2023
1
Annual percentage change in share price of Tiptree Inc. vs. equity indices as of 12/31/23*:
1 Year
3 Year
5 Year
10 Year
From Inception (June 2007)
*Including dividends
To Our Fellow Shareholders:
Tiptree
38.4%
58.5%
29.8%
11.1%
10.6%
Russell 2000
16.9%
2.2%
10.0%
7.2%
7.1%
S&P 500
26.3%
10.0%
15.7%
12.0%
9.4%
2023 was a year of strong performance for Tiptree. Our businesses continued to build upon their
history of growth and profitability, producing an 18% increase in revenues to $1.6 billion for the year,
and an adjusted return on equity of 15.2%. Tiptree’s share price appreciation and dividends produced a
total return of 38.4% for the year, compared to 16.9% for the Russell 2000 and 26.3% for the S&P 500.
We are proud of our 2023 results, yet we keep a greater focus on long-term performance, and like to
compare our results to other investment strategies. With this in mind, Tiptree’s performance over
three, five, and ten years (and since inception) are worth noting in the chart above. We are also pleased
to have increased our quarterly dividend by 20% to $0.06 per share, payable to shareholders of record
as of March 11, 2024.
The Fortegra Group, our specialty insurance business under the leadership of CEO Rick Kahlbaugh,
achieved record results for the year, with premium and premium equivalent growth of 21%, and an
adjusted return on equity of 29%. Although the recent market environment was unconducive for a public
offering, we firmly believe Fortegra is strategically positioned to maintain a trajectory of consistent top-
line growth and sustained underwriting profitability over the long-term.
Tiptree Capital, our subsidiary through which we invest opportunistically in a broad range of assets and
businesses, finished the year with a book value of $178 million consisting primarily of 1) cash, 2) our
mortgage origination and servicing business, Reliance First Capital, and 3) a liquid investment portfolio.
At Reliance, led by CEO Hugh Miller, origination volumes remained muted given the interest rate
environment, although the income and sustained market value of our retained servicing book allowed the
business to remain stable for the year; this performance contrasts significantly with the havoc taking
place in the mortgage industry writ large. Given Reliance’s proven nimbleness, we maintain a positive
outlook for the business. We see greater potential for future profit as mortgage rates stabilize, in addition
to the increased potential of finding bolt-on acquisitions.
We are always looking for new investment opportunities, with the objective of generating attractive “all-
weather”, absolute returns. Having no set holding period and no risk of redemption of our capital gives us
a distinct advantage, as we are able to take a long-term view on our outlook for returns.
1
Looking ahead, we see significant opportunities to expand our businesses and remain confident in the
long-term outlook for the company. 2023 was a year of strong performance, with our businesses
continuing their history of growth and profitability. Once again, we credit these results to the
experience and expertise of Tiptree’s team of professionals and those of our related companies. We
begin 2024 well positioned financially, and we could not be more excited about Tiptree’s future.
We welcome any and all questions from our shareholders and look forward to speaking with you.
With best regards,
Michael Barnes
Executive Chairman
Jonathan Ilany
Chief Executive Officer
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2023
OR
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: 001-33549
Tiptree Inc.
(Exact name of Registrant as Specified in Its Charter)
Maryland
38-3754322
(State or Other Jurisdiction of Incorporation)
(I.R.S. Employer Identification No.)
660 Steamboat Road, 2nd Floor, Greenwich, Connecticut
(Address of Principal Executive Offices)
06830
(Zip Code)
(Registrant’s telephone number, including area code) (212) 446-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
common stock, par value $0.001 per share
Trading Symbol(s) Name of each exchange on which registered
TIPT
NASDAQ Capital Market
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 x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 x 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 x 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 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 x
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
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, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant was approximately $368,186,354, based upon the closing sales price of $15.01 per share as reported
on the Nasdaq Capital Market. For purposes of this calculation, all of the registrant’s directors and executive officers were deemed to be affiliates of the registrant.
As of February 20, 2024, there were 36,761,206 shares, par value $0.001, of the registrant’s common stock outstanding.
Documents Incorporated by Reference
Certain information in the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relating to the registrant’s 2024 Annual
Meeting of Stockholders is incorporated by reference into Part III.
TIPTREE INC.
Annual Report on Form 10-K
December 31, 2023
Table of Contents
ITEM
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets for December 31, 2023 and 2022
Consolidated Statements of Operations for the three years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2023, 2022, and 2021
Consolidated Statement of Changes in Stockholders’ Equity for the three years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the three years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
(1) Organization
(2) Summary of Significant Accounting Policies
(3) Acquisitions
(4) Dispositions and Assets and Liabilities Held for Sale
(5) Operating Segment Data
(6) Investments
(7) Notes and Accounts Receivable, net
(8) Reinsurance Receivables
(9) Goodwill and Intangible Assets, net
(10) Derivative Financial Instruments and Hedging
(11) Debt, net
(12) Fair Value of Financial Instruments
(13) Liability for Unpaid Claims and Claim Adjustment Expenses
(14) Revenue from Contracts with Customers
(15) Other Assets and Other Liabilities and Accrued Expenses
(16) Other Revenue and Other Expenses
(17) Stockholders’ Equity
(18) Accumulated Other Comprehensive Income (Loss)
(19) Stock Based Compensation
(20) Income Taxes
(21) Commitments and Contingencies
(22) Earnings Per Share
(23) Related Party Transactions
(24) Subsequent Events
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
3
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TIPTREE INC.
Annual Report on Form 10-K
December 31, 2023
Table of Contents
ITEM
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page Number
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72
4
PART I
Forward-Looking Statements
Except for the historical information included and incorporated by reference in this Annual Report on Form 10-K, the information
included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of
future events and are not statements of historical fact. These forward-looking statements include information about possible or
assumed future events, including, among other things, discussion and analysis of our future financial condition, results of
operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify
forward-looking statements.
Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many
of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-
looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors”
and elsewhere in this Annual Report on Form 10-K and in our other public filings with the SEC.
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could
affect our forward-looking statements. Consequently, our actual performance could be materially different from the results
described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on
these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-
looking statements.
Market and Industry Data
This Annual Report on Form 10-K includes certain market and industry data and statistics, which are based on publicly available
information, industry publications and surveys, reports by market research firms and our own estimates based on our
management’s knowledge of, and experience in, the insurance industry and market segments in which we compete. Third-party
industry publications and forecasts generally state that the information contained therein has been obtained from sources generally
believed to be reliable. In addition, certain information contained in this Form 10-K, including information relating to the
proportion of new opportunities we pursue, represents management estimates. While we believe our internal estimates to be
reasonable, they have not been verified by any independent sources. Such data involve risks and uncertainties and are subject to
change based on various factors, including those discussed under the captions “Risk Factors,” “Cautionary Note Regarding
Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
5
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may
adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more
fully in Item 1A. Risk Factors herein. These risks include, but are not limited to, the following:
•
•
A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable
prices or at all and creates uncertainty in connection with valuing such assets.
Our investment in Invesque shares is subject to market volatility.
• We operate in highly competitive markets for business opportunities and personnel, which could impede our growth and
negatively impact our results of operations.
•
•
•
•
The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to
factors outside of our control.
Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to establish
additional reserves.
Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks.
Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements.
• We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no
assurance that such capital will be available on a timely basis, on acceptable terms or at all.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Cybersecurity attacks or information system failures could disrupt our businesses, including our insurance businesses.
Third-party vendors our insurance subsidiaries rely upon to provide certain business and administrative services on their
behalf may not perform as anticipated. These include independent financial institutions, lenders, distribution partners,
agents, brokers and retailers for distribution of its products and services, and the loss of these distribution sources, or their
failure to sell our insurance business’s products and services could be adverse.
A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy
surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales.
If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to
bear increased risks or reduce the level of their underwriting commitments.
Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under
reinsurance contracts.
New lines of business, new products and services or new geographic markets may subject our insurance subsidiaries to
additional risks.
The effects of emerging claim and coverage issues on our insurance subsidiaries’ business are uncertain.
Our insurance subsidiaries’ international operations expose them to investment, political and economic risks, including
foreign currency and credit risk.
Our insurance subsidiaries’ continued growth depends partly on the continued growth of their business’s customer base.
Our results of operations have in the past varied quarterly and may not be indicative of our long-term prospects.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity,
could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults,
and even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance
subsidiaries’ growth and profitability.
Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to
unidentified or unanticipated risk.
Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be
forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful.
Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to
pursue their business strategies.
Retentions in various lines of business and catastrophic events expose our insurance subsidiaries to potential losses.
The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business.
Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the creditworthiness
of some of its independent agents and program partners.
Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they underwrite.
6
•
•
•
•
•
•
The insurance industry is cyclical in nature, competition is intense and our insurance business may lose clients or business
as a result of consolidation within the financial services industry or otherwise.
Any failure to establish, maintain, protect or enforce our insurance subsidiaries’ intellectual property rights could impair
their intellectual property, technology platform and brand. In addition, they may be sued for alleged infringement,
misappropriation or other violation of their proprietary rights.
Our businesses employ third-party licensed software, and the inability to maintain these licenses, errors in the software
they license or the terms of open source licenses could result in increased costs or reduced service levels, which would
adversely affect their business.
Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to
such jointly owned investments.
Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary
policies that affect interest rates may have a detrimental effect on our mortgage business.
Our mortgage business is highly dependent upon programs administered by GSEs to generate revenues through mortgage
loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could
materially and adversely affect our mortgage business, financial condition and results of operations.
• We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business.
•
In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or
will originate, if, among other things, our loans fail to meet certain criteria or characteristics.
• We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income.
• We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial
condition and results of operations.
•
•
•
•
•
•
Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk, call
and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our
assets, our results of operations and our financial condition.
Our risk mitigation or hedging strategies could result in our experiencing significant losses.
The values we record for certain investments and liabilities are based on estimates of fair value made by our management,
which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a sale.
The accounting rules applicable to certain of our transactions are highly complex and require the application of significant
judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could
impact our financial statements.
Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend on
distributions from our subsidiaries that may be subject to restrictions and income from assets.
Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders
consider in their best interests.
• Maryland takeover statutes may prevent a change of our control, which could depress our stock price.
•
Our holding company structure with multiple lines of business, may adversely impact the market price of our common
stock and our ability to raise equity and debt capital.
• Maintenance of our 1940 Act exemption imposes limits on our operations.
•
•
•
•
Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business models
and expose them to increased liability.
Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies and
legal and regulatory standards are not effective.
Our businesses are subject to risks related to litigation and regulatory actions, including increased compliance costs.
Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the
United States, the EU and other jurisdictions.
• We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act
•
•
and anti-corruption laws in other applicable jurisdictions.
Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and
other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability.
Operation of dry bulk vessels and product tankers is subject to complex laws and regulations, including environmental
laws and regulations that, if any of our vessel owner subsidiaries are found guilty of violation, can result in substantial
fines and costs to the Company.
7
Note to Reader
In reading this Annual Report on Form 10-K, references to:
“1940 Act” means the Investment Company Act of 1940, as amended.
“A.M. Best” means A.M. Best Company, Inc.
“BSBY” means the Bloomberg Short-Term Bank Yield Index.
“CAGR” means compound annual growth rate.
“CFPB” means the Consumer Financial Protection Bureau.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” or “Common Shares” means Tiptree’s common stock $0.001 par value per share.
“Corvid Peak” means collectively: Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP
Holdings, LLC and Corvid Peak Holdings GP, LLC.
“Corvid Peak Funds” means Corvid Peak Restructuring Partners Onshore Fund LLC and Albatross CP LLC.
“Defend” means Defend Insurance Group.
“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“E&S” means excess and surplus.
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
“EBITDAR” means earnings before interest, taxes, depreciation and amortization, and restructuring or rent costs.
“EU” means European Union.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fannie Mae” means Federal National Mortgage Association.
“Fortegra” or “The Fortegra Group” means The Fortegra Group, LLC and its subsidiaries prior to June 21, 2022 and The Fortegra
Group, Inc. on or after June 21, 2022.
“Fortegra Additional Warrants” means the additional warrants issued to Warburg and Tiptree Holdings to acquire Fortegra
Common Stock.
“Fortegra Additional Warrants (Warburg)” means the Fortegra Additional Warrants issued to Warburg.
“Fortegra Common Stock” means the common stock of Fortegra.
“Fortegra Financial” means Fortegra Financial Corporation.
“Fortegra Plan” means the 2022 Equity Incentive Plan of Fortegra.
“Fortegra Preferred Stock” means the 5,333,333 shares of Series A Preferred Stock of Fortegra issued to Warburg.
“Fortegra Warrants” means the warrants to purchase shares of Fortegra Common Stock.
“Fortegra Warranty” mean Fortegra Warranty Holdings, LLC.
“Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are
lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto.
“Freddie Mac” means Federal Home Loan Mortgage Corporation.
“GAAP” means U.S. generally accepted accounting principles.
“Ginnie Mae” means Government National Mortgage Association.
“GSE” means government-sponsored enterprise.
“GWPPE” means gross written premium and premium equivalents.
“Invesque” means Invesque Inc.
“ITC” means ITC Compliance GRP Limited.
“Luxury” means Luxury Mortgage Corp.
“MGAs” means managing general agents.
“NAIC” means the National Association of Insurance Commissioners.
“Operating Company” means Tiptree Operating Company, LLC.
“Premia” means Premia Solutions Limited.
“Reliance” means Reliance First Capital, LLC.
“ROAE” means return on average equity.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Sky Auto” means Sky Services LLC.
“Smart AutoCare” means the following entities and their subsidiaries operating under the Smart AutoCare brand: SAC Holdings,
Inc., Freedom Insurance Company, Ltd., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc. and
Accelerated Service Enterprise, LLC.
“SOFR” means the Secured Overnight Financing Rate.
“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Tiptree Inc. and its
consolidated subsidiaries.
“Tiptree Holdings” means Tiptree Holdings LLC.
8
“Transition Services Agreement” means the Amended and Restated Transition Services Agreement between Corvid Peak and
Tiptree Inc., effective as of January 1, 2019.
“VSC” means vehicle service contracts.
“Warburg” means WP Falcon Aggregator, L.P., a Delaware limited partnership affiliated with funds advised or managed by
Warburg Pincus LLC.
“WP Transaction” means the $200 million strategic investment in Fortegra by Warburg.
9
Item 1. Business
OVERVIEW
Our Business
At Tiptree, our mission is to build long-term value by allocating capital to select small and middle market companies across
industries. We have a significant track record investing in the insurance and credit-related financial sectors. With proprietary access
and a flexible capital base, we seek to uncover compelling investment opportunities and support management teams in unlocking
the full value potential of their businesses. This investment philosophy, executed by our experienced leadership, is our hallmark
and has delivered consistent risk-adjusted returns to our stockholders since 2007.
We categorize our businesses into: Insurance and Tiptree Capital.
Insurance: Our Insurance segment consists of Fortegra, which is a growing, consistently profitable, and multinational specialty
insurance company focused on underwriting complex and niche risks in underserved markets. Founded in 1978, the business has a
long-standing track record of disciplined and stable underwriting results while generating strong growth and attractive returns on
capital. Fortegra is an underwriting-focused company, with deep expertise within the admitted and E&S insurance lines and capital
light fee-based services markets. It targets moderate risk limits and utilizes a sophisticated reinsurance strategy to reduce volatility
and protect its capital. The business differentiates itself through its go-to-market strategy, expertise in customized underwriting
solutions and the value-added services offered to its distribution partners.
Tiptree Capital: We own a diversified group of businesses and investments that are owned and managed separately as Tiptree
Capital, which include our Mortgage segment operations. We manage Tiptree Capital with a long-term focus, balancing current
cash flow and long-term value appreciation. Today, Tiptree Capital consists primarily of our mortgage operations and principal
investments.
Our Operating Principles
We acquire controlling interests and invest in businesses that we believe (i) operate in industries with long-term macroeconomic
growth opportunities, (ii) have positive and stable cash flows, (iii) offer scalable business models with embedded optionality, and
(iv) have strong management teams. We believe that our patient capital approach and long-term outlook enhances the ability for
our businesses to grow earnings and cash flows across market cycles.
Underwrite to a Profit. Our principal strategic objective is to continue expanding Fortegra’s operations, particularly the specialty
insurance and service contract businesses. Our highest priority is to maintain strong underwriting practices, with attention paid to
the insurance disciplines of pricing, underwriting and claims management.
Invest for Long-term Returns. Our financial goals are to generate consistent and growing earnings and cash flow, and to enhance
stockholder value as measured by growth in stock price plus dividends paid. We manage Tiptree with a long-term perspective,
balancing cash-flowing investments with opportunities for capital appreciation. We focus on targeting investment returns that have
a combination of current earnings and long-term capital appreciation, understanding that temporary accounting gains and losses
may vary significantly from one period to the next.
Think Like Owners. Efficient deployment of capital is our top priority. We aim to find the best use of capital to create long-term
value for our stockholders. We hope to achieve this through a combination of investments in our existing businesses, select
acquisitions and monetization opportunities, opportunistic share repurchases and paying a consistent dividend. As of December 31,
2023, directors, officers, employees and related trusts owned 33% of the Company.
As of December 31, 2023, Tiptree and its consolidated subsidiaries had 1,504 employees, 21 of whom were at our corporate
headquarters. Corporate employees are responsible for overall strategy, capital allocation and investment decisions, as well as
public company reporting and compliance.
Our businesses are subject to regulation as described below. The 1940 Act may limit the types and nature of businesses that we
engage in and assets that we may acquire. See “Risk Factors-Risks Related to Regulatory and Legal Matters-Maintenance of our
1940 Act exemption will impose limits on our operations.”
Insurance
Fortegra is a growing, consistently profitable, and multinational specialty insurance company focused on underwriting complex
and niche risks in underserved markets. Founded in 1978, the business has a long-standing track record of disciplined and stable
underwriting results while generating strong growth and attractive returns on capital. Fortegra is an underwriting-focused company,
10
with deep expertise within the admitted and E&S insurance lines and capital light fee-based services markets. It targets moderate
risk limits and utilizes a sophisticated reinsurance strategy to reduce volatility and protect its capital. The business differentiates
itself through its go-to-market strategy, expertise in customized underwriting solutions and the value-added services offered to its
distribution partners. Fortegra’s financial success is demonstrated through its GWPPE CAGR of 26%, average combined ratio of
91%, average ROAE of 15% and average adjusted ROAE of 21%, each measured since January 1, 2019 through December 31,
2023.
Fortegra’s balanced business mix allows it to opportunistically allocate capital as market conditions change and utilize the cash
flows generated through capital light, fee-based businesses to partially fund the growth capital required across its insurance
businesses. Fortegra has proven its ability to opportunistically take advantage of market dynamics throughout its history, and
remains well positioned to benefit from an increasingly complex world, leading to secular growth in the specialty P&C market.
Fortegra underwrites specialty programs which are distributed primarily through MGAs, retail agents and other distributors,
collectively referred to as distribution partners. We believe this agent-centric specialty focus provides Fortegra with a competitive
advantage and enables them to provide distribution partners with value-added services to improve their underwriting and operating
performance, driving high agent retention. We believe this “one-to-many” distribution model is more efficient for the types of
specialty risks Fortegra underwrites and allows the business to leverage its agents’ specialization in a particular market as well as
their extensive retail network. To align economic interests, distribution partners receive variable forms of commission based on
underwriting performance which supports the consistency and stability of Fortegra’s underwriting results. We believe this agent-
centric distribution model is positioned for success given the continued growth of MGAs as a distribution channel and the
differentiated approach Fortegra takes in this market.
Our Insurance Products and Services
Business and Product Mix by Gross Written Premiums and Premium Equivalents
($ in thousands)
Property and short-tail
Contractual liability
General liability
Alternative risks
Professional liability
Europe
Commercial lines
Personal lines
Insurance
Auto and consumer goods warranty
Other services
Services
Total
Year Ended December 31,
2022
2021
2023
$
$
$
$
$
$
548,984 $
396,861
353,011
330,171
232,944
141,208
2,003,179 $
382,397 $
2,385,576 $
302,746
59,532
362,278 $
2,747,854 $
263,933 $
351,869
305,325
363,362
82,340
125,150
1,491,979 $
397,423 $
1,889,402 $
318,550
55,176
373,726 $
2,263,128 $
100,462
347,776
182,336
409,807
32,028
95,917
1,168,326
432,522
1,600,848
285,591
49,535
335,126
1,935,974
Insurance: Includes lines of business that pertain to coverages written or reinsured, on an admitted or E&S basis, through one of
Fortegra’s licensed and regulated insurance entities. Insurance lines of business are further presented as those providing benefits to
commercial entities, and those which provide personal coverage benefits to end-consumers. Additionally, Fortegra’s European
lines of business includes auto and consumer goods warranty products, as they are regulated insurance products in their locally-
issued countries. Fortegra gives limited delegated underwriting authority to its distribution partners, allowing them authority to
quote, bind and issue policies within specifically agreed-upon underwriting guidelines. Fortegra’s distribution partners do not
establish the policy pricing and terms or place reinsurance on its behalf and in most instances do not manage claims on its behalf.
To align economic interests in both commercial and personal lines of business, distribution partners receive variable forms of
commission based on underlying losses and underwriting performance, which supports the consistency and stability of Fortegra’s
underwriting results.
•
Commercial: Through Fortegra’s network of partner MGAs, wholesale agents, retail agents, and brokers, bespoke admitted
and E&S coverages are cultivated, ultimately benefiting commercial insureds. The business offers general liability, professional
liability, property and other short-tail coverages, contractual liability protection, and alternative risks products. Fortegra
continues to experience favorable trends in the E&S market in the U.S. while broadening its reach globally, including
throughout Europe. The E&S insurance business launched in 2020 and has grown to more than $820 million of GWPPE for the
year ended December 31, 2023. By scaling operations to support international growth, Fortegra is able to capitalize on
11
commonalities across geographies and leverage its shared service platform to drive cost efficiencies. Primarily, the following
products are offered:
– General Liability, including but not limited to, general and occurrence-basis other liability; commercial multi-peril
liability;
–
–
Professional Liability, including but not limited to, professional and claims-made other liability; miscellaneous
errors & omissions; cyber liability;
Property and Other Short-Tail, including but not limited to, commercial auto physical damage; commercial
property; earthquake; homeowners; and inland marine;
– Contractual Liability Protection (“CLIP”), within portions of auto & consumer goods warranty lines, an embedded
CLIP is provided. In these cases, the issuing party separately buys an insurance policy, called a “contractual liability
insurance policy” CLIP from an insurance company to insure the financial obligations assumed by the issuing
company;
– Alternative Risks, including credit insurance products designed to offer lenders protection from events that limit a
borrower’s ability to make payments on outstanding loan balances. Collateral protection products are designed to
primarily protect the commercial entity from losses to collateral pledged to secure an installment loan. In most
instances, these products offer lenders the option to protect collateral from a comprehensive loss due to fire, wind,
flood and theft. Additionally, if the collateral is an automobile, the coverage protects against collision losses.
•
•
Personal: In addition to commercial products, Fortegra’s distribution partners offer a range of products which insure
consumers, including credit protection surrounding loan payments. These products offer consumers the option to protect loan
balance repayment in the event of death, involuntary unemployment or disability. Additionally, while the business has
strategically and intentionally deemphasized non-standard auto coverage, it offers these products on a limited basis through
select partners.
Services: Includes lines of business that generate service fees and other sources of income through non-insurance services entities.
Services lines of business are further presented as those servicing auto warranty contracts and all other services. To align economic
interests with partners and reduce the volatility of underwriting results related to various auto warranty, consumer warranty and
motor club administration products, distribution partners receive variable forms of commission based on underlying losses and
overall program performance. A substantial portion of underwriting risk is typically ceded via third-party captive reinsurance
arrangements.
Auto & Consumer Warranty: Through Fortegra’s network of partner MGAs, wholesale agents, retail agents, brokers, and
mobile device retailers, many of which also distribute insurance products, the business provides various auto warranty programs
(including but not limited to, vehicle service contracts, GAP, and other ancillary products), and consumer goods warranty
programs (including but not limited to, mobile devices, consumer electronics, appliances, furniture, etc.). Within auto &
consumer warranty, service fee income is earned for providing any combination of administrator and/or obligor services, both
within the U.S. and Europe.
• Other Services: Fortegra administers multiple forms of motor clubs marketed by distribution partners, which are
complementary to, and typically embedded within, other insurance or services programs. As part of the expansion into Europe,
Fortegra also provides regulatory support and compliance services to the retail automotive sector in the U.K. Included in
Fortegra’s vertically integrated insurance and services offerings, the business generates additional sources of fee income
through value-add services, including but not limited to, premium or warranty contract financing, lead generation support, and
business process outsourcing.
Our Insurance Competitive Strengths
We believe that Fortegra’s competitive strengths include:
Highly diversified and complementary business mix with an exclusive focus on underserved specialty insurance markets
requiring distinct industry expertise. Fortegra has a highly diverse set of specialty programs, focused on classes of business where
its underwriters have extensive experience. The exclusive focus on programs that we believe are frequently underserved in the
market provides Fortegra a distinct competitive advantage. For example, Fortegra often targets smaller limit lines of business that it
believes are consistently profitable with significant growth potential but have been overlooked by traditional insurance carriers. Its
dedicated underwriters have specific expertise in their given specialty markets, and will only enter a new market segment after
extensive analysis and assessment.
12
Track record of profitable growth driven by disciplined strategic actions. Fortegra delivered GWPPE CAGR of 26%, net income
CAGR of 39% and an adjusted net income CAGR of 37%, each measured from January 1, 2019 through December 31, 2023,
while increasing its return on equity over that time, highlighted by its 2023 ROAE of 26% and adjusted ROAE of 29%. The
business targets and hires underwriters with strong reputations in their areas of expertise and empowers them to source specialty
programs from their proprietary networks. Once onboarded, Fortegra’s platform is dedicated to improving its agents’ performance
through aligned incentives, underwriting and structural expertise, technology and data analytics, and ancillary services (e.g.
claims). The platform has expanded into new lines of business and geographies, all while maintaining a disciplined approach to
risk selection. Growth has been supported by multiple industry tailwinds in recent years, including the continued trend of insurance
distribution through MGAs, the secular migration of risks into the U.S. E&S market, the need for reliable carrier capacity as
traditional insurance carriers, reinsurance providers and alternative capital solutions have experienced dislocation and the persistent
U.S. P&C insurance hard-market environment.
Stable and highly predictable underwriting results driven by differentiated expertise, rigorous data driven approach to risk
selection and a fully aligned distribution network. Fortegra has a long-standing track record of consistent underwriting results that
have experienced limited volatility, which is the result of a deliberate organizational design. Its underwriting track record is
demonstrated through its average combined ratio of 90.9% from 2019 through the year ended December 31, 2023. The business
takes a disciplined approach to program selection, due diligence, pricing and structuring led by long-tenured, specialty insurance
underwriting and actuarial experts, with active input from compliance, information technology and legal teams. Fortegra does not
write commoditized, longer-tail classes of business which can experience periods of volatility such as workers compensation or
commercial auto. The stability of its financial results is also driven by an intense data driven underwriting approach, which is
enhanced by AI and machine learning to constantly refine pricing and risk appetite. Lastly, Fortegra’s selected group of
distribution partners are fully aligned as a result of variable commission structures which support the consistency and stability of
underwriting results.
Agent-centric and highly efficient operating platform driven by scalable and proprietary data, analytics and technology stack.
Fortegra complements underwriting expertise with robust technology platforms supported by highly trained data science and
engineering teams to improve the scale and profitability of its programs. The platform allows the business to launch new programs
and grow premiums without significant incremental upfront expenses. Fortegra’s technology delivers low-cost, automated
administrative services to partners, enabling the business to automate core business processes, reduce operating costs, increase
operating efficiency and secure high agent retention, highlighted by Fortegra’s five year annual average agent retention of greater
than 95%. Fortegra uses the data collected to quickly analyze claims, which feeds into underwriting and actuarial teams and their
decision making. Data and technology capabilities are used to monitor existing program performance, implement necessary
underwriting action and if appropriate, exit programs which do not meet Fortegra’s underwriting standards. We believe that
Fortegra’s technology platform provides an advantage in partnering with and delivering value-added capabilities to its distribution
network.
Dynamic capital allocator with a sophisticated reinsurance program to optimize risk and return while maintaining a
conservative financial profile. Fortegra actively manages its capital to ensure disciplined, profitable growth across cycles. Its
complementary business mix allows the business to pivot rapidly as market conditions change. The business mix is intentionally
designed to have a balance of risk-bearing and capital light, fee-based earnings, which we believe provides a significant
diversification benefit and allows us to allocate our capital and focus as market conditions change. Additionally, the diverse
business mix enables Fortegra to use the cash flows generated through capital light, fee-based businesses to help fund the growth
capital required in insurance businesses. Fortegra utilizes a sophisticated reinsurance strategy to optimize capital deployed and
reduce volatility while generating attractive economics. This strategy is further augmented by Fortegra’s conservative balance sheet
and highly liquid fixed income investment portfolio which has an average S&P rating of AA.
Visionary, proven, and deep leadership team with a collaborative culture. Fortegra’s executive management team is comprised of
highly experienced professionals with an average of over 25 years of industry experience. The team includes a deep bench of
seasoned underwriters who have expertise in their designated specialization driving underwriting performance. The culture is
highly collaborative focused on continuous improvement across underwriting, claims, technology and operations to ensure
enterprise-wide connectivity as the business scales. Fortegra is led by its Chief Executive Officer, Rick Kahlbaugh, who has been
in executive leadership positions with the Company for over 20 years. Fortegra prioritizes attracting and investing in the best talent
in the industry to continue to drive profitable growth. The interests of Fortegra’s executive management team are closely aligned
with investors through a combination of a long-term incentive plan and management bonus pool tied to operating results.
13
Our Insurance Strategy
We will seek to continue to execute upon our strategy, which focuses on providing specialty lines to underserved markets where
Fortegra has significant expertise. We believe this approach will enable Fortegra to continue to generate profitable growth and
attractive returns on capital. The core drivers of this strategy include:
Leveraging our deep expertise and efficient distribution to continue driving profitable growth. Fortegra’s core strategy centers on
its deep expertise in underserved markets and a distinctive approach to program business. We expect to actively pursue new
specialty opportunities through:
•
•
•
Continuing to successfully recruit and hire talented specialty underwriters that have a favorable track record, sector expertise
and strong agent following;
Leveraging Fortegra’s distribution partner network to enter new specialty programs where it has underwriting expertise;
Partnering with reinsurers who are looking for highly experienced specialty carriers like Fortegra that can deliver a breadth of
services and favorable underwriting results;
• Working with reinsurance intermediaries that are seeking to move their business away from the fronting/hybrid model to a
fully integrated specialty insurance company model;
•
•
Expanding into new geographies including the specialty insurance and warranty markets in Europe; and
Deepening Fortegra’s auto warranty footprint through dealership expansion and build-out of a direct salesforce.
Utilizing technology to strengthen Fortegra’s operational scalability and continue to refine underwriting performance. At the
core of the strategic vision is a profound commitment to technology as a driving force behind its success. The scalability and
adaptability of its technology seamlessly aligns with an expanding business landscape. This dynamic technological infrastructure
empowers the Fortegra team through the integration of data tools across claims, underwriting, and actuarial functions, providing a
significant competitive edge and contributing to a low expense ratio. Technology and data capabilities are leveraged to enhance
agent experience and performance through elevated service, improved underwriting insights, and streamlined claims processes.
Fortegra’s technology and data also generate underwriting-qualified leads for its distribution partners, while ensuring the business
remains within the boundaries of its risk parameters. This scalable technology platform was designed to support continued growth
while necessitating minimal incremental investment.
Empowering partners for enhanced performance through its differentiated underwriting approach. Fortegra’s distinctive
underwriting approach involves the recruitment of experienced underwriters which are typically very well known to the business
and have established networks of experienced distribution partners. These partners play a pivotal role in identifying attractive,
smaller programs that align within Fortegra’s risk parameters. Alignment of interests with distribution partners provides them
access to pricing, underwriting, and robust risk management processes, which enhance the collective financial performance.
Fortegra’s organizational culture is rooted in sound underwriting practices that enable it to achieve targeted growth objectives
while consistently delivering desired profitability.
Sustaining a highly disciplined underwriting approach with focus on profitability. Fortegra constantly assesses the risks in its
portfolio to assure sound pricing and risk management in accordance with its underwriting guidelines with the goal of increasing
returns and maintaining the stability of its combined ratio. Underwriting integrity or risk selection will not be sacrificed for the
sake of premium growth. As Fortegra assesses market pricing, to the extent it is below its underwriting return objectives, capital
will not be put at risk for premium growth.
Maintaining a high-quality balance sheet with strong ratings. Fortegra has and seeks to maintain a strong and conservative
balance sheet, supported by a comprehensive risk management program reflected by its financial strength ratings of
“A-” (Excellent) (Outlook Stable) from A.M. Best. Fortegra has a short duration, liquid and high-quality investment portfolio, with
90% invested in cash and investment grade fixed income securities, which have an average S&P rating of AA, as of December 31,
2023. Fortegra has highly rated and well capitalized reinsurance partners and retains excess collateral where applicable to support
its outstanding reinsurance recoverable.
Distribution & Marketing
Fortegra distributes its products through MGAs, retail agents, and other distributors, collectively referred to as distribution
partners. The business generally targets markets that are niche and specialty in nature, which it believes are underserved by
14
competitors and have high barriers to entry. Fortegra focuses on establishing quality relationships, emphasizing customer service,
and providing underwriting expertise and value-added services. This agent-centric focus, along with its ability to help distribution
partners enhance revenue and optimize underwriting profitability and operational efficiencies, provides Fortegra with a competitive
advantage that has enabled it to develop and maintain numerous long-term client relationships, as evidenced by its high agent
retention rate of greater than 95% (over the last five years). Fortegra believes this “one-to-many” distribution model is
operationally more efficient for the types of risks it underwrites, leveraging its partners’ specialized experience in their specific
markets, lines of business and associated risks, as well as their extensive retail networks. To align economic interests, distribution
partners receive variable forms of commission based on underwriting performance, which reduces the volatility of underwriting
results and promotes further profitable growth.
Fortegra’s distribution partner relationships vary across the insurance products and services that it offers as follows:
•
•
Insurance products are distributed primarily through a network of MGAs, who in turn market and distribute through
independent agents, retailers and wholesale brokers, or direct through lenders and financial institutions.
Service products are distributed by automobile dealerships, retailers (regional and specialty retailers, furniture stores, regional
cellular service providers, and mobile device service providers), and MGAs, as well as financial services companies.
Fortegra’s vertically integrated platform also allows it to engage in direct relationships with distributors for premium and
service contract financing options, and regulatory compliance.
Fortegra’s partners receive a commission-based fee for the distribution of its products. A significant portion of Fortegra’s
commission agreements are on a variable or sliding scale commission basis, which allows Fortegra to adjust commissions based
upon underlying underwriting performance, economically aligning itself with distribution partners.
Fortegra has a highly diverse set of programs designed to limit concentration risk to its distribution partners, with its largest
distribution partners each representing less than 6% of GWPPE for the year ended December 31, 2023.
Fortegra’s marketing department focuses on building tailored solutions for its distribution partners, playing a pivotal role in driving
brand recognition, revenue growth, and partner engagement. Utilizing a data-driven approach, the team develops and executes
marketing strategies that support Fortegra’s sales activities, and the customer acquisition efforts of distribution partners. Extending
marketing capabilities to distribution partners is a key differentiator that contributes to revenue growth and promotes longstanding
distribution relationships.
Underwriting
Fortegra is an underwriting focused company with deep expertise within admitted and E&S insurance lines, as well as fee-based
services markets, with a focus on underwriting complex and niche risks in underserved markets. Throughout the organization there
is a strong culture of collaboration. Underwriting, claims and actuarial teams are closely integrated and aligned to facilitate
operational efficiency, continuously monitor results, and make changes to programs as necessary. Centralized data systems allow
for the real-time identification of pricing and claims trends within a program. Fortegra believes its approach to partner and program
diligence, underwriting (including risk selection and pricing), and claims management, combined with its alignment and ability to
improve its partner’s performance, has contributed to a superior combined ratio, which averaged 90.9% from 2019 through
December 31, 2023.
Fortegra’s underwriting team consisted of over 90 professionals as of December 31, 2023. Fortegra hires experienced underwriters
with a proven track record of underwriting profitability, deep knowledge of the specialty products that they underwrite, and
longstanding relationships with its distribution partners. This approach accelerates expansion within particular lines due to the
underwriters’ historical experience. Fortegra benefits from the underwriters’ prior experience within a particular line of business
without the cost and volatility associated with unproven, blue-sky initiatives.
Fortegra’s underwriters work with its distribution partners to develop the underwriting guidelines for each program. Limited
delegated underwriting authority is given to its MGAs, including the ability to quote, bind, and issue policies within specifically
agreed-upon underwriting guidelines. Fortegra’s distribution partners do not establish the policy pricing and terms, nor do they
place reinsurance on its behalf. Fortegra has an established data and process-based approach to initial due diligence, structuring and
onboarding, and regular maintenance and oversight.
Fortegra’s underwriting team prices to a target margin, accounting for claims and administrative services. Fortegra continually
seeks risk exposures where it can sustainably improve loss ratios and adjust its underwriting accordingly. Each program must be
profitable on its own or adjustments are made, including underwriting guideline changes, pricing adjustments, or ultimately
program cancellation if an underperforming program cannot be rehabilitated. This benefits underwriting results, and also earns its
partners additional economic benefits through its variable commission structures.
15
Fortegra’s partners are compensated through variable or sliding-scale commission agreements, which allows the business to adjust
commissions based upon underlying underwriting performance. Under these types of arrangements, its partners are paid an upfront
provisional commission based on volumes. Subsequent adjustments to these commissions are calculated on underlying
performance based upon the actual losses incurred compared to premiums or service fee income earned. Fortegra believes these
types of contractual arrangements align economic interests by sharing the risks and rewards of its programs, which help Fortegra to
better manage its risk exposures and deliver more consistent profit margins. This alignment underpins all of Fortegra’s
partnerships; it fosters collaboration, lasting relationships and consistent profitability.
Claims
Fortegra’s claims department consisted of over 300 claims professionals as of December 31, 2023. Fortegra organizes its claims
department by product and geography, with specialized teams aligned by area of expertise. The business maintains claims
disposition authority for the majority of its claims across both insurance and services. In-house claims professionals have specific
niche expertise to accurately assess claims, which is crucial for the unique risks the business underwrites. Fortegra’s claims
department maintains close collaboration with its underwriting and actuarial teams as to current claims trends and ongoing
underwriting performance.
On certain occasions where a TPA or external specialist possesses specific expertise, Fortegra may contract with them to provide
services within its defined framework, subject to oversight while Fortegra retains ultimate claims settlement authority. When
necessary, the claims team has access to a panel of expert attorneys, mediators, investigators, and independent adjusters who will
be retained in connection with litigation or loss inspection. This allows Fortegra’s claims professionals to focus on more complex
claims and enhances the efficiency and work quality of its claims department. The business seeks to adjudicate claims efficiently
while maintaining strict compliance with all licensing, regulatory, and statutory requirements.
Fortegra continues to invest in claims technology that enables it to add new programs and scale rapidly. Its centralized data systems
allow for the real-time identification of claims trends within a program, which can be fed back to underwriting and actuarial teams
to adjust its underwriting accordingly.
Technology
Technology is core to Fortegra’s strategy and a competitive advantage for the business. Fortegra has invested in technology to
complement and enhance its underwriting, actuarial, and claims expertise, including systems, data science and engineering, and AI.
These investments have strengthened Fortegra’s overall operational framework, improving scalability and profitability for both the
business and its partners. Core system enhancements afford better claims adjudication, inform precise claims data capture, and
provide improved customer service, while data engineering connects existing systems to reduce human intervention. The
enrichment of claims data enhances underwriting decisions and actuarial analyses with extensive integrated data science tools.
The business is supported by technology in multiple ways, including:
•
•
•
•
Assisting underwriting and actuarial teams by providing data and insight that feeds into its decision making processes.
Fortegra’s underwriting is complemented by its highly trained data science and engineering teams. These teams deploy
machine learning tools and a scalable data platform to support a collaborative approach that has allowed Fortegra to improve
the scale and profitability of its business. The machine learning tools that the data science team build start with input from the
underwriting and actuarial teams to build bespoke models for select lines that provide meaningful insight back to the
underwriters in their processes. Fortegra leverages machine learning in its marketing processes to produce underwriting-
qualified leads for its distribution partners. In the claims process, Fortegra utilizes machine learning document processing to
streamline claims intake and improve data quality;
Improving its service platform to make it easier to do business with its distribution partners and effectively serve a high
volume of policies in an efficient manner. This integrated, proprietary technology efficiently manages the high volume of
policies and claims that result from servicing a large volume of small policyholders and contract holders. Its technology is
highly automated, scalable and allows Fortegra to operate efficiently;
Enhancing its ability to generate business leads that fit Fortegra’s risk profile using AI. Fortegra’s flexible technology platform
provides value-added services that it believes creates stronger relationships with its distribution partners. Fortegra’s
technology platform is connected to its distribution partners and provides them with access to claims and performance
dashboards. These value-added services deepen its relationships and contribute to the high persistency rate with Fortegra’s
distribution partners; and
Providing a scalable platform to grow the business and add new product lines with minimal incremental expense. Fortegra’s
technology infrastructure is scalable and affords it the opportunity to add new partners and services without significant
16
additional expense. Fortegra designed its scalable technology platform to support the business’s continued growth while
necessitating only minimal incremental investment.
Reinsurance Strategy
Fortegra’s reinsurance strategy fosters efficient capital management to enable continued growth of its specialty insurance platform.
The business leverages both quota share and excess of loss reinsurance arrangements with a diverse, highly rated, and
appropriately capitalized panel of reinsurers. Reinsurance is also a key element of its enterprise risk management framework,
limiting extreme loss events, reducing volatility, and driving consistent underwriting profitability for the stockholders.
Quota share reinsurance: refers to a reinsurance contract whereby the reinsurer agrees to assume a specified percentage of the
ceding company’s losses arising out of a defined class. Fortegra has various quota share contracts that cover its insurance
programs. Fortegra’s whole account quota share reinsurance agreement, which covers a portion of its commercial P&C insurance
gross written premium (including general liability, professional liability, property and short-tail), provides a 60% quota share of
losses and significant ceding fees to offset administrative, underwriting and acquisition expenses. Additionally, this reinsurance
agreement generates ceding commission income based on underlying underwriting performance, and investment income earned by
the assuming reinsurers.
Excess of loss reinsurance: refers to a reinsurance contract whereby the reinsurer agrees to assume all or a portion of the ceding
company’s losses for an individual claim or an event in excess of a specified amount in exchange for a premium payable amount
negotiated between the parties. Fortegra utilizes an excess of loss reinsurance agreement related to catastrophic property exposures,
with limits in excess of a 1:200-year event.
Captive Reinsurance Arrangements: A significant portion of partners within contractual liability and alternative risk lines of
insurance business, as well as its auto and consumer goods line of services business, have created captive reinsurance companies to
assume the underwriting risk on the products it delivers. These captive reinsurance companies are known as Producer-Owned
Reinsurance Companies (“PORCs”) and, in most instances, each PORC assumes predominantly all of the underwriting risk
associated with the products they deliver. In such PORC relationships, as is typically required by applicable laws and insurance
regulations, Fortegra acts in a fronting and administrative capacity on behalf of the PORC, providing underwriting and claims
services. It receives ceding and administration fees associated with underwriting and servicing the underlying policies. Because
reinsurance does not relieve Fortegra of its primary liability to the policyholder, Fortegra generally requires cash or other forms of
collateral posted by the PORC to secure the reinsurance receivable if a PORC is unable to pay the claims it has assumed.
Fortegra’s reinsurance treaties renew on an annual basis throughout the year. At each treaty renewal, Fortegra considers several
factors that influence its reinsurance program, including any plans to change the underlying insurance coverage it offers, changes
in loss trends, its capital levels, changes in its risk appetite and the cost and market capacity.
The following table reflects Fortegra’s key reinsurance treaties:
Treaty
Whole Account Quota Share
Description
Covers general liability, professional
liability, property and short-tail lines
accounting for 40% of commercial
P&C insurance gross written
premiums
Net Retention
Reinsurance Coverage
40%, $5 million per aggregate
60% Placed
Property Catastrophe Excess of Loss
Protection in excess of a 1:200-year
catastrophic event
$8 million, 50% co-participation on
$4 million excess of $8 million
$40 million excess of $8 million per
event, $80 million in aggregate
For the limited amount of gross property exposures that are in excess of desired retentions, Fortegra works with its distribution
partners to purchase facultative reinsurance to cover those individual risks. In addition to the purchase of property catastrophe
reinsurance, Fortegra also manages its property exposures by leveraging catastrophe models to monitor risk aggregations that are
measured in terms of probable maximum loss (“PML”) and Tail Value-at-Risk (“TVAR”), both of which estimate the amount of
loss it would expect in extreme loss scenarios.
In Fortegra’s commercial insurance lines, its reinsurers tend to be highly rated, well-capitalized, professional third-party reinsurers.
Fortegra typically contracts with third-party reinsurers that have attained an “A-” or better financial strength rating from A.M. Best.
Those reinsurers that fall below this threshold are required to post collateral on a funds held basis or with letters of credit.
Counterparty Risk
Fortegra monitors its counterparty risk monthly through both adjustments to the sliding scale commission arrangements and a
thorough evaluation of its reinsurance receivables and prepaid insurance premiums, and associated collateral.
17
($ in millions)
Third-party captives (1)
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
Professional Reinsurers (2)
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
Total
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
__________________
(1) Includes domestic insurance companies owned by distribution partners.
(2) “Professional reinsurers” include all reinsurers except for third-party captives.
As of December 31,
2023
2022
$
$
$
$
$
$
$
$
$
$
$
$
871
1,036
119 %
984
644
65 %
1,854
1,680
91 %
603
700
116 %
573
611
107 %
1,176
1,311
112 %
Total reinsurance receivables and prepaid reinsurance premiums were $1,854 million and $1,176 million as of December 31, 2023
and 2022, respectively. Of those amounts, $871 million and $603 million, respectively, related to contracts with third-party
captives in which Fortegra holds collateral or receives letters of credit in excess of the reinsurance receivables and prepaid
reinsurance premiums. The remainder relates to receivables held with high quality professional reinsurers. Additionally, any
receivable held with unrated professional reinsurers is fully collateralized. The following table sets forth the percentage of
Fortegra’s reinsurance receivables broken out by the A.M. Best financial strength rating of those professional reinsurers, excluding
gross-up adjustments, as of December 31, 2023 and 2022.
Rating:
A++
A+
A
A-
Unrated
Reserves
Percentage as of December 31,
2023
2022
1 %
19 %
26 %
28 %
26 %
1 %
33 %
13 %
30 %
23 %
Fortegra establishes loss reserves to cover its estimated ultimate losses under all insurance policies that it underwrites, and loss
adjustment expenses relating to the investigation and settlement of policy claims. These reserves include estimates of the cost of
the claims reported to Fortegra (case reserves) and estimates of the cost of claims that have been incurred but not yet reported.
Fortegra’s reserving process is built upon expected loss and loss adjustment expense ratio picks at the program, line of business,
and accident year level, which are set by management with input from underwriting, actuarial and claims. Management reviews
results monthly against expected results to monitor underwriting performance. When determined necessary, underwriting actions
are discussed and implemented, and reserve changes are made.
Regular internal actuarial analyses are performed on a quarterly basis by program, line of business, and accident year/treaty year.
Quarterly, an independent third-party actuarial review is completed to provide management with additional information related to
reserve adequacy. Where the internal and external projections differ, a comparison is examined to determine the drivers.
Information provided by the independent actuaries is considered as part of the input in the internal reserving process. Unpaid
claims reserves represent Fortegra’s best estimates at a given time, based on actuarial estimates. Actual claim costs are dependent
upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not
directly quantifiable, particularly on a prospective basis. Fortegra regularly reviews and updates its method of estimating such
unpaid claims reserves based on actual claims experience.
Fortegra’s actuaries apply a variety of generally accepted actuarial methods (including loss development methods, Bornhuetter-
Ferguson methods, Cape Cod methods, and expected loss methods) to historical loss experience when calculating indicated
reserves. Key assumptions underlying these analyses, including anticipated future loss development patterns and expected ultimate
loss and loss adjustment expense ratios, are reviewed regularly and updated as needed based on actual claims experience. In
accordance with applicable statutory insurance company regulations, Fortegra’s recorded unpaid claims reserves are evaluated by
18
appointed independent third-party actuaries, who perform this function in compliance with the Standards of Practice and Codes of
Conduct of the American Academy of Actuaries.
As of December 31, 2023, Fortegra’s reserves were found to be consistent with reserves computed in accordance with actuarial
standards of practice and make a reasonable provision for all of its unpaid loss and loss adjustment expense obligations, as well as
its unearned premium reserves for long duration contracts, by the appointed independent third-party actuaries.
Insurance Investments
Fortegra seeks to maintain a balanced and well-diversified investment portfolio with the primary investment objectives of
remaining liquid to fund expected reserve payments, capital preservation, and a stable level of investment income enabling
continued growth of core and new business lines. Its investment portfolio, including cash and cash equivalents and total
investments, were $1,327 million as of December 31, 2023.
Fortegra’s investment policy establishes the investment parameters, such as maximum percentage of investment in a certain type of
security and minimum levels of credit quality and is designed to manage investment risk. Corvid Peak Capital Management, a
credit oriented asset manager owned by the Company, manages Fortegra’s investment portfolio consistent with its internally
prescribed guidelines and with oversight from Tiptree. Fortegra’s investments are subject to general economic conditions and
market risks in addition to risks inherent to particular securities and risks relating to the performance of its investment advisers.
Fortegra conducts monthly stress tests and uses predictive analytics to manage its investments, which it believes reduces risk to its
investment performance. Fortegra also maintains an investment committee that meets monthly to ensure its investment objectives
remain aligned with its broader strategic and financial objectives.
As of December 31, 2023, the majority of its investments, $772 million or 58.2%, of total cash and invested assets, was comprised
of fixed maturity 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 AOCI. Cash & cash equivalents were $410 million, or
approximately 30.9% of total cash and invested assets as of December 31, 2023, as Fortegra has intentionally maintained a larger
cash portion in its portfolio to capitalize on current short-term yields and maintain liquidity. Also included in its investments were
$26 million of equity securities, $11 million of loans, at fair value, $1 million of exchange traded fixed income funds, at fair value,
and $107 million of other investments.
The following table provides a summary of Fortegra’s investments and cash and cash equivalents as of December 31, 2023 and
December 31, 2022:
($ in millions)
December 31, 2023
December 31, 2022
As of
Investments:
Cash and cash equivalents .................................................................................................... $
Available for sale securities, at fair value ............................................................................
Loans, at fair value ...............................................................................................................
Common and preferred equity securities .............................................................................
Exchange traded funds .........................................................................................................
Other investments .................................................................................................................
Total cash and invested assets ......................................................................................... $
Fair Value
410
772
11
26
1
107
1,327
% of Total
Fair Value
30.9 % $
58.2 %
0.8 %
1.9 %
0.1 %
8.0 %
100.0 % $
Fair Value
388
612
14
17
56
66
1,154
% of Total
Fair Value
33.7 %
53.0 %
1.2 %
1.5 %
4.9 %
5.7 %
100.0 %
Fixed Maturity Securities
As of December 31, 2023, Fortegra’s fixed maturity securities totaled $1,191.5 million and included cash and cash equivalents,
available for sale securities, at fair value and investment grade securities classified in other investments. It had a weighted-average
effective duration of 2.5 years, an average S&P rating of AA, and a book yield of 3.3%. Fixed maturity securities represented 90%
of total investments.
19
The following table provides a summary of Fortegra’s amortized cost and fair value on available for sale securities as of
December 31, 2023 and December 31, 2022:
($ in millions)
Fixed Maturity Securities:
Obligations of the U.S. Treasury and U.S. Government
December 31, 2023
December 31, 2022
Amortized
Cost
Fair Value
% of Total
Fair Value
Amortized
Cost
Fair Value
% of Total
Fair Value
As of
agencies ............................................................................. $
Obligations of state and political subdivisions ........................
Corporate securities .................................................................
Asset-backed securities ............................................................
Certificate of deposits ..............................................................
Obligations of foreign governments ........................................
Total available for sale investments ................................... $
467 $
49
261
29
1
5
812
441
45
255
26
1
5
$772
57.1 % $
5.8 %
33.0 %
3.4 %
0.1 %
0.6 %
100 % $
417 $
54
176
20
1
3
671
382
49
162
15
1
2
$612
62.4 %
8.0 %
26.5 %
2.5 %
0.2 %
0.3 %
100 %
The following table provides the credit quality of Fortegra’s available for sale investments as of December 31, 2023 and December
31, 2022:
($ in millions)
December 31, 2023
December 31, 2022
As of
Amortized
Cost
% of Total
Fair Value
Amortized
Cost
Rating:
AAA .................................................................................. $
AA .....................................................................................
A ........................................................................................
BBB ..................................................................................
BB .....................................................................................
B or unrated .......................................................................
Total available for sale investments ............................ $
Fair Value
27
509
154
65
12
5
772
29 $
540
162
64
12
5
812 $
3.5 % $
65.9 %
19.9 %
8.4 %
1.6 %
0.6 %
100 % $
Fair Value
19
440
150
—
1
1
611
21 $
480
164
—
1
4
670 $
% of Total
Fair Value
3.1 %
72.0 %
24.5 %
— %
0.2 %
0.2 %
100 %
The amortized cost and fair value of Fortegra’s available for sale investments is summarized by contractual maturity as of
December 31, 2023 in the table below. Expected maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations.
($ in millions)
As of December 31, 2023
Amortized
Cost
Fair Value
% of Total
Fair Value
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 ....................................................................................................................
Total available for sale investments ........................................................................................... $
217 $
319
46
200
29
812 $
216
307
39
183
26
772
28 %
40 %
5 %
24 %
3 %
100 %
Competition
Fortegra operates in several niche markets and believes that no single company competes against it in all of its business lines.
Fortegra may compete with other specialty insurance carriers within a given line of business, but it identifies no specific insurers as
clear competition across all underwritten lines. Within the United States, Fortegra competes with specialty insurers such as RLI
Corporation, W.R. Berkley Corporation, Kinsale, Skyward Specialty and Markel Corporation. Across Fortegra’s varying lines of
business, it competes with a number of companies that write similar products, including: AIG, Allstate, Assurant, Asurion, LLC,
AXA SA, Securian Financial, and Great American. These lists are not exhaustive and are constantly evolving as underwritten lines
for Fortegra and its competitors evolves.
In general, the insurance markets in which Fortegra operates in are highly competitive. The competition faced is driven by a
confluence of factors, including product pricing, industry knowledge and expertise, quality of customer service, effectiveness of
distribution channels, technology platforms and underwriting processes, the quality of information systems, financial strength
ratings, size, breadth of products offered, overall reputation, and other factors. Fortegra primarily competes by leveraging its
20
proprietary technological innovations, decades of underwriting expertise, robust distribution relationships, data-driven marketing
initiatives, its “agent-centric” mentality, and best-in-class reputation.
Ratings
Fortegra currently has a rating of “A-” (Excellent) (Outlook Stable) from A.M. Best, which rates insurance companies based on
factors of concern to policyholders. A.M. Best currently assigns 16 ratings to insurance companies, which currently range from
“A++” (Superior) to “S” (Rating Suspended). “A-” (Excellent) is the fourth highest rating. In evaluating a company’s financial and
operating performance, A.M. Best performs quantitative and qualitative analyses, which includes a review of the company’s
balance sheet strength, operating performance and business profile. Each of A.M. Best’s ratings reflect its opinion of an insurance
company’s financial strength, operating performance and ability to meet its obligations to policyholders. These evaluations are not
directed to purchasers of an insurance company’s securities.
Seasonality
Fortegra’s financial results have historically been, and we expect will continue to be, affected by seasonal variations. Fortegra’s
commercial P&C lines of business are subject to underlying program renewal dates, while a significant portion of revenues related
to the alternative risks and auto and consumer goods warranty lines of business may fluctuate seasonally based on consumer
spending, which has historically been higher in September and December, corresponding to auto-sales events and the back-to-
school and holiday seasons. Accordingly, its insurance revenues have historically been higher in the third and fourth quarters than
in the first half of the year.
Intellectual Property
Fortegra owns or licenses a number of trademarks, trade names, service marks, trade secrets and other intellectual property rights
that relate to its services and products within the various jurisdictions in which it operates. Although Fortegra believes that these
intellectual property rights are, in the aggregate, important to Fortegra, it also believes that the business is not materially dependent
upon any particular trademark, trade name, copyright, service mark, license or other intellectual property right. Additionally,
Fortegra’s insurance subsidiaries have entered into confidentiality agreements with its partners that impose restrictions on partners’
use of proprietary software and other intellectual property rights.
Regulation
Fortegra is subjected to federal, state, local and foreign regulation and supervision. The type and degree of regulation and
supervision varies depending on which type of license may be involved, such as: insurance company, administrator and agency
licenses; or service contract administration and obligor licenses; or premium finance and consumer finance licenses. Fortegra is
also subject to the related federal, state and foreign data privacy and data protection laws. Its insurance subsidiaries are active in 50
states in the United States.
Its U.S. insurance company subsidiaries are domiciled in several states, including Arizona, California, Delaware, Georgia,
Kentucky and Louisiana. The regulation, supervision and administration by state departments of insurance relate, among other
things, to: standards of solvency that must be met and maintained, restrictions on the payment of dividends, changes in control of
insurance companies, the licensing of insurers and their agents and other producers, the types of insurance that may be written,
privacy practices, the ability to enter and exit certain insurance markets, the nature of and limitations on investments and premium
rates, or restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums,
losses and other obligations, deposits of securities for the benefit of policyholders, payment of sales compensation to third parties,
approval of policy forms and premium rates, the types of risks that are not subject to form and rate regulation, the regulation of
market conduct, including advertising, underwriting, claims practices, policy cancellation or non-renewal, and the insurer’s
oversight of its agents. As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed
financial examinations of the books, records, accounts and operations of insurance companies that are domiciled in their states. In
addition, our insurance subsidiaries are generally restricted by the insurance laws of their respective domiciles as to the amount of
dividends they may pay without the prior approval of the respective regulatory authorities. Generally, the maximum dividend that
may be paid by an insurance subsidiary during any year without prior regulatory approval is limited to a stated percentage of that
subsidiary’s statutory surplus as of a certain date, or net income of the subsidiary for the preceding year.
Fortegra’s insurance company subsidiaries are also subject to certain state regulations that define eligible investments and establish
diversification requirements and concentration limits among asset classes. Failure to comply with these regulations would cause
non-conforming investments to be treated as non-admitted assets in the states in which it is licensed to sell insurance policies for
purposes of measuring statutory surplus and, in some instances, would require Fortegra to sell those investments. Such investment
laws are generally permissive with respect to federal, state and municipal obligations, and more restrictive with respect to corporate
obligations, particularly non-investment grade obligations, foreign investment, equity securities and real estate investments. Each
21
insurance company is therefore limited by the investment laws of its state of domicile from making excessive investments in any
given security (such as single issuer limitations) or in certain classes or riskier investments (such as aggregate limitation in non-
investment grade bonds) or in its affiliates.
The NAIC provides model insurance laws and regulations for adoption by the states and standardized insurance industry
accounting and reporting guidance. However, model insurance laws and regulations only become effective when adopted and
enacted by the states, and statutory accounting and reporting principles continue to be established by individual state laws,
regulations and permitted practices. The NAIC has adopted a model act with risk-based capital (“RBC”) formulas to be applied to
insurance companies to measure the minimum amount of capital appropriate for an insurance company to support its overall
business operations in light of its size and risk profile. State insurance regulators use RBC standards as a tool to monitor capital
adequacy and to determine appropriate actions relating to insurers that show signs of weak or deteriorating conditions. The
domiciliary states of our insurance company subsidiaries have adopted laws substantially similar to the NAIC’s RBC model act.
Fortegra’s insurance holding company is subject to the respective state insurance holding company statutes which may require
prior regulatory approval or non-disapproval of material transactions between an insurance company and an affiliate or of a change
in control of a domestic insurer or of payments of extraordinary dividends or distributions.
Fortegra’s insurance, service contract, and premium finance businesses are subject to U.S. federal and state regulations governing
the protection of personal confidential information and data security, including the Gramm-Leach-Bliley Act, New York
Department of Financial Services Cybersecurity Regulation and California Consumer Privacy Act. Fortegra’s subsidiaries
operating in the EU are subject to the General Data Protection Regulation, or the “GDPR,” which regulates data protection for all
individuals within the EU.
Fortegra is active and subject to regulation in twenty foreign jurisdictions and intends to write business in additional foreign
jurisdictions. A portion of its foreign business is conducted via our insurance company in Malta. Malta is a member country of the
EU, and as of December 31, 2023, Fortegra is active in eighteen countries in the EU. The EU’s executive body, the European
Commission, implemented insurance directives and capital adequacy and risk management regulations. EU member countries
follow the insurance directives approved by the European Commission. The insurance directives set forth a regulatory regime for
the authorization and supervision of insurers, with a broad set of principles and standards for protecting policyholders across the
EU.
These directives give insurers authorized in any one EU country or territory the freedom to conduct insurance business in any other
EU country or territory, referred to as passporting. Procedures are in place regarding the notifications and approvals by the home
state regulator for passporting. Insurers exercising this freedom continue to be regulated by their home state regulator, although the
host state is entitled to impose domestic rules with which passporting insurers are required to follow for its business in the host
state, in the interest of the general good. Within this context, our Malta company is authorized and supervised by the Malta
Financial Services Authority (“MFSA”) and passports across EU member states.
In addition to the regulation of authorization and distribution, the European Commission established capital adequacy and risk
management regulations, called Solvency II, that apply to insurers within the EU. Solvency II includes capital requirements, risk
management and corporate governance frameworks, and financial reporting requirements, which are subject to MFSA regulatory
oversight.
Even though the United Kingdom exited the EU, United Kingdom insurance regulation generally follows the same insurance
directives and Solvency II principles, with the Prudential Regulatory Authority overseeing Solvency II principles and the Financial
Conduct Authority overseeing the market conduct principles within those insurance directives. After Brexit, United Kingdom
regulators established the Temporary Permissions Regime, (TPR), which permits passporting insurers to continue operating in the
United Kingdom for up to three years post-Brexit. Fortegra’s Malta company was passporting into the United Kingdom prior to
Brexit and registered to operate under the TPR until its branch was granted permanent authority by United Kingdom regulators in
July 2022. Aspects of the relationship between the United Kingdom and the EU remain to be negotiated and their relationship will
continue to evolve, including with respect to the cross-border provision of products and services and related compliance
requirements. Post-transition period changes to the EU and United Kingdom legal, trade and regulatory frameworks, as well as
changes to United Kingdom regulatory requirements for insurers operating in that host country, could increase its compliance costs
and subject Fortegra to operational challenges in the region. Actions taken by the prudential regulator and/or conduct regulator
could result in additional capital requirements or restrict or prohibit the sale of its products, which would adversely affect
Fortegra’s business, revenues and results of operations.
Additionally, a portion of its US and EU business is also ceded to Fortegra’s reinsurance company subsidiary domiciled in Turks
and Caicos. Fortegra’s Turks and Caicos company is subject to Solvency II type of regulation by the domestic regulator.
22
Fortegra is also subject to federal and state laws and regulations related to the administration of insurance products on behalf of
other insurers. In order for it to process and administer insurance products of other companies, Fortegra is required to maintain
licenses of a third-party administrator in the states where those insurance companies operate.
Similar to the federal and state regulations related to its insurance companies, Fortegra’s service contract companies, motor club
companies and premium and consumer finance companies are subject to federal and state rules pertaining to authorization to
operate, scope of permitted benefits and terms of service, disclosures, benefits requests, cancellation and termination. For example,
some states require that forms be filed for prior review or require that its distributors hold a license to sell.
Employees
As of December 31, 2023, Fortegra had 1,132 employees across 25 offices in nine countries.
Tiptree Capital
We own a diversified group of investments that are owned and managed separately as Tiptree Capital, and include our Mortgage
segment operations. Consistent with our operating principles, we manage Tiptree Capital with a long-term focus, balancing current
cash flow and long-term value appreciation.
We expect the investments within Tiptree Capital to change over time as we exit investments and reallocate capital to new
investment opportunities. Though we do not have any specific sector focus, historically, the majority of our investments have
occurred within four major sectors: asset management, real assets, specialty finance and credit investments.
Tiptree Capital – Mortgage Operations
Our mortgage operations are conducted through Reliance First Capital, LLC. Our mortgage business has been focused on primarily
originating and servicing agency-eligible (Federal Housing Administration (“FHA”) and Veterans Administration (“VA”)) and
conventional and government loans that can be transferred to Ginnie Mae pools or sold on a servicing-retained or servicing-
released basis to Fannie Mae, Freddie Mac or secondary market investors and aggregators. Revenues are primarily generated from
gain on sale income, loan fee income, servicing fee income, and net interest income. The growth in our mortgage business is
expected primarily to come from increased origination volume, retention of additional mortgage servicing rights, and new
products.
Competition
The residential mortgage market is highly competitive. There are a large number of institutions offering these products, including
many that operate on a national scale, as well as local savings banks, commercial banks, and other lenders. Many of our
competitors are larger and have access to greater financial resources. In addition, many of the largest competitors are banks or are
affiliated with banking institutions, the advantages of which include, but are not limited to, having access to financing with more
favorable terms, including lower interest rate bank deposits as a favorable source of funding.
Regulation
Our mortgage operations are subject to extensive regulation focused on consumer protection by U.S. federal, state and local
governmental authorities, including the New York Department of Financial Services, CFPB, the Federal Trade Commission and
various federal and state agencies that license, audit and conduct examinations. Our mortgage operations must comply with a
number of federal, state and local consumer protection and privacy laws including laws that apply to loan origination, fair lending,
debt collection, use of credit reports, safeguarding of non-public personally identifiable information about customers, foreclosure
and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain
disclosures and notices to borrowers.
Employees
As of December 31, 2023, our Mortgage operations had 338 employees.
Tiptree Capital - Other
Tiptree Capital - Other currently includes:
•
Our principal investments which include cash and cash equivalents, government bonds and select equity securities, including
Invesque, a publicly traded real estate investment company that specializes in health care and senior living property investment
throughout North America.
23
•
•
Our ownership of a credit oriented, special situations asset manager, Corvid Peak.
Our remaining assets in the maritime transportation sector.
Competitive Strengths
The depth and breadth of experience of our management team enables us to source, structure, execute and manage the capital
allocated to Tiptree Capital. In addition, in each of our investments, we benefit by partnering with experienced management teams
and third-party managers, which we have hired or chosen based on their depth of experience in their respective sectors.
Competition
In the sectors in which Tiptree Capital participates, the markets are highly competitive. There are a large number of competitors
offering similar products and services, including many that operate on an international scale, and which are often affiliated with
major multi-national companies. Many of these organizations have substantially more personnel and greater financial and
commercial resources than we do. Some of these competitors have proprietary products and distribution capabilities that may make
it more difficult for us to compete with them. Some competitors also have greater name recognition, have managed their businesses
for longer periods of time, have greater experience over a wider range of products or have other competitive advantages.
Regulation
In the sectors in which Tiptree Capital participates, we are subject to extensive regulation by international, federal, state and local
governmental authorities, including the SEC, the Federal Trade Commission, the EU, the United Kingdom and various state
agencies. Our asset manager is registered with the SEC as an investment advisor and is subject to various federal and state laws and
regulations and rules of various securities regulators and exchanges. These laws and regulations primarily are intended to protect
clients and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying
on of business for failure to comply with such laws and regulations.
Our international operations and activities also expose us to risks associated with trade and economic sanctions, prohibitions or
other restrictions, including environmental and cybersecurity regulations, imposed by the United States or other governments or
organizations, including the United Nations, the EU and its member countries. Under economic and trade sanctions laws,
governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications
to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other
penalties. In our international activities, we are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and
regulations in various jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K.
Bribery Act 2010.
Employees
As of December 31, 2023, Tiptree Capital - Other’s combined operations had 13 employees.
Human Capital
The success of our businesses depends on our ability to attract and retain experienced personnel and seasoned key executives who
are knowledgeable about their industry and business. We recruit talent in diverse communities. Tiptree’s seven member board of
directors includes two women and one underrepresented minority. Tiptree’s seven person senior management team includes two
women and one underrepresented minority. Our talent strategy is focused on employee engagement and investments in programs to
support career development, as well as recognizing and rewarding performance. An important element of our talent strategy is
succession planning and building leadership at various levels across the organization.
We strive to:
•
Provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge
and geographic location.
• Align executives’ long-term equity compensation with stockholders’ interests by linking realizable pay with earnings and
total stockholder return.
•
Ensure that annual increases and incentive compensation are based on merit, which is communicated to employees at the
time of hiring and documented through their talent management process as part of the annual review procedures and upon
internal transfer and/or promotion.
24
•
Ensure that all employees are eligible for health insurance, paid and unpaid leaves, and life and disability/accident
coverage as well as access to wellness programs.
The Fortegra Foundation (the “Foundation”), a non-profit corporation chaired by Fortegra’s Chief Executive Officer, Mr. Richard
S. Kahlbaugh, is a 501(c)(3) tax-exempt charity committed to giving back to its communities in which we live and work. The
Foundation accomplishes this objective through monetary donations to local, national, and global organizations providing support
to military families and improving the health and welfare of children and families— two primary areas of focus. For example, the
Foundation has supported clean water initiatives in Africa and, in 2022 alone, helped build three life-changing water wells in The
Republic of Zambia.
Fortegra has developed program that assists employees in developing key skills that enable them to perform their jobs and to
advance their careers. For example, Fortegra has a Leadership Development Program (“LDP”), an early career program designed
to attract and develop talent. The LDP includes recent college graduates who typically rotate through several departments over a
two-year period, with the intent of gaining a deeper understanding of Fortegra and ultimately becoming better equipped with the
knowledge and experience needed to excel as future leaders. Fortegra’s N.O.W. (Network of Women), its employee resource
group, works to foster a supportive and equitable environment within Fortegra. The group achieves this by providing networking
opportunities, educational initiatives, mentoring programs, and policies that support the unique needs of women in the workforce.
Although led by women, the programming and resources provided are available to all Fortegra employees.
We invest in our employees’ career growth and provide employees with a wide range of training and development opportunities,
including face-to-face, virtual and self-directed learning, mentoring, external development opportunities and continuing education
required by certain professional organizations.
AVAILABLE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available free of
charge on our Internet site at www.tiptreeinc.com as soon as reasonably practicable after such reports are electronically filed with
or furnished to the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into
this or any of our other filings with the SEC.
Our Investor Relations Department can be contacted at Tiptree Inc., 660 Steamboat Road, 2nd Floor, Greenwich, Connecticut
06830, Attn: Investor Relations, telephone: (212) 446-1400, email: IR@tiptreeinc.com.
25
Item 1A. Risk Factors
We are subject to certain risks and uncertainties in our business operations which are described below. The risks and
uncertainties described below are not the only risks we face. Additional risks and uncertainties that are not presently known or are
currently deemed immaterial may also impair our business, results of operations and financial condition.
Risks Related to our Businesses
A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable
prices or at all and creates uncertainty in connection with valuing such assets.
Our assets include equity securities, real estate, non-controlling interests in credit assets and related equity interests which
may be illiquid or have limited liquidity. It may be difficult for us to dispose of assets with limited liquidity rapidly, or at favorable
prices, if at all. In addition, assets with limited liquidity may be more difficult to value and may be sold at a substantial discount or
experience more volatility than more liquid assets. We may not be able to dispose of assets at the carrying value reflected in our
financial statements. Our results of operations and cash flows may be materially and adversely affected if our determinations
regarding the fair value of our illiquid assets are materially higher than the values ultimately realized upon their disposal.
Our investment in Invesque shares is subject to market volatility.
As of December 31, 2023, we owned 16.98 million shares, or approximately 30%, of Invesque, a real estate investment
company that specializes in health care real estate and senior living property investment throughout North America. The value of
our Invesque shares is reported at fair market value on a quarterly basis and fluctuates. A loss in the fair market value of our
Invesque shares could have a material adverse effect on our financial condition and results of operations. To the extent we
determine to sell all or a portion of our Invesque shares, there can be no assurance that we will be able to do so on a timely basis or
at acceptable prices.
We operate in highly competitive markets for business opportunities and personnel, which could impede our growth
and negatively impact our results of operations.
We operate in highly competitive markets for business opportunities in each of our areas of focus. Many of our
competitors have financial, personnel and other resource advantages relative to us and may be better able to react to market
conditions. These factors may place us at a competitive disadvantage in successfully competing for future business opportunities
and personnel, which could impede our growth and negatively impact our business, financial condition and results of operations.
Our insurance subsidiaries face competition from other specialty insurance companies, standard insurance companies and
underwriting agencies, as well as from diversified financial services companies that are larger than we are and that have greater
financial, marketing, personnel and other resources than we do. Many of these competitors have more experience and market
recognition than our insurance subsidiaries. In addition, it may be difficult or prohibitively expensive for our insurance subsidiaries
to implement technology systems and processes that are competitive with the systems and processes of these larger companies.
In particular, competition in the insurance industry is based on many factors, including price of coverage, general
reputation and perceived financial strength, relationships with brokers, terms and conditions of products offered, ratings assigned
by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of an
underwriting team in the particular lines of insurance they seek to underwrite. In recent years, the insurance industry has undergone
increasing consolidation, which may further increase competition.
A number of new, proposed or potential industry or legislative developments could further increase competition in the
insurance industry. These developments include:
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an increase in capital raising by companies in the industry, which could result in new entrants to the insurance markets
and an excess of capital in the industry; and
the deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the
insurance industry, which could increase competition from standard carriers.
Our insurance subsidiaries may not be able to continue to compete successfully in one or more insurance markets.
Increased competition in these markets could result in a change in the supply and demand for insurance, affect our insurance
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subsidiaries’ ability to price their products at risk-adequate rates and retain existing business, or underwrite new business on
favorable terms. If this increased competition limits our insurance subsidiaries’ ability to transact business, their results of
operations would be adversely affected.
Additionally, our E&S insurance operations cover risks that are typically more complex and unusual than standard risks
and require a high degree of specialized underwriting. As a result, E&S risks do not often fit the underwriting criteria of standard
insurance carriers, and are generally considered higher risk than those covered in the standard market. If our underwriting staff
inadequately judges and prices the risks associated with the business underwritten in the E&S market, our financial results could be
adversely impacted.
Warburg exerts substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s shareholders’
interests.
Warburg acquired an approximate 24% ownership in Fortegra on an as converted basis from us as part of the WP
Transaction and has contractual consent rights over Fortegra, including but not limited to certain acquisitions or dispositions, a sale
or change of control of Fortegra that does not achieve certain thresholds, an initial public offering that does not achieve certain
gross proceeds thresholds, incurrence of certain indebtedness, the issuance of equity senior in right to shares of Fortegra common
or preferred stock, or amendments to the terms thereof, affiliated or related party transactions and transactions between Fortegra
and us, any hiring or firing of certain management of Fortegra, and any material change in the nature of the business conducted by
Fortegra. Warburg would also have pro rata representation on the Fortegra board of directors. As a result of their substantial
ownership in Fortegra, Warburg may exert a substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s
shareholder’s interests.
We are exposed to risks associated with acquiring or divesting businesses or business operations.
We regularly evaluate strategic acquisition opportunities for growth. Acquired companies and operations may have
unforeseen operating difficulties and may require greater than expected financial and other resources. In addition, potential issues
associated with acquisitions could among other things, include:
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our ability to realize the full extent of the benefits, synergies or cost savings that we expect to realize as a result
of the completion and integration of an acquisition within the anticipated time frame, or at all;
receipt of necessary consents, clearances and approvals in connection with the acquisition;
diversion of management’s attention from other strategies and objectives;
motivating, recruiting and retaining executives and key employees; and
conforming and integrating financial reporting, standards, controls, procedures and policies, business cultures
and compensation structures.
If an acquisition is not successfully completed or integrated into our existing operations, our business, results of
operations and financial condition could be materially adversely effected.
We have also divested, and may in the future divest, businesses or business operations. Any divestitures may involve a
number of risks, including the diversion of management’s attention, significant costs and expenses, the loss of customer
relationships and cash flow, and the disruption of the affected business or business operations. Failure to timely complete or to
consummate a divestiture may negatively affect the valuation of the affected business or business operations or result in
restructuring charges.
We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no
assurance that such capital will be available on a timely basis, on acceptable terms or at all.
We may need to raise additional funds or refinance our indebtedness in order to grow our business or fund our strategy or
acquisitions. Additional financing may not be available in sufficient amounts, if at all, or on terms acceptable to us and may be
dilutive to existing stockholders. Additionally, any securities issued to raise such funds may have rights, preferences and privileges
senior to those of our existing stockholders. 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
industries, businesses and our insurance subsidiaries’ investment portfolios. If adequate funds are not available on a timely basis, if
at all, or on acceptable terms, our ability to expand, develop or enhance our subsidiaries’ services and products, enter new markets,
consummate acquisitions or respond to competitive pressures could be materially limited.
The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to
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factors outside of our control.
Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect
to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable
insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease
depending on a variety of factors, most of which are outside our control, such as the amount of statutory income or losses
generated, changes in equity market levels, the value of fixed-income and equity securities in the subsidiary’s investment portfolio,
changes in interest rates and foreign currency exchange rates, as well as changes to the RBC and Solvency II formulas used by
insurance regulators. The laws of the various states in which our insurance subsidiaries operate establish insurance departments and
other regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some
or all of these activities or otherwise fine or penalize our insurance subsidiaries in any jurisdiction in which we operate. Such
regulation or compliance could reduce our insurance subsidiaries’ profitability or limit their growth by increasing the costs of
compliance, limiting or restricting the products or services they sell, or the methods by which they sell services and products, or
subject them to the possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory
reserves that our insurance subsidiaries are required to hold could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to
establish additional reserves that may materially and adversely affect their business, results of operations and financial
condition.
Our insurance subsidiaries maintain reserves to cover their estimated ultimate exposure for claims with respect to reported
claims, and incurred, but not reported, claims as of the end of each accounting period. Reserves, whether calculated under GAAP
or statutory accounting principles, do not represent an exact calculation of exposure. Instead, they represent our insurance
subsidiaries’ best estimates, generally involving actuarial projections, of the ultimate settlement and administration costs for a
claim or group of claims, based on our assessment of facts and circumstances known at the time of calculation. The adequacy of
reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These
variables are affected by external factors such as changes in the economic cycle, unemployment, inflation, judicial trends,
legislative changes, as well as changes in claims handling procedures. Many of these items are not directly quantifiable,
particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive
and negative, are reflected in the statement of operations of the period in which such estimates are updated. Because the
establishment of reserves is an inherently uncertain process involving estimates of future losses, we can give no assurances that
ultimate losses will not exceed existing claims reserves. In general, future loss development could require reserves to be increased,
which could have a material adverse effect on our insurance subsidiaries’ business, results of operations and financial condition.
Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks.
Our insurance subsidiaries’ results of operations depend significantly on the performance of their investment portfolio.
We manage our insurance subsidiaries’ portfolio of investments along with one or more additional advisers. Such investments are
subject to general economic conditions and market risks in addition to risks inherent to particular securities and risks relating to the
performance of our investment advisers.
Our primary market risk exposures are to changes in interest rates. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.” Prior to 2022,
interest rates had been at or near historic lows for an extended period of time. A protracted low interest rate environment places
pressure on our insurance subsidiaries’ net investment income, which, in turn, would have a material adverse effect on our
profitability. During 2022 and 2023, interest rates increased rapidly and significantly, which caused a significant decrease in the
value of our fixed income securities, the majority of which were unrealized and recorded in equity. Future increases in interest
rates could cause the values of our insurance subsidiaries’ fixed income securities portfolios to decline further, with the magnitude
of the decline depending on the duration of securities included in our insurance subsidiaries’ portfolio and the amount by which
interest rates increase. Some fixed income securities have call or prepayment options, which create possible reinvestment risk in
declining rate environments. Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment
risk or, in a rising interest rate environment, may not prepay as quickly as expected when purchased, which can affect the value of
these securities and the amount and timing of cash flows therefrom.
The value of our insurance subsidiaries’ investment portfolio is also subject to the risk that certain investments may
default or become impaired due to deterioration in the financial condition of one or more issuers of the securities our insurance
subsidiaries’ hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such
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investments. Downgrades in the credit ratings of fixed maturities may also have a significant negative effect on the market
valuation of such securities.
Such factors could reduce our insurance subsidiaries’ net investment income and result in realized investment losses. Our
insurance subsidiaries’ investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid.
The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value
(i.e., the carrying amount) of the securities our insurance subsidiaries’ hold in their portfolio does not reflect prices at which actual
transactions would occur.
The performance of our insurance subsidiaries’ investments also depends heavily on our skills and those of our insurance
subsidiaries’ other investment advisers, in analyzing, selecting and managing the investments. Our insurance subsidiaries’
investment policy establishes investment parameters such as maximum percentages of investment in certain types of securities and
minimum levels of credit quality and is designed to manage investment risk. Achievement of our insurance subsidiaries’
investment objectives will depend, in part, on our ability and other investment advisers’ ability to provide competent, attentive and
efficient services to our insurance subsidiaries’ portfolio under the terms of the respective investment management agreement and
to successfully manage their investment risk. There can be no assurance that, over time, we or our insurance subsidiaries’ other
investment advisers will be able to provide services on that basis or that we or they will be able to invest such assets on attractive
terms or generate any investment returns for stockholders or avoid investment losses. Our insurance subsidiaries’ investment
objectives may not be achieved and results may vary substantially over time. In addition, although we and our insurance
subsidiaries’ other investment advisers seek to employ investment strategies that are not correlated with our insurance subsidiaries’
insurance and reinsurance exposures, losses in their investment portfolio may occur at the same time as underwriting losses.
The performance of our insurance subsidiaries’ investment portfolio is highly dependent on the financial and managerial
experience of certain investment professionals associated with our insurance subsidiaries’ investment advisers, none of whom are
under any contractual obligation to our insurance subsidiaries to continue to be associated with such investment advisers. The loss
of one or more of these individuals could have a material adverse effect on the performance of our insurance subsidiaries’
investment portfolio.
A shift in our insurance subsidiaries’ investment strategy could increase the riskiness of our insurance subsidiaries’
investment portfolio and the volatility of our results, which, in turn, may have a material adverse effect on our profitability.
Our insurance subsidiaries’ investment strategy has historically been largely focused on fixed income securities which are
subject to less volatility but also lower returns as compared to certain other asset classes. In the future, our insurance subsidiaries’
investment strategy may include a greater focus on investments in equity securities, which are subject, among other things, to
changes in value that may be attributable to market perception of a particular issuer or to general stock market fluctuations that
affect all issuers. Investments in equity securities may be more volatile than investments in other asset classes such as fixed income
securities. Common stocks generally subject their holders to more risks than preferred stocks and debt securities because common
stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of the issuer.
An increase in the riskiness of our insurance subsidiaries’ investment portfolio could lead to volatility of our results, which, in turn,
may have a material adverse effect on our profitability.
Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements.
Our insurance subsidiaries invest a portion of the premiums they receive from their insureds until they are needed to pay
policyholder claims. Consequently, our insurance subsidiaries seek to manage the duration of their investment portfolio based on
the duration of their losses and loss adjustment expenses reserves to ensure sufficient liquidity and avoid having to liquidate
investments to fund claims. Risks such as inadequate losses and loss adjustment expenses reserves or unfavorable trends in
litigation could potentially result in the need to sell investments to fund these liabilities. Our insurance subsidiaries may not be able
to sell their investments at favorable prices or at all. Sales could result in significant realized losses depending on the conditions of
the general market, interest rates and credit issues with individual securities.
Cybersecurity attacks, technology breaches or failures of our or our third-party service providers’ information systems
could disrupt our various business operations and could result in the loss of critical and personally identifiable information,
which could result in the loss of reputation and customers, reduce profitability, subject our businesses to fines, penalties and
litigation and have a material adverse effect on our business’s results of operation, financial condition and cash flows.
Tiptree’s businesses are highly dependent upon the effective operation of their information systems and those of their
third-party service providers and their ability to collect, use, store, transmit, retrieve and otherwise process personally identifiable
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information and other data, manage significant databases and expand and upgrade their information systems. Our businesses rely
on these systems for a variety of functions, including marketing and selling their products and services, performing their services,
managing their operations, processing claims and applications, providing information to customers, performing actuarial analyses
and maintaining financial records. Some of these systems may include or rely on third-party systems not located on their premises
or under their control. The interruption or loss of their information processing capabilities, or those of their third-party service
providers, through cybersecurity attacks, computer hacks, theft, malicious software, phishing, employee error, ransomware,
malware, denial-of-service attacks, social engineering, viruses, worms, other malicious software programs, the loss of stored data,
programming errors, the breakdown or malfunctioning of computer equipment or software systems, telecommunications and
electrical failure or damage caused by weather or natural disasters, war, catastrophes, terrorist attacks, industrial accidents or any
other significant disruptions or security breaches could harm our businesses by hampering their ability to generate revenues and
could negatively affect their partner relationships, competitive position and reputation.
In addition, our business’s information systems may be vulnerable to physical or electronic intrusions, computer viruses
or other attacks which could disable their information systems and their security measures may not prevent such attacks. Such
information systems are additionally vulnerable to security incidents from inadvertent or intentional actions by our employees,
third-party vendors, contractors, consultants, business partners, or other third parties, or from cyberattacks by malicious third
parties. There are numerous and evolving risks to cybersecurity and privacy from cyber threat actors, including criminal hackers,
state-sponsored intrusions, industrial espionage and employee malfeasance. There is also a potential heightened risk of
cybersecurity incidents as a result of geopolitical events outside of our control, such as the ongoing Russia-Ukraine conflict, as
well as other geographical conflicts. Global cybersecurity threats can range from uncoordinated individual attempts to gain
unauthorized access to our IT systems and those of our business partners or third-party service providers to sophisticated and
targeted measures known as advanced persistent threats. These cyber threat actors are becoming more sophisticated and
coordinated in their attempts to access IT systems and data, including the IT systems of cloud providers and third parties with
whom our businesses conduct or may conduct business. Although our businesses devote significant resources to prevent, detect,
address and mitigate unwanted intrusions and other threats and protect their systems and data, whether such data is housed
internally or by external third parties, such internal controls may not be adequate or successful in protecting against all security
breaches and cybersecurity attacks, social-engineering attacks, computer break-ins, theft and other improper activity. Our
businesses have experienced immaterial cybersecurity incidents and they and their third-party service providers will likely continue
to experience cybersecurity incidents of varying degrees. Because the techniques used to obtain unauthorized access or to sabotage
systems change frequently, generally are not recognized until launched against a target and can originate from a wide variety of
sources, our businesses and the third parties with whom they do business may be unable to anticipate these techniques or to
implement adequate preventative measures effective against all such security threats. With the increasing frequency of cyber-
related fraud to obtain inappropriate payments and other threats related to cybersecurity attacks, our businesses may find it
necessary to expend resources to remediate cyber-related incidents or to enhance and strengthen their cybersecurity. Such
remediation efforts may not be successful and could result in interruptions, delays or cessation of service.
Our businesses have also implemented physical, administrative and logical security systems with the intent of maintaining
the physical security of their facilities and systems and protecting their and their customers’ confidential and personally identifiable
information against unauthorized access through their information systems or by other electronic transmission or through
misdirection, theft or loss of data. Despite such efforts, they have in the past, and may in the future, be subject to a breach of their
security systems that results in unauthorized access to their facilities or the information they are trying to protect. Anyone who is
able to circumvent their security measures or those of their third-party service providers and penetrate their information systems
could access, view, misappropriate, alter, destroy, misuse or delete any information in such systems, including personally
identifiable information and proprietary business information (their own or that of third parties) or compromise of their control
networks or other critical systems and infrastructure, resulting in disruptions to their business operations or access to their financial
reporting systems. While our businesses have implemented business contingency plans and other reasonable plans to protect their
systems, sustained or repeated system failures or service denials could severely limit their ability to write and process new and
renewal business, provide customer service or otherwise operate in the ordinary course of business. In addition, most states require
that customers be notified if a security breach results in the disclosure of personally identifiable customer information and the trend
toward general public notification of such incidents could exacerbate the harm to our companies’ business, financial condition and
results of operations. Any failure, interruption or compromise of the security of our business’s information systems or those of their
third-party service providers that result in inappropriate disclosure of such information could result in, among other things,
significant financial losses, unfavorable publicity and damage to their reputation, governmental inquiry and oversight, difficulty in
marketing their services, loss of customers, significant civil and criminal liability related to legal or regulatory violations, litigation
and the incurrence of significant technical, legal and other expenses, any of which may have a material adverse effect on their
business, results of operations, financial condition and cash flows. Additionally, the costs related to significant security breaches or
disruptions could be material and cause our businesses to incur significant expenses, and any cybersecurity insurance that our
businesses may have in place may not cover such expenses.
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In some cases, our businesses rely on the safeguards put in place by third parties to protect against security threats. These
third parties, including vendors that provide products and services for their operations, could also be a source of security risk to
them in the event of a failure or a security incident affecting such third parties’ own security systems and infrastructure. If the
information technology systems of our business’s third-party service providers become subject to disruptions or security breaches,
our businesses may have insufficient recourse against such third parties and our businesses may have to expend significant
resources to mitigate the impact of such an event and to develop and implement protections to prevent future events of this nature
from occurring. Our business’s network of ecosystem partners could also be a source of vulnerability to the extent their
applications interface with our businesses, whether unintentionally or through a malicious backdoor. Our businesses do not review
the software code included in third-party integrations in all instances.
Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents,
brokers and retailers for distribution of its products and services, and the loss of these distribution sources, or their failure to
sell our insurance business’s products and services could materially and adversely affect its business, results of operations and
financial condition and cash flows.
Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents, brokers
and retailers to distribute its products and services and its revenue is dependent on the level of business conducted by such
distributors as well as the effectiveness of their sales efforts, each of which is beyond our insurance business’s control because such
distributors typically do not have any minimum performance or sales requirements. Further, although its program arrangements
with these distributors can be exclusive, they can be canceled on relatively short notice. Therefore, our insurance business’s growth
is dependent, in part, on its ability to identify and attract new distribution relationships and successfully integrate its information
systems with those of its new distributors. The impairment of our insurance business’s distribution relationships, the loss of a
significant number of its distribution relationships, the failure to establish new distribution relationships, the failure to offer
increasingly competitive products, the increase in sales of competitors’ services and products by these distributors or the decline in
distributors’ overall business activity or the effectiveness of their sales of our insurance business’s products could materially reduce
our insurance business’s sales and revenues and have a material adverse effect on its business, results of operations, financial
condition and cash flows.
Our insurance business may lose distributors or business as a result of consolidation within the financial services
industry or otherwise.
There has been considerable consolidation in the financial services industry, driven primarily by the acquisition of small
and mid-size organizations by larger entities. We expect this trend to continue. Our insurance business may lose business or suffer
decreased revenues if one or more of its significant distributors consolidate or align themselves with other companies. While our
insurance business has not been materially affected by consolidation to date, it may be affected by industry consolidation that
occurs in the future, particularly if any of its significant clients are acquired by organizations that already possess the operations,
services and products that it provides.
A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy
surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales.
Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best and KBRA, as an
important means of assessing the financial strength and quality of insurers, including their ability to pay claims. In setting its
ratings, A.M. Best and KBRA perform quantitative and qualitative analyses of a company’s balance sheet strength, operating
performance and business profile. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance
companies that have been publicly placed in liquidation. KBRA’s ratings range from AAA (extremely strong) to R (under
regulatory supervision).
Currently, A.M. Best has assigned a financial strength of “A-” (Excellent) (Outlook Stable) and KBRA has assigned a
financial strength rating of “A–” (Outlook Stable) to our insurance subsidiaries. A.M. Best and KBRA assign ratings that are
intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders. These
analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and
management. A.M. Best and KBRA periodically review our insurance subsidiaries’ financial strength ratings and may, at their
discretion, revise downward or revoke their ratings based primarily on their analyses of our insurance subsidiaries’ balance sheet
strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile.
Other independent ratings agencies may also assign our insurance subsidiaries’ financial strength ratings in the future, and these
ratings may be below expectations. Factors that could affect such analyses include:
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if our insurance subsidiaries change their business practices from their organizational business plan in a manner that no
longer supports A.M. Best’s or KBRA’s ratings;
if unfavorable financial, regulatory or market trends affect our insurance subsidiaries, including excess market capacity;
if our insurance subsidiaries’ losses exceed their loss reserves;
if our insurance subsidiaries have unresolved issues with government regulators;
if our insurance subsidiaries are unable to retain their senior management or other key personnel;
if our insurance subsidiaries’ investment portfolio incurs significant losses; or
if A.M. Best or KBRA alters its capital adequacy assessment methodology in a manner that would adversely affect our
insurance subsidiaries’ ratings.
These and other factors could result in a downgrade of our insurance subsidiaries’ financial strength ratings. A downgrade
or withdrawal of our insurance subsidiaries’ ratings could result in any of the following consequences, among others:
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causing our insurance subsidiaries’ current and future distribution partners and insureds to choose other, more highly-
rated competitors;
increasing the cost or reducing the availability of reinsurance to our insurance subsidiaries; or
severely limiting or preventing our insurance subsidiaries from writing new and renewal insurance contracts.
In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance
companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will
increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or
will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings
levels. We can offer no assurance that our insurance subsidiaries’ ratings will remain at their current levels. It is possible that such
reviews of our insurance subsidiaries may result in adverse ratings consequences, which could have a material adverse effect on
our insurance subsidiaries’ business, results of operations, financial condition and cash flows.
If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to
bear increased risks or reduce the level of their underwriting commitments.
Our insurance subsidiaries’ reinsurance facilities are generally subject to annual renewal. They may not be able to
maintain their current reinsurance facilities and their customers may not be able to continue to operate their captive reinsurance
companies. As a result, even where highly desirable or necessary, they may not be able to obtain other reinsurance facilities in
adequate amounts and at favorable rates. If our insurance subsidiaries are unable to renew their expiring facilities or to obtain or
structure new reinsurance facilities, either their net exposures would increase or, if they are unwilling to bear an increase in net
exposures, they may have to reduce the level of their underwriting commitments. Either of these potential developments could
have a material adverse effect on their business, results of operations, financial condition and cash flows.
Our insurance subsidiaries’ failure to accurately pay claims in a timely manner could have a material adverse effect
on their business, results of operations, financial condition and cash flows.
Our insurance subsidiaries must accurately and timely evaluate and pay claims that are made under their policies. Many
factors affect their ability to pay claims accurately and timely, including the training and experience of their claims representatives,
including their distribution partners, the effectiveness of their management, and their ability to develop or select and implement
appropriate procedures and systems to support their claims functions and other factors. Their failure to pay claims accurately and
timely could lead to regulatory and administrative actions or material litigation, undermine their reputation in the marketplace and
have a material adverse effect on their business, financial condition, results of operations and cash flows. In addition, if our
insurance subsidiaries do not manage their distribution partners effectively, or if their distribution partners are unable to effectively
handle their volume of claims, their ability to handle an increasing workload could be adversely affected. In addition to potentially
requiring that growth be slowed in the affected markets, our insurance subsidiaries’ business could suffer from decreased quality of
claims work which, in turn, could have a material adverse effect on their operating margins.
Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under
reinsurance contracts.
Our insurance subsidiaries use reinsurance to reduce the severity and incidence of claims costs, and to provide relief with
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regard to certain reserves. Under these reinsurance arrangements, other insurers assume a portion of our losses and related
expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, reinsurance arrangements do not
eliminate our obligation to pay claims and we assume credit risk with respect to our ability to recover amounts due from reinsurers.
The inability or unwillingness of any reinsurer to meet its financial obligations could negatively affect our business, results of
operations, financial condition and cash flows. As credit risk is generally a function of the economy, our insurance subsidiaries
face a greater credit risk in an economic downturn. While our insurance subsidiaries attempt to manage credit risks through
underwriting guidelines, collateral requirements and other oversight mechanisms, their efforts may not be successful. For example,
to reduce such credit risk, our insurance subsidiaries require certain third parties to post collateral for some or all of their
obligations to them. In cases where our insurance subsidiaries receive letters of credit from banks as collateral and one of their
counterparties is unable to honor its obligations, our insurance subsidiaries are exposed to the credit risk of the banks that issued
the letters of credit.
New lines of business, new products and services or new geographic markets may subject our insurance subsidiaries to
additional risks.
From time to time, our insurance subsidiaries may implement new lines of business, offer new products and services
within existing lines of business, or expand into new geographic markets. In addition, our insurance subsidiaries will continue to
make investments in development and marketing for new products and services. There are substantial risks and uncertainties
associated with these efforts. In developing and marketing new lines of business, new products or services and/or expansions into
new geographic markets, our insurance subsidiaries may invest significant time and resources. Initial timetables for the
development and introduction of new lines of business and/or new products or services and/or expansions into new geographies,
may not be achieved and price and profitability targets may not prove feasible. Furthermore, new lines of business and/or new
product or service offerings may not gain market acceptance. Our insurance subsidiaries also may not gain market acceptance in
new geographies. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences,
may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on
management and our insurance subsidiaries’ IT of introducing any new line of business or new product or service and/or new
geographic market could have a significant impact on the effectiveness of their system of internal controls. Failure to successfully
manage these risks in the development and implementation of new lines of business or new products or services could have a
material adverse effect on our insurance subsidiaries’ business, financial condition, results of operations and cash flows.
If our insurance subsidiaries fail to manage future growth effectively, their business, results of operations, financial
condition and cash flows would be harmed.
Our insurance subsidiaries have expanded their operations significantly and anticipate that further expansion will be
required in order for them to significantly grow their business. In particular, they may require additional capital, systems
development and skilled personnel. Their growth has placed and may continue to place increasing and significant demands on their
management, operational and financial systems and infrastructure and their other resources. If our insurance subsidiaries do not
effectively manage their growth, the quality of their services could suffer, which could harm their business, results of operations,
financial condition and cash flows. In order to manage future growth, they may need to hire, integrate and retain highly skilled and
motivated employees. Our insurance subsidiaries may not be able to hire new employees quickly enough to meet their needs. If
they fail to effectively manage their hiring needs and successfully integrate new hires, their efficiency and their employee morale,
productivity and retention could suffer, and their business, results of operations, financial condition and cash flows could be
harmed. They may also be required to continue to improve their existing systems for operational and financial management,
including their reporting systems, procedures and controls. These improvements may require significant capital expenditures and
place increasing demands on their management. They may not be successful in managing or expanding their operations or in
maintaining adequate financial and operating systems and controls. If they do not successfully implement any required
improvements in these areas, their business, results of operations, financial condition and cash flows could be harmed.
The effects of emerging claim and coverage issues on our insurance subsidiaries’ 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 have a material adverse effect on our insurance
subsidiaries’ business by either extending coverage beyond their underwriting intent or by increasing the number or size of claims.
In some instances, these emerging issues may not become apparent for some time after they have issued the affected insurance
policies. As a result, the full extent of liability under their 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 their
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business. The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could harm their
business and have a material adverse effect on their results of operations.
Our insurance subsidiaries’ international operations expose them to investment, political and economic risks,
including foreign currency and credit risk.
Our insurance subsidiaries’ expanding international operations in the United Kingdom, continental Europe and the Asia-
Pacific region, expose them to increased investment, political and economic risks, including foreign currency exchange rate risk
with certain assets and liabilities, and credit risk. Changes in the value of the U.S. dollar relative to the value of the British Pound
Sterling, Euro and other currencies in the jurisdictions in which they operate could have a material adverse effect on their business,
results of operations, financial condition and cash flows. Their investments in non-U.S.-denominated assets are subject to
fluctuations in non-U.S. securities and currency markets, and those markets can be volatile. Non-U.S. currency fluctuations also
affect the value of any dividends paid by their non-U.S. subsidiaries to their parent companies in the United States.
Our insurance subsidiaries use AI, machine learning and statistical models to assist their decision-making in key
areas, such as underwriting, claims, reserving, and catastrophe risk, but actual results could differ materially from the model
outputs and related analyses.
Our insurance subsidiaries use various modeling techniques, including Stochastic, Bayesian statistics, classification,
regression, clustering and other advanced machine learning techniques along with data analytics to analyze and estimate loss trends
and other risks associated with their underwriting and claims operations. Our insurance subsidiaries use the modeled outputs and
related analyses to assist them in certain decisions involving underwriting, pricing, claims, reserving, reinsurance, and catastrophe
risk. As with many technological innovations, AI and machine learning present risks and challenges that could affect their
adoption, and therefore our insurance subsidiaries’ business. The assumptions used in deriving modeled outputs and related
analyses are subject to uncertainties, model errors and the limitations of historical internal and industry data. In addition, the
modeled outputs and related analyses may from time to time contain inaccuracies, which could have a material adverse effect on
our insurance subsidiaries’ results of operations, if, based upon these models, they misprice their products, underestimate the
frequency and/or severity of loss events, or overestimate the risks they are exposed to. Persistent inaccuracies may adversely
impact new business growth and retention of our insurance subsidiaries’ existing clients which could have a material adverse effect
on our insurance subsidiaries’ results of operations and financial condition.
Additionally, there are significant risks involved in developing and deploying AI, such as an increase in intellectual
property infringement or misappropriation, data privacy, cybersecurity, operational and technological risks, harmful content,
accuracy, bias, toxicity and discrimination, any of which could affect our insurance subsidiaries’ further development, adoption,
and use of AI, and may cause them to incur additional research and development costs to resolve such issues. In addition, no
assurance can be provided that the usage of such AI will enhance our insurance subsidiaries’ business or assist in being more
efficient or profitable. The introduction of AI technologies into new or existing products may result in new or enhanced
governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns, or other complications that could
adversely affect our insurance subsidiaries’ results of operations and financial condition. It is not possible to predict all of the risks
related to the use of AI, and changes in laws, rules, directives and regulations governing AI may adversely affect our insurance
subsidiaries’ ability to develop and use AI or subject them to legal liability.
Our businesses could be adversely affected by the loss of one or more key executives or by an inability to attract and
retain qualified personnel.
The success of our businesses depend on their ability to attract and retain experienced personnel and seasoned key
executives who are knowledgeable about their industry and business. The pool of talent from which they actively recruit is limited
and may fluctuate based on market dynamics specific to their industry and independent of overall economic conditions. As such,
higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for
existing and prospective personnel, making it difficult for them to retain and recruit key personnel and maintain labor costs at
desired levels. Should any of their key executives cease to be employed by them, or if they are unable to retain and attract talented
personnel, they may be unable to maintain their current competitive position in the specialized markets in which they operate,
which could have a material adverse effect on their results of operations.
Our insurance subsidiaries’ continued growth depends in part on their ability to continue to grow their customer base.
Increasing the customer base of our insurance subsidiaries will depend, to a significant extent, on their ability to
effectively expand their sales and marketing activities, as well as their partner ecosystem and other customer referral sources. They
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may not be able to recruit qualified sales and marketing personnel, train them to perform and achieve an acceptable level of sales
production from them on a timely basis or at all. If our insurance subsidiaries are unable to maintain effective sales and marketing
activities and maintain and expand their partner network, their ability to attract new customers could be harmed and their business,
results of operations, financial condition and cash flows would suffer.
Our insurance subsidiaries may not be able to effectively start up or integrate new program opportunities, and they
may invest in new program opportunities or initiatives that are ultimately unsuccessful.
Our insurance subsidiaries’ ability to grow their business depends, in part, on their creation, implementation and
acquisition of new insurance programs that are profitable and fit within their business model. New program launches as well as
resources to integrate business acquisitions are subject to many obstacles, including ensuring they have sufficient business and
systems processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens and
planning for internal infrastructure needs. If they cannot accurately assess and overcome these obstacles or they improperly
implement new insurance programs, their ability to grow profitably will be impaired. Additionally, they may be unsuccessful in
identifying new program opportunities, or they may be unable to develop or market new programs or initiatives in a timely or cost-
effective manner. In addition, new programs or initiatives may not achieve the market penetration or price levels necessary for
profitability. If they are unable to develop timely enhancements to, and new features for, their existing programs and services or if
they are unable to develop new programs and services, their programs and services may become less marketable and less
competitive, and their business, results of operations, financial condition and cash flows would be harmed.
If our businesses are unable to maintain a high level of service, their business, results of operations, financial
condition and cash flows may be harmed.
One of the key attributes of our various businesses is providing high quality service to their partners and customers. They
may be unable to sustain these levels of service, which would harm their reputation and our business. Alternatively, they may only
be able to sustain high levels of service by significantly increasing their operating costs, which would materially and adversely
affect their results of operations. The level of service they are able to provide depends on their personnel to a significant extent.
Their personnel must be well-trained in their processes and able to handle customer calls effectively and efficiently. Any inability
of their personnel to meet service level demands, whether due to absenteeism, training, turnover, disruptions at their facilities,
including due to health emergencies, such as pandemics, bad weather, power outages or other reasons, could adversely impact their
business. If they are unable to maintain high levels of service performance, their reputation could suffer and their business, results
of operations, financial condition and cash flows would be harmed.
Our business’s results of operations have in the past varied from quarter to quarter and may not be indicative of our
long-term prospects.
Our business’s results of operations are subject to fluctuation and have historically varied from quarter to quarter. We
expect our quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic
conditions in the markets where we operate, the frequency, occurrence or severity of catastrophic or other insured events or
otherwise, fluctuating interest rates, claims exceeding our insurance subsidiaries’ loss reserves, competition in the industries in
which our subsidiaries operate, deviations from expected renewal rates of existing policies and contracts, adverse investment
performance and the cost of reinsurance coverage.
In particular, our insurance subsidiaries seek to underwrite products and make investments to achieve favorable returns on
tangible stockholders’ equity over the long-term. In addition, their opportunistic nature may result in fluctuations in gross written
premiums from period to period as they concentrate on underwriting contracts that they believe will generate better long-term,
rather than short-term, results. Accordingly, their short-term results of operations may not be indicative of their long-term
prospects.
The industries in which our businesses operate are cyclical in nature.
The financial performance of the insurance industry has historically fluctuated with periods of lower premium rates and
excess underwriting capacity resulting from increased competition (a “soft market”) followed by periods of higher premium rates
and reduced underwriting capacity resulting from decreased competition (a “hard market”). Soft markets occur when the supply of
insurance capital in a given market or territory is greater than the amount of insurance coverage demanded by all potential insureds
in that market. When this occurs, insurance prices tend to decline and policy terms and conditions become more favorable to
insureds. Conversely, hard markets occur when there is not enough insurance capital capacity in the market to meet the needs of
potential insureds, causing insurance prices to generally rise and policy terms and conditions to become more favorable to insurers.
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Although an individual insurance company’s financial performance depends on its own specific business characteristics, the
profitability of most P&C insurance companies tends to follow this cyclical market pattern. Further, this cyclical market pattern
can be more pronounced in the E&S market than in the standard insurance market. When the standard insurance market hardens,
the E&S market typically hardens, and growth in the E&S market can be significantly more rapid than growth in the standard
insurance market. Similarly, when conditions begin to soften, many customers that were previously driven into the E&S market
may return to the admitted carrier market, exacerbating the effects of rate decreases. Some of our insurance subsidiaries’ specialty
programs are exposed to these hard and soft market cycles. Our insurance subsidiaries’ business generally impacted by P&C
commercial market cycles is primarily reported in their property and short-tail, general liability and professional liability lines.
Across these lines, they manage various multiline and monoline programs that are impacted in different ways by market cycles.
Currently, our insurance subsidiaries believe the following specialty programs and lines of business are in, to varying degrees, a
hard market: programs in the property and short-tail lines; within general liability line of business, contractors, excess liability and
manufactured home parks programs; and programs in the professional liability line of business. Our insurance subsidiaries seek to
limit the potential impact of these trends through their underwriting process that includes, but is not limited to, maintaining a
diverse book of business with exposures to various lines, and products, limiting their risk exposures through reinsurance, carefully
crafting their underwriting guidelines and monitoring how their distribution partners adhere to those guidelines. Additionally, our
insurance subsidiaries believe that other insurance lines, specifically personal lines and alternative risks, are not influenced by the
hard and soft market cycles to the same degree as P&C commercial lines.
Furthermore, adverse economic factors, including recession, inflation, periods of high unemployment or lower economic
activity, could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and
even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance subsidiaries’ growth
and profitability. In an economic downturn that is characterized by higher unemployment, declining spending and reduced
corporate revenue, the demand for insurance products is generally adversely affected, which directly affects their premium levels
and profitability. Negative economic factors may also affect their ability to receive the appropriate rate for the risk they insure with
their policyholders and may adversely affect the number of policies they can write, and their opportunities to underwrite profitable
business. In an economic downturn, our insurance subsidiaries’ customers may have less need for insurance coverage, cancel
existing insurance policies, modify their coverage or not renew their policies. Existing policyholders may exaggerate or even
falsify claims to obtain higher claims payments. Some of our insurance subsidiaries’ lines of business that provide reconstruction,
replacement or repair benefits may be negatively affected by higher rates for labor or the cost of replacement parts, and they have
also experienced temporarily higher claims severities, in particular for their service contracts lines of business. In addition, high
inflation may impact the creditworthiness of reinsurers and counterparties that our insurance subsidiaries contract with, which may
negatively impact the ability of such parties to make timely payments pursuant to our insurance subsidiaries’ contracts with them.
These outcomes would reduce their underwriting profit to the extent these factors are not reflected in the rates they charge,
including to the extent their distribution partners are unable or unwilling to effectively implement pricing or coverage to mitigate
these impacts.
The financial performance of the mortgage segment largely depends on the health of the U.S. residential real estate
industry, which is seasonal, cyclical, and affected by changes in general economic conditions beyond our control. Economic factors
such as increased interest rates, slow economic growth or recessionary conditions, the pace of home price appreciation or the lack
of it, changes in household debt levels, and increased unemployment or stagnant or declining wages affect our clients’ income and
thus their ability and willingness to make loan payments. National or global events affect all such macroeconomic conditions.
Weak or a significant deterioration in economic conditions reduce the amount of disposable income consumers have, which in turn
reduces consumer spending and the willingness of qualified potential clients to take out loans. As a result, such economic factors
affect loan origination volume.
If our insurance subsidiaries are not able to maintain and enhance their brand, their business and results of
operations will be harmed. Damage to their reputation and negative publicity could have a material adverse effect on their
business, results of operations, financial condition and cash flows.
We believe that maintaining and enhancing our insurance subsidiaries’ brand identity is critical to their relationships with
their existing customers and partners and to their ability to attract new customers and partners. They also intend to grow their brand
awareness among consumers and potential program partners in order to further expand their reach and attract new customers and
program partners. The promotion of their brand in these and other ways may require them to make substantial investments and it is
anticipated that, as their market becomes increasingly competitive, these branding initiatives may become increasingly difficult and
expensive. Our insurance subsidiaries’ brand promotion activities may not be successful or yield increased revenue, and to the
extent that these activities yield increased revenue, the increased revenue may not offset the expenses they incur and their results of
operations could be harmed. If they do not successfully maintain and enhance their brand, their business may not grow and they
could lose their relationships with customers or partners, which would harm their business, results of operations, financial
condition and cash flows.
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Our insurance subsidiaries may be adversely affected by negative publicity relating to brand and activities. For instance, if
their brand receives negative publicity, the number of customers visiting their platforms could decrease, and their cost of acquiring
customers could increase as a result of a reduction in the number of consumers coming from their direct customer acquisition
channel.
Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to
unidentified or unanticipated risk, which could adversely affect their business, results of operations, financial condition or cash
flows.
Our businesses have developed and continue to develop enterprise-wide risk management policies and procedures to
mitigate risk and loss to which they are exposed. There are, however, inherent limitations to risk management strategies because
there may exist, or develop in the future, risks that they have not appropriately anticipated or identified. If their risk management
policies and procedures are ineffective, they may suffer unexpected losses and could be materially adversely affected. As their
business changes and the markets in which they operate evolve, their 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 their risk management strategies may be limited, resulting in losses to them. In addition, there can
be no assurance that they can effectively review and monitor all risks or that all of their employees will follow their risk
management policies and procedures.
Moreover, state legislatures and regulators have increased their focus on risks within an insurer’s holding company system
that may pose enterprise risk to insurers and within mortgage originators that may pose risk to borrowers. Our insurance and
mortgage subsidiaries operate within an enterprise risk management (“ERM”) framework designed to assess and monitor their
risks. However, there can be no assurance that they can effectively review and monitor all risks, or that all of their employees will
operate within the ERM framework or that their ERM framework will result in their accurately identifying all risks and accurately
limiting their exposures based on our business’s assessments.
Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be
forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful.
Our insurance subsidiaries’ ability to make scheduled payments on or refinance their debt obligations depends on their
financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain
financial, business, legislative, regulatory and other factors beyond their control. They may be unable to maintain a level of cash
flows from operating activities sufficient to permit us to pay the principal and interest on their indebtedness.
If their cash flows and capital resources are insufficient to fund their debt service obligations, they could face substantial
liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or
operations, alter their dividend policy, seek additional debt or equity capital or restructure or refinance their indebtedness. They
may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those
alternative actions may not allow them to meet their scheduled debt service obligations. The instruments that will govern their
indebtedness may restrict their ability to dispose of assets and may restrict the use of proceeds from those dispositions and may
also restrict their ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. They may not
be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when
due.
Our insurance subsidiaries’ inability to generate sufficient cash flows to satisfy their debt obligations, or to refinance their
indebtedness on commercially reasonable terms or at all, may materially adversely affect their business, results of operations,
financial condition and cash flows.
Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to
pursue their business strategies.
The agreements governing our insurance subsidiaries’ indebtedness contain a number of restrictive covenants that impose
significant operating and financial restrictions on them and may limit their ability to pursue their business strategies or undertake
actions that may be in their best interests. The agreements governing their indebtedness include covenants restricting, among other
things, their ability to:
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incur or guarantee additional debt;
incur liens;
complete mergers, consolidations and dissolutions;
enter into transactions with affiliates;
pay dividends or other distributions;
sell certain of their assets that have been pledged as collateral; and
undergo a change in control.
A breach of the covenants under the indenture that governs our insurance subsidiaries’ 8.50% Fixed Rate Resetting Junior
Subordinated Notes due in October 2057 (the “Notes”) and Second Amended and Restated Credit Agreement dated as of October
21, 2022 by and among The Fortegra Group, Inc., Fortegra Financial and Lots Intermediate Co., as borrowers, Fifth Third Bank,
N.A., as administrative agent and issuing lender could result in an event of default. Such default may result in the acceleration of
any other debt to which a cross-acceleration or cross-default provision applies. In the event our insurance subsidiaries’ lenders or
noteholders accelerate the repayment of their indebtedness, they and their subsidiaries may not have sufficient assets to repay that
indebtedness. As a result of these restrictions, they may be:
•
•
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect their ability to grow in accordance with their strategy. In addition, their financial results,
substantial indebtedness and credit ratings could materially adversely affect the availability and terms of future financing.
Retentions in various lines of business expose our insurance subsidiaries to potential losses.
Our insurance subsidiaries retain risk for their own account on business underwritten by their insurance subsidiaries. The
determination to reduce the amount of reinsurance they purchase, or not to purchase reinsurance for a particular risk, customer
segment or category is based on a variety of factors, including market conditions, pricing, availability of reinsurance, their capital
levels and their loss history. Such determinations increase their financial exposure to losses associated with such risks, customer
segments or categories and, in the event of significant losses associated with such risks, customer segments or categories, could
have a material adverse effect on their business, results of operations, financial condition and cash flows.
The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business.
The United Kingdom ceased to be a part of the EU on December 31, 2020 (which is commonly referred to as “Brexit”).
Aspects of the relationship between the United Kingdom and the EU remain to be negotiated and their relationship will continue to
evolve, including with respect to the cross-border provision of products and services and related compliance requirements. The
effects of Brexit on our insurance subsidiaries’ business will depend on the manner in which it is implemented and any other
relevant agreements between the United Kingdom and the EU, among other factors. For example, the United Kingdom ratified a
trade and cooperation agreement governing its future relationship with the EU. Among other things, the agreement, which became
effective in mid-2021, addresses trade, economic arrangements, law enforcement, judicial cooperation and governance. Because
the agreement merely sets forth a framework in many respects that requires complex additional bilateral negotiations between the
United Kingdom and the EU, significant uncertainty remains about how the precise terms of the relationship between the parties
will differ from the terms before withdrawal. Because our insurance subsidiaries conduct business in both the United Kingdom and
the EU and because they rely on their Malta insurance subsidiary’s ability to conduct business in the United Kingdom, they face
risks associated with the uncertainty and disruptions relating to Brexit, including the risk of additional regulatory and other costs
and challenges and/or limitations on their ability to sell particular products and services. As a result, the ongoing uncertainty
surrounding Brexit could have a material adverse effect on their business (including their European growth plans), results of
operations, financial condition and cash flows.
Proposed or potential industry or legislative developments in the E&S market could further increase competition in our
insurance subsidiaries’ industry and have a material adverse effect on their premiums, underwriting results and profits.
A number of new, proposed or potential industry or legislative developments could further increase competition in the
E&S market and have a material adverse effect on our insurance subsidiaries’ premiums, underwriting results and profits. These
developments include:
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Changing distribution practices caused by the internet, including shifts in the way in which E&S insurance is purchased
by consumers. Our insurance subsidiaries currently depend largely on distribution through third-party agents and brokers.
If their distribution model were to be significantly altered by changes in the way E&S insurance is regulated, marketed, or
sold including, without limitation, through the use of the internet, it could have a material adverse effect on our insurance
subsidiaries’ premiums, underwriting results and profits;
Admitted products may be preferred from a regulatory or legislative perspective in certain jurisdictions; and
The market for E&S as compared to admitted products may shift based on the availability of admitted products at
competitive prices and consumer, agent or broker preferences, among other factors.
Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the
creditworthiness of some of its independent agents and program partners.
Our insurance business is subject to the credit risk of some of the independent agents and program partners with which it
contracts to sell its products and services. Our insurance business typically advances commissions as part of its product offerings.
These advances are a percentage of the premiums charged. If our insurance business over-advances such commissions, the agents
and program partners may not be able to fulfill their payback obligations, which could have a material adverse effect on our
insurance businesses, results of operations and financial condition.
Failure of our insurance subsidiaries’ distribution partners to properly market, underwrite or administer policies could
adversely affect our insurance subsidiaries.
The marketing, underwriting, claims administration and other administration of policies in connection with our insurance
subsidiaries’ issuing carrier services are the responsibility of their distribution partners. Any failure by them to properly handle
these functions could result in liability to our insurance subsidiaries. Even though their distribution partners may be required to
compensate them for any such liability, there are risks that they do not pay them because such partners become insolvent or
otherwise. Any such failures could create regulatory issues or harm our insurance subsidiaries’ reputation, which could have a
material adverse effect on their business, results of operations, financial condition and cash flows.
Third-party vendors our businesses rely upon to provide certain business and administrative services on their behalf
may not perform as anticipated, which could have an adverse effect on their business, results of operations, financial condition
and cash flows.
Our businesses have taken action to reduce coordination costs and take advantage of economies of scale by transitioning
multiple functions and services to third-party providers. They 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 parties. If such third-party providers
experience disruptions or do not perform as anticipated, or our businesses experience problems with a transition to a third-party
provider, they may experience operational difficulties, an inability to meet obligations (including policyholder obligations), a loss
of business and increased costs, or suffer other negative consequences, all of which may have a material adverse effect on their
business, results of operations, liquidity and cash flows.
Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they
underwrite.
Our insurance subsidiaries rely on information provided by insureds or their representatives when underwriting insurance
policies. While they may make inquiries to validate or supplement the information provided, they may make underwriting
decisions based on incorrect or incomplete information. It is possible that they will misunderstand the nature or extent of the
activities or facilities and the corresponding extent of the risks that they insure because of their reliance on inadequate or inaccurate
information.
Any failure to protect or enforce our insurance subsidiaries’ intellectual property rights could impair their intellectual
property, technology platform and brand. In addition, they may be sued by third parties for alleged infringement of their
proprietary rights.
Our insurance subsidiaries’ success and ability to compete depend in part on their ability to establish, maintain, protect
and enforce their intellectual property and proprietary rights, which includes their rights in their technology platform and their
brand. Our insurance subsidiaries primarily rely on a combination of intellectual property rights, such as copyrights, trade secrets
and trademarks, in addition to confidentiality agreements, procedures and contractual provisions with their employees, clients,
service providers, partners and other third parties to establish, maintain, protect and enforce their proprietary or confidential
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information and intellectual property rights. Our insurance subsidiaries also rely on agreements under which they contract to own,
or license rights to use, intellectual property developed by employees, contractors and other third parties. In addition, while they
generally enter into confidentiality agreements with employees and third parties to protect their trade secrets, know-how, business
strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide
meaningful protection for their trade secrets and know-how. Similarly, while they seek to enter into agreements with all of their
employees who develop intellectual property during their employment to assign the rights in such intellectual property to our
insurance subsidiaries, they may fail to enter into such agreements with all relevant employees, such agreements may be breached
or may not be self-executing, and they may be subject to claims that such employees misappropriated relevant rights from their
previous employers.
The steps our insurance subsidiaries take to protect their intellectual property may be inadequate and despite their efforts
to protect their proprietary rights and intellectual property, unauthorized parties may attempt to copy aspects of their solutions or to
obtain and use information that they regard as proprietary, and third parties may attempt to independently develop similar
technology. Policing unauthorized use of their technology and intellectual property rights may be difficult and may not be
effective.
Litigation brought to protect and enforce their intellectual property rights could be costly, time-consuming and distracting
to management and could result in the impairment or loss of portions of their intellectual property. The litigation process is subject
to inherent uncertainties, and they may not prevail in litigation matters regardless of the merits of their position. Further, adequate
remedies may not be available in the event of an unauthorized use or disclosure of their trade secrets. Additionally, their efforts to
enforce their intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and
enforceability and scope of their intellectual property rights. Our insurance subsidiaries’ failure to secure, protect, defend and
enforce their intellectual property rights could adversely affect their brand and adversely affect their business.
Our insurance subsidiaries’ success also depends in part on them not infringing, misappropriating or otherwise violating
the intellectual property rights of others. Their competitors and other third parties may own or claim to own intellectual property
relating to our insurance subsidiaries’ industry and, in the future, may claim that our insurance subsidiaries are infringing,
misappropriating or otherwise violating their intellectual property rights, and our insurance subsidiaries may be found to be
infringing on such rights. The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. The disposition
of any such claims, whether through settlement or licensing discussions or litigation, could cause our insurance subsidiaries to
incur significant expenses and, if successfully asserted against them, could require that they pay substantial damages or ongoing
royalty payments, prevent them from offering certain of their products and services, require them to change their technology or
business practices or require that they comply with other unfavorable terms. Even if our insurance subsidiaries were to prevail in
such a dispute, any litigation could be costly and time-consuming, divert the attention of their management and key personnel from
their business operations and materially adversely affect their business, financial condition and results of operations.
Our businesses employ third-party licensed software, and the inability to maintain these licenses, errors in the software
they license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely
affect their business.
Our businesses rely on certain third-party software obtained under licenses from other companies and anticipate that they
will continue to rely on such third-party software in the future. Although they believe that there are commercially reasonable
alternatives to the third-party software they currently license, this may not always be the case, or it may be difficult or costly to
replace their existing third-party software. In addition, integration of new third-party software may require significant work and
require substantial investment of their time and resources. Our business’s use of additional or alternative third-party software
would require them to enter into license agreements with third parties, which may not be available on commercially reasonable
terms or at all. Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could
negatively impact their respective business.
Additionally, some of the software powering our business’s technology systems incorporates software covered by open
source licenses. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that the
licenses could be construed in a manner that imposes unanticipated conditions or restrictions on their ability to operate their
systems. In the event that portions of their proprietary software are determined to be subject to an open source license, they could
be required to publicly release the affected portions of their source code, which could allow our business’s clients and competitors
to freely use such source code without compensation to us, or re-engineer all or a portion of their technology systems, each of
which could reduce or eliminate the value of their technology systems. While our businesses take steps to monitor the use of all
software covered by open source licenses in our technology systems to ensure that no such software is used in such a way as to
require us to disclose the source code to the related technology when they do not wish to do so, such use could inadvertently occur
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and could harm our businesses, results of operations, financial condition and cash flows. In addition, the source code for open
source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our
business’s systems that rely on open source software and may present additional security risks. Such risk could be difficult or
impossible to eliminate and could adversely affect our business’s, results of operations, financial condition and cash flows. Such
risk could be difficult or impossible to eliminate and could adversely affect our business’s results of operations, financial condition
and cash flows.
Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to
such jointly owned investments and could, thereby, have a material adverse effect on our business, results of operations and
financial condition and our ability to sell these investments.
Some of our current investments are, and future investments may be, made jointly with other persons or entities when
circumstances warrant the use of such structures and we may continue to do so in the future. Our participation in such joint
investments is subject to the risks that:
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we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could
require us to expend additional resources on resolving such impasses or potential disputes;
our partners could have investment goals that are not consistent with our investment objectives, including the timing,
terms and strategies for any investments;
our partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their
obligations as partners, which may require us to infuse our own capital into such venture(s) on behalf of the partner(s)
despite other competing uses for such capital;
our partners may have competing interests in our markets that could create conflict of interest issues;
any sale or other disposition of our interest in such a venture may require consents which we may not be able to obtain;
such transactions may also trigger other contractual rights held by a partner, lender or other third-party depending on how
the transaction is structured; and
there may be disagreements as to whether consents and/or approvals are required in connection with the consummation of
a particular transaction with a partner, lender and/or other third-party, or whether such transaction triggers other
contractual rights held by a partner, lender and/or other third-party, and in either case, those disagreements may result in
litigation.
Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary
policies that affect interest rates may have a detrimental effect on our mortgage business.
Changes in interest rates and the level of interest rates are key drivers that impact the volatility of our mortgage loan
originations. The historically low interest rate environment over the last several years created strong demand for mortgages. While
long-term residential mortgage interest rates were at or near record lows for an extended period, in 2022 and 2023, the Federal
Reserve initiated a rapid series of interest rate increases that resulted in lower revenue and profitability in our mortgage business.
The overwhelming majority of our mortgage loan originations have historically been refinancing existing homeowner’s mortgage
loans, with a particular emphasis on cash out refinancings. With the recent rise in interest rates, we may not be able to continue to
grow our mortgage originations in the future.
With regard to the portion of our mortgage business that is centered on refinancing existing mortgages, we generally note
that the refinance market experiences more significant fluctuations than the purchase market as a result of interest rate changes,
with the rate and term financing market impacted the most by the volatility in mortgage rates. As interest rates rise, refinancing
generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages. With regard to
our purchase mortgage loan business, higher interest rates may also reduce demand for purchase mortgages as home ownership
becomes more expensive. This could adversely affect our mortgage business’s revenues or require our mortgage business to
increase marketing expenditures in an attempt to increase or maintain its volume of mortgages. Decreases in interest rates can also
adversely affect our mortgage business’s financial condition, the value of its mortgage servicing rights (“MSRs”) portfolio, and its
results of operations. Even in sustained low interest rate environments, refinancing transactions decline over time, as many clients
and potential clients have already taken advantage of the low interest rates.
Changes in interest rates are also a key driver of the performance of our servicing business, particularly because our
mortgage business’s portfolio is composed primarily of MSRs related to high-quality loans, the values of which are highly
sensitive to changes in interest rates. Historically, the value of MSRs has increased when interest rates rise as higher interest rates
lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased
prepayment rates. As a result, decreases in interest rates could have a detrimental effect on our mortgage business.
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Borrowings under some of our mortgage business’s finance and warehouse facilities are at variable rates of interest, which
also expose us to interest rate risk. As interest rates increase, our mortgage business’s debt service obligations on certain of its
variable-rate indebtedness have increased even though the amount borrowed remains the same, and net income and cash flows,
including cash available for servicing indebtedness, have correspondingly decreased. Our mortgage business currently has entered
into, and in the future may continue to enter into, interest rate swaps that involve the exchange of floating for fixed-rate interest
payments to reduce interest rate volatility. However, our mortgage business may not maintain interest rate swaps with respect to all
of its variable-rate indebtedness, and any such swaps may not fully mitigate its interest rate risk, may prove disadvantageous, or
may create additional risks.
In addition, our mortgage business is materially affected by the monetary policies of the U.S. government and its
agencies. Our mortgage business is particularly affected by the policies of the Federal Reserve, which influence interest rates and
impact the size of the loan origination market. In 2017, the Federal Reserve ended its quantitative easing program and started its
balance sheet reduction plan. The Federal Reserve's balance sheet consists of U.S. Treasuries and mortgage-backed securities
(“MBS”) issued by Fannie Mae, Freddie Mac and Ginnie Mae. To shrink its balance sheet, the Federal Reserve had slowed the
pace of MBS purchases to a point at which natural runoff exceeded new purchases, resulting in a net reduction. In response to the
COVID-19 pandemic, state and federal authorities took several actions to provide relief to those negatively affected by COVID-19,
such as the CARES Act and the Federal Reserve's support of the financial markets. The lasting results of these policies by the
Federal Reserve are unknown at this time.
Our mortgage business’s MSRs are highly volatile assets with continually changing values, and these changes in
value, or inaccuracies in estimates of their value, could adversely affect our mortgage business’s financial condition and results
of operations.
The value of our mortgage business’s MSRs is based on the cash flows projected to result from the servicing of the related
mortgage loans and continually fluctuates due to a number of factors. These factors include changes in interest rates; historically,
the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has
decreased when interest rates decline as lower interest rates lead to increased prepayment rates and refinancings. Other market
conditions also affect the number of loans that are refinanced and thus no longer result in cash flows, and the number of loans that
become delinquent.
Our mortgage business uses two external valuation firms to fair value its MSR assets. These valuation firms utilize market
participant data and actual MSR market trades to value our MSRs for purposes of financial reporting, These models are complex
and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of
MSRs are complex because of the high number of variables that drive cash flows associated with MSRs, and because of the
complexity involved with anticipating such variables over the life of the MSR. Even if the general accuracy of their valuation
models is validated, valuations are highly dependent upon the reasonableness of their assumptions and the results of the models. If
loan delinquencies or prepayment speeds are higher than anticipated or other factors perform worse than modeled, the recorded
value of certain of their MSRs may decrease, which could adversely affect their business and financial condition.
Our mortgage business is highly dependent upon programs administered by GSEs, such as Fannie Mae and Freddie
Mac, as well as Ginnie Mae, to generate revenues through mortgage loan sales to institutional investors. Any changes in
existing U.S. government-sponsored mortgage programs could materially and adversely affect our mortgage business, financial
condition and results of operations.
There is uncertainty regarding the future of Fannie Mae and Freddie Mac, including with respect to how long they will
continue to be in existence, the extent of their roles in the market and what forms they will have. The future roles of Fannie Mae
and Freddie Mac could be reduced or eliminated and the nature of their guarantees could be limited or eliminated relative to
historical measurements. The elimination or modification of the traditional roles of Fannie Mae or Freddie Mac could adversely
affect our mortgage business, financial condition and results of operations. Furthermore, any discontinuation of, or significant
reduction in, the operation of these GSEs and Ginnie Mae, or any significant adverse change in the level of activity of these
agencies in the primary or secondary mortgage markets or in the underwriting criteria of these agencies could materially and
adversely affect our business, financial condition and results of operations.
We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business.
We fund substantially all of the loans which we originate through borrowings under warehouse financing and repurchase
facilities. Our borrowings are in turn repaid with the proceeds we receive from selling such loans through securitizations, and to a
lesser extent given our business model, whole loan sales. As we expand our operations, we will require increased financing.
There can be no assurance that such financing will be available on terms reasonably satisfactory to us or at all. An event
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of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of
credit-similar to the market conditions experienced in recent years-may increase our cost of funds and make it difficult for us to
obtain new, or retain existing, warehouse financing facilities. If we fail to maintain, renew or obtain adequate funding under these
warehouse financing facilities or other financing arrangements, or there is a substantial reduction in the size of or increase in the
cost of such facilities, we would have to curtail our mortgage loan production activities, which could have a material adverse effect
on our business, financial condition and operating results in our mortgage business.
If the value of the collateral underlying certain of our mortgage business’s loan funding facilities decreases, they could
be required to satisfy a margin call, and an unanticipated margin call could have a material adverse effect on their liquidity.
Certain of our mortgage business’s loan funding, early buy-out facilities, and MSR-backed facilities are subject to margin
calls based on the lender's opinion of the value of the loan collateral securing such financing and certain of their hedges related to
newly originated mortgages are also subject to margin calls. A margin call would require our mortgage business to repay a portion
of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on their liquidity.
In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or
will originate, if, among other things, our loans fail to meet certain criteria or characteristics.
Securitizations guaranteed by government agencies and contracts with purchasers of our mortgage loans contain
provisions that require us to indemnify or repurchase the related loans under certain circumstances. While these contractual
relationships vary, they contain provisions that require us to repurchase loans if:
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our representations and warranties concerning loan quality and loan circumstances are inaccurate, including
representations concerning the licensing of a mortgage broker;
we fail to secure adequate mortgage insurance within a certain period after closing;
a mortgage insurance provider denies coverage; or
we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic
regulatory environment.
We maintain reserves that we believe are appropriate to cover potential loan repurchase or indemnification losses, but
there can be no assurance that such reserves will, in fact, be sufficient to cover future repurchase and indemnification claims. If we
are required to indemnify or repurchase loans that we originate and sell that result in losses that exceed our reserve, this could
adversely affect our business, financial condition and results of operations.
Furthermore, in the ordinary course of our mortgage business, we are subject to claims made against us by borrowers and
private investors arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of
fiduciary obligations, misrepresentations, errors and omissions of our employees, officers and agents (including our appraisers),
incomplete documentation and our failure to comply with various laws and regulations applicable to our business.
In addition, should the mortgage loans we originate sustain higher levels of delinquencies and/or defaults, we may lose the
ability to originate and/or sell FHA loans, or to do so profitably and investors to whom we currently sell our mortgage loans may
refuse to continue to do business with us, or may reduce the prices they are willing to purchase our mortgage loans and it may be
difficult or impossible to sell any of our mortgage loans in the future. Any of the foregoing risks could adversely affect our
business, financial condition and results of operations in our mortgage business.
We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income.
We previously incurred net operating losses. In the event that we experience an “ownership change” within the meaning
of Section 382 of the Code, our ability to use those net operating losses to offset taxable income could be subject to an annual
limitation. The annual limitation would be equal to a percentage of our equity value at the time the ownership change occurred. In
general, such an “ownership change” would occur if the percentage of our stock owned by one or more 5% stockholders (including
certain groups or persons acting in concert) were to increase by 50 percentage points during any three-year period. All stockholders
that own less than 5% of our stock are treated as a single 5% stockholder. In addition, the Treasury Regulations under Section 382
of the Code contain additional rules the effect of which is to make it more likely that an ownership change could be deemed to
occur. Accordingly, our ability to use prior net operating losses to offset future taxable income would be subject to a limitation if
we experience an ownership change.
We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial
condition and results of operations.
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We leverage certain of our assets, including through borrowings, generally through warehouse credit facilities, secured
loans, securitizations and other borrowings. A rapid decline in the fair value of our leveraged assets may adversely affect us.
Lenders may require us to post additional collateral to support the borrowing. If we cannot post the additional collateral, we may
have to rapidly liquidate assets, which we may be unable to do on favorable terms or at all. Even after liquidating assets, we may
still be unable to post the required collateral, further harming our liquidity and subjecting us to liability to lenders for the declines
in the fair values of the collateral. A reduction in credit availability may adversely affect our business, financial condition and
results of operations.
Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk,
call and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our
assets, our results of operations and our financial condition.
Some of our assets, including our direct investments, are subject to credit risk, market risk, interest rate risk, credit spread
risk, call and redemption risk and refinancing risk.
Credit risk is the risk that the obligor will be unable to pay scheduled principal and/or interest payments. Defaults by third
parties in the payment or performance of their obligations could reduce our income and realized gains or result in the recognition of
losses. The fair value of our assets may be materially and adversely affected by increases in interest rates, downgrades in our direct
investments and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may
cause us to reduce the fair value of our assets.
Interest rate risk is the risk that general interest rates will rise or that the risk spread used in our financings will increase.
Although interest rates were at historically low levels for the last several years, the recent period of sharply rising interest rates has
resulted in unrealized losses on the fair value of certain of our investments and has had an adverse impact on our business by
negatively impacting our results and increasing our cost of borrowing to finance operations.
On March 5, 2021, the ICE Benchmark Administration and the United Kingdom Financial Conduct Authority confirmed
that most USD LIBOR tenors will continue to be published through the second quarter of 2023. We have exposure to LIBOR–
based contracts within certain of our finance receivables and loans primarily related to corporate finance loans, and mortgage
loans, as well as certain investment securities, derivative contracts, and trust preferred securities, among other arrangements. The
Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
financial institutions, has recommended the Secured Overnight Finance Rate (SOFR), as an alternative to LIBOR. SOFR is a broad
measure of the cost of borrowing cash in the overnight U.S. treasury repo market. There can be no assurance that rates linked to
SOFR, or associated changes related to the adoption of SOFR, will be as favorable to us as LIBOR and may result in an effective
increase in the applicable interest rate on our current or future debt obligations. As a result, the discontinuation of LIBOR or
LIBOR–based rates will present risks to our business.
Market risk is the risk that one or more markets to which the assets relate will decline in value, including the possibility
that such markets will deteriorate sharply and unpredictably, which will likely impair the market value of the related instruments.
Credit spread risk is the risk that the market value of fixed income investments will change in response to changes in
perceived or actual credit risk beyond changes that would be attributable to changes, if any, in interest rates.
Call and redemption risk is the risk that fixed income investments will be called or redeemed prior to maturity at a time
when yields on other debt instruments in which the call or redemption proceeds could be invested are lower than the yield on the
called or redeemed investments.
Refinancing risk is the risk that we will be unable to refinance some or all of our indebtedness or that any refinancing will
not be on terms as favorable as those of our existing indebtedness, which could increase our funding costs, limit our ability to
borrow, or result in a sale of the leveraged asset on disadvantageous terms.
Any one of the risks described above may materially and adversely affect the value of our assets, our results of operations
and our financial condition.
Our risk mitigation or hedging strategies could result in our experiencing significant losses that may materially
adversely affect us.
We may pursue risk mitigation and hedging strategies to seek to reduce our exposure to losses from adverse credit events,
interest rate changes, market risk and other risks. These strategies may include short Treasury positions, interest rate swaps, foreign
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exchange derivatives, credit derivatives, freight forward agreements, fuel oil swaps and other derivative hedging instruments. Since
we account for derivatives at fair market value, changes in fair market value are reflected in net income other than derivative
hedging instruments which are reflected in accumulated other comprehensive income in stockholders’ equity. Some of these
strategies could result in our experiencing significant losses that may materially adversely affect our business, financial condition
and results of operations.
The values we record for certain investments and liabilities are based on estimates of fair value made by our
management, which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a
sale.
Some of our investments and liabilities are not actively traded and the fair value of such investments and liabilities are not
readily determinable. Each of these carrying values is based on an estimate of fair value by our management. Management reports
the estimated fair value of these investments and liabilities quarterly, which may cause our quarterly operating results to fluctuate.
Therefore, our past quarterly results may not be indicative of our performance in future quarters. In addition, because such
valuations are inherently uncertain, in some cases based on internal models and unobservable inputs, may fluctuate over short
periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would
have been used if a ready market for these investments and liabilities existed. As such, we may be unable to realize the carrying
value upon a sale of these investments or liabilities.
The accounting rules applicable to certain of our transactions are highly complex and require the application of
significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions
could impact our financial statements.
Accounting rules for consolidations, income taxes, business acquisitions, transfers of financial assets and other aspects of
our operations are highly complex and require the application of judgment and assumptions by our management. In addition,
changes in accounting rules, interpretations or assumptions could materially impact the presentation, disclosure and usability of our
financial statements. For more information see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Critical Accounting Policies and Estimates”.
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 with new rules,
particularly if we are required to prepare information relating to prior periods for comparative purposes or to otherwise 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.
Our insurance subsidiaries are required 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 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. Whether or in what form such reforms will
be enacted and, if so, whether the enacted reforms will positively or negatively affect us is unknown.
Catastrophic events could significantly impact the Company’s businesses.
Unforeseen or catastrophic events, such as severe weather, natural disasters, pandemics (e.g. the COVID 19 pandemic)
cybersecurity attacks, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s
ability to conduct business. Although the Company and its subsidiaries have established disaster recovery plans, there is no
guarantee that such plans will allow the Company and its subsidiaries to operate without disruption if such an event was to occur
and the occurrence of any such event could have a material adverse effect on the Company’s business, which, in turn, could have a
material adverse effect on the Company’s financial condition and results of operations.
Acts of war may disrupt international trade, create market volatility in debt, equity and commodities markets and result in
import bans, export control regulations, increased costs, and sanctions by governmental authorities. These effects, individually or
in the aggregate, could materially adversely impact our businesses, operations, financial condition, operating results, liquidity and
cash flows and such adverse impacts may be material to our results of operations and liquidity position.
Whether or to what extent damage that may be caused by natural events, such as wildfires, severe tropical storms and
hurricanes, will affect our insurance subsidiaries’ ability to write new insurance policies and reinsurance contracts is unknown, but,
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to the extent our insurance subsidiaries’ policies are concentrated in the specific geographic areas in which these events occur, any
increase in frequency and severity of such events and the total amount of our loss exposure in the impacted areas of such events
may adversely affect their business, financial condition and results of operations. In addition, although our insurance subsidiaries
have historically had limited exposure to catastrophic risk, claims from catastrophe events could reduce their earnings and cause
substantial volatility in their business, financial condition and results of operations for any period. Assessing the risk of loss and
damage associated with natural and catastrophic events remains a challenge and might adversely affect their business, results of
operations, financial condition and cash flows.
Our business, particularly our insurance subsidiaries’ business, is exposed to risks associated with severe weather
conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as severe winter
weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms and fires, and other events such as explosions, war,
terrorist attacks and riots. The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable.
For example, our insurance subsidiary underwrites property risks in geographies that are subject to earthquakes, such as California,
in geographies that are subject to wildfires, such as the southwestern United States, and in geographies that are subject to
windstorms, such as the southeastern United States. The extent of losses from catastrophes is a function of the total amount of
insured value, the number of insureds affected, the frequency and severity of the events, the effectiveness of our catastrophe risk
management program and the adequacy of our reinsurance coverage. Insurance companies are not permitted to reserve for a
catastrophe until it has occurred. Severe weather conditions and catastrophes can cause losses in our property lines and generally
result in both an increase in the number of claims incurred and an increase in the dollar amount of each claim asserted, which may
require us to increase our reserves, causing our liquidity and financial condition to deteriorate. In addition, our inability to obtain
reinsurance coverage at reasonable rates, and in amounts adequate to mitigate the risks associated with severe weather conditions
and other catastrophes, could have a material adverse effect on our business and results of operations. Further toward mitigating
these risks, we underwrite a diversified mix of programs that span across multiple lines of business, industries, geographies and
distribution channels.
In addition, while policy terms and conditions for our insurance subsidiaries’ lines of business preclude coverage for
virus-related claims, court decisions and governmental actions may challenge the validity of any exclusions or our interpretation of
how such terms and conditions operate. If pandemics, disease outbreaks and other events occur or re-occur and measures that are
put into place by various governmental authorities to stabilize the economy are not effective, our business, financial condition,
results of operations and cash flows may be materially adversely affected.
U.S. insurers are required by state and federal law to offer coverage for acts of terrorism in certain commercial lines. The
Terrorism Risk Insurance Act, as extended by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”)
requires commercial property and casualty (“P&C”) insurance companies to offer coverage for acts of terrorism, whether foreign
or domestic, and established a federal assistance program through the end of 2020 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 our insurance subsidiaries
would depend upon the nature, extent, location and timing of such an act. Although our insurance subsidiaries reinsure a portion of
the terrorism risk they retain under TRIPRA, such 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, our insurance subsidiaries may be covered under TRIPRA for their 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 commercial P&C insurance.
Risks Related to our Structure
Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend
on distributions from our subsidiaries that may be subject to restrictions and income from assets.
We are a holding company and do not have any significant operations of our own, other than our principal investments.
Our ability to meet our obligations will depend on distributions from our subsidiaries and income from assets. The amount of
dividends and other distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law,
restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or future indebtedness that
these subsidiaries may incur. Such restrictions would also affect our ability to pay dividends to stockholders, if and when we
choose to do so.
Our insurance business’s Junior Subordinated Notes due 2057 and $200 million revolving credit facility restrict dividends
to us based on the leverage ratio of our insurance business and its subsidiaries. Additionally, our regulated insurance company
subsidiaries are required to satisfy minimum capital and surplus requirements according to the laws and regulations of the states in
which they operate, which regulate the amount of dividends and distributions we receive from them. In general, dividends in
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excess of prescribed limits are deemed “extraordinary” and require insurance regulatory approval. Ordinary dividends, for which
no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. Some states
have an additional stipulation that dividends may only be paid out of earned surplus. States also regulate transactions between our
insurance company subsidiaries and us or our other subsidiaries, such as those relating to compensation for shared services, and in
some instances, require prior approval of such transactions within the holding company structure. If insurance regulators determine
that payment of an ordinary dividend or any other payments by our insurance company subsidiaries to us or our other subsidiaries
(such as payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block or
otherwise restrict such payments that would otherwise be permitted without prior approval. In addition, there could be future
regulatory actions restricting the ability of our insurance company subsidiaries to pay dividends or share services. The primary
factor in determining the amount of capital available for potential dividends is the level of capital needed to maintain desired
financial strength ratings from rating agencies for our insurance company subsidiaries. Given recent economic events that have
affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and
criteria, including increasing capital requirements for our insurance company subsidiaries which, in turn, could negatively affect
our capital resources.
Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders
consider in their best interests.
Our charter restricts any person that owns 9.8% or more of our capital stock, other than stockholders approved by
applicable state insurance regulators, from voting in excess of 9.8% of our voting securities. This provision is intended to satisfy
the requirements of applicable state regulators in connection with insurance laws and regulations that prohibit any person from
acquiring control of a regulated insurance company without the prior approval of the insurance regulators. In addition, our charter
provides for the classification of our board of directors into three classes, one of which is to be elected each year. Our charter also
generally only permits stockholders to act without a meeting by unanimous consent. These provisions may delay, deter or prevent
takeovers and business combinations that stockholders consider in their best interests.
Maryland takeover statutes may prevent a change of our control, which could depress our stock price.
Maryland law provides that “control shares” of a corporation acquired in a “control share acquisition” will have no voting
rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter under the Maryland
Control Share Acquisition Act. “Control shares” means voting shares of stock that, if aggregated with all other shares of stock
owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following
ranges of voting power: one-tenth or more but less than one-third; one-third or more but less than a majority; or a majority or more
of all voting power. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain
exceptions.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an
affiliate of an interested stockholder are prohibited for five years after the most recent date on which such stockholder became an
interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity securities.
Our bylaws contain a provision exempting from the control share statute any and all acquisitions by any person of our
shares of stock. Our board of directors has also adopted a resolution which provides that any business combination between us and
any other person is exempted from the provisions of the business combination statute, provided that the business combination is
first approved by the board of directors. However, our board of directors may amend or eliminate this provision in our bylaws
regarding the control share statute or amend or repeal this resolution regarding the business combination statute. If our board takes
such action in the future, the control share and business combination statutes may prevent or discourage others from trying to
acquire control of us and increase the difficulty of consummating any offer, including potential acquisitions that might involve a
premium price for our common stock or otherwise be in the best interest of our stockholders.
Our holding company structure with multiple lines of business, may adversely impact the market price of our common
stock and our ability to raise equity and debt capital.
Tiptree holds and manages multiple lines of business. Analysts, investors and lenders may have difficulty analyzing and
valuing a company with multiple lines of business, which could adversely impact the market price of our common stock and our
ability to raise equity and debt capital at a holding company level. Moreover, our management is required to make decisions
regarding the allocation of capital among the different lines of business, and such decisions could materially and adversely affect
our business or one or more of our lines of business.
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Risks Related to Regulatory and Legal Matters
Maintenance of our 1940 Act exemption imposes limits on our operations.
We conduct our operations so that we are not required to register as an investment company under the 1940 Act.
Therefore, we must limit the types and nature of businesses in which we engage and assets that we acquire. We monitor our
compliance with the 1940 Act on an ongoing basis and may be compelled to take or refrain from taking actions, to acquire
additional income or loss generating assets or to forgo opportunities that might otherwise be beneficial or advisable, including, but
not limited to selling assets that are considered to be investment securities or forgoing the sale of assets that are not investment
securities, in order to ensure that we (or a subsidiary) may continue to rely on the applicable exceptions or exemptions. These
limitations on our freedom of action could have a material adverse effect on our financial condition and results of operations.
If we fail to maintain an exemption, exception or other exclusion from registration as an investment company, we could,
among other things, be required to substantially change the manner in which we conduct our operations either to avoid being
required to register as an investment company or to register as an investment company. If we were required to register as an
investment company under the 1940 Act, we would become subject to substantial regulation with respect to, among other things,
our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as
defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration,
and our financial condition and results of operations may be adversely affected. If we did not register despite being required to do
so, criminal and civil actions could be brought against us, our contracts would be unenforceable unless a court were to require
enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
A change in law, regulation or regulatory enforcement applicable to insurance products could adversely affect our
financial condition and results of operations.
A change in state or U.S. federal tax laws could materially affect our insurance businesses. For example, tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017,
fundamentally overhauled the U.S. tax system by, among other significant changes, reducing the U.S. corporate income tax rate to
21%. In the context of the taxation of U.S. P&C insurance companies such as our insurance companies, the TCJA also modified
the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions to reflect the lower corporate
income tax rate, which could have an adverse impact on our insurance subsidiaries. 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 our insurance
subsidiaries. Additional regulations or pronouncements interpreting or clarifying provisions of the TCJA have been and will
continue to be issued, and such regulations or pronouncements may be different from our insurance subsidiaries’ interpretation and
thus adversely affect their results. If, when or in what form such regulations or pronouncements may be provided or finalized,
whether such guidance will have a retroactive effect or such regulations’ or pronouncements’ potential impact on our insurance
subsidiaries is unknown.
Currently, our insurance business does not collect sales or other related taxes on its services. Whether sales of our
insurance business’s services are subject to state sales and use taxes is uncertain, due in part to the nature of its services and the
relationships through which its services are offered, as well as changing state laws and interpretations of those laws. One or more
states may seek to impose sales or use tax or other tax collection obligations on our insurance business, whether based on sales by
our insurance business or its resellers or clients, including for past sales. A successful assertion that our insurance business should
be collecting sales or other related taxes on its services could result in substantial tax liabilities for past sales, discourage customers
from purchasing its services, discourage clients from offering or billing for its services, or otherwise cause material harm to its
business, financial condition and results of operations.
With regard to our insurance business’s payment protection products and financing of VSCs, there are federal and state
laws and regulations that govern the disclosures related to the sales of those products. Our insurance business’s ability to offer and
administer these products on behalf of their distribution partners is dependent upon their continued ability to sell such products. To
the extent that federal or state laws or regulations change to restrict or prohibit the sale of these products, our insurance business’s
revenues would be adversely affected. For example, the CFPB’s enforcement actions have resulted in large refunds and civil
penalties against financial institutions in connection with their marketing of payment protection and other products. Due to such
regulatory actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which
may adversely affect our insurance business’s revenues. The full impact of the CFPB’s oversight is unpredictable and continues to
evolve. With respect to the P&C insurance policies our insurance business underwrites, federal legislative proposals regarding
national catastrophe insurance, if adopted, could reduce the business need for some of the related products that our insurance
business provides.
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Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business
model and expose them to increased liability.
Some of our subsidiaries collect, use, store, transmit, retrieve, retain and otherwise process confidential and personally
identifiable information in their information systems in and across multiple jurisdictions, and they are subject to a variety of
confidentiality obligations and privacy, data protection and information security laws, regulations, orders and industry standards in
the jurisdictions in which they do business. The regulatory environment surrounding information security, data privacy and
cybersecurity is evolving and increasingly demanding and there has been an increasing focus on privacy and data protection issues
with the potential to affect our businesses. A number of our subsidiaries are subject to numerous U.S. federal and state laws and
non-U.S. regulations governing the collection, transmission, storage, use and protection of personally identifiable and confidential
information of their customers and employees. Failure to comply with any of these laws and regulations could result in
enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by
affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our
business, results of operations, financial condition and cash flows. On October 24, 2017, the NAIC adopted an Insurance Data
Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The
NAIC model law has been adopted by certain states and is under consideration by others. It is not yet known whether or not, and to
what extent, states legislatures or insurance regulators where our insurance subsidiaries operate will enact the Insurance Data
Security Model Law in whole or in part, or in a modified form. Such enactments, especially if inconsistent between states or with
existing laws and regulations, could raise compliance costs or increase the risk of noncompliance, and noncompliance could
subject our insurance subsidiaries to regulatory enforcement actions and penalties, as well as reputational harm. Any such events
could potentially have an adverse impact on our insurance subsidiaries’ business, results of operations, financial condition and cash
flows.
Our insurance and mortgage subsidiaries are subject to the privacy regulations of the Gramm-Leach-Bliley Act of 1999
(the “Gramm-Leach-Bliley Act”), along with its implementing regulations, which restricts certain collection, processing, storage,
use and disclosure of personal information, requires notice to individuals of privacy practices, provides individuals with certain
rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information and imposes requirements
for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In
addition, on March 1, 2017, new cybersecurity rules took effect for financial institutions, insurers and certain other companies, like
our insurance and mortgage subsidiaries, supervised by the NY Department of Financial Services (the “NY DFS Cybersecurity
Regulation”). The NY DFS Cybersecurity Regulation imposes significant regulatory burdens intended to protect the
confidentiality, integrity and availability of information systems. Our insurance and mortgage subsidiaries also have contractual
obligations to protect confidential and personally identifiable information we obtain from third parties. These obligations generally
require them, in accordance with applicable laws, to protect such information to the same extent that they protect their own such
information.
Many states in which our insurance and mortgage subsidiaries operate have laws that protect the privacy and security of
sensitive and personal information. Certain current or proposed state laws may be more stringent or broader in scope, or offer
greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such
laws may differ from each other, which may complicate compliance efforts. For example, certain of our insurance and mortgage
businesses are subject to the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020
(collectively, the “CCPA”), which among other things, requires companies covered by the legislation to provide disclosures to
California consumers and affords such consumers rights of access and deletion of personal information. Internationally, many
jurisdictions have established their own data security and privacy legal framework with which our insurance subsidiaries operating
in such jurisdictions, or their customers, may need to comply, including, but not limited to, the EU. The EU has adopted the
General Data Protection Regulation, or the GDPR, which contains numerous requirements, robust obligations on data processors
and heavier documentation requirements for data protection compliance programs by companies. The GDPR imposes significant
penalties for non-compliance with fines of up to 4% of total annual worldwide turnover or €20 million (whichever is higher),
depending on the type and severity of the violation. In addition, following Brexit, the U.K. General Data Protection Regulation
(i.e., a version of the GDPR as implemented into U.K. law) went into effect, which may expose us to burdens and risks comparable
to those of the GDPR.
Because the interpretation and application of many privacy and data protection laws along with contractually imposed
industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with
our insurance subsidiaries’ existing data management practices or the features of their services and platform capabilities. Any
failure or perceived failure by our insurance subsidiaries, or any third parties with which they do business, to comply with their
posted privacy policies, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual
obligations to which they or such third parties are or may become subject, may result in actions or other claims against our
49
insurance subsidiaries by governmental entities or private actors, the expenditure of substantial costs, time and other resources or
the incurrence of significant fines, penalties or other liabilities. In addition, any such action, particularly to the extent our insurance
subsidiaries were found to be guilty of violations or otherwise liable for damages, would damage their reputation and adversely
affect their business, financial condition and results of operations. Even if our businesses are not determined to have violated these
laws, government investigations into these issues typically require the expenditure of significant resources and generate negative
publicity, which could harm our businesses, financial condition, and results of operations.
Compliance with existing and new regulations affecting our business in regulated industries may increase costs and
limit our ability to pursue business opportunities.
We are subject to extensive laws and regulations administered and enforced by a number of different federal and state
governmental authorities in the industries in which we operate. Regulation of such industries may increase. In the past, there has
been significant legislation affecting financial services and insurance, including the Dodd-Frank Act. In addition, we are subject to
regulations governing the protection of personal confidential information and data security including the Gramm-Leach-Bliley Act,
the GDPR, the NY DFS Cybersecurity Regulation and the CCPA. Accordingly, the impact that any new laws and regulations will
have on us is unknown. The costs to comply with these laws and regulations may be substantial and could have a significant
negative impact on us and limit our ability to pursue business opportunities. We can give no assurances that with changes to laws
and regulations, our businesses can continue to be conducted in each jurisdiction in the manner as we have in the past.
Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect
to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable
insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease
depending on a variety of factors, most of which are outside our insurance subsidiaries’ control, such as the amount of statutory
income or losses generated, changes in equity market levels, the value of fixed-income and equity securities in our investment
portfolio, changes in interest rates and foreign currency exchange rates, as well as changes to the RBC formulas used by insurance
regulators. The laws of the various states in which our insurance businesses operate establish insurance departments and other
regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some or all
of their activities or otherwise fine or penalize them in any jurisdiction in which they operate. Such regulation or compliance could
reduce our insurance business’s profitability or limit their growth by increasing the costs of compliance, limiting or restricting the
products or services they sell, or the methods by which they sell their services and products, or subjecting their business to the
possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory reserves that our
insurance subsidiaries are required to hold could have a material adverse effect on their business, results of operations, financial
condition and cash flows.
While the CFPB does not have direct jurisdiction over insurance products, it is possible that regulatory actions taken by
the CFPB may affect the sales practices related to these products and thereby potentially affect our insurance business or the clients
that it serves. In 2017, the CFPB issued rules under its unfair, deceptive and abusive acts and practices rulemaking authority
relating to consumer installment loans, among other things. Such CFPB rules regarding consumer installment loans could
adversely impact our insurance business’s volume of insurance products and services and cost structure. Due to such regulatory
actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which may
adversely affect our insurance business’s revenues.
Due to the highly regulated nature of the residential mortgage industry, our mortgage subsidiaries are required to comply
with a wide array of federal, state and local laws and regulations that regulate licensing, allowable fees and loan terms, permissible
servicing and debt collection practices, limitations on forced-placed insurance, special consumer protections in connection with
default and foreclosure, and protection of confidential, nonpublic consumer information. These laws and regulations are constantly
changing and the volume of new or modified laws and regulations has increased in recent years as states and local cities and
counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination,
acquisition and servicing activities in those cities and counties. These laws and regulations are complex and vary greatly among
different states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. A failure by us
or our servicers to comply with applicable laws or regulations could subject our mortgage business and/or our mortgage servicers
to lawsuits or governmental actions, which could result in the loss or suspension of our licenses in the applicable jurisdictions
where such violations occur and/or monetary fines or changes in our mortgage operations. If we were to determine to change
servicers, there is no assurance that we could find servicers that satisfy our requirements or with whom we could enter into
agreements on satisfactory terms. Any of these outcomes could materially and adversely affect our mortgage business.
The CFPB continues to be active in its monitoring of the loan origination and servicing sectors, and its recently issued
rules increase our regulatory compliance burden and associated costs.
50
Our mortgage business is subject to the regulatory, supervisory and examination authority of the CFPB, which has
oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan
servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage
lenders and servicers, including the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Fair Debt Collections
Practices Act. The CFPB has issued a number of regulations under the Dodd-Frank Act relating to loan origination and servicing
activities, including ability to repay and "Qualified Mortgage" standards and other origination standards and practices.
The CFPB’s examinations have increased, and will likely continue to increase, our mortgage business’s administrative
and compliance costs. They could also greatly influence the availability and cost of residential mortgage credit and increase
servicing costs and risks. These increased costs of compliance, the effect of these rules on the lending industry and loan servicing,
and any failure in our mortgage business’s ability to comply with the new rules by their effective dates, could be detrimental to
their business. The CFPB also issued guidelines on sending examiners to banks and other institutions that service and/or originate
mortgages to assess whether consumers' interests are protected.
The CFPB also has broad enforcement powers, and can order, among other things, rescission or reformation of contracts,
the refund of moneys or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment
of damages or other monetary relief, public notifications regarding violations, limits on activities or functions, remediation of
practices, external compliance monitoring and civil money penalties. The CFPB has been active in investigations and enforcement
actions and, when necessary, has issued civil money penalties to parties the CFPB determines has violated the laws and regulations
it enforces. Our mortgage business’s failure to comply with the federal consumer protection laws, rules and regulations to which
they are subject, whether actual or alleged, could expose them to enforcement actions or potential litigation liabilities.
Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies
and legal and regulatory standards are not effective.
Our insurance business is highly dependent on the ability of our insurance subsidiaries to engage on a daily basis in a
large number of insurance underwriting, claim processing and investment activities, many of which are highly complex. These
activities often are subject to internal guidelines and policies, as well as legal and regulatory standards, including those related to
privacy, anti-corruption, anti-bribery and global finance and insurance matters. The continued expansion into new products and
geographic markets has brought about additional requirements. A control system, no matter how well designed and operated, can
provide only reasonable assurance that the control system’s objectives will be met. If our insurance subsidiaries’ controls are not
effective, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage
to their reputation.
Our businesses are subject to risks related to litigation and regulatory actions.
Over the last several years, businesses in many areas of the financial services industry have been subject to increasing
amounts of regulatory scrutiny. In addition, there has been an increase in litigation involving firms in the financial services industry
and public companies generally, some of which have involved new types of legal claims, particularly in the insurance industry. We
may be materially and adversely affected by judgments, settlements, fines, penalties, unanticipated costs or other effects of legal
and administrative proceedings now pending or that may be instituted in the future, including from investigations by regulatory
bodies or administrative agencies. An adverse outcome of any investigation by, or other inquiries from, any such bodies or
agencies also could result in non-monetary penalties or sanctions, loss of licenses or approvals, changes in personnel, increased
review and scrutiny of us by our clients, counterparties, regulatory authorities, potential litigants, the media and others, any of
which could have a material adverse effect on us.
We are involved in various litigation matters from time to time. For example, we are a defendant in Mullins v. Southern
Financial Life Insurance Co., a class action lawsuit alleging violations of the Consumer Protection Act and certain insurance
statutes, as well as common law fraud. This and other such matters can be time-consuming, divert management’s attention and
resources and cause us to incur significant expenses. Our insurance and indemnities may not cover all claims that may be asserted
against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are
unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines,
enter into consent decrees or change our business practices, any of which could have a material adverse effect our business, results
of operations, financial condition or cash flows.
Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the
United States, the EU and other jurisdictions.
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Our international operations and activities expose us to risks associated with trade and economic sanctions, prohibitions or
other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its
member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/
restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs,
and, in the event of a violation, may subject us to fines and other penalties.
We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act
and anti-corruption laws in other applicable jurisdictions.
We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various
jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. We
operate in countries known to present heightened risks for corruption and our dry bulk shipping and product tankers and related
operations requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs
officials and pilots.
Non-compliance with anti-corruption, anti-bribery or anti-money laundering laws could subject us to whistleblower
complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral
consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of
operations, financial condition and reputation.
Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and
other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability.
Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which
require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies.
These obligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy
assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of
premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. Accordingly,
the assessments levied on our insurance subsidiaries may increase as they increase their written premiums. These funds are
supported by either assessments or premium surcharges based on incurred losses.
In addition, as a condition to conducting business in some states, insurance companies are required to participate in
residual market programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated
basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a
reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies.
Although our insurance subsidiaries price their insurance to account for their potential obligations under these pooling
arrangements, they may not be able to accurately estimate their liability for these obligations. Accordingly, mandatory pooling
arrangements may cause a decrease in their profits. Further, the impairment, insolvency or failure of other insurance companies in
these pooling arrangements would likely increase the liability for other members in the pool. The effect of assessments and
premium surcharges or increases in such assessments or surcharges could reduce our insurance subsidiaries’ profitability in any
given period or limit the ability to grow their business.
Operation of dry bulk vessels and product tankers is subject to complex laws and regulations, including environmental
laws and regulations that, if any of our vessel owner subsidiaries are found guilty of violation, can result in substantial fines
and costs to the Company.
The shipping business and vessel ownership are subject to government regulation in the form of international
conventions, national, state and local laws, and regulations in force in the jurisdictions in which vessels operate, as well as in the
country or countries of their registration. The principal international convention governing marine pollution prevention and
response is the International Convention for the Prevention of Pollution from Ships (“MARPOL”). MARPOL regulates, among
other things, the management and discharge of oil and garbage, as well as air emissions from vessels with a view of reducing
pollution to the marine environment. One of MARPOL’s key requirements is that transfers and discharges of oily water must be
recorded in an Oil Record Book. Similar requirements exist for garbage records and recording changeovers between high and low
sulfur fuel due to the impact on air emissions. The Act to Prevent Pollution from Ships, 33 U.S.C. § 1901, et seq. (“APPS”),
implements MARPOL in the United States. The U.S. Coast Guard (“USCG”) is the responsible regulatory and enforcement agency
and has promulgated regulations implementing APPS at 33 C.F.R. Part 151. Civil and administrative violations of APPS and the
implementing USCG regulations may be enforced by the USCG, whereas criminal violations are enforced by the U.S. Department
of Justice.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Company has adopted processes designed to identify, assess and manage material risks from cybersecurity threats. Those
processes include response to and an assessment of internal and external threats to the security, confidentiality, integrity and
availability of Company data and systems along with other material risks to our Company, at least annually or whenever there are
material changes to the Company’s systems or operations. As part of our risk management process, the Company engages outside
providers to conduct periodic internal and external penetration testing. Our information security management system is based upon
industry leading frameworks, including CIS-18, ISO 27001, and NIST CSF. The Company stores Company data in cloud and local
server environments with security appropriate to the data involved and has adopted controls around, among other things, vendor
risk assessment, access and acceptable use and backup and recovery. We have implemented security monitoring capabilities
designed to alert us to suspicious activity and developed an incident response program that includes periodic testing and is
designed to restore business operations as quickly and as orderly as possible in the event of a breach. In addition, employees
participate in an ongoing program of mandatory annual training and receive communications regarding the cybersecurity
environment to increase awareness throughout the Company. The Company also performs periodic cybersecurity security
assessments of our key vendors to help protect Company data when it leaves our network.
Operational responsibility for overseeing the adequacy and effectiveness of the Company’s risk management, control and
governance processes is the responsibility of the Chief Operating Officer (“COO”) in consultation with senior management of the
Company and the Chief Information Security Officers (“CISO”) of the Company and its operating subsidiaries. Aspects of the
information systems of the parent holding company and each material operating business are distinct so each has its own CISO,
which in the case of the parent holding company is an independent third-party service provider. The CISOs’ expertise in
information technology and cybersecurity has been gained from a combination of education, including relevant degrees and/or
certifications, and prior work experience. Each of the CISOs has more than 10 years’ experience in information technology and
cybersecurity. The COO reports regularly, and at least annually, to the Company’s Audit Committee and such report may address
overall assessment of the Company’s compliance with the Company’s cybersecurity policies, and include topics such as risk
assessment, risk management and control decisions, service provider arrangements, test results, security incidents and responses,
and recommendations for changes and updates to policies and procedures.
We are not aware of any material risks from cybersecurity threats, that have materially affected or are reasonably likely to
materially affect the Company, including our business strategy, results of operations or financial condition, but we cannot provide
assurance that we will not be materially affected in the future by such risks or any future material incidents. See “Risk Factors-
Cybersecurity attacks, technology breaches or failures of our or our third-party service providers’ information systems could
disrupt our various business operations and could result in the loss of critical and personally identifiable information, which could
result in the loss of reputation and customers, reduce profitability, subject our businesses to fines, penalties and litigation and have
a material adverse effect on our business’s results of operation, financial condition and cash flows” for additional information
regarding cybersecurity risks.
Item 2. Properties
Our principal executive office is located at 660 Steamboat Road, 2nd Floor, Greenwich, Connecticut 06830. We and our
subsidiaries lease properties throughout the United States and Europe, all of which are used as administrative offices. We believe
that the terms of the leases at each of our subsidiaries are sufficient to meet our present needs and we do not anticipate any
difficulty in securing additional space, as needed, on acceptable terms.
Item 3. Legal Proceedings
Our legal proceedings are discussed under the heading “Litigation” in Note (21) — Commitments and Contingencies in the Notes
to the consolidated financial statements in this report.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Tiptree’s common stock is traded on the Nasdaq Capital Market under the ticker symbol “TIPT”.
Holders
As of December 31, 2023, there were 46 common stockholders of record. This number does not include beneficial owners whose
shares are held by nominees in street name.
Item 6. Reserved.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in this section as
follows:
•
•
•
•
•
Overview
Results of Operations
Non-GAAP Measures and Reconciliations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
OVERVIEW
Tiptree allocates capital to select small and middle market companies with the mission of building long-term value.
Established in 2007, we have a significant track record investing in the insurance sector and across a variety of other
industries, including mortgage, specialty finance and shipping. Our largest operating subsidiary, Fortegra, is a leading
provider of specialty insurance products and related services. We also generate earnings from a diverse group of select
investments that we refer to as Tiptree Capital, which includes our Mortgage segment and other, non-insurance businesses
and assets. We evaluate performance primarily by the comparison of stockholders’ long-term total return on capital, as
measured by growth in stock price plus dividends paid, in addition to Adjusted Net Income.
Our 2023 highlights include:
Overall:
•
•
Tiptree reported net income of $14.0 million for the year ended December 31, 2023, compared to a net loss of $8.3
million in the prior year period, driven by growth in insurance operations and the decrease in tax expense related to the
tax deconsolidation of Fortegra from $33.1 million in 2022 to $19.1 million in 2023, partially offset by lower
mortgage and shipping revenues. Return on average equity was 3.4%, compared to (2.1)% in 2022.
Adjusted net income of $61.9 million increased $8.9 million from $53.0 million in 2022, driven by growth in
insurance operations. Adjusted return on average equity was 15.2%, as compared to 13.6% in 2022.
Insurance:
•
•
•
•
•
•
•
•
•
Gross written premiums and premium equivalents were $2.7 billion for the year ended December 31, 2023, an increase
of $484.7 million, or 21.4%, from the prior year period as a result of growth in specialty E&S and admitted insurance
lines in the U.S. and Europe, along with benefits from a book-roll transaction with one of Fortegra’s MGA partners.
Net written premiums were $1.3 billion for the year ended December 31, 2023, an increase of 21.2%, consistent with
growth in gross written premiums, and as a result of increased retention on Fortegra’s whole account quota share
reinsurance arrangement from 30% to 40%, effective April 1, 2023.
Total revenues were $1.6 billion, an increase of $344.3 million, or 27.6%, from 2022, driven by premium growth in
specialty E&S and admitted insurance lines in the U.S. and Europe, along with growth in net investment income.
Combined ratio of 90.3%, driven by consistent underwriting performance and the scalability of Fortegra’s operating
platform.
Income before taxes of $129.8 million as compared to $68.2 million in 2022. Return on average equity was 25.7% in
2023 as compared to 14.6% in 2022. The increases were driven by growth in underwriting and fee revenues and
increased net investment income.
Adjusted net income (before NCI) was $115.7 million, an increase of $31.9 million, or 38.0%, from 2022. Adjusted
return on average equity was 29.2%, as compared to 26.1% in 2022.
Fortegra’s total stockholders’ equity was $452.6 million as of December 31, 2023, compared to $338.7 million as of
December 31, 2022, with the increase driven by net income during the year as well as an improvement in the
accumulated other comprehensive loss position, which was $31.1 million as of December 31, 2023, compared to $52.7
million as of December 31, 2022.
As of December 31, 2023, Fortegra held an outstanding balance of $130.0 million on its revolving line of credit, as
compared to a balance of $46.0 million as of September 30, 2023. The increase in borrowings was primarily to fund
statutory capital requirements and general corporate purposes.
In December 2023, Fortegra entered into a commutation agreement with a partner resulting in a reduction of policy
liabilities and unpaid claims of $75.6 million relating to policies written in the 2020 and 2021 treaty years.
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Tiptree Capital:
• Mortgage loss before taxes was $3.3 million for the year ended December 31, 2023, as compared to income of $0.9
million in 2022, with the decrease driven by declines in origination volumes and negative fair value adjustments on the
mortgage servicing portfolio.
Key Trends:
Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and
GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth,
business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the
other factors set forth in Part I, Item 1A in the Annual Report on Form 10-K. Generally, our businesses are positively affected
by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and global
growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, inflation, changing
regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or
financial condition.
Insurance results primarily depend on pricing, underwriting, risk retention and the accuracy of reserves, reinsurance
arrangements, returns on invested assets, and policy and contract renewals and run-off. Factors affecting these items,
including conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange
rates, interest rates and inflation, including the current period of inflationary pressures, may have a material adverse effect on
our results of operations or financial condition. Fortegra designs, markets and underwrites specialty property and casualty
insurance products for select target markets or niches. The types of products Fortegra offers tend to have limited aggregation
risk and limited exposure to catastrophic and residual risk. The business has historically generated significant fee-based
revenues by incorporating value-add coverages and services. Underwriting risk is mitigated through a combination of
reinsurance and sliding scale commission structures with agents, distribution partners and/or third-party reinsurers. To
mitigate counterparty risk, Fortegra ensures its reinsurance receivables are placed with highly rated and appropriately
capitalized counterparties or with our distribution partners’ captive insurance vehicles which are collateralized with highly
liquid investments, cash or letters of credit. While Fortegra’s insurance operations have historically maintained a relatively
stable combined ratio, initiatives to change the business mix along with these economic factors could generate different
results than the business has historically experienced. In particular, rising inflation can have an impact on replacement costs
associated with claims from our customers to the extent we are unable to pass the higher costs of claims through higher
premiums. In addition, fluctuations of the U.S. dollar relative to other currencies, including the British pound and Euro,
would have an impact on book value between periods.
Fortegra’s investment portfolio includes fixed maturity securities, loans, credit investment funds, and equity securities. Many
of those investments are held at fair value. In recent periods, the U.S. fixed income markets experienced a significant rise in
interest rates. Rising interest rates have and could continue to impact the value of Fortegra’s fixed maturity securities, with
any unrealized losses recorded in equity, and if realized, could impact our results of operations. Offsetting the impact of a
rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth have
and could continue to result in higher interest income on investments. The weighted average duration of our fixed income
available for sale securities is less than three years. While our asset and liability mix is relatively matched, should we need to
liquidate any of these investments before maturity to pay claims, any realized losses could materially negatively impact our
results of operations. Changes in fair value for loans, credit investment funds, and equity securities in Fortegra’s investment
portfolio are reported as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk,
currency risk, or market risk, including specific company or industry factors. In addition, our equity holdings are relatively
concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value
which can result in unrealized gains and losses affecting our results.
Rising 10-year treasury yields, and the tapering of the Federal Reserve’s purchases of mortgage-backed securities, has
resulted in substantial increases in mortgage interest rates. Low mortgage interest rates driven by the Federal Reserve
intervention in mortgage markets, and rising home prices in certain markets, provided tailwinds to the mortgage markets in
2020 and 2021, which benefited our mortgage operations and margins. The substantial rise in rates in recent periods resulted
in a sharp reversal of those trends, with volumes and margins declining significantly. Only partially offsetting the declines in
mortgage originations is an increase in the fair value of our mortgage servicing portfolio as rising rates slow prepayment
speeds, with a resulting increase in servicing income. Continued rising or elevated mortgage rates could have a materially
negative impact on our mortgage operations, and is likely to be only partially mitigated by the improvement in mortgage
servicing revenues. A sustained period of negative profitability in the mortgage industry could also impact the availability of
funding sources for our mortgage business.
Rising interest rates can also impact the cost of floating interest rate debt obligations, while declining rates can decrease the
cost of debt. Our secured revolving and term credit agreements, preferred trust securities and asset based revolving financing
are all floating rate obligations. A continuation of rising rates could have a material impact on our costs of floating rate debt.
56
RESULTS OF OPERATIONS
The following is a summary of our consolidated financial results for the years ended December 31, 2023 and 2022. In
addition to GAAP results, management uses the Non-GAAP measures Adjusted net income, Adjusted return on average
equity and book value per share as measurements of operating performance. Management believes these measures provide
supplemental information useful to investors as they are frequently used by the financial community to analyze financial
performance and comparison among companies.
Adjusted Net Income and Adjusted Return on Average Equity. Adjusted net income is defined as income before taxes, less
provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and
non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and
unrealized gains (losses) and intangibles amortization associated with purchase accounting, all of which is reduced for non-
controlling interests. The calculation of adjusted net income excludes net realized and unrealized gains (losses) that relate to
investments or assets rather than business operations. Adjusted net income is presented before the impacts of non-controlling
interests. Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage
of average beginning and ending stockholders’ equity during the period. Management uses adjusted net income and adjusted
return on average equity as part of its capital allocation process and to assess comparative returns on invested capital. We
believe adjusted net income provides additional clarity on the results of the Company’s underlying business operations as a
whole for the periods presented by excluding distortions created by the unpredictability and volatility of realized and
unrealized gains (losses). We also believe adjusted net income provides useful supplemental information to investors as it is
frequently used by the financial community to analyze financial performance between periods and for comparison among
companies.
Adjusted net income and adjusted return on average equity are not measurements of financial performance or liquidity under
GAAP and should not be considered as an alternative or substitute for GAAP net income. See “Non-GAAP Reconciliations”
for a reconciliation of these measures to their GAAP equivalents.
Selected Key Metrics
($ in thousands, except per share information)
GAAP:
Total revenues
Net income (loss) attributable to common stockholders
Diluted earnings per share
Cash dividends paid per common share
Return on average equity
Non-GAAP: (1)
Adjusted net income
Adjusted return on average equity
Book value per share
Year Ended December 31,
2023
$ 1,649,031
13,951
$
0.33
$
0.20
$
3.4 %
2022
$ 1,397,752
(8,274)
$
(0.23)
$
0.16
$
(2.1) %
$
$
61,917
15.2 %
11.34
$
$
53,034
13.6 %
10.92
(1)
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Adjusted net income is presented after the impacts of non-controlling interests.
Revenues
For the year ended December 31, 2023, revenues were $1,649.0 million, which increased $251.3 million, or 18.0%, compared
to the prior year period. The changes were primarily driven by growth in earned premiums, net, and service and
administrative fees in our insurance business, partially offset by lower mortgage and shipping revenues compared to the prior
year periods.
The table below provides a break down between net realized and unrealized gains and losses from Invesque and other
securities which impacted our consolidated results on a pre-tax basis. Many investments are carried at fair value and marked
to market through unrealized gains and losses. As a result, we expect earnings related to these investments to be relatively
volatile between periods. Fixed income securities are primarily marked to market through AOCI in stockholders’ equity and
do not impact net realized and unrealized gains and losses until they are sold.
57
($ in thousands)
Net realized gains - Maritime transportation
Net realized and unrealized gains (losses) - Invesque
Net realized and unrealized gains (losses)(1)
(1)
Excludes Invesque, Maritime transportation and Mortgage realized and unrealized gains and losses.
Net Income (Loss) Attributable to common stockholders
Year Ended December 31,
2023
2022
$
$
$
— $
(11,293) $
(64) $
34,803
(19,360)
(9,999)
For the year ended December 31, 2023, the net income attributable to common stockholders was $14.0 million, compared to
a net loss of $8.3 million in the prior year period. The increase was driven by growth in Fortegra’s underwriting and fee
operations, and tax expense associated with the tax deconsolidation of Fortegra of $19.1 million in 2023, compared to $33.1
million in 2022, partially offset by the gain on the sale of our vessels in 2022.
Adjusted net income & Adjusted return on average equity - Non-GAAP
Adjusted net income for the year ended December 31, 2023 was $61.9 million, an increase of $8.9 million, or 16.7%, from
the year ended December 31, 2022, driven by growth in our insurance operations. For the year ended December 31, 2023,
adjusted return on average equity was 15.2%, as compared to 13.6% for the year ended December 31, 2022, driven by the
increase in adjusted net income.
Book Value per share - Non-GAAP
Total stockholders’ equity was $576.6 million as of December 31, 2023 compared to $533.6 million as of December 31,
2022, with the increase driven by comprehensive income, partially offset by net changes in non-controlling interests and
dividends paid. In the year ended December 31, 2023, Tiptree returned $7.3 million to common stockholders through
dividends paid.
Book value per share for the period ended December 31, 2023 was $11.34, an increase from book value per share of $10.92
as of December 31, 2022, driven by comprehensive income per share, partially offset by dividends paid of $0.20 per share,
net changes in non-controlling interests and preferred dividends paid at Fortegra.
Results by Segment
We classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations
aggregated into Tiptree Capital - Other. Corporate activities include holding company interest expense, corporate employee
compensation and benefits, and other expenses, including public company expenses.
58
The following tables present the components of Revenue, Income (loss) before taxes and Adjusted net income for the
following periods:
($ in thousands)
Revenues:
Insurance
Mortgage
Tiptree Capital - other
Corporate
Total revenues
Income (loss) before taxes:
Insurance
Mortgage
Tiptree Capital - other
Corporate
Total income (loss) before taxes
Non-GAAP - Adjusted net income: (1)
Insurance
Mortgage
Tiptree Capital - other
Corporate
Total adjusted net income
Year Ended December 31,
2023
2022
$
1,593,070 $
53,864
2,097
—
$
1,649,031 $
1,248,796
70,246
78,710
—
1,397,752
$
$
$
$
129,816 $
(3,285)
(3,264)
(40,214)
83,053 $
91,963 $
(1,082)
923
(29,887)
61,917 $
68,150
874
31,403
(46,416)
54,011
73,465
(4,658)
13,627
(29,400)
53,034
(1)
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Insurance
Our principal operating subsidiary, Fortegra, is a specialty insurance underwriter and service provider, which focuses on
niche lines and fee-oriented services. The combination of specialty insurance underwriting, service contract products, and
related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting
revenues, investment income and unregulated fee revenues. The business is an agent-driven model, distributing products
through independent insurance agents, consumer finance companies, online retailers, auto dealers, and regional big box
retailers to deliver products that complement the consumer transaction.
As of December 31, 2023, Fortegra was owned approximately 79.5% by Tiptree, 17.5% by Warburg and 3.0% by
management and directors of Fortegra, before giving effect to the exercise of outstanding warrants and the conversion of
outstanding preferred stock. The following tables and discussion present the Insurance segment results, including non-
controlling interests, for the year ended December 31, 2023 and 2022.
Components of our Results of Operations
Revenues
Earned Premiums, net represents the earned portion of gross written and assumed premiums, less the earned portion that is
ceded to third-party reinsurers under reinsurance agreements. Fortegra’s insurance policies generally have a term of six
months to seven years depending on the underlying product and premiums are earned pro rata over the term of the policy. At
the end of each reporting period, premiums written but not earned are classified as unearned premiums and are earned in
subsequent periods over the remaining term of the policy.
Service and Administrative Fees represent the earned portion of gross written premiums and premium equivalents, which is
generated from non-insurance products including warranty service contracts, motor club contracts and other services offered
as part of Fortegra’s vertically integrated product offerings. Such fees are typically positively correlated with transaction
volume and are recognized as revenue when realized and earned. At the end of each reporting period, gross written premiums
and premium equivalents written for service contracts not earned are classified as deferred revenue, which are earned in
subsequent periods over the remaining term of the policy.
59
Ceding Commissions and Other Revenue consists of commissions earned on policies written on behalf of third-party
insurance companies with no exposure to the insured risk and certain fees earned in conjunction with underwriting policies.
Other revenue also includes the interest income earned on the premium finance product offering.
Net Investment Income represents earned investment income on our portfolio of invested assets. Our invested assets are
primarily comprised of fixed maturity securities, and may also include cash and cash equivalents and equity securities. The
principal factors that influence net investment income are the size of our investment portfolio, the yield on that portfolio and
expenses due to external investment managers. The insurance investment portfolio includes investments held in statutory
insurance companies and in unregulated entities. The portfolios held in statutory insurance companies are subject to different
regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of
leverage.
Net Realized and Unrealized Gains (Losses) on investments are a function of the difference between the amount received by
us on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances
for credit losses which are recognized in earnings. In addition, equity securities and certain other investments are carried at
fair value with unrealized gains and losses included in this line. Fortegra’s investment strategy is designed to achieve
attractive risk-adjusted returns across select asset classes, sectors and geographies while maintaining adequate liquidity to
meet claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-
period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net
income, while unrealized gains and losses on AFS securities impact AOCI.
Expenses
Net Losses and Loss Adjustment Expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of
amounts ceded and the costs of administering claims for insurance lines. Incurred claims are impacted by loss frequency,
which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size
of claims. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims
reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of
claimants towards settlements, and original pricing of the product for purposes of the loss ratio in relation to loss emergence
over time. Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses
incurred during the period and changes in estimates from prior periods.
Member Benefit Claims represent the costs of services and replacement devices incurred in warranty and motor club service
contracts. Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for
roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders
as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized
as expense when incurred.
Commission Expenses reflect commissions paid to retail agents, program administrators and managing general underwriters,
net of ceding commissions received on business ceded under certain reinsurance contracts. Commission expenses are
deferred and amortized to expense in proportion to the premium earned over the policy life. Commission expense is incurred
on most product lines. The majority of commissions are retrospective commissions paid to agents, distributors and retailers
selling the Company’s products, including credit insurance policies, warranty service contracts and motor club memberships.
When claims increase, in most cases distribution partners bear the risk through a reduction in their retrospective
commissions. Commission rates are, in many cases, set by state regulators, such as in credit and collateral protection
programs and are also impacted by market conditions and the retention levels of distribution partners.
Operating and Other Expenses represent the general and administrative expenses of insurance operations including employee
compensation and benefits and other expenses, including, technology costs, office rent, and professional services fees, such
as legal, accounting and actuarial services.
Interest Expense consists primarily of interest expense on corporate revolving debt, notes, preferred trust securities due June
15, 2037 (Preferred Trust Securities) and asset based debt for premium finance and warranty service contract financing,
which is non-recourse to Fortegra.
60
Depreciation Expense is primarily associated with furniture, fixtures and equipment. Amortization Expense is primarily
associated with purchase accounting amortization including values associated with acquired customer relationships, trade
names and internally developed software and technology.
Key Performance Metrics
We discuss certain key performance metrics, described below, which provide useful information about our business and the
operational factors underlying its financial performance.
Gross written premiums and premium equivalents represent total gross written premiums from insurance policies and
warranty service contracts issued during a reporting period. They represent the volume of insurance policies written or
assumed and warranty service contracts issued during a specific period of time without reduction for policy acquisition costs,
reinsurance costs or other deductions. Gross written premiums is a volume measure commonly used in the insurance industry
to compare sales performance by period. Premium equivalents are used to compare sales performance of warranty service and
administrative contract volumes to gross written premiums. Similar to how management considers gross written premiums to
be a relevant measure of volume, regardless of the impact of reinsurance on net earned premiums, management considers
premium equivalents to be a relevant measure of contract volume, regardless of whether the Company retains the full
obligation. Investors also use these measures to compare sales growth among comparable companies, while management uses
these measures to evaluate the relative performance of various sales channels.
Net written premiums are gross written premiums less ceded written premiums. Gross written premiums are the amounts
received, or to be received, for insurance policies written or assumed by us during a specific period of time without reduction
for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given
period is generally influenced by new business submissions, binding of new business submissions into policies, renewals of
existing policies, and average size and premium rate of bound policies. Ceded written premiums are the amount of gross
written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses.
Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The
volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to
increase or decrease retention levels, policy limits and co-participations.
Combined Ratio, Loss Ratio, Acquisition Ratio, Underwriting Ratio and Operating Expense Ratio
Combined ratio is an operating measure, which equals the sum of the underwriting ratio and the operating expense ratio. Loss
ratio is the ratio of the GAAP line items net losses and loss adjustment expenses and member benefit claims to earned
premiums, net, service and administrative fees (excluding ceding fees), and other revenue (excluding cash and cash
equivalent interest income). Acquisition ratio is the ratio of the GAAP line items commission expense (less ceding fees and
ceding commissions) to earned premiums, net, service and administrative fees (excluding ceding fees), and other revenue
(excluding cash and cash equivalent interest income). Underwriting ratio is the combination of the loss ratio and the
acquisition ratio. Operating expense ratio is the ratio of the GAAP line items employee compensation and benefits and other
expenses to earned premiums, net, service and administrative fees (excluding ceding fees) and other revenue (excluding cash
and cash equivalent interest income).
A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an
underwriting loss. These ratios are commonly used in the insurance industry as a measure of underwriting profitability,
excluding earnings on the insurance portfolio. Investors commonly use these measures to compare underwriting performance
among companies separate from the performance of the investment portfolio. Management uses these measures to compare
the profitability of various products we underwrite as well as profitability among our various agents and sales channels.
Return on average equity is expressed as the ratio of net income to average stockholders’ equity during the period.
Management uses this ratio as a measure of the on-going performance of the totality of the Company’s operations.
Non-GAAP Financial Measures
Underwriting and Fee Revenues and Underwriting and Fee Margin
In order to better explain to investors the underwriting performance of the Company’s programs and the respective retentions
between the Company and its agents and reinsurance partners, we use the non-GAAP metrics – underwriting and fee
revenues and underwriting and fee margin. We generally manage our exposure to the risks we underwrite using both
reinsurance (e.g., quota share and excess of loss) and sliding scale commission agreements with our agents (e.g.,
61
commissions paid are adjusted based on the actual underlying losses incurred), which mitigates our risk. Generally, when
losses are incurred, the risk which is retained by our agents and reinsurers is reflected in a reduction in commissions paid.
Underwriting and fee revenues represents earned premiums, net, service and administrative fees (excluding ceding fees) and
other income (excluding cash and cash equivalent interest income). We reconcile underwriting and fee revenues as total
revenues excluding net investment income, net realized gains (losses) and net unrealized gains (losses), ceding fees, ceding
commissions and cash and cash equivalent interest income as reported in other income. See “—Non-GAAP Reconciliations”
for a reconciliation of underwriting and fee revenues to total revenues in accordance with GAAP.
Underwriting and fee margin represents income before taxes excluding net investment income, net realized gains (losses), net
unrealized gains (losses), cash and cash equivalent interest income, employee compensation and benefits, other expenses,
interest expense and depreciation and amortization. We deliver our products and services on a vertically integrated basis to
our agents. As such, underwriting and fee margin exclude general and administrative expenses, interest income, depreciation
and amortization and other corporate expenses, including income taxes, as these corporate expenses support our vertically
integrated delivery model and are not specifically supporting any individual business line. See “—Non-GAAP
Reconciliations” for a reconciliation of underwriting and fee margin to total revenues in accordance with GAAP.
Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax
impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition
related expenses, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization
associated with purchase accounting.
Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of
average beginning and ending stockholders’ equity during the period.
Results of Operations - Year Ended December 31, 2023 compared to 2022
62
($ in thousands)
Revenues:
Earned premiums, net
Service and administrative fees
Ceding commissions
Net investment income
Net realized and unrealized gains (losses)
Other revenue
Total revenues
Expenses:
Net losses and loss adjustment expenses
Member benefit claims
Commission expense
Employee compensation and benefits
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before taxes (1)
Key Performance Metrics:
Gross written premiums and premium equivalents
Net written premiums
Loss ratio
Acquisition ratio
Underwriting ratio
Operating expense ratio
Combined ratio
Return on average equity
Non-GAAP Financial Measures (2):
Adjusted net income (before NCI)
Adjusted return on average equity
Adjusted net income
2023
Year Ended December 31,
Change
2022
% Change
24.7 %
23.5 %
7.5 %
118.3 %
(79.3) %
81.6 %
27.6 %
33.4 %
31.1 %
15.4 %
30.1 %
28.8 %
15.5 %
22.8 %
23.9 %
90.5 %
21.4 %
21.2 %
223,069
75,249
1,035
14,455
16,140
14,326
344,274
120,905
28,284
80,347
26,423
5,782
2,874
17,993
282,608
61,666
484,726
230,558
$ 1,127,834
395,969
14,915
26,674
(4,207)
31,885
$ 1,593,070
$
904,765
320,720
13,880
12,219
(20,347)
17,559
$ 1,248,796
482,506
119,288
603,033
114,341
25,836
21,425
96,825
$ 1,463,254
129,816
$
361,601
91,004
522,686
87,918
20,054
18,551
78,832
$ 1,180,646
68,150
$
$ 2,747,854
$ 1,319,948
$ 2,263,128
$ 1,089,390
$
$
$
$
$
$
40.1 %
36.2 %
76.3 %
14.0 %
90.3 %
25.7 %
37.7 %
39.0 %
76.7 %
13.7 %
90.4 %
14.6 %
$
115,705
29.2 %
$
91,963
$
$
83,832
26.1 %
73,465
$
$
31,873
38.0 %
18,498
25.2 %
(1)
(2)
Net income was $101.3 million for the year ended December 31, 2023 compared to $46.4 million for the year ended December 31, 2022.
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues - Year Ended December 31, 2023 compared to 2022
For the year ended December 31, 2023, total revenues increased 27.6%, to $1,593.1 million, as compared to $1,248.8 million
for the year ended December 31, 2022. Earned premiums, net of $1,127.8 million increased $223.1 million, or 24.7%, driven
by growth in specialty E&S and admitted insurance lines. Earned premiums assumed from other insurance companies were
$404.7 million, or 35.9% of total earned premiums, net, compared to $310.4 million, or 34.3%, in the prior year period. As it
expands to new geographies and expands product offerings, the Company works to obtain necessary licenses and intends to
write this business directly upon obtaining necessary licenses. The Company views direct written and assumed business as
having similar characteristics. For the presented periods, earned premiums, net, did not include any significant regional
geographic concentrations. Service and administrative fees of $396.0 million increased by 23.5% primarily driven by growth
in vehicle service contract revenues. Ceding commissions of $14.9 million increased by $1.0 million, or 7.5%, in line with
growth in ceded premiums. Other revenues increased by $14.3 million, or 81.6%, driven by growth in premium finance
product offerings and interest income on cash and cash equivalents.
For the year ended December 31, 2023, 27.8% of revenues were derived from fees that were not solely dependent upon the
underwriting performance of Fortegra’s insurance products, resulting in more diversified earnings. For the year ended
December 31, 2023, 81.1% of fee-based revenues were generated in non-regulated service companies, with the remainder in
regulated insurance companies.
63
For the year ended December 31, 2023, net investment income was $26.7 million as compared to $12.2 million in the prior
year period, primarily driven by growth in investments and the increase in yields. Net realized and unrealized losses were
$4.2 million, an improvement of $16.1 million, as compared to net realized and unrealized losses of $20.3 million in the prior
year period, primarily driven by the change in fair value of certain equity and other investments carried at fair value.
Unrealized gains on AFS securities impacting OCI for the year ended December 31, 2023 were $19.0 million, driven by
positive fair value adjustments on mortgage-backed securities and corporate bonds and other investments.
Expenses - Year Ended December 31, 2023 compared to 2022
For the year ended December 31, 2023, net losses and loss adjustment expenses were $482.5 million, member benefit claims
were $119.3 million and commission expense was $603.0 million, as compared to $361.6 million, $91.0 million, and $522.7
million, respectively, for the year ended December 31, 2022. The increase in net losses and loss adjustment expenses of
$120.9 million, or 33.4%, was driven by growth in U.S. and European insurance lines and the shift in business mix toward
commercial lines, which tend to have higher loss ratios and lower commission and expense ratios. In addition, the Company
experienced favorable prior year development of $11.2 million for the year ended December 31, 2023, primarily by a
commutation agreement with a partner resulting in a reduction of policy liabilities and unpaid claims of $75.6 million relating
to policies written in the 2020 and 2021 treaty years. For the year ended December 31, 2022, the Company experienced
favorable prior year development of $0.9 million, primarily as a result of lower-than-expected claim severity in our
commercial lines of business. For the periods presented, net losses and adjustment expenses did not include any significant
catastrophic losses or regional concentration exposure. The increase in member benefit claims of $28.3 million, or 31.1%,
was driven by growth in vehicle service contracts and the impacts of inflation on replacement costs and labor rates.
Commission expenses increased by $80.3 million, or 15.4%, generally in line with the growth in earned premiums, net and
service and administrative fees, partially offset by the impacts from sliding scale commission structures.
For the year ended December 31, 2023, employee compensation and benefits were $114.3 million and other expenses were
$96.8 million, as compared to $87.9 million and $78.8 million, respectively, for the year ended December 31, 2022.
Employee compensation and benefits increased by $26.4 million, or 30.1%, driven by continued investment in data science,
European platform expansion, and to support continued growth in the U.S. insurance business. Other expenses increased by
$18.0 million, or 22.8%, driven primarily by investment in data science, technology and marketing expenses, and
professional fees associated with the acquisition of Premia.
For the year ended December 31, 2023, interest expense was $25.8 million as compared to $20.1 million for the year ended
December 31, 2022. The increase in interest expense of $5.8 million, or 28.8%, was primarily driven by the rise in short-term
interest rates and increased borrowings on Fortegra’s corporate revolver and asset based debt for premium finance lines.
For the year ended December 31, 2023, depreciation and amortization expense was $21.4 million, including $16.9 million of
intangible amortization related to purchase accounting associated with the acquisitions of Fortegra, Smart AutoCare, Sky
Auto, ITC and Premia, as compared to $18.6 million, including $16.2 million of intangible amortization from purchase
accounting in 2022.
Gross Written Premiums and Premium Equivalents(1,2)
($ in thousands)
Property and short-tail
Contractual liability
General liability
Alternative risks
Professional liability
Europe
Commercial lines
Personal lines
Insurance
Auto and consumer goods warranty
Other services
Services
Total
Year Ended December 31,
2022
2021
2023
$
$
$
$
$
$
548,984 $
396,861
353,011
330,171
232,944
141,208
2,003,179 $
382,397 $
2,385,576 $
302,746
59,532
362,278 $
2,747,854 $
263,933 $
351,869
305,325
363,362
82,340
125,150
1,491,979 $
397,423 $
1,889,402 $
318,550
55,176
373,726 $
2,263,128 $
100,462
347,776
182,336
409,807
32,028
95,917
1,168,326
432,522
1,600,848
285,591
49,535
335,126
1,935,974
64
(1) The total gross written premiums and premium equivalents of $2,747.9 million, $2,263.1 million and $1,936.0 million for the years ended December 31, 2023, 2022 and 2021,
respectively, were comprised of gross written premiums of $1,896.5 million, $1,515.1 million and $1,380.1 million, plus assumed premiums of $489.1 million, $374.3 million and
$220.7 million, plus gross service and administrative fee additions of $362.3 million, $373.7 million and $335.1 million. See Note (8) Reinsurance Recoverable and Prepaid
Reinsurance Premiums and Note (14) Revenue from Contracts with Customers within the respective periods for more information.
(2) The premium equivalents metric excludes amounts received from failure to perform vehicle service contracts held in off-balance sheet trusts and premium finance volumes as it
was determined to be unlikely these amounts will be recognized as revenue. Amounts for the years ended December 31, 2022 and 2021 have been conformed resulting in a
reduction of premium equivalents of $418 million and $258 million, respectively. This change only impacted the premium equivalents metric and did not impact the Company’s
financial statements, including its notes to the consolidated financial statements.
Total gross written premiums and premium equivalents for the year ended December 31, 2023 were $2,747.9 million,
representing an increase of $484.7 million, or 21.4%. The growth is driven by a combination of factors including expanding
Fortegra’s distribution partner network, growing specialty admitted and E&S insurance lines, and increasing penetration in
the vehicle service contract sector.
For the year ended December 31, 2023, Insurance increased by $496.2 million, or 26.3%, driven by growth in specialty
commercial lines, including E&S and admitted business. The year ended December 31, 2023, also benefited from a book-roll
transaction of $125.1 million with one of Fortegra’s distribution partners. For the year ended December 31, 2023, Services
decreased by $11.4 million, or 3.1%, driven by lower volume in consumer goods and vehicle service contracts, partially
offset by the acquisition of Premia.
The combination of unearned premiums and deferred revenues on Fortegra’s balance sheet grew to $2,368.1 million,
representing an increase of $361.6 million, or 18.0%, from December 31, 2022 to December 31, 2023, as a result of growth
in gross written premiums and premium equivalents, primarily related to E&S and admitted insurance lines, including the
book roll transaction with one of Fortegra’s MGA partners.
Net written premiums
($ in thousands)
Property and short-tail
Contractual liability
General liability
Alternative risks
Professional liability
Europe
Commercial lines
Personal lines
Insurance
Year Ended December 31,
2022
2021
2023
$
$
$
$
411,674 $
68,368
163,567
246,431
84,380
141,208
1,115,628 $
204,320 $
1,319,948 $
188,069 $
100,338
147,442
268,775
52,073
125,150
881,847 $
207,543 $
1,089,390 $
69,770
109,345
94,617
313,805
25,028
95,917
708,482
186,258
894,740
Net written premiums for the year ended December 31, 2023 were $1,319.9 million, representing an increase of $230.6
million, or 21.2%, driven by growth in commercial E&S lines. For the year ended December 31, 2023, commercial lines
increased by $233.8 million, or 26.5%, driven by growth in specialty E&S and admitted business, including a book-roll
transaction of $125.1 million with one of Fortegra’s distribution partners. For the year ended December 31, 2023, personal
lines decreased by $3.2 million, or 1.6%, driven by declines in personal credit lines. Property and short-tail lines represented
$411.7 million, or 31.2%, of the total net written premiums for the year ended December 31, 2023 compared to $188.1
million, or 17.3%, for the prior year period. Property and short-tail net written premiums were diversified by geographic
location, exposure and risk type with substantial reinsurance protection. As of December 31, 2023, the net loss to the
Company in a 1-in-250 year catastrophe event represented approximately 2.4% of Fortegra’s stockholders’ equity. This
reported loss includes the impact of incurred losses based on the estimated frequency and severity of potential events,
reinstatements premiums, reinsurance recoveries and taxes.
Combined Ratio
The combined ratio was 90.3% for the year ended December 31, 2023, compared to 90.4% for the prior year period,
reflecting the consistent underwriting performance and scalability of the Company’s operating platform. The underwriting
ratio was 76.3%, a decrease of 0.4% from the prior year period, which consists of a loss ratio of 40.1%, compared to 37.7%
in the prior year period, and an acquisition ratio of 36.2%, compared to 39.0% in the prior year period. The loss ratio increase
was driven by a shift in business mix towards commercial lines and increases in repair and labor costs on vehicle service
contracts. The decrease in the acquisition ratio was driven by the shift in business mix toward commercial lines and impacts
from sliding scale commission structures. The operating expense ratio was 14.0%, as compared to 13.7% in the prior year
65
period. The increase in the operating expense ratio was a result of continued investment in data science, European platform
expansion, and to support continued growth in U.S. insurance lines.
Underwriting and Fee Revenues and Margin - Non-GAAP
The below table shows underwriting and fee revenues and underwriting and fee margin by business mix for the year ended
December 31, 2023 and 2022.
($ in thousands)
Underwriting and Fee Revenues (1)
Net losses and loss adjustment expenses
Member benefit claims
Commission expense (2)
Underwriting and Fee Margin (1)
Insurance
$ 1,141,019
482,456
—
411,012
$ 247,551
2023
Services
$ 359,004
50
119,288
132,478
$ 107,188
Year Ended December 31,
Total
$ 1,500,023
Insurance
$ 917,542
482,506
119,288
543,490
$ 354,739
361,476
—
371,638
$ 184,428
2022
Services
$ 282,843
125
91,004
97,014
$ 94,700
Total
$ 1,200,385
361,601
91,004
468,652
$ 279,128
Loss ratio
Acquisition ratio
Underwriting ratio
42.3 %
36.0 %
78.3 %
33.2 %
36.9 %
70.1 %
40.1 %
36.2 %
76.3 %
39.4 %
40.5 %
79.9 %
32.2 %
34.3 %
66.5 %
37.7 %
39.0 %
76.7 %
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
(1)
(2) Commission expense in this table is presented net of ceding fees and ceding commissions of $44.6 million and $14.9 million, respectively, for the year ended December 31,
2023, and $40.2 million and $13.9 million, respectively, for the year ended December 31, 2022.
Underwriting and fee revenues were $1,500.0 million for the year ended December 31, 2023 as compared to $1,200.4 million
for the year ended December 31, 2022. Total underwriting and fee revenues increased $299.6 million, or 25.0%, driven by
growth in all business lines. The increase in insurance was $223.5 million, or 24.4%, driven by growth in specialty E&S and
admitted insurance lines. The increase in services was $76.2 million, or 26.9%, driven by growth in vehicle service contracts
and premium finance offerings, in addition to acquisitions of Premia in 2023 and ITC in 2022.
Underwriting and fee margin was $354.7 million for the year ended December 31, 2023 as compared to $279.1 million for
the year ended December 31, 2022. Total underwriting and fee margin increased $75.6 million, or 27.1%, driven by growth
in all product lines. Insurance grew by $63.1 million, or 34.2%, driven by revenue growth in specialty E&S and admitted
lines. Services increased by $12.5 million, or 13.2%, driven by growth in vehicle service contracts and the acquisition of
Premia and ITC, partially offset by increased member benefit claims associated with the impacts of inflation on replacement
costs and labor rates.
Return on Average Equity
Return on average equity was 25.7% for the year ended December 31, 2023, as compared to 14.6% for the year ended
December 31, 2022. The increase in net income and annualized return on average equity was driven by revenue growth and
consistent combined ratio, in addition to improvements in net investment income and net realized and unrealized gains and
losses.
Adjusted Net Income and Adjusted Return on Average Equity - Non-GAAP
For the year ended December 31, 2023, adjusted net income (before NCI) and adjusted return on average equity were $115.7
million and 29.2%, respectively, as compared to $83.8 million and 26.1%, respectively, for the year ended December 31,
2022. The improvement of adjusted net income was driven by the growth in revenues and consistent combined ratio, in
addition to improvements in net investment income.
Tiptree Capital
Tiptree Capital consists of our Mortgage segment, which includes the operating results of Reliance, our mortgage business,
and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments. As of
December 31, 2023, Tiptree Capital - Other includes our Invesque shares and other investments.
66
Mortgage
Through our Mortgage operating subsidiary, Reliance, we originate, sell, securitize and service one-to-four-family, residential
mortgage loans, comprised of conforming mortgage loans, Federal Housing Administration (“FHA”), Veterans
Administration (“VA”), United States Department of Agriculture (“USDA”), and to a lesser extent, non-agency jumbo prime.
We are an approved seller/servicer for Fannie Mae and Freddie Mac. We are also an approved issuer and servicer for Ginnie
Mae. We originate residential mortgage loans through our retail distribution channel (directly to consumers) in 39 states and
the District of Columbia as of December 31, 2023.
Components of our Results of Operations
Revenues
Net Realized and Unrealized Gains (Losses) include gains on sale of mortgage loans and the fair value adjustment in
mortgage servicing rights. Gains on the sale of mortgage loans represent the difference between the selling price and carrying
value of loans sold and are recognized upon settlement. Such gains also include the changes in fair value of loans held for
sale and loan-related hedges and derivatives. We transfer the risk of loss or default to the loan purchaser, however, in some
cases we are required to indemnify purchasers for losses related to non-compliance with borrowers’ creditworthiness and
collateral requirements. Because of this, we recognize gains on sale net of required indemnification and premium recapture
reserves. The fair value adjustment on mortgage servicing rights represents fair value adjustments considering estimated
prepayments and other factors associated with changes in interest rates, plus actual run-off in the servicing portfolio. We
report these adjustments separate from servicing income and servicing expense.
Other Revenue includes loan origination fees, interest income, and mortgage servicing income. Loan origination fees are
earned as mortgage loans are funded. Servicing fees are earned over the life of the loan. Interest income includes interest
earned on loans held for sale and interest income on bank balances and short-term investments.
Expenses
Employee Compensation and Benefits includes salaries, commissions, benefits, bonuses, other incentive compensation and
related taxes for employees. Commissions expense for sales staff generally varies with loan origination volumes.
Interest Expense represents borrowing costs under warehouse and other credit facilities used primarily to fund loan
originations. Amortization of deferred financing costs, including commitment fees, is included in interest expense.
Depreciation is mainly associated with furniture, fixtures and equipment. Amortization is primarily associated with a trade
name and internally developed software.
Other Expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and
administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing
expense.
67
The following tables present the Mortgage segment results for the following periods:
Results of Operations
($ in thousands)
Revenues:
Net realized and unrealized gains (losses)
Other revenue
Total revenues
Expenses:
Employee compensation and benefits
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before taxes
Key Performance Metrics:
Origination volumes
Gain on sale margins
Return on average equity
Non-GAAP Financial Measures (1):
Adjusted net income (1)
Adjusted return on average equity (1)
Year Ended December 31,
2023
2022
$
$
$
$
$
34,232
19,632
53,864
34,040
1,856
617
20,636
57,149
(3,285)
$
$
$
$
$
51,345
18,901
70,246
41,637
1,631
799
25,305
69,372
874
$
876,914
$
1,134,351
4.7 %
(4.6) %
4.7 %
0.9 %
$
(1,082)
$
(4,658)
(2.0) %
(8.1) %
(1)
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues - Year Ended December 31, 2023 compared to 2022
For the year ended December 31, 2023, $876.9 million of loans were funded, compared to $1,134.4 million for the prior year
period, a decrease of $257.4 million, or 22.7%, driven by increase in mortgage interest rates compared to the prior year
period. Gain on sale margins remained consistent at 4.7% for the year ended December 31, 2023.
Net realized and unrealized gains for the year ended December 31, 2023 were $34.2 million, compared to $51.3 million in the
prior year period, a decrease of $17.1 million or 33.3%. The primary driver of decreased gain on sale revenues was the
decline in volumes and negative fair value adjustment in mortgage servicing rights of $1.9 million in 2023 compared to a
positive fair value adjustment of $7.0 million in the prior year period.
Other revenue for the year ended December 31, 2023 was $19.6 million, compared to $18.9 million in the prior year period,
an increase of $0.7 million, or 3.9%, driven by increased servicing revenues. As of December 31, 2023, the mortgage
servicing asset was $40.8 million, a decrease from $41.4 million as of December 31, 2022.
Expenses - Year Ended December 31, 2023 compared to 2022
For the year ended December 31, 2023, employee compensation and benefits were $34.0 million, compared to $41.6 million
in the prior year period, a decrease of $7.6 million or 18.2%. The decrease was driven primarily by reduced commissions on
lower origination volumes.
For the year ended December 31, 2023, interest expense was at $1.9 million, an increase of $0.2 million, or 13.8%, with the
increase driven by higher interest rates.
For the year ended December 31, 2023, other expenses were $20.6 million, compared to $25.3 million in the prior year
period, a decrease of $4.7 million, with the decrease driven by a reduction of mortgage operational expenses, including
marketing costs.
68
Income (loss) before taxes
The loss before taxes for the year ended December 31, 2023 was $3.3 million, compared to income before taxes of $0.9
million in the prior year period driven by a decline in volumes.
Tiptree Capital - Other
The following tables present a summary of Tiptree Capital - Other results for the following periods:
Results of Operations
($ in thousands)
Senior living (Invesque)
Maritime transportation(1)
Other (2)
Total
Year Ended December 31,
Total revenue
Income (loss) before taxes
2023
2022
2023
2022
$
$
(9,342) $
842
10,597
2,097 $
(16,015) $
64,947
29,778
78,710 $
(9,342) $
(4,517)
10,595
(3,264) $
(16,015)
49,809
(2,391)
31,403
(1)
(2)
Includes $5.4 million and $15.1 million of expenses related to our Maritime transportation operations for the years ended December 31, 2023 and 2022, respectively.
Includes asset management, our formerly held for sale mortgage originator (Luxury) for the year ended December 31, 2022, as it was deconsolidated on July 1, 2022, and
certain intercompany elimination transactions.
Revenues
Tiptree Capital - Other earns revenues from the following sources: net interest income; revenues on our formerly held for sale
mortgage originator (Luxury); realized and unrealized gains and losses on the Company’s investment holdings (including
Invesque); and charter revenues from vessels within the Company’s maritime transportation operations. Subsequent to the
sale of our dry bulk and tanker vessels, operations include two smaller vessels and other ancillary assets.
Revenues for the year ended December 31, 2023 were $2.1 million compared to $78.7 million in the prior year period with
the decline driven by the deconsolidation of Luxury effective July 1, 2022, and the sale of five vessels, partially offset by
investment gains on securities in the Company’s investment holdings and decreased investment losses on Invesque in 2023
compared to 2022.
Income (loss) before taxes
The loss before taxes from Tiptree Capital - Other for the year ended December 31, 2023 was $3.3 million, compared to the
income before taxes of $31.4 million in the prior year period. The decrease was driven by the same factors that impacted
revenues.
Adjusted net income - Non-GAAP(1)
($ in thousands)
Senior living (Invesque)
Maritime transportation
Other
Total
Year Ended December 31,
2023
2022
$
$
— $
(2,769)
3,692
923 $
—
12,707
920
13,627
(1)
See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Adjusted net income decreased to $0.9 million for the year ended December 31, 2023 compared to $13.6 million in 2022. The
decrease was driven from the sale of five vessels in 2022, partially offset by interest income on cash and cash equivalents and
U.S. Treasury securities recorded in other income.
69
Corporate
The following table presents a summary of corporate results for the following periods:
Results of Operations
($ in thousands)
Employee compensation and benefits
Employee incentive compensation expense
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Year Ended December 31,
2023
2022
$
$
8,885 $
21,230
—
1,327
8,772
40,214 $
7,948
19,240
4,225
807
14,196
46,416
Corporate expenses include expenses of the holding company for employee compensation and benefits, interest expense, and
public company and other expenses. Corporate employee compensation and benefits includes the expense of management,
legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other
related expenses.
Employee compensation and benefits, including incentive compensation expense, were $30.1 million for the year ended
December 31, 2023, compared to $27.2 million for the prior year period, driven by an increase in accrued bonus expense. Of
the incentive compensation expense in the year ended December 31, 2023 and 2022, $6.3 million was stock-based
compensation expense. As of December 31, 2023, the Company had no outstanding borrowings at the holding company and
therefore incurred no interest expense for the year ended December 31, 2023 compared to $4.2 million in 2022. Other
expenses of $8.8 million decreased by $5.4 million from the year ended December 31, 2022, primarily driven by decreased
consulting and professional fees.
Provision for Income Taxes
The total income tax expense of $43.1 million for the year ended December 31, 2023 and $50.5 million for the year ended
December 31, 2022 is reflected as a component of net income (loss). For the year ended December 31, 2023, the Company’s
effective tax rate was equal to 51.8%. For the year ended December 31, 2022, the Company’s effective tax rate was equal to
93.4%. The effective rates for the year ended December 31, 2023 and 2022 were significantly higher than the U.S. statutory
income tax rate of 21.0%, primarily due to the impact of outside basis deferred taxes on Tiptree’s investment in Fortegra.
Tiptree owns less than 80% of Fortegra and is required to record deferred taxes on the outside basis on its investment in
Fortegra. This deferred tax liability represents the tax that would be due, before consideration of loss carryforwards, if Tiptree
were to sell all of its Fortegra stock at its carrying value on Tiptree’s balance sheet.
As of December 31, 2023, this deferred tax liability relating to Fortegra was $61.7 million, which was an increase of $21.7
million from the year ended December 31, 2022, of which $3.8 million expense was recorded in OCI, $1.2 million benefit
was recorded directly in stockholders’ equity, and $19.1 million expense was recorded as a provision for income taxes. As of
December 31, 2022, this deferred tax liability was $40.0 million, of which $14.1 million was recorded directly in
stockholders’ equity, a benefit of $2.4 million in other comprehensive income and $28.3 million as a provision for income
taxes in the consolidated statements of operations for the year ended December 31, 2022. Additional one time impacts from
the transaction incurred in 2022 caused $4.8 million of expense, leading to $33.1 million of expense in the statement of
operations. Excluding the impact of these deferred taxes, the effective tax rates for the twelve months ended December 31,
2023 and 2022 were 28.8% and 32.1%, respectively.
On August 16, 2022, the U.S. government enacted Public Law no. 117-169, commonly referred to as the Inflation Reduction
Act, which, among other things, establishes a corporate minimum tax on book earnings and an excise tax on stock buybacks.
It is not expected that this legislation will have a material financial impact on the Company or its operations.
Balance Sheet Information
Tiptree’s total assets were $5.1 billion as of December 31, 2023, compared to $4.0 billion as of December 31, 2022. The
$1,099.8 million increase in assets is primarily attributable to the growth in the Insurance segment.
70
Total stockholders’ equity was $576.6 million as of December 31, 2023, compared to $533.6 million as of December 31,
2022, with the increase primarily driven by comprehensive income for the year ended December 31, 2023. As of
December 31, 2023, there were 36,756,187 shares of common stock outstanding as compared to 36,385,299 shares as of
December 31, 2022, with the increase driven by the vesting of share-based incentive compensation and the exercise of
options.
The following table is a summary of certain balance sheet information:
As of December 31, 2023
Tiptree Capital
Insurance
Mortgage
Other
Corporate
4,835,685 $
160,147 $
126,624 $
16,857 $
Total
5,139,313
$
290,000 $
67,138
— $
54,350
— $
—
— $
—
290,000
121,488
$
292,914 $
52,297 $
125,819 $
(54,164) $
416,866
($ in thousands)
Total assets
Corporate debt
Asset based debt
Tiptree Inc. stockholders’ equity (1)
Non-controlling interests:
Fortegra preferred interests
Common interests
Total stockholders’ equity
$
77,679
82,020
452,613 $
—
—
52,297 $
—
—
125,819 $
—
—
(54,164) $
77,679
82,020
576,565
(1)
Included in Corporate equity is the deferred tax liability on the outside basis on Tiptree’s investment in Fortegra of $61.7 million as of December 31, 2023.
71
NON-GAAP MEASURES AND RECONCILIATIONS
Non-GAAP Reconciliations
In addition to GAAP results, management uses the non-GAAP financial measures underwriting and fee revenues and
underwriting and fee margin in order to better explain to investors the underwriting performance and the respective retentions
between the Company and its agents and reinsurance partners. We also use the non-GAAP financial measures adjusted net
income and adjusted return on average equity as measures of operating performance and as part of our resource and capital
allocation process, to assess comparative returns on invested capital. Management believes these measures provide
supplemental information useful to investors as they are frequently used by the financial community to analyze financial
performance and to compare relative performance among comparable companies. Adjusted net income, adjusted return on
average equity, underwriting and fee revenues and underwriting and fee margin are not measurements of financial
performance or liquidity under GAAP and should not be considered as an alternative or substitute for earned premiums, net
income or any other measure derived in accordance with GAAP.
Underwriting and Fee Revenues and Underwriting and Fee Margin — Non-GAAP (Insurance only)
Underwriting and Fee Revenues — Non-GAAP — We define underwriting and fee revenues as earned premiums, net, service
and administrative fees (excluding ceding fees) and other income (excluding cash and cash equivalent interest income). We
reconcile underwriting and fee revenues as total revenues excluding net investment income, net realized gains (losses) and net
unrealized gains (losses), ceding fees, ceding commissions and cash and cash equivalent interest income as reported in other
income. Underwriting and fee revenues represents revenues generated by our underwriting and fee-based operations and
allows us to evaluate our underwriting performance without regard to investment income. We use this metric as we believe it
gives our management and other users of our financial information useful insight into our underlying business performance.
Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP,
and other companies may define underwriting and fee revenues differently.
($ in thousands)
Total revenues
Less: Net investment income
Less: Net realized and unrealized gains (losses)
Less: Ceding fees (1)
Less: Ceding commissions
Less: Cash and cash equivalent interest income (2)
Underwriting and fee revenues (3)
Year Ended December 31,
2023
1,593,070 $
(26,674)
4,207
(44,628)
(14,915)
(11,037)
1,500,023 $
2022
1,248,796
(12,219)
20,347
(40,154)
(13,880)
(2,505)
1,200,385
$
$
(1) Ceding fees were included in service and administrative fees on the statement of operations.
(2) Cash and cash equivalent interest income were included in other revenue on the statement of operations.
(3) Underwriting and fee revenues exclude ceding fees, ceding commissions and cash and cash equivalent interest income from other revenue. The year ended December 31, 2022
has been conformed resulting in a reduction of underwriting and fee revenues of $56.5 million. This change only impacted the underwriting and fee revenues metric and did not
impact the Company’s consolidated financial statements, including its notes to the consolidated financial statements.
Underwriting and Fee Margin — Non-GAAP — We define underwriting and fee margin as income before taxes, excluding
net investment income, net realized gains (losses), net unrealized gains (losses), cash and cash equivalent interest income,
employee compensation and benefits, other expenses, interest expense and depreciation and amortization. Underwriting and
fee margin represents the underwriting performance of our underwriting and fee-based programs. As such, underwriting and
fee margin excludes general administrative expenses, interest expense, depreciation and amortization and other corporate
expenses as those expenses support the vertically integrated business model and not any individual component of our
business mix. We use this metric as we believe it gives our management and other users of our financial information useful
insight into the specific performance of our underlying underwriting and fee programs. Underwriting and fee income should
not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define
underwriting and fee margin differently.
72
($ in thousands)
Income (loss) before income taxes
Less: Net investment income
Less: Net realized and unrealized gains (losses)
Less: Cash and cash equivalent interest income (1)
Plus: Depreciation and amortization
Plus: Interest expense
Plus: Employee compensation and benefits
Plus: Other expenses
Underwriting and fee margin (2)
Year Ended December 31,
2023
2022
$
$
129,816 $
(26,674)
4,207
(11,037)
21,425
25,836
114,341
96,825
354,739 $
68,150
(12,219)
20,347
(2,505)
18,551
20,054
87,918
78,832
279,128
(1) Cash and cash equivalent interests income were included in other revenue on the statement of operations.
(2) Underwriting and fee margin exclude the cash and cash equivalent interest income. The year ended December 31, 2022 has been conformed resulting in a reduction of
underwriting and fee margin of $2.5 million. This change only impacted the underwriting and fee margin metric and did not impact the Company’s consolidated financial
statements, including its notes to the consolidated financial statements.
Adjusted Net Income — Non-GAAP
We define adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax
impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition
related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization
associated with purchase accounting, all of which is reduced for non-controlling interests. The calculation of adjusted net
income excludes net realized and unrealized gains (losses) that relate to investments or assets rather than business operations.
Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and
other companies may define adjusted net income differently. Adjusted net income (before NCI) is presented before the
impacts of non-controlling interests.
We present adjustments for amortization associated with acquired intangible assets. The intangible assets were recorded as
part of purchase accounting in connection with Tiptree’s acquisition of Fortegra Financial in 2014, Defend in 2019, Smart
AutoCare, Sky Auto in 2020, ITC in 2022 and Premia in 2023. The intangible assets acquired contribute to overall revenue
generation, and the respective purchase accounting adjustments will continue to occur in future periods until such intangible
assets are fully amortized in accordance with the respective amortization periods required by GAAP.
Adjusted Return on Average Equity — Non-GAAP
We define adjusted return on average equity as adjusted net income expressed on an annualized basis as a percentage of
average beginning and ending stockholders’ equity during the period. See “—Adjusted Net Income—Non-GAAP” above.
Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance
with GAAP, and other companies may define adjusted return on average equity differently.
73
($ in thousands)
Income (loss) before taxes
Less: Income tax (benefit) expense
Less: Net realized and unrealized gains (losses) (1)
Plus: Intangibles amortization (2)
Plus: Stock-based compensation expense
Plus: Non-recurring expenses (3)
Plus: Non-cash fair value adjustments (4)
Plus: Impact of tax deconsolidation of Fortegra (5)
Less: Tax on adjustments (6)
Adjusted net income (before NCI)
Less: Impact of non-controlling interests
Adjusted net income
Adjusted net income (before NCI)
Average stockholders’ equity
Adjusted return on average equity (7)
($ in thousands)
Income (loss) before taxes
Less: Income tax (benefit) expense
Less: Net realized and unrealized gains (losses) (1)
Plus: Intangibles amortization (2)
Plus: Stock-based compensation expense
Plus: Non-recurring expenses (3)
Plus: Non-cash fair value adjustments (4)
Plus: Impact of tax deconsolidation of Fortegra (5)
Less: Tax on adjustments (6)
Adjusted net income (before NCI)
Less: Impact of non-controlling interests
Adjusted net income
Adjusted net income (before NCI)
Average stockholders’ equity
Adjusted return on average equity (7)
Year Ended December 31, 2023
Tiptree Capital
Mortgage
Other
Corporate
Total
(3,285)
837
1,861
—
—
—
—
—
(495)
(1,082)
—
(1,082)
(1,082)
53,520
(2.0) %
$
$
$
$
$
(3,264)
153
5,289
—
—
—
—
—
(1,255)
923
—
923
923
100,325
0.9 %
$
$
$
$
$
(40,214) $
(15,822)
—
—
6,251
—
—
19,101
797
(29,887) $
—
(29,887) $
83,053
(43,056)
11,357
16,919
8,269
2,824
(1,769)
19,101
(11,039)
85,659
(23,742)
61,917
(29,887) $
5,564 $
NM%
85,659
555,070
15.4 %
Year Ended December 31, 2022
Tiptree Capital
Mortgage
874
(363)
(7,003)
—
—
—
—
—
1,834
(4,658)
—
(4,658)
(4,658)
57,575
Other
31,403
(5,545)
(18,788)
—
—
(729)
3,555
—
3,731
13,627
—
13,627
13,627
98,373
$
$
$
$
$
$
Corporate
(46,416)
(23,291)
—
—
7,093
2,108
—
31,573
(467)
(29,400)
—
(29,400)
(29,400)
(10,390)
$
$
$
$
$
$
Total
54,011
(50,450)
(5,444)
16,229
9,516
4,753
2,616
33,133
(963)
63,401
(10,367)
53,034
63,401
466,878
$
$
$
$
$
Insurance
129,816
(28,224)
4,207
16,919
2,018
2,824
(1,769)
—
(10,086)
115,705
(23,742)
91,963
115,705
395,661
29.2 %
Insurance
68,150
(21,251)
20,347
16,229
2,423
3,374
(939)
1,560
(6,061)
83,832
(10,367)
73,465
83,832
321,320
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
26.1 %
(8.1) %
13.9 %
NM%
13.6 %
The footnotes below correspond to the tables above, under “—Adjusted Net Income - Non-GAAP” and “—Adjusted Return on Average Equity - Non-GAAP”.
(1) Net realized and unrealized gains (losses) added back in Adjusted net income excludes net realized and unrealized gains (losses) from the mortgage segment, those relating to
our held-for-sale mortgage originator (Luxury), and unrealized gains (losses) on mortgage servicing rights.
(2) Specifically associated with acquisition purchase accounting. See Note (9) Goodwill and Intangible Assets, net.
(3) For the year ended December 31, 2023 and 2022, included in other expenses were expenses related to banker and legal fees associated with the acquisitions of Premia and ITC.
(4) For the year ended December 31, 2023 and 2022. non-cash fair-value adjustments represent a change in fair value of the Fortegra Additional Warrant liability which are added-
back to adjusted net income. For the 2022 periods, maritime transportation depreciation and amortization was deducted as a reduction in the value of the vessels.
(5) For the year ended December 31, 2023 and 2022, included in the adjustment is an add-back of $19.1 million and $33.1 million, respectively, related to deferred tax expense
from the WP Transaction.
(6) Tax on adjustments represents the tax applied to the total non-GAAP adjustments and includes adjustments for non-recurring or discrete tax impacts.
(7) Total Adjusted return on average equity after non-controlling interests was 15.2% and 13.6% for the years ended December 31, 2023 and 2022, respectively, based on $61.9
million and $53.0 million of Adjusted net income over $407.1 million and $390.2 million of average Tiptree Inc. stockholders’ equity.
Book Value per share - Non-GAAP
Management believes the use of this financial measure provides supplemental information useful to investors as book value is
frequently used by the financial community to analyze company growth on a relative per share basis. The following table
provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares.
74
($ in thousands, except per share information)
Total stockholders’ equity
Less: Non-controlling interests
Total stockholders’ equity, net of non-controlling interests
Total common shares outstanding
Book value per share
LIQUIDITY AND CAPITAL RESOURCES
As of December 31,
2022
2023
$
$
576,565 $
159,699
416,866 $
533,573
136,208
397,365
36,756
36,385
$
11.34 $
10.92
Our principal sources of liquidity are unrestricted cash, cash equivalents and other liquid investments and distributions from
operating subsidiaries, including income from our investment portfolio and sales of assets and investments. We intend to use
our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to
fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the
parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for compensation,
professional fees, office rent and insurance costs.
Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to
numerous business and other factors, including restrictions contained in agreements for the strategic investment by Warburg
in Fortegra, our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such
subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors
such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect
our cash and cash equivalents and distributions from operating subsidiaries, our subsidiaries’ access to financing, and sales of
investments to be adequate to fund our operations for at least the next 12 months, as well as the long term.
As of December 31, 2023, cash and cash equivalents, excluding restricted cash, were $468.7 million, compared to $538.1
million at December 31, 2022, a decrease of $69.4 million, primarily driven by an increase in investments.
Our mortgage business relies on short term uncommitted sources of financing as a part of their normal course of operations.
To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain
financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note (11) Debt, net in
the notes to consolidated financial statements, for additional information regarding our mortgage warehouse borrowings.
We believe that cash flow from operations will provide sufficient capital to continue to grow the business and fund interest on
the outstanding debt, capital expenditures and other general corporate needs over the next several years. As we continue to
expand our business, including by any acquisitions we may make, we may, in the future, require additional working capital
for increased costs.
For purposes of determining enterprise value, we consider corporate credit agreements and preferred trust securities, which
we refer to as corporate debt, as corporate financing and associated interest expense is added back. The below table outlines
this amount by debt outstanding and interest expense at the insurance company and corporate level.
Corporate Debt
($ in thousands)
Insurance
Corporate
Total
Corporate Debt Outstanding
as of December 31,
2022
2023
Interest Expense for the year
ended December 31,
2022
2023
$
$
290,000 $
—
290,000 $
160,000 $
—
160,000 $
19,531 $
—
19,531 $
14,675
4,615
19,290
The balance of the corporate credit facility was repaid during June 2022 as part of the WP Transaction. See Note (11) Debt,
net in the notes to consolidated financial statements for details for prior periods.
75
As of December 31, 2023 and 2022, a total of $130.0 million and $0, respectively, was outstanding under the revolving line
of credit in our insurance business. The maximum borrowing capacity under the agreements as of December 31, 2023 and
2022 was $200.0 million. The increase in borrowings was primarily to fund statutory capital requirements and general
corporate purposes.
On October 21, 2022, a subsidiary of Fortegra entered into a Second Amended and Restated Credit Agreement by and among
Fortegra, and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of
Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing
lender (the “Fortegra Credit Agreement”). The Fortegra Credit Agreement provides for a $200.0 million revolving credit
facility, all of which is available for the issuance of letters of credit, with a sub-limit of $25.0 million for swing loans and
matures on October 1, 2027.
Consolidated Comparison of Cash Flows
($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Change in cash, cash equivalents and restricted cash
Operating Activities
Year Ended December 31,
2023
2022
$
71,452 $
(244,669)
113,406
1,525
(58,286) $
$
463,073
9,514
(115,186)
(1,828)
355,573
Cash provided by operating activities was $71.5 million for the year ended December 31, 2023. In 2023, the primary sources
of cash from operating activities included growth in insurance premiums written resulting in increases in deferred revenues,
unearned premiums, policy liabilities and unpaid claims, reinsurance payables and other liabilities and accrued expenses
which were partially offset by increases in notes and accounts receivable, reinsurance recoverable and prepaid reinsurance
premiums.
Cash provided by operating activities was $463.1 million for the year ended December 31, 2022. In 2022, the primary
sources of cash from operating activities included proceeds from mortgage loans outpacing originations and growth in
insurance premiums written resulting in increases in unearned premiums, policy liabilities and unpaid claims and deferred
revenues, which were partially offset by increases in deferred acquisition costs, reinsurance recoverable and prepaid
reinsurance premiums.
Investing Activities
Cash used in investing activities was $244.7 million for the year ended December 31, 2023. In 2023, the primary uses of cash
were the purchases of investments outpacing the proceeds from the sale of investments, as well as the acquisition of Premia.
Cash provided by investing activities was $9.5 million for the year ended December 31, 2022. In 2022, the primary sources of
cash were the proceeds of sales and maturities of investments outpacing the purchases of investments offset by the acquisition
of ITC.
Financing Activities
Cash provided by financing activities was $113.4 million for the year ended December 31, 2023. In 2023, the cash provided
was primarily proceeds from corporate borrowings at Fortegra and mortgage warehouse facilities which exceeded
repayments, partially offset by non-controlling interests distributions and the payment of common and preferred dividends.
Cash used in financing activities was $115.2 million for the year ended December 31, 2022. In 2022, principal repayments on
mortgage warehouse facilities exceeded proceeds from borrowings, which was partially offset by cash received from the WP
Transaction and the exercise of warrants.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
76
The Company’s significant accounting policies are described in Note (2) Summary of Significant Accounting Policies. As
disclosed in Note (2), the preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ significantly from those estimates.
The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are
those that are most important to the portrayal of the Company’s financial condition and results of operations and require
management’s most difficult, subjective and complex judgments.
Impairment
Goodwill and Intangible Assets, net
The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired
assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment
annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets
are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. At both
December 31, 2023 and 2022, we had two reporting units for goodwill impairment testing, of which the fair value
substantially exceeded carrying value as of that date. See Note (9) Goodwill and Intangible Assets, net.
Reserves
Unpaid claims are reserve estimates that include an amount determined from individual case estimates and loss reports, and
an amount, based on past experience, for losses incurred but not reported (IBNR) that are established in accordance with
GAAP using generally accepted actuarial methods. The Company uses a number of algorithms in establishing its unpaid
claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premiums, target
loss ratios, in-force amounts, unearned premium reserves, industry recognized morbidity tables or a combination of these
factors.
In arriving at the IBNR reserves, the Company conducts an actuarial analysis on a basis gross of reinsurance. The same
estimates used as a basis in calculating the gross IBNR reserves are then used as the basis for calculating the net IBNR
reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key
assumption underlying these analyses. Our claims are generally reported and settled quickly, resulting in consistent historical
loss development patterns. From the anticipated loss development patterns, a variety of actuarial loss projection techniques
are employed, such as the chain ladder method, the Bornhuetter-Ferguson method and expected loss ratio method.
The unpaid claims reserves represent the Company’s best estimates, generally involving actuarial projections at a given time.
Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and
damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically
reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based
on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims
reserves in the periods presented.
During the year ended December 31, 2023 and 2022, the Company experienced favorable prior year development of $11.2
million and $0.9 million, respectively, compared to unfavorable prior year development of $1.2 million for the year ended
December 31, 2021. In 2023, the $11.2 million favorable prior year development was primarily driven by lower than
expected claims paid development in our commercial lines of business for the 2018 and 2020 accident years. In 2022, the
$0.9 million favorable prior year development is primarily due to lower-than-expected claim severity in our commercial lines
business. In 2021, the $1.2 million increase in prior year development is primarily due to higher-than-expected claim severity
from business written by a small group of producers of our personal and commercial lines of business.
Management considers the prior year development for all three years to be insignificant when considered in the context of our
annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. For
the year ended December 31, 2023, net losses and loss adjustment expenses were $482.5 million, which resulted to a loss
ratio of 40.1%. Without the $11.2 million of favorable prior year development, the 2023 loss ratio would have been
approximately 0.8% higher. For comparison, the 2022 and 2021 loss ratios were 37.7% and 35.1%, respectively. In general,
the Company's loss ratio results have been predictable and consistent over time. Actuarial estimates are subject to estimation
variability, and while management uses its best judgment in establishing the estimate of required unpaid claims, different
77
assumptions and variables could lead to significantly different unpaid claims estimates. The variability in these estimates can,
and have in the past, been significant to pretax income.
We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse
development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product
pricing or offerings.
Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants,
we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to
pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
While management has used its best judgment in establishing the estimate of required unpaid claims, different assumptions
and variables could lead to significantly different unpaid claims estimates. The determination of best estimates is affected by
many factors, including but not limited to:
the quality and applicability of historical data,
current and future economic conditions,
trends in loss frequencies and severities for various causes of loss,
changes in claims reporting patterns,
claims settlement patterns and timing,
regulatory, legislative and judicial decisions,
•
•
•
•
•
•
• morbidity patterns, and
•
the attitudes of claimants towards settlements.
The adequacy of our unpaid claims reserves will be impacted by future trends that impact these factors. Two key measures of
loss activity are loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity,
which is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls,
changes in economic activity and weather patterns. Factors affecting loss severity include changes in policy limits, retentions,
rate of inflation and judicial interpretations.
If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be
different than management’s estimate. Based on our actuarial analysis, we have determined that an aggregate change that is
greater than 5% in loss frequency and loss severity is not reasonably likely given the Company’s low limit underwriting and
low severity philosophies. The effect of higher and lower levels of loss frequency and severity on our ultimate costs for
claims occurring in 2023 would be as follows:
Accident Year 2023 Sensitivity Test
Change in Loss & Frequency & Severity on Ultimate
($ in millions)
Scenario
5% higher
3% higher
1% higher
Base scenario
1% lower
3% lower
5% lower
Ultimate Cost
Change
$
$
$
$
$
$
$
518 $
508 $
498 $
493 $
488 $
478 $
468 $
25
15
5
—
(5)
(15)
(25)
Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants,
we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to
pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
Deferred Acquisition Costs
The Company defers certain costs of acquiring new and renewal insurance policies, and other products as follows:
Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract
transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not
occurred. These capitalized costs are amortized as the related premium is earned.
78
Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that
resulted from successful contract transactions and would not have been incurred by the Company had the transactions not
occurred. These capitalized costs are amortized as the related service and administrative fees are earned.
The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income
in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s
evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31,
2023 and 2022.
Amortization of deferred acquisition costs was $583.6 million, $479.1 million and $375.1 million for the years ended
December 31, 2023, 2022, and 2021, respectively.
Revenue Recognition
The Company earns revenues from a variety of sources:
Earned Premiums, net
Net earned premiums is from direct and assumed earned premiums consisting of revenue generated from the direct sale of
insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed
by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods
appropriate to the pattern of losses for the type of business. Methods used include pro rata, Rule of 78’s, and other actuarial
methods. Management selects the appropriate method based on available information, and periodically reviews the selections
as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company’s
reinsurers, including PORCs, earned in the same manner. The amount ceded is proportional to the amount of risk assumed by
the reinsurer.
Service and Administrative Fees
The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated
with transaction volume and are recognized as revenue as they become both realized and earned. Revenues from contracts
with customers were $341.4 million and $300.2 million for the years ended December 31, 2023 and 2022, respectively, and
include auto and consumer goods service contracts, motor clubs, other service and administrative fees, vessel related revenue
and management fee income. See Note (14) Revenue from Contracts with Customers for more detailed disclosure regarding
these revenues.
Service fee revenue is recognized as the services are performed. Administrative fee revenue includes the administration of
premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation
programs, motor club memberships and warranty programs. Related administrative fee revenue is recognized consistent with
the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts and motor club memberships
being administered, using pro rata, Rule of 78’s, modified Rule of 78’s, or other methods as appropriate for the contract.
Management selects the appropriate method based on available information, and periodically reviews the selections as
additional information becomes available. In addition, we also record on an earned basis a ceding fee paid by our reinsurers
on ceded insurance premiums. This fee reimburses us for administrative, underwriting, and acquisition expenses. These fees
are earned primarily pro-rata over the remaining term of the policy.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or
settled.
The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in earnings in the period that
includes the enactment date. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain
items, and some historical transactions have income tax effects going forward. Accounting guidance requires these future
effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an
79
unpredictable manner.
The Company establishes valuation allowances for deferred tax assets when, in its judgment, it concludes that it is more
likely than not that the deferred tax assets will not be realized. These judgments are based on projections of future income,
including tax-planning strategies, by individual tax jurisdictions. Changes in economic conditions and the competitive
environment may impact the accuracy of the Company’s projections. On a quarterly basis, the Company assesses the
likelihood that its deferred tax assets will be realized and determines if adjustments to the Company’s valuation allowance is
appropriate.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note (2) Summary of Significant Accounting Policies, in the
accompanying consolidated financial statements.
80
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to interest rate risk related to borrowings in various businesses. These risks result primarily from changes in
SOFR rates and the spread over SOFR rates related to the credit risks of our businesses.
For fixed rate debt, interest rate fluctuations generally affect the fair value of our liabilities, but do not impact our earnings.
Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until such obligations mature
or until we elect to prepay and refinance such obligations. If interest rates have risen at the time our fixed rate debt matures or
is refinanced, our future earnings could be adversely affected by additional borrowing costs. Conversely, lower interest rates
at the time of maturity or refinancing may lower our overall interest expense. As of December 31, 2023, the Company’s
insurance subsidiary had $125.0 million of general purpose fixed rate debt outstanding maturing in 2057.
For general purpose floating rate debt, interest rate fluctuations primarily affect interest expense and cash flows. If market
interest rates rise, our earnings could be adversely affected by an increase in interest expense. In contrast, lower interest rates
may reduce our interest expense and improve our earnings, except to the extent that our borrowings are subject to interest rate
floors. The floating interest rate risk of asset based financing is generally offset as the financing and the purchased financial
asset are generally subject to the same interest rate risk. As of December 31, 2023, the Company’s insurance subsidiary had
$165.0 million of floating rate corporate debt with a weighted average rate of 7.3% compared to $35.0 million of floating rate
corporate debt as of December 31, 2022, with a weighted average rate of 5.7%. For floating rate risk of other asset based
financing such as borrowings to finance acquisitions of real estate, we generally hedge our exposure to the variability of the
benchmark index with an interest rate swap. As of December 31, 2023 and 2022, Tiptree’s holding company had no general
purpose floating rate debt as it was repaid in June 2022.
Our consolidated results include investments in bonds, loans or other interest bearing instruments. The fair values of such
investments fluctuate in response to changes in market interest rates. Increases and decreases in interest rates generally
translate into decreases and increases in fair values of these instruments. Some of these investments bear a floating rate of
interest which subjects the Company to cash flow risk based upon changes in the underlying interest rate index. As noted
above in the discussion of risks related to floating rate borrowings, the Company mitigates a significant amount of our
floating rate risk by matching the funding of such investments with borrowings based upon the same interest rate index.
Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer,
prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market
conditions.
As of December 31, 2023, we had $879.6 million invested in interest bearing instruments, which represents 66% of the total
investment portfolio (including cash and cash equivalents). The estimated effects of a hypothetical increase in interest rates of
100 bps would result in a decrease to the fair value of the portfolio by $26.8 million. As of December 31, 2022, we had
$706.4 million invested in interest bearing instruments, which represented 61% of the total investment portfolio. The
estimated effects of a hypothetical increase in interest rates of 100 bps would result in a decrease to the fair value of the
portfolio by $24.8 million.
81
Credit Risk
We are exposed to credit risk in the form of available for sale securities, investments in loans, and other investments as
follows:
($ in thousands)
Available for sale securities, at fair value (1)
Obligations of state and political subdivisions
Corporate securities
Asset backed securities
Certificates of deposit
Obligations of foreign governments
Loans, at fair value(2)
Corporate loans
Other investments(3)
Corporate bonds, at fair value
Debentures
Investment in credit fund
Other
Total
As of December 31,
2022
2023
$
$
45,459 $
254,598
26,186
1,724
4,557
49,454
161,999
15,349
756
2,362
11,218
14,312
62,081
25,648
11,830
7,201
450,502 $
42,080
23,853
—
230
310,395
(1)
(2)
(3)
The Company also holds investments in U.S. Treasury securities and obligations of U.S. government authorities and agencies of $470.1 million and
$382.1 million as of December 31, 2023 and 2022, respectively. These investments do not represent a credit risk and are excluded.
The Company also holds investments in mortgage loans held for sale of $58.3 million and $50.5 million as of December 31, 2023 and 2022,
respectively. These investments do not represent a credit risk and are excluded.
The Company also holds other investments of $4.3 million and $6.9 million as of December 31, 2023 and 2022, respectively, primarily comprised of
vessels and other investments. These investments do not represent a credit risk and are excluded.
Credit risk within the Company’s investments represents the exposure to the adverse changes in the creditworthiness of
individual investment holdings, issuers, groups of issuers, industries, and countries. As of December 31, 2023 and 2022, 72%
and 76%, respectively, of the investments subject to credit risk had investment grade ratings. A widening of credit spreads by
100 bps for the investments subject to credit risk would result in a decrease of $8.2 million and $5.8 million to the fair value
of the portfolio as of December 31, 2023 and 2022, respectively.
In addition, our mortgage business also underwrites mortgage loans for the purpose of selling them into the secondary
market. Due to the relatively short holding period, the credit risk associated with mortgage loans held for sale is not expected
to be significant.
See Note (6) Investments to the consolidated financial statements for more information regarding our investments in loans by
type.
Market Risk
We are primarily exposed to market risk related to the following investments:
($ in thousands)
As of December 31, 2023
As of December 31, 2022
Insurance
Tiptree Capital
- Other
Total
Insurance
Tiptree Capital
- Other
Total
Invesque
$
Fixed income exchange traded fund
Other equity securities
Total equity securities
$
719 $
1,349
25,045
27,113 $
3,442 $
—
37,753
41,195 $
4,161 $
1,349
62,798
68,308 $
2,670 $
56,256
14,066
72,992 $
12,784 $
—
—
12,784 $
15,454
56,256
14,066
85,776
A 10% increase or decrease in the fair value of such investments would result in $6.8 million and $8.6 million of unrealized
gains and losses as of December 31, 2023 and 2022, respectively.
As of December 31, 2023 and 2022, the Company owned 16.98 million shares of common stock, respectively, or
approximately 30%, of Invesque, a real estate investment company that specializes in health care real estate and senior living
property investment throughout North America. The value of our Invesque shares is reported at fair market value on a
quarterly basis. Invesque historically paid monthly dividends until April 2020, when dividends were discontinued. A loss in
82
the fair market value of our Invesque shares or a reduction or discontinuation in the dividends paid on our Invesque shares
could have a material adverse effect on our financial condition and results of operations. As of December 31, 2023 and 2022,
the fair value of the Invesque shares was based on the market price.
See “Risk Factors — Risks Related to our Business - Our investment in Invesque shares is subject to market volatility and the
risk that Invesque changes its dividend policy”.
Foreign Currency Exchange Rate Risk
We have foreign currency exchange rate risk associated with certain assets and liabilities related to our foreign operations. At
December 31, 2023 and 2022, 93% and 93%, respectively of our invested assets were denominated in United States (U.S.)
Dollars. At December 31, 2023 and 2022, 92% and 93%, respectively, of our insurance subsidiary’s combined unpaid
premiums and deferred revenue were denominated in U.S. Dollars. At that date, the largest foreign currency denominated
balance was a fixed income exchange traded fund in British Pound Sterling reported within equity securities.
Counterparty Risk
We are subject to counterparty risk to the extent that we engage in derivative activities for hedging or other purposes. As of
December 31, 2023 and 2022, the total fair value of derivative assets subject to counterparty risk, including the effect of any
legal right of offset, totaled $4.0 million and $4.3 million, respectively. We generally manage our counterparty risk to
derivative counterparties by entering into contracts with counterparties of high credit quality.
Total reinsurance receivables and prepaid reinsurance premiums were $1,854.4 million and 1,176.1 million of December 31,
2023 and 2022, respectively. Of those amounts, $870.5 million and $603.4 million, respectively, related to contracts with
third-party captives in which we hold collateral or receive letters of credit in excess of the reinsurance receivables. The
remainder is held with high quality reinsurers, substantially all of which have a rating of A or better by A.M. Best. As of
December 31, 2023, the non-affiliated reinsurers from whom our insurance business has the largest reinsurance receivable
balances represented $235.7 million, or 12.7% of the total, and included: Accelerant Specialty Insurance Company (A.M.
Best Rating: A- rated), Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), and Homesite Insurance
Company (A.M. Best Rating: A rated). A majority of the related receivables from these reinsurers are collateralized by assets
on hand and letters of credit; receivable balances from authorized reinsurers do not require collateral. Allianz Global
Corporate & Specialty SE is an authorized reinsurer in the states in which Fortegra’s U.S. based insurance entities are
domiciled. The Company monitors authorization status and A.M. Best ratings of its reinsurers periodically. As of
December 31, 2023, the Company does not believe there is a risk of loss due to the concentration of credit risk in the
reinsurance program given the collateralization.
($ in thousands)
Third-party captives
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
Professional Reinsurers
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
Total
Reinsurance receivables and prepaid reinsurance premiums
Collateral
% Collateralized
As of December 31,
2022
2023
$
870,511
$ 1,035,728
119 %
$
$
983,900
643,853
$
$
$
$
603,428
700,086
116 %
572,662
611,360
65 %
107 %
$ 1,854,410
$ 1,679,581
$ 1,176,090
$ 1,311,446
91 %
112 %
We were also exposed to counterparty risk of approximately $250.8 million and $191.1 million as of December 31, 2023 and
2022, respectively, related to our retrospective commission arrangements; associated risks are offset by the Company’s
contractual ability to withhold future commissions against the retrospective balances. In addition, we are exposed to
counterparty risk of approximately $134.1 million and $121.4 million as of December 31, 2023 and 2022, respectively,
related to our premium financing business. The risk associated with such arrangements is mitigated by the fact that we have
the contractual ability to cancel the insurance policy and have premiums refunded to us by the insurer in the event of a
counterparty default.
83
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Page
F- 2
F- 5
F- 6
F- 7
F- 8
F- 10
F- 12
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Tiptree Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tiptree Inc. and subsidiaries (the “Company”) as of
December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes
in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the
related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 29, 2024, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
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
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. 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements
Critical Audit Matter Description
Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates. The
Company estimates policy liabilities and unpaid claims by applying a variety of generally accepted actuarial methods to
historical loss development patterns, which require numerous assumptions and significant judgment.
We identified policy liabilities and unpaid claims as a critical audit matter because of the significant estimates and
assumptions management made in forecasting ultimate losses. This critical audit matter required a high degree of auditor
judgment and an increased extent of audit effort, including the need to involve our actuarial specialists, when performing
audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves.
How the Critical Audit Matter Was Addressed in the Audit
F-2
Our audit procedures related to testing management’s significant estimates and assumptions used in determining policy
liabilities and unpaid claims included the following, among others:
• We tested the design and operating effectiveness of controls over policy liabilities and unpaid claims, including
those related to the estimation and management’s review of the estimates as well as the selection of underlying
assumptions.
• We tested the design and operating effectiveness of controls over the completeness and accuracy of the
premium and claim data utilized by management and their third-party actuaries.
• We evaluated the methods and assumptions used by the Company to estimate the policy liabilities and unpaid
claims through the following procedures:
◦ With assistance from our actuarial specialists:
▪ We developed an independent expected range of policy liabilities and unpaid claims reserves
based on historical and industry claim development factors or performed actuarial peer review
procedures to evaluate management’s application of actuarial methods and significant
assumptions.
▪ We performed retrospective procedures comparing actual loss development with expected
development to assess the reasonableness of assumptions used, including consideration of
potential bias, in the estimation of policy liabilities and unpaid claims.
◦ We tested the underlying data that served as the basis for the actuarial analysis, including historical
claims data, to test that the inputs to the actuarial estimates were complete and accurate.
/s/Deloitte & Touche LLP
New York, New York
February 29, 2024
We have served as the Company's auditor since 2017.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Tiptree Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tiptree Inc. and subsidiaries (the “Company”) as of
December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company
and our report dated February 29, 2024 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/Deloitte & Touche LLP
New York, New York
February 29, 2024
F-4
TIPTREE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
As of December 31,
2023
2022
Assets:
Investments:
Available for sale securities, at fair value, net of allowance for credit losses
Loans, at fair value
Equity securities
Other investments
Total investments
Cash and cash equivalents
Restricted cash
Notes and accounts receivable, net
Reinsurance recoverable
Prepaid reinsurance premiums
Deferred acquisition costs
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Debt, net
Unearned premiums
Policy liabilities and unpaid claims
Deferred revenue
Reinsurance payable
Other liabilities and accrued expenses
Total liabilities
Stockholders’ Equity:
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding
Common stock: $0.001 par value, 200,000,000 shares authorized, 36,756,187 and 36,385,299
shares issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss), net of tax
Retained earnings
Total Tiptree Inc. stockholders’ equity
Non-controlling interests:
Fortegra preferred interests
Common interests
Total non-controlling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
802,609 $
69,556
68,308
111,088
1,051,561
468,711
23,850
684,608
953,886
900,524
565,746
206,155
118,757
165,515
5,139,313 $
$
402,411 $
1,695,058
844,848
673,085
543,602
403,744
4,562,748 $
611,980
64,843
85,776
73,025
835,624
538,065
12,782
502,311
450,620
725,470
498,925
186,608
117,015
172,143
4,039,563
259,366
1,357,436
567,193
649,150
305,097
367,748
3,505,990
$
$
$
— $
—
37
382,239
(26,073)
60,663
416,866
36
382,645
(39,429)
54,113
397,365
77,679
82,020
159,699
576,565
5,139,313 $
77,679
58,529
136,208
533,573
4,039,563
See accompanying notes to consolidated financial statements.
F-5
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share data)
For the Year Ended December 31,
2022
2021
2023
Revenues:
Earned premiums, net
Service and administrative fees
Ceding commissions
Net investment income
Net realized and unrealized gains (losses)
Other revenue
Total revenues
Expenses:
Policy and contract benefits
Commission expense
Employee compensation and benefits
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before taxes
Less: provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to non-controlling interests
Net income (loss) attributable to common stockholders
Net income (loss) per common share:
Basic earnings per share
Diluted earnings per share
Weighted average number of common shares:
Basic
Diluted
$
$
$
$
1,127,834 $
395,969
14,915
26,674
24,736
58,903
1,649,031
601,794
603,033
179,075
27,692
23,466
130,918
1,565,978
83,053
43,056
39,997
26,046
13,951 $
904,765 $
320,720
13,880
12,219
69,983
76,185
1,397,752
452,605
522,686
182,657
30,240
22,973
132,580
1,343,741
54,011
50,450
3,561
11,835
(8,274) $
685,552
260,525
11,784
17,896
151,350
73,407
1,200,514
327,012
396,683
207,322
37,674
24,437
142,044
1,135,172
65,342
21,291
44,051
5,919
38,132
0.38 $
0.33 $
(0.23) $
(0.23) $
1.13
1.09
36,693,204
37,619,095
35,531,149
35,531,149
33,223,792
33,688,256
Dividends declared per common share
$
0.20 $
0.16 $
0.16
See accompanying notes to consolidated financial statements.
F-6
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
For the Year Ended December 31,
2022
2021
2023
Net income (loss)
$
39,997 $
3,561 $
44,051
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on available for sale securities
Change in unrealized currency translation adjustments
Related (provision) benefit for income taxes
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: comprehensive income (loss) attributable to non-controlling interests
Comprehensive income (loss) attributable to common stockholders
$
19,003
7,213
(8,105)
18,111
58,108
30,801
27,307 $
(55,290)
(7,351)
14,973
(47,668)
(44,107)
8,104
(52,211) $
(10,750)
—
2,362
(8,388)
35,663
5,890
29,773
See accompanying notes to consolidated financial statements.
F-7
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except shares)
Common stock
Non-controlling interests
Additional
paid-in
capital
Number of
shares
2,331
3,563
105
(2,881)
—
(770)
—
—
97
—
—
—
—
596,601
1,166,307
(528,662)
207,445
—
—
—
—
—
—
—
Par
value
32,682,462 $ 33 $ 315,014 $
—
—
2
(1)
—
—
—
—
—
—
—
—
34,124,153 $ 34 $ 317,459 $
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
36,385,299 $ 36 $ 382,645 $
—
292,548
114,353
(165,040)
1,999,989
19,296
—
—
—
—
—
—
—
—
—
6,600
(172)
866
(1,727)
13,722
—
4,847
41,092
—
—
(42)
—
—
—
—
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
Tiptree Inc.
stockholders’
equity
Fortegra
preferred
interests
Common
interests
Total
stockholders'
equity
5,674 $
—
—
—
—
—
—
—
—
—
—
(8,359)
—
(2,685) $
—
—
—
—
—
—
—
7,193
—
—
—
—
(43,937)
—
—
(39,429) $
35,423 $ 356,144 $
—
—
—
—
—
—
—
—
—
(5,409)
—
38,132
68,146 $ 382,954 $
2,331
3,563
107
(2,882)
—
(770)
—
—
97
(5,409)
(8,359)
38,132
—
—
—
—
—
—
—
—
—
—
—
(5,759)
—
(3,384)
(4,890)
54,113 $ 397,365 $
6,600
(172)
866
(1,727)
13,724
—
4,847
48,285
—
—
(42)
(5,759)
(43,937)
(3,384)
(4,890)
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
77,679
—
—
—
—
—
—
—
77,679 $
17,394 $ 373,538
4,056
1,725
(1,253)
(4,816)
(1,458)
(1,565)
(2,882)
—
—
—
(1,079)
(309)
100
100
(1,095)
(1,095)
—
(97)
(5,409)
—
(8,388)
(29)
5,919
44,051
17,227 $ 400,181
7,469
869
(1,258)
(1,086)
(181)
(1,047)
(1,727)
—
13,724
—
—
—
4,847
—
167,008
41,044
250
250
(3,939)
(3,939)
449
491
(5,759)
—
(47,668)
(3,731)
(3,384)
—
8,451
3,561
58,529 $ 533,573
Balance at December 31, 2020
Amortization of share-based incentive compensation
Vesting of share-based incentive compensation
Shares issued in exchange for vested subsidiary awards (1)
Shares purchased under stock purchase plan
Shares issued upon exercise of warrants
Repurchase of vested subsidiary awards
Non-controlling interest contributions
Non-controlling interest distributions
Net change in non-controlling interests and other
Common stock dividends declared
Other comprehensive income (loss), net of tax
Net income (loss)
Balance at December 31, 2021
Amortization of share-based incentive compensation
Vesting of share-based incentive compensation
Shares issued in exchange for vested subsidiary awards (2)
Shares purchased under stock purchase plan
Shares issued upon exercise of warrants
Shares issued upon exercise of options
Transfer of liability awards
WP Transaction
Non-controlling interest contributions
Non-controlling interest distributions
Net change in non-controlling interests and other
Common stock dividends declared
Other comprehensive income (loss), net of tax
Subsidiary preferred dividends declared
Net income (loss)
Balance at December 31, 2022
F-8
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except shares)
Common stock
Non-controlling interests
Additional
paid-in
capital
Number of
shares
Par
value
36,385,299 $ 36 $ 382,645 $
—
1
—
—
—
—
—
—
—
36,756,187 $ 37 $ 382,239 $
—
315,881
55,007
—
—
—
—
—
—
5,845
(250)
—
(1,751)
(4,250)
—
—
—
—
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
Tiptree Inc.
stockholders’
equity
Fortegra
preferred
interests
Common
interests
Total
stockholders'
equity
(39,429) $
—
—
—
—
—
—
13,356
—
—
(26,073) $
54,113 $ 397,365 $
—
—
—
—
—
(7,401)
—
(6,400)
20,351
60,663 $ 416,866 $
5,845
(249)
—
(1,751)
(4,250)
(7,401)
13,356
(6,400)
20,351
77,679 $
—
—
—
—
—
—
—
—
—
77,679 $
58,529 $ 533,573
7,708
1,863
(719)
(470)
—
—
(4,959)
(3,208)
(3,345)
905
(7,401)
—
18,111
4,755
(6,400)
—
19,646
39,997
82,020 $ 576,565
Balance at December 31, 2022
Amortization of share-based incentive compensation
Vesting of share-based incentive compensation
Shares issued upon exercise of options
Non-controlling interest distributions
Net change in non-controlling interests and other
Common stock dividends declared
Other comprehensive income (loss), net of tax
Subsidiary preferred dividends declared
Net income (loss)
Balance at December 31, 2023
(1) Exchange included $1,458 in cash.
(2) Exchange included $181 in cash.
See accompanying notes to consolidated financial statements.
F-9
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
For the Year Ended December 31,
2022
2021
2023
Operating Activities:
Net income (loss) attributable to common stockholders
Net income (loss) attributable to non-controlling interests
Net income (loss)
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Net realized and unrealized (gains) losses
Net (gain) loss on held for sale of business
Non-cash compensation expense
Amortization/accretion of premiums and discounts
Depreciation and amortization expense
Non-cash lease expense
Deferred provision (benefit) for income taxes
Amortization of deferred financing costs
Change in fair value of liability classified warrants
Other
$
13,951 $
26,046
39,997
(8,274) $
11,835
3,561
38,132
5,919
44,051
(24,736)
—
8,275
(7,556)
23,466
7,951
37,024
1,125
(1,769)
148
(69,983)
(3,825)
9,705
976
22,973
9,301
47,548
1,341
(939)
1,137
(151,350)
1,928
11,130
2,947
24,437
8,924
17,730
1,607
—
291
Changes in operating assets and liabilities:
Mortgage loans originated for sale
Proceeds from the sale of mortgage loans originated for sale
(Increase) decrease in notes and accounts receivable
(Increase) decrease in reinsurance recoverable
(Increase) decrease in prepaid reinsurance premiums
(Increase) decrease in deferred acquisition costs
(Increase) decrease in other assets
Increase (decrease) in unearned premiums
Increase (decrease) in policy liabilities and unpaid claims
Increase (decrease) in deferred revenue
Increase (decrease) in reinsurance payable
Increase (decrease) in other liabilities and accrued expenses
Net cash provided by (used in) operating activities
Investing Activities:
Purchases of investments
Proceeds from sales and maturities of investments
Purchases of property, plant and equipment
Proceeds from the sale of businesses and other assets
Proceeds from notes receivable
Issuance of notes receivable
Business and asset acquisitions, net of cash and deposits
Net cash provided by (used in) investing activities
Financing Activities:
Dividends paid
Cash received for the exercise of warrants
Net non-controlling interest (redemptions) contributions and other
Issuance of Fortegra Common Stock
Issuance of Fortegra Warrants
Issuance of Fortegra Additional Warrants (Warburg)
Issuance of Fortegra Preferred Stock
Payment of WP Transaction costs
Payment of debt issuance costs
Proceeds from borrowings and mortgage notes payable
Principal paydowns of borrowings and mortgage notes payable
Repurchases of common stock and other changes in additional paid-in capital
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash – beginning of period
Cash, cash equivalents and restricted cash – beginning of period - held for sale
Cash, cash equivalents and restricted cash – end of period
Less: Reclassification of cash to held for sale
Cash, cash equivalents and restricted cash – end of period
F-10
2,403,223
(876,914) (2,136,005) (3,884,533)
3,925,984
903,354
(54,378)
(160,501)
(13,227)
(78,932)
(505,700) (203,874)
(73,895)
(175,054)
(91,380)
(149,943)
(65,404) (119,552)
(7,065)
20,921
263,262
337,622
98,265
277,655
135,652
14,613
40,909
238,505
27,295
(21,570)
204,316
71,452
7,463
233,484
235,490
113,899
39,528
(27,771)
463,073
(14,030)
(1,492,227) (1,197,383) (1,430,879)
1,172,044
1,260,594
1,296,337
(2,764)
8,729
56,055
(77,077)
133
(273,759)
—
117,834
(132,857) (114,187)
(14,960)
(19,726)
9,514
(244,669)
(10,727)
742
85,435
—
(13,731)
(14,783)
—
—
—
—
—
(1,487)
(7,775)
13,724
(5,590)
98,433
13,101
6,230
83,486
(12,910)
(1,380)
(5,409)
—
(3,532)
—
—
—
—
—
(114)
1,431,526
4,084,299
2,365,320
(1,288,119) (2,666,098) (3,993,364)
(8,145)
73,735
—
4,292
195,275
4,879
204,446
9,360
$ 492,561 $ 550,847 $ 195,086
(58,286) 355,573
195,086
550,847
9,360
—
560,019
492,561
9,172
—
(1,727)
(115,186)
(1,828)
—
113,406
1,525
TIPTREE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest expense
Cash (received) paid during the period for income taxes
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Right of use asset obtained in exchange for lease liability
Bonds and trade receivables exchanged for corporate loans and equity securities
Shares issued in exchange for vested subsidiary awards
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in the statements of cash flows
For the Year Ended December 31,
2022
2021
2023
$
$
26,513 $ 29,442 $
2,259 $
(15,178) $
36,885
2,079
$
$
$
4,281
—
107
3,338 $ 14,698 $
— $ 19,846 $
— $
866 $
As of December 31,
2022
$ 468,711 $ 538,065 $ 175,718
19,368
$ 492,561 $ 550,847 $ 195,086
23,850
12,782
2023
2021
See accompanying notes to consolidated financial statements.
F-11
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(1) Organization
Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation
that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol
“TIPT”. Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other
investments. We classify our business into two reportable segments: Insurance and Mortgage. We refer to our non-insurance
operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable
segments and other business activities, as Tiptree Capital.
On June 21, 2022, the Company closed the WP Transaction whereby Warburg invested $200,000 in Fortegra in exchange for
Fortegra Common Stock, Fortegra Preferred Stock, Fortegra Warrants and Fortegra Additional Warrants. See Note (17)
Stockholders' Equity for additional information regarding the terms of the securities issued in connection with the closing of
the WP Transaction. As of December 31, 2023, Fortegra was owned approximately 79.5% by Tiptree Holdings, 17.5% by
Warburg and 3.0% by management and directors of Fortegra, before giving effect to the exercise of outstanding warrants and
the conversion of outstanding preferred stock.
(2) Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include
the accounts of the Company and its subsidiaries. The consolidated financial statements are presented in U.S. dollars, the
main operating currency of the Company.
Non-controlling interests on the consolidated financial statements represent the ownership interests in certain consolidated
subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been
eliminated.
Reclassifications
As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current
presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and
accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of
the following significant items:
•
•
•
•
•
•
•
•
Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives
Value of acquired assets and liabilities;
Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives;
Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and
other claims;
Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and
administration fees, and loan origination fees;
Deferred acquisition costs
The realization of deferred tax assets, and recognition and measurement of uncertain tax positions; and
Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial
statements
Although these and other estimates and assumptions are based on the best available estimates, actual results could differ
materially from management’s estimates.
F-12
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Business Combination Accounting
The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method
requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair
value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the
excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated
useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the
amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on
the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any
change recorded in other expense in the consolidated statements of operations. Acquisition and transaction costs are expensed
as incurred.
In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-
controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a
preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of
valuation studies applicable to the business combination.
Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets.
Dispositions and Assets and Liabilities Held for Sale
The results of operations of a business that has either been disposed of or are classified as held for sale are reported in
discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an
entity’s operations and financial results. The Company carries assets and liabilities held for sale at the lower of carrying value
on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held
for sale, the Company ceases the recording of depreciation and amortization on assets transferred.
Accounting policies specific to our dispositions and assets and liabilities held for sale are described in more detail in Note (4)
Dispositions and Assets and Liabilities Held for Sale.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels, from highest to lowest, are defined as follows:
• Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date.
• Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or
indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar
instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The
types of financial assets and liabilities carried at Level 2 are valued based on one or more of the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in nonactive markets;
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability;
d) Pricing models whose inputs are derived principally from or corroborated by observable market data
through correlation or other means for substantially the full term of the asset or liability.
• Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data
and assumptions that are used in pricing the asset or liability.
The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of
F-13
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active
exchange or in the secondary market, and the current market conditions. To the extent that valuation is based on models or
inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments
categorized within Level 3 of the fair value hierarchy. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement in its entirety is determined based on the lowest level input that is significant to the fair
value measurement in its entirety. Tiptree’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment and the consideration of factors specific to the instrument. From time to time, Tiptree’s
assets and liabilities will transfer between one level to another level. It is Tiptree’s policy to recognize transfers between
different levels at the end of each reporting period.
Tiptree utilizes both observable and unobservable inputs in its valuation methodologies. Observable inputs include
benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.
In addition, specific issuer information and other market data is used. For broker quotes, quotes are obtained from sources
recognized to be market participants. Unobservable inputs may include expected cash flow streams, default rates, supply and
demand considerations and market volatility.
Fair Value Option
In addition to the financial instruments that the Company is required to measure at fair value, the Company has elected to
make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible
financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are
reported in Net realized and unrealized gains (losses) within the consolidated statements of operations. The decision to elect
the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is
irrevocable once elected.
Derivative Financial Instruments and Hedging
The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative
contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative
activities are primarily entered into in order to manage underlying credit risk, market risk, interest rate risk and currency
exchange rate risk. As a matter of policy, derivatives are not used for speculative purposes. Derivative instruments are
measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on
the consolidated balance sheets. See Note (10) Derivative Financial Instruments and Hedging.
The Fortegra Additional Warrants (Warburg) are classified as a derivative liability given that (i) the holder can exercise the
warrant for a variable number of shares and (ii) and the value of the warrant varies inversely with the value of Fortegra’s
common stock. As such, the derivative liability is marked to fair value at each reporting period and its change in fair value is
recorded in other expenses. See Note (10) Derivative Financial Instruments and Hedging, Note (12) Fair Value of Financial
Instruments and Note (17) Stockholders' Equity for additional information.
Stock Based Compensation
The Company accounts for share-based compensation issued to employees, directors, and affiliates of the Company using the
current fair value methodology based on the type of vesting condition – time based, performance based or market based or
combination. See Note (19) Stock Based Compensation.
The Company initially measures the cost of all share-based compensation incentive awards at fair value on the date of grant,
whether accounted for as an equity or liability award. The compensation cost is recognized over the required service period,
generally defined as the vesting period using the straight-line method. When the share-based compensation awards are
accounted for as equity awards, the compensation cost is charged to expense with a corresponding credit to additional paid-in
capital. If the share-based compensation awards are accounted for as liability awards, their fair value is remeasured at each
reporting period, with the compensation cost charged to expense with a corresponding credit to other liabilities.
Grants of restricted stock units (RSUs) and options are accounted for as equity based upon their expected settlement method.
The Company recognizes the cost of such awards over the vesting period using the straight-line method and uses the graded-
F-14
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
vesting method to recognize compensation expense for the performance vesting RSUs. Compensation expense will be
recognized to the extent that it is probable that the performance condition will be achieved. The Company reassesses the
probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period.
Income Taxes
Deferred tax assets and liabilities are determined using the asset and liability method. Under this method, deferred tax assets
and liabilities are established for future tax consequences of temporary differences between the financial statement carrying
amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary differences are expected to reverse. A valuation
allowance is established when necessary to reduce a deferred tax asset to the amount expected to be realized. Several of the
Company’s subsidiaries file state tax returns on a standalone basis. As of June 21, 2022, Fortegra began filing federal and
state tax returns on a stand-alone basis. These U.S. federal and state income tax returns, when filed, will be subject to
examination by the Internal Revenue Service and state departments of revenue. See Note (20) Income Taxes.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine
whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. The Company’s
provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not
threshold. The Company’s policy is to account for interest as a component of interest expense and penalties as a component
of other expenses.
Earnings Per Share
The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and
footnotes thereto. Basic earnings per Common Share (Basic EPS) excludes dilution and is computed by dividing net income
or loss available to common stockholders by the weighted average number of common shares outstanding, which includes
vested RSUs, for the period. Diluted earnings per Common Share (Diluted EPS) reflects the potential dilution that could
occur if securities or other contracts to issue common shares were exercised or converted into common shares where such
exercise or conversion would result in a lower earnings per share amount.
The Company calculates EPS using the two-class method, which is an earnings allocation formula that determines EPS for
common shares and participating securities. Unvested RSUs contain non-forfeitable rights to distributions or distribution
equivalents (whether paid or unpaid) and are participating securities that are included in the computation of EPS using the
two-class method. Accordingly, all earnings (distributed and undistributed) are allocated to common shares and participating
securities based on their respective rights to receive distributions. The participating securities do not have a contractual
obligation to absorb losses and are only allocated in periods where there is income.
See Note (22) Earnings Per Share, for EPS computations.
Investments
The Company records all investment transactions on a trade-date basis. Realized gains (losses) are determined using the
specific-identification method. The Company classifies its investments in debt securities as available for sale, trading or held-
to-maturity based on the Company’s intent and ability to hold the debt security to maturity. The Company did not have any
held-to-maturity securities at December 31, 2023 and 2022. See Note (6) Investments.
Available for Sale Securities, at Fair Value (AFS)
AFS are securities that are not classified as trading or held-to-maturity and are intended to be held for indefinite periods of
time. AFS securities include those debt securities that management may sell as part of its asset/liability management strategy
or in response to changes in interest rates, resultant prepayment risk or other factors. AFS securities are held at fair value on
the consolidated balance sheet with changes in fair value including non-credit related losses, net of related tax effects,
recorded in the AOCI component of stockholders’ equity in the period of change. Upon the disposition of an AFS security,
the Company reclassifies the gain or loss on the security from AOCI to net realized and unrealized gains (losses) on the
consolidated statements of operations.
F-15
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to
credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management
considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating
agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss
exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of
the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is
created, limited by the amount that the fair value is less than the amortized cost basis.
Subsequent activity related to the credit loss component (e.g. write-offs, recoveries) is recognized as part of the allowance for
credit losses on AFS securities. For AFS securities which have an expectation of zero risk of nonpayment of the amortized
cost basis (e.g. U.S. Treasury securities or agency securities), the expected credit loss is zero.
Loans, at Fair Value
Loans, at fair value is substantially comprised of (i) corporate loans and (ii) loans originated by the Company’s mortgage
finance business. Changes in their fair value are reported within net realized and unrealized gains (losses) in our consolidated
statements of operations.
Corporate Loans
Corporate loans are comprised of middle market loans and bank loans which are carried at fair value. In general, the fair
value is obtained from an independent pricing service which provides coverage of secondary market participants. The values
represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own
determination of fair value of loans based on internal models and other unobservable inputs.
Mortgage Loans Held for Sale
Mortgage loans held for sale represent loans originated and held until sold to secondary market investors. Such loans are
typically warehoused for a period after origination or purchase before sale into the secondary market. Loans are sold either
servicing released, or in select instances, servicing retained into the secondary loan market. The Company has elected to
measure all mortgage loans held for sale at fair value. These loans are considered sold when the Company surrenders control
to the purchaser. The gains or losses on sales of such loans, net of any accrual for standard representations and warranties, are
reported in operating results as a component of net realized and unrealized gains (losses) in the consolidated statements of
operations in the period when the sale occurs.
Equity Securities
Equity securities are investments consisting of equity securities that are purchased principally for the purpose of selling them
in the near term. Changes in fair value are recorded in net realized and unrealized gains (losses) on investments on the
consolidated statements of operations in the period of change.
Other Investments
Corporate Bonds
Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is based on quoted market
prices. We perform internal price verification procedures to ensure that the prices provided are reasonable.
Vessels, net
Investments in vessels, net are carried at cost (inclusive of capitalized acquisition costs, where applicable) less accumulated
depreciation. Subsequent expenditures are also capitalized when they appreciably extend the life, increase the earning
capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are expensed as incurred. Vessels
acquired are recognized at their fair value as of the date of the acquisition.
F-16
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Depreciation is computed using the straight-line method over the vessel’s estimated remaining useful life, after considering
the estimated salvage value. A vessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap
rate. Vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Upon
transferring the vessels and related assets to held for sale on the consolidated balance sheets, the vessels are no longer
depreciated.
Vessels are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of a
particular vessel may not be fully recoverable. Potential impairment indicators are primarily based upon a comparison of the
market value of a vessel to its carrying value. Market values are based upon quoted prices from industry-recognized sources.
The Company evaluates market quotes of vessels for reasonableness by comparison to available market transactions or
internal valuation models. An impairment charge would be recognized if the estimated undiscounted future net cash flows
expected to result from the operation and subsequent disposal of the vessel are less than the vessel’s carrying amount.
The Company concluded during its annual impairment testing its remaining two vessels were partially impaired as of
December 31, 2023. The Company had no impairment as of year ended 2022. As of December 31, 2023, all remaining tanker
and dry-bulk vessels had been sold. See Note (4) Dispositions and Assets and Liabilities Held for Sale.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash held in banks, money market funds, and all highly liquid investments
of sufficient credit quality purchased with an initial maturity of three months or less to be cash equivalents, including U.S.
and foreign government securities.
Restricted Cash
The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers,
fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions. Restricted
cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow
funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings.
Notes and Accounts Receivable, Net
Notes Receivable, Net
The Company’s notes receivable, net includes receivables related to the insurance business for its premium financing
programs. The Company accrues interest income on its notes receivable based on the contractual terms of the respective
note. The Company monitors all notes receivable for delinquency and provides for estimated losses for specific receivables
that are not likely to be collected. In addition to allowances for bad debt for specific notes receivable, a general provision for
bad debt is estimated for the Company’s notes receivable based on history. Account balances are generally charged against
the allowance when the Company believes it is probable that the note receivable will not be recovered and has exhausted its
contractual and legal remedies. Generally, receivables overdue more than 120 days are written off when the Company
determines it has exhausted reasonable collection efforts and remedies, see Note (7) Notes and Accounts Receivable, net.
Accounts and Premiums Receivable, Net
Accounts and premiums receivable, net are primarily trade receivables from the insurance business that are carried at their
approximate fair value. Accounts and premiums receivable from the Company’s insurance business consist primarily of
advance commissions and agents' balances in course of collection and billed but not collected policy premiums, presented net
of the allowance for doubtful accounts. For policy premiums that have been billed but not collected, the Company records a
receivable on its consolidated balance sheets for the full amount of the premium billed, with a corresponding liability, net of
its commission, to insurance carriers. The Company earns interest on the premium cash during the period of time between
receipt of the funds and payment of these funds to insurance carriers. The Company maintains an allowance for doubtful
accounts based on an estimate of uncollectible accounts.
Retrospective commissions receivable, Trust receivables and Other receivables
F-17
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Retrospective commissions receivable, trust receivables and other receivables are primarily trade receivables from the
insurance business that are carried net of allowance at their approximate fair value.
Reinsurance Recoverable & Prepaid Reinsurance Premiums
Through the insurance business, the Company has various reinsurance agreements in place whereby the amount of risk in
excess of its retention goals is reinsured by unrelated domestic and foreign insurance companies. The Company is required to
pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance
receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. Reinsurance
receivables are based upon estimates and are reported on the consolidated balance sheets separately as assets, as reinsurance
does not relieve the Company of its legal liability to policyholders. Management continually monitors the financial condition
and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible.
Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies
are presented as assets. Experience refunds from reinsurers are recognized based on the underwriting experience of the
underlying contracts.
Deferred Acquisition Costs
The Company defers certain costs of acquiring new and renewal insurance policies and other products as follows within the
Company’s insurance business. Amortization of deferred acquisition costs was $583,589, $479,125, and $375,052 for the
years ended December 31, 2023, 2022 and 2021, respectively.
Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract
transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not
occurred. These capitalized costs are amortized as the related premium is earned.
Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that
resulted from successful contract transactions and would not have been incurred by the Company had the transactions not
occurred. These capitalized costs are amortized as the related service and administrative fees are earned.
The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income
in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s
evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31,
2023, 2022 and 2021.
Goodwill and Intangible Assets, net
The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired
assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment
annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets
are amortized over their estimated useful lives principally using a pattern of economic benefit for customer relationships and
a straight-line method for other intangible assets. Finite-lived intangible assets are subject to impairment if events or
circumstances indicate a possible inability to realize the carrying amount. The Company carries intangible assets, which
represent customer and agent relationships, trade names, insurance licenses (certificates of authority granted by individual
state departments of insurance), the value of in-force insurance policies acquired, software acquired or internally developed
and fishing licenses. Management has deemed the insurance licenses to have an indefinite useful life. Costs incurred to renew
or maintain insurance licenses are recorded as operating costs in the period in which they arise. See Note (9) Goodwill and
Intangible Assets, net.
Other Assets
Other assets primarily consist of mortgage servicing rights, loans eligible for repurchase, right of use assets, prepaid
expenses, and furniture, fixtures and equipment, net. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
F-18
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Mortgage Servicing Rights
Mortgage servicing rights represent the fair value of the right to service the underlying mortgage loans. The estimated fair
value is provided by a third-party valuation service and represents the price that a willing buyer would currently pay for the
Company’s mortgage servicing rights. Changes in fair value are recorded in net realized and unrealized gains (losses) on the
consolidated statements of operations in the period of change.
Debt, net
Debt is carried on the consolidated balance sheets at an amount equal to the unpaid principal balance, net of any remaining
unamortized discount or premium and direct and any incremental costs attributable to issuance. Discounts, premiums and
direct and incremental costs are amortized as a component of interest expense in the consolidated statements of operations
over the life of the debt. See Note (11) Debt, net.
Unearned Premiums
Premiums written are earned over the life of the respective policy using pro rata, Rule of 78’s, modified Rule of 78’s, or other
methods as appropriate for the contract. Unearned premiums represent the portion of premiums that will be earned in the
future. A premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs
and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income. As of
December 31, 2023 and 2022, no deficiency reserves were recorded.
Policy Liabilities and Unpaid Claims
Policyholder account balances relate to investment-type individual annuity contracts in the accumulation phase. Policyholder
account balances are carried at accumulated account values, which consist of deposits received, plus interest credited, less
withdrawals and assessments. Minimum guaranteed interest credited to these contracts ranges from 3.0% to 4.0%.
The Company’s claims are generally reported and settled quickly, resulting in consistent historical loss development
patterns. The Company’s actuaries apply a variety of generally accepted actuarial methods to the historical loss development
patterns, to derive cumulative development factors. These cumulative development factors are applied to reported losses for
each accident quarter to compute ultimate losses. The indicated required reserve is the difference between the ultimate losses
and the reported losses. The actuarial methods used include but are not limited to the chain ladder method, the Bornhuetter-
Ferguson method, and the expected loss ratio method. The actuarial analyses are performed on a basis gross of ceded
reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account
the impact of reinsurance. The Company has not made any changes to its methodologies for determining claim reserves in the
periods presented.
Credit life and accidental death and dismemberment (AD&D) unpaid claims reserves include claims in the course of
settlement and incurred but not reported (IBNR). Credit disability unpaid claims reserves also include continuing claim
reserves for open disability claims. For all other product lines, unpaid claims reserves include case reserves for reported
claims and bulk reserves for IBNR claims. The Company uses a number of algorithms in establishing its unpaid claims
reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, reported incurred
losses, target loss ratios, and in-force amounts or a combination of these factors.
Anticipated future loss development patterns form a key assumption underlying these analyses. Generally, unpaid claims
reserves, and associated incurred losses, are impacted by loss frequency, which is the measure of the number of claims per
unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and
loss severity may include changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation,
economic conditions, morbidity patterns and the attitudes of claimants towards settlements.
The unpaid claims reserves represent the Company’s best estimates at a given time, based on the projections and analyses
discussed above. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal
liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company
periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related
F-19
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining
unpaid claims reserves in the periods presented.
In accordance with applicable statutory insurance company regulations, the Company’s recorded unpaid claims reserves are
evaluated by appointed independent third-party actuaries, who perform this function in compliance with the Standards of
Practice and Codes of Conduct of the American Academy of Actuaries. The independent actuaries perform their actuarial
analyses annually and prepare opinions, statements, and reports documenting their determinations. For December 31, 2023
and 2022, our appointed independent third-party actuaries found the Company’s reserves to be adequate.
Deferred Revenue
Deferred revenues represent the portion of income that will be earned in the future attributable to motor club memberships
and non-insurance service contracts that are earned over the respective contract periods using pro rata, Rule of 78’s, modified
Rule of 78’s, or other methods as appropriate for the contract. A deficiency reserve would be recorded if anticipated contract
benefits, deferred acquisition costs and contract service costs exceed the recorded deferred revenues and anticipated
investment income. As of December 31, 2023 and 2022, no deficiency reserves were recorded.
Other Liabilities and Accrued Expenses
Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred
tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable. See Note (15) Other
Assets and Other Liabilities and Accrued Expenses.
Revenue Recognition
The Company earns revenues from a variety of sources:
Earned Premiums, Net
Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of
insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed
by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods
appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, modified Rule of 78’s, pro
rata, and other actuarial methods. Management selects the appropriate method based on available information, and
periodically reviews the selections as additional information becomes available. Direct and assumed premiums are offset by
premiums ceded to the Company’s reinsurers, including producer owned reinsurance companies (PORCs), earned in the same
manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer.
Service and Administrative Fees
The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated
with transaction volume and are recognized as revenue as they become both realized and earned.
Service and administrative fees are generated from non-insurance programs including warranty service contracts, motor clubs
and other services. Service and administrative fees are recognized consistent with the earnings recognition pattern of the
underlying insurance policies, debt cancellation contracts and motor club memberships being administered, using pro rata,
Rule of 78’s, modified Rule of 78’s, or other methods as appropriate for the contract. Management selects the appropriate
method based on available information, and periodically reviews the selections as additional information becomes available.
In addition, ceding fees paid by our reinsurers on ceded insurance premiums are recorded on an earned basis. These fees
reimburse us for administrative, underwriting, and acquisition expenses. These fees are earned in subsequent periods over the
remaining term of the policy.
Ceding Commissions
Ceding commissions earned under reinsurance agreements are based on contractual formulas that take into account, in part,
F-20
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
underwriting performance and investment returns experienced by the assuming companies. As experience changes,
adjustments to the ceding commissions are reflected in the period incurred and are based on the claim experience of the
related policy. The adjustment is calculated by adding the earned premium and investment income from the assets held in
trust for the Company’s benefit less earned commissions, incurred claims and the reinsurer's fee for the coverage.
Vessel Related Revenue
The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or
voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and
at a specified daily charter rate. Charter revenues are recognized as earned on a straight-line basis over the term of the charter
as service is provided.
Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the
related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to
services to be rendered after the balance sheet date. Vessel related revenue is recorded in other investment income as a part of
other revenue. See Note (16) Other Revenue and Other Expenses.
Policy and Contract Benefits
Member Benefit Claims
Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside
assistance as well as warranty and service contracts for the repair or replacement of covered products. Claims can also be
paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the
Company. Claims are recognized as expense when incurred.
Net Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance
contract claims, net of amounts ceded. Net losses include actual claims paid and the change in unpaid claim reserves.
Commissions Payable and Expense
Commissions are paid to distributors and retailers selling credit insurance policies, motor club memberships, mobile device
protection, and vehicle service contracts, and are generally deferred and expensed in proportion to the earning of related
revenue. Credit insurance commission rates, in many instances, are set by state regulators and are also impacted by market
conditions. In certain instances, credit insurance commissions are subject to retrospective adjustment based on the
profitability of the related policies. Under these retrospective commission arrangements, the producer of the credit insurance
policies receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the
costs associated with those policies, which includes the Company’s administrative fees, claims, reserves, and premium taxes.
The Company analyzes the retrospective commission calculation periodically for each producer and, based on the analysis
associated with each such producer, the Company records a liability for any positive net retrospective commission earned and
due to the producer or, conversely, records a receivable, net of allowance, for amounts due from such producer for instances
where the net result of the retrospective commission calculation is negative. Commissions payable are included in other
liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
F-21
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Recent Accounting Standards
Recently Adopted Accounting Pronouncements
Accounting Standard
Update
2020-06, Debt with
Conversion and Other
Options (Subtopic
470-20) and Derivatives
and Hedging - Contracts
in Entity’s Own Equity
(Subtopic 815-40)
2021-08, Business
Combinations (Topic
805) - Accounting for
Contract Assets and
Contract Liabilities from
Contracts with
Customers
2019-12, Income Taxes
(Topic 740):
Simplifying the
Accounting for Income
Taxes
Description
The standard simplifies the accounting for certain financial instruments. The
guidance reduces the number of accounting models for convertible debt
instruments by eliminating the cash conversion and beneficial conversion
models and simplifies the derivative scope exception guidance pertaining to
equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding
instruments that are indexed to and settled in an entity’s own equity. This
standard amends the diluted earnings per share guidance, including the
requirement to use the if-converted method for all convertible instruments.
Either a full or modified retrospective method of transition is permissible for
the adoption of this standard.
This standard addresses diversity in practice and inconsistency related to
recognition of an acquired contract liability, and payment terms and their effect
on subsequent revenue recognized by the acquirer. This standard is effective
for annual periods beginning after December 15, 2023, including interim
periods within those fiscal years. Entities should apply the provisions of the
new standard prospectively to business combinations occurring on or after the
effective date of the standard. Early adoption is permitted, including in an
interim period. The Company early adopted this standard and applied it to all
2022 business combinations.
The standard eliminates the need for an organization to analyze whether the
following apply in a given period (1) exception to the incremental approach for
intraperiod tax allocation, (2) exceptions to accounting for basis differences
when there are ownership changes in foreign investments and (3) exceptions in
interim period income tax accounting for year-to-date losses that exceed
anticipated losses. The ASU also is designed to improve financial statement
preparers’ application of income tax-related guidance and simplify GAAP for
(1) franchise taxes that are partially based on income, (2) transactions with a
government that result in a step-up in the tax basis of goodwill, (3) separate
financial statements of legal entities that are not subject to tax, and (4) enacted
changes in tax laws in interim periods.
Impact on Financial
Statements
Adoption Date
January 1, 2022 The adoption of the
standard did not materially
impact the Company’s
consolidated financial
statements.
January 1, 2022 The adoption of the
standard did not materially
impact the Company’s
consolidated financial
statements.
January 1, 2021 The standard makes
changes to areas of tax
accounting for transactions
and situations which do not
currently apply to the
Company’s activity, so the
adoption of the standard has
not had an impact the
Company’s financial
statements.
F-22
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Recently Issued Accounting Pronouncements, Not Yet Adopted
Accounting Standard
Update
2020-04, Reference
Rate Reform (Topic
848): Facilitation of the
Effects of Reference
Rate Reform on
Financial Reporting and
2022-06 Reference Rate
Reform (Topic 848):
Deferral of the Sunset
Date of Topic 848
2023-07 (Topic 280)
Improvements to
Reportable Segment
Disclosures
2023-09, Income Taxes
(Topic 740)
Improvements to
Income Tax Disclosures
Description
The amendments in these updates provide optional guidance for a limited
period to ease the potential burden in accounting for (or recognizing the effects
of) reference rate reform on financial reporting. The amendments provide
optional expedients and exceptions for applying GAAP to contracts, hedging
relationships, and other transactions that reference LIBOR or another reference
rate expected to be discontinued because of reference rate reform if certain
criteria are met.
In November 2023, the Financial Accounting Standards Board (FASB) issued
ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced
disclosure of significant segment expenses on an annual and interim basis. This
guidance will be effective for the annual periods beginning the year ended
December 31, 2024, and for interim periods beginning January 1, 2025. Early
adoption is permitted. Upon adoption, the guidance should be applied
retrospectively to all prior periods presented in the financial statements.
The amendments in this Accounting Standards Update enhance the
transparency and decision usefulness of income tax disclosures. Investors,
lenders, creditors, and other allocators of capital (collectively, “investors”)
indicated that the existing income tax disclosures should be enhanced to
provide information to better assess how an entity’s operations and related tax
risks and tax planning and operational opportunities affect its tax rate and
prospects for future cash flows. Investors currently rely on the rate
reconciliation table and other disclosures, including total income taxes paid, to
evaluate income tax risks and opportunities. While investors find these
disclosures helpful, they suggested possible enhancements to better (1)
understand an entity’s exposure to potential changes in jurisdictional tax
legislation and the ensuing risks and opportunities, (2) assess income tax
information that affects cash flow forecasts and capital allocation decisions,
and (3) identify potential opportunities to increase future cash flows.
Impact on Financial
Statements
The Company is
evaluating its option to
adopt the guidance when
it is applicable.
The Company does not
expect the adoption of
this guidance to have a
material impact on our
consolidated financial
statements
The Company is
evaluating timing on
when to adopt the
guidance when it is
applicable.
Adoption Date
The standard is
effective for all
entities as of
March 12, 2020,
through
December 31,
2024.
The amendments
in this update are
effective for
annual periods
beginning after
December 31,
2024.
The amendments
in this update are
effective for
annual periods
beginning after
December 15,
2024.
(3) Acquisitions
Acquisition of Premia Solutions Limited
On February 6, 2023, a subsidiary of Fortegra acquired a majority of the equity interests in Premia for total cash
consideration of approximately $19,726, net of cash acquired of $3,873. Premia is an intermediate provider of automotive
protection products in the United Kingdom.
The preliminary purchase price allocation has been developed based on preliminary estimates of fair value using the
historical financial statements of Premia as of the acquisition date and is subject to the completion of management’s final
analysis. Identifiable assets acquired were primarily made up of goodwill and intangible assets. Management’s preliminary
allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of
$18,359 and $18,152, respectively, which the Company may modify during the one year period allowed for purchase
accounting adjustments during the measurement period. See Note (9) Goodwill and Intangible Assets, net.
Acquisition of ITC Compliance GRP Limited
On April 1, 2022, Fortegra Europe Limited, a subsidiary of the Company, acquired all of the equity interests of ITC for total
cash consideration of approximately $15,000, net of cash acquired of $6,123, plus earn out payments based on achievement
of specific performance metrics. ITC is a provider of regulatory support and compliance services to the retail automotive
sector in the United Kingdom.
Identifiable assets acquired were primarily made up of goodwill and intangible assets. Management’s allocation of the
purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of $8,044 and $10,964,
respectively. See Note (9) Goodwill and Intangible Assets, net.
F-23
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(4) Dispositions and Assets and Liabilities Held for Sale
Dispositions
As of December 31, 2023, all remaining tanker and dry-bulk vessels had been sold. During the year ended December 31,
2022, the Company completed the sale of three dry bulk vessels and two product tankers from its maritime shipping
operations. The Company recognized a net gain of $34,803, based on proceeds of $116,678 plus final settlement of assets.
The transactions did not meet the requirements to be classified as discontinued operations.
Assets and Liabilities Held for Sale
The Company entered into a definitive agreement to sell Luxury, which was classified as held for sale at December 31, 2021.
The Company deconsolidated Luxury effective as of July 1, 2022 due to the execution of an amendment to the definitive
agreement to sell Luxury on that date. As of that date, Tiptree no longer had a variable interest in Luxury and all of the risks
and rewards associated with Luxury were transferred to the buyer. The transaction did not meet the requirements to be
classified as a discontinued operation.
Luxury’s earnings had no impact on net income (loss) attributable to common stockholders for the years ended December 31,
2023, 2022 and 2021.
(5) Operating Segment Data
Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments.
Tiptree’s principal operating subsidiary, Fortegra, is a leading provider of specialty insurance, service contract products and
related service solutions. Based on the quantitative analysis performed related to Accounting Standard Codification (“ASC”)
280, Segment Reporting, our reportable segments are Insurance and Mortgage. We refer to our non-insurance operations,
assets and other investments, comprised of our Mortgage reportable segment and our non-reportable operating segments and
other business activities, as Tiptree Capital. Corporate activities include holding company interest expense, employee
compensation and benefits, and other expenses.
Our reportable segments’ income or loss is reported before income taxes and non-controlling interests. Segment results
incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired.
Intercompany transactions are eliminated.
Descriptions of our Insurance reportable segment and Tiptree Capital, including our Mortgage reportable segment, are as
follows:
Insurance operations are conducted through Fortegra, which is a leading provider of specialty insurance products and related
services. Fortegra designs, markets and underwrites specialty property and casualty insurance products incorporating value-
added coverages and services for select target markets or niches. Fortegra’s products and services include niche commercial
and personal lines, service contracts, and other insurance services.
Tiptree Capital:
Mortgage operations are conducted through Reliance. The Company’s mortgage business originates loans for sale to
institutional investors, including GSEs and FHA/VA and services loans on behalf of Fannie Mae, Freddie Mac, and Ginnie
Mae.
Other includes our remaining maritime shipping operations, asset management, other investments (including our Invesque
shares), and Luxury mortgage operations (deconsolidated effective as of July 1, 2022).
The tables below present the components of revenue, expense, income (loss) before taxes, and assets for our reportable
segments as well as Tiptree Capital - Other for the following periods:
F-24
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Total revenue
Total expense
Corporate expense
Income (loss) before taxes
Less: provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to non-controlling interests
Net income (loss) attributable to common stockholders
Total revenues
Total expenses
Corporate expenses
Income (loss) before taxes
Less: provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to non-controlling interests
Net income (loss) attributable to common stockholders
Total revenues
Total expenses
Corporate expenses
Income (loss) before taxes
Less: provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to non-controlling interests
Net income (loss) attributable to common stockholders
For the Year Ended December 31, 2023
Tiptree Capital
Insurance
Mortgage
Other
$
$
1,593,070 $
(1,463,254)
—
129,816 $
53,864 $
(57,149)
—
(3,285) $
2,097 $
(5,361)
—
(3,264) $
$
$
For the Year Ended December 31, 2022
Tiptree Capital
Insurance
Mortgage
Other
$
$
1,248,796 $
(1,180,646)
—
68,150 $
70,246 $
(69,372)
—
874 $
78,710 $
(47,307)
—
31,403 $
$
$
For the Year Ended December 31, 2021
Tiptree Capital
Insurance
Mortgage
Other
$
$
984,130 $
(914,273)
—
69,857 $
111,295 $
(82,888)
—
28,407 $
105,089 $
(87,879)
—
17,210 $
$
$
Total
1,649,031
(1,525,764)
(40,214)
83,053
43,056
39,997
26,046
13,951
Total
1,397,752
(1,297,325)
(46,416)
54,011
50,450
3,561
11,835
(8,274)
Total
1,200,514
(1,085,040)
(50,132)
65,342
21,291
44,051
5,919
38,132
The Company conducts its operations primarily in the U.S. with 6.0%, 8.8%, and 7.2% of total revenues generated overseas
for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents the reportable segments, Tiptree Capital - Other and Corporate assets for the following periods:
As of December 31, 2023
Tiptree Capital
As of December 31, 2022
Tiptree Capital
Insurance Mortgage
Other
Corporate
Total
Insurance Mortgage
Other
Corporate
Total
Total assets
$ 4,835,685 $ 160,147 $ 126,624 $ 16,857 $ 5,139,313
$ 3,702,577 $ 156,122 $ 86,402 $ 94,462 $ 4,039,563
F-25
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(6) Investments
The following table presents the Company's investments related to insurance operations and other Tiptree investing activities,
measured at fair value as of the following periods:
Available for sale securities, at fair value, net of allowance for
credit losses
Loans, at fair value
Equity securities
Other investments
Total investments
Available for sale securities, at fair value, net of allowance for
credit losses
Loans, at fair value
Equity securities
Other investments
Total investments
Available for Sale Securities, at fair value
As of December 31, 2023
Tiptree Capital
Insurance
Mortgage
Other
Total
772,135 $
11,218
27,113
106,760
917,226 $
— $
58,338
—
3,931
62,269 $
30,474 $
—
41,195
397
72,066 $
802,609
69,556
68,308
111,088
1,051,561
As of December 31, 2022
Tiptree Capital
Insurance
Mortgage
Other
Total
611,980 $
14,312
72,992
66,163
765,447 $
— $
50,531
—
4,038
54,569 $
— $
—
12,784
2,824
15,608 $
611,980
64,843
85,776
73,025
835,624
$
$
$
$
A majority of the Company’s investments in Available for Sale Securities, at fair value, net of allowance for credit losses
(AFS securities) as of December 31, 2023 and 2022 are held by subsidiaries in the insurance segment. The following tables
present the Company's investments in AFS securities:
Amortized
cost
Allowance for
credit losses(1)
As of December 31, 2023
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
U.S. Treasury securities and obligations of U.S.
government authorities and agencies
Obligations of state and political subdivisions
Corporate securities
Asset backed securities
Certificates of deposit
Obligations of foreign governments
Total
$
$
496,731 $
48,762
260,961
29,275
1,724
4,705
842,158 $
— $
(1)
(73)
(10)
—
—
(84) $
515 $
51
2,445
3
—
—
3,014 $
(27,161) $
(3,353)
(8,735)
(3,082)
—
(148)
(42,479) $
470,085
45,459
254,598
26,186
1,724
4,557
802,609
Amortized
cost
Allowance for
credit losses(1)
As of December 31, 2022
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
U.S. Treasury securities and obligations of U.S.
government authorities and agencies
Obligations of state and political subdivisions
Corporate securities
Asset backed securities
Certificates of deposit
Obligations of foreign governments
Total
$
$
417,278 $
54,390
176,187
19,596
756
2,629
670,836 $
— $
(3)
(183)
(1)
—
(3)
(190) $
844 $
4
1
—
—
—
849 $
(36,062) $
(4,937)
(14,006)
(4,246)
—
(264)
(59,515) $
382,060
49,454
161,999
15,349
756
2,362
611,980
F-26
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(1) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in net realized and unrealized gains (losses) as a credit loss on
AFS securities. Amount excludes unrealized losses relating to non-credit factors.
The amortized cost and fair values of AFS securities, by contractual maturity date, are shown below. 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.
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
Total
As of
December 31, 2023
December 31, 2022
Amortized
cost
Fair value
Amortized
cost
Fair value
$
$
247,613 $
318,763
46,377
200,130
29,275
842,158 $
246,489 $
307,423
39,221
183,290
26,186
802,609 $
52,265 $
300,767
54,419
243,789
19,596
670,836 $
51,315
280,965
49,465
214,887
15,348
611,980
The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities
have been in a continuous unrealized loss position for less than twelve months, and twelve months or greater and do not have
an allowance for credit losses:
As of December 31, 2023
Less Than or Equal to One Year
Gross
unrealized
losses
# of
Securities(1)
Fair value
More Than One Year
Gross
unrealized
losses
# of
Securities(1)
Fair value
U.S. Treasury securities and obligations of U.S.
government authorities and agencies
Obligations of state and political subdivisions
Corporate securities
Asset backed securities
Certificates of deposit
Obligations of foreign governments
Total
$ 109,011 $
537
83,747
2,187
—
2,904
$ 198,386 $
(6,522)
(53)
(4,881)
(259)
—
—
(11,715)
459 $ 185,950 $
43
868
54
—
3
39,319
57,679
23,999
—
1,653
1,427 $ 308,600 $
(20,639)
(3,300)
(3,854)
(2,823)
—
(148)
(30,764)
480
131
148
129
—
7
895
As of December 31, 2022
Less Than or Equal to One Year
Gross
unrealized
losses
# of
Securities(1)
Fair value
More Than One Year
Gross
unrealized
losses
# of
Securities(1)
Fair value
U.S. Treasury securities and obligations of U.S.
government authorities and agencies
Obligations of state and political subdivisions
Corporate securities
Asset backed securities
Obligations of foreign governments
Total
$ 164,593 $
25,507
45,016
10,298
309
$ 245,723 $
(9,357)
(1,076)
(1,446)
(3,642)
(1)
(15,522)
354 $ 186,591 $
97
176
46
1
20,219
114,683
5,051
2,054
674 $ 328,598 $
(26,705)
(3,861)
(12,560)
(604)
(263)
(43,993)
385
78
417
34
8
922
(1)
Presented in whole numbers.
Management believes that it is more likely than not that the Company will be able to hold the fixed maturity AFS securities
that were in an unrealized loss position as of December 31, 2023 until full recovery of their amortized cost basis.
F-27
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
The table below presents a roll-forward of the activity in the allowance for credit losses on AFS securities by type as of
December 31, 2023:
Balance at December 31, 2021
(Increase) in allowance for credit losses
Gains from recoveries of amounts previously written off
Balance at December 31, 2022
(Increase) in allowance for credit losses
Additions for AFS securities purchased with credit
deterioration during the year
Reduction in credit losses due to AFS securities sold
during the year
Gains from recoveries of amounts previously written off
Balance at December 31, 2023
$
$
Obligations
of state and
political
subdivisions
$
Corporate
securities
Asset
backed
securities
Obligations
of foreign
governments
Total
— $
(3)
—
(3) $
—
(241) $
(69)
127
(183) $
(33)
— $
(1)
—
(1) $
(10)
(4) $
(1)
2
(3) $
—
—
(2)
—
—
—
2
(1) $
1
144
(73) $
—
1
(10) $
—
3
— $
(245)
(74)
129
(190)
(43)
(2)
1
150
(84)
The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment
management company, in determining its lifetime expected credit losses on AFS securities. This includes determining the
present value of expected future cash flows discounted at the book yield of the security.
The table below presents the amount of gains from recoveries (credit losses) on AFS securities recorded by the Company for
the following period:
For the Year Ended December 31,
2022
2021
2023
Net gains from recoveries (credit losses) on AFS securities
106
55
(245)
Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets
in custody accounts or insurance department safekeeping accounts. The Company cannot remove or replace investments in
regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable. The
following table presents the Company's restricted investments included in the Company's AFS securities:
Fair value of restricted investments in trust pursuant to reinsurance agreements
Fair value of restricted investments for special deposits required by state insurance departments
Total fair value of restricted investments
The following table presents additional information on the Company’s AFS securities:
As of December 31,
2022
2023
$
$
49,735 $
16,694
66,429 $
34,386
16,816
51,202
For the Year Ended December 31,
2022
2021
2023
Purchases of AFS securities
Proceeds from maturities, calls and prepayments of AFS securities
Gross proceeds from sales of AFS securities
$
$
$
622,045 $
233,541 $
368,913
370,586 $
77,703 $
68,923
89,906 $
63,066 $
86,981
The following table presents the gross realized gains and gross realized losses from sales and redemptions of AFS securities:
F-28
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
For the Year Ended December 31,
2022
2021
2023
Gross realized gains
Gross realized (losses)
Total net realized gains (losses) from investment sales and redemptions
$
$
225 $
(3,056)
(2,831) $
1,543 $
(184)
1,359 $
661
(23)
638
Loans, at fair value
The following table presents the Company’s investments in loans measured at fair value and the Company’s investments in
loans measured at fair value pledged as collateral:
As of December 31, 2023
As of December 31, 2022
Unpaid
principal
balance
(UPB)
Fair
value
exceeds /
(below)
UPB
Fair
value
Pledged
as
collateral
Fair
value
Unpaid
principal
balance
(UPB)
Fair
value
exceeds /
(below)
UPB
Pledged
as
collateral
$ 11,218 $ 14,671 $
(3,453) $
— $ 14,312 $ 16,032 $
(1,720) $
—
Insurance:
Corporate loans (1)
Mortgage:
Mortgage loans held for sale (2)
Total loans, at fair value
58,338
$ 69,556 $ 71,152 $
56,481
1,857
(1,596) $ 57,248 $ 64,843 $ 65,393 $
50,531
57,248
49,361
1,170
50,113
(550) $ 50,113
(1)
(2)
The cost basis of Corporate loans was approximately $14,671 and $16,032 at December 31, 2023 and 2022, respectively.
As of December 31, 2023, there were three mortgage loans held for sale that were 90 days or more past due. As of December 31, 2022, there were no mortgage loans held
for sale that were 90 days or more past due.
Equity Securities
Equity securities consist mainly of publicly traded common and preferred stocks and fixed income exchange traded funds.
Included within the equity securities balance are 16.98 million shares of Invesque as of December 31, 2023 and 2022, for
which the Company has elected to apply the fair value option. The following table presents information on the cost and fair
value of the Company’s equity securities related to Insurance and Tiptree Capital as of the following periods:
As of December 31, 2023
Tiptree Capital - Other
Total
Fair Value
Fair Value
Cost
111,490 $
—
29,942
141,432 $
3,442 $
—
37,753
41,195 $
Cost
134,829 $
1,339
52,683
188,851 $
4,161
1,349
62,798
68,308
As of December 31, 2022
Tiptree Capital - Other
Total
Fair Value
Fair Value
Cost
111,491 $
—
—
111,491 $
12,784 $
—
—
12,784 $
Cost
134,830 $
56,263
15,773
206,866 $
15,454
56,256
14,066
85,776
Invesque
Fixed income exchange traded funds
Other equity securities
Total equity securities
Invesque
Fixed income exchange traded funds
Other equity securities
Total equity securities
Insurance
Cost
Fair Value
23,339 $
1,339
22,741
47,419 $
719 $
1,349
25,045
27,113 $
Insurance
Cost
Fair Value
23,339 $
56,263
15,773
95,375 $
2,670 $
56,256
14,066
72,992 $
$
$
$
$
F-29
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Other Investments
The following table contains information regarding the Company’s other investments as of the following periods:
Corporate bonds, at fair value (1)
Debentures
Investment in credit fund
Other
Total other investments
Corporate bonds, at fair value (1)
Debentures
Other
Total other investments
As of December 31, 2023
Tiptree Capital
Insurance
Mortgage
Other
Total
62,081 $
25,648
11,830
7,201
106,760 $
— $
—
—
3,931
3,931 $
— $
—
—
397
397 $
62,081
25,648
11,830
11,529
111,088
As of December 31, 2022
Tiptree Capital
Insurance
Mortgage
Other
Total
42,080 $
23,853
230
66,163 $
— $
—
4,038
4,038 $
— $
—
2,824
2,824 $
42,080
23,853
7,092
73,025
$
$
$
$
(1)
The cost basis of corporate bonds was $59,315 and $45,630 as of December 31, 2023 and 2022, respectively.
Net Investment Income - Insurance
Net investment income represents investment income and expense from investments related to insurance operations as
disclosed within net investment income on the consolidated statements of operations. The following table presents the
components of net investment income by source of income:
For the Year Ended December 31,
2022
2021
2023
Interest:
AFS securities
Loans, at fair value
Other investments
Dividends from equity securities
Subtotal
Less: investment expenses
Net investment income
Other Investment Income - Tiptree Capital
$
$
22,783 $
716
8,311
1,398
33,208
6,534
26,674 $
11,262 $
780
5,346
1,398
18,786
6,567
12,219 $
7,153
802
5,792
7,355
21,102
3,206
17,896
Other investment income represents revenue from non-insurance activities as disclosed within other revenue on the
consolidated statements of operations, see Note (16) Other Revenue and Other Expenses. The following tables present the
components of other investment income by type:
For the Year Ended December 31,
2022
2021
2023
Interest income from Loans, at fair value (1)
Loan fee income (1)
Other
Other investment income
$
$
3,111 $
16,449
4,703
24,263 $
5,384 $
18,132
30,144
53,660 $
7,184
21,834
35,562
64,580
(1)
Includes income related to Loans at fair value classified as Held for Sale for the periods prior to July 1, 2022.
F-30
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Net Realized and Unrealized Gains (Losses)
The following table presents the components of net realized and unrealized gains (losses) recorded on the consolidated
statements of operations. Net unrealized gains (losses) on AFS securities are included within other comprehensive income
(loss) (“OCI”), net of tax, and, as such, are not included in this table. Net realized and unrealized gains (losses) on non-
investment related financial assets and liabilities are included below:
For the Year Ended December 31,
2022
2021
2023
Net realized gains (losses)
Insurance:
Reclass of unrealized gains (losses) on AFS securities from OCI
Net gains from recoveries (credit losses) on AFS securities
Net realized gains (losses) on loans
Net realized gains (losses) on equity securities
Net realized gains (losses) on corporate bonds
Other
Tiptree Capital
Mortgage:
Net realized gains (losses) on loans
Other
Other:
Net realized gains (losses) on loans (1)
Net realized gains on vessel sales
Other
Total net realized gains (losses)
Net unrealized gains (losses)
Insurance:
Net change in unrealized gains (losses) on loans
Net unrealized gains (losses) on equity securities held at period end
Reclass of unrealized (gains) losses from prior periods for equity securities sold
Other
Tiptree Capital
Mortgage:
Net change in unrealized gains (losses) on loans
Other
Other:
Net change in unrealized gains (losses) on loans (1)
Net unrealized gains (losses) on equity securities held at period end
Other
Total net unrealized gains (losses)
Total net realized and unrealized gains (losses)
(1)
Relates to Loans, at fair value classified as Held for Sale for the periods prior to July 1, 2022.
$
$
$
$
(2,830) $
106
(2,826)
(2,937)
(3,065)
993
39,288
1,413
—
—
—
30,142 $
1,359 $
55
(1,505)
(4,231)
(3,542)
(2,432)
38,608
16,942
24,403
34,803
761
105,221
(1,733) $
923
357
6,805
117
(6,462)
(142)
(3,564)
687
(7,156)
(2,049)
(2,156)
—
(1,531)
(3,758)
(5,406)
24,736 $
(4,513)
(16,015)
(454)
(35,238)
69,983 $
638
(245)
(389)
(10,434)
3,917
1,346
91,538
2,165
61,312
—
1,632
151,480
1,330
12,445
(814)
(9,800)
(1,127)
(268)
815
3,090
(5,801)
(130)
151,350
F-31
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(7) Notes and Accounts Receivable, net
The following table presents the total notes and accounts receivable, net:
Accounts and premiums receivable, net
Retrospective commissions receivable
Notes receivable, net
Other receivables
Total notes and accounts receivable, net
As of December 31,
2023
2022
$
$
260,383 $
250,788
134,131
39,306
684,608 $
142,011
191,092
121,419
47,789
502,311
The following table presents the total valuation allowance and bad debt expense for the following periods:
Valuation allowance
As of December 31,
2022
2023
Bad Debt Expense
For the Year Ended December 31,
2021
2022
2023
Notes receivable, net - premium financing program (1)
Accounts and premiums receivable, net
$
$
46 $
66 $
85 $
94 $
119 $
141 $
18 $
56 $
274
33
(1)
As of December 31, 2023 and 2022, there were $219 and $168 in balances classified as 90 days plus past due, respectively.
(8) Reinsurance Recoverable and Prepaid Reinsurance Premiums
The following table presents the effect of reinsurance on premiums written and earned by our insurance business for the
following periods:
As of December 31, 2023
Life insurance in force
For the Year Ended December 31, 2023
Premiums written:
Life insurance
Accident and health insurance
Property and liability insurance
Total premiums written
Premiums earned:
Life insurance
Accident and health insurance
Property and liability insurance
Total premiums earned
Direct
Amount
Ceded to
Other
Companies
Assumed
from Other
Companies
Net Amount
Percentage of
Amount -
Assumed to
Net
$
5,909,645
$
2,806,307
$
—
$
3,103,338
$
$
$
$
80,597
131,006
1,684,907
1,896,510
82,514
137,868
1,407,659
1,628,041
$
$
$
$
40,925
89,627
935,077
1,065,629
41,248
94,905
768,762
904,915
$
$
$
$
289
6,176
482,602
489,067
274
6,215
398,219
404,708
$
$
$
$
39,961
47,555
1,232,432
1,319,948
41,540
49,178
1,037,116
1,127,834
0.7 %
13.0 %
39.2 %
37.1 %
0.7 %
12.6 %
38.4 %
35.9 %
F-32
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Direct
Amount
Ceded to
Other
Companies
Assumed
from Other
Companies
Net Amount
Percentage of
Amount -
Assumed to
Net
$
6,139,755
$
2,892,889
$
—
$
3,246,866
0.4 %
14.3 %
37.1 %
34.4 %
1.2 %
14.7 %
37.3 %
34.3 %
1.8 %
11.3 %
26.8 %
24.7 %
3.4 %
15.0 %
33.9 %
31.0 %
As of December 31, 2022
Life insurance in force
For the Year Ended December 31, 2022
Premiums written:
Life insurance
Accident and health insurance
Property and liability insurance
Total premiums written
Premiums earned:
Life insurance
Accident and health insurance
Property and liability insurance
Total premiums earned
As of December 31, 2021
Life insurance in force
For the Year Ended December 31, 2021
Premiums written:
Life insurance
Accident and health insurance
Property and liability insurance
$
$
$
$
88,430
142,132
1,284,543
1,515,105
82,730
141,662
1,090,744
1,315,136
$
$
$
$
41,218
96,923
661,871
800,012
41,359
96,725
582,711
720,795
$
$
$
$
193
7,519
366,585
374,297
522
7,734
302,168
310,424
$
$
$
$
47,405
52,728
989,257
1,089,390
41,893
52,671
810,201
904,765
$
5,921,446
$
3,068,761
$
—
$
2,852,685
$
91,865
$
46,920
$
808
$
146,256
1,141,979
100,717
558,471
5,790
214,150
45,753
51,329
797,658
Total premiums written
$
1,380,100
$
706,108
$
220,748
$
894,740
Premiums earned:
Life insurance
Accident and health insurance
Property and liability insurance
74,151
126,501
902,439
39,881
85,457
504,785
1,194
7,219
204,171
35,464
48,263
601,825
Total premiums earned
$
1,103,091
$
630,123
$
212,584
$
685,552
The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and
loss adjustment expenses (LAE) incurred:
Direct
Amount
Ceded to
Other
Companies
Assumed from
Other
Companies
Net Amount
Percentage of
Amount -
Assumed to
Net
F-33
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
For the Year Ended December 31, 2023
Losses and LAE Incurred
Life insurance
Accident and health insurance
Property and liability insurance
Total losses and LAE incurred
For the Year Ended December 31, 2022
Losses and LAE Incurred
Life insurance
Accident and health insurance
Property and liability insurance
Total losses and LAE incurred
For the Year Ended December 31, 2021
Losses and LAE Incurred
Life insurance
Accident and health insurance
Property and liability insurance
Total losses and LAE incurred
$
$
46,595
23,694
647,840
$
718,129
Member benefit claims (1)
Total policy and contract benefits
25,120
17,867
438,953
481,940
$
$
$
52,186
29,221
447,294
$
528,701
Member benefit claims (1)
Total policy and contract benefits
28,214
21,860
307,052
357,126
$
$
$
59,526
21,509
354,308
$
435,343
Member benefit claims (1)
Total policy and contract benefits
34,030
18,091
239,678
291,799
$
$
$
$
$
$
$
122
5,608
240,587
246,317
504
6,780
182,742
190,026
869
2,225
106,835
109,929
(1) Member benefit claims are not covered by reinsurance.
The following table presents the components of the reinsurance recoverable:
Ceded claim reserves:
Life insurance
Accident and health insurance
Property and liability insurance
Total ceded claim reserves recoverable
Other reinsurance settlements recoverable
Total reinsurance recoverable
The following table presents the components of prepaid reinsurance premiums:
Prepaid reinsurance premiums:
Life insurance (1)
Accident and health insurance (1)
Property and liability insurance
Total prepaid reinsurance premiums
(1)
Including policyholder account balances ceded.
$
$
$
$
$
$
$
$
$
$
$
$
$
0.6 %
49.0 %
53.5 %
51.0 %
2.1 %
47.9 %
56.6 %
52.6 %
3.3 %
39.4 %
48.2 %
43.4 %
21,597
11,435
449,474
482,506
119,288
601,794
24,476
14,141
322,984
361,601
91,004
452,605
26,365
5,643
221,465
253,473
73,539
327,012
As of December 31,
2022
2023
4,733 $
22,660
420,894
448,287
505,599
953,886 $
3,965
19,408
243,726
267,099
183,521
450,620
As of December 31,
2023
2022
74,815 $
76,440
749,269
900,524 $
75,553
81,718
568,199
725,470
The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest
receivable balances from non-affiliated reinsurers:
Total of the three largest receivable balances from non-affiliated reinsurers
As of
December 31, 2023
$
235,672
F-34
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
As of December 31, 2023, the non-affiliated reinsurers from whom our insurance business has the largest receivable balances
were: Accelerant Specialty Insurance Company (A.M. Best Rating: A- rated), Allianz Global Corporate & Specialty SE
(A.M. Best Rating: A+ rated), and Homesite Insurance Company (A.M. Best Rating: A rated). A majority of the related
receivables from these reinsurers are collateralized by assets on hand and letters of credit; receivable balances from
authorized reinsurers do not require collateral. Allianz Global Corporate & Specialty SE is an authorized reinsurer in the
states in which Fortegra’s U.S. based insurance entities are domiciled. The Company monitors authorization status, financial
statements and A.M. Best ratings of its reinsurers periodically. As of December 31, 2023, the Company does not believe there
is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization.
(9) Goodwill and Intangible Assets, net
The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill
by operating segment and/or reporting unit, as appropriate:
As of December 31, 2023
Other
Total
Insurance
As of December 31, 2022
Other
Total
Insurance
Finite-Lived Intangible Assets:
Customer relationships
Accumulated amortization
Trade names
Accumulated amortization
Software licensing
Accumulated amortization
Insurance policies and contracts acquired
Accumulated amortization
Other
Accumulated amortization
Total finite-lived intangible assets
Indefinite-Lived Intangible Assets: (1)
Insurance licensing agreements
Other
Total indefinite-lived intangible assets
$
162,844 $
(74,776)
16,227
(8,452)
17,372
(9,891)
36,500
(36,500)
1,088
(536)
103,876
13,761
—
13,761
Total intangible assets, net
$
117,637 $
— $
—
800
(680)
640
(640)
—
—
—
—
120
162,844
(74,776)
17,027
(9,132)
18,012
(10,531)
36,500
(36,500)
1,088
(536)
103,996
—
1,000
1,000
1,120 $
13,761
1,000
14,761
118,757
$
$
$
149,835 $
(60,401)
15,028
(7,039)
12,386
(9,084)
36,500
(36,374)
751
(276)
101,326
13,761
—
13,761
115,087 $
— $
—
800
(600)
640
(640)
—
—
—
—
200
149,835
(60,401)
15,828
(7,639)
13,026
(9,724)
36,500
(36,374)
751
(276)
101,526
—
1,728
1,728
1,928 $
13,761
1,728
15,489
117,015
184,900
299,987 $
1,708
3,636 $
186,608
303,623
Goodwill
Total goodwill and intangible assets, net $
204,447
322,084 $
1,708
2,828 $
206,155
324,912
(1)
Impairment tests are performed at least annually on indefinite-lived intangible assets.
Goodwill
The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes
the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions,
as well as the reduction to any goodwill attributable to impairment related charges:
Balance at December 31, 2021
Goodwill acquired (1)
Foreign currency translation and other
Balance at December 31, 2022
Goodwill acquired (1)
Foreign currency translation and other
Balance at December 31, 2023
(1)
See Note (3) Acquisitions for more information.
Insurance
Other
Total
$
$
$
177,395 $
8,112
(607)
184,900 $
18,359
1,188
204,447 $
1,708 $
—
—
1,708 $
—
—
1,708 $
179,103
8,112
(607)
186,608
18,359
1,188
206,155
The Company conducts annual impairment tests of its goodwill as of October 1. For the years ended December 31, 2023,
2022 and 2021, no impairments were recorded on the Company’s goodwill. There is no accumulated impairment recorded in
the goodwill balance as of December 31, 2023 or 2022.
F-35
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Intangible Assets, net
The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-
lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation
adjustments made for acquisitions, as well as any reduction attributable to impairment-related charges:
Balance at December 31, 2021
Intangible assets acquired (1)
Amortization expense
Foreign currency translation and other
Balance at December 31, 2022
Intangible assets acquired (1)
Amortization expense (2)
Foreign currency translation and other
Impairment
Balance at December 31, 2023
Insurance
Other
Total
$
$
$
121,308 $
10,964
(16,229)
(956)
115,087 $
18,152
(16,921)
1,319
—
117,637 $
1,450 $
604
(126)
—
1,928 $
—
(80)
—
(728)
1,120 $
122,758
11,568
(16,355)
(956)
117,015
18,152
(17,001)
1,319
(728)
118,757
(1) See Note (3) Acquisitions for more information.
(2) Does not include foreign currency translation adjustment of $60 as of December 31, 2023.
The following table presents the amortization expense on finite-lived intangible assets for the following periods:
For the Year Ended December 31,
2022
2021
2023
Amortization expense on intangible assets
$
17,001 $
16,355 $
15,581
For the year ended December 31, 2023, the Company partially impaired its other indefinite lived intangible assets as a result
of oversupply of fishing licenses which has driven valuations lower. For the years ended December 31, 2022 and 2021, no
impairments were recorded on the Company’s intangible assets.
The following table presents the amortization expense on finite-lived intangible assets for the next five years and thereafter
by operating segment and/or reporting unit, as appropriate:
2024
2025
2026
2027
2028
2029 and thereafter
Total (1)
As of December 31, 2023
Other
Insurance
Total
$
$
15,354 $
13,240
10,894
9,543
8,341
46,101
103,473 $
80 $
40
—
—
—
—
120 $
15,434
13,280
10,894
9,543
8,341
46,101
103,593
(1)
Does not include foreign currency translation adjustment of $403 as of December 31, 2023.
(10) Derivative Financial Instruments and Hedging
The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative
contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative
activities are primarily entered into in order to manage underlying credit risk, market risk, interest rate risk and currency
exchange rate risk. In addition, the Company is also subject to counterparty risk should its counterparties fail to meet the
contract terms. Derivative assets are reported in other investments. Derivative liabilities are reported within other liabilities
and accrued expenses.
Interest Rate Lock Commitments
F-36
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Derivatives for our mortgage business are primarily comprised of interest rate lock commitments (IRLCs), forward delivery
contracts, and TBA mortgage-backed securities. The fair value of these instruments is based upon valuation pricing models,
which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our
mortgage origination subsidiary issues IRLCs to their customers, which are carried at estimated fair value on the Company’s
consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the
value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The
fair values of these commitments generally fall under Level 3 in the fair value hierarchy.
Forward Delivery Contracts and TBA Mortgage-Backed Securities
Our mortgage origination subsidiary manages their exposure by entering into forward delivery commitments with loan
investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge
instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage-backed
securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy.
The remaining derivatives are generally comprised of a combination of swaps, currency forwards and options, which are
generally classified as Level 2 in the fair value hierarchy. In addition, the Fortegra Additional Warrant (Warburg) is a
derivative liability and classified as Level 3 in the fair value hierarchy. See Note (17) Stockholders' Equity for additional
information regarding the Fortegra Additional Warrant.
The following table presents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by
underlying risk:
As of December 31, 2023
As of December 31, 2022
Notional
values
Asset
derivatives
Liability
derivatives
Notional
values
Asset
derivatives
Liability
derivatives
Interest rate lock commitments
Forward delivery contracts
TBA mortgage-backed securities
Fortegra Additional Warrants
(Warburg)(1)
Other
Total
$
$
129,675 $
19,675
139,000
—
24,346
312,696 $
3,818 $
9
104
—
52
3,983 $
— $
98
815
147,963 $
32,160
133,500
3,522
68
4,503 $
—
13,427
327,050 $
3,652 $
112
273
—
230
4,267 $
—
39
141
5,291
7,730
13,201
(1) See Note (17) Stockholders' Equity for additional information.
F-37
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(11) Debt, net
The following table presents the balance of the Company’s debt obligations, net of discounts and deferred financing costs for
our corporate and asset based debt. Asset based debt is generally recourse only to specific assets and related cash flows.
Corporate debt
Secured revolving credit agreements (1)
Preferred trust securities (LIBOR + 4.10%)
8.50% Junior subordinated notes
Total corporate debt
Asset based debt
Asset based revolving financing (SOFR + 2.75%)
Residential mortgage warehouse borrowings (1.75% to 2.75% over SOFR) (2)(3)
Total asset based debt
Total debt, face value
Unamortized deferred financing costs
Total debt, net
Corporate debt
Secured revolving credit agreements (1)
Preferred trust securities (LIBOR + 4.10%)
8.50% Junior subordinated notes
Total corporate debt
Asset based debt
Asset based revolving financing (LIBOR + 2.75%)
Residential mortgage warehouse borrowings (1.88% to 2.50% over SOFR; 2.00%
to 3.00% over BSBY) (2)(3)
Total asset based debt
Total debt, face value
Unamortized deferred financing costs
Total debt, net
As of December 31, 2023
Mortgage
Insurance
Total
130,000 $
35,000
125,000
290,000
67,138
—
67,138
357,138
(8,950)
348,188 $
— $
—
—
—
130,000
35,000
125,000
290,000
—
54,350
54,350
54,350
(127)
54,223 $
67,138
54,350
121,488
411,488
(9,077)
402,411
As of December 31, 2022
Mortgage
Insurance
Total
— $
35,000
125,000
160,000
— $
—
—
—
—
35,000
125,000
160,000
60,628
—
60,628
—
60,628
220,628
(8,703)
211,925 $
47,454
47,454
47,454
(13)
47,441 $
47,454
108,082
268,082
(8,716)
259,366
$
$
$
$
(1)
(2)
(3)
The secured credit agreements include separate tranches with multiple rate structures that are adjustable based on Fortegra’s senior leverage ratio, which as of December 31,
2023 and 2022 was SOFR + 1.50%.
As of December 31, 2023, included (i) a $50,000 line of credit at 1.75%, 2.00% and 2.50% over the one month SOFR rate, and (ii) a $65,000 line of credit at 1.75%, 2.25%
and 2.75% over the one month SOFR rate, with a floor of 4.00%. The balance credit rate on the $50,000 line of credit was 25 basis points lower than the floor. As of
December 31, 2022, included (i) a $60,000 line of credit at 2.00%, 2.50% and 3.00% over the BSBY rate with a BSBY floor of 0.5% and (ii) a $50,000 line of credit at
1.875%, 2.00% and 2.50% over the one month SOFR rate. The balance credit rate on the $50,000 line of credit was 25 basis points lower than the floor.
The weighted average coupon rate for residential mortgage warehouse borrowings was 7.15% and 6.31% at December 31, 2023 and 2022, respectively.
The following table presents the amount of interest expense the Company incurred on its debt for the following periods:
For the Year Ended December 31,
2022
2021
2023
Total Interest expense - corporate debt
Total Interest expense - asset based debt
Interest expense on debt
$
$
19,531 $
8,161
27,692 $
19,290 $
10,950
30,240 $
24,425
13,018
37,443
F-38
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
The following table presents the contractual principal payments and future maturities of the unpaid principal balance on the
Company’s debt for the following periods:
2024
2025
2026
2027
2028
2029 and thereafter
Total
As of
December 31, 2023
54,350
$
—
67,138
130,000
—
160,000
411,488
$
The following narrative is a summary of certain terms of our debt agreements for the year ended December 31, 2023:
Corporate Debt
Secured Revolving Credit Agreements
As of December 31, 2023 and 2022, a total of $130,000 and $0, respectively, was outstanding under the revolving line of
credit in our insurance business. The maximum borrowing capacity under the agreements as of December 31, 2023 and 2022
was $200,000.
On October 21, 2022, a subsidiary of Fortegra entered into a Second Amended and Restated Credit Agreement by and among
Fortegra, and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of
Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing
lender (the “Fortegra Credit Agreement”). The Fortegra Credit Agreement provides for a $200,000 revolving credit facility,
all of which is available for the issuance of letters of credit, with a sub-limit of $25,000 for swing loans and matures on
October 1, 2027.
Junior Subordinated Notes
On October 16, 2017, a subsidiary of Fortegra issued $125,000 of 8.50% Fixed Rate Resetting Junior Subordinated Notes due
October 2057. Substantially all of the net proceeds were used to repay the existing secured credit agreement at that time,
which was terminated thereafter. The notes are unsecured obligations of the subsidiary and rank in right of payment and upon
liquidation, junior to all of the Fortegra subsidiary’s current and future senior indebtedness. The notes are not obligations of
or guaranteed by any other subsidiaries of Fortegra, or any other Tiptree entities. So long as no event of default has occurred
and is continuing, all or part of the interest payments on the notes can be deferred on one or more occasions for up to five
consecutive years per deferral period. This credit agreement contains customary financial covenants that require, among other
items, maximum leverage and limitations on restricted payments under certain circumstances.
Preferred Trust Securities
On June 20, 2007, a subsidiary of Fortegra issued $35,000 of preferred trust securities due June 15, 2037. Interest is payable
quarterly at an interest rate of LIBOR plus 4.10%. The Company may redeem the preferred trust securities, in whole or in
part, at a price equal to the full outstanding principal amount of such preferred trust securities outstanding plus accrued and
unpaid interest.
F-39
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Asset Based Debt
Asset Based Revolving Financing
On October 16, 2020, subsidiaries of Fortegra entered into a three year $75,000 secured credit agreement, which replaced the
individual agreements in its premium finance and warranty service contract finance businesses. The borrowers can select
from various borrowing and rate options under the agreement, as well the option to convert certain borrowings to term loans,
if no default or event of default exists. The agreement extends up to $20,000 for the Company’s premium finance business
and up to $55,000 for its warranty service contract finance business, and is secured by substantially all of the assets of the
borrowers thereunder. The obligations under the agreement are non-recourse to The Fortegra Group and its subsidiaries
(other than the borrowers and their subsidiaries). On January 31, 2023, subsidiaries of Fortegra amended the asset based
revolving financing to increase the revolving commitment to $100,000 and transition to SOFR.
On October 6, 2023, subsidiaries of Fortegra entered into a three-year $125 million secured credit agreement that amends and
restates the prior credit agreement dated October 16, 2020. The agreement extends the maturity date of the revolving credit
facility from October 2023 to October 2026 and increases the total revolving credit commitments from $100 million to
$125 million.
As of December 31, 2023 and 2022, a total of $67,138 and $60,628, respectively, was outstanding under the borrowing
related to our premium finance offerings in our insurance business.
Residential Mortgage Warehouse Borrowings
In January 2023, a $60,000 warehouse line of credit was renewed and the maturity date was extended from January 2023 to
January 2024. In June 2023, the Company received notification that the warehouse lending partners was exiting the
warehouse lending market for this renewed line. In October 2023, the line was terminated and paid in full as the provider
exited the warehouse lending market. The Company entered into a new $65,000 warehouse line of credit on September 20,
2023 with similar terms with a maturity date of August 2024.
As of December 31, 2023 and 2022, a total of $54,350 and $47,454, respectively, was outstanding under such financing
agreements.
Vessel-Backed Term Loan
The remaining balance of the vessel backed term loan totaling $13,050 was fully repaid at a discount during May 2022, for a
net gain of $1,168 during the year ended 2022.
(12) Fair Value of Financial Instruments
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to
measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in
pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in
the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are
less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based
on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying
the hierarchy discussed in Note (2) Summary of Significant Accounting Policies which prioritizes the inputs used to measure
fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available
and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining
fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.
The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant
information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to
F-40
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management
analyzes the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate
level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review
all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are
followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate
pricing sources.
The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may
include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and
reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources
recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and
demand considerations and market volatility.
Available for Sale Securities, at fair value
The fair values of AFS securities are based on prices provided by an independent pricing service and a third-party investment
manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service
and the third-party investment manager by analyzing the investment manager-provided pricing report.
The following details the methods and assumptions used to estimate the fair value of each class of AFS securities and the
applicable level each security falls within the fair value hierarchy:
U.S. Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political
Subdivisions, Corporate Securities, Asset Backed Securities, and Obligations of Foreign Governments: Fair values were
obtained from an independent pricing service and a third-party investment manager. The prices provided by the independent
pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker
quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy.
Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1
of the fair value hierarchy.
Equity Securities
The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained
from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy.
The fair values of non-publicly traded common and preferred stocks are based on prices derived from multiples of
comparable public companies and fall under Level 3 in the fair value hierarchy.
Loans, at fair value
Corporate Loans: These loans are comprised of middle market loans and bank loans and are generally classified under either
Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices, including those
provided from pricing vendors, which provide coverage of secondary market participants, where available. The values
represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own
determination of fair value of loans based on internal models and other unobservable inputs.
Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy
and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.
Derivative Assets and Liabilities
Derivatives for our mortgage business are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage-
backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the
Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiaries
issue IRLCs to their customers, which are carried at estimated fair value on the Company’s consolidated balance sheets. The
estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan
F-41
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these
commitments generally fall under Level 3 in the fair value hierarchy. Our mortgage origination subsidiaries manage their
exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a
forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in
interest rates. The fair values of TBA mortgage-backed securities and forward delivery contracts generally fall under Level 2
in the fair value hierarchy.
The remaining derivatives are generally comprised of a combination of swaps, currency forwards and options, which are
generally classified as Level 2 in the fair value hierarchy. In addition, the Fortegra Additional Warrants (Warburg) are a
derivative liability and classified as Level 3 in the fair value hierarchy. See Note (17) Stockholders' Equity for additional
information regarding the Fortegra Additional Warrant.
Corporate Bonds
Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is based on quoted market
prices. We perform internal price verification procedures to ensure that the prices provided are reasonable.
Securities Sold, Not Yet Purchased
Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the
leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market
prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.
Mortgage Servicing Rights
Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party
valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost
to service and weighted average prepayment speed.
F-42
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring
basis:
As of December 31, 2023
Quoted
prices in
active
markets
Level 1
Other
significant
observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government
authorities and agencies
Obligations of state and political subdivisions
Obligations of foreign governments
Certificates of deposit
Asset backed securities
Corporate securities
Total available for sale securities, at fair value
$
— $
—
—
1,724
—
—
1,724
470,085 $
45,459
4,557
—
26,171
254,598
800,870
— $
—
—
—
15
—
15
Loans, at fair value:
Corporate loans
Mortgage loans held for sale
Total loans, at fair value
Equity securities:
Invesque
Fixed income ETFs
Other equity securities
Total equity securities
Other investments, at fair value:
Corporate bonds
Derivative assets
Other
Total other investments, at fair value
Mortgage servicing rights (1)
—
—
—
4,161
1,349
55,072
60,582
—
—
—
—
—
2,051
58,338
60,389
—
—
—
—
62,081
162
18,979
81,222
9,167
—
9,167
—
—
7,726
7,726
—
3,821
—
3,821
—
40,836
40,836
Total
$
62,306 $
942,481 $
61,565 $
1,066,352
Liabilities: (2)
Derivative liabilities
Fortegra Additional Warrants (Warburg)
Contingent consideration payable
Total
—
—
—
— $
937
—
—
937 $
44
3,522
2,604
6,170 $
981
3,522
2,604
7,107
$
(1)
(2)
Included in other assets. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
Included in other liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
F-43
470,085
45,459
4,557
1,724
26,186
254,598
802,609
11,218
58,338
69,556
4,161
1,349
62,798
68,308
62,081
3,983
18,979
85,043
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government
authorities and agencies
Obligations of state and political subdivisions
Obligations of foreign governments
Certificates of deposit
Asset backed securities
Corporate securities
Total available for sale securities, at fair value
Loans, at fair value:
Corporate loans
Mortgage loans held for sale
Total loans, at fair value
Equity securities:
Invesque
Fixed income ETFs
Other equity securities
Total equity securities
Other investments, at fair value:
Corporate bonds
Derivative assets
Other
Total other investments, at fair value
Mortgage servicing rights (1)
Total
Liabilities: (2)
Securities sold, not yet purchased
Derivative liabilities
Fortegra Additional Warrants (Warburg)
Contingent consideration payable
Total
$
$
$
$
Quoted
prices in
active
markets
Level 1
As of December 31, 2022
Other
significant
observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Fair value
— $
—
—
756
—
—
756
382,060 $
49,454
2,362
—
15,254
161,999
611,129
— $
—
—
—
95
—
95
382,060
49,454
2,362
756
15,349
161,999
611,980
—
—
—
3,104
50,531
53,635
11,208
—
11,208
—
—
—
—
42,080
608
—
42,688
—
—
6,885
6,885
—
3,652
324
3,976
15,454
56,256
7,181
78,891
—
7
—
7
—
14,312
50,531
64,843
15,454
56,256
14,066
85,776
42,080
4,267
324
46,671
—
41,426
41,426
79,654 $
707,452 $
63,590 $
850,696
10,263 $
—
—
—
10,263 $
6,312 $
7,910
—
—
14,222 $
— $
—
5,291
2,904
8,195 $
16,575
7,910
5,291
2,904
32,680
(1)
(2)
Included in other assets. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
Included in other liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses.
F-44
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask
spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.
The following table presents additional information about assets that are measured at fair value on a recurring basis for which
the Company has utilized Level 3 inputs to determine fair value for the following periods:
Balance at January 1,
Net realized and unrealized gains or losses included in:
Earnings
OCI
Origination of IRLCs
Purchases
Sales and repayments
Conversions to mortgage loans held for sale
Settlement of trade claims
Exchange of bonds for term loans
Exchange of trade receivables for equity securities
Transfer out of Level 3
Conversions to real estate owned
Balance at December 31,
Changes in unrealized gains (losses) included in earnings related to assets still held at period end
Changes in unrealized gains (losses) included in OCI related to assets still held at period end
For the Year Ended
December 31,
2023
2022
$
63,590 $
61,443
(4,825)
2,569
43,875
31
(6)
(43,709)
—
—
—
(41)
81
61,565 $
9,467
(520)
52,932
13
(3,815)
(56,794)
(19,169)
12,673
7,360
—
—
63,590
(4,824) $
2,569 $
(3,870)
(520)
$
$
$
The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the
fair value measurements of Level 3 assets and liabilities:
As of December 31,
2023
2022
Fair value
$
3,818 $
3,652
40,836
41,426
7,726
6,837
9,167
11,208
Assets
IRLCs
Mortgage
servicing
rights
Equity
securities
Corporate
loans
Total
$
61,547 $
63,123
Valuation
technique
Internal
model
Unobservable
input(s)
Pull through rate
Discount rate
Cost to service
Prepayment
speed
Forecast
EBITDAR
Bid marks/
EBITDA
External
model
Internal
model
External/
Internal
model
As of December 31,
2023
Range
45%
10%
$65
3%
to
to
to
to
95%
13%
$3,000
82%
WA
(1)
59%
11%
$113
9%
2022
Range
55% to
9%
$65
4%
to
to
to
95%
14%
$80
85%
WA
(1)
65%
9%
$72
9%
$1,039,000 to $1,422,000 N/A $728,000 to $1,039,000 N/A
$71
to
$75
$73
$170,000
N/A
Liabilities
Fortegra
Additional
Warrants
(Warburg)
Contingent
consideration
payable
$
3,522 $
5,291
External
Model
2,604
2,904
Cash Flow
model
Discount rate
Implied Equity
Volatility
Forecast Cash
EBITDA
Forecast
Underwriting
EBITDA
3%
40%
$2,500
$—
to
to
to
to
5%
3.8%
3%
50%
45%
40%
$4,000
N/A
$2,500
to
to
to
5%
3.3%
50%
45%
$4,000
N/A
$2,000
N/A
$— to
$2,000
N/A
Total
$
6,126 $
8,195
F-45
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not
recorded at fair value and their respective levels within the fair value hierarchy:
As of December 31, 2023
As of December 31, 2022
Level within
fair value
hierarchy
Fair value
Carrying
value
Level within
fair value
hierarchy
Fair value
Carrying
value
2
2
3
$
$
$
$
25,648 $
134,131
159,779 $
25,648
134,131
159,779
406,801 $
406,801 $
411,488
411,488
2
2
3
$
$
$
$
23,853 $
121,419
145,272 $
23,853
121,419
145,272
262,932 $
262,932 $
268,082
268,082
Assets:
Debentures (1)
Notes receivable, net
Total assets
Liabilities:
Debt
Total liabilities
(1)
Included in other investments.
Debentures: Since interest rates on debentures are at current market rates for similar credit risks, the carrying amount
approximates fair value. These values are net of allowance for doubtful accounts.
Notes Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on
contractual cash flows discounted at market rates for similar credits. Categorized under Level 2 in the fair value hierarchy.
See Note (7) Notes and Accounts Receivable, net.
Debt: The carrying value, which approximates fair value of floating rate debt, represents the total debt balance at face value
excluding the unamortized discount. The fair value of the Junior subordinated notes is determined based on dealer quotes.
Categorized under Level 3 in the fair value hierarchy.
Additionally, the following financial assets and liabilities on the consolidated balance sheets are not carried at fair value, but
whose carrying amounts approximate their fair value:
Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair
value. Categorized under Level 1 in the fair value hierarchy.
Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying
amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in
the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.
Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in
other assets and other liabilities and accrued expenses and approximate their fair value due to their short term nature.
Categorized under Level 2 in the fair value hierarchy.
F-46
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(13) Liability for Unpaid Claims and Claim Adjustment Expenses
Roll forward of Claim Liability
The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short
duration contracts for the following periods:
Policy liabilities and unpaid claims balance as of January 1,
Less: liabilities of policy-holder account balances, gross
Less: non-insurance warranty benefit claim liabilities
Gross liabilities for unpaid losses and loss adjustment expenses
Less: reinsurance recoverable on unpaid losses - short duration
Less: other lines, gross
Net balance as of January 1, short duration
Incurred (short duration) related to:
Current year
Prior years
Total incurred
Paid (short duration) related to:
Current year
Prior years
Total paid
Net balance as of December 31, short duration
Plus: reinsurance recoverable on unpaid losses - short duration
Plus: other lines, gross
Gross liabilities for unpaid losses and loss adjustment expenses
Plus: liabilities of policy-holder account balances, gross
Plus: non-insurance warranty benefit claim liabilities
Policy liabilities and unpaid claims balance as of December 31,
For the Year Ended December 31,
2023
2022
$
$
567,193 $
(1,923)
(140)
565,130
(266,889)
(184)
298,057
493,187
(11,187)
482,000
234,723
151,879
386,602
393,455
448,117
295
841,867
878
2,103
844,848 $
331,703
(801)
(10,785)
320,117
(165,129)
(576)
154,412
361,462
(858)
360,604
165,710
51,249
216,959
298,057
266,889
184
565,130
1,923
140
567,193
The following schedule reconciles the total amount of losses incurred on short duration contracts per the table above to the
amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member
benefit claims:
Short duration incurred
Other lines incurred
Unallocated loss adjustment expenses
Total losses incurred
$
$
For the Year Ended December 31,
2022
2021
360,604 $
354
643
361,601 $
2023
482,000 $
30
476
482,506 $
252,906
(284)
851
253,473
During the year ended December 31, 2023, the Company experienced favorable prior year development of $11,187, primarily
driven by lower-than-expected claims paid development in our commercial lines of business for the 2018 and 2020 accident
years.
During the year ended December 31, 2022, the Company experienced favorable prior year development of $858, primarily as
a result of lower-than-expected claim severity in our commercial lines of business.
During the year ended December 31, 2021, the Company experienced unfavorable prior year development of $2,606,
primarily as a result of higher-than-expected claim severity from business written by a small group of producers of our
F-47
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
personal and commercial lines of business.
Management considers the prior year development for each of these years to be insignificant when considered in the context
of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims
expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or
adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our
product pricing or offerings. The favorable prior year development of $11,187 in the year ended December 31, 2023
represented 8.6% of our insurance business income before taxes of $129,816 and 3.8% of the opening net liability for losses
and loss adjustment expenses of $298,057, as of January 1, 2023. The favorable prior year development of $858 in the year
ended December 31, 2022 represented 1.3% of our insurance business income before taxes of $68,150, and 0.6% of the
opening net liability for losses and loss adjustment expenses of $154,412, as of January 1, 2022. The unfavorable prior year
development of $2,606 in 2021 represented 3.7% of pretax income of $69,857 and 3.1% of the opening net liability for losses
and loss adjustment expenses of $83,945, as of January 1, 2021.
Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants,
we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represent the amount necessary to
pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
F-48
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Incurred and Paid Development
The following table presents information about incurred and paid loss development and average claim duration as of
December 31, 2023, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected
development on reported claims included within the net incurred claims amounts. The cumulative number of reported claims
represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated
count of unreported claims. The number of claims is measured by claim event. The Company considers a claim that does not
result in a liability as a claim closed without payment.
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
As of December 31, 2023
For the Years Ended December 31,
Unaudited
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total of
IBNR
Liabilities
Plus
Expected
Development
of Reported
Claims
Cumulative
Number of
Reported
Claims
$ 43,449 $ 39,614 $ 39,914 $ 39,887 $ 39,874 $ 39,869 $ 39,883 $ 39,884 $ 39,932 $ 39,928 $
59,579
57,470
57,588
57,815
58,141
58,194
58,248
58,285
58,309 $
84,178
87,290
87,993
88,615
89,629
89,981
89,516
89,579 $
103,306
104,898
105,601
105,787
106,446
106,517
106,592 $
129,352
133,225
133,158
134,392
123,228
118,721 $
144,925
149,166
151,772
153,325
151,994 $
—
—
93
128
1,679
6,677
172,007
169,706
165,820
163,363 $
18,057
250,300
263,249
263,226 $
9,772
361,462
358,434 $
44,697
493,187 $
179,443
Total $ 1,843,333
122
178
257
326
399
422
344
493
542
539
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Unaudited
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ 30,435 $ 38,752 $ 39,596 $ 39,822 $ 39,818 $ 39,874 $ 39,878 $ 39,881 $ 39,927 $ 39,885
41,578
56,445
57,130
57,610
58,096
58,175
58,243
58,274
62,989
84,185
86,531
88,482
88,976
89,474
89,286
58,307
89,390
84,493
102,620
105,075
105,852
106,402
106,249
106,416
105,740
112,619
114,490
115,407
114,756
115,500
122,348
128,787
132,747
131,885
134,261
127,721
129,832
132,997
138,004
174,334
224,193
234,328
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
165,710
299,064
234,723
Total $ 1,449,878
—
$ 393,455
All outstanding liabilities before 2014, net of reinsurance
Liabilities for loss and loss adjustment expenses, net of reinsurance
Duration
The following table presents supplementary information about average historical claims duration as of December 31, 2023
for short duration contracts:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Years
1
2
3
4
5
6
Short duration
70.5%
17.2%
2.3%
1.1%
0.5%
0.3%
7
—%
8
0.1%
9
—%
10
—%
F-49
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Reconciliation of Reserves to Balance Sheet
The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of
short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims:
Net outstanding liabilities:
Short duration
Insurance lines other than short duration
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance
Reinsurance recoverable on unpaid losses and loss adjustment expenses:
Short duration
Other insurance lines
Total reinsurance recoverable on unpaid losses and loss adjustment expenses
Total gross liability for unpaid losses and loss adjustment expenses
Liabilities of policy-holder account balances, gross
Non-insurance warranty benefit claim liabilities
Total policy liabilities and unpaid claims
As of
December 31, 2023
$
$
393,455
125
393,580
448,117
170
448,287
841,867
878
2,103
844,848
(14) Revenue from Contracts with Customers
The Company’s revenues from insurance and contractual and liability insurance operations are primarily accounted for under
Financial Services-Insurance (ASC 944) that are not within the scope of Revenue for Contracts with Customers (ASC 606).
The Company’s remaining revenues that are within the scope of Topic 606 are primarily comprised of revenues from
contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided
for premiums, claims and reinsurance processing revenues, vehicle service contracts, vessel related revenue and revenues for
household goods and appliances service contracts (collectively, remaining contracts).
The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the
following periods:
For the Year Ended December 31,
2022
2021
2023
Service and Administrative Fees:
Service contract revenue
Motor club revenue
Other
Revenue from contracts with customers
Service and Administrative Fees
$
$
289,660 $
46,394
5,305
341,359 $
210,817 $
53,346
36,060
300,223 $
163,583
41,634
53,346
258,563
Service and administrative fees are generated from non-insurance programs including warranty service contracts, motor clubs
and other services. Service and administrative fees are recognized consistent with the earnings recognition pattern of the
underlying policies, debt cancellation contracts and motor club memberships being administered, using pro rata, Rule of 78’s,
modified Rule of 78’s, or other methods as appropriate for the contract. Management selects the appropriate method based on
available information, and periodically reviews the selections as additional information becomes available.
Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due
to a specific contract would be recognized in the period in which the loss is determined to be probable.
We do not disclose information about remaining performance obligations pertaining to contracts that have an original
expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied
performance obligations with an original expected duration exceeding one year was not material as of December 31, 2023.
F-50
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when
revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment
precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with
customers for the following period:
Deferred acquisition costs
Service and Administrative Fees:
Service contract revenue
Motor club revenue
Total
Deferred revenue
Service and Administrative Fees:
Service contract revenue
Motor club revenue
Other
Total
January 1, 2023
December 31, 2023
Beginning balance
Additions
Amortization
Ending balance
$
$
$
$
172,129 $
17,142
189,271 $
122,537 $
36,085
158,622 $
92,763 $
36,591
129,354 $
581,882 $
22,949
—
604,831 $
313,203 $
45,122
3,953
362,278 $
289,660 $
46,394
3,953
340,007 $
201,903
16,636
218,539
605,425
21,677
—
627,102
For the periods presented, no write-offs for unrecoverable deferred acquisition costs and deferred revenue were recognized.
(15) Other Assets and Other Liabilities and Accrued Expenses
Other Assets
The following table presents the components of other assets as reported in the consolidated balance sheets:
Accrued investment income
Loans eligible for repurchase
Mortgage servicing rights
Right of use assets - operating leases (1)
Income tax receivable
Furniture, fixtures and equipment, net
Prepaid expenses
Other
Total other assets
As of December 31,
2022
2023
$
$
6,269 $
32,183
40,836
31,469
1,275
29,624
12,985
10,874
165,515 $
3,919
32,136
41,426
31,499
19,790
21,829
18,526
3,018
172,143
(1) See Note (21) Commitments and Contingencies for additional information.
The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:
For the Year Ended December 31,
2022
2021
2023
Depreciation expense related to furniture, fixtures and equipment
$
6,370 $
3,954 $
3,621
F-51
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Other Liabilities and Accrued Expenses
The following table presents the components of other liabilities and accrued expenses as reported in the consolidated balance
sheets:
Accounts payable and accrued expenses
Loans eligible for repurchase liability
Deferred tax liabilities, net
Operating lease liabilities (1)
Commissions payable
Securities sold, not yet purchased
Derivative liabilities
Due to broker/trustee
Other
Total other liabilities and accrued expenses
(1) See Note (21) Commitments and Contingencies for additional information.
(16) Other Revenue and Other Expenses
Other Revenue
As of December 31,
2023
2022
114,568 $
32,183
139,845
40,403
36,728
—
4,503
17,054
18,460
403,744 $
119,394
32,136
90,391
38,031
42,741
16,575
13,201
39
15,240
367,748
$
$
The following table presents the components of other revenue as reported in the consolidated statement of operations. Other
revenue is primarily generated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table.
For the Year Ended December 31,
2022
2021
2023
Other investment income (1)
Financing interest income
Other (2)
Total other revenue
$
$
24,263 $
16,035
18,605
58,903 $
53,660 $
12,290
10,235
76,185 $
64,580
7,592
1,235
73,407
(1)
(2)
See Note (6) Investments for the components of Other investment income.
Includes $15,654, $5,269 and $2,792 for the years ended December 31, 2023, 2022 and 2021, respectively, related to Insurance.
Other Expenses
The following table presents the components of other expenses as reported in the consolidated statement of operations:
For the Year Ended December 31,
2022
2021
2023
General and administrative
Professional fees
Premium taxes
Mortgage origination expenses
Rent and related
Other
Total other expenses
$
$
38,086 $
28,292
19,137
12,248
15,871
17,284
130,918 $
26,216 $
26,614
22,362
17,540
17,635
22,213
132,580 $
36,654
27,285
20,196
17,451
17,009
23,449
142,044
F-52
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(17) Stockholders' Equity
Stock Repurchases
The Board of Directors authorized the Company to make repurchases of up to $20,000 of shares of the Company’s
outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. There were no shares
repurchased during the year ended December 31, 2023. As of December 31, 2023, the remaining repurchase authorization
was $11,945.
Tiptree Warrants
In the year ended December 31, 2022, warrants were exercised for 1,999,989 shares of Tiptree common stock, with
1,979,325 warrants exercised for $13,724 in cash, and 20,664 exercised cashless. As of December 31, 2023 and 2022, there
were no warrants for shares of Tiptree common stock outstanding.
Dividends
The Company declared cash dividends per share for the following periods presented below:
Dividends per share for the
For the Year Ended December 31,
2022
2021
2023
First quarter
Second quarter
Third quarter
Fourth quarter
Total cash dividends declared
Fortegra Non-Controlling Interests
$
$
0.05 $
0.05
0.05
0.05
0.20 $
0.04 $
0.04
0.04
0.04
0.16 $
0.04
0.04
0.04
0.04
0.16
On June 21, 2022, the Company closed the WP Transaction. On that date, Fortegra converted to a Delaware corporation and
Warburg made a $200,000 investment in Fortegra in exchange for Fortegra Common Stock, Fortegra Preferred Stock,
Fortegra Warrants and Fortegra Additional Warrants. Also, in connection with the closing of the WP Transaction, Tiptree
was issued Fortegra Additional Warrants, and management’s interests in LOTS Intermediate were exchanged for interests in
Fortegra. As of December 31, 2022, Fortegra was owned approximately 79.5% by Tiptree Holdings, 17.4% by Warburg and
3.1% by management and directors of Fortegra. As a result of the WP Transaction, for the year ended December 31, 2022,
the Company recorded an increase of $167,008 to total stockholders’ equity of which $48,285 impacted Tiptree Inc.
stockholders’ equity and $118,723 impacted non-controlling interests. Of the increase to Tiptree Inc. stockholders’ equity,
$41,092 impacted additional paid in capital and $7,193 impacted accumulated other comprehensive income (loss).
Additionally, the Company recognized $9,059 of net income attributable to non-controlling interests during the year ended
December 31, 2022 due to the increase in non-controlling interest. As of December 31, 2023, Fortegra was owned
approximately 79.5% by Tiptree Holdings, 17.5% by Warburg and 3.0% by management and directors of Fortegra.
Fortegra Preferred Stock
The face amount of the Fortegra Preferred Stock is $80,000. Dividends are cumulative and accrue at a rate of 8% per annum,
compounding quarterly. Any quarterly dividend may be paid in cash, at Fortegra’s option. For the years ended December 31,
2023 and 2022, cash dividends declared were $6,400 and $3,384, respectively.
F-53
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Warburg has the option to convert, at any time, its shares of Fortegra Preferred Stock into shares of Fortegra Common Stock
at an initial conversion premium of 33% to Warburg’s initial investment valuation (the “Fortegra Preferred Stock Conversion
Price”). The Fortegra Preferred Stock Conversion Price is adjusted for any Fortegra Common Stock splits, dividends,
extraordinary dividends and similar transactions. All of the Fortegra Preferred Stock will automatically convert into shares of
Fortegra Common Stock at the Fortegra Preferred Stock Conversion Price upon the closing of a qualifying initial public
offering, subject to a five year make-whole provision. Upon conversion, the Fortegra Preferred Stock would result in
Warburg owning an additional 6.6% interest in Fortegra, for a total as converted ownership of 24.0% (including its ownership
of Fortegra Common Stock).
Fortegra Warrants
The Fortegra Warrants have a seven-year term and an exercise premium of 33% to Warburg’s initial investment valuation
(the “Fortegra Warrant Exercise Price”). The Fortegra Warrant Exercise Price will be reduced by any Fortegra Common
Stock cash dividends made by Fortegra and adjusted for stock splits, common stock dividends, extraordinary dividends and
similar transactions. The Fortegra Warrants, if exercised with cash, would result in Warburg owning an additional 3.8%
interest in Fortegra.
Fortegra Additional Warrants
The Fortegra Additional Warrants issued to both Warburg and Tiptree have a seven-year term and an exercise price of $0.01
per share of Fortegra Common Stock. The Fortegra Additional Warrants issued to Warburg will be forfeited based on
Warburg achieving an all-in return on its investment in excess of 23%, as measured primarily by Fortegra’s Common Stock
price. The Fortegra Additional Warrants issued to Warburg are classified as liabilities, at fair value. The Fortegra Additional
Warrants issued to Tiptree will vest based on Warburg achieving an all-in return on its investment in excess of 30%, as
measured primarily by Fortegra’s Common Stock price. The number of shares of Fortegra Common Stock issuable to
Warburg or Tiptree with respect to the Fortegra Additional Warrants is subject to adjustment for Fortegra Common Stock
splits, stock or cash dividends and similar transactions. The Fortegra Additional Warrants are exercisable from the earlier of a
transaction that results in Warburg having sold 50% of its Fortegra Common Stock or the fifth anniversary of the closing
date. The maximum number of shares issued to Warburg or Tiptree, if exercised with cash, would be an additional 1.7%
interest in Fortegra on an as converted basis (including its ownership of Fortegra Common and Preferred Stock).
The following table presents the components of non-controlling interests as reported in the consolidated balance sheets:
Fortegra preferred interests
Fortegra common interests
Other third-party common interests
Total non-controlling interests
As of December 31,
2022
2023
$
$
77,679 $
82,020
—
159,699 $
77,679
55,364
3,165
136,208
Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions
The Company’s U.S. insurance subsidiaries prepare financial statements in accordance with Statutory Accounting Principles
(SAP) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the
Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules.
Statutory Capital and Surplus
The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required
by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as
of December 31, 2023 and 2022.
Combined statutory capital and surplus of the Company's insurance company subsidiaries
Required minimum statutory capital and surplus
As of December 31,
2022
2023
$
$
454,540 $
370,340
75,750 $
75,750
F-54
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Under the NAIC Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain
risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds,
regulatory intervention or oversight is required. The Company's U.S. domiciled insurance company subsidiaries' RBC levels,
as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of December 31, 2023 and
2022.
The following table presents the statutory net income of the Company’s U.S. domiciled statutory insurance companies for the
following periods:
Net income of statutory insurance companies
For the Year Ended December 31,
2021
2022
2023
$
47,384 $
12,964 $
33,999
The Company also has a foreign insurance subsidiary that is not subject to SAP. The statutory capital and surplus amounts
and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP.
Statutory Dividends
The Company’s U.S. domiciled insurance company subsidiaries may pay dividends to the Company, subject to statutory
restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with
prior approval of the insurance department of the applicable state of domicile. The Company eliminates all dividends from its
subsidiaries in the consolidated financial statements.
The following table presents the dividends paid to the Company by its U.S domiciled insurance company subsidiaries and the
combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the
following periods:
Ordinary dividends
Total dividends
For the Year Ended
December 31,
2023
2022
$
$
27,114 $
27,114 $
—
—
As of
December 31,
2023
December 31,
2022
Amount available for ordinary dividends of the Company's insurance company subsidiaries
$
24,327 $
35,145
At December 31, 2023, the maximum amount of dividends that our U.S. domiciled insurance company subsidiaries could pay
under applicable laws and regulations without regulatory approval was approximately $24,327. The Company may seek
regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company
would receive regulatory approval if sought.
F-55
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
(18) Accumulated Other Comprehensive Income (Loss) (AOCI)
The following table presents the activity of AFS securities in AOCI, net of tax, for the following periods:
Unrealized
gains (losses)
on available
for sale
securities
Foreign
currency
translation
adjustment
Total AOCI
Amount
attributable
to non-
controlling
interests
Total AOCI
to Tiptree
Inc.
Balance at December 31, 2021
$
(2,686) $
Other comprehensive income (losses) before reclassifications
Amounts reclassified from AOCI
WP Transaction
OCI
Balance at December 31, 2022
Balance at December 31, 2022
Other comprehensive income (losses) before reclassifications
Amounts reclassified from AOCI
OCI
Balance at December 31, 2023
$
$
$
(39,514)
(843)
—
(40,357)
(43,043) $
— $
(7,311)
—
—
(7,311)
(7,311) $
(2,686) $
(46,825)
(843)
—
(47,668)
(50,354) $
(43,043) $
8,716
2,182
10,898
(32,145) $
(7,311) $
7,213
—
7,213
(98) $
(50,354) $
15,929
2,182
18,111
(32,243) $
1 $
3,731
—
7,193
10,924
10,925 $
10,925 $
(4,755)
—
(4,755)
6,170 $
(2,685)
(43,094)
(843)
7,193
(36,744)
(39,429)
(39,429)
11,174
2,182
13,356
(26,073)
The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items
on the consolidated statement of operations for the following periods:
For the Year Ended December 31,
Components of AOCI
Unrealized gains (losses) on available for
sale securities
Related tax (expense) benefit
Net of tax
2023
2022
2021
$
$
(2,812) $
1,359 $
630
(2,182) $
(516)
843 $
638
(139)
499
Affected line item in consolidated
statements of operations
Net realized and unrealized gains (losses)
Provision for income tax
(19) Stock Based Compensation
Tiptree Equity Plans
The table below summarizes changes to the issuances under the Company’s 2017 Omnibus Incentive Equity Plan for the
periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for
Tiptree common stock:
2017 Equity Plan
Available for issuance as of December 31, 2020
RSU, stock and option awards granted
Forfeited
Exchanged for vested subsidiary awards
Available for issuance as of December 31, 2021
RSU, stock and option awards granted
Forfeited
Amendment to 2017 Equity Plan
PRSU awards granted
Exchanged for vested subsidiary awards
Available for issuance as of December 31, 2022
RSU, stock and option awards granted
Available for issuance as of December 31, 2023
F-56
Number of
shares
3,788,417
(61,713)
(215,583)
(1,166,307)
2,344,814
(247,093)
5,276
4,000,000
(3,616,667)
(114,353)
2,371,977
(111,427)
2,260,550
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Restricted Stock Units (RSUs) and Stock Awards
The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree
RSUs vest and become non-forfeitable either (i) after the third anniversary, or (ii) with respect to one-third of Tiptree shares
granted on each of the first, second and third year anniversaries of the grant date. RSU awards are expensed using the
straight-line method over the requisite service period. The RSUs granted after 2019 include a retirement provision and are
amortized over the lesser of the service condition or expected retirement date. Stock awards issued as director compensation
are deemed to be granted and immediately vested upon issuance.
The following table presents changes to the issuances of RSUs and stock awards under the 2017 Omnibus Incentive Equity
Plan for the periods indicated:
Unvested units as of December 31, 2020
Granted
Vested
Unvested units as of December 31, 2021
Granted
Vested
Forfeited
Unvested units as of December 31, 2022
Granted
Vested
Unvested units as of December 31, 2023 (1)
(1)
Includes 62,940 shares that vest ratably over two years and 108,418 and 81,874 shares that cliff vest in 2025 and 2026, respectively.
Number of
shares
issuable
Weighted
average grant
date fair value
6.52
7.81
6.62
6.59
12.83
7.13
10.10
9.63
16.09
8.38
14.25
953,145 $
61,713
(415,846)
599,012 $
247,093
(339,822)
(5,276)
501,007 $
111,427
(359,203)
253,231 $
The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:
For the Year Ended December 31,
2022
2023
2021
Vested
For the Year Ended December 31,
2022
2023
2021
Granted
Directors
Employees
29,553
81,874
39,517
207,576
61,713 Directors
— Employees
Total Granted
111,427
247,093
61,713
Total
Vested
Taxes
Net Vested
Tiptree Senior Management Incentive Plan
29,553
329,650
359,203
(43,322)
315,881
39,517
300,305
339,822
(47,274)
292,548
61,713
354,133
415,846
(34,828)
381,018
On August 4, 2021, a total of 3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the
Company’s senior management. An additional 350,000 PRSUs were awarded on October 14, 2022. The PRSUs have a 10-
year term and are subject to the recipient’s continuous service and a market requirement. A portion of the PRSUs will
generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $15 to $60, adjusted
for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on
the second, fourth, sixth, eighth and tenth anniversaries of the grant date.
In November 2021, the first tranche of the PRSUs vested, resulting in a net issuance of 215,583 shares of Tiptree common
stock. As of December 31, 2023, 3,616,667 PRSUs are unvested. The below table illustrates the aggregate number of PRSUs
that will vest upon the achievement of each Tiptree share price target. Such price targets are adjusted down for cumulative
dividends paid by the Company since grant (e.g., the next share price target is $19.56 as adjusted for cumulative dividends
paid to date).
Original Tiptree Share Price Target
$20
$30
Number of PRSUs that Vest
516,667
775,000
F-57
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
$45
$60
1,033,333
1,291,667
Upon vesting, the Company will issue shares, or if shares are not available under the 2017 Equity Plan, then the Company
may in its sole discretion instead deliver cash equal to the fair market value of the underlying shares. The fair value of the
PRSUs was estimated using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to
simulate the future stock prices of the Company, which assumes that the market requirement is achieved. The historical
volatility was computed based on historical daily returns of the Company’s stock price simulated over the performance period
using a lookback period of 10 years. The valuation was done under a risk-neutral framework using the 10-year zero-coupon
risk-free interest rate derived from the Treasury Constant Maturities yield curve on the reporting date. The current quarterly
dividend rates in effect as of the reporting date are used to calculate a spot dividend yield for use in the model.
The following table presents the assumptions used to measure the fair value of the PRSUs as of June 7, 2022, when they were
converted to equity awards.
Valuation Input
Historical volatility
Risk-free rate
Dividend yield
Cost of equity
Expected term (years)
Stock Option Awards
Assumption
38.75%
3.04%
1.45%
11.72%
6
Between 2016 and 2020, option awards were granted to the Executive Committee with an exercise price equal to the fair
market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the
recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five-year anniversaries
of the grant date. As of December 31, 2023, the market requirement for all outstanding options has been achieved. There
were no stock option awards granted in 2022 or 2023.
The following table presents the Company's stock option activity for the current period:
Balance, December 31, 2022
Balance, December 31, 2023
Options
outstanding
Weighted average
exercise price (in
dollars per stock
option)
Weighted average
grant date value
(in dollars per
stock option)
1,675,514 $
1,583,873 $
6.50 $
6.51 $
2.30
2.25
Options
exercisable
1,018,805
1,225,083
Weighted average remaining contractual term at
December 31, 2023 (in years)
4.3
Subsidiary Equity Plans
Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of
those subsidiaries to certain of their employees. Such awards are accounted for as equity unless otherwise noted. These
awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards)
and time-vesting subject to continued employment (time vesting awards). The Company has the option, but not the obligation
to settle the exchange right in cash.
Fortegra Equity Incentive Plan
Fortegra adopted the 2022 Equity Incentive Plan (“Fortegra Plan”) on June 21, 2022, which permits the grant of RSUs, stock
based awards and options up to 7.2% of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock), of
which the substantial majority is expected to be delivered in options. As of December 31, 2023, time vesting RSUs and time
and performance vesting options representing approximately 5.3% of Fortegra Common Stock (assuming conversion of the
Fortegra Preferred Stock) have been granted and remain unvested. The general purpose of the Fortegra Plan is to attract,
motivate and retain selected employees of Fortegra, to provide them with incentives and rewards for performance and to
F-58
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
better align their interests with those of Fortegra’s stockholders. Unless otherwise extended, the Fortegra Plan terminates
automatically on June 21, 2032. The awards under the Fortegra Plan are not exchangeable for Tiptree common stock.
In May 2023 and November 2023, Fortegra granted management options with a strike price equal to the per share price on
the date of the WP Transaction, delivered in equal portions of time and performance vested grants equal to approximately
5.0% of Fortegra Common Stock (assuming cash exercise and after conversion of the Fortegra Preferred Stock). The time
vested options vest in equal parts over five years and expire on the ten year anniversary of the grant date. The performance
vested options vest based on specific internal rate of return targets determined at the time of a change of control of Fortegra
or sale by Warburg of more than 50% of its Fortegra securities (on an as converted basis) acquired in 2022. The fair value
option grants were estimated on the date of grant using a Black-Scholes Merton option pricing formula embedded within a
Monte Carlo model used to simulate the future value of Fortegra Common Stock, which assumes the market requirement is
achieved. Key assumptions used in the model were a historical volatility of 45.0%, a risk free rate of 3.7%, no dividend yield
and an expected term of 4.2 years.
In May 2023, Fortegra granted time vesting RSUs equal to approximately 0.1% of Fortegra Common Stock (assuming
conversion of the Fortegra Preferred Stock). The RSUs include a retirement provision and are amortized over the lesser of the
service condition or expected retirement date.
In May 2023 and November 2023, Fortegra granted performance based restricted stock units (Fortegra PRSUs) that vest
based on the achievement of specified gross written premium volume targets and underwriting ratios for selected specialty
insurance lines written in 2024. Upon vesting, the Fortegra PRSUs entitle recipients to participate in an aggregate pool of
between $5,000 and $20,000 payable in shares of Fortegra. The Fortegra PRSUs are accounted for as liability awards and
were unvested as of December 31, 2023.
The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the
periods indicated:
Unvested balance as of December 31, 2019
Granted
Vested
Performance assumption adjustment
Unvested balance as of December 31, 2020
Granted
Vested
Performance assumption adjustment
Unvested balance as of December 31, 2022
Granted
Vested
Unvested balance as of December 31, 2023
Grant date
fair value of
equity shares
issuable
$
$
$
$
4,279
1,108
(4,237)
3,155
4,305
1,278
(3,472)
123
1,487
19,930
(808)
20,609
F-59
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Stock Based Compensation Expense
The following table presents total stock based compensation expense and the related income tax benefit recognized on the
consolidated statements of operations:
For the Year Ended December 31,
2022
2021
2023
Employee compensation and benefits
Director compensation
Income tax benefit
Net stock based compensation expense
$
$
7,866 $
409
(1,738)
6,537 $
9,219 $
469
(2,034)
7,654 $
10,665
465
(2,338)
8,792
Additional information on total non-vested stock based compensation is as follows:
As of December 31, 2023
Unrecognized compensation cost related to non-vested awards (1)
Weighted - average recognition period (in years)
Stock options
$
17,031 $
2.2
Restricted
stock awards
and RSUs
Performance
Restricted
Stock Units
1,497 $
0.8
4,280
1.0
(1)
Includes unrecognized compensation cost of $17,031 related to stock options, $779 related to RSUs, and $583 related to PRSUs at The Fortegra Group.
(20) Income Taxes
The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss):
For the Year Ended December 31,
2022
2021
2023
Current provision (benefit) for income taxes:
Federal
State
Foreign
Total current provision (benefit) for income taxes
Deferred provision (benefit) for income taxes:
Federal
State
Foreign
Total deferred provision (benefit) for income taxes
Total provision (benefit) for income taxes
$
$
2,118 $
940
2,974
6,032
250 $
1,612
1,041
2,903
38,126
(1,446)
344
37,024
43,056 $
39,983
7,155
409
47,547
50,450 $
1,393
1,330
838
3,561
13,819
4,435
(524)
17,730
21,291
On June 21, 2022, the WP Transaction was completed, in which Warburg invested $200,000 in Tiptree’s insurance
subsidiary, Fortegra. The WP Transaction, along with Fortegra management’s ownership, reduced Tiptree’s ownership in
Fortegra below 80% such that, while still consolidated for GAAP financial reporting purposes, Fortegra will no longer be
included in the consolidated tax return group with Tiptree. Tiptree recorded deferred tax liabilities related to the basis
difference in Tiptree’s investment in Fortegra as of December 31, 2022. This deferred tax liability represents the tax that
would be due, before consideration of loss carryforwards, if Tiptree were to sell any of its Fortegra stock at its carrying value
on the Company’s balance sheet. The deferred tax liability as of December 31, 2022 relating to the WP Transaction was
$39,970, of which $14,064 was recorded directly in stockholders’ equity, a benefit of $2,424 in other comprehensive income
and $28,330 as a provision for income taxes in the consolidated statements of operations for the year ended December 31,
2022. Additional one time impacts from the transaction caused $4,803 of expense, leading to $33,133 of expense in the
statement of operations.
For the year ended December 31, 2023, the deferred tax liability relating to Fortegra was $61,673, an increase of $21,703, of
which $3,819 of expense was recorded in OCI, $1,217 of benefit was recorded directly in stockholders’ equity, and $19,101
expense was recorded as a provision for income taxes.
Excluding the impact of these deferred taxes, the effective tax rates for the years ended December 31, 2023 and 2022, were
28.8% and 32.1%, respectively.
F-60
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
The U.S. federal rate is before the consideration of rate reconciling items. A reconciliation of the expected federal provision
(benefit) for income taxes on income using the federal statutory income tax rate to the actual provision (benefit) for income
taxes and resulting effective income tax rate is as follows for the periods indicated below:
Income (loss) before income taxes
Federal statutory income tax rate
Expected federal provision (benefit) for income taxes at the federal statutory income
tax rate
Effect of state provision (benefit) for income taxes, net of federal benefit
Effect of non-deductible compensation
Effect of tax deconsolidation of subsidiaries
Effect of change in valuation allowance
Effect of foreign operations
Effect of stock-based compensation
Effect of return-to-accrual
Effect of other items
Tax (benefit) on income
For the Year Ended December 31,
2023
83,053
$
2022
54,011
$
2021
65,342
$
21.0 %
21.0 %
21.0 %
17,441
(1,971)
3,376
19,101
518
2,743
(233)
1,580
501
43,056
$
11,342
2,034
3,292
33,133
3,285
(18)
(556)
(509)
(1,553)
50,450
$
13,721
2,858
4,518
—
1,692
(541)
(1,642)
154
531
21,291
$
Effective tax rate
51.8 %
93.4 %
32.6 %
For the year ended December 31, 2023, the Company’s effective tax rate on income was equal to 51.8%. The effective tax
rate for the year ended December 31, 2023 is higher than the U.S. statutory income tax rate of 21.0% primarily from the
impact of the tax deconsolidation of Fortegra and non-deductible compensation.
For the year ended December 31, 2022, the Company’s effective tax rate on income was equal to 93.4%. The effective tax
rate for the year ended December 31, 2022 is higher than the U.S. statutory income tax rate of 21.0% primarily from the
impact of the tax deconsolidation of Fortegra and non-deductible compensation.
For the year ended December 31, 2021, the Company’s effective tax rate on losses was equal to 32.6%. The effective tax rate
for the year ended December 31, 2021 is higher than the U.S. statutory income tax rate of 21.0% primarily from the impact of
expected refunds arising from the CARES Act.
The table below presents the components of the Company’s net deferred tax assets and liabilities as of the respective balance
sheet dates:
F-61
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Deferred tax assets:
Net operating loss carryforwards
Unrealized losses
Accrued expenses
Unearned premiums
Deferred revenue
Claims reserve
Lease liability
Other deferred tax assets
Total deferred tax assets
Less: Valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Property
Unrealized gains
Other deferred tax liabilities
Deferred acquisition cost
Advanced commissions
Right of use asset
Intangibles
Investment in Fortegra
Total deferred tax liabilities
Net deferred tax liability
As of December 31,
2022
2023
$
$
30,834 $
28,926
2,041
61,112
15,655
6,351
8,357
3,311
156,587
(12,366)
144,221
3,266
9,648
246
135,628
48,975
6,236
18,394
61,673
284,066
139,845 $
37,857
31,482
2,409
52,904
15,700
5,705
6,834
1,966
154,857
(11,848)
143,009
3,058
9,812
411
116,373
43,961
5,531
14,284
39,970
233,400
90,391
As of January 2016, Tiptree established a U.S. federal consolidated income tax group and filed on a consolidated basis, with
limited exceptions. As of June 2022, Fortegra and its subsidiaries are no longer part of Tiptree’s consolidated income tax
group and formed their own tax consolidation group. Tiptree’s consolidated group, and certain subsidiaries on a separate
basis, filed returns in various state jurisdictions, and as such may have state tax obligations. Additionally, as needed the
Company will take all necessary steps to comply with any income tax withholding requirements.
F-62
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
As of December 31, 2023, the Company had total U.S. Federal net operating loss carryforwards (NOLs) of $51,099. The
following table presents the U.S. Federal NOLs by tax year of expiration:
Tax Year of Expiration
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Indefinite
Total
As of
December 31, 2023
$
$
—
—
—
—
360
—
—
—
—
—
—
—
—
—
26,561
—
24,178
51,099
In addition to the U.S. Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $19,757 as
of December 31, 2023. Valuation allowances of $12,366 have been established for primarily state deferred tax assets, which
are primarily state NOLs, since management has concluded it is more likely than not they will expire unutilized based on
existing positive and negative evidence. Management believes it is more likely than not the remaining NOLs and deferred tax
assets will be utilized prior to their expiration dates.
As of December 31, 2023, the consolidated valuation allowance for the Company was $12,366. In 2023, the Company
recorded a net increase in its valuation allowances equal to $518, compared to a net increase in its valuation allowance of
$3,285 in 2022.
As of December 31, 2023 and 2022, the Company had no material unrecognized tax benefits or accrued interest and
penalties. Federal tax years 2015 and onward are open for examination as of December 31, 2023.
(21) Commitments and Contingencies
Operating Leases
All leases are office space leases and are classified as operating leases that expire through 2033. Some of our office leases
include the option to extend for up to 5 years or less at management’s discretion. Such extension options were not included in
the measurement of the lease liability.
Below is a summary of our right of use asset and lease liability as of December 31, 2023:
F-63
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Right of use asset - Operating leases
Operating lease liability
Weighted-average remaining lease term (years)
Weighted-average discount rate (1)
As of
December 31, 2023
$31,469
$40,403
7.00
7.98%
(1)
Discount rate was determined by applying available market rates to lease obligations based upon their term.
As of December 31, 2023, the approximate aggregate minimum future lease payments required for our lease liability over the
remaining lease periods are as follows:
2024
2025
2026
2027
2028
2029 and thereafter
Total minimum payments
Less: present value adjustment
Total
As of
December 31, 2023
9,706
$
9,670
9,048
7,217
6,867
16,864
59,372
18,969
40,403
$
The following table presents rent expense for the Company’s office leases recorded in other expenses on the consolidated
statements of operations for the following periods:
Rent expense for office leases (1)
For the Year Ended December 31,
2023
2022
2021
$
7,951 $
9,301 $
8,924
(1)
Includes lease expense of $0, $202, and $609 for the years ended December 31, 2023, 2022 and 2021, respectively, for assets classified as held for sale for the periods prior
to July 1, 2022.
The Company entered into a sublease of their former corporate office space in December 2022. As a result of the sublease,
future lease payments will be offset by $1,842 annually from July 2023 through and August 2029.
Litigation
The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., a class action filed in February 2006, in
Pike County Circuit Court in the Commonwealth of Kentucky on behalf of Kentucky consumers that purchased certain credit
life and disability insurance coverage between 1997-2007. The action alleges violations of the Kentucky Consumer
Protection Act (“KCPA”) and certain insurance statutes, common law fraud and breach of contract and the covenant of good
faith and fair dealing. The plaintiffs seek compensatory and punitive damages, attorneys’ fees and interest.
Two classes were certified in June 2010: Subclass A includes class members who suffered a disability during the coverage
period but allegedly received less than full disability benefits; Subclass B includes all class members whose loan termination
date extended beyond the termination date of the credit disability coverage period.
In a series of orders issued in October 2022 on competing motions for partial summary judgment, the court found in favor of
the plaintiffs as to the Subclass A breach of contract claim (the Subclass A Order) and, as to Subclass B, found that the
Company was unjustly enriched to the extent the premium it collected exceeded the proportion of the premium for which the
Company provided benefits coverage (the Subclass B Order). The court found in favor of the Company as to the plaintiffs’
claims for common law fraud and violation of Kentucky’s insurance statutes and ordered the plaintiffs’ Motion for Sanctions
F-64
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
for Spoliation of Evidence held in abeyance. The Company has appealed the Subclass A Order and Subclass B Order and all
interlocutory orders made final by entry of the Subclass A Order and Subclass B Order.
In December 2022, the court dismissed the plaintiffs’ KCPA claims as to both Subclass A Order and Subclass B Order. The
court also dismissed the plaintiffs’ breach of covenant of good faith and fair dealing claim as to Subclass B Order but
declined to dismiss such claim as to Subclass A Order pending resolution of the Company’s appeal. The trial, previously
scheduled for December 2023 has been remanded while the matter is on appeal.
The Company considers such litigation customary in the insurance industry. In management's opinion, based on information
available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially
adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation
to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance
business. At this time, the Company cannot estimate a range of loss that is reasonably possible.
The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although the
Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company
does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on
the Company’s financial position.
(22) Earnings Per Share
The Company calculates basic net income per share of common stock (common share) based on the weighted average
number of common shares outstanding, which includes vested corporate RSUs. Unvested corporate RSUs have a non-
forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are
therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method
under which the income available to common stockholders is allocated to the unvested corporate RSUs.
Diluted net income attributable to common stockholders includes the effect of unvested subsidiaries’ RSUs, when dilutive.
The assumed exercise of all potentially dilutive instruments is included in the diluted net income per common share
calculation, if dilutive.
The following table presents a reconciliation of basic and diluted net income per common share for the following periods:
Net income (loss)
Less:
Net income (loss) attributable to non-controlling interests
Net income allocated to participating securities
Net income (loss) attributable to Tiptree Inc. common shares - basic
Effect of Dilutive Securities:
Securities of subsidiaries
Adjustments to income relating to exchangeable interests and contingent considerations, net
of tax
Net income (loss) attributable to Tiptree Inc. common shares - diluted
Weighted average number of shares of common stock outstanding - basic
Weighted average number of incremental shares of common stock issuable from
exchangeable interests and contingent considerations
Weighted average number of shares of common stock outstanding - diluted
Basic net income (loss) attributable to common shares
Diluted net income (loss) attributable to common shares
(23) Related Party Transactions
For the Year Ended December 31,
2022
2023
2021
$
39,997 $
3,561 $
44,051
26,046
100
13,851
11,835
—
(8,274)
5,919
703
37,429
(1,298)
—
(780)
—
12,553 $
$
36,693,204
—
(8,274) $
9
36,658
33,223,792
35,531,149
925,891
37,619,095
—
35,531,149
464,464
33,688,256
$
$
0.38 $
0.33 $
(0.23) $
(0.23) $
1.13
1.09
Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the
F-65
TIPTREE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2023
(in thousands, except share data)
Company’s Executive Chairman. The Company is invested in funds managed by Corvid Peak (the Corvid Peak Funds) and
Corvid Peak manages investment portfolio accounts of Fortegra and certain of its subsidiaries under an investment advisory
agreement (the IAA). With respect to the Corvid Peak Funds and IAA, the Company incurred $5,206, $3,808, and $1,988 of
management and incentive fees for the years ended December 31, 2023, 2022 and 2021, respectively.
Beginning January 1, 2021, Tiptree has been allocated 10.2% of certain profits interests earned by Corvid Peak with an
additional 10.2% interest for each of the next consecutive four years. Beginning on January 1, 2024, Tiptree’s percentage
interest increased to 42.0% (including interests acquired from former Corvid Peak equity holders).
On November 10, 2022, the Company contributed $505 of cash (representing its pro rata share) to Corvid Peak to fund an
escrow account for the repurchase of a revenue share by a third party effective as of January 1, 2025.
Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to
one another. Payments under the Transition Services Agreement in the years ended December 31, 2023 and 2022 were not
material.
Pursuant to a Partner Emeritus Agreement, Tiptree agreed to provide Mr. Inayatullah, a greater than 5% stockholder of the
Company, support services and reimburse Mr. Inayatullah for a portion of benefit expenses in exchange for advice and other
consulting services as requested by the Company’s Executive Committee. Transactions related to the Partner Emeritus
Agreement in the years ended December 31, 2023 and 2022 were not material.
(24) Subsequent Events
On January 1, 2024, Tiptree granted 550,000 performance restricted stock units (PRSUs) to each of Michael Barnes,
Executive Chairman and Jonathan Ilany, Chief Executive Officer and awarded 183,333 PRSUs to Randy Maultsby, President
and 137,500 PRSUs to Scott McKinney, Chief Financial Officer (together, the “Grantees”). The PRSUs will generally vest
upon achievement of a $70 Tiptree share price target (adjusted for dividends paid) prior to the tenth anniversary of the date of
grant, subject to the Grantee’s continued employment with Tiptree. This special award reflects Tiptree’s desire for Messrs.
Barnes, Ilany, Maultsby and McKinney to continue to lead the Company for a further significant number of years and to
create significant shareholder value over time.
On February 27, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.06 per share to holders of
common stock with a record date of March 11, 2024, and a payment date of March 18, 2024.
F-66
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Executive Chairman, Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of December 31, 2023. Based upon that
evaluation, the Company’s Executive Chairman, Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of December 31, 2023.
The Company is committed to maintaining a strong internal control environment which is accompanied by
management’s ongoing focus on processes and related controls to achieve accurate and reliable financial reporting.
However, all systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those
systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Projections of the effectiveness of internal control to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
(b) Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) of the Exchange Act. The Company conducted an evaluation of the effectiveness of its
internal control over financial reporting based upon the framework established in the Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable
assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that receipts and expenditures are made only in accordance with the
authorization of management and the Board of Directors of the Company; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a
material effect on our financial statements.
If the Company identifies any material weaknesses, the COSO Framework does not allow the Company to conclude that
our internal control over financial reporting is effective. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on
a timely basis.
Based upon its assessment, management concluded that the Company’s internal control over financial reporting as of
December 31, 2023 was effective using the COSO Framework.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited
by Deloitte & Touche LLP, an independent registered public accounting firm that audited the Company’s consolidated
financial statements as of and for the year ended December 31, 2023, as stated in their report, included in Item 8 of this
Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2023.
(c) Changes in Internal Control over Financial Reporting
67
There were no changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the twelve months ended December 31, 2023 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1
trading arrangement during the Company’s fiscal quarter ended December 31, 2023..
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning our executive officers is incorporated herein by reference to information included in the Proxy
Statement for the Company’s 2024 Annual Meeting of Stockholders.
Information with respect to our directors and the nomination process is incorporated herein by reference to information
included in the Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders.
Information regarding our audit committee and our audit committee financial experts is incorporated herein by reference to
information included in the Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders.
Information required by Item 405 of Regulation S-K is incorporated herein by reference to information included in the Proxy
Statement for the Company’s 2024 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Information with respect to executive compensation is incorporated herein by reference to information included in the Proxy
Statement for the Company’s 2024 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to security ownership of certain beneficial owners and management is incorporated herein by
reference to information included in the Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to such contractual relationships and independence is incorporated herein by reference to the
information in the Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
Information with respect to principal accounting fees and services and pre-approval policies are incorporated herein by
reference to information included in the Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders.
68
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as a part of this Form 10-K:
(a)(1) All Financial Statements
Index to Financial Statements:
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023,
2022 and 2021
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Page
F- 5
F- 6
F- 7
F- 8
F- 10
F- 12
(a)(2) Financial Statement Schedules
Schedule II—“Financial Information of Registrant”, is filed as part of this Annual Report on Form 10-K and should be read
in conjunction with the financial statements and notes thereto contained in Item 8—“Financial Statements and Supplementary
Data.”
All other financial statements and financial statement schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instruction, are not material or are not applicable and, therefore,
have been omitted.
(a)(3) Exhibits
Exhibit
No.
Description
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
Fifth Articles of Amendment and Restatement of the Registrant, effective June 6, 2018 (previously filed as
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on June 7, 2018 and
herein incorporated by reference).
Fifth Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K (File No. 001-33549), filed on January 25, 2023 and herein incorporated by
reference).
Articles Supplementary of the Registrant, dated December 29, 2014 (previously filed as Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on December 29, 2014 and herein
incorporated by reference).
Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-A/A (File No. 001-33549), filed on June 7, 2018 and herein incorporated by reference.
Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934
(previously filed as Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on
March 12, 2020 and herein incorporated by reference).
Registrant’s 2017 Omnibus Incentive Plan (previously filed as Exhibit 10.1 to the Registrant’s Form S-8
Registration Statement (File No. 333-218827), filed on June 19, 2017 and herein incorporated by reference).**
Amendment No. 1 to 2017 Omnibus Incentive Plan (previously filed as Annex A to the Registrant’s Proxy
Statement for the 2022 Annual Meeting of Shareholders (File No. 001-33549), and herein incorporated by
reference).**
Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan
(previously filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed
on March 14, 2018 and herein incorporated by reference)**
Form of Non-Qualified Stock Option Agreement under the Registrant’s 2017 Omnibus Incentive Plan)
(previously filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed
on March 12, 2020 and herein incorporated by reference).**
69
Exhibit
No.
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Description
Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (previously
filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12,
2020 and herein incorporated by reference).**
Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (previously
filed as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K (File No. 001-33549), filed on March 12,
2020 and herein incorporated by reference).**
Form of Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan (2024 Form)
(filed herewith).**
Form of Performance Restricted Stock Unit Agreement (previously filed as Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-33549), filed on August 8, 2022 and herein incorporated by
reference).**
Form of Performance Restricted Stock Unit Agreement under the Registrant’s 2017 Omnibus Incentive Plan
(2024 Form) (filed herewith).**
Form of Indemnification Agreement (previously filed as Exhibit 10.9 to the Registrant’s Registration Statement
on Form S-11, as amended (File No. 333-141634), filed on June 7, 2007 and herein incorporated by reference).
Tiptree Inc. 2023 Deferred Compensation Plan (previously filed as Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-33549), filed on August 2, 2023 and herein incorporated by reference).**
Amended and Restated Transition Services Agreement between Tricadia Holdings, L.P. and Tiptree Inc., dated
as of February 15, 2019 (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File
No. 001-33549), filed on April 22, 2019 and herein incorporated by reference).
Second Amended and Restated Credit Agreement, dated as of October 21, 2022 by and among Fortegra
Financial Corporation, LOTS Intermediate Co. and The Fortegra Group, Inc., as borrowers, the lenders from
time to time party thereto, certain of Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, NA, as the
administrative agent and issuing lender (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549),
filed October 25, 2022 and herein incorporated by reference).
Second Amendment to Credit Agreement, dated as of January 31, 2023, by and among South Bay Acceptance
Corporation, South Bay Funding LLC, the lenders from time to time party thereto and Fifth Third Bank,
National Association as the administrative agent (previously filed as Exhibit 10.11 to the Registrant’s Annual
Report on Form 10-K (File No. 001-33549) filed on March 8, 2023 and herein incorporated by reference).
Amended and Restated Credit Agreement dated as of October 6, 2023 by and among South Bay Acceptance
Corporation, South Bay Funding LLC, the lenders from time to time party thereto and Fifth Third Bank,
National Association as the administrative agent (previously filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K (File No. 001-33549), filed on October 11, 2023 and herein incorporated by reference.
Equity Interest Purchase Agreement, dated December 16, 2019, by and among Tiptree Warranty Holdings, LLC
and Peter Masi (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.
001-33549), filed on December 17, 2019 and herein incorporated by reference).
First Amendment to the Equity Interest Purchase Agreement, effective November 3, 2021, by and among
Fortegra Warranty Holdings, LLC and Peter Masi (previously filed as Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-33549) filed on November 3, 2021 and herein incorporated by reference).
Amendment No. 5 to Partner Emeritus Agreement, effective December 1, 2023, by and between Tiptree Inc.
and Arif Inayatullah (filed herewith).
Stockholders Agreement between and among Tiptree Holdings LLC, The Fortegra Group Inc. and WP Falcon
Aggregator, L.P. (previously filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No.
001-33549) filed on June 21, 2022 and herein incorporated by reference).
Warrant to Purchase Common Stock (previously filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-33549) filed on June 21, 2022 and herein incorporated by reference).
Investor Additional Warrants to Purchase Common Stock (previously filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K (File No. 001-33549) filed on June 21, 2022 and herein incorporated by
reference).
Tiptree Additional Warrants to Purchase Common Stock (previously filed as Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K (File No. 001-33549) filed on June 21, 2022 and herein incorporated by
reference).
Certificate of Designation of Series A Preferred Stock (previously filed as Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K (File No. 001-33549) filed on June 21, 2022 and herein incorporated by
reference).
70
Exhibit
No.
10.24
10.25
10.26
10.27
21.1
23.1
31.1
31.2
31.3
32.1
32.2
32.3
97
Description
Registration Rights Agreement between and among Tiptree Holdings LLC, The Fortegra Group Inc., WP
Falcon Aggregator, L.P. and the other holders set forth therein (previously filed as Exhibit 10.6 to the
Registrant’s Current Report on Form 8-K (File No. 001-33549) filed on June 21, 2022 and herein incorporated
by reference).
Investment Advisory Agreement by and among Tiptree Inc., The Fortegra Group, LLC and subsidiaries and
Corvid Peak Capital Management, LLC effective as of May 3, 2021 and July 1, 2021 (previously filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-33549) filed on August 4, 2021
and herein incorporated by reference).
Amended and Restated Executive Separation and Transition Agreement by and among Tiptree Inc. and Sandra
Bell, dated as of February 28, 2023 (previously filed as Exhibit 10.24 to the Registrant’s Annual Report on
Form 10-K (File No. 001-33549) filed on March 8, 2023 and herein incorporated by reference).**
Executive Employment Agreement by and among Tiptree Inc. and Scott McKinney, dated as of October 14,
2022 (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33549),
filed on October 17, 2022 and herein incorporated by reference).**
Subsidiaries of the Registrant (filed herewith).
Consent of Independent Registered Public Accounting Firm (filed herewith).
Certification of Executive Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
Certification of Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
Policy for Recoupment of Incentive Compensation (filed herewith).**
101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema Document*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
104
Cover Page Interactive Data File (embedded within the iXBRL document and included in Exhibit 101).
* Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL (eXtensible
Business Reporting Language): (i) the Consolidated Balance Sheets (audited) for December 31, 2023 and 2022, (ii) the
Consolidated Statements of Operations (audited) for the years ended December 31, 2023, 2022 and 2021, (iii) the
Consolidated Statements of Comprehensive Income (Loss) (audited) for the years ended December 31, 2023, 2022 and 2021,
(iv) the Consolidated Statements of Changes in Stockholders’ Equity (audited) for the years ended December 31, 2023, 2022
and 2021, (v) the Consolidated Statements of Cash Flows (audited) for the years ended December 31, 2023, 2022 and 2021
and (vi) the Notes to the Consolidated Financial Statements (audited).
** Denotes a management contract or compensatory plan, contract or arrangement.
Item 16. Form 10-K Summary
None.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
February 29, 2024
Tiptree Inc.
By:/s/ Jonathan Ilany
Jonathan Ilany
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Jonathan Ilany
Jonathan Ilany
/s/ Scott McKinney
Scott McKinney
/s/ Michael G. Barnes
Michael G. Barnes
/s/ Randy S. Maultsby
Randy S. Maultsby
/s/ Paul M. Friedman
Paul M. Friedman
/s/ Lesley Goldwasser
Lesley Goldwasser
/s/ Bradley E. Smith
Bradley E. Smith
/s/ Dominique Mielle
Dominique Mielle
Chief Executive Officer and
Director
February 29, 2024
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
February 29, 2024
Executive Chairman and Director
February 29, 2024
President and Director
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
Director
Director
Director
Director
72
Schedule II — Financial Information of Registrant
TIPTREE INC.
PARENT COMPANY ONLY STATEMENTS OF INCOME
(All amounts in thousands)
Revenues
Net realized and unrealized gains (losses)
Interest income
Other revenue
Total revenues
Expenses
Employee compensation and benefits
Interest expense (1)
Professional fees
Rent and facilities
General and administrative
Depreciation and amortization
Other expenses
Total expenses
$
Equity in earnings (losses) of subsidiaries, net of tax (1)
Income (loss) before taxes
Less: provision (benefit) for income taxes
Net income (loss) attributable to Tiptree Inc. common stockholders
$
(1) Eliminated in consolidation.
TIPTREE INC.
PARENT COMPANY ONLY BALANCE SHEETS
(All amounts in thousands, except share data)
Assets
Investment in subsidiaries (1)
Cash and cash equivalents
Available for sale securities, at fair value
Equity securities
Notes and accounts receivable, net
Income taxes receivable
Deferred tax assets
Right of use assets - operating leases
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities
Operating lease liability
Intercompany payables, net (1)
Accrued expenses
Total liabilities
Stockholders' Equity
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding
Common stock: $0.001 par value, 200,000,000 shares authorized, 36,756,187 and 36,385,299 shares issued
and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss), net of tax
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders' equity
(1) Eliminated in consolidation.
73
For the Year Ended December 31,
2022
2021
2023
6,126 $
4,522
302
10,950
30,115
163
4,511
2,003
868
1,327
1,390
40,377
40,386
10,959
(2,992)
13,951 $
— $
277
4
281
27,188
123
6,532
3,126
755
805
1,675
40,204
24,778
(15,145)
(6,871)
(8,274) $
—
259
67
326
28,060
—
6,656
1,993
1,254
805
1,305
40,073
73,164
33,417
(4,715)
38,132
As of December 31,
2022
2023
304,866 $
45,098
30,475
37,753
2,124
304
22,636
12,021
12,338
467,615 $
293,050
126,111
—
—
3,300
15,956
17,571
13,570
8,768
478,326
15,829 $
16,865
18,055
50,749 $
18,079
48,186
14,696
80,961
— $
—
37
382,239
(26,073)
60,663
416,866
467,615 $
36
382,645
(39,429)
54,113
397,365
478,326
$
$
$
$
$
$
TIPTREE INC.
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Operating Activities:
Net income (loss) attributable to Tiptree Inc. common stockholders
Adjustments to reconcile net income to net cash provided by operating activities
Equity in earnings of subsidiaries(1)
Net realized and unrealized (gains) losses
Amortization/accretion of premiums and discounts
Depreciation expense
Deferred provision (benefit) for income taxes
Non-cash lease expense
Non-cash compensation expense
Net changes in other operating assets and liabilities
Net cash provided by (used in) operating activities
Investing Activities:
Purchases of investments
Proceeds from sales and maturities of investments
Proceeds from the sale of businesses
Proceeds from notes receivable
Issuance of notes receivable
Net cash flows provided by (used in) provided by investing activities
Financing Activities:
Distributions from subsidiaries (1)
Proceeds from intercompany notes payable (1)
Repayment of intercompany notes payable (1)
Cash received for the exercise of warrants
Dividends paid
Repurchases of common stock
Subsidiary RSU exchanges
Cash paid in connection with the vesting of units
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash (received) paid for income taxes
(1) Eliminated in consolidation.
Note 1. Basis of Presentation
For the Year Ended December 31,
2022
2021
2023
$
13,951 $
(8,274) $
38,132
(40,386)
(6,126)
(1,899)
1,327
(5,453)
1,970
5,845
13,032
(17,739)
(149,309)
90,811
—
—
—
(58,498)
(24,778)
—
—
805
1,048
2,512
7,093
(4,054)
(25,648)
—
—
—
—
—
—
35,906
—
(33,281)
—
(7,401)
—
—
—
(4,776)
(81,013)
126,111
45,098 $
99,965
43,281
—
13,724
(5,759)
(1,727)
(181)
—
149,303
123,655
2,456
126,111 $
(73,164)
—
—
805
(528)
1,843
8,580
5,412
(18,920)
—
—
125
169
(432)
(138)
30,996
—
—
—
(5,409)
(2,882)
(1,458)
(445)
20,802
1,744
712
2,456
(15,708) $
(155) $
61
$
$
Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that
was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”.
Tiptree is a holding company that combines specialty insurance operations with investment management capabilities. We allocate
our capital across our insurance operations and other investments. We classify our business into two reportable segments:
Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our
Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital.
Pursuant to the terms discussed in Note—(11) Debt, net in the notes to consolidated financial statements, indebtedness of
subsidiaries of Tiptree limits that subsidiary’s ability to pay dividends or make distribution to Tiptree Inc. In addition, certain other
subsidiaries’ activities are regulated, or subject to specific restriction on transfers as a result of financing arrangements. As a result
of these restrictions, these financial statements of the Registrant have been prepared in accordance with Rule 12-04 of Regulation
S-X, as restricted net assets of the Company's subsidiaries (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the
Company's consolidated net assets as of December 31, 2023.
These financial statements have been prepared on a "parent-only" basis. Under a parent-only presentation, the Parent Company's
investments in subsidiaries are presented under the equity method of accounting. Certain information and footnote disclosures
74
normally included in financial statements prepared in accordance with GAAP have been or omitted. The accompanying financial
information should be read in conjunction with the Tiptree Inc. consolidated financial statements and related Notes thereto.
Note 2. Dividends Received
The Company received distributions of $35,906, $99,965 and $30,996 for the years ended December 31, 2023, 2022 and 2021,
respectively.
75