines and regular audits. Our strong focus on underwriting expertise has led to favorable
financial results. For the year ended December 31, 2019, we generated net income from continuing
operations of $45.5 million and adjusted operating income from continuing operations of $57.6 million
which resulted in an adjusted operating return on equity from continuing operations for the same period of
12.4%. For the year ended December 31, 2018, we generated net income from continuing operations
of $53.7 million and adjusted operating income from continuing operations of $55.3 million which resulted
in an adjusted operating return on equity from continuing operations for the same period of 14.4%. Our
portfolio has delivered a net loss ratio of 64% since the Company’s inception.

• Leverage our technology platform to drive operational efficiencies and digital capabilities. We have
built an IT platform that encompasses a streamlined core system suite, customized digital solutions, and
scalable and resilient cloud infrastructure. We have made significant investments to build out robust data
capture capabilities that allow for a dynamic rate and loss management process as datasets evolve.
Additionally, our flexible platform is able to seamlessly underwrite and onboard new business as we
continue to expand. We believe we are well positioned to grow in an evolving shared economy with our
exclusive technology infrastructure. Our expense ratio can decrease as we expand our business, as our
platform provides us with a high degree of operational leverage. We plan to maintain and expand our
technology leadership by developing new tools and applications for our distribution partners and
customers.

• Maintain our strong balance sheet. We believe a conservative balance sheet is foundational to our ability

to deliver superior financial performance and returns. We have continuously maintained a rigorous
reserving approach and monitor loss emergence and developments on a monthly basis in addition to our
detailed quarterly reviews and daily monitoring by executive management. We protect our capital by
utilizing high-quality reinsurers, setting retentions appropriate to the extent and nature of exposures we
wish to retain, maintaining a strong enterprise risk management framework, closely monitoring regulatory
and market developments, and adapting our approach to achieve our underwriting and risk management
goals. We also follow a conservative investment portfolio management philosophy consistent with our
objective to achieve consistent and predictable profitability through a careful analysis of risk and return.
We believe that our investment portfolio provides sufficient liquidity to pay for the liabilities relating to the

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risks we underwrite while achieving attractive returns on investment. We have a high-quality, well-
diversified investment portfolio with 95.7% invested in fixed maturities and an average credit quality rating
of “A” as of December 31, 2019. We also will seek to maintain a competitive rating with A.M. Best, where
our insurance subsidiaries are currently rated “A-” (Excellent) (Outlook Stable), which is the fourth highest
of 16 ratings assigned by A.M. Best to insurance companies. Maintaining a strong rating from A.M. Best
enables us to easily demonstrate our financial strength to policyholders, which is often a critical factor in
the decision to purchase insurance. This rating is intended to provide an independent opinion of an
insurer’s ability to meet its obligations to policyholders and is not an evaluation directed at investors with
respect to our securities.

Distribution and Marketing

While many of our competitors choose to distribute their products through thousands of producers, we currently

work with fewer than 20 MGUs and fewer than 125 wholesalers and retailers. Each distributor is often appointed for a
specific niche only. Typically, our distribution partners have an existing book of business, are well-established experts in
a niche and have a deep understanding of our offering. We also complement our external distribution capabilities with
ProSight Specialty Insurance Brokerage, our owned brokerage arm, and our proprietary, online, direct-to-customer
platform.

Unlike most other insurance companies, we typically offer our distribution partners exclusive or semi-exclusive

access to our products within that niche. This exclusivity is in contrast to their typical experience, where the insurance
company offers its product through hundreds or thousands of competing distributors. Agents highly value this
exclusivity as it enables them to grow their business with fewer constraints and work with a partner who has a vested
interest in their growth, which we believe leads to well-aligned incentives for our distributors. This enables us to
collaborate closely with the producer to create and develop products and solutions specific to the niche. In exchange for
exclusivity for the distributors, we typically have some combination of geographic exclusivity, right-of-first-refusal
placement within the agency and control of our developed intellectual property. This intellectual property arrangement is
part of our distributor agreement, enabling us in most cases to retain the right either to exclusively pursue or to compete
for our customers in the event that an MGU chooses to terminate our relationship. In each case, we maintain the right to
compete more generally in the niche.

Several of these agents are responsible for a significant portion of the premium written by us. While this model
provides many benefits to us and our customers, such agents have in the past, and may in the future elect to renegotiate
the terms of existing relationships, or reduce or terminate their distribution relationships with us, including as a result of
industry consolidation of distributors or other industry changes that increase the competition for access to distributors.
See Item 1A. Risk Factors — Risks Related to Our Business — Third-party agents we rely upon to distribute certain
business on our behalf may not perform as anticipated, or may be acquired or terminate their agreements with us which
could have an adverse effect on our business and results of operations.

To support our marketing and distribution efforts, we invest in building brand awareness and brand preference

within our target niches. Our marketing team works closely with our distribution partners to develop joint marketing
plans and digital marketing campaigns that support the growth goals of the program. In addition, we focus on developing
relationships with professional associations and other affinity groups to create additional distribution and branding
opportunities for our programs and distribution partners. The goal of these marketing efforts is to accelerate organic
growth and create loyalty among our distribution partners.

Underwriting, Risk Selection and Pricing

All underwriting authority comes from the Board of Directors and is delegated to the CURO. All of the

underwriting authority and guidelines, for every niche and customer segment, are determined and approved by our
CURO. This ensures that the Company has complete determination over what an acceptable risk is for every niche. The
majority of our GWP from customer segments are executed by the Company’s underwriters who are experts in their
specific niche, while the remainder is handled by our MGUs, subject to the authority that the CURO has delegated to
them. All of our underwriting authority delegated to MGUs is subject to stringent guidelines and regular audits.

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All of the operational and execution-related aspects for each niche are subject to final approval from our CURO
and are captured in our distributor agreements. The CURO conducts regular reviews of each niche throughout the year to
ensure that the execution in each niche remains consistent with expectations. Daily and monthly metrics at the niche
level are readily available to each underwriter and are utilized to track progress.

Niche Focus

Our niche focus provides several important benefits to our underwriting results:

• Homogeneous Insureds. This is a critical advantage to our underwriting approach. We believe that the
inherent homogenous nature of insureds within a relatively narrow and descriptive niche means that
collectively the actuarial result will be more credible and more susceptible to analysis, should results
suggest that improvements or changes are required. Our data and reporting structures also align around
niches, enabling us to better evaluate under- or over-performance. This granular focus allows underwriters
and the product development team to be more tailored and specific when responding to customer needs.

• Expertise in Execution. Our underwriters operate at a niche level. Being niche focused enables us to adjust
our approach and/or execution more efficiently. Unlike many of our competitors, directives regarding a
specific niche need not be communicated through layers of generic management and geographic leadership
teams to underwriters that only occasionally touch such a niche. Our communication is delivered directly to
the underwriter or MGU that deals exclusively with the applicable customer. We believe there is
tremendous benefit to our results in that deep expertise and simplicity. We are also able to better track and
account for costs directly associated with a niche, improving our ability to determine price adequacy and a
given niche’s profitability.

• Predetermined Aggregations and Exposure Profiles at the Niche Level. When we launch a new niche, the
CURO tightly controls the authority process. Significant diligence and research are performed prior to
moving forward with a niche. For every new niche, this means that test quotes have been completed,
actuarial data assessed, filings considerations contemplated, regulatory concerns discussed, IT systems
issues identified, reinsurance ramifications explored and many other matters vetted, all prior to approval.
Key among these is an understanding of any aggregations of exposures that might occur due to timing or
geographic bias of the customer base. Knowing these portfolio characteristics before the first account is
written allows us to impose aggregation limits, price targets for catastrophic loss loads and/or buy
appropriate reinsurance. We believe that this results in a more predictable and profitable growth pattern for
our niches.

General Underwriting Controls

The CURO delegates authority to our underwriters and MGUs based on the niche assigned to each underwriter,

the experience of that individual and the role the individual has in the organization.

Each niche has a dedicated underwriting manager, specific underwriting appetite guidelines and controls

focused on making sure that accounts written are within the parameters established for each niche. We have a series of
processes utilized by underwriters and management on a daily, monthly and quarterly basis that, when added together,
ensure the execution and compliance of each niche. Management drives results in a variety of ways, including:

• Peer Reviews. We mandate that a sampling of files is reviewed per niche per quarter by the supervising
manager. This applies to policies written under delegated authority as well as internally written policies.
Results are tracked for training and performance purposes. This is designed to give the underwriting
manager a more holistic picture as to the performance of the underwriter and the niche.

• Exception Reports. We actively monitor the parameters of each niche by using online alerts to notify the

CURO and underwriting staff if selected issuance values are entered that fall outside preselected
parameters. Each niche has its own exception parameters depending on the appetite for that niche. In

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addition, the CURO and underwriting teams review the transaction log every week, focusing on activities
that could be incorrect or fraudulent, such as a claim with back-dated coverage, or unusual cancellations or
reinstatements.

• Daily Claims Tracking. All underwriters and management have daily access to the claims activity from the
previous day, in addition to the historical claims information for each niche. This provides instant feedback
to each underwriter as to how their niche is performing and better enables them to adjust execution and
make timely decisions to improve our profitability.

• Underwriting Audit. We maintain an underwriting audit staff that reports to the CURO. Every niche and
related MGU is audited at least every 24 months, with most being on an annual cycle. An MGU for any
new niche is audited within the first twelve months.

• Niche Reviews/Actual-to-Plan Discussions. We hold regular review meetings, led by the CURO, which

cover underwriting performance, actuarial pricing trends, loss development trends, and distribution strategy
and differentiation.

Overall, we believe that these processes and controls, in addition to our niche focus, give us industry-leading
insights that improve our underwriting execution to deliver more accurate, stable and predictable underwriting results.

Technology

From our founding, we believed that our technology serves as an important source of competitive advantage. It

is our view that much of the industry has lagged in technology development despite investing large amounts of money
into IT transformation programs, often having dozens of policy administration systems and claims systems for various
business units and product lines that do not effectively communicate with one another and are not organized around the
customer. We believe the result is that our competitors bear the costs of maintaining these disparate systems but struggle
to effectively organize their data or processes in a way that can be provisioned to customers to create valuable digital
services.

In contrast, we have built a modern technology platform that is efficient, scalable, and enables industry-leading

digital capabilities. This platform provides the following major advantages:

We are not burdened by legacy systems. After the acquisition of New York Marine, and concurrent with the

development of our new policy administration system, we focused on the retirement and replacement of legacy systems
to ensure that we could reduce costs and eliminate the limitations associated with these older systems.

Our key customer facing systems were developed recently on modern architectures. Our policy administration

system, which we call “ProSight Premiere”, supports all of our various customer segments. The system was built to
enable custom rate, rules and forms by niche in a manner that is highly flexible and configurable by our own internal
development staff. In order to support the various market opportunities we may pursue, the system currently supports
nine product lines, 50 states, admitted and non-admitted business, and Insurance Services Office and American
Association of Insurance Services, and proprietary approaches. The system handles submission and clearance, rating,
quoting, issuance and all endorsement and audit transactions required for the life of the policy. The flexibility of the
system and our in-house expertise enables us to fully configure most new niches in a short period. The systems, and our
staffing in support of it, has been architected to ensure ease of scalability and costs being largely fixed, affording
significant operational leverage as we grow.

Our Enterprise Data Warehouse and proprietary Business Intelligence system drives our day-to-day business

decisions. We have developed “ProSight Climber GPS” to provide our decision makers with real-time access to detailed
premium and loss data for all aspects of our business as well as customized reports and dashboards that provide the
information they need to make good business decisions in a timely manner. This capability is delivered to authorized
employees’ desktops via their web browser and is connected to various data sources across the Company. In-house
development resources are continuously enhancing this system to improve its capability.

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Our technology platform supports our digital business initiatives. All of our key customer facing systems are
API- enabled and highly available to support the development of customer and agent facing mobile applications that can
be used anytime, anywhere. Our various proprietary digital products link directly to these core systems via APIs that are
developed and maintained in-house. This enables us to deliver real-time data to our customers and agents and enable
transactions that are directly executed by the systems, eliminating the need for back-office operations to manually
process the requests.

Our unified cloud infrastructure is efficient, scalable and supports innovation. In 2016, we migrated all of our

company infrastructure to Amazon Web Services. As a result, we were able to reduce infrastructure costs over the course
of the migration while significantly enhancing our backup, disaster recovery, and application availability. In the future,
we expect this cloud infrastructure will enable us to scale our business without the need for capital investment in
building and maintaining physical data centers.

We believe these components, and the general philosophy of maintaining in-house expertise and capability for
core activities to be a significant competitive advantage. By not relying on a fully outsourced application development
and maintenance model, we believe we can sustainably deliver higher quality systems and services at a faster pace and
lower cost than our competitors.

Claims Management

Our dedicated staff have expertise that aligns with the business of our customers, which enables our claims
department to create differentiated outcomes for the specific needs of our customers. Our claims department works
closely with our underwriting team in order to provide customers with strong partnerships. We are guided by the
following principles: (i) prompt, proactive and comprehensive investigations of each claim; (ii) engaging customers in
the claims process; (iii) establishing reserves reflective of our estimate of probable case value; and (iv) proactively
identifying and pursuing subrogation opportunities and the investigation of fraud. We utilize specialized, independent
law firms to defend litigation filed against our insureds.

We strive to handle as many claims as possible through our internal claims staff and to make minimal use of

Third-Party Administrators (“TPAs”). We utilize the services of two TPAs to assist in the adjustment of workers’
compensation claims and one TPA to assist in the adjustment of builders’ risk claims within the Real Estate customer
segment. Our TPAs are not affiliated with our distribution partners. Other than in limited cases, our MGUs do not handle
claims. Our internal claims managers oversee TPA and MGU claims-related activities and monitor their individual claim
handling activities to prescribed ProSight standards.

Reinsurance

We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect

our capital. Reinsurance involves a primary insurance company transferring, or “ceding,” a portion of its premium and
losses in order to limit its exposure. The ceding of liability to a reinsurer does not relieve the obligation of the primary
insurance to the policyholder. The primary insurer remains liable for the entire loss if the reinsurer fails to meet its
obligations under the reinsurance agreement. In 2019, we ceded $115.9 million, or 12.0% of our GWP to reinsurers. We
attempt to purchase reinsurance from reinsurers that are rated at least “A-” (Excellent) or better by A.M. Best.

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The following table provides our top three reinsurers by uncollateralized net reinsurance receivable (paid and

unpaid) as of December 31, 2019:

Uncollateralized

Net Reinsurance Receivable

Reinsurer
Swiss Reinsurance America Corporation
Munich Reinsurance America Inc.
Harco National Insurance Company

(Paid and Unpaid)
as of December 31, 2019
($ in thousands)

$
$
$

44,797
20,320
12,906

A.M. Best Rating
A+
A+
A-

We use various types of reinsurance, including quota share, excess of loss and facultative agreements, to spread

the risk of loss among several reinsurers and to limit its exposure from losses on any one occurrence. Under our quota
share reinsurance contracts, we cede a predetermined percentage of each risk for a class of business to the reinsurer and
recover the same percentage of each loss and loss adjustment expense (“LAE”). We pay the reinsurer the
same percentage of the original premium, less a ceding commission.

Under our excess of loss reinsurance, we pay a reinsurance premium to the accepting reinsurer and, in return,

cede all or a portion of the liability in excess of a predetermined deductible or retention. We generally do not receive any
commission for ceding business under excess of loss reinsurance agreements.

We purchase facultative reinsurance to provide coverage on selected individual risks not covered by our quota
share and excess of loss reinsurance coverage or to increase our protection on selected individual risks in excess of the
limits under our quota share and excess of loss reinsurance agreements. For a further discussion of our reinsurance, see
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Reinsurance and
Item 1A. Risk Factors — Risks Related to Our Business on this Annual Report on Form 10-K.

Competition

Due to our focus on specialized niches, our competitors vary from niche to niche. We compete with other

specialty carriers within a given niche more often than general market insurers, but no specific specialty insurers can be
identified as clear competition across all of our customer segments or niches. We estimate that in each of our niches we
see meaningful competition from between two and five other market participants. Some specialty carriers we compete
with today include OneBeacon Insurance Group, Ltd., Everest Re Group, Ltd., RLI Corp., Markel Corporation, W.R.
Berkley Corporation, Kinsale Capital Group, Inc. and James River Group Holdings, Ltd. In addition, many large
generalist insurance companies have some specialty business as a subset of their overall operations with which we may
compete on a niche basis. Such large carriers with specialty operations include Allianz SE, Chubb Ltd., CNA Financial
Corporation, American International Group, Inc., The Travelers Companies and various London-based Lloyd’s
syndicates.

Traditionally, competition within the insurance industry focused on providing the lowest priced policies, with

customers viewing insurance as a commodity. However, we believe we provide a superior offering which competes
based more on value creation than just price.

Employees

As of December 31, 2019, we had 396 employees. We consider our relationship with our employees to be good.

None of our employees are represented by a labor union or party to a collective bargaining agreement.

Available Information

We maintain a public website at www.prosightspecialty.com. We use our website as a routine channel for

distribution of important information, including news releases, analyst presentations, financial information and corporate

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governance information. The information contained on, or that can be accessed through, our website is not part of, and is
not incorporated into, this Annual Report on Form 10-K.

REGULATION

Our business is subject to extensive regulation in the United States at both the state and federal level, including

regulation under state insurance and federal laws. We cannot predict the impact of future state or federal laws or
regulations on our business. Future laws and regulations, or the interpretation thereof, may materially adversely affect
our financial condition and results of operations.

Insurance Regulation

General

Our insurance subsidiaries are subject to extensive regulation and supervision by the states in which they are
domiciled, particularly with respect to their financial condition. New York Marine and Gotham are domiciled in New
York where they are regulated and supervised by the New York Department of Financial Services (“NY DFS”).
Southwest Marine is domiciled in Arizona where it is regulated and supervised by the Arizona Department of Insurance
(“AZ DOI”).

Our insurance subsidiaries are also subject to regulation by all states in which they transact business, which

oversight in practice often focuses on review of their market conduct. The extent and scope of insurance regulation
varies between jurisdictions, but most jurisdictions have laws and regulations governing the financial security of
insurers, including admittance of assets for purposes of calculating statutory surplus, standards of solvency, reserves,
reinsurance, capital adequacy and the business conduct of insurers.

In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of

policy forms and related materials and, for certain lines of insurance, and the approval of rates. State statutes and
regulations also prescribe the permitted types and concentrations of investments by insurers. The primary purpose of this
insurance industry regulation is to protect policyholders. P&C insurance companies are required to file detailed quarterly
and annual statements with insurance regulatory authorities in each of the jurisdictions in which they are licensed or
eligible to do business, and their operations and accounts are subject to periodic examination by such authorities.
Regulators have discretionary authority, in connection with the continued licensing of insurance companies, to limit or
prohibit the ability to issue new policies if, in their judgment, the regulators determine that an insurer is not maintaining
minimum statutory surplus or capital or if the further transaction of business will be detrimental to its policyholders.

The amount of dividends that our insurance subsidiaries may pay to their stockholders, without prior approval

by their respective domestic insurance regulators, is restricted under the laws of New York and Arizona.

Under New York law, the maximum amount of aggregate dividends that New York Marine or Gotham has

authority to pay during any twelve month period without prior approval by the NY DFS is the lesser of (i) ten percent of
each of New York Marine’s or Gotham’s respective surplus as shown on the last statutory financial statement on file
with the Superintendent of Insurance, including quarterly statements, or (ii) one hundred percent of their respective
adjusted net investment income during such twelve month period (where adjusted net investment income equals the net
investment income for the 12-month period prior to the declaration or payment of the dividend plus the excess of net
investment income over dividends paid in the two years prior thereto).

Under Arizona law, the maximum amount of aggregate dividends that Southwest Marine has authority to pay

during any 12-month period without prior approval by the AZ DOI is the greater of (i) ten percent of Southwest
Marine’s surplus as of the immediately preceding December 31 or (ii) Southwest Marine’s net income for the 12-month
period ending the immediately prior December 31.

In addition, payments of dividends and advances or repayment of funds to the Company by our insurance

subsidiaries are restricted by the applicable laws of our insurance subsidiaries’ respective jurisdictions requiring that

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each insurance subsidiary hold a specified amount of minimum reserves in order to meet future obligations on its
outstanding policies. These regulations specify that the minimum reserves shall be calculated to be sufficient to meet
future obligations, giving consideration for required future premiums to be received, which are based on certain
specified interest rates and methods of valuation, which are subject to change.

Insurance Holding Company Regulation

The Company is an insurance holding company and it, together with its insurance subsidiaries and its other
subsidiaries and affiliates, is subject to the insurance holding company system laws of New York and Arizona. These
laws vary across jurisdictions, but generally require an insurance holding company and insurers that are members of
such insurance holding company’s system to register with the jurisdiction’s insurance regulatory authorities, to file
reports disclosing certain information, including their capital structure, ownership, management, financial condition,
enterprise risk and own risk and solvency assessment.

These laws also require disclosure of certain qualifying transactions between or among our insurance

subsidiaries and the Company or any of our other subsidiaries or affiliates to which one or more of our insurance
subsidiaries is a party. Such transactions could include loans, investments, sales, service agreements and reinsurance
agreements among other similar inter-affiliate transactions. These laws also require that inter-company transactions be
fair and reasonable. In certain circumstances, the insurance company must give prior notice of the transaction to the
insurance department in its state of domicile, and the insurance department must either approve or disapprove the subject
inter-company transaction within defined periods. Further, these laws require that an insurer’s contract holders’ surplus
following any dividends or distributions to stockholder affiliates is reasonable in relation to the insurer’s outstanding
liabilities and its financial needs.

The insurance holding company laws in some states, including New York and Arizona, require regulatory
approval of a direct or indirect change of control of an insurer or an insurer’s parent company. Generally, to obtain
approval from the insurance commissioner for any acquisition of control of an insurance company or its parent company,
the proposed acquirer must file with the applicable commissioner an application containing information regarding: (i) the
identity and background of the acquirer and its affiliates; (ii) the nature, source and amount of funds to be used to carry
out the acquisition; (iii) the financial statements of the acquirer and its affiliates; (iv) any potential plans for disposition
of the securities or business of the insurer; (v) the number and type of securities to be acquired; (vi) any contracts with
respect to the securities to be acquired; (vii) any agreements with broker-dealers; and (viii) other matters. Different
jurisdictions may have similar or additional requirements for prior approval of any acquisition of control of an insurance
or reinsurance company licensed or authorized to transact business in those jurisdictions. Additional requirements may
include re-licensing or subsequent approval for renewal of existing licenses upon an acquisition of control.

Statutory Examinations

We are required to file detailed quarterly and annual financial statements, in accordance with prescribed

statutory accounting rules with regulatory officials in each of the jurisdictions in which we do business. As part of their
routine regulatory oversight process, the NY DFS and AZ DOI conduct periodic detailed examinations, generally once
every three to five years, of the books, records, accounts and operations of our insurance subsidiaries domiciled in their
states.

Financial Tests

The National Association of Insurance Commissioners (“NAIC”) has developed a set of financial relationships
or “tests”, known as the Insurance Regulatory Information System (“IRIS”), which is designed for early identification of
companies that may require special attention or action by insurance regulatory authorities. Insurance companies submit
data annually to the NAIC, which in turn analyzes the data by utilizing ratios. State insurance regulators review this
statistical report, which is available to the public, together with an analytical report, prepared by and available only to
state insurance regulators, to identify insurance companies that appear to require immediate regulatory attention. A
“usual range” of results for each ratio is used as a benchmark.

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Risk-Based Capital Requirements

In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement risk-

based capital (“RBC”) requirements for P&C insurers. All states have adopted the NAIC’s model law or a substantively
similar law. The NAIC Risk-Based Capital Model Act requires insurance companies to submit an annual RBC Report,
which compares an insurer’s Total Adjusted Capital with its Authorized Control Level RBC. A company’s RBC is
calculated by using a specified formula that applies factors to various specified asset, premium, claim, expense and
reserve items. The factors are higher for those items with greater underlying risk and lower for items with less
underlying risk.

Total Adjusted Capital is defined as the sum of an insurer’s statutory capital and surplus and asset valuation
reserve and the estimated amount of all dividends declared by the insurer’s board of directors prior to the end of the
statement year that are not yet paid or due at the end of the year. The RBC Report is used by regulators to set in motion
appropriate regulatory actions relating to insurers that show indications of weak or deteriorating conditions. RBC is an
additional standard for minimum capital requirements that insurers must meet to avoid being placed in rehabilitation or
liquidation by regulators. The annual RBC Report, and the information contained therein, is not intended by the NAIC as
a means to rank insurers.

RBC is a method of measuring the minimum amount of capital appropriate for an insurance company to support
its overall business operations in light of its size and risk profile. It provides a means of setting the capital requirement in
which the degree of risk taken by the insurer is the primary determinant. The value of an insurer’s Total Adjusted Capital
in relation to its RBC, together with its trend in its Total Adjusted Capital, is used as a basis for determining regulatory
action that a state insurance regulator may be authorized or required to take with respect to an insurer. The four
determinations, potentially applicable under each jurisdiction’s laws, are essentially as follows:

• Company Action Level Event. Total Adjusted Capital is greater than or equal to 150% but less than 200%
of RBC or Total Adjusted Capital greater than or equal to 200% but less than 250% of RBC, and has a
negative trend. If there is a Company Action Level Event, the insurer must submit a plan (an RBC Plan)
outlining, among other things, the corrective actions it intends to take in order to remedy its capital
deficiency.

• Regulatory Action Level Event. Total Adjusted Capital is greater than or equal to 100% but less than 150%
of RBC or the insurer has failed to comply with filing deadlines for its RBC Report or RBC Plan. If there is
a Regulatory Action Level Event, the insurer is also required to submit an RBC Plan. In addition, the
insurance regulator must undertake a comprehensive examination of the insurer’s financial condition and
must issue any appropriate corrective orders.

• Authorized Control Level Event. Total Adjusted Capital is below RBC but greater than or equal to 70% of
RBC or the insurer has failed to respond to a corrective order. As noted above, if there is an Authorized
Control Level Event, the insurance regulator may seek rehabilitation or liquidation of the insurer if it deems
it to be in the best interests of the policyholders and creditors of the insurer and the public.

• Mandatory Control Level Event. Total Adjusted Capital is below 70% of RBC. If there is a Mandatory
Control Level Event, the insurance regulator must seek rehabilitation or liquidation of the insurer.

Market Conduct

Our insurance subsidiaries are subject to periodic market conduct exams (“MCE”) in any jurisdiction where

they do business. An MCE typically entails review of business activities, such as operations and management, complaint
handling, marketing and sales, producer licensing, policyholder service, underwriting and rating, and claims handling.
Regulators may impose fines and penalties upon finding violations of regulations governing such business activities.

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Rate and Form Approvals

Our insurance subsidiaries are subject to each state’s laws and regulations regarding rate and form approvals.

The applicable laws and regulations are used by states to establish standards to ensure that rates are not excessive,
inadequate, unfairly discriminatory or used to engage in unfair price competition. An insurer’s ability to increase rates
and the relative timing of the process are dependent upon each state’s respective requirements.

Assessments Against Insurers

Under the insurance guaranty fund laws existing in each state, Washington D.C., Puerto Rico and the Virgin

Islands, licensed insurers can be assessed by insurance guaranty associations for certain obligations of insolvent
insurance companies to policyholders and claimants. Most of these laws provide for annual limits on the assessments
and for an offset against state premium taxes. These premium tax offsets must be spread over future periods ranging
from five to 20 years. Since these assessments typically are not made for several years after an insurer fails and depend
upon the final outcome of liquidation or rehabilitation proceedings, we cannot accurately determine the amount or timing
of any future assessments.

Regulation of Investments

We are subject to state laws and regulations that require diversification of our investment portfolios and limit
the amounts of investments in certain asset categories, such as below-investment grade fixed income securities, equity,
real estate, other equity investments and derivatives. Failure to comply with these requirements and limitations could
cause affected investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some
instances, could require the divestiture of such non-qualifying investments.

Privacy Regulation

Federal and state law and regulation require financial institutions to protect the security and confidentiality of
personal information, including health-related and customer information, and to notify customers and other individuals
about their policies and practices relating to their collection and disclosure of health-related and customer information
and their practices relating to protecting the security and confidentiality of that information. State laws regulate the use
and disclosure of social security numbers and federal and state laws require notice to affected individuals, law
enforcement, regulators and others if there is a breach of the security of certain personal information, including social
security numbers. Federal and state laws and regulations regulate the ability of financial institutions to make
telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal and state
lawmakers and regulatory bodies may be expected to consider additional or more detailed regulation regarding these
subjects and the privacy and security of personal information.

Cybersecurity Regulation

The NY DFS issued a new regulation, effective March 1, 2017, that requires banks, insurance companies, and

other financial services institutions regulated by the NY DFS, to establish and maintain a cybersecurity program
designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry. The
cybersecurity regulation adds specific requirements for these institutions’ cybersecurity compliance programs and
imposes an obligation to conduct ongoing, comprehensive risk assessments. Further, on an annual basis, each institution
is required to submit a certification of compliance with these requirements. In addition to New York’s cybersecurity
regulation, the NAIC adopted the Insurance Data Security Model Law in October 2017. Under the model law,
institutions that are compliant with the NY DFS cybersecurity regulation are deemed also to be in compliance with the
model law. As of December 31, 2019, eight states have adopted the model law or a variation of it and other states are
expected to consider adopting the model law or a variation of it in the near future. We expect that additional regulations
could be enacted in other jurisdictions that could impact our cybersecurity program. Depending on these and other
potential implementation requirements, we will likely incur additional costs of compliance.

Bank Holding Company Act

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Due to the size of Goldman Sachs’ current voting and economic interest in us, we are deemed to be controlled
by Goldman Sachs for purposes of the BHC Act and, therefore, are considered to be a “subsidiary” of Goldman Sachs
under the BHC Act. Accordingly, we have agreed to certain covenants in the Stockholders’ Agreement (as later defined)
for the benefit of Goldman Sachs that are intended to facilitate its compliance with the BHC Act, but that may impose
certain obligations on us. Restrictions placed on Goldman Sachs as a result of supervisory or enforcement actions under
the BHC Act or otherwise may restrict us or our activities in certain circumstances, even if these actions are unrelated to
our conduct or business. For additional information, see Item 1A. Risk Factors — Legal and Regulatory Risks, — We
are subject to banking regulations that may limit our business activities, on this Annual Report on Form 10-K.

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Item 1A. RISK FACTORS

You should carefully consider the risks described below together with the other information set forth in this
Annual Report on Form 10-K, which could materially affect our business, financial condition and future results. The
risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our business, financial condition and
operating results. If any of the following risks are realized, our business, financial condition, results of operations and
prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline.

Risks Related to Our Business

Third-party agents we rely upon to distribute certain business on our behalf may be acquired or terminate their
agreements with us, or may not perform as anticipated, which could have an adverse effect on our business and
results of operations.

Although we distribute our products through a variety of distribution channels, our distribution strategy is

primarily focused on key agents. Our distribution model therefore relies partially upon the expertise, creditworthiness
and performance of certain of our key agents. Several of these agents are responsible for a significant portion of the
premium written by us. For the year ended December 31, 2019, our top three MGUs distributed 28.2% of our insurance
by GWP from customer segments. While this model provides many benefits to us and our customers, such agents have
in the past, and may in the future elect to renegotiate the terms of existing relationships, or reduce or terminate their
distribution relationships with us as a result of industry consolidation of distributors or other industry changes that
increase the competition for access to distributors, developments in legislation or regulation that affect our business,
adverse developments in our business, adverse rating agency actions or concerns about market-related risks. In January
2019, Midlands Management Corporation (“Midlands”), an MGU for the Self-Insured Groups niches, was acquired by a
third-party insurance carrier. In 2019, we wrote $69.1 million of GWP through Midlands and $121.8 million of GWP in
2018. We seek to mitigate these risks in part through our contractual relationships with these agents, including in our
MGU agreements, which in most cases have us retaining control over our intellectual property and maintaining the right
to either exclusively pursue or to compete directly for our customers if an MGU terminates their relationship with us. In
each case, we maintain the right to compete more generally in the niche. Nevertheless, an interruption in certain key
relationships could cause operational difficulties, an inability to meet obligations (including, but not limited to,
policyholder obligations), a loss of business and increased costs or suffer other negative consequences, all of which may
have a material adverse effect on our business and results of operations.

In addition, our agents may fail to perform as anticipated or adhere to their obligations to us. Although our

agents are subject to stringent guidelines, limited underwriting authority, ongoing oversight by our employees and
monitoring through regular audits and other procedures, which have in the past enabled us to detect and remedy
incidents of non-adherence, our efforts may not be adequate to prevent or detect such breaches. If our agents materially
exceed their authorities or otherwise breach obligations owed to us and we are unable to timely identify and remedy such
breaches, our business and results of operations could be adversely affected.

Our loss reserves are based on estimates and may be inadequate to cover our actual insured losses, which would
negatively impact our profitability.

Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss to us

and our payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities
representing estimates of amounts needed to pay reported and unreported losses and the related loss adjustment expense
(“LAE”). Loss reserves are estimates of the ultimate cost of claims and do not represent a precise calculation of any
ultimate liability. These estimates are based on historical information and on estimates of future trends that may affect
the frequency and severity of claims that may be reported in the future. Estimating loss reserves is a difficult, complex

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and inherently uncertain process involving many variables and subjective judgments. As part of the reserving process,
we review historical data and consider the impact of various factors such as:

•

loss emergence and cedant reporting patterns;

underlying policy terms and conditions;

business and exposure mix;

trends in claim frequency and severity;

changes in operations;

emerging economic and social trends;

inflation; and

changes in the regulatory and litigation environments.

This process assumes that past experience, adjusted for the effects of current developments and anticipated

trends, is an appropriate basis for predicting future events. It also assumes that adequate historical or other data exists
upon which to make these judgments. For more information on the estimates used in the establishment of loss reserves,
see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical
Accounting Policies — Reserves for unpaid losses and LAE on this Annual Report on Form 10-K. However, there is no
precise method for evaluating the impact of any specific factor on the adequacy of reserves and actual results are likely
to differ from original estimates, perhaps materially. Some of our reserves were established for exposure to liabilities
acquired through our acquisition of New York Marine and General Insurance Company, Inc., a specialty commercial
insurance company, in 2010. These liabilities were not subject to our highly structured underwriting process, include
asbestos, environmental and products liabilities and are subject to similar risks and uncertainties as P&C risks
underwritten by us after the acquisition, including difficulties of estimating loss reserves, pricing risk and pricing
reinsurance. The net loss reserves related to accident years 2010 and prior were $54.6 million as of December 31, 2019
or 4.1% of our total net loss reserves. If the actual amount of insured losses is greater than the amount we have reserved
for these losses, our profitability could suffer.

Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or
unanticipated risk, which could adversely affect our businesses or results of operations.

We have developed and continue to develop enterprise-wide risk management policies and procedures to

mitigate risk and loss to which we are exposed. There are, however, inherent limitations to risk management strategies
because there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk
management policies and procedures are ineffective, we may suffer unexpected losses and could be materially adversely
affected. As our business changes and the niches in which we operate evolve, our risk management framework may not
evolve at the same pace as those changes. As a result, there is a risk that new products or new business strategies may
present risks that are not appropriately identified, monitored or managed. In times of market stress, unanticipated market
movements or unanticipated claims experience, the effectiveness of our risk management strategies may be limited,
resulting in losses to us. In addition, there can be no assurance that we can effectively review and monitor all risks or
that all of our employees will follow our risk management policies and procedures.

Moreover, the National Association of Insurance Commissioners (the “NAIC”) and state legislatures and

regulators have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk
to insurers. The NY DFS, the primary regulator of New York Marine and Gotham, has adopted regulations
implementing a requirement under the New York Insurance Law for insurance holding companies to adopt a formal

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enterprise risk management (“ERM”) function and to file an annual enterprise risk report. NY DFS regulation also
requires domestic insurers to conduct an own risk and solvency assessment (“ORSA”) and to submit an ORSA summary
report prepared in accordance with the NAIC’s ORSA Guidance Manual. In addition, the Company and Southwest
Marine, whose primary regulator is the AZ DOI, are subject to similar ERM and ORSA requirements. We operate within
an ERM framework designed to assess and monitor our risks. However, there can be no assurance that we can
effectively review and monitor all risks, or that all of our employees will operate within the ERM framework or that our
ERM framework will result in us accurately identifying all risks and accurately limiting our exposures based on our
assessments.

Technology breaches or failures of our or our business partners’ systems, including but not limited to cybersecurity
incidents, could disrupt our operations and result in the loss of critical and confidential information, which could
adversely impact our reputation and results of operations.

Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to

our information technology systems and those of our business partners or service providers to sophisticated and targeted
measures known as advanced persistent threats. While we and our business partners and service providers employ
measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability
assessments, continuous monitoring of information technology networks and systems and maintenance of backup and
protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the
misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information
(our own or that of third parties) and the disruption of business operations. Security breaches could expose us to
litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or
other proper functioning of our technology systems could affect our operations. We may not have the resources or
technical sophistication to anticipate or prevent every type of cyber-attack. A significant cybersecurity incident,
including system failure, security breach, disruption by malware or other damage could interrupt or delay our operations,
result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to
monetary fines and other penalties, any or all of which could be material. It is possible that insurance coverage we have
in place would not entirely protect us in the event that we experienced a cybersecurity incident, interruption or
widespread failure of our information technology systems.

Adverse changes in the economy could lower the demand for our insurance products and could have an adverse
effect on the revenue and profitability of our operations.

Factors such as business revenue, government spending, the volatility and strength of the capital markets and

inflation can all affect the business and economic environment. These same factors affect our ability to generate revenue
and profits. Insurance premiums in our markets are heavily dependent on variables such as our customer revenues,
values transported, miles traveled and number of new projects initiated. In an economic downturn that is characterized
by higher unemployment and reduced corporate revenues, the demand for insurance products is adversely affected.
Adverse changes in the economy may lead our customers to have less need for insurance coverage, to cancel existing
insurance policies, to modify coverage or to not renew with us, all of which affect our ability to generate revenue.

Access to capital and market liquidity may adversely affect our ability to take advantage of business opportunities as
they arise and to fund our operations in a cost-effective manner.

Our ability to grow our business, either organically or through acquisitions, depends in part on our ability to
access capital when needed. We cannot predict capital market liquidity or the availability of capital. We also cannot
predict the extent and duration of future economic and market disruptions, the impact of government interventions into
the market to address these disruptions and their combined impact on our industry, business and investment portfolios. If
we need capital but cannot raise it, our business and future growth could be adversely affected. In addition, we cannot
make any assurances that we will be able to refinance our debt, including our senior notes due November 2020, or obtain
additional financing on terms acceptable to us, or at all. Our inability to refinance our indebtedness on commercially
reasonable terms or at all could also adversely affect our business, financial condition and future growth.

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We may not be able to effectively start up or integrate new product opportunities.

Our ability to grow our business depends, in part, on our creation, implementation and acquisition of new

insurance products that are profitable and fit within our business model. New product launches as well as resources to
integrate business acquisitions are subject to many obstacles, including ensuring we have sufficient business and systems
processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens
and planning for internal infrastructure needs. If we cannot accurately assess and overcome these obstacles or we
improperly implement new insurance products, our ability to grow profitably will be impaired.

Our results of operations and revenues may fluctuate as a result of many factors, including cyclical changes in the
insurance industry.

The results of operations of companies in the insurance industry historically have been subject to significant

fluctuations and uncertainties in demand, pricing and overall profitability, causing cyclical performance in the insurance
industry. These cycles are characterized by periods of intense price competition due to excessive underwriting capacity
as well as periods when shortages of capacity permit more favorable pricing. Among our competitive strengths have
been our specialty product focus and our niche market strategy. In periods of intense competition, these strengths also
expose us to actions by other, especially larger, insurance companies who seek to write additional premiums without
appropriate regard for underwriting profitability. During weak markets characterized by lower prices, it may be difficult
for us to grow or maintain premium volume levels without sacrificing underwriting profits. If we are not successful in
maintaining rates or achieving rate increases, it may be difficult for us to improve or maintain underwriting profits or to
grow or maintain premium volume levels. In addition, our overall profitability can be affected significantly by:

•

rising levels of loss costs that we cannot anticipate at the time we price our coverages;

volatile and unpredictable developments, including man-made, weather-related and other natural
catastrophes or terrorist attacks;

changes in the level of available reinsurance;

changes in the amount of losses resulting from new types of claims and new or changing judicial
interpretations relating to the scope of insurers’ liabilities; and

the ability of our underwriters to accurately select and price risk and of our claim personnel to
appropriately deliver fair outcomes.

Furthermore, the demand for our insurance products across our customer segments can vary significantly, rising

as the overall level of economic activity increases and falling as that activity decreases, causing our revenues to
fluctuate. These fluctuations in results of operations and revenues may not reflect our long-term results and may cause
the price of our securities to be volatile.

We compete with a large number of companies in the insurance industry for underwriting revenues.

We compete with a large number of other companies in our customer segments. During periods of intense

competition for premium, we are exposed to the actions of other companies who may seek to write policies without the
appropriate regard for risk and profitability. During these times, it is very difficult to grow or maintain premium volume
without sacrificing underwriting discipline and income.

We face competition from a wide range of both from specialty insurance companies, underwriting agencies and
intermediaries, as well as diversified financial services companies that are significantly larger than we are and that have
significantly greater financial, marketing, management and other resources. Some of these competitors also have greater

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market recognition and experience than we do. We may incur increased costs in competing for underwriting revenues. If
we are unable to compete effectively in the markets in which we operate or expand our operations into new markets, our
underwriting revenues may decline, as well as overall business results.

We focus on providing specialized products and services in our various niches, and we believe that the diversity

and uniqueness of our business model inherently provides a certain degree of shelter from competition. However, as we
continue to grow our market share within each niche, the risk of competition within that niche grows as our larger
competitors tend to focus on obtaining business at scale (as opposed to at the individual customer level). We seek to
mitigate this risk, and the risk of competition generally, in part by building contractual protections into our distributor
relationships. For example, in most cases we retain control over our intellectual property and have the right either to
exclusively pursue our customers or to compete directly with our former MGU if they terminate their relationships with
us. In each case, we maintain the right to compete more generally in the niche. However, there can be no assurance that
our risk mitigation strategies will be effective.

A number of new, proposed or potential legislative or industry developments could further increase competition

in our industry. These developments include:

•

programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other
“alternative markets” types of coverage;

changing practices, which may lead to greater competition in the insurance business; and

the emergence of insurtech companies and the development of new technologies, which may lead to
disruption of current business models and the insurance value chain.

New competition from these developments could cause the supply and/or demand for our insurance products to

change, which could affect our ability to price our coverages at attractive rates and thereby adversely affect our
underwriting results.

A downgrade in our Financial Strength Ratings (“FSRs”) from A.M. Best could negatively affect our results of
operations.

FSRs are a critical factor in establishing the competitive position of insurance companies. Our insurance
companies are rated for overall financial strength by A.M. Best. These FSRs reflect A.M. Best’s opinion of our financial
strength, operating performance, strategic position and ability to meet our obligations to policyholders, and are not
evaluations directed to investors. Our FSRs are subject to periodic review by such firms, and the criteria used in the
rating methodologies is subject to change; as such, we cannot assure the continued maintenance of our current FSRs. All
of our insurance subsidiaries’ FSRs were reviewed during 2019 and were reaffirmed at a rating of “A-” (Excellent). In
2017, A.M. Best downgraded its “A” (Excellent) FSRs to “A-” (Excellent) for our insurance subsidiaries. Because FSRs
have become an increasingly important factor in establishing the competitive position of insurance companies, if our
FSRs are reduced from their current levels by A.M. Best, our competitive position in the industry, and therefore our
business, could be adversely affected. A significant downgrade could result in a substantial loss of business, as
policyholders might move to other companies with higher FSRs.

Our results of operations, liquidity, financial condition and FSRs are subject to the effects of natural and man-made
catastrophic events.

Events such as hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, acts of terrorism,
explosions and fires, cyber-crimes, product defects, mass torts and other catastrophes have adversely affected our

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business in the past and could do so in the future. Such catastrophic events, and any relevant regulations, could expose us
to:

• widespread claim costs associated with property and workers’ compensation claims;

•

losses resulting from a decline in the value of our invested assets;

losses resulting from actual policy experience that is adverse compared to the assumptions made in product
pricing;

declines in value and/or losses with respect to companies and other entities whose securities we hold and
counterparties with whom we transact business to whom we have credit exposure, including reinsurers, and
declines in the value of investments; and

•

significant interruptions to our systems and operations.

Natural and man-made catastrophic events are generally unpredictable. While we have structured our business

and selected our niches in part to avoid catastrophic losses, our exposure to such losses depends on various factors,
including the frequency and severity of the catastrophes, the rate of inflation and the value and geographic or other
concentrations of insured companies and individuals. Vendor models and proprietary assumptions and processes that we
use to manage catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.

In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require

us to pay the insured beyond the provisions of the original insurance policy and may prohibit the application of a
deductible, resulting in inflated catastrophe claims.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and economic, legal, judicial, social and other environmental conditions change,

unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our
business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims.
Examples of emerging claims and coverage issues include, but are not limited to:

•

judicial expansion of policy coverage and the impact of new theories of liability;

plaintiffs targeting P&C insurers in purported class action litigation relating to claims-handling and other
practices;

• medical developments that link health issues to particular causes, resulting in liability claims; and

•

claims relating to unanticipated consequences of current or new technologies, including cyber-security
related risks and claims relating to potentially changing climate conditions.

In some instances, these emerging issues may not become apparent for some time after we have issued the

affected insurance policies. As a result, the full extent of liability under our insurance policies may not be known until
many years after the policies are issued.

In addition, the potential passage of new legislation designed to expand the right to sue, to remove limitations

on recovery, to extend the statutes of limitations or otherwise to repeal or weaken tort reforms could have an adverse
impact on our business.

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The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could

harm our business and materially adversely affect our results of operations.

Concentration of our insurance and other risk exposures may adversely affect our results of operations.

We may be exposed to risks as a result of concentrations in our insurance policies. We manage these

concentration risks by monitoring the accumulation of our exposures to factors such as exposure type, industry,
geographic region, customer and other factors. We also seek to use reinsurance, hedging and other arrangements to limit
or offset exposures that exceed the limits we wish to retain. In certain circumstances, however, these risk management
arrangements may not be available on acceptable terms or may prove to be ineffective for certain exposures. Also, our
exposure for certain single risk coverages and other coverages may be so large that losses could exceed our expectations
and could have a potentially material adverse effect on our consolidated results of operations or result in additional
statutory capital requirements for our subsidiaries.

Negative developments in the workers’ compensation insurance industry could adversely affect our financial
condition and results of operations.

Although we engage in other businesses, approximately 18.6% of our GWP are currently attributable to

workers’ compensation insurance policies providing both primary and excess coverage. As a result, negative
developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance
industry could have an adverse effect on our financial condition and results of operations. In certain states in which we
do business, insurance regulators set the premium rates we may charge, which has the potential to restrict our profits. In
addition, if one of our larger markets were to enact legislation to increase the scope or amount of benefits for employees
under workers’ compensation insurance policies without related premium increases or loss control measures, this could
negatively affect our financial condition and results of operations.

Global climate change may in the future increase the frequency and severity of weather events and resulting losses,
particularly to the extent our policies are concentrated in geographic areas where such events occur, may have an
adverse effect on our business, results of operations and financial condition.

Scientific evidence indicates that manmade production of greenhouse gas has had, and will continue to have, an
adverse effect on the global climate. There is a growing consensus today that climate change increases the frequency and
severity of extreme weather events and, in recent years, the frequency of extreme weather events appears to have
increased. We cannot predict whether or to what extent damage that may be caused by natural events, such as wild fires,
severe tropical storms and hurricanes, will affect our ability to write new insurance policies and reinsurance contracts,
but, to the extent our policies are concentrated in the specific geographic areas in which these events occur, the increased
frequency and severity of such events and the total amount of our loss exposure in the impacted areas of such events may
adversely affect our business, results of operations and financial condition. In addition, although we have historically had
limited exposure to catastrophic risk, claims from catastrophe events could reduce our earnings and cause substantial
volatility in our business, results of operations and financial condition for any period. However, assessing the risk of loss
and damage associated with the adverse effects of climate change and the range of approaches to address loss and
damage associated with the adverse effects of climate change, including impacts related to extreme weather events and
slow onset events, remains a challenge and might adversely affect our business, results of operations and financial
condition.

We may have exposure to losses from acts of terrorism as we are required by law to provide certain coverage for such
losses.

U.S. insurers are required by state and federal law to offer coverage for acts of terrorism in certain commercial
lines, including workers’ compensation. The Terrorism Risk Insurance Act, as extended by the Terrorism Risk Insurance
Program Reauthorization Act of 2019 (“TRIPRA”) requires commercial property and casualty insurance companies to
offer coverage for acts of terrorism, whether foreign or domestic, and established a federal assistance program through

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the end of 2027 to help cover claims related to future terrorism-related losses. The likelihood and impact of any terrorist
act is unpredictable, and the ultimate impact on us would depend upon the nature, extent, location and timing of such an
act. Although we reinsure a portion of the terrorism risk we retain under TRIPRA, our terrorism reinsurance does not
provide full coverage for an act stemming from nuclear, biological or chemical terrorism. To the extent an act of
terrorism, whether a domestic or foreign act, is certified by the Secretary of Treasury, we may be covered under
TRIPRA of our losses for certain P&C lines of insurance. However, any such coverage would be subject to a mandatory
deductible based on 20% of earned premium for the prior year for the covered lines of commercial property and casualty
insurance. Based on our 2019 earned premiums, our aggregate deductible under TRIPRA during 2020 is approximately
$133.4 million. The federal government will then reimburse us for losses in excess of our deductible, 80 percent in 2020,
up to a total industry program limit of $100 billion.

Our ultimate financial obligations to the buyers of our U.K. operations may be greater than expected, which could
adversely affect our profitability.

As part of the 2017 sale transaction to divest our U.K.-based Lloyd’s of London business, which was placed in

run-off in June of 2017, we retained three ongoing financial obligations. We: (i) committed to fund Lloyd’s Syndicate
1110’s “Funds at Lloyd’s” requirements until June 30, 2020 (the “FAL Obligation”), (ii) entered a 100% Quota Share
reinsurance agreement as reinsurer, covering U.S.-sourced business written by Lloyd’s Syndicate 1110, and (iii) entered
into Aggregate Stop Loss and 100% Quota Share reinsurance agreements as reinsurer on U.K.-sourced business, with
Lloyd’s Syndicate 1110 as our reinsured, the effect of which was that we absorb syndicate losses on U.K.-originated
business above a threshold equivalent to the stated reserves at the time of the sale (the “U.K. Obligations”) and
collateralize the reserves relating to such business.

We undertook each of these obligations with an estimated quantified exposure and an expectation that the

exposure would decrease over time and based on our FAL Obligation contractually terminating on June 30, 2020, at
which time the process of releasing our assets posted as Funds at Lloyd’s is to take place. There is no assurance,
however, that prior to that time the amount of the FAL Obligation will not increase by an amount greater than we expect
or that the process of releasing those assets once our FAL Obligation terminates will not take longer than we expect.
Similarly, there is no assurance that our ultimate exposure on the U.K. Obligations, will not be greater than expected due
to more significant losses in the U.K. business. The impact of such an increase, or a dispute with Lloyd’s Syndicate 1110
over the calculation of that amount or on other matters, could cause our exposure under the U.K. Obligations to be
greater than expected or the payment/release of collateral to us to occur later or in an amount that is lower than expected.
The process of establishing reserves and related LAE is based on historical information and on estimates of future trends
that may affect the frequency and severity of claims that may be reported in the future. This process assumes that past
experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting
future events. It also assumes that adequate historical or other data exists upon which to make these judgments.
However, there is no precise method for evaluating the impact of any specific factor on the adequacy of reserves or other
estimates, and actual results are likely to differ from original estimates, perhaps materially. If the actual time periods and
amounts of losses are greater than the amounts we have reserved for and expect, our profitability could be adversely
affected.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial
condition and results of operations.

We seek to limit our loss exposure in a variety of ways, including adhering to maximum limitations on policies

written in defined geographical zones, limiting niche size for each customer, establishing per-risk and per-occurrence
limitations for each event, employing coverage restrictions and generally following prudent underwriting guidelines for
each niche written. We also seek to limit our loss exposure through geographic and market niche diversification.
Underwriting is a matter of judgment, involving assumptions about matters that are inherently unpredictable and beyond
our control, and for which historical experience and probability analysis may not provide sufficient guidance. One or
more future events could result in claims that substantially exceed our expectations, which could have a potentially
material adverse effect on our financial condition and results of operations.

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In addition, we seek to limit loss exposures by policy terms, exclusion from coverage and choice of legal forum.

However, disputes relating to coverage and choice of legal forum also arise. As a result, various provisions of our
policies, such as choice of legal forum, limitations or exclusions from coverage may not be enforceable in the manner we
intend, or at all, and some or all of our loss limitation methods may prove ineffective.

Pricing for our products is subject to our ability to adequately assess risks and estimate losses, including the models
that we use to do so. Given the inherent uncertainty of models, the usefulness of such models as a tool to evaluate
risks is subject to a high degree of uncertainty that could result in actual losses that are materially different than our
estimates, which may adversely affect our financial results.

We seek to price our insurance products such that insurance premiums, policy fees and charges, and future net
investment income earned on revenues received will result in an acceptable profit in excess of expenses and the cost of
paying claims. Our business is dependent on our ability to price our products effectively and charge appropriate
premiums. Pricing adequacy depends on a number of factors and assumptions, including proper evaluation of insurance
risks, our expense levels, net investment income realized, our response to rate actions taken by competitors, legal and
regulatory developments and the ability to obtain regulatory approval for rate changes. Inadequate pricing could
materially and adversely affect our financial condition and results of operations.

In addition, we rely on estimates of loss for certain events that are generated by computer-run models. We use

these models to help us control risk accumulation, inform management and other stakeholders of capital requirements
and to improve the risk-adjusted return profile or minimize the amount of capital required to cover the risks in each of
our written policies. However, given the inherent uncertainty of modeling techniques and the application of these
techniques, these models and databases may not accurately address a variety of matters which might affect certain of our
policies.

Small changes in assumptions, which depend heavily on our expertise, judgment and foresight, can have a

significant impact on modeled outputs. For example, although we have limited catastrophic loss exposure, we use
catastrophe models that simulate loss estimates based on a set of assumptions. These assumptions address a number of
factors that impact loss potential. We run many model simulations in order to understand the impact of these
assumptions on a catastrophe’s loss potential, but there can be no assurance that our models will accurately predict
catastrophic loss levels.

As a result of these factors, our reliance on estimates, models, data, assumptions and scenarios used to evaluate
our entire risk portfolio may not produce accurate predictions. Consequently, we could incur losses both in the risks we
underwrite and to the value of our investment portfolio, which could materially and adversely affect our financial
condition and results of operations.

Reinsurance may not be available or affordable and may not be adequate to protect us against losses, which could be
material.

Our subsidiaries are major purchasers of reinsurance and we use reinsurance as part of our overall risk

management strategy. While reinsurance does not discharge our subsidiaries from their obligation to pay claims for
losses insured under our policies, it does make the reinsurer liable to them for the reinsured portion of the risk. For this
reason, reinsurance is an important tool to manage transaction and insurance risk retention and to mitigate losses from
catastrophes. Market conditions beyond our control may impact the availability and cost of reinsurance and could have a
material adverse effect on our business, financial condition and results of operations. For example, reinsurance may be
more difficult or costly to obtain after a year with a large number of major catastrophes. We may, at certain times, be
forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms. In
the latter case, we would have to accept an increase in exposure to risk, reduce the amount of business written by our
insurance subsidiaries or seek alternatives in line with our risk limits, all of which could materially and adversely affect
our business, financial condition and results of operations.

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Additionally, the use of reinsurance placed in the capital markets, may not provide the same levels of protection

as traditional reinsurance transactions. Any disruption, volatility and uncertainty in these markets, such as following a
major catastrophic event, may limit our ability to access such markets on terms favorable to us or at all. Also, to the
extent that we intend to use structures based on an industry loss index or other non-indemnity trigger rather than on
actual losses incurred by us, we could be subject to residual risk.

Retentions in various lines of business expose us to potential losses.

We retain risk for our own account on business underwritten by our insurance subsidiaries. The determination
to reduce the amount of reinsurance we purchase, or not to purchase reinsurance for a particular risk, customer segment
or niche is based on a variety of factors, including market conditions, pricing, availability of reinsurance, our capital
levels and our loss history. Such determinations increase our financial exposure to losses associated with such risks,
customer segments or niches and, in the event of significant losses associated with such risks, customer segments or
niches, could have a material adverse effect on our financial condition, liquidity and results of operations.

Our reinsurers may not pay on losses in a timely fashion, or at all, which could adversely affect our financial
condition, liquidity and results of operations.

We purchase reinsurance to transfer part of the risk we have assumed (known as ceding) to a reinsurance

company in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the
reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the reinsured) of
our liability to our policyholders. Accordingly, we are exposed to credit risk with respect to our insurance subsidiaries’
reinsurers to the extent the reinsurance receivable is not secured by collateral or does not benefit from other credit
enhancements. We also bear the risk that a reinsurer may be unwilling to pay amounts we have recorded as reinsurance
recoverable for any reason, including that (i) the terms of the reinsurance contract do not reflect the intent of the parties
of the contract or there is a disagreement between the parties as to their intent, (ii) the terms of the contract cannot be
legally enforced, (iii) the terms of the contract are interpreted by a court or arbitration panel differently than intended,
(iv) the reinsurance transaction performs differently than we anticipated due to a flawed design of the reinsurance
structure, terms or conditions, or (v) a change in laws and regulations, or in the interpretation of the laws and regulations,
materially affects a reinsurance transaction. The insolvency of one or more of our reinsurers, or inability or
unwillingness to make timely payments under the terms of our contracts, could have a potentially material adverse effect
on our financial condition, liquidity and results of operations.

Our investment results and, therefore, our financial condition may be affected by changes in the business, financial
condition or results of operations of the entities in which we invest, as well as changes in interest rates, government
monetary policies, general economic conditions, liquidity and overall market conditions.

We invest the premiums we receive from customers until they are needed to pay expenses or policyholder

claims. Income from these investments remaining after paying expenses and claims, remain invested and are included in
retained earnings. A substantial portion of our investment portfolio is managed by Goldman Sachs Asset Management,
L.P. (“GSAM”), and effective as of January 1, 2020, we engaged New England Asset Management (“NEAM”) to
additionally manage a portion of our investment portfolio. Both GSAM and NEAM manage their respective portions of
our portfolio pursuant to our investment guidelines. Although these guidelines stress diversification and capital
preservation, our investments are subject to a variety of risks and the value of our investment portfolio can fluctuate as a
result of changes in the business, financial condition or results of operations of the entities in which we invest. In
addition, fluctuations can result from changes in interest rates, credit risk, government monetary policies, liquidity of
holdings and general economic conditions. We attempt to mitigate our interest rate and credit risks by having investment
guidelines that are designed to result in a well-diversified portfolio of high-quality securities with varied maturities.
These fluctuations may negatively impact our financial condition. However, we attempt to manage this risk through our
investment guidelines, which provide specific requirements related to asset allocation, duration and security selection.

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The historical performance of our investment portfolio should not be considered as indicative of the future results of
our investment portfolio, our future results or any returns expected on our common stock.

Our investment portfolio’s returns have benefitted historically from investment opportunities and general
market conditions that currently may not exist and may not repeat themselves, and there can be no assurance that we will
be able to avail ourselves of profitable investment opportunities in the future. Furthermore, the historical returns of our
investments are not directly linked to our future results or returns on our common stock, which are affected by various
factors, one of which is the value of our investment portfolio.

A significant amount of our assets is invested in marketable securities and subject to market fluctuations.

Our investment portfolio consists almost entirely of debt securities and credit-focused alternative investments.
As of December 31, 2019, our investment in marketable securities was approximately $2.2 billion, including cash and
cash equivalents. As of that date, our portfolio of securities consisted of the following types of securities: corporate
securities (61.0%); mortgage-backed securities (14.3%); collateralized loan obligations (8.2%); U.S. government
securities (2.3%); asset-backed securities (3.4%); limited partnerships (3.0%); short-term investments (2.0%); cash and
cash equivalents (1.3%); commercial levered loans (0.6%); state and municipal securities (3.6%); government agency
securities (0.3%). As of December 31, 2019, our portfolio included investments in funds managed by Pacific Investment
Management Company LLC, Blackrock, Goldman Sachs, Barings LLC and Guggenheim Partners.

The fair value of these assets and the investment income from these assets fluctuate depending on general
economic and market conditions. The fair value of securities generally decreases as interest rates rise. If significant
inflation or an increase in interest rates were to occur, the fair value of our securities would be negatively affected.
Conversely, if interest rates decline, investment income earned from future investments in securities will be lower. Some
securities, such as mortgage-backed and other asset-backed securities, also carry prepayment risk as a result of interest
rate fluctuations. Additionally, given the current extended period of low interest rates, we may not be able to
successfully reinvest the proceeds from maturing securities at yields commensurate with our target performance goals.

The value of investments in securities is subject to impairment as a result of deterioration in the
creditworthiness of the issuer, default by the issuer in the performance of its obligations in respect of the securities
and/or increases in market interest rates. To a large degree, the credit risk we face is a function of the economy;
accordingly, we face a greater risk in an economic downturn or recession. During periods of market disruption, it may be
difficult to value certain of our securities, particularly if trading becomes less frequent and/or market data becomes less
observable. There may be certain asset classes that were in active markets with significant observable data that become
illiquid due to the current financial environment. In such cases, more securities may require additional subjectivity and
management judgment.

Although the historical rates of default on state and municipal securities have been relatively low, our state and
municipal securities could be subject to a higher risk of default or impairment due to declining municipal tax bases and
revenue. Many states and municipalities operate under deficits or projected deficits, the severity and duration of which
could have an adverse impact on both the valuation of our state and municipal securities and the issuer’s ability to
perform its obligations thereunder. Additionally, our investments are subject to losses as a result of a general decrease in
commercial and economic activity for an industry sector in which we invest, as well as risks inherent in particular
securities.

Although we attempt to manage these risks through the use of investment guidelines and other oversight

mechanisms and by diversifying our portfolio and emphasizing preservation of principal, our efforts may not be
successful. Impairments, defaults and/or rate increases could reduce our net investment income and net realized
investment gains or result in investment losses. Investment returns are currently, and will likely continue to remain,
under pressure due to the continued low inflation, actions by the Federal Reserve, economic uncertainty, more generally,
and the shape of the yield curve. As a result, our exposure to the risks described above could materially and adversely
affect our results of operations, liquidity and financial condition.

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Changes in the method for determining the London Interbank Offered Rate (“LIBOR”) and the potential
replacement of LIBOR may affect our cost of capital and net investment income.

As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’
Association (the “BBA”) member banks entered into settlements with certain regulators and law enforcement agencies
with respect to the alleged manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies as a
result of these or future events may result in changes to the manner in which LIBOR is determined or its discontinuation.

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates

LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the
LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot
and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021.

Potential changes or uncertainty related to such potential changes or discontinuation may adversely affect the

market for securities that reference LIBOR. In addition, changes or reforms to the determination or supervision of
LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse
impact on the market for securities that reference LIBOR or the value of our investment portfolio.

Our business is dependent on the efforts of our principal executive officers.

Our success is dependent on the efforts of our principal executive officers because of their industry expertise,
knowledge of our markets and relationships with our distributors. Should any of these executive officers cease working
for us, we may be unable to find acceptable replacements with comparable skills and experience in the specialty
insurance industry and customer segments that we target, and our business may be adversely affected. We do not
currently maintain life insurance policies with respect to our executive officers or other employees.

Effective as of May 1, 2019, Lawrence Hannon succeeded Joseph J. Beneducci as Chief Executive Officer of

the Company. Mr. Beneducci, who is a founding member of the Company, took over the role of Executive Chairman of
the Company until his resignation, effective February 1, 2020. In connection with this transition, on May 3, 2019, the
Company and Mr. Beneducci entered into a Transition and Separation Agreement pursuant to which, among other
things, Mr. Beneducci agreed to provide transition services to us as an employee, including preparing for our IPO and
facilitating an orderly transition of the Chief Executive Officer role. On January 23, 2020 we entered into an amendment
to Mr. Beneducci’s Transition and Separation Agreement pursuant to which Mr. Beneducci will be entitled to certain
severance payments and benefits described in Item 11. Executive Compensation — Narrative Disclosure to Summary
Compensation Table — Employment Agreements — Mr. Beneducci on this Annual Report on Form 10-K.

We may be unable to attract and retain qualified key employees.

We depend on our ability to attract and retain qualified executive officers, experienced underwriters and other
skilled employees who are knowledgeable about our business. Providing suitable succession planning for such positions
is also important. If we cannot attract or retain top-performing executive officers, underwriters and other employees, if
the quality of their performance decreases or if we fail to implement succession plans for our key staff, we may be
unable to maintain our current competitive position in the niches in which we operate or to expand our operations into
new customer segments and niches.

Third-party vendors we rely upon to provide certain business and administrative services on our behalf may not
perform as anticipated, which could have an adverse effect on our business and results of operations.

We have taken action to reduce coordination costs and take advantage of economies of scale by transitioning

multiple functions and services to a small number of third-party providers. We periodically negotiate provisions and
renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third

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parties. If such third-party providers experience disruptions or do not perform as anticipated, or we experience problems
with a transition to a third-party provider, we may experience operational difficulties, an inability to meet obligations
(including, but not limited to, policyholder obligations), a loss of business and increased costs, or suffer other negative
consequences, all of which may have a material adverse effect on our business and results of operations.

Employee and third-party error and misconduct may be difficult to detect and prevent and may result in significant
losses.

There have been a number of cases involving fraud or other misconduct by employees in the financial services

industry in recent years and we run the risk that employee or agent misconduct could occur. Instances of fraud, illegal
acts, errors, failure to document transactions properly or to obtain proper authorization, misuse of customer or
proprietary information, or failure to comply with regulatory requirements or our policies may result in losses and/or
reputational damage. In the past, our audits and procedures have led us to identify an incident of fraud by one of our
agents, which resulted in enhancements to our monitoring and audit procedures and no other employee or agent fraud
has been identified to date. Nevertheless, it is not always possible to deter or prevent misconduct, and the controls that
we have in place to prevent and detect this activity may not be effective in all cases.

Any significant interruption in the operation of our facilities, systems and business functions could adversely affect
our results of operations.

We rely on multiple computer systems to interact with customers, issue policies, pay claims, run modeling

functions, assess insurance risks and complete various important internal processes including accounting and
bookkeeping. Our business is highly dependent on our ability to access these systems to perform necessary business
functions. Additionally, some of these systems may include or rely upon third-party systems not located on our premises.
Any of these systems may be exposed to unplanned interruption, unreliability or intrusion from a variety of causes,
including among others, storms and other natural disasters, terrorist attacks, utility outages, security breaches or
complications encountered as existing systems are replaced or upgraded.

Any such issues could materially impact our company including the impairment of information availability,

compromise of system integrity or accuracy, misappropriation of confidential information, reduction of our volume of
transactions and interruption of our general business. Although we believe our computer systems are securely protected
and continue to take steps to ensure they are protected against such risks, we cannot guarantee that such problems will
never occur. If they do, interruption to our business and damage to our reputation, and related costs, could be significant,
which could have a material adverse effect on our results of operations and cause losses.

Increasing regulatory focus on privacy issues and expanding laws could affect our business model and expose us to
increased liability.

The regulatory environment surrounding information security and privacy is increasingly demanding. We are

subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personal and
confidential information of our customers or employees. On March 1, 2017, new cybersecurity rules took effect for
financial institutions, insurers and certain other companies, like us, supervised by the NY DFS (the “NY DFS
Cybersecurity Regulation”). The NY DFS Cybersecurity Regulation imposes significant new regulatory burdens
intended to protect the confidentiality, integrity and availability of information systems. For additional information, see
“Regulation — Cybersecurity Regulation”.

We will incur increased costs as a result of operating as a public company, and operating as a public company will
place additional demands on our management.

As a public company, and particularly after we are no longer an emerging growth company, we will incur

significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-
Oxley Act of 2002 (“Sarbanes-Oxley”) and rules subsequently implemented by the U.S. Securities and Exchange
Commission (“SEC”) and the New York Stock Exchange (“NYSE”) have imposed various requirements on public

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companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Compliance with these requirements will place significant additional demands on our management
and will require us to enhance certain internal functions, such as investor relations, legal, financial reporting and
corporate communications. Accordingly, these rules and regulations will increase our legal and financial compliance
costs and will make some activities more time-consuming and costly. For example, we expect that these rules and
regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

Pursuant to Section 404(b) (“Section 404”) of Sarbanes-Oxley, we will be required to furnish a report by our

management on our internal control over financial reporting, including, once we are no longer an emerging growth
company, an attestation report on internal control over financial reporting issued by our independent registered public
accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process
to document and evaluate our internal control over financial reporting, which is both costly and time-consuming. In this
regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work
plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control
processes, validate through testing that controls are functioning as documented and implement a continuous reporting
and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we
nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our
internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction
in the financial markets due to a loss of confidence in the reliability of our financial statements.

Any failure to protect our intellectual property rights could impair our intellectual property, proprietary technology
platform and brand. In addition, we may be sued by third parties for alleged infringement of their proprietary rights.

Our success and ability to compete depend in part on our intellectual property, which includes our rights in our

proprietary technology platform and our brand. We primarily rely on copyright, trade secret and trademark laws, and
confidentiality or license agreements with our employees, customers, service providers, partners and others to protect
our intellectual property rights. However, the steps we take to protect our intellectual property may be inadequate.
Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting
to management and could result in the impairment or loss of portions of our intellectual property. Additionally, our
efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the
validity and enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our
intellectual property rights could adversely affect our brand and adversely affect our business.

Our success depends also in part on our not infringing on the intellectual property rights of others. In the future,
third parties may claim that we are infringing on their intellectual property rights, and we may be found to be infringing
on such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against
us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products
and services, or require that we comply with other unfavorable terms. Even if we were to prevail in such a dispute, any
litigation could be costly and time-consuming and divert the attention of our management and key personnel from our
business operations.

Changes in accounting practices and future pronouncements may materially affect our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply,

particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the
new requirements retroactively. The impact of changes in current accounting practices and future pronouncements
cannot be predicted but may affect the calculation of net income, stockholders’ equity and other relevant financial
statement line items.

We are required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP
are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, in
an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before

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committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry
participants. The NAIC continuously examines existing laws and regulations. We cannot predict whether or in what
form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us.

Our failure to accurately and timely pay claims could materially and adversely affect our business, financial
condition, results of operations and prospects.

We must accurately and timely evaluate and pay claims that are made under our policies. Many factors affect

our ability to pay claims accurately and timely, including the training and experience of our claims staff, our claims
department’s culture and the effectiveness of our management, our ability to develop or select and implement
appropriate procedures and systems to support our claims functions and other factors. Our failure to accurately and
timely pay claims could lead to regulatory and administrative actions or material litigation, undermine our reputation in
the marketplace and materially and adversely affect our business, financial condition, results of operations and prospects.

In addition, if we do not train new claims staff effectively or if we lose a significant number of experienced

claims staff, our claims department’s ability to handle an increasing workload could be adversely affected. In addition to
potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of
claims work which, in turn, could adversely affect our operating margins.

If actual renewals of our existing contracts do not meet expectations, our written premiums in future years and our
future results of operations could be materially adversely affected.

Many of our contracts are written for a one-year term. In our financial forecasting process, we make

assumptions about the rates of renewal of our prior year’s contracts. The insurance and reinsurance industries have
historically been cyclical businesses with intense competition, often based on price. If actual renewals do not meet
expectations or if we choose not to write a renewal because of pricing conditions, our written premiums in future years
and our future operations would be materially adversely affected.

Legal and Regulatory Risks

We are subject to extensive governmental regulation, which may adversely affect our ability to achieve our business
objectives. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and
suspensions, which may adversely affect our financial condition, results of operations and reputation.

Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and

other investors. These regulations, generally administered by a department of insurance in each state and territory in
which we do business, relate to, among other things:

•

approval of policy forms and premium rates;

standards of solvency, including risk-based capital measurements;

licensing of insurers;

restrictions on agreements with our large revenue-producing agents;

cancellation and non-renewal of policies;

restrictions on the nature, quality and concentration of investments;

restrictions on the ability of our insurance subsidiaries to pay dividends to us;

restrictions on transactions between our insurance subsidiaries and their affiliates;

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•

restrictions on the size of risks insurable under a single policy;

requiring deposits for the benefit of policyholders;

requiring certain methods of accounting;

periodic examinations of our operations and finances;

prescribing the form and content of records of financial condition required to be filed; and

requiring reserves for unearned premium, losses and other purposes.

State insurance departments also conduct periodic examinations of the conduct and affairs of insurance
companies and require the filing of annual, quarterly and other reports relating to financial condition, holding company
issues, ERM and ORSA and other matters. These regulatory requirements could adversely affect or inhibit our ability to
achieve some or all of our business objectives, including profitable operations in our various customer segments.

In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various

reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of
regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be
different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do
not comply with applicable regulatory requirements, insurance regulatory authorities could fine us, preclude or
temporarily suspend us from carrying on some or all of our activities in certain jurisdictions or otherwise penalize us.
This could adversely affect our ability to operate our business. Further, changes in the laws and regulations applicable to
the insurance industry or interpretations by regulatory authorities could adversely affect our ability to operate our
business as currently conducted and in accordance with our business objectives.

In addition to regulations specific to the insurance industry, including the insurance laws of our principal state

regulators (the NY DFS and AZ DOI), as a public company we will also be subject to the rules and regulations of the
SEC and the NYSE, each of which regulate many areas such as financial and business disclosures, corporate governance
and stockholder matters. Among other laws, we are subject to laws relating to federal trade restrictions, privacy/data
security and terrorism risk insurance laws.

In mid-2019, we were provided with copies of three anonymous letters addressing essentially the same subject
matter and strongly indicative of a single source. These letters contained allegations relating to our underwriting, pricing
and reserving practices generally in connection with a single segment of our business. At this time, we cannot predict
whether the SEC, state insurance regulators or other regulators will take any actions or what the impact of such actions
could be. The audit committee of the Company, with the assistance of our internal audit and internal legal personnel and
outside counsel, has reviewed these matters carefully. Based on that review process, we have concluded that the
allegations are not credible and accordingly do not present any issue material to our business practices, financial
statements or disclosures.

We monitor these laws, regulations and rules on an ongoing basis to ensure compliance and make appropriate

changes as necessary. Implementing such changes may require adjustments to our business methods, increases to our
costs and other changes that could cause us to be less competitive in our industry. For further information on the
regulation of our business, see “Regulation”.

New regulations may affect our business, financial condition, results of operations and ability to compete effectively.

Legislators and regulators may periodically consider various proposals that may affect our business practices

and product designs, how we sell or service certain products we offer or the profitability of our business. We continually

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monitor such proposals and assess how they might apply to us or our competitors or how they could impact our business,
financial condition, results of operations and ability to compete effectively.

We are an insurance holding company and our ability to receive dividends from our insurance subsidiaries is subject
to regulatory constraints.

We are a holding company and, as such, we have no direct operations of our own. We do not expect to have any

significant operations or assets other than our ownership of the shares of our operating subsidiaries. Unrestricted
dividends payable from our insurance subsidiaries without the prior approval of applicable regulators are limited to the
lesser of 10% of each of New York Marine’s or Gotham’s surplus as shown on the last statutory financial statement on
file with the NY DFS or 100% of adjusted net investment income during the applicable twelve month period (where
adjusted net investment income equals the net investment income for the twelve month period prior to the declaration or
payment of the dividend plus the excess of net investment income over dividends paid in the two years prior thereto);
and in Arizona, the greater of 10% of Southwest Marine’s surplus as of the immediately preceding December 31 or
Southwest Marine’s net investment income for the period ending the immediately prior December 31. Dividends and
other permitted payments from our operating subsidiaries are expected to be a source of funds to meet ongoing cash
requirements, including debt service payments and other expenses. As of December 31, 2019, the maximum amount of
unrestricted dividends that our insurance subsidiaries could pay to us without approval was $54.7 million. There can be
no assurances that our insurance subsidiaries will be able to pay dividends in the future, and the limitations of such
dividends could adversely affect the Company’s liquidity or financial condition.

We could be adversely affected by recent and future changes in U.S. federal income tax laws.

Recent tax legislation (Public Law 115-97), commonly referred to as the Tax Cuts and Jobs Act (“TCJA”),

which was signed into law on December 22, 2017, fundamentally overhauls the U.S. tax system by, among other things,
reducing the U.S. corporate income tax rate to 21%, repealing the corporate alternative minimum tax, limiting the
deductibility of business interest expense, introducing a base erosion and anti-avoidance tax aimed at cross-border
deductible payments to related foreign persons, moving closer to a territorial system of taxing earnings generated
through foreign subsidiaries and imposing a one-time deemed repatriation tax on certain post-1986 undistributed
earnings of foreign subsidiaries. In the context of the taxation of U.S. property and casualty insurance companies such as
us, the TCJA modifies the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions
to reflect the lower corporate income tax rate. In addition, it is possible that other legislation could be introduced and
enacted by the current Congress or future Congresses that could have an adverse impact on us. New regulations or
pronouncements interpreting or clarifying provisions of the TCJA may be forthcoming. We cannot predict if, when or in
what form such regulations or pronouncements may be provided or finalized, whether such guidance will have a
retroactive effect or their potential impact on us.

We may suffer losses from litigation, which could adversely affect our business and financial condition.

As is typical in our industry, we continually face risks associated with litigation of various types, including

general commercial and corporate litigation, and disputes relating to bad faith allegations which could result in us
incurring losses in excess of policy limits. We are party to a variety of litigation matters throughout the year, mostly with
respect to claims. Litigation is subject to inherent uncertainties, and if there were an outcome unfavorable to us, there
exists the possibility of a material adverse impact on our results of operations and financial position in the period in
which the outcome occurs. Even if an unfavorable outcome does not materialize, we still may face substantial expense
and disruption associated with the litigation.

We are subject to banking regulations that may limit our business activities.

Goldman Sachs, affiliates of which own approximately 39.5% of the voting and economic interest in our

business as of December 31, 2019, is regulated as a bank holding company that has elected to be treated as a financial
holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The BHC Act imposes

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regulations and requirements on Goldman Sachs and on any company that is deemed to be “controlled” by Goldman
Sachs for purposes of the BHC Act and the regulations of the Board of Governors of the Federal Reserve System (the
“Federal Reserve”) promulgated thereunder. Due to the size of its voting and economic interest in us, we are deemed to
be controlled by Goldman Sachs for purposes of the BHC Act and, therefore, are considered to be a “subsidiary” of
Goldman Sachs under the BHC Act. We will remain subject to this regulatory regime until Goldman Sachs is no longer
deemed to control us for purposes of the BHC Act, which we do not have the ability to control and which will not occur
until Goldman Sachs has significantly reduced its voting and economic interest in us. Restrictions placed on Goldman
Sachs as a result of supervisory or enforcement actions under the BHC Act or otherwise may restrict us or our activities
in certain circumstances, even if these actions are unrelated to our conduct or business. The Federal Reserve could
exercise its power to restrict us from engaging in any activity that, in the Federal Reserve’s opinion, is unauthorized for
us or constitutes an unsafe or unsound business practice. Although to date none of these restrictions or limitations have
adversely affected our business, to the extent that the Federal Reserve’s regulations impose limitations on our business,
we may be at a competitive disadvantage to those of our competitors that are not subject to such regulations.

As a subsidiary of a bank holding company, we are subject to examination by the Federal Reserve and could be

required to provide information and reports for use by the Federal Reserve under the BHC Act. The Federal Reserve
may also impose substantial fines and other penalties for violations of applicable banking laws, regulations and orders.
In addition, as a subsidiary of Goldman Sachs, we are considered a “banking entity” and subject to the restrictions of
Section 13 of the BHC Act, otherwise known as the “Volcker Rule”. The Volcker Rule prohibits banking entities from
engaging in proprietary trading and from acquiring or retaining any ownership interest in, or sponsoring, a covered fund
(which includes most private equity funds and hedge funds), subject to satisfying certain conditions, and, in certain
circumstances, from engaging in credit related and other transactions with such funds. However, the Volcker Rule
exempts from this prohibition regulated insurance companies directly engaged in the business of insurance where such
investments are made for the general account of the company or by affiliates, subject to certain conditions. As we are a
regulated insurance company whose investments are made for our general account, this exemption has not affected our
investment approach. Changes in the provisions of the BHC Act that are made while we still qualify as a banking entity
could alter our ability to invest, potentially impacting our profitability.

We have agreed to certain covenants in the Stockholders’ Agreement (as later defined) for the benefit of

Goldman Sachs that are intended to facilitate its compliance with the BHC Act, but that may impose certain obligations
on us. In particular, Goldman Sachs has rights to conduct audits on, and access certain of, our information, and we are
obligated to establish (and have established) policies and procedures for compliance with law that are acceptable in form
and substance to Goldman Sachs. These covenants will remain in effect as long as the Federal Reserve deems us to be a
“subsidiary” of Goldman Sachs under the BHC Act.

Risks Related to Our Status as an Emerging Growth Company

We are an emerging growth company within the meaning of the Securities Act of 1933, as amended (the “Securities
Act”) and because we have decided to take advantage of certain exemptions from various reporting and other
requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

For as long as we remain an “emerging growth company”, as defined in the Jumpstart Our Business Startups
Act of 2012, as amended, we will have the option to take advantage of certain exemptions from various reporting and
other requirements that are applicable to other public companies that are not emerging growth companies, including
reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and
proxy statements, not being required to comply with the auditor attestation requirements of Section 404 being permitted
to have an extended transition period for adopting any new or revised accounting standards that may be issued by the
Financial Accounting Standards Board (“FASB”) or the SEC, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not
previously approved.

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We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we
have total annual gross revenues of $1.07 billion or more; (ii) the date on which we have, during the previous three-year
period, issued more than $1.0 billion in non-convertible debt; (iii) the date we qualify as a “large accelerated filer”,
which requires that (A) the market value of our equity securities that are held by non-affiliates exceeds $700 million as
of June 30 of that year, (B) we have been a public reporting company under the Securities Exchange Act of 1934, as
amended (“Exchange Act”) for at least twelve calendar months and (C) we have filed at least one annual report on
Annual Report on Form 10-K; and (iv) the end of the fiscal year following the fifth anniversary of the completion of our
initial public offering.

We expect to continue to avail ourselves of the emerging growth company exemptions described above. In

addition, we may but do not expect to avail ourselves of the extended transition period for complying with new or
revised accounting standards. As a result, the information that we provide to stockholders will be less comprehensive
than what you might receive from other public companies.

Because we have elected to use the extended transition period for complying with new or revised accounting
standards for an “emerging growth company” our financial statements may not be comparable to companies that
comply with these accounting standards as of the public company effective dates.

We have elected to use the extended transition period for complying with new or revised accounting standards

under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or revised
accounting standards that have different effective dates for public and private companies until those standards apply to
private companies. As a result of this election, our financial statements may not be comparable to companies that comply
with these accounting standards as of the public company effective dates. Consequently, our financial statements may
not be comparable to companies that comply with public company effective dates. Because our financial statements may
not be comparable to companies that comply with public company effective dates, investors may have difficulty
evaluating or comparing our business, performance or prospects in comparison to other public companies, which may
have a negative impact on the value and liquidity of our common stock. We cannot predict if investors will find our
common stock less attractive because we plan to rely on this exemption. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock and our stock price may be more
volatile.

Risks Related to Our Common Stock

If securities analysts do not publish research or reports about our business or our industry or if they issue
unfavorable commentary or issue negative recommendations with respect to our common stock, the price of our
common stock could decline.

The trading market for our common stock may be influenced by the research and reports that equity research

and other securities analysts publish about us, our business and our industry. We do not have control over these analysts
and we may be unable or slow to attract research coverage. One or more analysts could issue negative recommendations
with respect to our common stock or publish other unfavorable commentary or cease publishing reports about us, our
business or our industry. If one or more of these analysts cease coverage of us, we could lose visibility in the market. As
a result of one or more of these factors, the market price of our common stock price could decline rapidly and our
common stock trading volume could be adversely affected.

The price of our common stock may be volatile and may be affected by market conditions beyond our control.

Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks

mentioned in this section of the Annual Report, are:

•

our operating and financial performance and prospects;

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•

our announcements or our competitors’ announcements regarding new products or services, enhancements,
significant contracts, acquisitions or strategic investments;

changes in earnings estimates or recommendations by securities analysts who cover our common stock;

fluctuations in our quarterly financial results or earnings guidance or the quarterly financial results or
earnings guidance of companies perceived to be similar to us;

changes in our capital structure, such as future issuances of securities, sales of large blocks of common
stock by our stockholders, including our principal stockholders, or the incurrence of additional debt;

departure of key personnel;

reputational issues;

changes in general economic and market conditions;

changes in industry conditions or perceptions or changes in the market outlook for the insurance industry;
and

•

changes in applicable laws, rules or regulations, regulatory actions affecting us and other dynamics.

The stock market has experienced extreme price and volume fluctuations in recent years. The market prices of

securities of insurance companies have experienced fluctuations that often have been unrelated or disproportionate to the
operating results of these companies. These market fluctuations could result in extreme volatility in the price of shares of
our common stock, which could cause a decline in the value of your investment. You should also be aware that price
volatility may be greater if the public float and trading volume of shares of our common stock is low.

Our principal stockholders have significant influence over us, and their interests could conflict with those of our
other stockholders.

Our principal stockholders hold approximately 77.5% of our common stock as of December 31, 2019. As a
result, our principal stockholders are able to influence matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other extraordinary transactions. Our principal stockholders may also
have interests that differ from our other stockholders and may vote in a way with which our other stockholders disagree
and which may be adverse to the interests of our other stockholders. The concentration of ownership may also have the
effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of our Company and might ultimately affect
the market price of our common stock.

In connection with our IPO we entered into a stockholders’ agreement with the principal stockholders (the

“Stockholders’ Agreement”) that governs the relationship between us and the principal stockholders. The Stockholders’
Agreement provides, among other things, that two directors shall be designated for election to the Board of Directors by
ProSight Parallel Investment LLC and ProSight Investment LLC (“PI”) ( collectively the “GS Investors”) and two
directors shall be designated for election to the Board of Directors by ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2,
L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively, the “TPG Investors”). These designation rights will diminish if
either principal stockholder transfers more than a specified percentage of its ownership interest in the Company. Our
Board of Directors currently consists of ten directors. See Item 13 “Certain Relationships and Related Party Transaction
— Relationship with the Principal Stockholders — Stockholders’ Agreement”.

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As long as our principal stockholders own a majority of our common stock, we may rely on certain exemptions from
the corporate governance requirements of the NYSE available for “controlled companies”.

We are a “controlled company” within the meaning of the corporate governance listing requirements of the

NYSE because our principal stockholders own more than 50% of our outstanding common stock. A controlled company
may elect not to comply with certain corporate governance requirements of the NYSE. Accordingly, our Board of
Directors will not be required to have a majority of independent directors and our Compensation Committee and
Nominating and Governance Committee will not be required to meet the director independence requirements to which
we would otherwise be subject until such time as we cease to be a “controlled company.” Notwithstanding this
exemption, our Board of Directors, Compensation Committee and Nominating and Governance Committee currently
meet the director independence requirements under the NYSE rules. If we elect to rely on “controlled company”
exemptions, you will not have certain of the protections afforded to stockholders of companies that are subject to all of
the corporate governance requirements of the NYSE.

Our principal stockholders could sell their interests in us to a third party in a private transaction, which may not lead
to your realization of any change-of-control premium on shares of our common stock and would subject us to the
influence of a presently unknown third party.

Our principal stockholders beneficially own a large percentage of our common stock. Our principal

stockholders will have the ability, should they choose to do so, to sell some or all of their shares of our common stock in
a privately negotiated transaction, which, if sufficient in size, could result in another party gaining significant influence
over our Company.

The ability of our principal stockholders to sell their shares of our common stock privately, with no requirement

for a concurrent offer to be made to acquire all of the shares of our outstanding common stock that will be publicly
traded hereafter, could prevent you from realizing any change-of-control premium on your shares of our common stock
that may accrue to our principal stockholders upon their private sales of our common stock.

Future sales of a substantial number of shares of our common stock may depress the price of our shares.

If our stockholders sell a large number of shares of our common stock, or if we issue a large number of shares

of our common stock in connection with future acquisitions, financings, or other circumstances, the market price of
shares of our common stock could decline significantly. Moreover, the perception in the public market that our
stockholders might sell shares of our common stock could depress the market price of those shares. In addition, sales of
a substantial number of shares of our common stock by our principal stockholders could adversely affect the market
price of our common stock.

As of December 31, 2019, we had 43,058,266 outstanding shares of common stock. Of these outstanding

shares, all of the 9,035,715 shares sold in the IPO are freely tradable without restriction under the Securities Act except
for any shares held by our “affiliates”, as defined in Rule 144 under the Securities Act, including our principal
stockholders.

In July 2019, we filed a registration statement on Form S-8 under the Securities Act to register the shares of
common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired
upon conversion of equity awards granted under our plans are also freely tradable under the Securities Act, unless
purchased by our affiliates. As of December 31, 2019, 2,191,617 shares of our common stock are reserved for future
issuances under the 2019 equity incentive plan adopted in connection with the IPO.

We do not anticipate declaring or paying regular dividends on our common stock in the near term, and our
indebtedness could limit our ability to pay dividends on our common stock.

We do not currently anticipate declaring or paying regular cash dividends on our common stock in the near

term. We currently intend to use our future earnings, if any, to pay debt obligations, to fund our growth and develop our

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business and for general corporate purposes (which may include capital contributions to our insurance subsidiaries in
conjunction with future growth of premiums written). Therefore, you are not likely to receive any dividends on your
common stock in the near term, and the success of an investment in shares of our common stock will depend upon any
future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even
maintain the price at which they are initially offered. Any future declaration and payment of dividends or other
distributions of capital will be at the discretion of the Board of Directors and the payment of any future dividends or
other distributions of capital will depend on many factors, including our financial condition, earnings, cash needs,
regulatory constraints, capital requirements (including requirements of our subsidiaries) and any other factors that the
Board of Directors deems relevant in making such a determination. In addition, the terms of the agreements governing
the debt we incurred, or debt that we may incur, may limit or prohibit the payment of dividends. For more information,
see “Dividends.” There can be no assurance that we will establish a dividend policy or pay dividends in the future or
continue to pay any dividend if we do commence paying dividends pursuant to a dividend policy or otherwise.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is
the exclusive forum for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of

Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a
breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law (the “DGCL”) or any action asserting a claim against us that is governed by the internal affairs doctrine. Unless the
Corporation consents in writing to the selection of an alternative forum, the exclusive forum for any action under the
Securities Act or the Exchange Act shall be either the Court of Chancery of the State of Delaware or the federal district
court for the District of Delaware. This exclusive forum provision will not apply to claims which are vested in the
exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, for which the Court
of Chancery of the State of Delaware does not have subject matter jurisdiction or, in the case of an action under the
Securities Act or the Exchange Act, for which neither the Court of Chancery of the State of Delaware nor the federal
district court for the District of Delaware has subject matter jurisdiction. This choice of forum provision may limit a
stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our
directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find
the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or
unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs
associated with resolving such action in other jurisdictions, which could harm our business, financial condition and
results of operations. For example, the Court of Chancery of the State of Delaware recently determined that a provision
stating that federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising
under the Securities Act is not enforceable. This decision may be reviewed and ultimately overturned by the Delaware
Supreme Court.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, of Delaware
corporate and of state insurance laws, may prevent or delay an acquisition of us, which could decrease the trading
price of our common stock.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and of
state law may delay, deter, prevent or render more difficult a takeover attempt that our stockholders might consider in
their best interests. For example, such provisions or laws may prevent our stockholders from receiving the benefit from
any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of
a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common
stock if they are viewed as discouraging takeover attempts in the future.

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Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws

may have anti-takeover effects and may delay, deter or prevent a takeover attempt that our stockholders might consider
in their best interests. The provisions provide for, among others:

•

the ability of our Board of Directors to issue one or more series of preferred stock;

the filling of any vacancies on our Board of Directors by the affirmative vote of a majority of the remaining
directors, even if less than a quorum, or by a sole remaining director or by the stockholders; provided,
however, that after the first time when the principal stockholders cease to beneficially own, in the
aggregate, at least 50% of our outstanding common stock, any vacancy occurring in the Board of Directors
may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole
remaining director (and not by the stockholders);

certain limitations on convening special stockholder meetings;

advance notice for nominations of directors by stockholders and for stockholders to include matters to be
considered at our annual meetings; and stockholder action by written consent only until the first time when
the principal stockholders cease to beneficially own, in the aggregate, 50% or greater of our outstanding
common stock.

Section 203 of the DGCL may affect the ability of an “interested stockholder” to engage in certain business

combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years
following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to
include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation.

The insurance laws and regulations of the various states in which our insurance subsidiaries are organized may
delay or impede a business combination involving the Company. State insurance laws generally prohibit an entity from
acquiring control of an insurance company without the prior approval of the domestic insurance regulator. Under most
states’ statutes, an entity is presumed to have control of an insurance company if it owns, directly or indirectly, 10% or
more of the voting stock of that insurance company or its parent company. These regulatory restrictions may delay, deter
or prevent a potential merger or sale of our company, even if our Board of Directors decides that it is in the best interests
of stockholders for us to merge or be sold. These restrictions also may delay sales by us or acquisitions by third parties
of our insurance subsidiaries.

These anti-takeover provisions and laws may delay, deter or prevent a takeover attempt that our stockholders

might consider in their best interests. As a result, our stockholders may be limited in their ability to obtain a premium for
their shares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located in Morristown, New Jersey on a site of approximately 95,000 rentable

square feet leased by us. The term of that lease expires on January 31, 2022. We lease a total of six additional offices
located in California, Georgia, New York, Florida and London. The office in London is subleased to a third party. We do
not own any real property. We believe that our facilities are adequate for our current needs.

Item 3. Legal Proceedings

In the ordinary course of conducting business, we are named as defendants in various legal proceedings. Most

of these proceedings are claims litigation involving our insurance subsidiaries as either: (i) liability insurers defending or

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providing indemnity for third-party claims brought against our customers; or (ii) insurers defending first-party coverage
claims brought against them. We account for such activity through the establishment of unpaid loss and loss expense
reserves. We expect that any potential ultimate liability in such ordinary course claims litigation will not be material to
our consolidated financial condition, results of operations, or cash flows after consideration of provisions made for
potential losses and costs of defense.

As of December 31, 2019, we do not believe the Company or any of the insurance subsidiaries was a defendant

in any legal action that could have a material adverse effect on our consolidated financial condition, results of
operations, or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information

Our common stock is traded on the New York Stock Exchange under the symbol “PROS”, and began trading

on July 25, 2019.

Holders

We had 27 stockholders of record of our common stock as of February 21, 2020, according to the records

maintained by our transfer agent. This stockholder figure does not include the number of holders whose shares are held
of record by banks, brokers and other financial institutions.

Dividends

We do not currently anticipate declaring or paying regular cash dividends on our common stock in the near
term. Any future declaration and payment of dividends or other distributions of capital will be at the discretion of the
Board of Directors and will depend on our financial condition, earnings, cash needs, regulatory constraints, capital
requirements (including requirements of our subsidiaries) and any other factors that the Board of Directors deems
relevant in making such a determination. In addition, the terms of the agreements governing the debt we have incurred or
may incur may limit or prohibit the payment of dividends. Therefore, there can be no assurance that we will pay any
dividends to holders of our common stock, or as to the amount of any such dividends.

Delaware law requires that dividends be paid only out of “surplus,” which is defined as the fair market value of

our net assets, minus our stated capital; or out of the current or the immediately preceding year’s earnings. We are a
holding company, and we have no direct operations. All of our business operations are conducted through our
subsidiaries. The states in which our insurance subsidiaries are domiciled impose certain restrictions on our insurance
subsidiaries’ ability to pay dividends to us. These restrictions are based in part on the prior year’s statutory income and
surplus. Such restrictions, or any future restrictions adopted by the states in which our insurance subsidiaries are
domiciled, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts
payable to us by our subsidiaries without affirmative approval of state regulatory authorities. See “Risk Factors — Legal
and Regulatory Risks — We are an insurance holding company and our ability to receive dividends from our insurance
subsidiaries is subject to regulatory constraints.”

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Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of
our filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in
such filing.

The following chart, depicts our performance for the period beginning July 25, 2019 and ending December 31,

2019, as measured by total stockholder return on our common stock compared with the total return of the S&P 500 Index
and the S&P 500 Property & Casualty Insurance Index. The chart plots the change in value of an initial $100 investment
over the indicated time period, assuming all dividends are reinvested. The stock price performance shown is not intended
to predict or be indicative of future performance.

ProSight Global, Inc.
S&P 500 Index – total return
S&P P&C Insurance Index – total return

Use of proceeds from sale of registered equity securities

December
31, 2019

July 25,
2019
100.00 $ 115.21
100.00 $ 107.95
98.99
100.00 $

$
$
$

On July 29, 2019, we closed our initial public offering of 7,857,145 shares of common stock, including the
issuance and sale by the Company of 4,285,715 shares of common stock and the sale by the selling stockholders of
3,571,430 shares of common stock. On August 15, 2019, the selling stockholders completed the sale of 1,178,570 shares
of common stock pursuant to the underwriters’ exercise of their over-allotment option granted in connection with the
initial public offering.

The offer and sale of all of the shares in the initial public offering (including pursuant to the underwriters’

overallotment option) were registered under the Securities Act pursuant to a registration statement on Form S-1 (File
No. 333-232440), which was declared effective by the SEC on July 24, 2019. Goldman Sachs & Co. LLC and Barclays
acted as the lead underwriters. The public offering price of the shares sold in the offering was $14.00 per share. The total
gross proceeds from the offering to us were approximately $60.0 million. After deducting underwriting discounts and

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commissions of approximately $3.9 million and offering expenses payable by us of approximately $5.3 million, we
received approximately $50.8 million. We did not receive any of the proceeds from the sale of the shares of common
stock sold by the selling stockholders in the initial public offering or pursuant to the underwriters’ exercise of the
overallotment option. There has been no material change in the planned use of proceeds from our initial public offering
as described in our final prospectus (dated July 24, 2019) filed with the SEC on July 25, 2019 pursuant to Rule 424(b) of
the Securities Act.

Item 6. Selected Financial Data

The following tables present our selected consolidated financial data as of the dates and for the periods
indicated. The selected consolidated financial data as of and for the periods presented December 31, 2019, 2018, 2017,
2016 and 2015 are derived from our audited consolidated financial statements and the accompanying notes for those
years.

The historical results presented below are not necessarily indicative of financial results to be achieved in future

periods.

The income statement information and related underwriting and other ratios presented below are for our

continuing operations. The financial results of the U.K.-produced business are presented as discontinued operations in
our consolidated financial statements and are excluded from the income statement information below. The selected
balance sheet information also excludes specific assets and liabilities related to our discontinued operations. The assets
and liabilities of the discontinued operations are only included in total assets, total liabilities and total stockholder’s
equity. The selected consolidated financial data should be read together with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included
elsewhere in this Annual Report on Form 10-K.

2019

Years Ended December 31
2017

2018

2016

2015

($ in thousands, except for per share
data)
Revenues:
Gross written premiums(1)

Ceded written premiums

Net written premiums
Net earned premiums
Net investment income
Realized investment gains (losses), net
Other income
Total revenues
Expenses:
Losses and LAE
Underwriting, acquisition and insurance
expenses
Interest and other expenses
Total expenses
Income (loss) before taxes
Income tax expense (benefit)
Net income (loss) from continuing
operations
Underwriting income (loss)(2)
Adjusted operating income (loss)(3)

$ 968,011 $ 895,112 $ 836,334

771,995 $ 772,136

(115,871)

(276,048)
(45,038)
$ 852,140 $ 850,074 $ 560,286
$ 807,854 $ 730,785 $ 609,786
36,196
4,204
853
$ 878,059 $ 785,872 $ 651,039

55,971
(1,557)
673

68,897
770
538

(85,312)
(93,956)
686,683 $ 678,180
675,778 $ 648,876
25,606
28,052
8,607
(6,147)
4,949
1,057
698,740 $ 688,038

$
$

$ 501,025 $ 434,830 $ 393,741

489,464 $ 445,244

290,457
28,946

271,547
12,377

213,844
12,125
$ 820,428 $ 718,754 $ 619,710
31,329
38,233

67,118
13,389

57,631
12,137

$
$
$

45,494 $
16,372 $
57,636 $

53,729 $
24,409 $
55,286 $

(6,904)
2,201
13,992

241,873
233,491
18,202
12,125
743,462 $ 696,937
(8,900)
(44,722)
(7,321)
(23,988)

(20,734) $
(55,559) $
(14,587) $

(1,579)
(29,859)
(10,186)

$
$
$

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2019

Years Ended December 31
2017

2018

2016

2015

Per share of common stock data:
Basic earnings per share:

Common stock

Diluted earnings per share:

Common stock

Basic adjusted operating earnings per
share:

Common stock

Diluted adjusted operating earnings per
share:

Common stock

1.11 $

1.39 $

(0.18)

1.10 $

1.36 $

(0.18)

(0.59) $

(0.04)

(0.59) $

(0.04)

1.40 $

1.43 $

0.37

(0.41) $

(0.29)

1.39 $

1.40 $

0.37

(0.41) $

(0.29)

2019

Years Ended December 31
2017

2018

2016

2015

Underwriting and other ratios:
Loss and LAE ratio(4)

Loss and LAE

ratio – excluding catastrophe
Loss and LAE ratio – catastrophe

Expense ratio(5)
Combined ratio(6)

Adjusted loss and LAE ratio(7)
Adjusted loss and LAE

ratio – excluding catastrophe
Adjusted loss and LAE ratio –
catastrophe

Adjusted expense ratio(7)
Adjusted combined ratio(7)
Adjusted operating return on equity(8)
Return on equity(9)

2019

$ 2,192,781
190,004

($ in thousands)
Select balance sheet data:
Total cash and investments
Premiums and other receivables, net
Reinsurance receivables paid and
197,433
unpaid, net
29,189
Goodwill and net intangible assets
Total assets
$ 2,877,234
Reserve for unpaid losses and LAE $ 1,521,648
Reserve for unearned premiums
483,223
Notes payable, net of debt issuance
costs
Total liabilities
Total stockholders’ equity
Other data:
Debt to total capitalization ratio(10)
Statutory capital and surplus(11)

164,693
$ 2,334,203
543,031
$

23.3%
568,777

62.0%

59.5%

64.6%

72.4%

68.6%

61.6%
0.4%
36.0%
98.0%
61.4%

59.0%
0.5%
37.2%
96.7%
59.6%

63.1%
1.5%
35.1%
99.7%
63.9%

71.2%
1.2%
35.8%
108.2%
72.4%

68.0%
0.6%
36.0%
104.6%
68.6%

61.0%

59.1%

62.6%

71.2%

68.0%

0.4%
36.6%
98.0%
12.4%
9.8%

0.5%
37.0%
96.6%
14.4%
14.0%

1.3%
34.9%
98.8%
3.7%
(1.8%)

1.2%
35.8%
108.2%
(3.6%)
(5.1%)

0.6%
36.0%
104.6%
(2.2%)
(0.3%)

December 31

2018

2017

2016

2015

$ 1,830,290
200,347

$ 1,632,629
184,334

$ 1,405,585
168,378

$ 1,262,072
161,705

197,723
29,219
$ 2,577,106
$ 1,396,812
435,933

218,376
29,249
$ 2,409,452
$ 1,258,237
395,432

205,527
29,745
$ 2,251,502
$ 1,166,619
354,828

161,295
30,287
$ 2,138,205
983,155
$
344,678

182,355
$ 2,187,276
389,830
$

164,017
$ 2,033,469
375,983
$

163,678
$ 1,870,849
380,654
$

163,340
$ 1,700,841
437,365
$

31.9%
473,575

30.4%
433,946

30.1%
355,366

27.2%
379,231

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(1) Gross written premiums (“GWP”) includes business from certain niches that are no longer part of our ongoing

business. All GWP from exited niches(12) are included in “Other” which consists of (i) primary and excess workers’
compensation coverage for Self-Insured Groups(12), (ii) niches exited prior to 2018, many with a concentration in
commercial auto, (iii) certain fronting arrangements in which all premium written is ceded to a third party (iv)
participation in industry pools, and (v) emerging new business. The table below includes GWP for each customer
segment for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for more information.

($ in thousands)
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation
Customer segments subtotal
Other
Total

2019
117,918
133,682
94,071
124,950
119,326
167,635
30,079
112,191
899,852
68,159
968,011

Years Ended December 31

2018
101,946
107,086
82,978
119,926
110,546
132,652
23,590
92,169
770,893
124,219
895,112

2017
73,378 $
94,384
79,238
114,442
112,575
132,029
22,224
85,079
713,349
122,985
836,334

2016
54,983
95,005
66,215
103,693
79,793
102,134
17,761
90,215
609,799
162,196
771,995

2015
37,887
87,112
80,746
79,581
71,187
81,533
15,974
116,126
570,146
201,990
772,136

(2) Underwriting income is a non-GAAP financial measure. We calculate underwriting income by subtracting losses
and loss adjustment expenses (“LAE”) and underwriting, acquisition and insurance expenses from net earned
premiums. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to
underwriting income.

(3) Adjusted operating income is a non-GAAP financial measure. We calculate adjusted operating income as net
income, excluding net realized investment gains (losses), net and the income tax expense resulting from
implementation of the TCJA. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance
with GAAP to adjusted operating income.

(4) The loss and LAE ratio is the ratio, expressed as a percentage, of losses and LAE, allocated and unallocated, to net

earned premiums, net of the effects of reinsurance. For the years ended December 31, 2016 and 2015 the
Company’s loss reserves developed adversely by $60.1 million and $44.8 million, respectively.

(5) The expense ratio is the ratio, expressed as a percentage, of underwriting, acquisition and insurance expenses to net

earned premiums.

(6) The combined ratio is the sum of the loss and LAE ratio and the expense ratio. A combined ratio under 100%

generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
(7) Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting
Our Results of Operations — The WAQS.”

(8) Adjusted operating return on equity is a non-GAAP financial measure. Adjusted operating return on equity is
adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in
accordance with GAAP to adjusted operating income.

(9) Return on equity represents net income expressed on an annualized basis as a percentage of average beginning and

ending stockholders’ equity during the period.

(10) Debt to total capitalization ratio is the ratio, expressed as a percentage, of total indebtedness for borrowed money to

the sum of total indebtedness for borrowed money and stockholders’ equity.

(11) For our insurance subsidiaries, the statutory capital and surplus represents the excess of assets over liabilities as

determined in accordance with statutory accounting principles as determined by the NAIC.

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(12) Our inception to date business portfolio for years 2011 through 2019 including exited niches is as follows:

($ in millions)
Inception to date GWP 2011 – 2019
Exited for financial performance(a)
Exited for strategic reasons(a)
Ongoing U.S. business

GWP
6,000.2
311.6
739.4
4,949.2

Loss &
LAE Ratio

63.8 %
105.3 %
58.5 %
61.5 %

(a) Exited niches excluding excess workers’ compensation accounted for $42.1 million of total net loss reserves as of

December 31, 2019.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the audited consolidated financial statements and the notes thereto included elsewhere in this Annual
Report on Form 10-K. Certain restatements have been made to historical information to give effect to the merger and
related transactions. See Note 1 – Background in the notes to the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates
and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially
from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the
section titled “Risk factors” included under Part I, Item 1A and elsewhere in this Annual Report on this Form 10-K. See
“Special Note Regarding Forward-Looking Statements.”

References to the "Company," "ProSight," "we," "us," and "our" are to ProSight Global, Inc. and its consolidated
subsidiaries unless the context otherwise requires. References to “insurance subsidiaries” are to New York Marine and
General Insurance Company (“New York Marine”), Gotham Insurance Company (“Gotham”) and Southwest Marine and
General Insurance Company (“Southwest Marine”) unless the context otherwise requires.

Overview

We are an entrepreneurial specialty insurance company that since our founding in 2009 has built products,

services and solutions with the goal of significantly improving the experience and value proposition for our customers.
We founded ProSight, with capital commitments from affiliates of each of The Goldman Sachs Group, Inc. (“Goldman
Sachs”) and TPG Global, LLC (“TPG”) as a different type of insurer that leverages customized technology
infrastructure, underwriting expertise and unique niche focus to develop products, services and solutions that deliver
distinct value to customers in the manner they prefer.

Our Company is led by a highly experienced and entrepreneurial team with decades of insurance leadership

experience at ProSight and other leading insurers. We write property and casualty insurance with a focus on
underwriting specialty risks by partnering with a select number of distributors, often on an exclusive basis. We have a
diverse business mix covering specialty niches within the eight customer segments in which we operate. We market and
distribute our insurance product offerings in all 50 states on both an admitted and non-admitted basis. We are focused on
delivering consistent underwriting profitability with low volatility of underwriting results.

In November of 2011, we formed a Bermuda holding company structure and acquired several entities in the

U.K. to build our own Lloyd’s syndicate. Our principal objective was to achieve greater capital and tax efficiency for our
growing U.S. niche business. We also considered opportunities to use this as a platform to extend our niche strategy to
the U.K. and Europe. By 2015, however, we determined that we would not be able to profitably achieve our objectives
due to two principal factors. Firstly, a significant driver of the success of our U.S. sourced business is the extensive
control and oversight of our niche specialized internal and external underwriters. In contrast, in the UK, the regulatory
framework required us to operate the syndicate as an independent entity, largely excluded from oversight by the U.S.
management team. As a result, our Group Chief Underwriting Officer could not serve on the board of directors of the
U.K. entities nor have final underwriting authority for non-U.S. sourced business. In addition, given the growing
predominance of the U.S. underwritten business in the syndicate, the syndicate was required to develop an organic and
independent growth strategy for U.K. sourced business. The independently underwritten U.K. business did not execute
upon our niche strategy, and generated unacceptable loss ratios and acquisition costs. Secondly, while we had success in
writing and reinsuring profitable U.S. sourced business into our syndicate, the U.S. business had become a
disproportionately high percentage of the total syndicate book, and therefore our U.S. underwriting entity was treated as
an independent Lloyd’s coverholder. As such, we were required to deploy redundant control and underwriting resources
in the U.K. to oversee our U.S. book. This resulted in an unacceptable increase in the syndicate expense ratio. Given the
uneconomic loss and expense costs associated with operating in Lloyd’s, in 2015 we began evaluating an exit from the
Lloyd’s market and the repatriation of our U.S. business. The exit timeframes were extended due to capital constraints in
our U.S. underwriting entity and protracted exit negotiations. In 2017, we entered into a two-phase sale transaction,
which closed in October 2017 and March 2018. Accordingly, the financial results of the U.K. produced business are
presented as discontinued operations in our consolidated financial statements. The financial results within the following
discussion and analysis are attributable to our continuing operations.

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Initial Public Offering

On July 29, 2019, the Company completed its initial public offering (“IPO”) with the sale of 7,857,145 shares

of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s
common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (“PI”) (collectively, the
“GS Investors”) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P.
(collectively the “TPG Investors” and together with the GS Investors, the “Principal Stockholders”) of 3,571,430 shares
of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a

per-share price of $14.00. The Company did not receive any of the proceeds from the sale of the shares of the
Company’s common stock sold by the Principal Stockholders in the IPO. Following the IPO, the GS Investors held
approximately 40.9% of the Company’s outstanding common stock and the TPG Investors held approximately 39.4% of
the Company’s outstanding common stock.

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s

common stock at a price of $14.00 per share less the underwriting discount pursuant to the underwriters’ exercise of
their over-allotment option granted in connection with the IPO. The Company did not receive any of the proceeds from
the sale of the shares of common stock of the Company sold by the Principal Stockholders in this offering. Following
this offering, the GS Investors held approximately 39.5% of the Company’s outstanding common stock and the TPG
Investors held approximately 38.0% of the Company’s outstanding common stock.

The offer and sale of all shares sold in the IPO, including those sold in connection with the underwriters’

exercise of their over-allotment option, were registered pursuant to a registration statement filed on Form S-1, which the
Securities and Exchange Commission (“SEC”) declared effective on July 24, 2019. After deducting underwriting
discounts and commissions and estimated offering expenses (including expenses related to the offering pursuant to the
underwriters’ exercise of their overallotment option), the net proceeds to the Company from the IPO were approximately
$50.8 million.

Our Business

We currently write insurance coverage in eight customer segments across a broad range of specialty lines of

business. Our customer segments currently include: Media and Entertainment, Real Estate, Professional Services,
Transportation, Construction, Consumer Services, Marine and Energy and Sports. Within each customer segment, we
have multiple niches which represent similar groups of customers. For a description of niches served in each of these
customer segments, see “Business — Our Customer Segments and Niches.” We believe having deep expertise in these
niches across our organization is critical and therefore, we have aligned various functional areas at the niche level,
including underwriting, operations and claims. We focus on small- and medium-sized customers, a market segment
which we believe has been, and will continue to be, less affected by intense competitive dynamics of the broader
property and casualty insurance industry. Over time, the composition of business within our customer segments evolves
as we identify certain niches that present opportunities to develop distinct customer solutions with attractive profit
potential and others that were at one time attractive but may become less so.

The tables below set forth the gross written premiums (“GWP”), gross written commission ratios, and gross
loss and allocated loss adjustment expense (“ALAE”) ratios by customer segment for the years ended December 31,
2019, 2018, and 2017. We have one reportable segment, Specialty Insurance. “Other” includes GWP from (i) primary
and excess workers’ compensation coverage for exited Self-Insured Groups, (ii) niches exited prior to 2018, many with a
concentration in commercial auto, (iii) certain fronting arrangements in which all premium written is ceded to a third
party (iv) participation in industry pools, and (v) emerging new business.

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GWP

($ in millions)
Customer Segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation

Customer segments subtotal

Other

Total

Years Ended December 31

% Change % Change
2018 vs. 2017
2019 vs. 2018

2019

2017

2018
$ 117.9 $ 101.9 $ 73.4
94.4
107.1
83.0
79.2
119.9 114.4
110.5 112.6
132.7 132.0
22.2
23.6
92.2
85.1
770.9 713.3
124.2 123.0
$ 968.0 $ 895.1 $ 836.3

133.7
94.1
124.9
119.3
167.6
30.1
112.2
899.8
68.2

15.7 %
24.8
13.4
4.2
8.0
26.3
27.5
21.7
16.7
(45.1)

8.1 %

38.8 %
13.5
4.8
4.8
(1.9)
0.5
6.3
8.3
8.1
1.0
7.0 %

Gross Written Commission Ratio

Years Ended December 31

Customer Segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation

All customer segments

Other

Total

% Change % Change
2018 vs. 2017

2017 2019 vs. 2018

2019
2018
20.3 % 20.7 % 21.0 %
17.1
18.1
17.9
18.5
16.6
16.9
23.0
22.9
21.1
21.2
22.7
23.0
14.5
14.1
19.0
19.1
16.6
18.1
18.9 % 18.9 % 18.8 %

17.1
17.1
16.6
22.5
20.6
22.2
15.4
18.9
18.1

(0.4) %
1.0
0.6
0.3
(0.1)
0.1
0.3
(0.4)
0.1
(1.5)

— %

(0.3) %
—
0.8
—
0.5
0.5
0.5
(0.9)
0.1
—
0.1 %

Gross Loss and ALAE Ratio, excluding Unallocated Loss Adjustment Expense (“ULAE”) Ratio

Years Ended December 31

Customer Segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation

All customer segments

Other

Total

% Change % Change
2018 vs. 2017

2019 vs. 2018

2019

2017

2018
58.0 % 56.1 % 50.3 %
58.0
65.5
32.4
52.0
54.8
45.8
37.6
47.5
60.6
65.2
61.7
39.0
62.9
69.0
52.6
57.2
87.9
59.8
60.4 % 53.6 % 59.4 %

48.6
57.7
62.5
41.4
58.5
59.8
85.5
58.0
66.3

1.9 %
7.5
19.6
(9.0)
9.9
4.6
(22.7)
6.1
4.6
28.1
6.8 %

5.8 %
9.4
(25.3)
(7.7)
(3.8)
2.1
1.9
(22.6)
(5.4)
(6.5)
(5.8) %

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Components of Our Results of Operations

Gross written and earned premiums

GWP are the amounts received or to be received for insurance policies written by us during a specific period of

time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our GWP in
any given period is generally influenced by:

• Expansion or retraction of business within existing niches;

• Entrance into new customer segments or niches;

• Exit from customer segments or niches;

• Average size and premium rate of newly issued and renewed policies; and

• The amount of policy endorsements, audit premiums, and cancellations.

We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally
have a term of one year. Net earned premiums represent the earned portion of our GWP, less that portion of our GWP
that is earned and ceded to third-party reinsurers under our reinsurance agreements.

Ceded written and earned premiums

Ceded written premiums are the amount of GWP ceded to reinsurers. We actively use ceded reinsurance across

our book of business to reduce our overall risk position and to protect our capital. Ceded written premiums are earned
over the reinsurance contract period in proportion to the period of risk covered and the underlying policies. The volume
of our ceded written premiums is impacted by the level of our GWP and any decision we make to increase or decrease
retention levels.

Net investment income

We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are

primarily comprised of debt securities, and may also include cash and cash equivalents, short-term investments, and
alternative investments. The principal factors that influence net investment income are the size of our investment
portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value, such as
changes in interest rates and credit spreads), the size of our investment portfolio is mainly a function of our invested
equity capital along with premiums we receive from our insureds less payments on policyholder claims and operating
expenses.

Realized investment gains and losses

Realized investment gains and losses are a function of the difference between the amount received by us on the

sale of a security and the security’s amortized cost, as well as any “other-than-temporary” impairments recognized in
earnings.

Losses and Loss Adjustment Expenses (“LAE”)

Losses and LAE are a function of the amount and type of insurance contracts we write, the loss experience

associated with the underlying coverage, and the expenses incurred in the handling of the losses. In general, our losses
and LAE are affected by:

• Frequency of claims associated with the particular types of insurance contracts that we write;

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• Trends in the average size of losses incurred on a particular type of business;

• Mix of business written by us;

• Changes in the legal or regulatory environment related to the business we write;

• Trends in legal defense costs;

• Wage inflation; and

•

Inflation in medical costs.

Losses and LAE are based on an actuarial analysis of the paid and estimated outstanding losses, including

losses incurred during the period and changes in estimates from prior periods. Losses and LAE may be paid out over a
number of years.

Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting

expenses. Policy acquisition costs are principally comprised of the commissions we pay our distribution partners and
ceding commissions we receive on business ceded under certain reinsurance contracts, as well as taxes we pay to the
states in which we write business, generally based on premium volume. Policy acquisition costs that are directly related
to the successful acquisition of those policies are deferred. The amortization of such policy acquisition costs is charged
to expense in proportion to premium earned over the policy life. Other underwriting expenses represent the general and
administrative expenses of our insurance business including employment costs, telecommunication and technology
costs, the costs of our leases, and legal and auditing fees.

Income tax expense

Substantially all of our income tax expense relates to U.S. federal income taxes. Our insurance companies are

generally not subject to income taxes in the states in which they operate; however, our non-insurance subsidiaries are
subject to state 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. Among other things, the Tax Cuts and Jobs
Act (“TCJA”) lowered the U.S. federal corporate tax rate from 35% to 21% starting January 1, 2018. Our income tax
expense for periods beginning in 2018 is based on the U.S. federal corporate income tax rate of 21%.

Key Metrics

We discuss certain key metrics, described below, which provide useful information about our business and the

operational factors underlying our financial performance.

Net income is the amount of profit or loss remaining after deducting all incurred expenses, including income

taxes, from the total earned revenues for an accounting period.

Underwriting income is calculated by subtracting losses and LAE and underwriting, acquisition and insurance

expenses from net earned premiums.

Adjusted operating income is net income excluding net realized investment gains and losses, expenses relating

to various transactions that we consider to be unique and non-recurring in nature (net of estimated tax impact), and
excluding the income tax expense resulting from implementation of TCJA.

Loss and LAE ratio, expressed as a percentage, is the ratio of losses and LAE, allocated and unallocated, to net

earned premiums, net of the effects of reinsurance.

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Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net

earned premiums.

Combined ratio is the sum of the loss and LAE ratio and the expense ratio. A combined ratio under 100%

indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

Adjusted loss and LAE ratio is the loss and LAE ratio excluding the effects of the WAQS (as defined below).

Adjusted expense ratio is the expense ratio excluding the effects of the WAQS.

Adjusted combined ratio is the combined ratio excluding the effects of the WAQS.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and

ending stockholders’ equity during the period.

Adjusted operating return on equity is adjusted operating income expressed on an annualized basis as

a percentage of average beginning and ending stockholders’ equity during the period.

Net retention ratio is the ratio of net written premiums to GWP.

Underwriting income, adjusted operating income, adjusted loss and LAE ratio, adjusted expense ratio, adjusted

combined ratio and adjusted operating return on equity are non-generally accepted accounting principles (“GAAP”)
financial measures. See “— Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in
accordance with GAAP to underwriting income and adjusted operating income. See “— Factors Affecting Our Results
of Operations — The WAQS” for additional detail on the impact of the WAQS on our results of operations.

Factors Affecting Our Results of Operations

The WAQS

In connection with the divestment of our U.K. business, New York Marine as reinsured entered into the whole

account quota share reinsurance agreements (the “WAQS”) with third party reinsurers to maintain reasonable
underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period
following the U.K. divestment. The effective date of the WAQS was April 1, 2017. The reinsurers’ ceding participation
is an aggregate 26.0%. A provisional ceding commission of 30.0% to 30.5% is received as a reduction in the amount of
ceded premium. Subject to limits, these ceding commissions will vary in subsequent periods based on contractual
ultimate loss ratios. During 2018 and following the transition of the U.S. business back to New York Marine, the WAQS
were terminated. Previously ceded written and unearned premium, net of the ceding commission, was reversed. Loss
reserves on premium earned prior to the cut-off termination remain ceded loss reserves. The ceded loss reserves under
the WAQS were $33.1 million and $43.7 million as of December 31, 2019 and December 31, 2018, respectively. Loss
reserve development on the reserves ceded under the WAQS is included in continuing operations.

The effect of the WAQS on our results of operations is primarily reflected in our ceded written premiums,

losses and LAE, as well as our underwriting, acquisition and insurance expenses.

($ in thousands)
GWP
Ceded written premiums

Net earned premiums
Losses and LAE
Underwriting,
acquisition and
insurance expenses
Underwriting income
(loss)(2)
Loss and LAE ratio
Expense ratio
Combined ratio
Adjusted loss and LAE
ratio(3)
Adjusted expense ratio(3)
Adjusted combined
ratio(3)

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The following tables summarize the effect of the WAQS on our underwriting income for the years ended

December 31, 2019, 2018 and 2017:

Year Ended December 31, 2019

Year Ended December 31, 2018
Including Effect of Excluding Including Effect of Excluding Including Effect of Excluding
WAQS
$ 968,011 $
(115,871)

WAQS
— $ 836,334
3
(115,269)
3 $ 852,137 $ 850,074 $ 58,857 $ 791,217 $ 560,286 $ (160,779) $ 721,065

WAQS WAQS WAQS

— $ 895,112 $ 836,334 $

— $ 968,011 $ 895,112 $

Year Ended December 31, 2017

WAQS WAQS

WAQS

(103,895)

(115,874)

(276,048)

(160,779)

(45,038)

58,857

—

88.0 %

95.0 %

—

88.4 %

67.0 %

—

86.2 %

3 $ 807,851 $ 730,785 $ (14,560) $ 745,345 $ 609,786 $ (87,362) $ 697,148
445,638

444,344

496,279

(51,897)

393,741

434,830

(9,514)

4,746

Net written premiums $ 852,140 $
Net retention(1)
88.0 %
$ 807,854 $
501,025

290,457

(4,743)

295,200

271,547

(3,955)

275,502

213,844

(29,560)

243,404

16,372 $
62.0 %
36.0 %
98.0 %

— $
— %
— %
— %

16,372 $ 24,409 $ (1,091) $
65.3 %
59.5 %
27.2 %
37.2 %
92.5 %
96.7 %

—
—
—

25,499 $
—
—
—

2,201 $
64.6 %
35.1 %
99.7 %

(5,905) $
59.4 %
33.8 %
93.2 %

8,106
—
—
—

—
—

—

—
—

—

61.4 %
36.6 %

—
—

98.0 %

—

—
—

—

59.6 %
37.0 %

96.6 %

—
—

—

—
—

—

63.9 %
34.9 %

98.8 %

(1) Net retention is a non-GAAP measure. We define net retention as the ratio of net written premiums to gross written

premiums.

(2) Underwriting income is a non-GAAP measure. See “Reconciliation of Non-GAAP Financial Measures.”
(3) Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures.
We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding
ratio excluding the effects of the WAQS. We use these adjusted ratios as internal performance measures in the
management of our operations because we believe they give our management and other users of our financial
information useful insight into our results of operations and our underlying business performance. Our adjusted loss
and LAE ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss
and LAE ratio, expense ratio and combined ratio, respectively.

Our results of operations may be difficult to compare from year to year due to the origination and termination of

the WAQS. In light of the impact of the WAQS on our results of operations, we internally evaluated our financial
performance both including and excluding the effects of the WAQS.

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Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Years Ended December 31

Change

($ in thousands)
GWP
Ceded written premiums
Net written premiums

2019
$ 968,011
(115,871)
$ 852,140

2018
$ 895,112
(45,038)
$ 850,074

$
$ 72,899
(70,833)
2,066
$

Percent

8.1 %

157.3

0.2 %

Net earned premiums
Losses and LAE
Underwriting, acquisition and insurance expenses

Underwriting income(1)

Interest and other expenses, net
Net investment income
Realized investment gains (losses), net

Income before taxes

Income tax expense

Net income from continuing operations
Adjusted operating income(1)

Adjusted operating return on equity(1)
Return on equity

Loss and LAE ratio:

Loss and LAE ratio – excluding catastrophe
Loss and LAE ratio – catastrophe

Expense ratio
Combined ratio

Adjusted loss and LAE ratio(2)

Adjusted loss and LAE ratio – excluding catastrophe
Adjusted loss and LAE ratio – catastrophe

Adjusted expense ratio(2)
Adjusted combined ratio(2)

$ 807,854
501,025
290,457
16,372
28,408
68,897
770
57,631
12,137
45,494
57,636

$
$

$ 730,785
434,830
271,547
24,409
11,704
55,971
(1,557)
67,118
13,389
$ 53,729
$ 55,286

$ 77,069
66,195
18,910
(8,037)
16,704
12,926
2,327
(9,488)
(1,252)
$ (8,236)
2,350
$

10.5
15.2
7.0
(32.9)
142.7
23.1
(149.5)
(14.1)
(9.4)
(15.3) %
4.3 %

12.4 %
9.8 %

14.4 %
14.0 %

62.0 %
61.6 %
0.4 %
36.0 %
98.0 %

61.4 %
61.0 %
0.4 %
36.6 %
98.0 %

59.5 %
59.0 %
0.5 %
37.2 %
96.7 %

59.6 %
59.1 %
0.5 %
37.0 %
96.6 %

(1) Underwriting income, adjusted operating income and adjusted operating return on equity are non-GAAP financial

measures. See “— Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in
accordance with GAAP to underwriting income and adjusted operating income.

(2) Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures.
We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding
ratio excluding the effects of the WAQS. For additional detail on the impact of the WAQS on our results of
operations see “— Factors Affecting Our Results of Operations — The WAQS.”

Net Income

Net income from continuing operations was $45.5 million for the year ended December 31, 2019 compared to
$53.7 million for the year ended December 31, 2018, a decrease of $8.2 million, or 15.3%. The decrease in net income
primarily resulted from an increase in interest and other expenses of $16.7 million, and a decrease in underwriting
income of $8.0 million, partially offset by an increase in net investment income of $12.9 million.

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Premiums

GWP were $968.0 million for the year ended December 31, 2019 compared to $895.1 million for the year

ended December 31, 2018, an increase of $72.9 million, or 8.1%.

The following table presents the GWP by customer segment for the years ended December 31, 2019 and 2018:

($ in millions)

Customer Segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation

Customer segments subtotal

Other

Total

Years Ended December 31

2019

2018

% Change

$ 117.9 $ 101.9
107.1
83.0
119.9
110.5
132.7
23.6
92.2
770.9
124.2
$ 968.0 $ 895.1

133.7
94.1
124.9
119.3
167.6
30.1
112.2
899.8
68.2

15.7 %
24.8
13.4
4.2
8.0
26.3
27.5
21.7
16.7
(45.1)

8.1 %

Premium growth in 2019 was primarily driven by new business and increased renewals within previously

existing niches combined with entry into new niches, primarily within Real Estate, Consumer Services and
Transportation customer segments. Excluding the decline of GWP within “Other,” premiums for the year ended
December 31, 2019 increased 16.7% compared to the year ended December 31, 2018.

The changes in GWP were most notable in the following customer segments and niches:

• Real Estate GWP increased by 26.3% to $167.6 million for the year ended December 31, 2019 compared to
$132.7 million for the year ended December 31, 2018. The premium growth is primarily due to increases in
the Metrobuilders and Builders Risk niches. Premium growth in these niches is driven by an increase in
new business of $13.0 million and $8.0 million, respectively compared to 2018.

• Consumer Services GWP increased by 24.8% to $133.7 million for the year ended December 31, 2019
compared to $107.1 million for the year ended December 31, 2018. The premium growth is due to
continued maturity of the Auto Dealers niche, as well as the addition of the new Parking Facilities niche
partially offset by declines in premium within the Social Services and Professional Employer Organizations
niches. Auto Dealers, a new niche in 2018, increased $24.7 million during 2019 driven by new business
growth in addition to a renewal book of premium. Parking Facilities is a new niche in 2019 which produced
$14.8 million of new business during the year. In the Professional Employer Organization and Social
Services niches, premiums declined during 2019 by $8.8 million and $6.7 million, respectively, when
compared to 2018, where new business growth and renewal premium retention were limited by unfavorable
pricing conditions in primary workers’ compensation.

• Transportation GWP increased by 21.7% to $112.2 million for the year ended December 31, 2019

compared to $92.2 million for the year ended December 31, 2018. The premium growth is due to high
premium retention and increased rate (7.3%) within the Taxi niche and new business growth within the
Charter Bus and Intermodal niches.

Net written premiums increased by $2.1 million, or 0.2%, to $852.1 million for the year ended December 31,
2019 from $850.1 million for the year ended December 31, 2018. The increase in net written premiums was due to an
increase in gross written premiums of $72.9 million, partially offset by an increase in ceded written premium of $70.8
million, an increase of 157.3% from the year ended December 31, 2018, primarily due to the termination of the WAQS.

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The termination of the WAQS resulted in a reversal of $58.9 million of ceded premiums for the year ended December
31, 2018. Our net retention ratio excluding the WAQS was 88.0% and 88.4% for the years ended December 31, 2019
and 2018, respectively.

Net earned premiums increased by $77.1 million, or 10.5%, to $807.9 million for the year ended December 31,

2019 from $730.8 million for the year ended December 31, 2018. The increase in net earned premiums was directly
related to the growth in written premiums. Excluding the effects of the WAQS, net earned premiums for the year ended
December 31, 2019 were $807.9 million, compared to $745.3 million for the year ended December 31, 2018, an increase
of 8.4%.

Loss and LAE ratio

Our loss and LAE ratio was 62.0% for the year ended December 31, 2019 compared to 59.5% for the year

ended December 31, 2018. The increase is primarily due to an increase in the current accident year (excluding
catastrophe losses) ratio combined with an unfavorable change in prior period development. For the year ended
December 31, 2019 the current accident year (excluding catastrophe losses) was 61.2%, compared to 59.7% for the year
ended December 31, 2018. For the year ended December 31, 2019, before adjusting for the WAQS, we incurred
unfavorable prior period development of $3.2 million as compared to favorable development of $5.0 million for the year
ended December 31, 2018. After adjusting for the WAQS, we incurred favorable development in both 2019 and 2018.

Included within our 62.0% loss and LAE ratio for the year ended December 31, 2019 is $0.4% of catastrophe

losses, a decrease of 0.1%, from $3.6 million, or 0.5% for the year ended December 31, 2018. Catastrophe losses for the
years ended December 31, 2019 related to a midwestern tornado and 2018 was primarily California wildfires.

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and

adjusted loss and LAE ratios for the years ended December 31, 2019 and 2018:

($ in thousands)
Loss and LAE:
Current accident year – excluding catastrophe
Current accident year – catastrophe losses

Effect of prior year development

Total

($ in thousands)
Adjusted loss and LAE:
Current accident year – excluding catastrophe
Current accident year – catastrophe losses

Effect of prior year development

Total

Years Ended December 31

2019

2018

% of Earned
Losses and LAE Premiums Losses and LAE Premiums

% of Earned

494,871
3,000
3,154
501,025

61.2 % $
0.4
0.4
62.0 % $

436,287
3,560
(5,017)
434,830

59.7 %
0.5
(0.7)
59.5 %

Years Ended December 31

2019

2018

% of Earned
Losses and LAE Premiums Losses and LAE Premiums

% of Earned

494,871
3,000
(1,592)
496,279

61.2 % $
0.4
(0.2)
61.4 % $

445,801
3,560
(5,017)
444,344

59.8 %
0.5
(0.7)
59.6 %

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The following table presents the loss and LAE ratio before and after the effects of reinsurance, for the years

ended December 31, 2019 and 2018:

Loss and LAE Ratio:

Gross loss and ALAE
ULAE

Gross loss and LAE ratio

Effect of ceded reinsurance

Loss and LAE ratio
Effect of WAQS

Adjusted loss and LAE ratio

Expense ratio

Years Ended December 31

2019

2018

% Change

60.4 %
1.8
62.2
(0.2)
62.0
(0.6)
61.4 %

53.6 %
2.9
56.5
3.0
59.5
0.1
59.6 %

6.8 %
(1.1)
5.7
(3.2)
2.5
(0.7)
1.8 %

Our expense ratio was 36.0% for the year ended December 31, 2019 compared to 37.2% for the year ended
December 31, 2018. This reduction is primarily due to the increase in net earned premiums exceeding the increase in
underwriting and insurance expenses combined with a slight reduction in the net policy acquisition expense ratio.

The following table summarizes the components of the expense ratio for the years ended December 31, 2019

and 2018:

($ in thousands)
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance
Underwriting and insurance expenses
Underwriting, acquisition and insurance expenses(1)
Effect of WAQS
Total underwriting, acquisition and insurance expenses

Years Ended December 31

2019

2018

Expenses

% of Earned
Premiums Expenses

% of Earned
Premiums

$ 189,514
105,686
295,200
(4,743)
$ 290,457

23.5 % $ 175,384
100,118
13.1
275,502
36.6
(0.6)
(3,955)
36.0 % $ 271,547

23.6 %
13.4
37.0
0.2
37.2 %

(1) Underwriting, acquisition and insurance expenses is calculated based on the net earned premiums excluding the

effects of the WAQS for the years ended December 31, 2019 and 2018.

Underwriting income

Underwriting income was $16.4 million for the year ended December 31, 2019 compared to $24.4 million for
the year ended December 31, 2018, a decrease of $8.0 million, or 32.9%. Excluding the WAQS, underwriting income
was $16.4 million for the year ended December 31, 2019, compared to $25.5 million for the year ended December 31,
2018. The change in underwriting income for the year ended December 31, 2019 compared to 2018 was due to an
increase in the loss and LAE ratio, partially offset by a decrease in the expense ratio.

Combined ratio

Our combined ratio was 98.0% for the year ended December 31, 2019 compared to 96.7% for the year ended

December 31, 2018. Our adjusted combined ratio was 98.0% for the year ended December 31, 2019 compared to 96.6%
for the year ended December 31, 2018.

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Investing results

Our net investment income increased by 23.1% to $68.9 million for the year ended December 31, 2019 from

$56.0 million for the year ended December 31, 2018. Our average invested assets increased 15.3% from $1.7 billion for
the year ended December 31, 2018, to $2.0 billion for the year ended December 31, 2019. Net investment yield
increased by 0.2 percentage points, to 3.4% as of December 31, 2019 compared to 3.2% as of December 31, 2018. Gross
investment income increased by $13.1 million to $71.2 million for the year ended December 31, 2019 compared to
$58.1 million for the year ended December 31, 2018.

Realized investment gains (losses), net increased by $2.3 million due to non-recurring realized gains on the sale

of certain securities as part of the repositioning of the investment portfolio, calls, and corporate actions during a
favorable price environment for the year ended December 31, 2019.

The following table summarizes the components of net investment income and realized investment gains

(losses), net for the years ended December 31, 2019 and 2018:

Years Ended December 31

($ in thousands)
Interest from securities
Other investments

Gross investment income

Investment expenses

Net investment income
Realized investment gains (losses), net

Total
Average invested assets at book value

2019
66,975 $
4,224
71,199
(2,302)
68,897
770
69,667 $

2018
55,765 $
2,371
58,136
(2,165)
55,971
(1,557)
$
54,414 $
$ 2,009,083 $ 1,742,530 $

$ Change

11,210
1,853
13,063
(137)
12,926
2,327
15,253
266,553

The weighted average duration of our fixed income portfolio, including cash equivalents, was 3.4 years at

December 31, 2019 and 2.9 years at December 31, 2018.

Interest and other expenses, net

Our interest and other expenses, net increased by $16.7 million to $28.4 million for the year ended
December 31, 2019 compared to $11.7 million for the year ended December 31, 2018. Included in interest and other
expenses in 2019 is $12.1 million of interest expenses primarily related to senior debt obligations, $8.0 million of
expenses related to the transition of our former CEO and $7.1 million of expenses related to the vesting of restricted
stock units granted during the IPO.

Income tax expense

Our effective tax rate for the year ended December 31, 2019 was 21.1% compared to 20.0% for the year ended

December 31, 2018. On December 22, 2017, the TCJA was signed into law, which reduced the Company’s statutory
corporate tax rate from 35% to 21% beginning with the 2018 tax year.

Our income tax expense was $12.1 million and $13.4 million for the years ended December 31, 2019 and 2018.

Adjusted operating income

Adjusted operating income was $57.6 million for the year ended December 31, 2019, an increase
of $2.4 million, or 4.3% from the adjusted operating income of $55.3 million for the year ended December 31, 2018.

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Adjusted operating return on equity

Our adjusted operating return on equity was 12.4% for the year ended December 31, 2019, a decrease of

2.0% percentage points from 14.4% for the year ended December 31, 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table summarizes the results of continuing operations for the years ended December 31, 2018

and 2017:

($ in thousands)
GWP
Ceded written premiums
Net written premiums

Net earned premiums
Losses and LAE
Underwriting, acquisition and insurance expenses

Underwriting income(1)

Interest and other expenses, net
Net investment income
Realized investment (losses) gains, net

Income before taxes

Income tax expense

Net income (loss) from continuing operations
Adjusted operating income(1)

($ in thousands)
Adjusted operating return on equity(1)
Return on equity

Loss and LAE ratio:

Loss and LAE ratio – excluding catastrophe
Loss and LAE ratio – catastrophe

Expense ratio
Combined ratio

Adjusted loss and LAE ratio(2)

Adjusted loss and LAE ratio – excluding catastrophe
Adjusted loss and LAE ratio – catastrophe

Adjusted expense ratio(2)
Adjusted combined ratio(2)

Years Ended December 31

Change

2018
$ 895,112
(45,038)
$ 850,074

2017

Percent

$ 836,334 $ 58,778
(276,048)
231,010
$ 560,286 $ 289,788

7.0 %

(83.7)
51.7 %

$ 730,785
434,830
271,547
24,409
11,704
55,971
(1,557)
67,118
13,389
$ 53,729
$ 55,286

$ 609,786 $ 120,999
41,089
393,741
57,703
213,844
22,208
2,201
432
11,272
19,775
36,196
(5,761)
4,204
35,789
31,329
38,233
(24,844)
(6,904) $ 60,633
13,992 $ 41,294

$
$

19.8
10.4
27.0
1,009.0
3.8
54.6
(137.0)
114.2
(65.0)
(878.2) %
295.1 %

Years Ended December 31

2018

2017

14.4 %
14.0 %

3.7 %
(1.8) %

59.5 %
59.0 %
0.5 %
37.2 %
96.7 %

59.6 %
59.1 %
0.5 %
37.0 %
96.6 %

64.6 %
63.1 %
1.5 %
35.1 %
99.7 %

63.9 %
62.6 %
1.3 %
34.9 %
98.8 %

(1) Underwriting income, adjusted operating income and adjusted operating return on equity are non-GAAP financial

measures. See “— Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in
accordance with GAAP to underwriting income and adjusted operating income.

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Net Income (Loss)

Net income was $53.7 million for the year ended December 31, 2018 compared to a net loss of $6.9 million for

the year ended December 31, 2017, an increase of $60.6 million, or 878.2%. The increase in net income primarily
resulted from an increase in underwriting income of $22.2 million, a $19.8 million increase in net investment income,
and a decrease in income tax expense of $24.8 million.

Premiums

GWP were $895.1 million for the year ended December 31, 2018 compared to $836.3 million for the year

ended December 31, 2017, an increase of $58.8 million, or 7.0%.

The following table presents the GWP by customer segment for the years ended December 31, 2018 and 2017:

($ in millions)

Customer Segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation

Customer segments subtotal

Other

Total

Years Ended December 31

% Change

2018
$ 101.9 $
107.1
83.0
119.9
110.5
132.7
23.6
92.2
770.9
124.2

2017
73.4
94.4
79.2
114.4
112.6
132.0
22.2
85.1
713.3
123.0
$ 895.1 $ 836.3

38.8 %
13.5
4.8
4.8
(1.9)
0.5
6.3
8.3
8.1
1.0
7.0 %

Premium growth in 2018 was primarily driven by the expansion of our business within the existing niches,
including expanded product offerings. Excluding the decline of GWP within “Other,” premiums for the year ended
December 31, 2018 increased 8.1% compared to the year ended December 31, 2017.

The changes in GWP were most notable in the following customer segments and niches:

• Construction GWP increased by 38.8% to $101.9 million for the year ended December 31, 2018 compared

to $73.4 million for the year ended December 31, 2017. The majority of premium growth is due to
increases in the Luxury Home Builders and Scaffolding niches. Luxury Home Builders premium growth
was primarily driven by an increase in new business of $3.8 million and an increase in renewal premium
retention of $4.0 million when compared to 2017. Scaffolding premium growth was primarily driven by an
increase in renewal premium retention of $9.9 million when compared to 2017.

• Consumer Services GWP increased by 13.5% to $107.1 million for the year ended December 31, 2018
compared to $94.4 million for the year ended December 31, 2017. The premium growth is due to an
increase in the Auto Dealers niche partially offset by smaller declines in premium within the Restaurants,
Bars & Taverns, Social Services and Professional Employer Organizations niches. Auto Dealers was a new
niche in 2017 which increased $23.2 million during 2018, primarily related to new business. The decline in
Restaurants, Bars and Taverns of $4.9 million was driven by the strategic decision to shift distribution to
ProSight Specialty Insurance Brokerage in an effort to reduce acquisition costs and leverage affinity and
association distribution relationships. In the Social Services and Professional Employer Organization
niches, premiums declined by $4.7 million and $1.9 million during 2018 when compared to 2017,
respectively. New business growth and renewal premium retention were limited by unfavorable pricing
conditions in primary workers’ compensation.

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• Transportation GWP increased by 8.3% to $92.2 million for the year ended December 31, 2018 compared

to $85.1 million for the year ended December 31, 2017. The majority of premium growth is due to
increases in renewal premium retention within the School Bus niche and rate increases across all niches
within the Transportation customer segment. The School Bus niche increased renewal premium retention
by $6.8 million in 2018, when compared to 2017.

Net written premiums increased by $289.8 million, or 51.7%, to $850.1 million for the year ended
December 31, 2018 from $560.3 million for the year ended December 31, 2017. The increase in net written premiums
was directly related to a reduction in ceded written premiums of $231.0 million, a decrease of 83.7% from the year
ended December 31, 2017, due to the termination of the WAQS. Excluding the effects of the WAQS, net written
premiums for the year ended December 31, 2018 were $791.2 million, an increase of 9.7%, from the year ended
December 31, 2017. Our net retention ratio excluding the WAQS was 88.4% and 86.2% for the years ended
December 31, 2018 and 2017, respectively.

Net earned premiums increased by $121.0 million, or 19.8%, to $730.8 million for the year ended
December 31, 2018 from $609.8 million for the year ended December 31, 2017. The increase in net earned premiums
was directly related to the growth in written premiums and a reduction in ceded earned premiums due to the impact of
the WAQS of $72.8 million, a decrease of 83.3% from the year ended December 31, 2017. Excluding the effects of the
WAQS, net earned premiums for the year ended December 31, 2018 were $745.3 million, an increase of 6.9% from the
year ended December 31, 2017.

Loss and LAE ratio

Our loss and LAE ratio was 59.5% for the year ended December 31, 2018 compared to 64.6% for the year

ended December 31, 2017. The improvement is due to a change in prior period development. For the year ended
December 31, 2018, we incurred favorable prior period development of $5.0 million as compared to unfavorable
development of $20.3 million for the year ended December 31, 2017.

Included within our 59.5% loss and LAE ratio for the year ended December 31, 2018 is 0.5% of catastrophe

losses primarily from the California wildfires. This is a decrease of 1.0% of losses for the year ended December 31,
2018, from 1.5% for the year ended December 31, 2017.

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and

adjusted loss and LAE ratios for the years ended December 31, 2018 and 2017:

($ in thousands)
Loss and LAE:
Current accident year – excluding catastrophe
Current accident year – catastrophe losses

Effect of prior year development

Total

Years Ended December 31

2018

2017

% of Earned
Losses and LAE Premiums Losses and LAE Premiums

% of Earned

436,287
3,560
(5,017)
434,830

59.7 % $
0.5
(0.7)
59.5 % $

364,557
8,865
20,319
393,741

59.8 %
1.5
3.3
64.6 %

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($ in thousands)
Adjusted loss and LAE:
Current accident year – excluding catastrophe
Current accident year – catastrophe losses

Effect of prior year development

Total

Years Ended December 31

2018

2017

% of Earned
Losses and LAE Premiums Losses and LAE Premiums

% of Earned

445,801
3,560
(5,017)
444,344

59.8 % $
0.5
(0.7)
59.6 % $

416,454
8,865
20,319
445,638

59.7 %
1.3
2.9
63.9 %

The following table presents the loss and LAE ratio before and after the effects of reinsurance, for the years

ended December 31, 2018 and 2017:

Loss and LAE Ratio:

Gross Loss and ALAE
ULAE

Gross loss and LAE ratio

Effect of ceded reinsurance

Loss and LAE ratio
Effect of WAQS

Adjusted loss and LAE ratio

Expense ratio

Years Ended December 31

2018

2017

% Change

53.6 %
2.9
56.5
3.0
59.5
0.1
59.6 %

59.4 %
2.5
61.9
2.7
64.6
(0.7)
63.9 %

(5.8) %
0.4
(5.4)
0.3
(5.1)
(0.8)
(4.3) %

Our expense ratio was 37.2% for the year ended December 31, 2018 compared to 35.1% for the year ended

December 31, 2017. This is primarily due to non-recurring expense items including the net benefit of litigation
recoveries in 2017 of $4.6 million and cost of additional short-term incentive compensation expense of $6.8 million in
2018.

The following table summarizes the components of the expense ratio for the years ended December 31, 2018

and 2017:

($ in thousands)
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance
Underwriting and insurance expenses
Underwriting, acquisition, and insurance expenses(1)
Effect of WAQS
Total underwriting, acquisition and insurance expenses

Years Ended December 31

2018

2017

Expenses

% of Earned
Premiums Expenses

% of Earned
Premiums

$ 175,384
100,118
275,502
(3,955)
$ 271,547

23.6 % $ 155,583
13.4
87,821
243,404
37.0
0.2
(29,560)
37.2 % $ 213,844

22.3 %
12.6
34.9
0.2
35.1 %

(1) Underwriting, acquisition and insurance expenses is calculated based on the net earned premiums excluding the

effects of the WAQS for the years ended December 31, 2018 and 2017.

Underwriting income

Underwriting income was $24.4 million for the year ended December 31, 2018 compared to an underwriting
loss of $2.2 million for the year ended December 31, 2017, an increase of $22.2 million, or 1,009.0%. Excluding the
WAQS, underwriting income was $25.5 million for the year ended December 31, 2018, compared to underwriting
income of $8.1 million for the year ended December 31, 2017.

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Combined ratio

Our combined ratio was 96.7% for the year ended December 31, 2018 compared to 99.7% for the year ended

December 31, 2017. Our adjusted combined ratio was 96.6% for the year ended December 31, 2018 compared to 98.8%
for the year ended December 31, 2017.

Investing results

Our net investment income increased by 54.6% to $56.0 million for the year ended December 31, 2018 from

$36.2 million for the year ended December 31, 2017. In connection with our divestment of the U.K. business, we
repositioned the portfolio to align the assets returned from the U.K. with our U.S. investment strategy and generate an
increased yield. We also identified certain alternative investment opportunities which further diversified our portfolio
and enhanced yield. Gross investment yield increased by 0.9 percentage points, to 3.4% as of December 31, 2018
compared to 2.5% as of December 31, 2017. Gross investment income increased by $20.0 million to $58.1 million for
the year ended December 31, 2018 compared to $38.1 million for the year ended December 31, 2017.

Realized investment (losses) gains, net decreased by $5.8 million or 137.0% due to non-recurring realized gains on

the sale of certain securities as part of the repositioning of the investment portfolio in 2017 and $1.5 million of other-
than- temporary impairments for the year ended December 31, 2018.

The following table summarizes the components of net investment income and realized investment (losses) gains,

net for the years ended December 31, 2018 and 2017:

Years Ended December 31

($ in thousands)
Interest from securities
Other investments

Gross investment income

Investment expenses

Net investment income
Realized investment (losses) gains, net

Total
Average cash and invested assets

2018
55,765 $
2,371
58,136
(2,165)
55,971
(1,557)
54,414 $

2017
33,467 $
4,609
38,076
(1,880)
36,196
4,204
40,400 $
$
$ 1,731,460 $ 1,519,107 $

$ Change

22,298
(2,238)
20,060
(285)
19,775
(5,761)
14,014
212,353

The weighted average duration of our fixed income portfolio, including cash equivalents, was 2.9 years at

December 31, 2018 and 3.9 years at December 31, 2017.

Interest and other expenses, net

Our interest and other expenses, net increased by $0.4 million to $11.7 million for the year ended December 31,

2018 compared to $11.3 million for the year ended December 31, 2017.

Income tax expense

Our effective tax rate for the year ended December 31, 2018 was 20.0% compared to 122.0% for the year ended

December 31, 2017. On December 22, 2017, the TCJA was signed into law, which reduced the Company’s statutory
corporate tax rate from 35% to 21% beginning with the 2018 tax year. The Company revalued its 2017 deferred tax
assets and liabilities in response to this reduction which resulted in a $25.1 million charge to income in 2017.

Our income tax expense was $13.4 million and $38.2 million for the years ended December 31, 2018 and 2017.

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Adjusted operating income

Adjusted operating income was $55.3 million for the year ended December 31, 2018, an increase

of $41.3 million, or 295.1% from the adjusted operating income of $14.0 million for the year ended December 31, 2017.

Adjusted operating return on equity

Our adjusted operating return on equity was 14.4% for the year ended December 31, 2018, an increase of

10.7 percentage points from 3.7% for the year ended December 31, 2017.

Liquidity and Capital Resources

Sources and Uses of Funds

We are organized as a holding company with our operations primarily conducted by our wholly-owned
insurance subsidiaries, New York Marine and Gotham, which are domiciled in New York, and Southwest Marine, which
is domiciled in Arizona. Accordingly, the holding company may receive cash through; (i) loans from banks; (ii) draws
on a revolving loan agreement; (iii) issuance of equity and debt securities; (iv) corporate service fees from our operating
subsidiaries; (v) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other
transactions; and (vi) subject to certain limitations discussed below, dividends from our insurance subsidiaries. We also
may use the proceeds from these sources to contribute funds to the insurance subsidiaries in order to support premium
growth, reduce our reliance on reinsurance, pay dividends and taxes and for other business purposes.

We receive corporate service fees from the operating subsidiaries to reimburse us for most of the operating
expenses that we incur. These reimbursements are based on the actual costs that we expect to incur, with no mark-up
above our expected costs.

We file a consolidated U.S. federal income tax return with our subsidiaries, and under our corporate 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 (“IRS”).

State insurance laws restrict the ability of the insurance subsidiaries to declare stockholder dividends without

prior regulatory approval. State insurance regulators require insurance companies to maintain specified levels of
statutory capital and surplus. No insurance subsidiary may declare or distribute any dividend to stockholders which,
together with all dividends declared or distributed by it during the preceding twelve months, exceeds the lesser of
ten percent of its surplus to policyholders or 100 percent of adjusted net investment income. The maximum amount of
dividends the insurance subsidiaries can pay us during 2020 without regulatory approval is $54.7 million. Insurance
regulators have broad powers to ensure that statutory surplus remains at adequate levels, and there is no assurance that
dividends of the maximum amount calculated under any applicable formula would be permitted. In the future, state
insurance regulatory authorities that have jurisdiction over the payment of dividends by the insurance subsidiaries may
adopt statutory provisions more restrictive than those currently in effect. The insurance subsidiaries did not pay any
dividends to us during 2019, 2018 or 2017.

Management believes that the Company has sufficient liquidity available to meet its operating cash needs and

obligations and committed capital expenditures for the next 12 months.

Cash Flows

Our most significant source of cash is from premiums received from our insureds, which, for most policies, we

receive at the beginning of the coverage period and net of the related commission amount for the policies. Our most
significant cash outflow is for 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 and dividends. We also use cash to pay for operating expenses such as salaries, rent and taxes and
capital expenditures such as technology systems. As described under “— Reinsurance” below, we use reinsurance to

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manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and
collect cash back when losses subject to our reinsurance coverage are paid.

Our total assets and liabilities increased in the years ended December 31, 2019, 2018 and 2017, reflecting the
underlying increase in premiums and related loss reserves and unearned premiums. The casualty-focused nature of our
products, and limited property exposures, enabled significant operating cash flow generation. 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. Management believes
that cash receipts from premiums, proceeds from investment sales and investment income are sufficient to cover cash
outflows in the foreseeable future.

Our cash flows for the years ended December 31, 2019, 2018 and 2017 were:

($ in thousands)
Cash and cash equivalents provided by (used in):

Operating activities
Investing activities
Financing activities

Change in cash and cash equivalents

Years Ended December 31
2018

2017

2019

253,296 $
(288,616)
32,138
(3,182) $

231,692 $
(297,952)
18,000
(48,260) $

73,870
(160,473)
50,000
(36,603)

The increase in cash provided by operating activities in 2019, 2018 and 2017 was due primarily to the timing of

premium receipts, claim payments and reinsurance activity. Cash flows from operations in each of the past three years
were used primarily to fund investing activities.

For the year ended December 31, 2019, net cash used in investing activities was $288.6 million, a decrease

of $9.3 million from 2018, and primarily reflected purchases of fixed income securities.

For the year ended December 31, 2019, net cash provided by financing activities was $32.1 million, primarily

reflecting net proceeds from the IPO and payment of $18.0 million on our credit facility. A significant portion of the
funds received from the IPO were ultimately contributed to our insurance subsidiary, New York Marine, and additional
amounts were used to repay outstanding debt under the revolving facility.

Revolving Loan Agreement

On January 29, 2018, ProSight entered into a revolving loan agreement with certain lenders and Citizens Bank,
N.A., as agent, providing for a revolving loan facility of up to $25.0 million. On March 15, 2019, the Company entered
into an amended and restated revolving loan agreement, which increased the facility to $50.0 million (as amended, the
“revolving facility”). The maturity date of the revolving facility is the earlier of (i) March 15, 2022, or (ii) 91 days before
the maturity of the senior notes due November 2020 or, if such senior notes are amended or replaced, 91 days before the
maturity of such amendment or replacement.

Borrowings under the revolving facility accrue interest, at our option, at a rate equal to either; (a) a base rate

determined by reference to the highest of; (i) the administrative agent’s prime lending rate; (ii) the federal funds
effective rate plus 0.50%; and (iii) the LIBOR rate for a one-month interest period plus 1.00%, in each case plus 2.00%
or (b) the LIBOR rate for the interest period relevant to such borrowing plus the applicable margin. The applicable
margins range from 1.75% to 3.00% based on our financial strength ratings and credit ratings. In addition, the revolving
facility provides for a fee ranging from 0.20% to 0.75%, also based on our financial strength ratings and credit ratings,
on the amount of undrawn commitments thereunder.

The revolving facility provides for mandatory prepayment of outstanding loans upon the occurrence of certain
change of control events that result in a downgrade of the ratings assigned to the notes described below. The revolving

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facility also permits us, at any time or from time to time, to voluntarily prepay loans. The revolving facility includes
certain covenants, including restrictions on the disposition of assets, restrictions on the incurrence of liens and
indebtedness, restrictions on making restricted payments and requirements to maintain specified liquidity levels.

On August 8, 2019, the Company used IPO proceeds to repay $18.0 million in complete satisfaction of the
outstanding debt under the revolving facility. As of December 31, 2019, there were no amounts outstanding and the
revolving facility had a borrowing capacity of $50.0 million.

Senior Debt

In November 2013, ProSight issued $140.0 million of 7.5% Senior Unsecured Notes due November 2020 and

in January 2015, issued an additional $25.0 million of 6.5% Senior Notes due November 2020. The notes provide for
semi-annual interest payments and mature on November 26, 2020. We may prepay the notes in whole or in part
(provided that at least 10% of the outstanding amount of the applicable series of notes is so prepaid), at any time or from
time to time, at 100% of the principal amount of the notes prepaid plus a make-whole amount, as set forth in the
documents governing the notes (the “Note Purchase Agreements”), plus accrued and unpaid interest on the principal
amount of the notes being prepaid to, but excluding, the prepayment date. The Note Purchase Agreements require us,
upon the occurrence of certain change of control events that result in a downgrade of the ratings assigned to the notes, to
offer to each holder to prepay such holder’s notes at a price equal to 100% of the principal amount thereof plus any
accrued interest. The Note Purchase Agreements also include certain covenants that restrict our ability to incur
indebtedness, make restricted payments, incur liens, and require that we maintain specified liquidity levels.

Interest payments of $12.1 million per annum were made in each of the years ended December 31, 2019, 2018

and 2017.

Reinsurance

We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect

our capital. Reinsurance involves a primary insurance company transferring, or “ceding”, a portion of its premium and
losses in order to limit its exposure. The ceding of liability to a reinsurer does not relieve the obligation of the primary
insurance to the policyholder. The primary insurer remains liable for the entire loss if the reinsurer fails to meet its
obligations under the reinsurance agreement. Our reinsurance is primarily contracted under excess of loss agreements. In
excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses, in excess of a
specified amount. In excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based
on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share
proportionately in the ceding company’s losses.

We use quota share and facultative reinsurance in selected niches, on a limited basis. In quota share reinsurance,

the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of
business in exchange for a corresponding percentage of premiums, net of a ceding commission. Facultative coverage
refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of
reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from
treaty reinsurance.

Our largest quota share reinsurance agreements were the WAQS. In connection with the divestment of our U.K.

business, New York Marine as reinsured entered into the WAQS with third party reinsurers to maintain reasonable
underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period
following the U.K. divestment. During 2018, and following the transition of the U.S. business back to New York
Marine, the WAQS were terminated.

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The following is a summary of our significant excess of loss reinsurance programs as of December 31, 2019:

Line of Business Covered

Summary Reinsurance Coverage

Property - per risk
Property - catastrophe
Casualty
Primary Workers' Compensation $37.0 million excess of $3.0 million
$95.0 million excess of $5.0 million
Excess Workers' Compensation
$42.5 million excess of $2.5 million
Marine

$37.0 million excess of $3.0 million
$195.0 million excess of $5.0 million
55% Quota Share up to $5.0 million, $5.0 million excess of $5.0 million

(1) Our excess of loss reinsurance reduces the financial impact of a loss occurrence. Our excess of loss reinsurance

includes reinstatement provisions, inuring relationships, and other clauses that may impact the amount recovered on
a loss occurrence.

At each annual renewal, we consider any plans to change the underlying insurance coverage we offer, as well as

updated loss activity, the level of our capital and surplus, changes in our risk appetite and the cost and availability of
reinsurance treaties.

For the years ended December 31, 2019, 2018 and 2017, property insurance represented 13.0%, 12.2% and

10.8%, respectively, of our GWP. When we write property insurance, we buy reinsurance to significantly mitigate our
risk. We use third-party computer models to analyze the risk of severe losses from weather-related events, earthquakes
and terrorist attacks. We measure exposure to such catastrophe losses and LAE in terms of Probable Maximum Loss
(“PML”), which is an estimate of the level of loss we would expect to experience in a windstorm or earthquake event
occurring once in every 100 or 250 years. We manage this PML by purchasing catastrophe reinsurance coverage.
Effective June 15, 2019, we purchased catastrophe reinsurance coverage of $195.0 million per event in excess of our
$5.0 million per event retention, which was an increase of $90.0 million of catastrophe reinsurance coverage per event
from the coverage we purchased in 2018.

We purchased adverse development reinsurance contracts (together, the “ADC”) in 2018, 2017 and 2016 that

limit the amount of future development on primary and excess workers’ compensation reserves reported for
accident years 2017 and prior. The expected cost of the ADC contract is fully expensed at the inception of the contract.
As of December 31, 2018, there have been no losses ceded to the ADC.

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor
its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible.
At December 31, 2019, 2018 and 2017, the allowance for uncollectible reinsurance was $10.9 million, $10.0 million,
and $7.0 million, respectively. As of December 31, 2019, 84.8% of our reinsurance recoverables were with reinsurers
with A.M. Best financial strength ratings of “A-” (Excellent) or better. The remaining 15.2%, or $29.5 million, of our
reinsurance recoverables were with non-rated reinsurers, including $26.7 million from a fronting reinsurance
arrangement with an authorized self-insurer from our Excess Workers’ Compensation niche, the Alabama Truckers
Association, and fully collateralized through funds held and letters of credit. At December 31, 2019, 2018 and 2017, the
net reinsurance receivable (defined as the sum of paid and unpaid reinsurance recoverables and ceded unearned
premiums, less reinsurance payables) from our top three reinsurers represented 46.5%, 46.7% and 55.7%, respectively,
of the total balance.

Ratings

ProSight and its insurance subsidiaries have a financial strength rating of “A-” (Excellent) from A.M.

Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “F” (In
Liquidation). The “A-” (Excellent) rating is assigned to insurers that have, in A.M. Best’s opinion, an excellent ability to
meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer’s
ability to meet its obligation to policyholders and is not an evaluation directed at investors. See also Item 1A. “Risk

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Factors — Risks Related to Our Business” on this Annual Report on Form 10-K. A decline in our financial strength
rating may adversely affect the amount of business we write.

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance subsidiaries
to attract and retain our distribution partners and on the risk profiles of the submissions for insurance that the insurance
subsidiaries receive. The “A-” (Excellent) rating affirmed by A.M. Best on November 22, 2019, is consistent with our
business plan and allows us to actively pursue relationships with the distribution partners identified in our marketing
plan.

Contractual Obligations and Commitments

The following table illustrates our contractual obligations and commercial commitments by due date as of

December 31, 2019:

Expected Payments
One Year to Three Years to

Less Than Less Than
One Year Three Years

Less Than
Five Years

More Than
Five Years

Total

($ in thousands)
Gross reserves for losses and LAE
Senior debt and credit agreements(1)
Interest on senior debt and credit agreements(2)
Operating lease obligations
Total

$ 350,137 $ 465,961 $

165,000
11,462
4,243

—
211
5,242

$ 530,842 $ 471,414 $

257,941 $ 447,609 $ 1,521,648
165,000
11,673
10,997
259,111 $ 447,951 $ 1,709,318

—
—
1,170

—
—
342

(1) Amounts represent the principal balance and are not necessarily the carrying value of the Company’s debt on the

balance sheet, which includes unamortized debt issuance costs.

(2) Amounts represent anticipated cash interest payments and commitment fees related to the Company’s senior debt

and credit agreements.

Reserves for losses and LAE represent our best estimate of the ultimate cost of settling reported and unreported

claims and related expenses. Estimating reserves for losses and LAE is based on various complex and subjective
judgments. Actual losses and settlement expenses paid may deviate, perhaps substantially, from the reserve estimates
reflected in our financial statements. Similarly, the timing for payment of our estimated losses is not fixed and is not
determinable on an individual or aggregate basis. The assumptions used in estimating the payments due by period are
based on industry and peer group claims payment experience. Due to the uncertainty inherent in the process of
estimating the timing of such payments, there is a risk that the amounts paid in any period will be significantly different
than the amounts disclosed above. Amounts disclosed above are gross of anticipated amounts recoverable from
reinsurers. Reinsurance balances recoverable on reserves for losses and LAE are reported separately as assets, instead of
being netted with the related liabilities, since reinsurance does not discharge us of our liability to policyholders.
Reinsurance balances recoverable on reserves for paid and unpaid losses and LAE totaled $197.4 million, $197.7 million
and $218.4 million at December 31, 2019, 2018 and 2017, respectively. These recoverable balances include $33.1
million and $43.7 million related to the WAQS at December 31, 2019 and 2018, respectively.

Financial Condition

Stockholders’ equity

At December 31, 2019, total stockholders’ equity was $543.0 million and tangible stockholders’ equity was
$513.8 million compared to total stockholders’ equity of $389.8 million and tangible stockholders’ equity of $360.6
million at December 31, 2018. The increase in both total and tangible stockholders’ equity was primarily due to net
income of $38.9 million, net increase in accumulated other comprehensive income of $59.8 million, and proceeds from
common stock sold in the initial public offering of $50.8 million for the year ended December 31, 2019.

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At December 31, 2018, total stockholders’ equity was $389.8 million and tangible stockholders’ equity was
$360.6 million compared to total stockholders’ equity of $376.0 million and tangible stockholders’ equity of $346.7
million at December 31, 2017. The increase in both total and tangible stockholders’ equity was primarily due to net
income of $54.5 million and partially offset by the increase in unrealized losses of $42.7 million related to available-for-
sale securities, net of taxes for the year ended December 31, 2018.

Tangible stockholders’ equity is a non-GAAP financial measure. We define tangible stockholders’ equity as

stockholders’ equity less goodwill and net intangible assets. Our definition of tangible stockholders’ equity may not be
comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in
accordance with GAAP. We use tangible stockholders’ equity internally to evaluate the strength of our balance sheet and
to compare returns relative to this measure.

Stockholders’ equity at December 31, 2019, 2018 and 2017, reconciles to tangible stockholders’ equity as

follows:

($ in thousands)
Stockholders’ equity
Less: intangible assets
Tangible stockholders’ equity
Book value per share
Tangible book value per share

Equity-based compensation

2019 Equity Incentive Plan

2019

December 31

2018

2017

$
$
$

543,031 $
29,189
513,842 $
12.61 $
11.93 $

389,830 $
29,219
360,611 $
10.03 $
9.28 $

375,983
29,249
346,734
9.71
8.95

In connection with, and prior to the completion of the IPO, the Company’s Amended and Restated 2010 Equity
Incentive Plan (the “2010 Plan”) was terminated. Immediately prior to the merger, P Shares granted under the 2010 Plan
prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan were converted into RSUs based
on the shares of common stock of the Company.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) became effective immediately
prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the
grant of stock options, stock appreciation rights, restricted stock, RSUs, dividend equivalent rights, performance-based
shares and other cash-based or share-based awards.

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to
the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the
times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee
charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019

Plan, including shares underlying RSUs granted under the 2010 Plan.

The following is a summary of the post-offering compensation included in the 2019 Plan, including the number

of common stock shares granted to each award mentioned below:

(i) 181,118 annual long-term incentive awards in respect of 2019, 90,559 of which are time-vesting RSUs and
90,559 of which are performance-vesting RSUs, were granted to management on July 25, 2019 in connection
with the IPO. Time-vesting RSUs are subject to vesting as follows: one-third annual installments on each
anniversary of grant date, subject to continued service. Performance-vesting RSUs are subject to vesting as
follows: cliff vesting on the third anniversary of the grant date to the extent performance metrics are met,
subject to continued service. The fair value of such awards is $2.5 million at grant date.

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(ii) 1,267,912 supplemental RSU awards, 100% of which are time-vesting RSUs, was granted to management
on July 25, 2019 in connection with the IPO and subject to vesting as follows: 25% vested at grant date, 25%
will vest on the second anniversary of the grant date, subject to continued service and 50% will vest on the
third anniversary of the grant date, subject to continued service. The fair value of the supplemental RSUs is
$17.8 million.

(iii) 250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant

date, July 25, 2019. These awards will cliff vest on the third anniversary of the grant date.

(iv) 33,839 non-employee director RSU awards, 26,399 of which were granted on July 25, 2019 and 7,440 of
which were granted on November 15, 2019, with a fair value of $0.5 million at grant date. These awards are
fully vested on grant date.

(v) 668,170 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the

Company’s common stock upon the consummation of the merger.

Stock-based compensation expense was $8.6 million, $0.9 million and $1.5 million for the years ended
December 31, 2019, 2018 and 2017, respectively. The tax benefit recognized for the same was $1.8 million, $0.2 million
and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Vested RSUs awaiting conversion into common stock were 906,182 for the year ended December 31, 2019,

548,292 for the year ended December 31, 2018 and 517,446 for the year ended December 31, 2017, respectively.

The Company began recognizing stock-based compensation expense relating to its 2019 Plan upon its inception
and initial stock grants in July 2019. All stock-based compensation expense recognized during the year ended December
31, 2019 relates to the 2019 Plan except $0.1 million of expense relating to the 2010 Plan.

The following table summarizes RSU transactions for the 2019 Plan for the years ended December 31, 2019

and 2018:

Unvested at December 31, 2017
Granted in 2018
Vested in 2018
Forfeited in 2018
Unvested at December 31, 2018
Granted in 2019
Vested in 2019
Forfeited in 2019
Unvested at December 31, 2019

Weighted
Average Grant
Number of Date Fair Value

Shares
180,647 $
13,992
(136,855)
(2,520)
55,264
1,732,869
(406,081)
(92,656)
1,289,396

Per Share

11.25
18.67
11.30
11.09
11.09
14.00
13.61
14.00
14.00

As of December 31, 2019, The Company had approximately $14.5 million of total unrecognized stock-based

compensation expense related to the RSUs expected to be recognized over a weighted-average period of 2.4 years.

2019 Employee Stock Purchase Plan

On July 24, 2019, the 2019 Employee Stock Purchase Plan (the “2019 ESPP”) became effective immediately
prior to the effectiveness of the registration statement filed in connection with the IPO. A total of 1,000,000 shares of the
Company’s common stock are reserved and available for sale under the 2019 ESPP.

The compensation committee of the Board of Directors administers the 2019 ESPP and have full authority to

interpret the terms of the 2019 ESPP.

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There was no expense recognized related to the 2019 ESPP for the year ended December 31, 2019.

Dividend declarations

We did not declare any dividends in the years ended December 31, 2019, 2018 and 2017.

Investment portfolio

Our cash and invested assets consist of debt securities, cash and cash equivalents, short-term investments and

alternative investments.

At December 31, 2019, the majority of the portfolio, or $2.0 billion, was comprised of securities that are
classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities, net of
applicable taxes, reported as a separate component of accumulated other comprehensive income. Also included in our
investments were $216.2 million of alternative investments carried at fair value. Our securities, including cash
equivalents, had a weighted average duration of 3.4 years and an average rating of “A” at December 31, 2019.

At December 31, 2019 and 2018, the amortized cost and fair value on fixed-maturity securities were as follows:

($ in thousands)
Fixed rate securities
Floating rate securities
Alternatives available-for-sale

Total bonds

Other investments:

Commercial levered loans
Limited partnerships
Short-term investments
Cash and cash equivalents
Total other investments
Total investments

December 31, 2019

December 31, 2018

Estimated
Amortized Cost Fair Value

% of Total
Estimated
Fair Value Amortized Cost Fair Value

% of Total
Fair Value

$ 1,137,121 $ 1,166,800
724,348
149,534
1,999,403 2,040,682

711,843
150,439

53.2 % $ 1,045,990 $ 1,010,781
556,104
554,626
33.1
126,497
129,139
6.8
93.1 % 1,729,755 1,693,382

14,069
66,660
43,873
27,497
152,099

13,950
66,660
43,873
27,497
151,980
$ 2,151,502 $ 2,192,662

0.6 %
3.0
2.0
1.3
6.9 %

16,915
15,858
53,432
53,432
36,661
36,661
29,900
29,900
135,851
136,908
100.0 % $ 1,866,663 $ 1,829,233

55.2 %
30.4
6.9
92.5 %

1.0 %
2.9
2.0
1.6
7.5 %
100.0 %

The table below presents the credit quality of total bonds at December 31, 2019 and 2018, as rated by

Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) or Equivalent Designation:

Standard & Poor’s or Equivalent Designation
($ in thousands)
AAA
AA
A
BBB
Below BBB/Not rated
Total

December 31, 2019

December 31, 2018

Estimated
Fair Value

% of Total
Fair Value

Estimated
Fair Value

% of Total
Fair Value

$ 219,696
356,924
719,394
563,680
180,988
$ 2,040,682

10.8 % $ 172,575
295,704
17.5
570,846
35.2
493,900
27.6
160,357
8.9
100.0 % $ 1,693,382

10.2 %
17.4
33.7
29.2
9.5
100.0 %

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The amortized cost and fair value of our available-for-sale investments in fixed maturity securities presented by

contractual maturity as of December 31, 2019 and 2018, were as follows:

Amortized

Cost

December 31, 2019
Estimated
Fair Value

% of Total Amortized
Fair Value

Cost

December 31, 2018
Estimated
Fair Value

% of Total
Fair Value

($ in thousands)
Due in one year or less
Due after one year through five
years
Due after five years through ten
years
Due after ten years
Asset-backed securities
Collateralized loan obligations
Commercial mortgage backed
securities
Residential mortgage backed
securities– non-agency
Residential mortgage backed
securities – agency

Total fixed maturities

99,035 $

99,326

4.9 % $

82,048 $

81,553

4.8 %

679,649

692,219

33.9

613,707

602,223

35.6

507,803
157,628
73,068
181,704

523,276
160,322
73,582
179,549

25.6
7.9
3.6
8.8

552,061
81,993
82,603
161,421

529,257
75,810
83,581
156,913

31.2
4.5
4.9
9.3

95,810

97,526

4.8

55,980

53,843

3.2

62,343

71,610

3.5

68,594

79,551

4.7

142,363

143,272
$ 1,999,403 $ 2,040,682

7.0

30,651
31,348
100.0 % $ 1,729,755 $ 1,693,382

1.8
100.0 %

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 investments

In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to

support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets
held on deposit or in trust accounts are primarily in the form of cash or certain high-grade securities.

The fair value of our restricted assets was $577.9 million at December 31, 2019. This includes $127.2 million

of funds in trust for the mutual benefit of our insurance companies due to participation in our intercompany policy
agreement. Restricted investments increased 5.6%, or $30.8 million, when compared to December 31, 2018 primarily
due to state deposits and market appreciation from fixed income securities.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements as of December 31, 2019.

As part of the 2017 sale transaction to divest our U.K. business, we entered into Aggregate Stop-Loss and 100%

Quota Share reinsurance agreements as reinsurer, with Lloyd’s Syndicate 1110 as our reinsured and committed to fund
Lloyd’s Syndicate 1110’s “Funds at Lloyd’s” requirements until June 30, 2020, though such Funds at Lloyd’s
obligations would effectively terminate when the 2017 Year of Account completes a “Reinsurance to Close” transaction,
which is expected by March 2020. We entered into a Letter of Credit facility arranged to fulfill a portion of these
requirements. The facility has a principal amount of $23.2 million and contains certain covenants that require us, among
other items, to maintain a minimum net worth, to remain within maximum leverage ratios, meet a minimum risk-based
capital ratio and maintain specified liquidity levels.

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Reconciliation of Non-GAAP Financial Measures

Reconciliation of underwriting income

Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting

performance without regard to investment income. Underwriting income represents the pre-tax profitability of our
insurance operations and is derived by subtracting losses and LAE and underwriting, acquisition and insurance expenses
from net earned premiums. We use underwriting income as an internal performance measure in the management of our
operations because we believe it gives us and users of our financial information useful insight into our results of
operations and our underlying business performance. Underwriting income should not be considered in isolation or
viewed as a substitute for net income calculated in accordance with GAAP, and other companies may calculate
underwriting income differently.

Net income from continuing operations for the years ended December 31, 2019, 2018 and 2017, reconciles to

underwriting income as follows:

($ in thousands)
Net income (loss) from continuing operations
Income tax expense

Income from continuing operations before taxes

Net investment income

Realized investment gains (losses), net
Interest and other expense, net

Underwriting income

Reconciliation of adjusted operating income

2019
45,494 $
12,137
57,631
(68,897)
770
28,408
16,372 $

Years Ended December 31
2018
53,729 $
13,389
67,118
(55,971)
(1,557)
11,704
24,409 $

2017
(6,904)
38,233
31,329
(36,196)
4,204
11,272
2,201

Adjusted operating income is a non-GAAP financial measure that we use 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 underlying business performance, by excluding items that
are not part of our underlying profitability drivers or likely to re-occur in the foreseeable future. Adjusted operating
income should not be considered in isolation or viewed as a substitute for our net income calculated in accordance with
GAAP. Other companies may calculate adjusted operating income differently.

Adjusted operating income for the years ended December 31, 2019, 2018 and 2017, reconciles to net income

from continuing operations as follows:

($ in thousands)
Net income (loss) from continuing operations
Income tax expense
Income from continuing operations before taxes
Other expense
Realized investment (gains) losses, net
Adjusted operating income before taxes
Less: income tax expense on adjusted operating income
Adjusted operating income

Critical Accounting Estimates

2019
45,494
12,137
57,631
16,151
(770)
73,012
15,376
57,636 $

Years Ended December 31
2018
53,729
13,389
67,118
—
1,557
68,675
13,389
55,286

2017

(6,904)
38,233
31,329
—
(4,204)
27,125
13,133
13,992

We identified the accounting estimates which are critical to the understanding of our financial position and

results of operations. 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

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judgment concerning future results and developments in applying these critical accounting estimates and in preparing
our 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 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 2. Summary of Significant Accounting Policies in Item 8. Financial Statement and Supplementary Data on this
Annual Report on Form 10-K.

Reserves for unpaid losses and LAE

The reserves for unpaid losses and LAE are the largest and most complex estimate in our consolidated balance
sheets. The reserves for unpaid losses and LAE represent our estimated ultimate cost of all unreported and reported but
unpaid insured claims and the cost to adjust these losses that have occurred as of or before the balance sheet date. The
loss reserves are not discounted, with the exception of certain workers’ compensation claims loss reserves. The amounts
of discount related to workers’ compensation reserves were $47.4 million, $37.0 million and $34.2 million at
December 31, 2019, 2018 and 2017, respectively.

Those estimates are based on our historical information blended with 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 review our estimates quarterly and adjust them as necessary as experience develops or as new information becomes
known to us. Even after such adjustments, ultimate liability may exceed or be less than the revised estimates.
Accordingly, the ultimate settlement of losses and LAE may vary significantly from the estimate included in our
consolidated financial statements.

We categorize our reserves for unpaid losses and LAE into two types: case reserves and incurred but not

reported (“IBNR”). Our gross reserves for losses and LAE at December 31, 2019 were $1.5 billion, and of this amount,
70.6% related to IBNR. Our net reserves for losses and LAE at December 31, 2019 were $1.3 billion, and of this
amount, 69.4% related to IBNR.

Our gross reserves for losses and LAE at December 31, 2018 were $1.4 billion, and of this amount, 69.8%
related to IBNR. Our net reserves for losses and LAE at December 31, 2018 were $1.2 billion, and of this amount,
67.8% related to IBNR.

Our gross reserves for losses and LAE at December 31, 2017 were $1.3 billion, and of this amount, 65.5%
related to IBNR. Our net reserves for losses and LAE at December 31, 2017 were $1.1 billion, and of this amount,
63.6% related to IBNR.

The following tables present our gross and net reserves for unpaid losses and LAE at December 31, 2019, 2018,

and 2017:

($ in thousands)
Case reserves
IBNR
Total

December 31, 2019

Gross

% of Total

Net

% of Total

$ 447,736
1,073,912
$ 1,521,648

29.4 % $ 406,375
70.6
921,321
100.0 % $ 1,327,696

30.6 %
69.4
100.0 %

December 31, 2018

Gross

% of Total

Net

% of Total

$ 422,231
974,581
$ 1,396,812

30.2 % $ 390,025
69.8
821,492
100.0 % $ 1,211,517

32.2 %
67.8
100.0 %

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($ in thousands)
Case reserves
IBNR
Total

December 31, 2017

Gross

% of Total

Net

% of Total

$ 434,478
823,759
$ 1,258,237

34.5 % $ 384,426
65.5
672,655
100.0 % $ 1,057,081

36.4 %
63.6
100.0 %

Case reserves are established for individual claims that have been reported to us. We are notified of losses by
our insureds or their 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. We utilize the services of two Third
Party Administrators (“TPAs”) to assist in the adjustment of workers’ compensation claims and one TPA to assist in the
adjustment of builders’ risk claims within the Real Estate customer segment. Our TPAs are not affiliated with our
distribution partners. Other than in limited cases, our managing general underwriters (“MGUs”) do not handle claims.
Our internal claims managers oversee TPA and MGU claims-related activities and monitor their individual claim
handling activities to prescribed ProSight standards.

Our IBNR reserves are developed in accordance with Actuarial Standards of Practice promulgated by the

American Academy of Actuaries. Our reserve review utilizes several accepted loss reserving methods to arrive at our
best estimate of loss reserves. We give consideration to the relative strengths and weaknesses of each of the methods in
deriving our actuarial best estimate of the liabilities. Where we have limited years of loss experience compared to the
period over which we expect losses to be reported, we use industry and/or peer-group data in addition to our own data as
a basis for selecting the parameters underlying our reserving methods. We monitor loss emergence monthly. We
carefully consider other internal or external factors such as underwriting, claims handling, economic, or environmental
changes that could adversely affect the accuracy of the assumptions underlying our standard actuarial methods and when
necessary we will adjust these assumptions, methods, and/or procedures to ensure that they appropriately reflect these
changing conditions. The average duration of loss reserves is 5.2 years, as of December 31, 2019.

Our Reserve Committee includes our Chief Actuary, Chief Executive Officer, Chief Financial Officer, Chief

Underwriting and Risk Officer, and Chief Claims Officer. The Reserve Committee meets quarterly to review the
actuarial reserving recommendations made by the Chief Actuary. In establishing the actuarial recommendation for the
reserves for losses and LAE, our actuary’s estimate of the current Initial Expected Loss Ratio (“IELR”) is derived from
the pricing IELR at the niche level, policy year, and reserving group. Our reserve estimate is derived from our
proprietary reserving model that calculates a point estimate for our ultimate losses. Although we believe that our
assumptions and methodology are reasonable, our ultimate payments may vary, potentially materially, from the
estimates we have made.

In addition, we retain an independent external actuarial firm to perform an annual loss reserve analysis. The

independent actuarial firm is not involved in the establishment and recording of our loss reserve. The independent
actuarial firm prepares its own estimate of our reserves for loss and LAE, and we review their estimate to the reserves
for losses and LAE reviewed and approved by the Reserve Committee.

The table below quantifies the impact of potential reserve deviations from our carried reserve at December 31,
2019. We applied sensitivity factors to incurred losses for the three most recent accident years and to the carried reserve
for all prior accident years combined. In the selection of the volatility factors, we have considered the potential impact of
changes in current loss trends, pricing trends, and other actuarial reserving assumptions. The aggregate development
depicted in the sensitivity analysis is consistent with the average development in recent calendar periods and a

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reasonable depiction of the potential volatility of the reserve estimates for the current calendar period. We believe that
potential changes such as these would not have a material impact on our liquidity.

Net Ultimate Loss Net Ultimate

December 31, 2019

Potential Impact on 2019

Sensitivity
($ in thousands)
Sample increases

Sample decreases

Accident

Year

and ALAE
Sensitivity Factor

Incurred Losses Net Loss and
ALAE Reserve

and ALAE

Pre-tax
income

Stockholders'
Equity(1)

2019
2018
2017
Prior
2019
2018
2017
Prior

4.0 % $
3.0 %
2.0 %
1.0 %
(4.0) %
(3.0) %
(2.0) %
(1.0) %

457,973 $
406,199
339,505

391,451 $ (18,319) $ (14,472)
(9,627)
(12,186)
293,310
(5,364)
(6,790)
175,568
(3,580)
453,128
(4,531)
14,472
391,451 $ 18,319 $
9,627
293,310
5,364
175,568
3,580
453,128

12,186
6,790
4,531

(1) In 2019, the effective rate was consistent with the U.S. corporate income tax rate of 21% and is used to estimate the

potential impact to stockholders’ equity.

Reserve development

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.

During the year ended December 31, 2019 our reserve for unpaid losses and loss adjustment expenses for

accident years 2018 and prior developed unfavorably by $3.2 million driven primarily by unfavorable development of
$16.4 million in Commercial Multiple Peril and $11.3 million in General Liability, partially offset by favorable
development of $22.8 million in Workers’ Compensation. The unfavorable development in Commercial Multiple Peril
was primarily from the Media and Entertainment customer segment in accident years 2013 through 2016 from a longer
development trend than that underlying the historical performance of premises liability. The unfavorable development in
General Liability primarily related to 2013 through 2016 accident years due to increased severities in the Real Estate
customer segment and run off components within the Other customer segment. The favorable development in Workers
Compensation derived from lower than expected claims severity across all customer segments primarily in accident
years 2013 through 2015 and accident year 2017. In addition, the Company incurred $14.9 million of loss and loss
adjustment expenses related to premium earned during the year ended December 31, 2019, attributable to accident year
2018.

During the year ended December 31, 2018, our reserve for unpaid losses and loss adjustment expenses for

accident years 2017 and prior developed favorably by $5.0 million. Favorable development of $5.0 million for the year
ended December 31, 2018, was driven primarily by favorable development of $14.4 million in Workers’ Compensation,
$15.6 million in Commercial Auto and $4.1 million from Marine Liability within the All Other Lines category, partially
offset by $16.5 million adverse development in General Liability and $12.2 million adverse development in Commercial
Multiple Peril. Lower than expected claim severity was the main driver of the favorable development in Workers’
Compensation of which $6.2 million came from 2014, 2015 and 2016 accident years in primary Workers’ Compensation
and $8.2 million came from 2014 and 2015 accident years in excess Workers’ Compensation. Favorable development in
Commercial Auto was driven mainly by the 2013, 2015 and 2016 accident years where severity trends of the previous
two calendar year periods improved during 2018 across multiple niches. Marine Liability is a low frequency, high
severity line of business and as a result, development often varies significantly from the average expectation. The
$16.5 million adverse development in General Liability primarily related to 2013, 2014 and 2015 accident years due to
increased severities in the Construction customer segment from reduced effectiveness of risk transfer from our general

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contractor insureds to subcontractors. The $12.2 million in adverse development in Commercial Multiple Peril is
primarily from the Media and Entertainment customer segment driven by a longer development trend than that
underlying the historic performance of premises liability.

During the year ended December 31, 2017, our reserve for unpaid losses and loss adjustment expenses for

accident years 2016 and prior developed adversely by $20.3 million. Adverse development of $20.3 million was driven
primarily by unfavorable development of $33.2 million in Commercial Auto which consisted of several niches that are
now terminated. Adverse development in Commercial Auto was driven primarily by higher than expected frequency and
severity. The Commercial Auto experience were likely a result of industry trends such as an improving economy
resulting in more drivers on the roads, the hiring of less experienced drivers, the use of personal technology while in
transit and litigation of bodily-injury claims, which resulted in unexpected adverse experience from historical
performance patterns. The adverse development was offset by favorable development in Workers’ Compensation of
$12.4 million due to lower than expected claim severity for accident years 2016 and prior, including a decline in the
frequency of large loss activity.

Investments

Fair value measurements

The Company has established a framework for valuing financial assets and financial liabilities. The framework

is based on a hierarchy of inputs used in valuation and gives the highest priority to quoted prices in active markets and
requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the
hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the
hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets
and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard
describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the
hierarchy:

Level 1 — Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company
for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to
measure fair value whenever available. Active markets are defined as having the following for the measured
asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among
market makers, (iv) narrow bid/ask spreads and (v) most information publicly available.

Level 2 — Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with
observable market data. Level 2 inputs include quoted market prices in active markets for similar assets,
nonbinding quotes in markets that are not active for identical or similar assets and other market observable
inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).

Level 3 — Fair value is based on at least one or more significant unobservable inputs that are supported by little
or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions
market.

The Company generally obtains valuations from third-party pricing services and/or security dealers for identical

or comparable assets or liabilities by obtaining nonbinding broker quotes (when pricing service information is not
available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets
on the bid price as it represents what a third-party market participant would be willing to pay in an arm’s-length
transaction.

Impairment

Management reviews fixed income securities for other-than-temporary impairments (“OTTI”) based upon

quantitative and qualitative criteria that include, but are not limited to, downgrades in rating agency levels for securities,

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the duration and extent of declines in fair value of the security below its cost or amortized cost, interest rate trends, the
Company’s intent to sell or hold the security, market conditions, and the regulatory environment for the security’s issuer.

The Company may also consider cash flow models and matrix analyses in connection with its OTTI evaluation.

The Company will record credit impairment in the consolidated statements of operations and comprehensive income
(loss) when the present value of cash flows expected to be collected from the debt security is less than the amortized cost
basis of the security. In addition, any portion of such decline to arise from factors other than credit is recorded as a
component of other comprehensive income (“OCI”).

Deferred income taxes

We record deferred income taxes as assets or liabilities on our balance sheet 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 loss reserves, unearned premium reserves and net adjusted operating losses from prior periods. Our
deferred tax liabilities result primarily from unrealized gains in the investment portfolio and deferred 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 12 Income Taxes in Item 8. Financial Statements and Supplementary Data on this Annual
Report on Form 10-K for further discussion regarding our deferred tax assets and liabilities.

On December 22, 2017, the President of the United States signed into law the TCJA. The legislation

significantly changes U.S. tax law by, among other things, lowering corporate income tax rates from 35% to 21%,
effective January 1, 2018. U.S. GAAP requires companies to recognize the effect of tax law changes in the period of
enactment.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP

in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The TCJA did
not specify the application of certain elements of the legislation and the U.S. Treasury has yet to issue interpretive
guidance to specify the loss payment patterns and the corporate bond yield curve under the new law for 2018. The
Company has recognized a provisional tax impact of $9.0 million related to the transition adjustment for loss discounting
which has been included in its components of deferred tax assets and liabilities as part of its consolidated financial
statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts due
to, among other things, additional analysis, changes in interpretations and assumptions the Company has made,
additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The
accounting is expected to be complete when the U.S. Treasury issues further guidance.

Reinsurance

The Company’s insurance subsidiaries participate in various reinsurance agreements. The Company uses

various types of reinsurance, including quota share, excess of loss and facultative agreements, to spread the risk of loss
among several reinsurers and to limit its exposure from losses on any one occurrence. Any recoverable due from
reinsurers is recorded in the period in which the related gross liability is established. Reinsurance reinstatement
premiums are incurred by the Company based upon the provisions of the reinsurance contracts. In the event of a loss, the
Company may be obligated to pay additional reinstatement premiums under its excess of loss reinsurance treaties. In
such instances, the respective reinstatement premium is expensed immediately. The Company accounts for reinsurance
receivables and prepaid reinsurance premiums as assets. The Company maintains an allowance for doubtful accounts,
which includes amounts in dispute, amounts due from insolvent or financially impaired companies and other balances
deemed uncollectible. Management continually reviews and updates such estimates. Profit commission revenue derived
from reinsurance transactions is recognized when such amounts become earned as provided in the treaties with the
respective reinsurers.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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 components of market risk affecting us are credit risk and interest rate risk. We do not have
significant exposure to equity risk, foreign currency exchange rate risk or commodity risk.

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 debt instruments. Our risk management strategy and investment approach
is to primarily invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with
respect to particular ratings categories and any one issuer. At December 31, 2019, our securities portfolio had an average
rating of “A” with approximately 63.6% of securities in that portfolio rated “A” or better by at least one nationally
recognized rating organization. Our policy is to invest in investment-grade securities and to limit investments in fixed
maturities that are unrated or rated below investment-grade. At December 31, 2019, approximately 8.9% of our
securities portfolio was unrated or rated below investment-grade. We monitor the financial condition of all of the issuers
of securities in our portfolio.

In addition, we are subject to credit risk with respect to our third-party reinsurers. Although our third-party

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 generally 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.
If one of our reinsurers suffers a credit downgrade, we may consider various options to lessen the risk of asset
impairment, including commutation, novation and letters of credit.

Interest rate risk

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The

primary market risk to our investment portfolio is interest rate risk associated with investments in securities. Fluctuations
in interest rates have a direct effect on the market valuation of these 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. We manage
this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our
investment portfolio in directional relation to the duration of our reserves. Expressed in years, duration is the weighted
average payment period of cash flows, where the weighting is based on the present value of the cash flows. We set
duration targets for our fixed income investment portfolios after consideration of the estimated duration of our liabilities
and other factors. The effective weighted average duration of the portfolio, including cash equivalents, was 3.4 years as
of December 31, 2019.

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We had securities that were subject to interest rate risk with a fair value of $2.0 billion at December 31, 2019

and $1.7 billion at December 31, 2018. The table below illustrates the sensitivity of the fair value of our securities to
selected hypothetical changes in interest rates as of December 31, 2019 and 2018.

December 31, 2019

Estimated
Change in

Estimated %

Increase
(Decrease) in

Fair Value Fair Value

December 31, 2018

Estimated %

Estimated
Fair Value

Increase
Estimated
Change in
(Decrease) in
Fair Value Fair Value

Estimated
Fair Value

200 basis points increase
100 basis points increase
No change
100 basis points decrease
200 basis points decrease

$ 1,908,854 $ (131,828)
$ 1,972,728 $ (67,954)
$ 2,040,682
—
$ 2,112,719 $
72,037
$ 2,188,836 $ 148,154

($ in thousands)
(6.7) % $ 1,600,239 $ (93,143)
(3.3) % $ 1,645,364 $ (48,018)
—
—
3.5 % $ 1,744,292 $ 50,910
7.3 % $ 1,798,095 $ 104,713

$ 1,693,382

(5.5) %
(2.8) %
—
3.0 %
6.2 %

Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but

will not ordinarily have an immediate effect on net income. Actual results may differ from the hypothetical change in
market rates assumed in the table above. This sensitivity analysis does not reflect the results of any action that we may
take to mitigate such hypothetical losses in fair value.

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Item 8. Financial Statements and Supplementary Data

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of
ProSight Global, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ProSight Global, Inc. and Subsidiaries (the

Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income
(loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the
related notes and financial statement schedules (collectively referred to as the "consolidated financial statements"). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan

and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial

statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

New York, New York
February 24, 2020

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ProSight Global, Inc. and Subsidiaries

Consolidated Balance Sheets

($ in thousands except per share amounts)
Assets
Investments:

Fixed income securities, available-for-sale at fair value (amortized cost $1,999,403 in 2019 and
$1,729,755 in 2018)
Commercial levered loans at amortized cost (fair value $13,950 in 2019 and $15,858 in 2018)
Limited partnerships and limited liability companies at fair value (cost $62,226 in 2019 and
$51,903 in 2018)
Short-term investments
Total investments

Cash and cash equivalents
Restricted cash
Accrued investment income
Premiums and other receivables, net
Receivable from reinsurers on paid losses
Reinsurance receivables on unpaid losses
Deferred policy acquisition costs
Prepaid reinsurance premiums
Net deferred income taxes
Goodwill and net intangible assets
Fixed assets and capitalized software, net
Funds withheld related to sale of affiliate
Other assets
Assets of discontinued operations
Total assets

Liabilities
Reserve for unpaid losses and loss adjustment expenses
Reserve for unearned premiums
Ceded reinsurance payable
Notes payable, net of debt issuance costs
Funds held under reinsurance agreements
Other liabilities
Liabilities of discontinued operations
Total liabilities

December 31

2019

2018

$ 2,040,682 $ 1,693,382
16,915

14,069

66,660
43,873
2,165,284
17,284
10,213
13,610
190,004
3,481
193,952
98,812
42,861
4,803
29,189
37,167
19,453
29,537
21,584

53,432
36,661
1,800,390
22,279
7,621
12,279
200,347
12,428
185,295
93,613
44,626
33,239
29,219
39,001
19,397
57,653
19,719
$ 2,877,234 $ 2,577,106

$ 1,521,648 $ 1,396,812
435,933
13,281
182,355
63,165
73,474
22,256
2,187,276

483,223
17,768
164,693
58,855
56,438
31,578
2,334,203

Stockholders’ equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding
Common stock, $0.01 par value; 200,000,000 shares authorized; 43,071,186 and 38,864,289 shares
issued, 43,058,266 and 38,851,369 shares outstanding in 2019 and 2018, respectively
Paid-in capital
Accumulated other comprehensive income (loss)
Retained deficit
Treasury shares - at cost (12,920 shares)
Total stockholders' equity
Total liabilities and stockholders' equity

—

431
661,761
37,453
(156,414)
(200)
543,031

389
607,260
(22,315)
(195,304)
(200)
389,830
$ 2,877,234 $ 2,577,106

See accompanying notes to consolidated financial statements.

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ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Operations

($ in thousands except per share amounts)

Gross written premiums
Net earned premiums
Net investment income
Realized investment gains (losses), net
Other income
Total revenues

Expenses:
Net losses and loss adjustment expenses incurred
Policy acquisition expenses
General and administrative expenses
Interest expense
Other expense
Total expenses
Income from continuing operations before income taxes

Income tax provision:
Current
Deferred
Total income tax expense
Income (loss) from continuing operations

Discontinued operations:
Loss from discontinued operations before income taxes
Income tax benefit
(Loss) income from discontinued operations

Years Ended December 31
2018

2019

2017

$ 968,011 $ 895,112 $ 836,334
609,786
36,196
4,204
853
651,039

807,854
68,897
770
538
878,059

730,785
55,971
(1,557)
673
785,872

501,025
184,771
105,686
12,795
16,151
820,428
57,631

434,830
171,429
100,118
12,377
—
718,754
67,118

393,741
126,023
87,821
12,125
—
619,710
31,329

(185)
12,322
12,137
45,494

(853)
14,242
13,389
53,729

864
37,369
38,233
(6,904)

(8,718)
(2,114)
(6,604)

(560)
(1,374)
814

(37,768)
(679)
(37,089)

Net income (loss)

$ 38,890 $ 54,543 $ (43,993)

Earnings per share - basic:
Net income (loss) from continuing operations
Net income (loss)

Earnings per share - diluted:
Net income (loss) from continuing operations
Net income (loss)

$
$

1.11 $
0.95 $

1.39 $
1.41 $

(0.18)
(1.17)

$
$

1.10 $
0.94 $

1.36 $
1.38 $

(0.18)
(1.17)

See accompanying notes to consolidated financial statements.

Table of Contents

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

($ in thousands)
Net income (loss)
Other comprehensive income (loss), net of taxes:
Change in unrealized holding gains (losses) on securities, net of deferred tax
expense (benefit) of $16,277 in 2019, $(10,842) in 2018 and $1,442 in 2017
Foreign currency translation adjustment
Less reclassification adjustment for gains (losses) included in net income (loss)
net of tax expense (benefit) of $162 in 2019, $(429) in 2018 and $1,471 in 2017
Other comprehensive income (loss)
Comprehensive income (loss)

Years Ended December 31
2018
$ 38,890 $ 54,543 $ (43,993)

2017

2019

61,643
—

(42,740)
—

(1,357)
6,881

1,875
59,768

17,292
(1,128)
(11,768)
(41,612)
$ 98,658 $ 12,931 $ (55,761)

See accompanying notes to consolidated financial statements.

Table of Contents

($ in thousands)
December 31, 2016

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Accumulated
Other

Preferred Common

Stock

Paid-In Comprehensive Retained Treasury
Shares
Capital

Income (Loss)

Deficit

Total

— $

355 $ 555,289 $

29,482 $ (204,271) $

(200) $ 380,655
32
1,089
49,968

—
—
—

—
—
—
—

(18,649)
6,881
—
(43,993)
(200) $ 375,983
—
916

—
—

(41,612)
54,543
(200) $ 389,830
8,579
—

—
—

—

—
—

(740)

59,768
(4,174)

—
—

50,878
38,890
(200) $ 543,031

Shares issued
Stock based employee compensation plan
Capital contributions
Net unrealized loss on investment securities, net
of deferred tax benefit of $(29)
Foreign currency translation
Reclassification of stranded deferred taxes
Net loss

December 31, 2017

Shares issued
Stock based employee compensation plan
Net unrealized loss on investment securities, net
of deferred tax benefit of $(10,413)
Net income

December 31, 2018

Stock based employee compensation plan
Shares cancelled
Retirement of common stock (tax payments on
equity compensation)
Net unrealized gain on investment securities,
net of deferred tax expense of $16,115
Equity distribution
Proceeds from common stock sold in initial
public offering, net of offering costs
Net income

December 31, 2019

—
—

—

—
— $
—
—

—
—
— $
—
—

—

—
—

32
—
—

—
—
—
—

—
1,089
49,968

—
—
—
—

—
—
—

(18,649)
6,881
1,583
—

—
—
(1,583)
(43,993)

387 $ 606,346 $

19,297 $ (249,847) $

2
—

—
—

(2)
916

—
—

(41,612)
—

—
54,543

389 $ 607,260 $

(22,315) $ (195,304) $

1
(1)

—

—
—

42
—

8,578
1

(740)

—
(4,174)

50,836
—

—
—

—

59,768
—

—
—

—

—
—

—
38,890

431 $ 661,761 $

37,453 $ (156,414) $

—
—
— $

See accompanying notes to consolidated financial statements.

Table of Contents

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)
Operating activities
Net income (loss) from continuing operations
Net (loss) income from discontinued operations
Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for deferred taxes
Realized investment (gains) losses, net
Net limited partnerships gains
Net accretion from bonds and commercial loans
Depreciation and amortization
Stock based compensation

Changes in:
Premiums and other receivables
Receivable from reinsurers on paid losses and reinsurance receivable from unpaid losses
Ceded reinsurance payable
Accrued investment income
Deferred policy acquisition costs
Prepaid reinsurance premiums
Unpaid losses and loss adjustment expenses
Reserve for unearned premiums
Funds withheld related to sale of affiliate
Funds held under reinsurance agreements
Other assets
Other liabilities
Total adjustments
Net cash provided by operating activities - continuing operations
Net cash used in operating activities - discontinued operations
Net cash provided by operating activities

Investing activities
Purchases of available-for-sale fixed income securities
Sales of available-for-sale fixed income securities
Redemptions of available-for-sale fixed income securities
Purchases of commercial levered loans
Redemptions of commercial levered loans
Purchases of limited partnerships
Distributions and redemptions from limited partnerships
Purchases of short-term investments
Sales of short-term investments
Acquisition of fixed assets and capitalized software
Net cash used in investing activities - continuing operations
Net cash (used in) provided by investing activities - discontinued operations
Net cash used in investing activities

Financing activities
Proceeds from notes payable
Repayment of notes payable
Tax withholding on stock compensation awards
Proceeds from shares issued
Capital contributions
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of year - continuing operations
Cash, cash equivalents and restricted cash at beginning of year - discontinued operations
Less: cash, cash equivalents and restricted cash at end of year - discontinued operations
Cash, cash equivalents and restricted cash at end of year

See accompanying notes to consolidated financial statements.

Years Ended December 31
2018

2017

2019

45,494
(6,604)
38,890

53,729
814
54,543

(6,904)
(37,089)
(43,993)

12,322
(770)
(3,101)
(2,622)
8,737
8,578

10,343
290
4,487
(1,331)
(5,199)
1,765
124,836
47,290
(56)
(4,310)
23,938
(17,036)
208,161
253,655
(359)
253,296

(570,726)
145,053
157,860
—
2,815
(15,407)
5,280
(358,296)
351,761
(6,535)
(288,195)
(421)
(288,616)

—
(18,000)
(740)
50,878
—
32,138
(3,182)
29,900
1,034
(255)
27,497

14,242
1,557
(1,081)
(6,083)
7,351
916

(16,013)
20,653
(5,167)
(2,870)
(32,854)
78,324
138,575
40,501
7,376
(49,095)
(15,092)
(2,377)
178,863
232,592
(900)
231,692

37,369
(4,204)
(3,240)
(2,364)
7,615
1,089

(15,956)
(12,849)
15,632
(4,056)
15,813
(92,054)
91,618
40,603
(26,988)
91,671
(8,992)
48,463
179,170
172,266
(98,396)
73,870

(509,970)
173,768
81,417
(7,101)
14,698
(33,580)
22,832
(172,787)
140,623
(8,489)
(298,589)
637
(297,952)

18,000
—
—
—
—
18,000
(48,260)
77,872
1,322
(1,034)
29,900

(1,236,581)
719,916
257,102
(3,150)
8,858
(45,251)
40,270
(180,400)
238,291
(11,884)
(212,829)
52,356
(160,473)

—
—
—
32
49,968
50,000
(36,603)
75,211
40,586
(1,322)
77,872

Table of Contents

1. Background

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

ProSight Global, Inc. and its subsidiaries (the “Company”) was founded in 2009 by members of the current

management team and secured capital commitments from affiliates of each of The Goldman Sachs Group, Inc.
(“Goldman Sachs”) and TPG Global, LLC (“TPG”). The Company established its insurance operating platform and
acquired its insurance subsidiaries through the acquisition of NYMAGIC, Inc. in 2010.

The Company was incorporated in Delaware in 2010 and is owned by ProSight Investment LLC (“PI”),

ProSight Parallel Investment LLC (“PPI”), and ProSight TPG, LP (“PT”). PI and PPI are wholly-owned by ProSight
Equity Management Inc., which is held as an investment within the GS Capital Partners VI funds. PT is held as an
investment within TPG Partners VI, LP. The Company is the parent of ProSight Specialty Insurance Group, Inc.
(“PSIG”). PSIG conducts its specialty insurance business through three insurance subsidiaries: New York Marine and
General Insurance Company (“New York Marine”), Gotham Insurance Company (“Gotham”), and Southwest Marine
and General Insurance Company (“Southwest Marine”). On October 1, 2016, ProSight Specialty Insurance Solutions,
LLC (“PSIS”) became a direct subsidiary of PSIG. Effective April 19, 2018, PSIS changed its name to ProSight
Specialty Insurance Brokerage, LLC (“PSIB”). The Company is also the parent of ProSight Specialty Management
Company (“PSMC”), which manages a risk-sharing pool of the Company’s subsidiaries, and ProSight Specialty
Bermuda Ltd. (“PSBL”).

The Company focuses on producing insurance business in specialized niche markets with selective distribution
networks possessing unique expertise. The Company’s major customer segments are Construction, Consumer Services,
Marine and Energy, Media and Entertainment, Professional Services, Real Estate, Sports, and Transportation.

Reorganization

Prior to July 25, 2019, the Company was a wholly-owned subsidiary of ProSight Global Holdings Limited

(“PGHL”), a Bermuda holding company. Effective July 25, 2019, prior to the completion of the Company’s initial public
offering (“IPO”), PGHL merged with and into the Company, with the Company surviving the merger (the “merger”).
The prior holders of PGHL’s equity interests then outstanding received, as merger consideration, the right to receive
6.46 shares of the Company’s common stock for each such outstanding PGHL equity interest. The total merger
consideration was 38,851,369 shares of the Company’s common stock, which then comprised 100% of the shares of the
Company’s outstanding common stock.

As a result of the merger, the assets and liabilities of the Company include, effective July 25, 2019, the assets

and liabilities of PGHL. In addition, on July 24, 2019, in connection with the merger, the Company’s duly adopted
amended and restated certificate of incorporation (the “Certificate of Incorporation”) became effective, providing for,
among other things, the authorization of 200,000,000 shares of common stock and 50,000,000 shares of preferred stock.
The consolidated financial statements, related notes and schedules have been restated for all historical periods prior to
and including June 30, 2019, presented to give effect to the merger and related conversion of shares, including
reclassifying an amount equal to the change in value of common stock to additional paid-in capital, as well as the
effectiveness of the Certificate of Incorporation.

Prior to the merger, PGHL’s subsidiaries ProSight Specialty International Holdings Limited (“PSIH”) and

ProSight Specialty European Holdings Limited (“PSEH”) were merged with and into ProSight Global, Inc., effective
February 5, 2019. Additionally, effective February 5, 2019, PSBL became a wholly-owned subsidiary of the Company.
Prior to February 5, 2019, PSBL was a wholly-owned subsidiary of PSEH.

Table of Contents

Initial Public Offering

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

On July 29, 2019, the Company completed its IPO with the sale of 7,857,145 shares of the Company’s

common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock
and the sale by PI and PPI (collectively, the “GS Investors”) and PT, TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P.
and TPG PS 4, L.P. (collectively the “TPG Investors” and together with the GS Investors, the “Principal Stockholders”)
of 3,571,430 shares of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a
per-share price of $14.00. After deducting underwriting discounts and commissions and estimated offering expenses, the
net proceeds to the Company from the IPO were approximately $50.8 million. The Company did not receive any of the
proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO.
Following the IPO, the GS Investors held approximately 40.9% of the Company’s outstanding common stock and the
TPG Investors held approximately 39.4% of the Company’s outstanding common stock.

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s

common stock at a price of $14.00 per share less the underwriting discount pursuant to the underwriters’ exercise of
their over-allotment option granted in connection with the IPO. The offering was registered pursuant to the registration
statement on Form S-1, which the SEC declared effective on July 24, 2019. The Company did not receive any of the
proceeds from the sale of the shares of common stock of the Company sold by the Principal Stockholders in this
offering. Following this offering, the GS Investors held approximately 39.5% of the Company’s outstanding common
stock and the TPG Investors held approximately 38.0% of the Company’s outstanding common stock.

2. Summary of Significant Accounting Policies

Basis of Reporting and Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally

accepted accounting principles (“GAAP”).

The preparation of the consolidated financial statements in conformity with GAAP requires management to

make estimates and assumptions that affect the reported financial statement balances, as well as disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.

Consolidation

Unless otherwise noted, the consolidated financial statements include the accounts of the Company and its

subsidiaries after elimination of intercompany balances and transactions, and relate to continuing operations.
Discontinued operations are reported separately.

Investments

Investment transactions are recorded on their trade date with balances pending settlement included in the

consolidated balance sheets as a receivable for investments disposed of or payable for investments securities acquired
and reported within other assets or other liabilities respectively.

Realized investment gains and losses are determined on the basis of first-in, first-out.

Table of Contents

Fixed Income Securities

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Fixed income securities may include U.S. treasury securities, government agency securities, municipal debt

obligations, residential mortgage backed securities (“RMBS”), commercial mortgage backed securities (“CMBS”),
collateralized loan obligations (“CLO”), asset backed securities (“ABS”) and corporate debt securities.

Fixed income securities categorized as available-for-sale (“AFS”) are reported at estimated fair value and
include those fixed income investments where the Company’s intent to carry such investments to maturity may be
affected in future periods by changes in market interest rates, tax position or credit quality. Unrealized gains and losses,
net of related deferred income taxes, on AFS securities are reflected in accumulated other comprehensive income (loss)
(“AOCI”) in stockholders’ equity.

The cost of fixed income securities is adjusted for the amortization of any purchase premiums and the accretion
of purchase discounts from the time of purchase of the security to its sale or maturity. This amortization of premium and
accretion of discount is recorded in net investment income in the consolidated statements of operations. Any realized
gains or losses resulting from the sale of securities are recognized in realized investment gains (losses), net in the
consolidated statements of operations.

Commercial Levered Loans

The Company’s investment portfolio includes commercial levered loans, which are classified as held-for-

investment and are reported at amortized cost.

Investments in Limited Partnerships and Limited Liability Companies

The Company has elected to carry investments in limited partnerships and limited liability companies at fair

value. Interest income, dividend income and movements in fair value respective to cost basis are recorded as investment
income. The fair values are obtained from statements of net asset value made available by the respective limited
partnerships and limited liability companies.

Short-Term Investments

Short-term investments, which have maturities of one year or less at acquisition, are carried at amortized cost,

which approximates fair value.

Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit with banks and treasury bills with maturities of less than

90 days at acquisition. The Company considers all highly liquid debt instruments with maturities of three months or less
at acquisition to be cash equivalents. Restricted cash consists of escrow funds, trust funds and collateral related to funds
withheld.

Other-Than-Temporary Impairments

Management reviews fixed income securities for other-than-temporary impairments (“OTTI”) based upon

quantitative and qualitative criteria that include, but are not limited to, downgrades in rating agency levels for securities,
the duration and extent of declines in fair value of the security below its cost or amortized cost, interest rate trends, the
Company’s intent to sell or hold the security, market conditions, and the regulatory environment for the security’s issuer.

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The Company may also consider cash flow models and matrix analyses in connection with its OTTI evaluation.
The Company will record credit impairment in the consolidated statements of operations when the present value of cash
flows expected to be collected from the debt security is less than the amortized cost basis of the security. In addition, any
portion of such decline to arise from factors other than credit is recorded as a component of other comprehensive income
(“OCI”).

Fair Values of Financial Instruments

For fixed income securities, quoted prices in active markets are used to determine the fair value. When such

information is not available, as in the case of securities that are not publicly traded, other valuation techniques are
employed. These valuation techniques may include, but are not limited to, using third-party pricing sources (dealer
marks), identifying comparable securities with quoted market prices and using internally prepared valuations based on
certain modeling and pricing methods. For limited partnerships and limited liability companies, the Company utilizes
statements of net asset value made available by the respective limited partnerships and limited liability companies. For
notes payable, the Company takes into consideration, the interest-rate environment for benchmark interest rates, credit
spreads for similar securities, as well as the Company’s rating and financial performance to calculate the fair value.

Premium Recognition

Premiums are reflected in income on a monthly pro rata basis over the terms of the respective policies.

Accordingly, unearned premium reserves are established for the portion of premiums written applicable to unexpired
policies in force. The Company has provided an allowance for uncollectible premiums receivable of $5.1 million and
$4.8 million as of December 31, 2019 and 2018, respectively.

Policy Acquisition Cost Recognition

Policy acquisition costs related to unearned premiums that vary with, and are directly related to, the production
of such premiums are deferred. Furthermore, such deferred costs: (i) represent only incremental, direct costs associated
with the successful acquisition of a new or renewal insurance contract; (ii) are essential to the contract transaction;
(iii) would not have been incurred had the contract transaction not occurred; and (iv) are related directly to the
acquisition activities involving underwriting, policy issuance and processing. Policy acquisition costs, such as brokerage
commissions and premium taxes, and other expenses related to the underwriting process, including their employees’
compensation and benefits, are amortized to expense as the related premiums are earned.

Accounting guidance requires a premium deficiency analysis to be performed at the level an entity acquires,

services, and measures the profitability of its insurance contracts. Currently, the Company determines the sufficiency of
unearned premium net of deferred policy acquisition costs against expected levels of losses and loss adjustment expenses
by line of business. The determination anticipates investment income. To the extent carried unearned premium net of
deferred policy acquisition cost is viewed as deficient, the respective deferred policy acquisition cost is first reduced and,
if needed, a separate deficiency reserve is established.

Reinsurance

The Company’s insurance subsidiaries participate in various reinsurance agreements on both an assumed and

ceded basis. The Company uses various types of reinsurance, including quota share, excess of loss and facultative
agreements, to spread the risk of loss among several reinsurers and to limit its exposure from losses on any one
occurrence. Any recoverable due from reinsurers is recorded in the period in which the related gross liability is
established.

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Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Reinsurance reinstatement premiums are incurred by the Company based upon the provisions of the reinsurance

contracts. In the event of a loss, the Company may be obligated to pay additional reinstatement premiums under its
excess of loss reinsurance treaties. In such instances, the respective reinstatement premium is expensed immediately.

The Company accounts for reinsurance receivables and prepaid reinsurance premiums as assets.

The Company maintains an allowance for doubtful accounts, which includes amounts in dispute, amounts due

from insolvent or financially impaired companies and other balances deemed uncollectible. Management continually
reviews and updates such estimates.

Profit commission revenue derived from reinsurance transactions is recognized when such amounts become

earned as provided in the treaties with the respective reinsurers.

Depreciation

Property, equipment, and leasehold improvements are depreciated over their estimated useful lives, which are
approximately three to seven years. Costs incurred in developing or obtaining software are capitalized and depreciated
on a straight-line basis over their estimated useful lives, which are approximately three to seven years.

Capitalized software as of December 31, 2019 and 2018, had unamortized balances of $33.8 million and

$35.0 million, respectively. Depreciation on capitalized software commences once the software is placed into service.
The Company recorded depreciation expense of $7.0 million, $5.8 million and $5.4 million for the years ended 2019,
2018 and 2017, respectively.

Other depreciable assets, primarily leasehold improvements, as of December 31, 2019 and 2018, had

unamortized balances of $3.3 million and $3.8 million, respectively. The Company recorded depreciation expense
of $1.2 million and $1.5 million and $1.7 million, for the years ended 2019, 2018 and 2017, respectively.

Income Taxes

The Company’s U.S. subsidiaries file a consolidated federal income tax return in the U.S.

The Company provides deferred income taxes on temporary differences between the financial reporting basis

and the tax basis of the Company’s assets and liabilities based upon enacted tax rates. The effect of a change in tax rates
is recognized in income in the period of change. The Company provides for a valuation allowance on certain deferred
tax assets primarily as a result of the uncertainty that the Company can fully utilize all deferred taxes that arose from net
operating losses (NOL) incurred. This uncertainty stems from issues relating to the current economic conditions and
limitations on the period that such losses can be carried forward prior to expiring. To the extent the Company generates
future operating income to offset these losses, it may recover some or the entire amount of the deferred income taxes
associated with temporary differences.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted which reduced the corporate
tax rate from 35% to 21% effective January 1, 2018. This resulted in a re-measurement of the Company’s net deferred
taxes to reflect the new rate at which the deferred items will be realized. The re-measurement of the net deferred tax
asset as another income tax expense resulted in tax effects of items within AOCI, which did not reflect the current
enacted tax rate. As a result, the Company elected to early adopt Accounting Standards Update 2018-02 (“ASU 2018-
02”), Income Statement — Reporting Comprehensive Income at December 31, 2017, by making a one-time adjustment of
$1.6 million to reclassify the stranded tax effects from accumulated other comprehensive income to retained earnings,
that was associated with net unrealized gains on our investment portfolio resulting from the enactment of Tax Reform.

101

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses are a function of the amount and type of insurance contracts the Company

writes, the loss experience associated with the underlying coverage, and the expenses incurred in the handling of the
losses. In general, the Company’s losses and loss adjustment expenses are affected by the frequency of claims associated
with the particular types of insurance contracts, trends in the average size of losses incurred on a particular type of
business, mix of business, changes in the legal or regulatory environment related to the business, trends in legal defense
costs, wage inflation, and inflation in medical costs.

The reserve for loss and loss adjustment expenses includes a provision for both reported claims (case reserves)
and incurred but not reported claims (“IBNR”). IBNR estimates are generally calculated by first projecting the ultimate
cost of all losses that have occurred (expected losses), and then subtracting paid losses, case reserves, and loss expenses.
The reserve for loss and loss adjustment expenses represents management’s best estimate of unpaid losses and loss
adjustment expenses using individual case-basis valuations and statistical analysis that is not discounted, with the
exception of certain workers’ compensation claims. Workers’ compensation reserves for policy years between 2007 and
2019 were discounted at discount rates between 2.85% and 5.00%, for the years ended December 31, 2019 and 2018,
respectively. Carried discounted reserves on these workers’ compensation claims, net of reinsurance, were
$116.9 million and $96.3 million at December 31, 2019 and 2018, respectively. The amount of discount related to
workers’ compensation reserves were $47.4 million and $37.0 million at December 31, 2019 and 2018, respectively.

The Company’s loss reserve review processes use actuarial methods that may vary by line of business. The

actuarial methods used include the following methods:

• Reported Loss Development Method: a reported loss development pattern is calculated based on historical
loss development data, and this pattern is then used to project the latest evaluation of cumulative reported
losses for each accident year or underwriting year, as appropriate, to ultimate levels;

• Paid Development Method: a paid loss development pattern is calculated based on historical paid loss

development data, and this pattern is then used to project the latest evaluation of cumulative paid losses for
each accident year or underwriting year, as appropriate, to ultimate levels;

• Expected Loss Ratio Method: expected loss ratios are applied to premiums earned, based on actuarial

pricing expectation, or historical insurance industry results when company experience is deemed not to be
sufficient; and

• Bornhuetter-Ferguson Method: the results from the Expected Loss Ratio Method are essentially blended

with either the Reported Loss Development Method or the Paid Development Method.

Although considerable variability is inherent in the estimates of reserves for losses and loss adjustment
expenses, management believes the reserve is adequate. The estimates are continually reviewed and adjusted as
necessary as experience develops or new information becomes known. Such adjustments are included in current
operations.

Share-Based Compensation

Entities are required to measure compensation cost for awards of equity instruments to employees based on the

grant-date fair value of those awards and recognize compensation expense over the service period that the awards are
expected to vest. The Company records compensation costs on a straight-line basis over the vesting period of all awards
except when an award requires accelerated recognition. The Company does not apply a forfeiture rate to unvested
awards and accounts for forfeitures as they occur. Stock-based compensation expense related to long-term incentive

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Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

awards and director restricted stock units (“RSUs”) are included in general and administrative expenses in the
Company’s consolidated statements of operations. Stock-based compensation expense related to supplemental RSUs and
founders grant awards are included in other expenses in the Company’s consolidated statements of operations.

Goodwill and Net Intangible Assets

Goodwill represents the excess of the cost of acquiring a business enterprise over the fair value of the net assets

acquired. Goodwill is deemed to have an indefinite life and is not amortized, but rather tested annually, in the fourth
quarter, for impairment. A quantitative goodwill impairment analysis is performed if an annual qualitative analysis
indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Finite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived other intangible

assets are tested for impairment annually, in the fourth quarter, or when certain triggering events require such tests.

Earnings Per Share

Basic earnings per share of common stock is based on the weighted-average number of shares of outstanding

common stock, par value $0.01 per share, of the Company (“Common Stock”) during the period, and vested RSUs.
Vested RSUs awaiting conversion into common stock were 906,182 for the year ended December 31, 2019, 548,292 for
the year ended December 31, 2018 and 517,446 for the year ended December 31, 2017. Diluted earnings per share of
Common Stock are based on those shares used to calculate basic earnings per share of Common Stock plus the dilutive
effect of unvested stock-based compensation awards. Basic and diluted earnings per share are calculated by dividing net
income by the applicable weighted-average number of shares outstanding during the period. The Company did not
declare any stock dividends for the years ended December 31, 2019, 2018 and 2017.

Reclassifications

All share and per share amounts in the financial statements, related notes and schedules have been restated for
all historical periods prior to and including June 30, 2019, presented to give effect to the merger and related conversion
of shares, including reclassifying an amount equal to the change in value of common stock to additional paid-in capital,
as well as the effectiveness of the Certificate of Incorporation.

3. Recently Adopted Accounting Standards

Accounting Guidance Adopted

In October 2016, the FASB issued ASU 2016-16, Income Taxes, Intra-Entity Transfers of Assets Other Than
Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an
asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. ASU
2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the period of adoption. For the Company, ASU 2016-16 is effective for annual periods
beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. ASU
2016-16 is effective for public entities for annual periods beginning after December 15, 2017, including interim periods

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Notes to Consolidated Financial Statements

within those annual periods. The Company adopted ASU 2016-16 in the fourth quarter of 2019 and it did not have a
material impact on its financial condition and results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall, Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 provides guidance to improve certain aspects
of recognition, measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires
equity investments to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment; (iii) eliminates the requirement to disclose the methods and significant assumptions
used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost;
(iv) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure
purposes; and (v) clarifies that the need for a valuation allowance on a deferred tax asset related to an AFS security
should be evaluated with other deferred tax assets. The Company shall apply ASU 2016-01 by means of a cumulative-
effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. ASU 2016-01 is effective for
public entities for annual periods beginning after December 15, 2017, including interim periods within those annual
periods. For the Company, ASU 2016-01 is effective for annual periods beginning after December 15, 2018 and interim
periods within annual periods beginning after December 15, 2019. The Company adopted ASU 2016-01 in the fourth
quarter of 2019 and it did not have a material impact on its financial condition and results of operations.

Accounting Guidance Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases to improve the financial reporting of leasing
transactions. Under this ASU, lessees will recognize a right-of-use asset and corresponding liability on the balance sheet
for all leases, except for leases covering a period of fewer than 12 months. The liability is to be measured as the present
value of the future minimum lease payments taking into account renewal options if applicable plus initial incremental
direct costs such as commissions. The minimum payments are discounted using the rate implicit in the lease or, if not
known, the lessee’s incremental borrowing rate. The lessee’s income statement treatment for leases will vary depending
on the nature of what is being leased. A financing type lease is present when, among other matters, the asset is being
leased for a substantial portion of its economic life or has an end-of-term title transfer or a bargain purchase option as in
today’s practice. The payment of the liability set up for such leases will be apportioned between interest and principal;
the right-of use asset will be generally amortized on a straight-line basis. If the lease does not qualify as a financing type
lease, it will be accounted for on the income statement as rent on a straight-line basis. ASU 2016-02 requires the
application of a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. ASU 2016-02 is effective for public entities for annual periods
beginning after December 15, 2018, including interim periods within those annual periods with early adoption permitted.
For the Company, ASU 2016-02 is effective for annual periods beginning after December 15, 2019 and interim periods
within annual periods beginning after December 15, 2020. The Company will adopt ASU 2016-02 in the first quarter of
2020, and expects to recognize, at adoption, a right-of-use asset of $6.8 million and a corresponding lease liability of
$6.8 million in continuing operations. The Company expects to recognize, at adoption, a right-of-use asset of $2.6
million and a corresponding lease liability of $2.6 million in discontinued operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 will change the way entities recognize impairment of financial assets by
requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial
assets, including, among others, held-to-maturity debt securities, trade receivables, and reinsurance receivables. ASU
2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the
financial statements net of the valuation allowance. The valuation allowance is a measurement of expected losses that is
based on relevant information about past events, including historical experience, current conditions, and reasonable and
supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current
expected credit loss model. ASU 2016-13 is effective for public entities for annual periods beginning after December 15,

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Notes to Consolidated Financial Statements

2019, including interim periods within those annual periods with early adoption permitted. For the Company,
ASU 2016-13 is effective for annual periods beginning after December 15, 2022 including interim periods within these
annual periods. The Company will adopt ASU 2016-13 in the first quarter of 2020 and does not currently believe that the
implementation will have a material impact to the Company’s financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework — Changes
to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair
value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons
for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between
levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure
requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for
recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted
average of significant observable inputs used to develop Level 3 fair value measurements. This update shall be applied
retrospectively and is effective for all entities annual and interim periods beginning after December 15, 2019, with early
adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-13 will not impact the
Company’s financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement
that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software. ASU 2018-15 provides the option to apply prospectively to costs for activities performed on or
after the date that the entity first adopts or retrospectively in accordance with guidance on accounting changes. This
update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. For
the Company, ASU 2018-15 is effective for annual periods beginning after December 15, 2020 and interim periods
within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of this
guidance on its financial condition and results of operations.

4. Statements of Cash Flow

Supplemental cash flow information for the years ended December 31, 2019, 2018 and 2017, is as follows:

($ in thousands)
Cash paid (received) during the period for:

Interest
Federal income tax

2019

December 31
2018

2017

$ 12,865 $ 12,377 $ 12,125
227

135

(780)

In 2019, there was a conversion of 59,169 RSUs into common shares accounted for as a non-cash transaction.

5. Goodwill and Net Intangibles Assets

On November 23, 2010, the Company acquired 100% of NYMAGIC, Inc.’s outstanding common stock for a

cash price of $25.75 per share or approximately $231.9 million. The acquisition of NYMAGIC, Inc. provided a platform
for which the Company could issue insurance policies. The fair value of net assets acquired amounted to $220.0 million
after fair value adjustments of $9.5 million. The cash purchase price paid in excess of the fair value of net assets
acquired was equal to goodwill of $11.9 million.

Intangible assets acquired include the value of licenses, trade names, agency relationships, non-compete
agreements, renewal rights, and valuation of business acquired. Intangible assets acquired included $17.1 million, which

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Notes to Consolidated Financial Statements

are not subject to amortization, and $13.6 million that amortizes over a period of 2 to 15 years. Of the $13.6 million
intangible assets acquired, $0.2 million remain to be amortized at December 31, 2019.

Goodwill and other intangible assets not subject to amortization are tested for impairment annually, in the

fourth quarter. As of December 31, 2019, there was no impairment of goodwill or other intangible assets not subject to
amortization.

($ in thousands)
December 31, 2017
Amortization
December 31, 2018
Amortization
December 31, 2019

Goodwill Other Intangibles Total
$ 11,911 $

—

$ 11,911 $

—

$ 11,911 $

17,338 $ 29,249
30
17,308 $ 29,219
30
17,278 $ 29,189

The status of the goodwill and net intangible assets is presented in the following tables:

($ in thousands)
December 31, 2019
Goodwill
State licenses
Other
Net balance
December 31, 2018
Goodwill
State licenses
Other
Net balance

Gross

Accumulated
Amortization

Net

Useful Life

$ 11,911 $
17,100
208

$ 29,219 $

— $ 11,911 Indefinite
—
17,100 Indefinite
(30)
(30) $ 29,189

178 15 years

$ 11,911 $
17,100
2,452
$ 31,463 $

— $ 11,911 Indefinite
—
17,100 Indefinite
(2,244)
(2,244) $ 29,219

208 Varies up to 15 years

The estimated amortization of intangible assets for the next five years is as follows:

($ in thousands)
2020
2021
2022
2023
2024

6. Discontinued Operations

30
30
30
30
30
150

Prior to April 1, 2017, the Company also conducted business in the United Kingdom (“U.K.”) through certain

subsidiaries of PSIH, which was incorporated in 2011 as a Bermuda holding company.

PSIH acquired several entities in the U.K. in order to build Lloyd’s Syndicate 1110 (“Syndicate”). The

Company changed its strategic direction with respect to its U.K. operations and placed the Syndicate into run-off. The
Company then entered into a two-phase sale transaction to exit its U.K. operations, which closed in October 2017 and
March 2018. There was no gain or loss recognized from the sale of the U.K. operations.

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Notes to Consolidated Financial Statements

In terms of the sale agreement, the Company will continue to meet Funds at Lloyd’s (“FAL”) obligations with

respect to the Syndicate. In that regard, at December 31, 2019, the Company deposited cash and securities of
$10.4 million and arranged for placement $23.2 million in Letters of Credit and securities.

As part of the Company’s exit from the insurance market in U.K., all of the Syndicate’s reinsurance of the

Company’s U.S. based insurance companies was commuted, and business sourced by PSIB to the Syndicate was
reinsured back to the Company’s U.S. based insurance subsidiaries via 100% quota share reinsurance provided by New
York Marine.

In connection with the above sale, the Company provided Aggregate Stop Loss reinsurance protection for

development of the Syndicate covered reserves for which the Company has a liability of $24.0 million and $13.3 million
as of December 31, 2019 and 2018, respectively. Additionally and also effective April 1, 2017, the Company assumed
fully future and in force obligations of the Syndicate with respect to business underwritten by the Company’s U.S. based
operations on Syndicate paper.

Prior to its exit from the U.K. insurance market, the Company assigned functional currencies to its foreign

operations, which are generally the currencies of the local operating environment. Foreign currency amounts are
remeasured to the functional currency, and the resulting foreign exchange gains or losses are reflected in earnings,
except for foreign currency translation differences that arise in conjunction with the recognition of unrealized gains or
losses on AFS investments which are recognized in OCI. Functional currency amounts are then translated into U.S.
dollars. The foreign currency remeasurement and translation are calculated using current exchange rates for items
reported in the balance sheets and average exchange rates for items recorded in earnings. The resulting foreign currency
translation gain or loss during the year, is a component of OCI. A foreign transaction gain of $4.6 million was recorded
for the year ended December 31, 2017. These amounts are included in the net loss from discontinued operations in the
consolidated statements of operations for the year ended December 31, 2017.

Loss from discontinued operations, net of taxes in its consolidated statements of operations are comprised of the

following:

($ in thousands)
Revenues
Net earned premiums
Net investment income
Realized investment gains, net
Other income
Total revenue

Expenses
Net losses and loss adjustment expenses incurred
Policy acquisition expenses
General and administrative expenses
Interest expense
Foreign exchange gains
Other expense
Total expenses
Loss from discontinued operations before income taxes
Income tax benefit
Net (loss) income from discontinued operations

107

Years Ended December 31
2018

2019

2017

611 $
142
1,267
—
2,020

1,173 $
514
830
338
2,855

49,233
2,717
14,329
—
66,279

10,463
218
57
—
—
—
10,738
(8,718)
(2,114)
(6,604) $

11,197
401
(8,401)
218
—
—
3,415
(560)
(1,374)

50,787
9,544
27,533
1,648
(4,570)
19,105
104,047
(37,768)
(679)
814 $ (37,089)

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following represents the carrying amounts of assets and liabilities associated with the exit from the

insurance market in the U.K. reported as discontinued operations in its consolidated balance sheets:

($ in thousands)
Assets
Total cash and investments
Other assets
Total assets

Liabilities
Unpaid losses and loss adjustment expenses
Other liabilities
Total liabilities

7. Investments

December 31

2019

2018

$ 10,428 $ 10,436
9,283
$ 21,584 $ 19,719

11,156

$ 24,169 $ 14,030
8,226
$ 31,578 $ 22,256

7,409

Fixed income securities may include U.S. Treasury securities, government agency securities, municipal debt

obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.

(a) A summary of the Company’s investment components is presented below:

($ in thousands)
Fixed income securities, AFS (fair value):
U.S. Treasury securities
Government agency securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS – non-agency
RMBS – agency
Total fixed income securities, AFS
Short-term investments
Commercial levered loans (amortized cost)
Limited partnerships and limited liability companies (fair value)
Total investments

December 31

2019

2018

49,985
6,531
1,338,812
79,815
73,582
179,549
97,526
71,610
143,272
2,040,682
43,873
14,069
66,660
$ 2,165,284

2.3 % $ 90,328
0.3 %
-
61.8 % 1,192,430
3.7 %
6,085
3.4 %
83,581
8.3 % 156,913
4.5 %
53,843
3.3 %
79,551
6.6 %
30,651
94.2 % 1,693,382
2.0 %
36,661
0.7 %
16,915
3.1 %
53,432
100.0 % $ 1,800,390

5.0 %
‐ %
66.3 %
0.3 %
4.7 %
8.7 %
3.0 %
4.4 %
1.7 %
94.1 %
2.0 %
0.9 %
3.0 %
100.0 %

At December 31, 2019 and 2018, 91.1% and 85.0% of the fair value of the Company’s fixed income portfolios
were considered investment grade, respectively. The Company held approximately $181.0 million and $259.3 million in
fixed income securities that were below investment grade as of December 31, 2019 and 2018, respectively.

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Notes to Consolidated Financial Statements

(b) The gross unrealized gains and losses on AFS securities included in assets from continuing operations at

December 31, 2019, are as follows:

($ in thousands)
Fixed income securities:
U.S. Treasury securities
Government agency securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non-agency
RMBS - agency

Total fixed income securities

Cost/
Amortized
Cost

Gross
Unrealized Unrealized

Gross

Gains

Losses

Fair
Value

(14) $
(14)

838 $
23

49,161 $
6,522

49,985
6,531
1,308,094 33,743 (3,025) 1,338,812
(766)
79,815
243
73,582
854
(340)
179,549
125 (2,280)
97,526
(147)
71,610
(191)
143,272
(347)
$ 1,999,403 $ 48,403 $ (7,124) $ 2,040,682

80,338
73,068
181,704
95,810
62,343
142,363

1,863
9,458
1,256

The gross unrealized gains and losses on AFS securities included in assets from continuing operations at

December 31, 2018, are as follows:

($ in thousands)
Fixed income securities:
U.S. Treasury securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non-agency
RMBS - agency

Total fixed income securities

Cost/
Amortized
Cost

Gross
Unrealized Unrealized

Gross

Gains

Losses

Fair
Value

126 $ (2,017) $

90,328
$
92,219 $
1,216 (40,138) 1,192,430
1,231,352
6,085
(153)
—
6,238
83,581
(117)
1,095
82,603
156,913
(4,668)
160
161,421
53,843
(2,137)
55,980
—
79,551
(121)
68,594 11,078
30,651
(697)
—
31,348
$ 1,729,755 $ 13,675 $ (50,048) $ 1,693,382

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Notes to Consolidated Financial Statements

value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

Less Than 12 Months

Greater Than 12 Months

Total

($ in thousands)
U.S. Treasury securities
Government agency securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non-agency
RMBS - agency
Total

Unrealized
Losses

Total
Fair Value

Total
Unrealized

Losses

Fair
Value

Unrealized

Losses

Fair
Value
7,469 $
—
50,695
—
11,165

— $

— $
(14)

(14) $
—

3,192
133,341
66,355
27,884
28,485
18,307
2,173
10,450

(14)
7,469 $
(14)
3,192
(2,509)
(516) 184,036 (3,025)
(766)
—
(766)
66,355
(340)
(165)
(175)
39,049
(338) 110,825 (1,942) 139,310 (2,280)
(147)
(102)
(191)
(14)
(347)
(12)
$ 290,187 $ (3,930) $ 200,992 $ (3,194) $ 491,179 $ (7,124)

24,360
4,591
22,817

6,053
2,418
12,367

(45)
(177)
(335)

The following table summarizes all securities in an unrealized loss position at December 31, 2018, the fair

value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

Less Than 12 Months

Greater Than 12 Months

Total

($ in thousands)
U.S. Treasury securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non-agency
RMBS - agency
Total

Fair
Value

Unrealized
Losses

Total
Fair Value

Total
Unrealized

Losses

Unrealized

Losses

Fair
Value
8,263 $

(82) $ 69,727 $ (1,935) $

77,990 $ (2,017)
(10,241) 710,482 (29,897) 1,104,413 (40,138)
(153)
(117)
(4,668)
(2,137)
(121)
(697)
$ 601,135 $ (15,578) $ 850,337 $ (34,470) $ 1,451,472 $ (50,048)

393,931
—
25,258
146,004
—
529
27,150

6,085
29,507
146,004
53,843
2,978
30,652

6,085
4,249
—
53,843
2,449
3,502

(153)
(56)
—
(2,137)
(108)
(184)

—
(61)
(4,668)
—
(13)
(513)

The Company was holding 313 and 708 fixed income securities that were in an unrealized loss position at

December 31, 2019 and 2018, respectively. The Company believes these unrealized losses are temporary, as they
resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit
risk related. OTTI charges are recognized as a realized loss to the extent that they are credit related, unless the Company
has the intent to sell the security or it is more-likely-than not that the Company will be required to sell the security. In
those circumstances, the security is written down to fair value with the entire amount of the write-down charged to
earnings as a component of realized losses. The Company did not record any OTTI charges for the year ended December
31, 2019 and $1.5 million of OTTI charges for the year ended December 31, 2018, respectively, in the consolidated
statements of operations.

(d) The amortized cost and fair value of fixed income securities, which excludes the Company’s structured
securities portfolio, at December 31, 2019, by contractual maturity are shown below. Expected maturities will differ

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Notes to Consolidated Financial Statements

from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.

December 31, 2019

($ in thousands)
Due in one year or less
Due after one through five years
Due after five through ten years
Due after ten years

Structured securities:

ABS
CLO
CMBS
RMBS - non-agency
RMBS - agency

Totals

Amortized
Cost
99,035 $
679,649
507,803
157,628

Fair
Value
99,326
692,219
523,276
160,322
1,444,115 1,475,143

73,068
181,704
95,810
62,343
142,363

73,582
179,549
97,526
71,610
143,272
$ 1,999,403 $ 2,040,682

The Company did not have any non-income producing fixed income investments for the years ended December

31, 2019 or 2018, respectively.

(e) The Company elected to account for its investments in limited partnership and limited liability companies
of $66.7 million and $53.4 million at December 31, 2019 and 2018, respectively, at fair value. Changes in fair value of
such investments are recorded in the consolidated statements of operations within net investment income. The largest
investment within the portfolio is the Pacific Investment Management Company LLC Tactical Opportunities fund, which
is carried at $36.6 million at December 31, 2019.

The carrying values used for investment in limited partnerships and limited liability companies generally are
established on the basis of the valuations provided monthly or quarterly by the managers of such investments. These
valuations are determined based upon the valuation criteria established by the governing documents of such investments
or utilized in the normal course of such manager’s business, which are reflective of fair value. Such valuations may
differ significantly from the values that would have been used had available markets for these investments existed and
the differences could be material.

The Company’s strategies for its investments in limited partnerships and limited liability companies include
investments funds that employ diverse and fundamentally driven approach to investing which includes effective risk
management, hedging strategies and leverage. The portfolio of investments in limited partnerships and limited liability
companies consists of common stocks, real estate assets, options, swaps, derivative instruments and other structured
products.

The limited partnerships and limited liability companies in which the Company invests sometimes impose

limitations on the timing of withdrawals from the funds. The Company’s inability to withdraw its investment quickly
from a particular limited partnership or a limited liability company that is performing poorly could result in losses and
may affect liquidity. All of the Company’s limited partnerships and limited liability companies have timing limitations.
Most limited partnerships and limited liability companies require a 90-day notice period in order to withdraw funds.
Some limited partnerships and limited liability companies may require a withdrawal only at the end of their fiscal year.
The Company may also be subject to withdrawal fees in the event the limited partnerships and limited liability
companies is sold within a minimum holding period, which may be up to one year. Many limited partnerships and
limited liability companies have invoked gated provisions that allow the fund to disperse redemption proceeds to

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investors over an extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds
from limited partnerships and limited liability companies.

(f) The Company invests in commercial loans, which are private placements. Loans are reported at the

principal amount outstanding, reduced by unearned discounts, net deferred loan fees, and an allowance for loan losses.
Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. The allowance
for loan losses related to impaired loans is determined based on the difference of the carrying value of loans and the
present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the loan’s
observable market price. There was no allowance for loan losses at December 31, 2019 and 2018, respectively.

(g) Proceeds from sales and redemptions in AFS securities totaled $302.9 million, $255.2 million and $977.0

million for the years ended December 31, 2019, 2018 and 2017 respectively. Gross realized gains from sales and
redemptions in AFS securities totaled $1.4 million, $0.6 million, and $5.8 million for the years ended December 31,
2019, 2018 and 2017, respectively. Gross realized losses from sales and redemptions of AFS investments totaled
$0.7 million, $2.2 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(h) Net investment income included in net income (loss) from continuing operations in the consolidated

statements of operations from each major category of investments for the years ended December 31, 2019, 2018 and
2017, is as follows:

($ in thousands)
Fixed income securities
Commercial levered loans
Net limited partnerships gains
Other
Total investment income
Less: investment income attributable to funds withheld
liabilities
Less: expenses
Net investment income

2019

2018

2017

$ 66,975 $ 55,765 $ 33,467
1,153
3,240
216
38,076

1,114
1,081
176
71,199 58,136

765
3,101
358

(655)

—
(912)
(1,647) (1,253)
(1,880)
$ 68,897 $ 55,971 $ 36,196

(i) Included in investments at December 31, 2019 and 2018, are securities required to be held by the Company

(or those that are on deposit) with various regulatory authorities as required by law with a fair value of $210.8 million
and $188.6 million, respectively. Fair value and carrying value of assets in the amount of $367.1 million and
$352.0 million, respectively, were on deposit in collateral agreements at December 31, 2019. Fair value and carrying
value of assets in the amount of $358.5 million and $368.0 million, respectively, were on deposit in collateral
agreements at December 31, 2018.

(j) The investment portfolio has exposure to market risks, which include the effect of adverse changes in

interest rates, credit quality, limited partnership value and illiquid securities, including commercial loan values, on the
portfolio. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates.
Credit quality risk includes the risk of default by issuers of debt securities. Risks from investments in limited
partnerships and limited liability companies and illiquid securities risks include the potential loss from the diminution in
the value of the underlying investment of the limited partnerships and limited liability companies and the potential loss
from changes in the fair value of commercial loans.

8. Fair Value Measurements

The Company has established a framework for valuing financial assets and financial liabilities. The framework

is based on a hierarchy of inputs used in valuation and gives the highest priority to quoted prices in active markets and

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Notes to Consolidated Financial Statements

requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the
hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the
hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets
and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard
describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the
hierarchy:

As of December 31, 2019 and 2018, the Company does not hold any Level 1 securities.

Level 2 — Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the asset through corroboration with
observable market data. Level 2 inputs include quoted market prices in active markets for similar assets,
nonbinding quotes in markets that are not active for identical or similar assets and other market observable
inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).

The Company’s Level 2 assets include U.S. Treasury securities, government agency securities, municipal debt

obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.

The Company generally obtains valuations from third-party pricing services and/or security dealers for identical

The Company’s Level 3 assets include its investments in corporate debt securities and commercial levered

loans as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level
of trades of such investments. Commercial levered loans are also not considered within the Level 3 tabular disclosure,
because they are in the “held for investment” category and are also not measured at fair value on a recurring basis.

The corporate debt securities classified under Level 3 in the fair value hierarchy are provided to the Company
by an independent valuation service provider which use both observable and unobservable inputs in the calculation of
fair value. Unobservable inputs, significant to the measurement and valuation of the corporate debt securities are
assumptions about prepayment speed, default rates and reinvestment parameters. Significant changes to any of these
inputs, or combination of inputs, could significantly change the fair value measurement for these securities when using
the income approach.

The primary pricing sources for the Company’s investments in commercial levered loans are reviewed for

reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using
valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on
nonbinding quotes from brokers or other market makers.

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Notes to Consolidated Financial Statements

The following are the major categories of assets measured at fair value on a recurring basis at December 31,
2019 and 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs
(Level 2), and significant unobservable inputs (Level 3):

($ in thousands)
Fixed income securities:
U.S. Treasury securities
Government agency securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non agency
RMBS - agency

Total fixed income securities

December 31, 2019

Significant
Quoted Prices in
Active Markets for Observable Unobservable

Significant
Other

Identical Assets
(Level 1)

Inputs
(Level 2)

Inputs
(Level 3)

Total

— $
—

49,985 $
6,531

49,985
— $
6,531
—
149,631 1,338,812
— 1,189,181
79,815
79,815
—
73,582
73,582
—
179,549
179,549
—
97,526
97,526
—
71,610
—
71,610
—
143,272
143,272
— $ 1,891,051 $ 149,631 2,040,682

—
—
—
—
—
—

Investments measured at net asset value:

Limited partnerships and limited liability companies

Total assets at fair value

66,660
$ 2,107,342

($ in thousands)
Fixed income securities:
U.S. Treasury securities
Corporate debt securities
Municipal debt obligations
ABS
CLO
CMBS
RMBS - non agency
RMBS - agency

Total fixed income securities

December 31, 2018

Quoted Prices in
Significant
Active Markets for Observable Unobservable

Significant
Other

Identical Assets
(Level 1)

Inputs
(Level 2)

Inputs
(Level 3)

Total

— $

126,497

90,328 $
1,065,933
6,085
83,581
156,913
53,843
79,551
30,651

90,328
— $
1,192,430
—
6,085
—
83,581
—
156,913
—
53,843
—
79,551
—
—
30,651
— $ 1,566,885 $ 126,497 1,693,382

—
—
—
—
—
—

Investments measured at net asset value:

Limited partnerships and limited liability companies

Total assets at fair value

53,432
$ 1,746,814

There were no transfers between Levels 1 and 2 for the years ended December 31, 2019 and 2018.

In 2018, securities in the amount of $126.5 million were transferred from Level 2 into Level 3 as it was

determined that these securities trade in inactive markets.

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Notes to Consolidated Financial Statements

Management believes that the use of the fair value option as specified in Accounting Standards Codification

No. 825, Financial Instruments (ASC 825) to record limited partnerships is consistent with its objective for such
investments. As such, the entire limited partnership portfolio of $66.7 million and $53.4 million at December 31, 2019
and 2018, was recorded using net asset value, which the Company has determined to be the best indicator of fair value
for these investments.

The following tables disclose the carrying value and fair value of financial instruments that are not recognized

or are not carried at fair value in the consolidated balance sheets as of December 31, 2019 and 2018:

($ in thousands)
Assets
Commercial levered loans

Liabilities
Notes payable
Unamortized debt issuance costs
Total notes payable

($ in thousands)
Assets
Commercial levered loans

Liabilities
Notes payable
Unamortized debt issuance costs
Total notes payable

Carrying

December 31, 2019

Fair Value

Value

Total

Level 1 Level 2

Level 3

$ 14,069 $ 13,950 $

— $

— $ 13,950

165,000 167,507

— 167,507

—

(307)
$ 164,693

Carrying

December 31, 2018

Fair Value

Value

Total

Level 1 Level 2

Level 3

$ 16,915 $ 15,858 $

— $

— $ 15,858

183,000 183,999

— 183,999

—

(645)
$ 182,355

The fair value of the notes payable at December 31, 2019, approximated a price equal to $167.5 million or

101.5% of the par value. The fair value of the notes payable at December 31, 2018, approximated a price equal to
$184.0 million or 100.5% of the par value.

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Notes to Consolidated Financial Statements

The following table provides a summary of the changes in the fair value of securities measured using Level 3

inputs:

($ in thousands)
Fair value, December 31, 2017
Total net (losses) gains for the period included in:
OCI
Net realized loss
Purchases
Sales
Issuances
Settlements
Transfers into Level 3
Transfers out of Level 3
Fair value, December 31, 2018
Total net (losses) gains for the period included in:
OCI
Net realized loss
Purchases
Sales
Issuances
Settlements
Transfers into Level 3
Transfers out of Level 3
Fair value, December 31, 2019

Level 3
Corporate Debt
Securities

—

764
(9)
9,492
—
—
(2,754)
119,004
—
126,497

3,011
(5)
23,905
—
—
(3,777)
—
—
149,631

9. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of AOCI:

($ in thousands)
December 31, 2016
Unrealized holding gains (losses) on fixed income securities
Cumulative translation adjustment
Amounts reclassified into net loss
Other comprehensive (loss) income
Reclassification of stranded deferred taxes
December 31, 2017
Unrealized holding losses on fixed income securities
Amounts reclassified into net income
Other comprehensive loss
December 31, 2018
Unrealized holding gains on fixed income securities
Amounts reclassified into net income
Other comprehensive income
December 31, 2019

Gross
30,630 $
3,517
6,881
18,763
(8,365)
—
22,265
(53,582)
(1,557)
(52,025)
(29,760)
77,920
2,037
75,883
46,123 $

Tax
1,148 $
4,874
—
1,471
3,403
(1,583)
2,968
(10,842)
(429)
(10,413)
(7,445)
16,277
162
16,115
8,670 $

Net
29,482
(1,357)
6,881
17,292
(11,768)
1,583
19,297
(42,740)
(1,128)
(41,612)
(22,315)
61,643
1,875
59,768
37,453

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Notes to Consolidated Financial Statements

The following table presents reclassifications out of AOCI attributable to the Company during 2019, 2018 and

2017:

($ in thousands)
AOCI
Unrealized gains on securities

Total reclassifications

10. Related-Party Information

Line in Consolidated
Statements of Operations

Realized investment gains (losses), net $
Income tax expense (benefit)

2019

2018

2017

2,037 $ (1,557) $ 18,763
1,471
(429)
1,875 $ (1,128) $ 17,292

162

Loans to Executives and Equity Distribution

The Company made loans of $4.2 million to certain executive officers, including the CEO. Most of the loans
were made in connection with the settlement of RSUs and related tax withholding. On March 15, 2019, all such loans
were deemed repaid. On the same date, a special equity distribution of $4.2 million was made by the Company to the
same executive officers, which was accounted for as a non-cash transaction on the Company’s consolidated balance
sheets.

Transition and Separation Agreement

On May 3, 2019, the Company entered into a Transition and Separation Agreement (the “Separation
Agreement”) with its former Chief Executive Officer (the “former CEO”). Under the Separation Agreement, the former
CEO and the Company agreed to a general release of claims and his compliance with the restrictive covenants. The
Company recorded an expense of $8.0 million within Other Expense in the consolidated statements of operations for the
year ended December 31, 2019 relating to the severance payments and benefits payable to the former CEO. Per the terms
of the Separation Agreement, the former CEO’s profit interests (“P Shares”) were forfeited and outstanding RSUs are
treated in accordance with the terms of the applicable award agreements. Additionally, the Company cancelled 137,987
shares of common stock in July 2019 with no consideration as per the terms of the Separation Agreement.

Investment Advisory Agreements with GSAM

The Company’s investment portfolio is managed by Goldman Sachs Asset Management, a related party. The

Company is an investee of PI, which is held as an investment within GS Capital Partners VI funds. Related fees paid
were $1.3 million, $1.1 million and $1.7 million in 2019, 2018 and 2017 respectively.

11. Insurance Operations

Reinsurance Transactions

The Company’s reinsurance agreements do not relieve its direct obligations to insureds. Thus, a credit exposure

exists to the extent that any reinsurer fails to meet its obligations to the Company.

The reinsurers with the three largest uncollateralized obligations to the Company at December 31, 2019, were

the Swiss Reinsurance America Corporation, Munich Reinsurance America Inc. and Harco National Insurance
Company, which represented 31.3%, 14.2% and 9.0%, respectively, of the Company’s reinsurance recoverables, net of
funds held and collateral. Swiss Reinsurance America Corporation and Munich Reinsurance America Inc. and are rated
A+ (Superior) by A.M. Best Company. Harco National Insurance Company is rated A- (Excellent) by A.M. Best
Company.

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Notes to Consolidated Financial Statements

Collateral for reinsurance receivables is generally only pursued by the Company when the reinsurer’s status

with the regulators of the Company’s domicile would not otherwise permit credit for reinsurance for regulatory reporting
purposes.

Reinsurance receivables included an allowance for uncollectible reinsurance receivables of $10.9 million and

$10.0 million, for the years ended December 31, 2019 and 2018, respectively.

In connection with the divestment of the Company’s U.K. business, New York Marine as reinsured entered into

whole account quota share agreements (“WAQS”) with third party reinsurers to maintain reasonable underwriting
leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K.
divestment.

The effective date of the WAQS was April 1, 2017. The reinsurers’ ceding participation is an aggregate 26.0%.
A provisional ceding commission of 30.0% to 30.5% is received as a reduction in the amount of ceded premium. Subject
to limits, these ceding commissions will vary in subsequent periods based on contractual ultimate loss ratios.

During 2018 and following the transition of the U.S. business back to New York Marine, the WAQS were

terminated. To the extent of unearned premium at the time of termination, ceded written premiums, net of the ceding
commission, was returned. Reserve for unpaid losses and loss adjustment expenses on premium earned prior to the cut-
off termination remained in reinsurance receivables on unpaid losses on the consolidated balance sheets. The reinsurance
receivables on unpaid losses under the WAQS were $33.1 million and $43.7 million as of December 31, 2019 and 2018,
respectively. Loss reserve development on the reserves ceded under the WAQS is included in continuing operations.

For the years ended December 31, 2019 and 2018 under the WAQS the Company recorded the following:

($ in thousands)
(Return of ceded prepaid) ceded written premium
Ceded earned premium
(Increase) reduction to net loss and loss adjustment
expenses incurred
Reduction to policy acquisition expenses
Reduction to pre-tax income

2019

2018

2017

(3) $ (58,857) $ 160,779
87,362
14,560
(3)

(4,746)
4,743
— $

9,514
3,955
1,091 $

51,897
29,560
5,905

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Notes to Consolidated Financial Statements

Total reinsurance ceded and assumed relating to premiums written, earned premiums and net losses and loss

adjustment expenses incurred for the years ended December 31, 2019, 2018 and 2017 are as follows:

($ in thousands)
Written premiums
Direct written premiums
Assumed from other companies
Ceded to other companies
Net written premiums

Earned premiums
Direct earned premiums
Assumed from other companies
Ceded to other companies
Net earned premiums
Percent of amount assumed to net

Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred
Assumed from other companies
Ceded to other companies
Net losses and loss adjustment expenses incurred

2019

2018

2017

$ 964,512 $ 889,526 $ 833,536
2,798
3,499
115,871
276,048
$ 852,140 $ 850,074 $ 560,286

5,586
45,038

3,887 10,266
114,751 123,715

$ 918,718 $ 844,234 $ 788,862
2,477
181,553
$ 807,854 $ 730,785 $ 609,786
0.4%

1.4%

0.5%

9,298

$ 556,051 $ 485,770 $ 483,209
720
90,188
$ 501,025 $ 434,830 $ 393,741

(3,209)
64,324 47,731

In 2016, the Company entered a retroactive reinsurance agreement with an authorized reinsurer covering
accident year 2015 and prior Primary and Excess Workers’ Compensation net losses and loss adjustment expenses
incurred. Subject carried reserves at the January 1, 2016 effective date were $306.4 million. The reinsurance provides
$100.0 million limit on respective paid losses excess of $315.0 million retention. The reinsurance cover has a
retrospective rating feature of $47.6 million of additional premium accumulating at approximately 3% per annum. This
amount is 100% recoverable to the Company to the extent losses do not exceed the retention. At December 31, 2019, the
Company’s estimate of respective loss development remains below the retention.

In 2017, the Company entered into a retroactive reinsurance agreement for the 2016 accident year. Subject

carried reserves at the January 1, 2017 effective date were $96.5 million. The reinsurer provides a $35.0 million limit on
respective paid losses in excess of $106.5 million. The reinsurance cover has a retrospective rating feature
of $18.0 million of premium accumulating at approximately 4% per annum. These amounts are 100% recoverable to the
Company to the extent losses do not exceed the retention. At December 31, 2019, the Company’s estimate of respective
loss development remains below the retention and the adjustable premium is accrued as fully recoverable.

In 2018, the Company entered into a retroactive reinsurance agreement for the 2017 accident year. Subject

carried reserves at the January 1, 2018 effective date were $107.8 million. The reinsurer provides a $40.0 million limit
on respective paid losses in excess of $119.3 million. The reinsurance cover has a retrospective rating feature
of $21.0 million of premium accumulating at approximately 4% per annum. These are 100% recoverable to the
Company to the extent losses do not exceed the retention. At December 31, 2019, the Company’s estimate of respective
loss development remains below the retention and the adjustable premium is accrued as fully recoverable.

Distribution Partners

The Company negotiates with distribution partners to write direct premium on behalf of the Company’s

affiliates. In January 2019, a distribution partner of the Company was acquired by a third-party insurance carrier. The
Company has sourced 7.1% and 13.5% of direct premium from this distribution partner as of December 31, 2019 and

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Notes to Consolidated Financial Statements

2018, respectively. The Company does not anticipate any future premiums from this distribution partner other than audit
premiums after the first quarter of 2019. The three distribution partners contributing the largest amounts of direct written
premium (excluding the distribution partner above) totaled $267.8 million, $240.7 million and $235.0 million for the
years ended December 31, 2019, 2018 and 2017 respectively.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for incurred but

not reported and for losses and loss adjustment expenses. The following table provides a roll forward of the Company’s
reserve for unpaid losses and loss adjustment expenses:

($ in thousands)
Gross reserve for unpaid losses and loss expenses, at beginning of year
Ceded reserve for unpaid losses and loss expenses, at beginning of year
Net reserve for unpaid losses and loss expenses, at beginning of year

Add:

Incurred losses and loss expenses occurring in the:

Current year
Prior years
Prior years attributable to adjusted premium

Total net losses and loss adjustment expenses incurred

Less:

Paid losses and loss expenses for claims occurring in the:

Current year
Prior years

Total paid losses and loss expenses for claims

Net reserve for unpaid losses and loss expenses, at end of year
Ceded reserve for unpaid losses and loss expenses, at end of year
Gross reserve for unpaid losses and loss expenses, at end of year

2019

2018

2017

$ 1,396,812 $ 1,258,237 $ 1,166,619
176,651
989,968

185,295
1,211,517

201,156
1,057,081

482,989
3,154
14,882
501,025

439,847
(5,017)
—
434,830

373,423
20,318
—
393,741

66,522
318,324
384,846
1,327,696
193,952

54,026
272,602
326,628
1,057,081
201,156
$ 1,521,648 $ 1,396,812 $ 1,258,237

47,734
232,660
280,394
1,211,517
185,295

During the year ended December 31, 2019 the Company’s reserve for unpaid losses and loss adjustment

expenses for accident years 2018 and prior developed unfavorably by $3.2 million driven primarily by unfavorable
development of $16.4 million in Commercial Multiple Peril, $11.3 million in General Liability, partially offset by
favorable development of $22.8 million in Workers’ Compensation. The unfavorable development in Commercial
Multiple Peril was primarily from the Media and Entertainment customer segment in accident years 2013 through 2016
from a longer development trend than that underlying the historical performance of premises liability. The unfavorable
development in General Liability primarily related to 2013 through 2016 accident years due to increased severities in the
Real Estate customer segment and run off components within the Other customer segment. The favorable development
in Workers’ Compensation derived from lower than expected claims severity across all customer segments primarily in
accident years 2013 through 2015 and accident year 2017. In addition, the Company incurred $14.9 million of loss and
loss adjustment expenses related to premium earned during the year ended December 31, 2019, attributable to accident
year 2018.

During the year ended December 31, 2018, the Company’s reserve for unpaid losses and loss adjustment
expenses for accident years 2017 and prior developed favorably by $5.0 million. Favorable development of $5.0 million
for the year ended December 31, 2018, was driven primarily by favorable development of $14.4 million in Workers’
Compensation, $15.6 million in Commercial Auto and $4.1 million from Marine Liability within the All Other lines
category, partially offset by $16.5 million adverse development in General Liability and $12.2 million adverse
development in Commercial Multiple Peril. Lower than expected claim severity was the main driver of the favorable
development in Workers’ Compensation of which $6.2 million came from 2014, 2015 and 2016 accident years in

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Notes to Consolidated Financial Statements

primary Workers’ Compensation and $8.2 million came from 2014 and 2015 accident years in excess Workers’
Compensation. Favorable development in Commercial Auto was driven mainly by the 2013, 2015 and 2016
accident years where severity trends of the previous two calendar year periods improved during 2018 across multiple
niches. Marine Liability is a low frequency, high severity line of business and as a result, development often varies
significantly from the average expectation. The $16.5 million adverse development in General Liability primarily related
to 2013, 2014 and 2015 accident years due to increased severities in the Construction customer segment from reduced
effectiveness of risk transfer from our general contractor insureds to subcontractors. The $12.2 million in adverse
development in Commercial Multiple Peril is primarily from the Media and Entertainment customer segment driven by a
longer development trend than that underlying the historic performance of premises liability.

During the year ended December 31, 2017, the Company’s reserve for unpaid losses and loss adjustment
expenses for accident years 2016 and prior developed adversely by $20.3 million. Adverse development of $20.3 million
was driven primarily by $33.2 million in Commercial Auto which consisted of several niches that are now terminated.
Adverse development in Commercial Auto was driven primarily by higher than expected frequency and severity. The
Commercial Auto experience were likely a result of industry trends such as an improving economy resulting in more
drivers on the roads, the hiring of less experienced drivers, the use of personal technology while in transit and litigation
of bodily-injury claims, which resulted in unexpected adverse experience from historical performance patterns. The
adverse development was offset by favorable development in Workers’ Compensation of $12.4 million due to lower than
expected claim severity for accident years 2016 and prior, including a decline in the frequency of large loss activity.

Incurred and Paid Claims Development

The following information presented summarizes incurred and paid claims development as of December 31,

2019, net of reinsurance, as well as cumulative claim frequency and the total of IBNR. IBNR anticipates both the
development of existing claims and emergence of any new claims. The information about incurred and paid claims
development for accident years 2010 through 2018 is unaudited and is presented as supplementary information.
Information is also included for the portion of the reserve for unpaid losses and loss adjustment expenses, net of
reinsurance that related to IBNR and the cumulative number of reported insurance claims. Claims are counted at the
occurrence (e.g. date of the accident), line of business which is in accordance with the Company’s statutory filings, and
policy level. For example, if a single occurrence (e.g. an auto accident) leads to a claim under an auto and an associated
umbrella policy, they are each counted separately. Conversely, multiple claimants under the same occurrence/line/policy
would contribute only a single count. The claim counts provided are on an accident year basis. A claim is considered
reported when a reserve is established or a payment is made. Therefore, claims closed without payment are included in
the claim counts as long as there was an associated case reserve at some point in its life cycle. The following tables are
in thousands except claim counts.

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Notes to Consolidated Financial Statements

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

2014

For the Years Ended
2015

2016

All Lines - Incurred

Unaudited

2017

2018

2019

December 31,

Claim
Counts

IBNR as of Cumulative

$ 131,617 $ 137,994 $ 134,941 $ 134,307 $ 136,115 $
128,879
137,380

115,644

126,752
157,477
210,368

122,773
157,985
222,277
286,842

143,344 $
124,543
165,015
232,660
312,987
384,269

152,840 $
131,081
165,889
251,353
323,792
407,279
390,430

145,444
124,798
156,355
243,567
333,865
407,427
423,538
354,948

148,117 $ 150,543
131,360
131,385
158,523
159,120
249,802
237,900
356,733
342,788
430,942
395,751
416,266
406,204
339,505
361,299
406,199
422,104
457,973
$ 3,097,846 $

15,481
3,108
3,772
6,491
16,133
30,978
44,665
93,163
127,760
233,890
330,679
906,120

3,926
4,419
6,622
13,229
16,333
20,869
20,049
18,582
18,720
17,591

All Lines – Paid
Unaudited

2011

2010
$ 11,912 $ 38,723 $ 72,312 $ 85,754 $ 102,016 $
51,006
16,619

2013

2012

2014

14,796

65,103
48,276
27,465

76,731
73,249
74,012
44,738

2019

For the Years Ended
2015
114,140
88,243
98,960
115,396
111,919
75,043

2016
125,646
98,411
119,374
158,978
166,907
159,708
78,271

2017
132,525
105,584
130,200
181,989
217,986
234,756
150,198
54,026

2018
137,470 $ 140,927
111,247
109,007
139,793
136,909
214,863
192,476
280,933
250,928
331,748
281,637
266,496
204,589
163,937
116,204
112,889
45,012
66,522
1,829,355
1,268,491
Incurred less paid
44,965
Reserves 2009 and prior
Other(1)
14,240
Total net reserve for unpaid losses and loss adjustment expenses $ 1,327,696

(1) Other category represents unallocated loss adjustment expense (“ULAE”) reserves $45.6 million, discounting of

loss reserves $(47.4) million and retroactive reinsurance agreements $12.3 million, allowance for uncollectible
reinsurance $0.5 million and other $3.2 million.

The following table presents the historical average annual percentage payout of incurred claims, net of reinsurance,

as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

14 %

19 %

15 %

13 %

10 %

7 %

3 %

2 %

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Commercial Auto

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables represent information on the Company’s unpaid losses and loss adjustment expenses

incurred and cumulative paid losses, since 2010 for Commercial Auto line, in thousands except claim counts:

Commercial Auto-Incurred

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

Unaudited

For the Years Ended

2014

2015

2016

2017

2018

2019

IBNR as of

December 31,

Cumulative
Claim
Counts

13,046 $

17,710 $
13,864

18,011 $
13,462
21,101

17,334 $
11,260
29,959
47,191

18,717 $
11,231
36,319
50,752
74,185

18,688 $
12,547
43,031
63,764
95,283
120,137

19,046 $
12,547
42,028
77,570
105,528
139,415
114,568

19,437 $
12,508
41,479
76,768
112,157
152,268
124,760
81,986

19,280 $
12,476
41,572
72,265
113,747
146,757
119,931
79,156
87,993

19,282 $
12,476
39,231
81,422
113,790
155,266
124,166
71,068
78,777
115,393
$ 810,871 $

—
—
444
993
843
1,981
6,229
12,343
28,210
72,508
123,551

874
1,219
1,746
6,224
8,231
11,153
9,642
7,061
7,146
8,141

Commercial Auto – Paid
Unaudited

2010

2011

3,105 $

7,866 $
4,717

2012
12,346 $
7,791
6,660

2013
13,723 $
7,250
15,397
13,015

For the Years Ended

2014
17,275 $
9,111
25,280
26,773
21,692

2015
17,829 $
11,587
33,248
43,403
52,048
37,964

2016
18,074 $
12,005
39,680
64,073
74,431
74,524
39,580

2017
19,098 $
12,123
40,852
72,906
96,385
107,063
63,123
19,950

2018
19,138 $
12,117
41,305
71,010
108,102
126,831
83,161
34,659
16,709

2019
19,162
12,128
38,657
79,066
110,883
142,806
102,003
47,199
32,698
22,082
606,684
$ 204,187

Incurred less paid

The following table presents the historical average annual percentage payout of incurred claims, net of

reinsurance, as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10
— %

— %

23 %

22 %

19 %

17 %

12 %

1 %

6 %

(2) %

123

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General Liability

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables represent information on unpaid losses and loss adjustment expenses incurred and
cumulative paid losses, since 2010 for the Company’s General Liability line, in thousands except claim counts:

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

General Liability – Incurred

Unaudited

For the Years Ended

2014

2015

2016

2017

2018

2019

IBNR as of Cumulative

December 31,
2019

Claim
Counts

56,373 $

59,577 $
45,894

64,210 $
58,633
42,685

63,596 $
61,398
43,677
48,466

62,270 $
60,375
38,288
61,785
70,878

69,103 $
63,264
42,401
62,618
77,255
80,225

72,902 $
67,791
45,771
70,459
78,801
80,411
93,737

66,226 $
62,127
46,312
60,613
93,468
78,163
101,479
99,845

68,905 $
66,641
48,096
61,796
104,281
80,514
92,401
100,306
142,486

69,586
64,682
50,509
69,565
114,976
93,808
91,228
94,554
137,525
153,650
$ 940,083 $

7,384
746
1,254
1,998
7,755
15,352
21,362
28,786
50,712
101,954
139,174
376,477

1,682
1,532
1,483
2,608
3,093
3,007
2,868
2,921
2,949
2,309

2010

1,692 $

2011
14,901 $
5,009

2012
34,045 $
18,912
945

General Liability – Paid
Unaudited

For the Years Ended

2013
44,087 $
30,123
8,844
1,930

2014
50,830 $
37,344
14,751
10,941
5,456

2015
61,716 $
44,166
24,257
22,152
14,032
5,404

2016
66,332 $
50,136
32,585
36,493
28,581
14,720
3,547

2017
70,235 $
54,250
36,521
46,821
41,079
25,931
13,873
2,596

Incurred less paid

2018
74,101 $
56,659
40,754
55,148
53,712
39,407
25,223
11,279
2,223

2019
76,201
57,932
45,509
66,439
73,491
61,168
47,333
26,354
15,625
3,487
473,539
$ 466,544

The following table presents the historical average annual percentage payout of incurred claims, net of

reinsurance, as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

3 %

12 %

15 %

16 %

14 %

13 %

10 %

6 %

4 %

3 %

124

Table of Contents

Workers’ Compensation

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables represent information on unpaid losses and loss adjustment expenses incurred and

cumulative paid losses, since 2010 for the Company’s Workers’ Compensation line, in thousands except claim counts:

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

For the Years Ended

2014

2015

2016

2017

2018

2019

Workers’ Compensation – Incurred
Unaudited

IBNR as of Cumulative

December 31,
2019

Claim
Counts

24,965 $

23,206 $
28,987

26,970 $
22,186
46,503

23,643 $
23,576
51,724
76,844

25,751 $
21,411
53,038
71,683
88,181

25,825 $
19,489
48,983
70,939
81,628
101,762

28,260 $
21,943
47,373
68,109
83,543
101,410
99,292

28,135 $
18,986
38,501
71,532
74,134
89,383
109,623
102,250

28,597 $
21,247
38,835
69,729
69,886
82,212
103,382
101,691
116,278

30,457
23,750
38,919
64,727
67,784
87,570
102,716
93,134
118,973
97,485
$ 725,515 $

5,590
2,361
2,508
4,017
7,141
12,581
14,957
47,500
52,781
77,694
76,057
303,187

78
202
1,770
2,694
2,679
3,881
4,358
4,678
5,125
4,468

2010

2011

2012

2013

Workers’ Compensation – Paid

Unaudited

For the Years Ended

2014

2015

2016

2017

— $

180 $
473

1,633 $
4,148
2,381

2,907 $
5,127
5,481
2,639

4,427 $
5,503
10,598
12,579
4,644

6,165 $
7,239
14,634
20,520
14,901
6,504

7,830 $
8,662
18,468
26,088
24,411
18,434
10,891

9,706 $
8,978
23,694
29,036
35,131
27,423
24,557
8,631

Incurred less paid

2018
10,695 $
9,971
25,495
32,962
39,846
33,543
35,385
22,462
9,563

2019
11,908
10,841
26,237
35,793
42,423
38,061
43,171
30,776
29,008
9,745
277,963
$ 447,552

The following table presents the historical average annual percentage payout of incurred claims, net of

reinsurance, as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

8 %

14 %

10 %

9 %

6 %

7 %

4 %

3 %

4 %

125

Table of Contents

Commercial Multiple Peril

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables represent information on unpaid losses and loss adjustment expenses incurred and
cumulative paid losses, since 2010 for the Company’s Commercial Multiple Peril line, in thousands except claim counts:

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Commercial Multiple Peril – Incurred

Unaudited

For the Years Ended

IBNR as of Cumulative

December 31,

Claim
Counts

— $

— $
96

11 $
94
968

7 $
73
1,065
13,037

6 $
49
1,051
15,884
27,876

6 $
39
1,442
16,448
27,542
34,010

2 $

813
8,226
25,915
17,952
30,379
37,760

2
813 $

8,250
27,126
18,345
34,883
44,044
39,507

2 $

813
8,198
30,172
24,144
44,758
44,260
37,015
36,895

$ 226,257 $

—
—
19
1,326
4,825
8,295
8,921
20,432
25,835
69,653

—
5
54
614
1,015
1,190
1,431
1,184
935

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Commercial Multiple Peril – Paid

Unaudited

For the Years Ended

— $

— $
—

— $
—
43

— $
1
192
1,795

— $
1
312
4,271
6,879

— $
2
754
7,358
14,751
4,974

2 $

813
8,083
20,545
8,949
7,028
7,270

813
8,149
22,880
14,293
16,715
19,733
5,323

Incurred less paid

2
813
8,157
26,366
20,676
27,870
27,816
11,953
5,940
129,593
96,664

The following table presents the historical average annual percentage payout of incurred claims, net of

reinsurance, as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

14 %

17 %

10 %

28 %

25 %

11 %

— %

126

Table of Contents

All Other

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following tables represent information on unpaid losses and loss adjustment expenses incurred and

cumulative paid losses, since 2010 for the Company’s all other lines in thousands except claim counts:

All Other Lines – Incurred

Accident Year
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

Unaudited

For the Years Ended

2014

2015

2016

2017

2018

2019

December 31,

Claim
Counts

IBNR as of Cumulative

37,233 $

37,501 $
26,899

25,750 $
34,597
26,995

29,735 $
30,507
32,022
36,900

29,377 $
29,749
30,266
36,992
40,562

29,727 $
29,238
30,551
34,287
42,938
54,269

32,631 $
28,794
30,678
33,773
39,473
58,501
48,824

31,647 $
31,176
29,250
26,428
28,192
69,660
57,296
33,108

31,335 $
31,018
29,803
25,859
27,749
67,924
55,607
36,102
35,839

31,218
30,450
29,051
25,890
30,011
70,154
53,398
36,489
33,909
54,550
$ 395,120 $

2,507
1
10
32
225
876
1,540
2,353
3,003
5,600
17,105
33,252

1,292
1,466
1,618
1,649
1,716
1,813
1,991
2,491
2,316
1,738

All Other Lines – Paid

Unaudited

2010

7,115 $

2011
15,776 $
4,597

2012
24,288 $
20,155
6,634

2013
25,038 $
22,603
18,554
9,838

For the Years Ended
2015
28,429 $
25,251
26,821
29,009
26,667
18,292

2014
29,484 $
24,773
22,619
23,526
11,150

2016
33,410 $
27,608
28,639
31,569
32,126
37,279
19,279

2017
33,485 $
30,231
28,319
25,144
24,846
65,390
41,618
15,580

2018
33,536 $
30,259
28,542
25,206
26,388
67,563
44,104
28,070
11,194

Incurred less paid

2019
33,656
30,344
28,577
25,408
27,770
69,037
46,119
31,792
23,605
25,268
341,576
53,544

The following table presents the historical average annual percentage payout of incurred claims, net of

reinsurance, as of December 31, 2019:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

33 %

39 %

20 %

2 %

7 %

— %

Year 10
— %

— %

The Company participated in an insurance pool in both the issuance of umbrella casualty insurance and ocean

marine liability insurance during the period from 1978 to 1996. Depending on the underwriting year, the insurance
pools’ net retention per occurrence after applicable reinsurance ranged from $250,000 to $2,000,000. The Company’s
effective pool participation on such risks varied from 11% in 1978 to 59% in 1985, which exposed the Company to
asbestos and environmental losses. Subsequent to this period, the pools substantially reduced their umbrella writings and
coverage was provided to smaller insureds.

The Company’s asbestos and environmental related losses were as follows:

December 31, 2019
Ceded

Gross
$ 14,262 $

430
1,882
$ 12,810 $

9,860 $
66
1,564
8,362 $

Net
4,402
364
318
4,448

($ in thousands)
Balance at beginning of year
Incurred losses and loss adjustment expense
Payments for losses and loss adjustment expenses
Balance at end of year

127

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

($ in thousands)
Balance at beginning of year
Incurred losses and loss adjustment expense
Payments for losses and loss adjustment expenses
Balance at end of year

December 31, 2018
Ceded

Gross
$ 15,628 $ 11,116 $

30
1,396
$ 14,262 $

24
1,280
9,860 $

Net
4,512
6
116
4,402

Additionally, the Company has assumed asbestos and environmental reserves on a retroactive basis from prior

members of the pool. The liability related to the same was $8.4 million and $8.7 million as of December 31, 2019 and
2018 respectively.

The Company believes that the uncertainty surrounding asbestos and environmental exposures, including issues

as to insureds’ liabilities, ascertainment of loss date, definitions of occurrence, scope of coverage, policy limits and
application and interpretation of policy terms, including exclusions, all affect the estimation of ultimate losses. Under
such circumstances, it is difficult to determine the ultimate loss for asbestos and environmental-related claims. Given the
uncertainty in this area, losses from asbestos and environmental-related claims may develop adversely and accordingly,
management is unable to estimate the range of possible loss that could arise from asbestos and environmental-related
claims. However, the Company’s net unpaid reserves for loss and loss adjustment expenses, in the aggregate, as of
December 31, 2019, represent management’s best estimate.

Salvage and Subrogation

Estimates of salvage and subrogation recoverable on paid and unpaid losses have been recorded as a reduction

of unpaid losses and amounted to $27.5 million and $27.4 million at December 31, 2019 and 2018, respectively.

Deferred Policy Acquisition Costs

The following table presents a roll forward of the deferred policy acquisition costs and are net of reinsurance:

($ in thousands)
December 31, 2017
Acquisition costs deferred
Acquisition costs expensed
December 31, 2018
Acquisition costs deferred
Acquisition costs expensed
December 31, 2019

12. Income Taxes

60,759
204,283
(171,429)
93,613
189,970
(184,771)
98,812

The Company is subject to the tax laws and regulations of the United States and various state jurisdictions. The

Company files a consolidated federal tax return.

The Company has one non-U.S. subsidiary, PSBL, which has received an undertaking from the Minister of

Finance in Bermuda that would exempt such company from Bermudian taxation until March 2035. As part of the 2019
restructuring, PSBL became a direct subsidiary of the Company and is subject to U.S. tax on its income.

PSIH acquired several entities in the U.K. in order to build the Syndicate. The Company changed its strategic

direction with respect to its U.K. operations and placed the Syndicate into run-off, and then entered into a two-phase sale
transaction to exit its U.K. operations, which closed in October 2017 and March 2018. There was no gain or loss

128

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

recognized from the sale of the U.K. operations. Additionally, there were no U.K. income taxes paid or recovered for the
years ended December 31, 2018 and 2017.

As discussed in Note. 1 Background, PSIH and PSEH were merged into the Company and PSBL became a

direct subsidiary of the Company. The transactions were considered a tax-free contribution of capital from PGHL to the
Company. Additionally, PGHL was merged into the Company and resulted in no tax effect in 2019, since the assets
transferred were exchanged for common stock of the Company.

The components of deferred tax assets and liabilities as of December 31, 2019 and 2018, are as follows:

($ in thousands)
Deferred tax assets:
Loss reserves
Loss reserves transitional adjustment
Unearned premiums
Net operating loss carry forwards – state and local
Net operating loss carry forwards – federal
Capital loss carry forwards – federal
Bad debt reserve
Impairments
Deferred compensation
Amortization of intangibles
Limited partnership income
Unrealized depreciation of investments
Other
Total deferred tax assets
Less: valuation allowance
Deferred tax assets, net of allowance
Deferred tax liabilities:
Deferred policy acquisition costs
Loss reserve transitional adjustment
Fair value adjustments
Unrealized appreciation of investments
Limited partnership income
Other
Total deferred tax liabilities
Net deferred income taxes

December 31

2019

2018

13,289 $
6,104
16,785
17,008
357
1,519
3,229
517
5,659
695
2,566
—
3,151
70,879
(17,604)
53,275

11,342
6,954
14,985
16,373
16,771
2,577
3,182
556
5,613
813
—
7,446
2,211
88,823
(16,962)
71,861

20,693
4,578
3,628
8,669
—
10,904
48,472
4,803 $

19,634
6,085
3,635
—
422
8,846
38,622
33,239

On December 22, 2017, Tax Reform was signed into law, which among other implications, reduced the

Company’s statutory corporate tax rate from 35% to 21% beginning with the 2018 tax year. The Company revalued its
2017 deferred tax assets and liabilities in response to this reduction, which resulted in a $25.1 million charge to income
as illustrated in the rate reconciliation table below.

The Company has recorded a $6.1 million increase to its deferred tax asset related to the change in

methodology for loss reserves as a result of Tax Reform. An offsetting deferred tax liability was also recorded at
December 31, 2017, which is amortized into income over 8 years. The deferred tax liability as of December 31, 2019 is
$4.6 million.

129

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

At December 31, 2019 and 2018, the U.S. federal net operating losses (“NOLs”) that can be carried forward are

$0.4 million and $16.8 million, respectively. At December 31, 2019 and 2018, the state and local tax benefit of NOLs
that can be carried forward are $17.0 million and $16.3 million, respectively, which is included in the state and local
deferred tax asset. There were $1.5 million and $2.6 million of realized capital loss benefits that can be carried forward
for the years ended December 31, 2019 and 2018, respectively. The range of years in which the federal NOL can be
brought forward against future tax liabilities is from 2020 through 2030.

The table below shows the tax benefit of the U.S. federal NOLs generated by year and expiration date:

($ in thousands)
2010
Total

Amount

$
$

357
357

Expires
2030

The Company’s valuation allowance account with respect to the deferred tax asset and the change in the

account is as follows:

($ in thousands)
Balance, beginning of year
Change in valuation allowance
Balance, end of year

2019
16,962 $
642
17,604 $

2018

6,511
10,451
16,962

As of December 31, 2019, the Company’s valuation allowance of $17.6 million is attributable to the uncertainty

in the realization of certain deferred tax assets attributable to U.S. federal and state NOLs.

The Company files tax returns subject to the tax regulations of federal, state and local tax authorities. A tax

benefit taken in the tax return but not in the financial statements is known as an “unrecognized tax benefit.” A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

($ in thousands)
Balance, beginning of year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Balance, end of year

2019

2018

528 $
260
(350)
438 $

483
45
—
528

As of December 31, 2019, the Company recorded insignificant amount of interest and penalties and reduced its
positions by $0.1 million as a result of an audit settlement. Included in the balance at December 31, 2019, is $0.2 million
related to favorable tax positions that impact the effective tax rate.

130

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The income tax provisions from the amounts computed by applying the federal statutory rate to the income

before income taxes due to the following:

($ in thousands)
Expected tax expense at statutory rates in taxable
jurisdictions
Tax-exempt interest
State taxes
Valuation allowance
Effect of provision to tax return filing adjustments
Effect of Tax Reform
Other
Total income tax expense

2019

2018

2017

$ 12,103 $ 13,896 $ 11,384
(42)
3,302
(2,819)
671
25,108
629
$ 12,137 $ 13,389 $ 38,233

(46)
(10,746)
10,451
—
—
(166)

—
(629)
642
42
—
(21)

The jurisdictions contributing to taxation of the Company are calculated using the U.S. rate of 21%. The

income tax benefit differs from the amounts computed due to changes in the valuation allowance, prior period
adjustments and the effect of Tax Reform.

There were $0.8 million of U.S. income taxes received for the year ended December 31, 2019, and $0.1 million

and $0.2 million of U.S. income taxes paid for the years ended December 31, 2018 and 2017, respectively. The U.S.
federal income tax recoverable included in other assets amounted to $0.2 million, $0.8 million and $0.2 million for
the years ended December 31, 2019, 2018 and 2017, respectively.

The Company files a consolidated federal income tax return with the Company, PSBL, and its insurance

subsidiaries. Beginning November 23, 2010, pursuant to the terms of a tax-sharing agreement, which provides that the
consolidated tax liability is allocated among affiliates based on separate return calculations and tax attributes utilized
within the consolidated group and are reimbursed to the affiliate that generated them. Intercompany tax balances are
settled annually.

Although the Company is not currently under audit, the U.S. domestic entities are subject to federal and state

examinations by tax authorities for tax year 2015 and subsequent and for the tax year 2009 and subsequent for
examinations by local tax authorities.

Section 382 of the Internal Revenue Code (“Section 382”) contains rules that limit the ability of a corporation

that experiences an “ownership change” to utilize its net operating and capital loss carry forwards and certain built-in
losses recognized in periods following the ownership change. An ownership change is generally any change in
ownership of more than 50-percentage points of a corporation’s stock over a three-year period. These rules generally
operate by focusing on ownership changes among stockholders owning directly or indirectly 5% or more of the stock of
a corporation or any change in ownership arising from a new issuance of stock by the corporation. If a Section 382
limitation were to manifest, a portion of the tax losses could be deferred or could expire before the Company would be
able to use them to offset positive taxable income in current or future tax periods. The Company’s inability to utilize tax
losses could have a negative impact on the Company’s financial position and results of operations. This limitation is
generally determined by multiplying the value of the entity as of the ownership change date by the applicable long-term
tax-exempt rate.

On November 23, 2010, the Company acquired 100% of PSIG (formerly NYMAGIC, Inc.) outstanding

common stock for a cash price of $25.75 per share or approximately $231.9 million; as a result, the Company
experienced an ownership change for purposes of Section 382. As a result of this ownership change, the Company’s
ability to utilize the NOL that existed as of November 23, 2010, is limited to approximately $9.0 million annually. A
valuation allowance of $3.1 million has been recorded as a result of the NOL limitation.

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

On July 25, 2019, the Company merged with PGHL and the holders of PGHL equity interests received 6.46

shares of the Company’s common stock. The total merger consideration was 38,851,369 shares of the Company’s
common stock which was 100% of the Company’s outstanding common stock. The Company did not experience an
ownership change under Section 382. On July 29, 2019, the Company completed its IPO. The principal stockholders
retained 80.3% of the Company’s outstanding common stock which did not result in an ownership change of 50% or
more under Section 382.

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s

outstanding common stock and retained 77.5% of the outstanding common stock. The transaction did not result in an
ownership change under Section 382.

13. Statutory Financial Information

The Company’s insurance subsidiaries are limited under state insurance laws, in the amount of ordinary
dividends they may pay without regulatory approval. As of December 31, 2019, the maximum dividend that can be paid
from the Company’s U.S. insurance subsidiaries to the Company without prior approval from the New York State
Department of Financial Services is $54.7 million. Factors affecting the ability to pay dividends include levels of
investment income in recent years and the Company’s statutory surplus position of the Company. Combined statutory
net income and surplus of the Company’s domestic insurance subsidiaries as reported in the Combined Annual
Statement were as follows:

($ in thousands)
Combined statutory net income
Combined statutory surplus

2019

2018

2017

$ 55,681 $ 33,147 $ 26,303
$ 568,777 $ 473,575 $ 433,946

The U.S. insurance company subsidiaries file statutory financial statements with each state in the format
specified by the National Association of Insurance Commissioners (“NAIC”). The NAIC provides accounting guidelines
for companies to file statutory financial statements and provides minimum solvency standards for all companies in the
form of risk–based capital requirements. The policyholders’ surplus of each of the domestic insurance companies is
above the minimum amount required by the NAIC. The actual statutory capital and surplus of the Company’s insurance
subsidiaries was significantly above the amount of statutory capital and surplus necessary to satisfy regulatory
requirements.

14. Debt

In November 2013, the Company issued $140.0 million of 7.5% Senior Unsecured Notes due November 2020.

The notes provide for semi-annual interest payments and are to be repaid in full in November 2020. The indenture
contains certain covenants that restrict the Company’s ability to, among other items, incur indebtedness, make restricted
payments, incur liens and require the Company to maintain specified liquidity levels. The Company remains in
compliance with the covenants. Debt issuance costs of $2.1 million were incurred and are being amortized over the life
of the loan.

In January 2015, the Company issued an additional $25.0 million 6.5% senior notes due November 2020. The
notes provide for semi-annual interest payments and are to be repaid in full in November 2020. The indenture contains
certain covenants that restrict the Company’s ability to, among other items, incur indebtedness, make restricted
payments, incur liens and require the Company to maintain specified liquidity levels. The Company remains in
compliance with the covenants. Debt issuance costs of $0.2 million were incurred and are being amortized over the life
of the loan.

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

In January 2018, the Company entered into a $25.0 million 4.2% revolving loan agreement. On March 15,

2019, the Company entered into an amended and restated revolving loan agreement (as amended, the “revolving
facility”), among other things, (a) extended the maturity date to the earlier of (i) March 15, 2022, or (ii) 91 days before
the maturity of the senior notes due November 2020 or, if such senior notes are amended or replaced, 91 days before the
maturity of such amendment or replacement and (b) increased the aggregate principal amount of borrowing capacity
from $25.0 million to $50.0 million.

On August 8, 2019, the Company used a portion of the proceeds from the IPO to repay $18.0 million in

complete satisfaction of the outstanding debt under the revolving facility. As of December 31, 2019, the revolving
facility had a borrowing capacity of $50.0 million.

Interest expense was $12.8 million, $12.3 million and $12.1 million for the years ended December 31, 2019,
2018 and 2017, respectively. Amortization expense related to debt issuance cost was $0.3 million for the years ended
December 31, 2019, 2018 and 2017.

15. Commitments and Contingencies

Leases

The Company maintains various lease and sublease agreements for office space in New Jersey, New York,

California, Florida, Georgia and the U.K. These lease terms expire on various dates through June 2025.

At December 31, 2019, the minimum gross rental payments and sublease income relating to these various

operating leases are as follows:

($ in thousands)
2020
2021
2022
2023
2024
2025
Total

Minimum
Rental
Payments

Sublease
Income

4,243 $
4,162
1,080
585
585
342

$ 10,997 $

631
—
—
—
—
—
631

The operating leases also include provisions for additional payments based on certain annual cost increases.

Rent expense amounted to $3.3 million, $3.1 million and $3.1 million for the years ended December 31, 2019, 2018 and
2017, respectively.

The lease of the U.K. office had rent expense of $0.5 million for the years ended December 31, 2019, 2018 and

2017, and sublease income of $0.6 million and $0.1 million for the years ended December 31, 2019 and 2018,
respectively. There was no sublease income for the year ended December 31, 2017. These amounts are included in
discontinued operations.

Fiduciary Funds

The Company’s insurance agency subsidiary maintains separate underwriting accounts, which record all of the
underlying insurance transactions of the insurance pools that it manages. These transactions primarily include collecting
premiums from the insureds, collecting paid receivables from reinsurers, paying claims as losses become payable,

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

paying reinsurance premiums to reinsurers, and remitting net account balances to member insurance companies in the
pools that PSMC manages. Unremitted amounts to members of the insurance pools are held in a fiduciary capacity and
interest income earned on such funds inures to the benefit of the members of the insurance pools based on their pro rata
participation in the pools.

Additionally, the Company’s insurance agency subsidiary, in its contractual role as escrow agent, receives and

disburses bond funds for entertainment film projects for its insureds.

A summary of the fiduciary and pools’ underwriting accounts as of December 31, 2019 and 2018, is as follows:

($ in thousands)
Assets held on behalf of unaffiliated pool members
Escrow bond arrangements
Total

2019

2018

$ 10,522 $ 11,501
951
$ 11,536 $ 12,452

1,014

The remaining two unaffiliated pool members withdrew from the pools in 1994 and 1996, respectively, and

retained liability for their effective pool participation for all loss reserves, including IBNR losses and unearned premium
reserves attributable to policies effective prior to their withdrawal from the pools. The Company is committed to manage
this pool until expiration without further compensation.

In the event that all or any of the pool companies are unable to meet their obligations to the pools, the

remaining companies would be liable for such defaulted amounts on a pro rata pool participation basis.

The Company is not aware of any uncertainties that could result in any possible defaults by either of the two

unaffiliated pool members with respect to their pool obligations, which might impact liquidity or results of operations of
the Company, but there can be no assurance that such events will not occur in the future.

Unfunded Investment Commitments

For the year ended December 31, 2019 the Company had $163.7 million in unfunded commitments related to

limited partnerships and a fixed income security.

16. Share-Based Compensation

Share-Based Plans

2019 Equity Incentive Plan

On July 24, 2019, the 2019 Plan became effective immediately prior to the effectiveness of the registration
statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation
rights, restricted shares, RSUs, dividend equivalent rights, performance-based shares or other equity-based or equity-
related awards.

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to

the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the
times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation
committee charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019

Plan, including shares underlying RSUs granted under the 2010 Plan.

The following is a summary of the post-offering compensation included in the 2019 Plan, including the number

of common stock shares granted to each award mentioned below:

(iii) 250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant

date, July 25, 2019. These awards will cliff vest on the third anniversary of the grant date.

(v) 668,170 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the

Company’s common stock upon the consummation of the merger.

Vested RSUs awaiting conversion into common stock were 906,182 for the year ended December 31, 2019,

548,292 for the year ended December 31, 2018 and 517,446 for the year ended December 31, 2017.

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table summarizes RSU transactions for the 2019 Plan for the years ended December 31, 2019

and 2018:

Unvested at December 31, 2017
Granted in 2018
Vested in 2018
Forfeited in 2018
Unvested at December 31, 2018
Granted in 2019
Vested in 2019
Forfeited in 2019
Unvested at December 31, 2019

Weighted

Number of Average Grant Date
Fair Value Per Share
11.25
18.67
11.30
11.09
11.09
14.00
13.61
14.00
14.00

Shares
180,647 $
13,992
(136,855)
(2,520)
55,264
1,732,869
(406,081)
(92,656)
1,289,396 $

As of December 31, 2019, The Company had approximately $14.5 million of total unrecognized stock-based

compensation expense related to the RSUs expected to be recognized over a weighted-average period of 2.4 years.

2019 Employee Stock Purchase Plan

The compensation committee of the Board of Directors administers the 2019 ESPP and have full authority to

interpret the terms of the 2019 ESPP.

There was no expense recognized related to the 2019 ESPP for the year ended December 31, 2019.

17. Retirement Plans

For the benefit of its U.S.-based employees who meet certain service and age requirements, the Company offers
a voluntary defined contribution 401(k) plan, a tax-qualified retirement plan subject to the Employee Retirement Income
Security Act of 1974. The Company has elected to make matching contributions to eligible participants in an amount up
to 100% of the first 4% of eligible compensation and 50% of the next 2% of eligible compensation contributed to the
plan as deferral contributions. Expense recorded for this plan was $1.8 million, $2.1 million and $1.6 million for
the years ended December 31, 2019, 2018 and 2017, respectively.

18. Segment Information

The Company has one reportable segment, Specialty Insurance segment, which primarily offers property and
casualty insurance products through its customers segments that include Construction, Consumer Services, Marine and
Energy, Media and Entertainment, Professional Services, Real Estate, Sports, and Transportation. The primary criteria to
determine the Company’s reportable segment is based on the fact that the Company’s senior management reviews,
assesses and allocates resources both on a financial and personnel basis on an entity-wide level.

The following table provides a summary of the Company’s gross written premiums by customer segments

within our Specialty Insurance segment. “Other” includes gross written premiums from; (i) primary and excess workers’
compensation coverage for exited Self-Insured Groups, (ii) niches exited prior to 2018, many with a concentration in

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ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

commercial auto, (iii) certain fronting arrangements in which all premium written is ceded to a third party (iv)
participation in industry pools, and (v) emerging new business.

($ in thousands)
Customer segment
Construction
Consumer Services
Marine and Energy
Media and Entertainment
Professional Services
Real Estate
Sports
Transportation
Customer segment subtotal
Other
Specialty Insurance total

2019

Years Ended December 31
2018

2017

$ 117,918
133,682
94,071
124,950
119,326
167,635
30,079
112,191
899,852
68,159
$ 968,011

12.2 % $ 101,946
107,086
13.8
82,978
9.7
119,926
12.9
110,546
12.4
132,652
17.3
23,590
3.1
92,169
11.6
770,893
93.0
124,219
7.0
100.0 % $ 895,112

11.4 % $ 73,378
94,384
12.0
79,238
9.3
114,442
13.4
112,575
12.3
132,029
14.8
22,224
2.6
85,079
10.3
713,349
86.1
13.9
122,985
100.0 % $ 836,334

8.8 %
11.3
9.5
13.7
13.4
15.8
2.6
10.2
85.3
14.7
100.0 %

The following table provides a summary of the Company’s gross written premiums by line of business within

our Specialty Insurance segment.

($ in thousands)
Line of business
Commercial Auto
General Liability
Workers’ Compensation
Commercial Multiple Peril
All Other Lines
Specialty Insurance total

2019

Years Ended December 31
2018

2017

$ 205,303
335,197
179,432
82,126
165,953
$ 968,011

21.2 % $ 151,612
277,948
34.6
246,302
18.6
67,351
8.5
17.1
151,899
100.0 % $ 895,112

16.9 % $ 124,688
272,660
31.1
235,668
27.5
73,859
7.5
17.0
129,459
100.0 % $ 836,334

14.9 %
32.6
28.2
8.8
15.5
100.0 %

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19. Earnings per Share

ProSight Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

The following table provides a reconciliation of the numerators and denominators of basic and diluted EPS:

($ in thousands, except per share amounts)

2019
Basic EPS:
Net income (loss) available to common
stockholders
Effect of dilutive securities:
Stock compensation plans
Diluted EPS

2018
Basic EPS:
Net income available to common
stockholders
Effect of dilutive securities:
Stock compensation plans
Diluted EPS

2017
Basic EPS:
Net loss available to common
stockholders
Diluted EPS

Continuing Operations
Shares

Income

Per Share
(Numerator) (Denominator) Amount

Discontinued Operations
Shares

Loss

Per Share
(Numerator) (Denominator) Amount

$ 45,494

41,095 $

1.11 $ (6,604)

41,095 $

(0.16)

$ 45,494

428
41,523 $

1.10 $ (6,604)

428
41,523 $

(0.16)

Continuing Operations
Shares

Income

Per Share
(Numerator) (Denominator) Amount

Discontinued Operations
Shares

Income

Per Share
(Numerator) (Denominator) Amount

$ 53,729

38,753 $

1.39 $

814

38,753 $

0.02

$ 53,729

688
39,441 $

1.36 $

814

688
39,441 $

0.02

Continuing Operations
Shares

Loss

Per Share
(Numerator) (Denominator) Amount

Discontinued Operations
Shares

Loss

Per Share
(Numerator) (Denominator) Amount

$ (6,904)
$ (6,904)

37,555 $
37,555 $

(0.18) $ (37,089)
(0.18) $ (37,089)

37,555 $
37,555 $

(0.99)
(0.99)

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Notes to Consolidated Financial Statements

20. Quarterly Financial Information

(unaudited, $ in thousands, except per share data)
2019
Gross written premiums
Revenues
Net income from continuing operations
Net income
Basic earnings per share - continuing operations
Diluted earnings per share - continuing operations
Basic earnings per share
Diluted earnings per share

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Total Year

255,838 $
212,972
13,695
13,440
0.35
0.35
0.35
0.34

235,032 $
220,112
8,696
8,618
0.22
0.22
0.22
0.22

227,196 $ 249,945 $
225,105
219,870
14,742
8,361
8,520
8,312
0.34
0.20
0.33
0.19
0.19
0.19
0.19
0.19

968,011
878,059
45,494
38,890
1.11
1.10
0.95
0.94

2018
Gross written premiums
Revenues
Net income from continuing operations
Net income
Basic earnings per share - continuing operations
Diluted earnings per share - continuing operations
Basic earnings per share
Diluted earnings per share

249,420 $
181,046
10,010
10,795
0.26
0.25
0.28
0.27

222,555 $
199,525
14,652
14,454
0.38
0.37
0.37
0.36

201,296 $ 221,841 $
203,575
201,726
13,464
15,603
14,120
15,174
0.35
0.40
0.34
0.40
0.36
0.39
0.36
0.38

895,112
785,872
53,729
54,543
1.39
1.36
1.41
1.38

21. Legal Proceedings

In the normal course of business, the Company’s insurance subsidiaries are subject to disputes, including
litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling
such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate
outcome of such matters will have a material adverse effect on its financial condition or results of operations.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10 K, the Company’s management,

including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), carried out an evaluation 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 Securities and Exchange Act of 1934, as amended (“Exchange Act”). Based upon this evaluation,
our CEO and CFO have concluded that our disclosure controls and procedures were effective in ensuring that material
information relating to the Company required to be disclosed in the Company’s periodic Securities and Exchange
Commission (“SEC”) filings, is made known to them in a timely manner.

Changes in Internal Controls 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 December 31, 2019 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.

Management's report on internal control over financial reporting

This Annual Report on Form 10-K, does not include a report of management's assessment regarding internal
control over financial reporting or an attestation report of our independent registered public accounting firm due to a
transition period established by SEC rules applicable to newly public companies.

Item 9B. Other Information

Departure of Director

On and effective as of February 20, 2020, in accordance with the terms of the Stockholders’ Agreement, Sumit
Rajpal was removed from the board of directors of the Company by the GS Investors. Mr. Rajpal’s removal is not a result
of any disagreement with the Company relating to its operations, policies or practices.

Election of New Director

The Stockholders’ Agreement allows the GS Investors to designate up to two individuals for election to the board,

depending on the percentage of the voting power of the Company's outstanding shares of common stock that they hold.
Based on their current level of ownership, the GS Investors have the right to designate two directors for election to the
board of directors. On February 20, 2020, in connection with Mr. Rajpal’s removal and in accordance with the terms of
the Stockholders’ Agreement, the GS Investors elected to exercise this right by designating Magnus Helgason as their
second director, and Mr. Helgason was appointed to the board of directors to fill the vacancy left by Mr. Rajpal. Mr.
Helgason has not been named to any committees of the board of directors of the Company.

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Mr. Helgason is a Vice President at Goldman Sachs, where he focuses on Financial Services investing within the
Americas Corporate Private Equity business in the Merchant Banking Division. He joined Goldman Sachs in 2013 and
was named Vice President in 2016. Prior to joining the firm, Mr. Helgason served as Director - Asset & Liability
Management at Landsbankinn. Mr. Helgason also serves on the board of Genesis Capital. Mr. Helgason holds a Bachelor
of Science in Industrial Engineering from the University of Iceland and MBA from Columbia Business School, where he
graduated with Dean’s Honors.

As a new non-employee director of the Company appointed by one of our principal stockholders, Mr. Helgason

will be eligible to receive the standard compensation for such directors in the form of an annual cash retainer ($62,500
for the full year) and an annual equity award delivered in restricted stock units (valued at $62,500 for the full year on the
date of grant). Mr. Helgason has an understanding with Goldman Sachs pursuant to which he will remit cash director
fees to Goldman Sachs and hold non-employee director RSUs for the benefit of Goldman Sachs.

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Item 10. Directors, Executive Officers and Corporate Governance

Executive Officers

PART III

The following table presents information regarding our executive officers.

Name
Lawrence Hannon
Anthony S. Piszel
Robert Bailey
Frank D. Papalia

Age
51
65
55
60

Position(s)

President and Chief Executive Officer
Chief Financial Officer
Chief Underwriting and Risk Officer
Chief Legal Officer

The following is a brief summary of the business experience of our executive officers.

Lawrence Hannon. Mr. Hannon is a founding member of ProSight. Mr. Hannon has more than 28 years of
underwriting and operational experience in the insurance industry. Prior to becoming Chief Executive Officer in May
2019, Mr. Hannon served as Chief Operating Officer of ProSight. Prior to co-founding ProSight in 2009, Mr. Hannon
worked at Fireman’s Fund Insurance Company from 2003 to 2007 as the Chief Sales and Marketing Officer and
previously spent 13 years at Chubb Limited in various leadership and underwriting positions from 1990 to 2003. After
leaving Fireman’s Fund Insurance Company in 2007, Mr. Hannon worked as an independent consultant, including for
Goldman Sachs and TPG, for which work he continued until 2010. Mr. Hannon holds a BA in Political Science from
Drew University. He currently serves as a member of the Board of Directors of the American Property Casualty
Insurance Association in Washington, D.C.

Anthony S. Piszel. Mr. Piszel joined ProSight in 2012. Mr. Piszel has more than 38 years of experience in the
financial services industry, including as Chief Financial Officer of public companies. He previously was Chief Financial
Officer at CoreLogic from 2010 to 2011, First American Corporation from 2009 to 2010, Freddie Mac from 2006 to
2008, and Health Net from 2004 to 2006. Previously, Mr. Piszel served in various roles at Prudential Financial from
1993 to 2004, ultimately as Controller, and at Deloitte & Touche from 1990 to 1993, ultimately as Audit Partner.
Mr. Piszel also served as a practice fellow at the Financial Accounting Standards Board from 1988 to 1990. Mr. Piszel
holds an MBA from Golden Gate University and a BA in Economics from Rutgers University.

Robert Bailey. Mr. Bailey is a founding member of ProSight and is responsible for our underwriting and

reinsurance. Mr. Bailey has more than 29 years of underwriting experience in the insurance industry. Prior to joining
ProSight in 2009, Mr. Bailey served in various leadership and underwriting positions at Fireman’s Fund Insurance
Company starting in 1993, ultimately serving as Chief Underwriting Officer of Commercial Lines, and previously spent
seven years at Cigna in various leadership and underwriting positions from 1986 to 1993. Mr. Bailey holds an MBA
from Chapman University and a BBA in Finance from the University of Oklahoma.

Frank D. Papalia. Mr. Papalia joined ProSight in 2011. Mr. Papalia has over 33 years of legal and business

experience in the insurance industry and, prior to joining ProSight, served as General Counsel and Member of the
Management Board of PARIS RE Holdings, a publicly-traded reinsurance group, from 2006 to 2010. Mr. Papalia also
served in leadership roles on the legal team of AXA RE from 2001 to 2006, ultimately as General Counsel, and
previously with AXA Financial from 1986 to 2001, ultimately as Vice President and Counsel. Mr. Papalia holds a JD
from Fordham University School of Law and a BS in Accounting from Manhattan College.

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Other Key Employees

The following table presents information regarding our other key employees.

Name
Joseph Finnegan
Darryl Siry
Kari Hilder
Leland Kraemer
Donna Biondich
Lee Lloyd
Erin Cullen
Ricardo Victores
Nestor Lopez
Vivienne Zimmermann
Robert Bednarik
Kevin Topper

Age
51
47
36
49
59
50
33
54
42
46
54
56

Position(s)
Customer Segment President
Chief Technology and Operations Officer
Chief Human Resources Officer
Chief Actuary Officer
Chief Claims Officer
Field Operations Officer
Customer Segment President
Chief Sales and Marketing Officer
Chief Information Officer
Chief Customer Experience Officer
Customer Segment President
Customer Segment President

The following is a brief summary of the business experience of our other key employees.

Joseph Finnegan. Mr. Finnegan joined ProSight in 2009 as President of Program Underwriting — West. Since

March 2019, he serves as Customer Segment President and from 2014 to March 2019, he served as Customer Group
President, responsible for the underwriting, business development and distribution management of a diversified book of
business at ProSight. Prior to joining ProSight, Mr. Finnegan served at Fireman’s Fund Insurance Company since 1991
in senior leadership roles in sales, underwriting and product development, including as Vice President heading the
Entertainment Division. Mr. Finnegan holds a BA in Humanities from the University of Southern California.

Darryl Siry. Mr. Siry joined ProSight in 2011 and, prior to becoming Chief Technology and Operations Officer

in November 2019, served as Customer Segment President from March to November 2019 and President of ProSight
Direct from July 2018 to November 2019. Mr. Siry also previously served as Chief Information Officer & Chief Digital
Officer and Chief Marketing Officer of ProSight. Prior to joining ProSight, Mr. Siry spent two years from 2009 to 2011
founding NewsBasis, a startup, and served as Senior Vice President, Marketing & Sales at Tesla Motors from 2006 to
2008. Mr. Siry also spent nine years at Fireman’s Fund Insurance Company from 1997 to 2006 in various roles,
ultimately serving as Senior Vice President and Chief Marketing Officer. Mr. Siry holds a BA in Economics from
Brown University.

Kari Hilder. Ms. Hilder joined ProSight in 2012 and has over 15 years of experience as a human resource
professional. Prior to joining ProSight, Ms. Hilder served as Human Resources Manager for the National Football
League Alumni Association with a focus on workforce planning and talent management, she led the campus recruiting
function at Rothstein Kass and began her HR career at New York University Clinical Cancer Center. Ms. Hilder holds a
bachelor’s degree from Ramapo College of New Jersey and her SPHR designation from the HRCI.

Leland Kraemer. Mr. Kraemer joined ProSight in 2009 and leads our assessment, pricing and management of

risk. Prior to joining ProSight, Mr. Kraemer was an actuary with Fireman’s Fund Insurance Company from 1998 to
2009. Mr. Kraemer is a Fellow of the Casualty Actuarial Society, holds an MA in Statistics (with an emphasis on
Applied Statistics) from the University of California at Santa Barbara and a BA in Mathematics from Grinnell College.

Donna Biondich. Ms. Biondich joined ProSight in November 2019 as Chief Claims Officer. Prior to joining
ProSight, Ms. Biondich served as an independent insurance consultant from 2017 through November 2019, providing
and reviewing options for coverage resolution. From 2009 to 2017, Ms. Biondich served in claim officer positions at
Colony, a division of Argo Group and Caliber One, a division of PMA. Ms. Biondich holds a BS in Business
Administration and Management from Shippensburg University of Pennsylvania and a chartered property casualty
underwriter designation. Ms. Biondich has also attended Harvard University Leadership Development programs
designed for executives.

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Lee Lloyd. Mr. Lloyd joined ProSight in 2016 and, prior to becoming the Field Operations Officer in
September of 2019, served as Vice President Actuarial Pricing. Mr. Lloyd has over 28 years of underwriting, actuarial,
and product development experience. Before joining ProSight, Mr. Lloyd founded and operated Strategic Actuaries from
2012 to 2016 after spending 2009 to 2011 as the President of Programs and Executive Vice President of Program
Development at Crump Commercial Insurance Services. From 1999 to 2009, Mr. Lloyd held multiple senior
management positions leading the underwriting, actuarial, and field risk management services departments at United
Educators Insurance. From 1994 to 1999, Mr. Lloyd was an actuary for Zurich Financial Services with his actuarial
career beginning at Travelers Insurance Companies from 1991 to 1994. Mr. Lloyd is a Fellow of the Casualty Actuarial
Society and holds a BS in Actuarial Science from New York University’s Stern School of Business.

Erin Cullen. Ms. Cullen joined ProSight in 2013 and, prior to becoming Customer Segment President in March
2019, served as Customer Group President, program executive and manager. Before joining ProSight, Ms. Cullen was a
Production Underwriter and Client Executive at GCube Insurance Services, Inc. from 2011 to 2013 and a Placement
Specialist with Marsh from 2008 to 2011. Ms. Cullen holds a BS in Biology from Wake Forest University.

Ricardo Victores. Mr. Victores joined ProSight in 2011 and has over 30 years of experience in underwriting
and sales leadership in the insurance industry. Prior to joining ProSight, Mr. Victores was a Regional Executive with
Golden Eagle Insurance from 2008 to 2011 and a segment owner with Fireman’s Fund Insurance Company from 1989 to
2008. Mr. Victores holds an MBA and BA in Business Finance from California State University — Fullerton.

Nestor Lopez. Mr. Lopez joined ProSight in 2014 and, prior to becoming our Chief Information Officer in

August 2018, served as Vice President, Information Technology. Before joining ProSight, Mr. Lopez was AVP,
Enterprise Program Management supporting Underwriting, Sales and Marketing portfolios at CNA Insurance from 2011
to 2014 and AVP, Strategic Operations and Procurement with Fireman’s Fund Insurance Company from 2004 to 2011.
Mr. Lopez also spent four years at GE Capital Corporation from 2000 to 2004 as a Systems Analyst and IT Project
Manager. Mr. Lopez holds a BS in Industrial Engineering from the University of Puerto Rico.

Vivienne Zimmermann. Ms. Zimmermann joined ProSight in 2014 and, prior to becoming Chief Customer

Experience Officer in February 2019, served as VP Customer Experience and Director of Operations/IT. Prior to joining
ProSight, Ms. Zimmermann founded and operated viviZ from 2008 – 2013, worked at Fireman’s Fund Insurance
Company from 2002 to 2006 in various director-level roles ultimately serving as Director of Marketing (Customer
Research and Strategies), startup Citadon from 1998 to 2001, and Deloitte & Touche from 1995 to 1998. Ms.
Zimmermann holds a BA in Economics from Stanford University.

Robert Bednarik. Mr. Bednarik joined ProSight in 2010 as President of Program Underwriting — East. From

2014 – 2019, he served as Customer Group President and Niche President before becoming Customer Segment President
in March of 2019. Prior to joining ProSight, Mr. Bednarik worked at Fireman’s Fund Insurance Company as Regional
Sales Executive from 2005 – 2009, and has an additional 13 years of insurance brokerage experience from time at
Acordia (owned by multiple companies during his tenure, ultimately Wells Fargo) from 1992 to 2002 and Aon from
2002 to 2005. Mr. Bednarik holds a BA in Economics from Drew University.

Kevin Topper. Mr. Topper joined ProSight in 2010 and has over 30 years of experience in the media and
entertainment insurance industry. Prior to becoming Customer Segment President in November 2019, Mr. Topper served
as Niche President and VP of Entertainment Programs. Mr. Topper holds a BA in Political Science and History from the
University of Wisconsin — Madison.

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Board of Directors

Our business and affairs are managed under the direction of our Board of Directors. The following table

presents information regarding the members of our Board of Directors.

Name
Lawrence Hannon
Steven Carlsen
Anthony Arnold
Eric W. Leathers
Bruce W. Schnitzer
Richard P. Schifter
Clement S. Dwyer, Jr.
Otha T. Spriggs, III
Sheila Hooda
Magnus Helgason

Age
51
62
40
46
74
65
70
58
61
36

Position(s)
Director, President and Chief Executive Officer
Chairperson of the Board
Director
Director
Director
Director
Director
Director
Director
Director

Director
Since
2019
2010
2010
2012
2010
2010
2010
2019
2019
2020

Set forth below is biographical information about each of the directors named in the table above, to the extent

not provided under “— Executive Officers”.

Steven Carlsen. Mr. Carlsen has been President of Shadowbrook Advising since 2006. He is Chairman of the
Underwriting Committee of Orchid Underwriters, has been one of its directors since 2014 and served as Chairman of its
Board of Directors from 2017 to 2019. Mr. Carlsen was co-founder of Endurance Specialty Holdings where he served
from 2001 to 2017, including as its Chief Operating Officer and Chief Underwriting Officer. Mr. Carlsen began his
career as a property facultative underwriter from 1979 to 1981 and later as a treaty account executive from 1985 to 1986
for Swiss Reinsurance Company. Mr. Carlsen spent the intervening years, 1981 to 1985, with the Reinsurance Division
of Allstate Insurance Company. He joined NAC Re in 1986, ultimately heading their Property and Miscellaneous Treaty
Department (which included aviation, marine, surety and finite business). In 1994, Mr. Carlsen served as Chief
Underwriter-North America at CAT Limited and in 1997, he co-founded CAT Limited’s finite insurer, Enterprise Re.
Since 1999 until he joined Endurance in 2001, Mr. Carlsen worked as a consultant, principally with three Morgan
Stanley Private Equity insurance ventures and Plymouth Rock Group. Mr. Carlsen holds a BA in Mathematics from
Cornell University and a PhD in Economics from Fordham University’s Graduate School of Arts and Sciences.

Anthony Arnold. Mr. Arnold is a Managing Director at Goldman Sachs, where he heads Financial and
Information Services investing within the Americas Corporate Private Equity business in the Merchant Banking
Division. He joined Goldman Sachs in 2001 and became a Managing Director in 2013. Mr. Arnold also serves as a
director of Financeit (CommunityLend Holdings), Genesis Capital and nanoPay, Inc., and is a board observer at Axioma,
Inc. and IrisGuard Holdings Ltd. He previously served as a director of Ipreo and Sigma Electric Products. Mr. Arnold
holds a Bachelor of Science in Economics from the University of Bristol, UK.

Eric W. Leathers. Mr. Leathers has been a partner of Further Global Capital Management since 2018 and

serves as a member of its Investment Committee. From 2012 to 2018, he was a Partner of TPG and led the firm’s
investment efforts in the financial services sector. He has over 20 years of experience investing across the sector,
including in the areas of insurance, asset management, specialty finance and depository institutions. Prior to joining
TPG, Mr. Leathers was a Managing Director and Partner with Pine Brook Partners beginning in 2009, where he shared
responsibility for the management of the firm’s financial services investment activities. Before joining Pine Brook, he
was a Partner at Capital Z Financial Services Partners from 1998 to 2009 and was responsible for sourcing and
structuring investments within the financial services industry. Mr. Leathers began his career in the investment banking
division of Donaldson, Lufkin and Jenrette from 1995 to 1998, where he specialized in mergers and acquisitions and
corporate finance transactions for financial institutions. Mr. Leathers has previously served as a director of several
privately-held and publicly-traded companies.

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Bruce W. Schnitzer. Mr. Schnitzer has been a private equity investor since 1985 and the Managing Director
and Chairman of Wand Partners, which he founded in 1987. From 1977 to 1985, Mr. Schnitzer was a senior executive
and Director of Marsh & McLennan Companies, Inc. He served as President and CEO of Marsh & McLennan,
Incorporated from 1983 to 1985 and as Chief Financial Officer of Marsh & McLennan Companies, Inc. from 1977 to
1982. Prior to joining Marsh & McLennan, Mr. Schnitzer was a Vice President at JP Morgan/Morgan Guaranty Trust
Company, where he served since joining the firm in 1967 and last served as Vice President and head of Mergers and
Acquisitions. Mr. Schnitzer is a director of several Wand portfolio companies. In addition, he is Chairman of the
Institute of Human Origins. Mr. Schnitzer holds an MBA and BBA, both from the University of Texas.

Richard P. Schifter. Mr. Schifter has been a Senior Advisor at TPG since 2013 and was a partner at TPG from

1994 through 2013. Prior to joining TPG, Mr. Schifter was a partner at the law firm of Arnold & Porter in Washington,
D.C., where he specialized in bankruptcy law and corporate restructuring. He joined Arnold & Porter in 1979 and was a
partner from 1986 through 1994. Mr. Schifter currently serves on the boards of directors of Avianca Holdings, S.A. and
LPL Financial Holdings Inc. Mr. Schifter also serves on the Board of Overseers of the University of Pennsylvania Law
School. In addition, Mr. Schifter is a member of the Board of Directors of the American Jewish International Relations
Institute and a member of the national advisory board of Youth, I.N.C. (Improving Non-Profits for Children). Mr.
Schifter previously served on the boards of directors of Caesars Entertainment Corporation from 2017 through 2019,
American Airlines Group, Inc. from 2013 through 2018, Direct General Corporation from 2011 to 2016, Ariel Holdings,
Ltd. From 2006 to 2012, Endurance Specialty Reinsurance from 2004 to 2006, American Beacon Advisors, Inc. from
2008 through 2015, Republic Airways, Inc. from 2009 through 2013, EverBank Financial Corporation from 2010 to
2017, Ryanair Holdings, PLC from 1996 through 2003, America West Holdings Inc. from 1994 to 2005, U.S. Airways
Group Inc. from 2005 to 2006 and Midwest Airlines, Inc. from 2007 to 2009. Mr. Schifter holds a JD from the
University of Pennsylvania Law School and a BA from George Washington University.

Clement S. Dwyer, Jr. Mr. Dwyer is Chairman of American Overseas Group Ltd. and a Managing Member of

Snow Squall LLC. He serves on the boards of directors of Dowling & Partners Holdings LLC, Old American Holdings
LLC and Old American Insurance Investors. Mr. Dwyer was previously with Guy Carpenter & Co., Inc. from 1970 to
1996, ultimately serving as a Director & Executive Vice President, President & Chief Executive Officer of Signet Star
Holdings, Inc. in 1996, and President of URSA Advisors, a consulting firm, from 1997 to 2015, through which he served
as an advisor to various investment funds, including certain funds associated with The Beekman Group LLC from 2006
to 2014. He also served on the board at Montpelier Re Holdings Ltd., Holborn Corp., Orpheus Group Ltd., RAM
Reinsurance Co. Ltd, Vanbridge Holdings LLC and Grandparents.com, Inc. On April 14, 2017, Grandparents.com, Inc.
filed for Chapter 11 bankruptcy protection and its liquidation plan was approved by the U.S. Bankruptcy Court on
September 20, 2017. Mr. Dwyer received his undergraduate degree from Tufts University.

Otha T. Spriggs, III. Mr. Spriggs is the former President and CEO of The Executive Leadership Council,
having served in that role from 2018 until December 31, 2019. He is a former member of the boards of TIAA, FSB
(TIAA Direct), Savannah State University’s College of Business Administration, and the Institute for Corporate
Productivity. Mr. Spriggs recently served as Senior Executive Vice President and Chief Human Resources Officer at
TIAA from 2012 to 2018, where he led all aspects of human resources strategy and execution for the company’s global
workforce. He joined TIAA from Boston Scientific, where he was Chief Human Resources Officer from 2009 to 2012.
Previously, Mr. Spriggs served as Senior Vice President of Human Resources, Chief Diversity Officer, and President of
the Cigna Foundation at Cigna from 2001 to 2009. Mr. Spriggs also held executive leadership roles at The Home Depot
from 1999 to 2001 and Levi Strauss & Co. from 1996 to 1998. He holds a bachelor’s degree in business administration
from Towson University.

Sheila Hooda. Ms. Hooda is the CEO of Alpha Advisory Partners, a company that advises on strategy,
turnaround and transformation, customer centricity and digital business models for companies in the financial and
business services sectors. She serves on the board of Mutual of Omaha Insurance Company, where she is a member of
its Audit and Compensation committees, and Virtus Investment Partners, where she is a member of its Audit and Risk &
Finance Committees. Prior to founding Alpha Advisory Partners in 2013, she served as the global head of strategy and
business development in the Financial & Risk division, Investors segment at Thomson Reuters, and earlier as senior
managing director in strategy, M&A and corporate development roles at TIAA. Ms. Hooda previously was managing
director in the Global Investment Banking Division at Credit Suisse, and prior leadership roles include Bankers Trust,

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Andersen Consulting and McKinsey & Co. Ms. Hooda is an alumna of the Indian Institute of Management, Ahmedabad
and has an MBA from the University of Chicago Booth School of Business.

Magnus Helgason. Mr. Helgason is a Vice President at Goldman Sachs, where he focuses on Financial

Services investing within the Americas Corporate Private Equity business in the Merchant Banking Division. He joined
Goldman Sachs in 2013 and was named Vice President in 2016. Prior to joining the firm, Mr. Helgason served as
Director - Asset & Liability Management at Landsbankinn. Mr. Helgason also serves on the board of Genesis Capital.
Mr. Helgason holds a Bachelor of Science in Industrial Engineering from the University of Iceland and MBA from
Columbia Business School, where he graduated with Dean’s Honors.

As discussed under “Certain Relationships and Related Party Transactions — Stockholders’ Agreement”, the

principal stockholders have the right to designate for election certain of our directors.

There are no family relationships between any of our executive officers or directors.

Board Committees and Corporate Governance

Our Board of Directors has five standing committees: Audit Committee, Compensation Committee,

Nominating and Governance Committee, Investment Committee and Risk Committee.

Each of our directors other than Mr. Hannon is independent under the NYSE listing rules (an “independent
director”). In assessing the independence of directors, the Board of Directors considers the relationships of Messrs.
Arnold and Helgason with Goldman Sachs and of Messrs. Leathers and Schifter with TPG, as described in their
respective biographical information above.

Audit Committee

Ms. Hooda and Messrs. Schifter, Dwyer and Schnitzer serve on our Audit Committee, which is chaired by Mr.

Schnitzer. All members of our Audit Committee qualify as independent under the NYSE listing rules and SEC Rule
10A-3 under the Exchange Act. Each independent member of our Audit Committee is financially literate, and each of
Messrs. Dwyer and Schnitzer is an “audit committee financial expert” as used in Item 407 of SEC Regulation S-K.

The purpose of the Audit Committee is to assist the Board of Directors’ oversight of (i) the integrity of our

financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditors’
qualifications and independence, and (iv) the performance of the independent auditors and our internal audit function.
The responsibilities of the Audit Committee include:

•

appointment, compensation, retention and oversight of the work of our independent auditors and any other
registered public accounting firm engaged for the purpose of preparing or issuing an audit report or to
perform audit, review or attestation service;

pre-approval, or the adoption of appropriate procedures to pre-approve, all audit and non-audit services to
be provided by our independent auditors;

consideration of reports or communications submitted to the Audit Committee by our independent auditors,
including reports and communications related to the overall audit strategy;

• meeting with management and our independent auditors to discuss the scope of the annual audit, to review
and discuss our financial statements and related disclosures, to discuss any significant matters arising from
any audit and any major issues regarding accounting principles and financial statement presentations;

•

discussing with the General Counsel any significant legal, compliance or regulatory matters that may have
a material effect on our financial statements, business or compliance policies; and

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•

establishing procedures for the receipt, retention and treatment of complaints received by us regarding
accounting, internal accounting controls or auditing matters, and for the confidential, anonymous
submission by employees of concerns regarding questionable accounting or auditing matters.

Our Audit Committee Charter is available on our website.

Compensation Committee

Mr. Carlsen, Ms. Hooda, Mr. Leathers and Mr. Spriggs serve on our Compensation Committee, which is

chaired by Mr. Spriggs. The responsibilities of the Compensation Committee include:

•

reviewing and approving corporate goals and objectives relevant to the compensation of the Chief
Executive Officer (“CEO”), evaluating his performance in light of those goals and objectives and, either as
a committee or together with the other independent directors (as directed by the Board of Directors),
determining and approving his compensation level based on this evaluation;

reviewing and recommending to the Board of Directors for approval corporate goals and objectives
relevant to non-CEO compensation, evaluating their performance in light of those goals and objectives and
determining and recommending to the Board of Directors for approval their compensation levels based on
this evaluation;

reviewing and recommending to the Board of Directors for approval any new equity compensation plan or
any material change to an existing plan;

in consultation with management, together with the Board of Directors, overseeing regulatory compliance
with respect to compensation matters; and

approving awards of cash or equity compensation or any changes to the compensation for the CEO and our
other senior executive officers in amounts of less than $250,000 per individual.

Our Compensation Committee Charter is available on our website.

Nominating and Governance Committee

Mr. Carlsen, Mr. Dwyer, Ms. Hooda and Mr. Schifter serve on our Nominating and Governance Committee,

which is chaired by Ms. Hooda. The responsibilities of the Nominating and Governance Committee include:

•

identifying and recommending director nominees, consistent with criteria approved by the Board of
Directors;

developing and recommending to the Board of Directors standards to be applied in making determinations
as to the absence of material relationships between us and a director; and

•

developing and recommending corporate governance guidelines to the Board of Directors.

Our Nominating and Governance Committee Charter is available on our website.

Investment Committee

Messrs. Arnold, Spriggs, Hannon and Schifter serve on our Investment Committee, which is chaired by Mr.

Arnold. The responsibilities of the Investment Committee include reviewing and making recommendations to the Board
of Directors with respect to our investment approach, strategy and guidelines, portfolio composition and investment
performance.

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Our Investment Committee Charter is available on our website.

Risk Committee

Messrs. Carlsen, Hannon and Leathers serve on our Risk Committee, which is chaired by Mr. Carlsen. The

responsibilities of the Risk Committee include assisting the Board of Directors in overseeing and reviewing information
regarding enterprise risk management, including significant policies, procedures and practices employed to manage risk.

Our Risk Committee Charter is available on our website.

Lead Director

If at any time the Chairman of the Board of Directors is not an independent director, the Board of Directors will

designate a “lead director” who is an independent director. The lead director presides over meetings of the directors
when the Chairman of our Board of Directors is absent, that are held by non-management directors without any
management directors present and that are held by independent directors. We do not currently have a lead director.

The lead director has, among other things, the authority to:

•

call meetings of the independent directors;

consult on and approve meeting agendas and schedules of our Board of Directors;

serve as a liaison between the non-management directors and the Chairman, as a contact person to facilitate
communications by our employees, stockholders and others with the non-management directors; and

review the quality, quantity, appropriateness and timeliness of information provided to our Board of
Directors.

Code of Ethics and Conduct

In accordance with the NYSE listing requirements and SEC rules, we have adopted a code of business conduct
and ethics that applies to all of our employees, the members of our Board of Directors and our officers. The full text of
the code is available on the Investor Relations section of our website. We will make any legally required disclosures
regarding amendments to, or waivers of, provisions of our code of ethics on our website.

NYSE Independence Requirements

Because the principal stockholders own a majority of our stock, we are a “controlled company” for purposes of
the NYSE listing rules. Accordingly, our Board of Directors is not required to have a majority of independent directors
and our Compensation Committee and Nominating and Governance Committee is not required to meet the director
independence requirements to which we would otherwise be subject until such time as we cease to be a “controlled
company.” Notwithstanding this exemption, our Board of Directors, Compensation Committee and Nominating and
Governance Committee currently meet the director independence requirements under the NYSE rules.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee are current or former officers or employees of the

Company. We are party to certain transactions with the principal stockholders described in “Certain Relationships and
Related Party Transactions.” None of our executive officers serves as a director or member of a compensation committee
of another entity.

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Item 11. Executive Compensation

Our executive compensation program is designed to attract, motivate and retain high quality leadership and
incentivize our executive officers to achieve performance goals over the short- and long-term, which also aligns the
interests of our executive officers with those of our stockholders.

Our named executive officers (or “NEOs”) for 2019, who consist of each person that served as our principal

executive officer during 2019 and our two other most highly compensated executive officers, were:

• Lawrence Hannon, our President and Chief Executive Officer since May 1, 2019, who previously served as

Chief Operating Officer;

• Anthony S. Piszel, Chief Financial Officer;

• Robert Bailey, Chief Underwriting and Risk Officer; and

•

Joseph J. Beneducci, our former Chief Executive Officer and Chairman of the Board of Directors, who, as
of May 1, 2019, served as our Executive Chairman until his resignation as Executive Chairman, effective
as of February 1, 2020.

Summary Compensation Table

The following table presents compensation awarded to, earned by and paid to our named executive officers for

the fiscal year ended December 31, 2019:

Name and Principal
Position
Lawrence Hannon.
President and Chief
Executive Officer(4)

Year
2019
2018

Salary
$718,125
$465,479

Stock
Awards(1)

$5,376,463
$299,823

Non-Equity
Incentive Plan
Compensation(2)

All Other

Compensation(3)

Total

$1,125,000
$695,250

$14,000
$13,750

$7,233,588
$1,474,302

Anthony S. Piszel
Chief Financial Officer

Robert Bailey
Chief Underwriting and
Risk Officer
Joseph J. Beneducci
Former Chief Executive
Officer and
Chairman(5)

2019
2018

$479,813
$435,054

$445,003
$409,500

$883,438
$767,812

$2,983,337
$225,741

$4,777,429
$299,823

$0
$758,193

$660,000
$875,400

$468,750
$412,000

$354,000
$2,124,375

$0
$0

$4,123,150
$1,536,195

$14,000
$13,750

$14,000
$20,903

$5,705,182
$1,135,073

$1,251,438
$3,671,283

(1) For 2019, the amounts represent the grant date fair value, as determined in accordance with Financial Accounting
Standards Board (“FASB”) codified in Accounting Standards Codification Topic 718, Compensation – Stock
Compensation (“ASC Topic 718”), of equity-based awards granted to NEOs in July 2019 as follows: Mr.
Hannon — 17,857 time-vesting RSUs granted in respect of 2019, 17,857 performance-vesting RSUs granted in
respect of 2019, 223,319 supplemental RSUs, and 125,000 founders grant RSUs; Mr. Piszel — 16,369 time-vesting
RSUs granted in respect of 2019, 16,369 performance-vesting RSUs granted in respect of 2019 and 180,357
supplemental RSUs; and Mr. Bailey — 7,441 time-vesting RSUs granted in respect of 2019, 7,441 performance-
vesting RSUs granted in respect of 2019, 201,364 supplemental RSUs, and 125,000 founders grant RSUs. The
grant date fair value of the 2019 performance-vesting RSUs, assuming maximum performance, is as follows: Mr.
Hannon, $375,003, Mr. Piszel, $343,753 and Mr. Bailey, $156,251. The supplemental RSU awards and founders
grant RSU awards are special one-time initial public offering (“IPO”) awards. Specifically, the supplemental RSUs
were granted in exchange for the forfeiture of certain profits interests awards (“P Shares”) the NEOs held prior to

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the IPO, and the founders RSUs were granted to Messrs. Hannon and Bailey due to the role they played in founding
the Company. For 2018, the amounts represent the grant date value of the P Share awards granted in March 2018
under the PGHL Amended and Restated 2010 Equity Incentive Plan, effective November 23, 2010, and amended
and restated as of February 2015 (the “2010 Plan”). The number of P Shares granted to each NEO was: Mr.
Beneducci — 195,899 P Shares; Mr. Hannon — 77,467 P Shares; and Mr. Piszel — 58,326 P Shares; and Mr.
Bailey — 77,467 P Shares. As part of the IPO, the NEOs (other than Mr. Beneducci) forfeited all outstanding P
Shares and were granted supplemental RSUs. On May 3, 2019, we entered into a Transition and Separation
Agreement with Mr. Beneducci, pursuant to which Mr. Beneducci resigned from his positions as Chief Executive
Officer and President of the Company, effective May 1, 2019, and agreed to serve as Executive Chairman of the
Board through an agreed transition period. Mr. Beneducci forfeited all of his P Shares as of the date of his
separation agreement. On January 23, 2020, we entered into an amendment to the Transition and Separation
Agreement with Mr. Beneducci. See “— Narrative Disclosure to Summary Compensation Table, Employment
Agreements” below for more information regarding these agreements.

(2) The amounts in this column represent annual incentive cash awards earned under the Company’s Short Term

Incentive Program (the “STIP”) for 2018 and 2019 performance as determined by the Compensation Committee in
the first quarter of 2019 and 2020, respectively. See “— Annual Incentive Awards” below for more information.

(3) The items comprising “All Other Compensation” for 2019 are:

Name
Joseph J. Beneducci
Lawrence Hannon
Robert Bailey

Contributions to
Defined
Contribution
Plans(a)

$14,000
$14,000
$14,000

Insurance
Premiums(b) Total

$0 $14,000
$0 $14,000
$0 $14,000

(a) Represents matching contributions made by ProSight under its 401(k) plan. See “— Retirement Benefits” below for

more information.

(b) Represents life insurance premiums paid by ProSight for the benefit of Mr. Beneducci.

The items comprising “All Other Compensation” for 2018 are:

Name
Joseph J. Beneducci
Lawrence Hannon
Robert Bailey

Contributions to
Defined
Contribution
Plans(a)

Insurance
Premiums(b) Total

$13,750
$13,750
$13,750

$7,153 $20,903
$0 $13,750
$0 $13,750

(4) Effective May 1, 2019, the Board appointed Mr. Hannon to serve as President and Chief Executive Officer of the

Company and as a director.

(5) Mr. Beneducci resigned from his positions as Chief Executive Officer and President of the Company, effective May

1, 2019, and served as Executive Chairman of the Board until February 1, 2020.

Narrative Disclosure to Summary Compensation Table

The following describes the material elements of our compensation program for the year ended December 31,

2019 as applicable to our NEOs and reflected in the Summary Compensation Table above.

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Base Salary

Each NEO’s base salary is a fixed component of compensation for each year for performing specific job duties

and functions. The total base salaries earned by our NEOs in 2019 are disclosed in the Summary Compensation Table
above.

Base salaries for our NEOs are reviewed periodically and adjusted when our Compensation Committee

determines an adjustment is appropriate.

Annual Incentive Awards

Each named executive officer is eligible to receive a discretionary annual bonus under the Company’s STIP

administered by the Company, under which awards are granted on an annual basis at the discretion of the Compensation
Committee. For 2019, the total STIP pool for all employees was equal to $12.1 million. The Compensation Committee
has the discretion to increase or decrease the size of the STIP pool based on factors such as relative industry performance
and investments in medium to long-term initiatives, and also has the sole discretion to determine the actual amounts
earned for all NEOs. The amounts earned by the NEOs for 2019 are provided in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table above. We expect to pay annual bonuses under the 2019
STIP entirely in cash and by March 15, 2020.

For 2020, the CEO’s annual bonus under the STIP will be determined by measuring certain metrics against
performance goals set by the board, and will result in a CEO bonus ranging from 0% to 150% of a board set target.
These performance metrics and their relative weightings are:

• GWP from Customer Segments - 20% weight
• Net loss ratio - 20% weight
• Net expense ratio - 20% weight
• Adjusted operating return on equity - 40% weight

2020 annual bonuses under the STIP in respect of our executive officers (excluding the CEO) and certain other

key employees will closely conform to the same formula. Any annual bonuses under the STIP will be paid in cash no
later than March 15th of the calendar year following the calendar year in which the bonus was earned.

The CEO’s bonus is determined by the Compensation Committee in its sole discretion, by measuring the
Company’s actual financial performance against performance goals. The Compensation Committee, however, has
additional discretion related to the CEO’s bonus in connection with the Company’s achievement in respect of (i)
diversity and inclusion, (ii) talent management, (iii) Company culture and (iv) environmental, social and governance
issues.

Long-Term Incentive Plan Awards

Prior to the IPO, long-term incentive plan awards were granted under the 2010 Plan. RSUs awarded to our
NEOs under the 2010 Plan generally vested 50% on each of the 1st and 2nd anniversaries of grant subject to continued
employment and automatically upon a change in control, a termination of employment due to death, disability, or by us
without cause, or upon the NEO’s resignation for good reason. Vested RSUs settle on the earliest to occur of (1) the 5th
anniversary of grant, (2) a separation from service, (3) a change in control or (4) the death or disability of the grantee. In
2016, Mr. Beneducci was granted performance-vesting RSUs that vest upon the consummation of a transaction in which
the principal stockholders dispose of at least 80% of their shares, provided that the principal stockholders receive certain
minimum returns. These RSUs did not vest in connection with our IPO and instead converted into 64,600 unvested
performance-based RSUs. P Share awards were also granted under the 2010 Plan as a form of long-term incentive
awards. All outstanding P Share awards were forfeited immediately prior to the IPO.

Our board of directors adopted our 2019 Equity Incentive Plan (the “2019 Plan”) in connection with the IPO to
replace our 2010 Plan. RSUs outstanding under our 2010 Plan prior to the IPO converted into RSUs based on shares of

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common stock of the Company under our 2019 Plan and otherwise continue to be governed by their existing terms prior
to the IPO.

During 2019, our NEOs received the following long-term incentive awards under our 2019 Plan:

2019 Long-Term Equity Incentive Plan Awards

On July 25, 2019, each of our NEOs other than Mr. Beneducci was granted 2019 annual long-term incentive

awards, 50% of which are in the form of time-vesting RSUs and 50% of which are in the form of PSUs.

The time-based RSUs will vest annually over three years, subject to continued employment through each such

date, provided that (i) upon the executive’s termination of employment due to death or “disability” (as defined in the
2019 Plan) or, during the six months preceding or 24 months following a change in control, upon the executive’s
termination of employment by us without “cause” or by the executive for “good reason” (in each case, as defined in the
2019 Plan), the time-based RSUs will vest in full and (ii) upon the executive’s termination of employment by us without
cause or by the executive for good reason in the absence of a change in control, a pro-rated portion of the unvested RSUs
will vest.

The PSUs will vest based on the compound book value per share growth over a three-year performance period

from January 1, 2019 through December 31, 2021, subject to continued employment through the third anniversary of the
grant date, provided that (i) upon the executive’s termination of employment due to death or disability or, during the six
months preceding or 24 months following a change in control, upon the executive’s termination of employment by us
without cause or by the executive for good reason, the performance-based RSUs will vest based on target performance if
the performance period is not complete and actual performance if the performance period is complete and (ii) upon the
executive’s termination of employment by us without cause or by the executive for good reason in the absence of a
change in control, a pro-rated portion of the PSUs will vest based on actual performance on the third anniversary of the
grant date. PSUs may vest from 0% to 150% of target depending on the level of achievement of the performance
metrics.

The 2019 annual long-term incentive awards were equal to 5/12 of each NEO’s target annual long-term equity

award opportunity.

Supplemental RSU Awards

In connection with the IPO, on July 25, 2019, each of our NEOs other than Mr. Beneducci was granted a

supplemental equity award in the form of time-vesting RSUs, 25% of which were vested on grant date, 25% of which
will vest on the second anniversary of the grant date and 50% of which will vest on the third anniversary of the grant
date, provided that upon the executive’s termination of employment due to death or disability or upon the executive’s
termination of employment by us without cause or by the executive for good reason, the time-based RSUs will vest in
full. The supplemental RSUs were granted to each NEO in exchange for each NEO’s forfeiture of his P Shares awards.

Founders Grant RSU Awards

In connection with the IPO, on July 25, 2019, Messrs. Hannon and Bailey were also granted a founders grant

award in the form of time-vesting RSUs, which will cliff vest on the third anniversary of the grant date, provided that the
time-based RSUs will vest in full upon the executive’s termination of employment due to death or disability or the
executive’s termination of employment by us without cause or by the executive for good reason.

Employee Benefits and Perquisites

Our NEOs are eligible to participate in our health and welfare plans to the same extent as are all full-time

employees generally. We generally do not provide our NEOs with perquisites or other personal benefits. In addition, we
reimburse our NEOs for their necessary and reasonable business and travel expenses incurred in connection with their

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services to us, and our NEOs are entitled to indemnification for the term of their employment and for six years thereafter
pursuant to the terms of their employment agreements.

Retirement Benefits

We maintain a 401(k) plan for employees. The 401(k) plan is intended to qualify under Section 401(k) of the

Code, so that contributions to the 401(k) plan by employees or by us, and the investment earnings thereon, are not
taxable to the employees until withdrawn, and so that contributions made by us, if any, will be deductible by us when
made. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limits and
have the amount of such reduction contributed to their 401(k) plan account. The 401(k) plan permits us to make
contributions up to the limits allowed by law on behalf of all eligible employees. In 2019 we elected to make matching
contributions to eligible participants in an amount up to 100% of the first 4% of eligible compensation and 50% of the
next 2% of eligible compensation contributed to the plan as deferral contributions. In 2020, we have elected to make
matching contributions to eligible participants in an amount up to 100% of the first 6% of eligible compensation.

Nonqualified Deferred Compensation

Our NEOs did not participate in, or earn any benefits under, a non-qualified deferred compensation plan