2018
Annual Letter to Shareholders
April 22, 2019
To Our Fellow Shareholders,
Tiptree’s book value per-share as of year-end 2018 was $10.79, which combined with dividends,
resulted in a total return for the year of 9.6%. Investors who participated in our June 2007 initial capital
raise have experienced a compounded annual return of 9.6% through the end of 2018 (as measured by
growth in book value per share plus dividends received), as compared to 6.8% for the S&P 500 and
5.8% for the Russell 2000 over the same period. For the year, we earned $29.9 million of net income
and $54.9 million of Operating EBITDA from our operations and investing activities.1 We also
increased our annual cash dividends paid (for the second consecutive year) by 12.5% to 13.5 cents per
share. In light of a particularly challenging investment environment in 2018, we are pleased with these
results. In addition, significant progress was made on our long-term strategic goals of expanding our
insurance operations, simplifying our capital structure by eliminating our dual class structure and
growing and refining investments held within Tiptree Capital.
We are well aware, and a bit perplexed, that Tiptree’s public market share price does not currently
reflect our GAAP book value, not to mention our “intrinsic” value which we believe currently exceeds
our GAAP book value by a significant amount. Management is extremely focused on actions that we
might take to better align the price at which our shares trade with our “intrinsic” value, but
simultaneously, we will also always consider buying back our shares when they trade at a steep
discount. To this point, in 2018 and early 2019, we repurchased almost 3.7 million shares at an average
40% discount to book value, and since 2014 we have repurchased nearly 30% of the Company’s shares
that were outstanding at the end of 2014. When considering buying back shares, we always evaluate
the one-time after-tax gain versus using that capital for new acquisitions that may benefit us well into
the future. But it is hard for us to pass up buying dimes for nickels when the opportunity presents itself.
Over time, we strongly believe that through the actions currently being undertaken by management to
simplify our business model and financial reporting, along with producing consistent, long-term
performance, market participants will ultimately recognize consistent, superior results and value an
investment in our shares accordingly.
2018 was noteworthy in that we made no business acquisitions, although we pursued many. With
private equity investors flush with capital, and debt financing still easy to access, we are finding that
businesses are trading hands at levels we would rather not participate. Without abandoning our
discipline, we will continue to look for acquisition opportunities that have the following attributes: (1)
strong and experienced management teams, (2) attractive and stable cash returns, (3) complement
existing businesses or strategies, and (4) have sustainable and scalable business models. As our
experience in 2018 showed, there will be years where we do not find any acquisitions, but we will
always be focused on diversifying our platform and improving our existing companies through
attractively priced and well managed business purchases.
Throughout the year we took significant steps toward our objective to grow and refine our investments
held within Tiptree Capital. We sold our seniors housing business to Invesque in February of 2018
resulting in a total book value gain of $1.16 per share. Although our Invesque shares are marked to
market, and thus will impact our earnings from period to period, we continue to believe in the long-
term prospects of the sector. In the second half of 2018, we invested $50 million acquiring three dry-
1 For a reconciliation to GAAP financials, see “Non-GAAP Measures” beginning on p. 41 of our Form 10-K for the year ended December 31, 2018.
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bulk vessels, at what we believe is an attractive entry point to the shipping sector. Tiptree’s permanent
capital base allows us to view our investments in this sector through a long-term lens, providing
competitive advantages to alternative capital sources such as private equity funds. Although you don’t
have to go far to hear stories of the losses shipping has inflicted on some investors in the past, it has
also produced its fair share of wealth throughout a centuries long history. It is still early days for us in
this sector, but we already see the sprouts of what we think could be a gem of a business. Last, as we
recently announced in February, we have taken steps to enhance Tiptree’s asset management
capabilities by allocating $75 million of capital to Tricadia to seed new investment funds in exchange
for an ownership position in the management company. We expect these funds to be re-allocated from
existing investments into broader credit strategies. Tricadia has more than a 16 year history of
managing assets across multiple credit products, including commercial and residential mortgage
backed securities, CLOs, asset backed securities as well as the full range of corporate credit products.
In particular, in light of our view that we may be near the latter stages of a U.S. credit cycle, Tricadia
brings a wealth of experience in the corporate distressed sector, which we believe will present
significant investment opportunities in the coming years. In addition, as we grow our insurance related
“float” of paid-in premiums to invest, the Tricadia team will further deepen the bench of Tiptree’s
internal asset management expertise.
We had a great year in our insurance business. We grew gross written premiums to $868.1 million, up
13.0% over 2017 and net written premiums were up 11.7% to $466.8 million. Operating EBITDA2 was
$64.5 million, up 21.0% from 2017, driven by growth in both insurance and fee-generating consumer
service products. We maintained our combined ratio in the low 90’s, demonstrating our continued
ability to underwrite profitably, while increasing written premiums. As we move forward, we believe
our expansion into Europe will enhance our organic growth and complement our U.S. insurance
business. A bit later in the letter, we will look back over our insurance business performance since
acquiring Fortegra in late 2014.
TIPTREE CONSOLIDATED RESULTS
GAAP FINANCIAL HIGHLIGHTS
(dollars in millions, except per share data)
2018
2017
2016
2015
Income before non-controlling interests
Net income attributable to Common Stockholders
Diluted earnings per Common Share
Cash dividends paid per share
$29.9
23.9
0.69
$0.135
$5.2
3.6
0.11
$0.12
$32.3
25.3
0.78
$0.10
$8.8
5.8
0.17
$0.10
Total assets
Total investments and cash and cash equivalents
Debt
Total stockholders’ equity
$1,864.9 $1,989.7 $2,890.1 $2,495.0
782.9
354.1
399.3
636.0
346.1
396.8
778.5
554.9
390.1
739.4
502.3
397.7
NON-GAAP FINANCIAL HIGHLIGHTS 1
1 For a reconciliation to GAAP financials, see “Non-GAAP Measures” beginning on p. 41 of our Form 10-K for the year ended December 31, 2018.
2
Adjusted EBITDA
Operating EBITDA
Total Capital
Shares outstanding2
Book Value per share1
Total cash returned to investors
$28.8
54.9
666.5
35.9
10.79
19.1
$38.0
60.9
641.1
37.9
9.97
11.8
$78.9
60.5
625.8
36.4
10.14
47.8
$58.4
53.1
598.1
42.9
8.90
8.2
In reporting our financial results, we distinguish between our operating and investment performance by
disclosing non-GAAP measures such as Adjusted EBITDA and Operating EBITDA. Operating
EBITDA, which excludes realized and unrealized investment gains and losses and stock based
compensation, is a primary measure we consider when evaluating the continuing earnings of our
operations and our long-term return on invested capital. We focus on operations, less on mark-to-
market, as we believe investment gains and losses are better assessed over a longer period of time. In
2018, Operating EBITDA was $54.9 million, representing an 8.4% return on total capital, lower than
previous years, primarily a result of not reinvesting capital from 2017 asset sales until the second half
of 2018.
In 2018, our pre-tax income and Adjusted EBITDA, which does not eliminate the above exclusions,
was significantly impacted by unrealized investment losses of approximately $34.8 million on equity
securities and corporate loans. While these results were disappointing in the near-term, we continue to
believe our actively managed investments will deliver attractive returns over the long-term.
As previously stated, our book value per share increased to $10.792 primarily attributable to the gain
on sale of our seniors housing business and improved insurance operations, which were partially offset
by approximately $0.75 per share of mark-to-market unrealized losses. While much of our balance
sheet is held at market prices (e.g. available for sale securities, equity investments, loans), GAAP
accounting for our operating companies does not always reflect what we believe is their true intrinsic
value. The best example is our insurance company where accumulated acquisition-related amortization
has reduced our book value by $1.21 per share, all while the business has grown from $38.9 million of
Operating EBITDA in 2014 to $64.5 million in 2018.
SPECIALTY INSURANCE
Our insurance company, Fortegra Financial, was acquired in December 2014, and below highlights its
exceptional financial performance over the past 5 years:
Year
20143
2015
2016
2017
2018
Gross Written
Premiums
Operating
EBITDA
Combined
Ratio2
$525.0
686.0
708.3
768.3
868.1
$38.9
42.8
49.3
53.3
64.5
89.8%
87.4
89.5
93.2
92.5
1 For periods prior to April 10, 2018, book value per share and shares outstanding assumes the full exchange of the limited partner units of TFP for
Common Stock.
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Compound Annual Growth Rate
10.6%
13.5%
2018 was a strong year generating $64.5 million of Operating EBITDA2, up 21.0% from 2017. Of this,
$45.9 million was related to underwriting and fee-based profits, as represented by the consistent
combined ratio in the low 90’s, with the remaining $18.6 million related to investment income.
Insurance Underwriting – We focus on providing niche and specialty insurance coverages which we
believe allows us to focus on sectors of the insurance market that among other characteristics are
underserved or require specialized product knowledge. We generally like to focus on risk exposures
that result in high frequency and low severity claims activity and have limited exposure to catastrophic
events. In 2017 and 2018, which were record years for catastrophes, our underwriting results were not
materially impacted, as we have been able to maintain a high portion of fee earnings and successfully
deploy risk mitigation strategies which have contributed to a combined ratio that remains in the low
90’s.
We have increased our retention of risk over the years, growing net written premiums from $182.1
million in 2015 to $418.0 million in 2018. We have supported this growth through our contribution of
capital in 2016, refinancing our debt with 40 years notes in 2017, and re-investment of earnings. We
expect growth to continue through our established efforts in the U.S., new operations in Europe, and
potentially, through acquisitions should we find the right deal.
Insurance Investments – The investment portfolio was $463 million at year-end 2018, up 16.9% from
2017 and nearly 2.5 times the size when we acquired Fortegra in late 2014. Operating EBITDA was
$18.6 million in 2018 compared to pre-tax income of $2.8 million, with the difference driven by
sizeable unrealized mark-to-market on equities and corporate loans, much of which was a result of the
broader market decline in late-2018. The good news for 2018 is the majority of our investments are
short duration (to match the liabilities) and therefore our fixed income securities performed well
against relative benchmarks.
Over the long-term, we believe our access to in-house investment resources will allow us to combine
strong underwriting results with superior risk-adjusted returns as a result of our access to alternative
investment opportunities.
TIPTREE CAPITAL
As we have mentioned before, we manage Tiptree with a long-term perspective balancing cash-
flowing investments with opportunities for capital appreciation. Tiptree Capital includes all of our non-
insurance operations and investments where we use our balance sheet capital to invest in a diverse set
of companies and assets.
Tiptree has over a decade of investment experience in multiple sectors including asset management,
financials, real estate and a broad range of specialized credit investments. Realized investments over
that period have yielded an aggregate 24.4% gross IRR2, with many of the holding periods for those
1 For periods prior to April 10, 2018, book value per share assumes the full exchange of the limited partner units of TFP for Common Stock.
2 For a reconciliation to GAAP financials, see “Non-GAAP Measures” beginning on p. 42 of our Form 10-K for the year ended December 31, 2018.
Combined ratio has been adjusted for impacts of purchase price accounting amortization for 2014-2017.
3 Reflects Fortegra results for 2014 prior to adjustments for purchase accounting and inclusion in Tiptree’s financial statements.
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investments ranging from 5-10 years. Unlike typical private equity buyers, our investment horizon is
not limited to a specific time period, but instead driven by optimizing returns.
Our current businesses include asset management operations, mortgage operations, shipping and real
estate through our Invesque ownership position. Tiptree Capital contributed $13.7 million of Operating
EBITDA to our financial results in 2018 driven primarily from Invesque dividends and asset
management fees, but as mentioned, we manage Tiptree Capital on a total return basis.
During 2017 and 2018, we made a strategic decision to decrease our exposure to the levered credit
markets (in the form of CLO subordinated notes and leveraged corporate loans). While this proved to
be a good risk management decision, it significantly decreased our earnings from cash distributions
when comparing 2018 to prior years. Much of that capital was redeployed into shipping which we
believe is at an attractive point in its cycle given global economic dynamics.
CREATING LONG-TERM VALUE FOR OUR SHAREHOLDERS
We believe book value per share plus dividends paid is a fair measurement of the value we create for
our shareholders and if we perform as expected, over time our stock price should trade near or above
our book value per share.1 Below is a reflection of our growth in book value per share plus dividends
paid, both on an annual basis and since Tiptree’s founding in July 2007.
Book Value
Per Share1
Dividends
Paid
$9.07
9.00
8.90
10.14
9.97
10.79
$-
-
0.10
0.10
0.12
0.135
Tiptree
Annual
Return
11.0%
(0.8)
0.0
15.1
(0.5)
9.6
Year
2013
2014
2015
2016
2017
2018
S&P
Annual
Return
32.4%
13.7
1.4
12.0
21.8
(4.4)
Tiptree
Annualized
Return from
July 2007
S&P
Annualized
Return from
July 2007
13.3%
11.5
10.2
10.7
9.6
9.6
5.6%
6.6
6.0
6.6
8.0
6.8
We have taken several actions that we believe will drive the future prospects of our company, position
us for growth and achieve consistent returns. Yet, our share price continues to lag our intrinsic, and
even GAAP book value. Over time, we believe the gap between our intrinsic value and our stock price
will shrink as we grow, drive scale and execute on our long-term strategic objectives.
LOOKING AHEAD
Efficient deployment of your capital is our top priority. We aim to find the best use of capital to help
us create long-term value for our shareholders. We hope to achieve this through a combination of
acquisitions, investments in our existing businesses, opportunistic share repurchases and paying a
consistent dividend. As significant shareholders ourselves, we make decisions with our interests
1 For periods prior to April 10, 2018, book value per share assumes the full exchange of the limited partner units of TFP for Common Stock.
2 IRR presented gross before corporate taxes and corporate expenses. IRR represents the internal rate of return on invested capital based on the realized
proceeds of cash or marketable securities and including the timing of contributions and distributions. Our IRR calculation reflects the impact of asset
specific leverage and may differ from those used by others. Past performance is not indicative of future results.
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aligned with yours; as of April 22nd, 2019, directors, officers, employees and related trusts owned
28.0% of the Company.
We will continually evaluate our performance in achieving our long-term objectives primarily by our
ability to provide consistent returns as measured by Operating EBITDA1 and our shareholders’ total
return as measured by growth in book value per share and dividends received.
Our investors are our partners, and we will always attempt to provide as much information and
transparency as we would expect to see when making an investment ourselves. We seek to attract
investors who understand our business, which at times might be complex, and we believe a well-
educated and informed investor makes the best partner.
We like speaking with our investors and hearing their thoughts on the markets and how we might
improve. We learn from these discussions and have found that our well informed and intelligent
investors often have good ideas that we seek to incorporate into our investment and management
process. We are always looking for new acquisitions and welcome any suggestions or inquiries.
We would also like to thank the employees of Tiptree and our subsidiaries for their hard-work in 2018.
They are a unique group of highly talented individuals who allow management to punch well above
our weight. On an operating basis, we had a successful year moving our strategic objectives forward –
one that we believe will position Tiptree for growth in years to come.
With best regards,
Michael Barnes
Executive Chairman
Jonathan Ilany
Chief Executive Officer
1 For a reconciliation to GAAP financials, see “Non-GAAP Measures” beginning on p. 41 of our Form 10-K for the year ended December 31, 2018.
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