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What changed in TIPTREE INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TIPTREE INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+592 added−494 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-08)

Top changes in TIPTREE INC.'s 2023 10-K

592 paragraphs added · 494 removed · 347 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

57 edited+130 added−72 removed31 unchanged
Biggest changeOur fixed maturity securities totaled $1,057 million and include cash and cash equivalents, available for sale securities, at fair value, exchange traded funds and investment grade securities classified in other investments, had a weighted-average effective duration of 2.3 years, an average S&P rating of AA+, and a book yield of 2.7% as of December 31, 2022.
Biggest changeThe following table provides a summary of Fortegra’s investments and cash and cash equivalents as of December 31, 2023 and December 31, 2022: As of ($ in millions) December 31, 2023 December 31, 2022 Investments: Fair Value % of Total Fair Value Fair Value % of Total Fair Value Cash and cash equivalents $ 410 30.9 % $ 388 33.7 % Available for sale securities, at fair value 772 58.2 % 612 53.0 % Loans, at fair value 11 0.8 % 14 1.2 % Common and preferred equity securities 26 1.9 % 17 1.5 % Exchange traded funds 1 0.1 % 56 4.9 % Other investments 107 8.0 % 66 5.7 % Total cash and invested assets $ 1,327 100.0 % $ 1,154 100.0 % 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.
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. • 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.
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.
Each 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.
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.
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 their business in the host state, in the interest of the general good.
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.
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 . 20
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
Human Capital The success of our businesses depend 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.
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.
Our 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 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.
Our 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 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.
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 March 7, 2023, directors, officers, employees and related trusts owned 33% of the Company.
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.
Our insurance company subsidiaries are also subject to certain state regulations that define eligible investments and establish diversification requirements and concentration limits among asset classes.
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.
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, 2022, Tiptree Capital - Other’s combined operations had 47 employees.
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.
Similar to the federal and state regulations related to our insurance companies, our 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.
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.
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. We are also subject to the related federal, state and foreign data privacy and data protection laws.
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.
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 our compliance costs and subject us to operational challenges in the region.
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.
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 the regulation of market conduct, including underwriting and claims practices.
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 of December 31, 2022, Tiptree and its consolidated subsidiaries had 1,304 employees, 27 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.
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.
Failure to comply with these regulations would cause non-conforming investments to be treated as non-admitted assets in the states in which we are licensed to sell insurance policies for purposes of measuring statutory surplus and, in some instances, would require us to sell those investments.
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.
Although we believe that these intellectual property rights are, in the aggregate, important to our business, we also believe that our business is not materially dependent upon any particular trademark, trade name, copyright, service mark, license or other intellectual property right.
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.
The competition we face is due to 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 15 products offered, overall reputation, and other factors.
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.
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.
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.
Our U.S. insurance company subsidiaries are domiciled in several states, including Arizona, California, Delaware, Georgia, Kentucky and Louisiana.
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.
After Brexit, United Kingdom regulators established the Temporary Permissions Regime, which permitted passporting insurers to continue operating in the United Kingdom for up to three years post-Brexit. We are active in and subject to regulation in the United Kingdom.
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.
Tiptree Capital - Other Tiptree Capital - Other currently includes: • Our investment holdings in the maritime transportation sector. • Our share holdings of Invesque, a publicly traded real estate investment company that specializes in health care and senior living property investment throughout North America. • Our ownership of Corvid Peak, a credit oriented, special situations asset manager.
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.
Employees As of December 31, 2022, our Mortgage operations had 339 employees.
Employees As of December 31, 2023, our Mortgage operations had 338 employees.
We conduct monthly stress tests and use predictive analytics to manage our investments, which we believe reduces risk to our investment performance. We also maintain an investment committee that meets monthly to ensure our investment objectives remain aligned with our broader strategic and financial objectives.
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.
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. 18 Competition In the sectors in which Tiptree Capital participates, the markets are highly competitive.
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.
These value-added services deepen our relationships and contribute to the high persistency rate with our agents. Our technology infrastructure is scalable and affords us the opportunity to add new agents, distribution partners and services without significant additional expense.
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.
Our Malta company was passporting into the United Kingdom prior to Brexit and registered to operate under the Temporary Permissions Regime until permanent authority is granted by United Kingdom regulators.
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.
Malta is a member country of the EU, and as of December 31, 2022, we were active in eighteen countries in the EU, plus the United Kingdom. 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.
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.
Regulation We are subject to extensive regulation by federal, state and local governmental authorities, including the CFPB, the Federal Trade Commission and various state agencies that license, audit and conduct examinations.
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 integrated, proprietary technology efficiently manages the high volume of policies and claims that result from servicing large numbers of small policyholders and contract holders. Our technology is highly automated, scalable and allows us to operate at a low cost.
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.
We are also subject to federal and state laws and regulations related to the administration of insurance products on behalf of other insurers. In order for us to process and administer insurance products of other companies, we are required to maintain licenses of a third-party administrator in the states where those insurance companies operate.
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.
Tiptree Capital: We own a diversified group of businesses and investments that are owned and managed separately as Tiptree Capital, and 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, maritime shipping operations and investments in shares of Invesque.
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 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. A portion of our foreign business is conducted via our insurance company in Malta.
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.
Our goal for successful LDP participants is to hire them on a full time basis upon completion of the program. 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.
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.
The Fortegra 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 our communities by lending a helping hand to those in need. We undertake multiple initiatives to support military families and local charities focused on the health and welfare of children and families.
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.
We may compete with other specialty carriers or program managers within a given program, but no specific insurers can be identified as clear competition across all of our business lines. Within the United States, we compete with specialty insurers like Markel Corporation, RLI Corporation and Clear Blue Insurance Group.
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.
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. Our claims adjusters work closely with our underwriting team by keeping them apprised of loss trends early in a program’s development.
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 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.” 10 Insurance Overview Fortegra is an established, growing and consistently profitable specialty insurer.
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.
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 does protect against collision losses. U.S.
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.
These captive reinsurance companies are known as PORCs and in most instances each PORC assumes almost all of the underwriting risk associated with the insurance products they deliver. When we use PORCs, consistent with applicable laws and insurance regulations, we act in a fronting and administrative capacity on behalf of each PORC, providing underwriting and claims management services.
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.
The insurance directives set forth a regulatory 16 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.
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.
Revenues 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, our revenues have historically been higher in the third and fourth quarters than in the first half of the year.
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.
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 as of December 31, 2020, United Kingdom insurance regulation generally follows substantially similar Solvency II principles for prudential regulation and the general good principles for conduct regulation.
Solvency II includes capital requirements, risk management and corporate governance frameworks, and financial reporting requirements, which are subject to MFSA regulatory oversight.
Intellectual Property We own or license a number of trademarks, patents, trade names, copyrights, service marks, trade secrets and other intellectual property rights that relate to our services and products within the various jurisdictions we operate.
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.
Our vertically integrated platform also allows us to engage and enter into direct relationships with distributors. In each case, we pay our partners a commission-based fee (or a dealer net equivalent in the case of our service contract and protection product business).
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.
Risk Management and Reinsurance Consistent with standard industry practice for most insurance companies, we use reinsurance to manage our underwriting risk and efficiently utilize capital. In our commercial insurance lines, our reinsurers tend to be highly rated, well-capitalized professional third-party reinsurers. We typically contract with third-party reinsurers that have attained an “A-” or better financial strength rating from A.M. Best.
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.
Additionally, our insurance subsidiaries have entered into confidentiality agreements with their clients that impose restrictions on client use of our proprietary software and other intellectual property rights. Employees 17 As of December 31, 2022, Fortegra had 918 employees across 16 offices in four countries.
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.
Additionally, a portion of our US and EU business is also ceded to our reinsurance company subsidiary domiciled in Turks and Caicos. Our Turks and Caicos company is subject to Solvency II type of regulation by the domestic regulator.
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.
Our technology also delivers low-cost, highly automated underwriting and administration services to our partners without substantial up-front investments. This technology-enhanced platform enables us to automate core business processes, reduce our operating costs, increase our operating efficiency and secure high agent retention. We have maintained a greater than 95% persistency rate with our insurance producing agents over the past five years.
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%.
We receive an 14 administration fee that compensates us for our expenses associated with underwriting and servicing the underlying policies. Because reinsurance does not relieve us of our primary liability to the policyholder, we generally require cash collateral to secure the reinsurance receivable in the event that a PORC is unable to pay the claims it has assumed.
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.
This group is led by female executives at Fortegra. The programming and resources provided are available to all Fortegra employees. At Fortegra, we have developed an education program that assists employees in developing key skills that enable them to perform their jobs and to advance their careers.
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.
These products offer consumers and lenders the option to protect loan balance repayment in the event of death, involuntary unemployment or disability. Our collateral insurance products are designed to primarily protect the lender from losses to collateral pledged to secure an installment loan.
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.
We primarily compete by leveraging our proprietary technological platform, decades of underwriting expertise, robust distribution relationships, data-driven marketing initiatives, our “agent-first” mentality, and best-in-class reputation. Regulation We are subject to federal, state, local and foreign regulation and supervision.
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.
A significant portion of our marketing partnership commission agreements are on a variable or retrospective commission basis, which allows us to adjust commissions on the basis of claims experience. Under these types of arrangements, the compensation to our marketing partners is based upon the actual losses incurred compared to premiums earned.
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.
For example, some states require that forms be filed for prior review or require that our distributors hold a license to sell. Seasonality Our financial results historically have been, and we expect to continue to be, affected by seasonal variations.
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.
Our underwriters are industry veterans with deep knowledge of the specialty products that they underwrite, and they have longstanding relationships with our agents and distribution partners. We give limited underwriting authority to our MGAs. This means that we give our MGAs quote, bind and policy issuance authority within specifically agreed underwriting guidelines.
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.
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Insurance: Our Insurance segment is a group of companies operating as part of Fortegra, which is a leading provider of specialty insurance products and related services. Fortegra designs, markets and underwrites specialty commercial and personal property and casualty insurance products incorporating value-added coverages and services for select target markets or niches.
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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.
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We target markets with specialized areas of demand, including niche business lines, and by offering innovative policy features. We believe this approach allows us to compete by offering customized coverage and solutions, rather than competing solely on price. Our products are distributed through a diverse multi-channel delivery system centered around our production underwriting organization and large independent agent network.
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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.
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We use proprietary technology to efficiently and effectively administer business to specialty markets that we believe are underserved by larger, less agile insurers. Our underwriting expertise, strong agent relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities.
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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.
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We focus on niche business lines and fee-oriented services, providing us with a unique combination of insurance, service contract products and related service solutions. Our vertically integrated business model creates an attractive blend of traditional underwriting revenues, unregulated fee revenues and investment income. This differentiated approach has led to robust growth, consistent profitability and high cash flows.
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The 1940 Act may limit the types and nature of businesses that we engage in and assets that we may acquire.
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The business was founded in 1978 and is headquartered in Jacksonville, Florida. We target lines of business with lower risk limits and use risk mitigation to limit both aggregation and catastrophic exposures. We believe this focus has allowed us to produce superior underwriting results through a more granular spread of risk.
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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.
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We use proprietary technology to efficiently and effectively administer business to specialty markets that we feel are underserved by larger, less agile insurers. Our underwriting expertise, strong distribution relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities in all market conditions.
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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.
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We use an agent-focused distribution model, employing a “one-to-many” strategy, which allows us to leverage our high-quality partners and their customer bases. We deliver our insurance products through independent insurance agents.
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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.
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We also partner with agents that are embedded in consumer finance companies, online and regional big box retailers, auto dealers and other companies to deliver our products that complement retail and consumer purchases.
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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.
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We use artificial intelligence (“A.I.”) technology to create a distinct lead generation advantage for our insurance distribution partners and over the past five years have maintained a greater than 95% persistency rate, which represents the annual retention of the number of our producing agents.
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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.
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We align our agents’ economics with their underwriting results via risk-sharing agreements, which we believe has enabled us to better manage uncertainties and deliver more consistent profit margins. Combined with our underwriting expertise and technology-enabled administration, we provide a high-value proposition to our distribution relationships. Products and Services U.S.
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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.
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Insurance: Provides niche, specialty insurance products distributed through MGAs, wholesale agents, retail agents and brokers. We offer an array of commercial programs with a particular focus on casualty lines.
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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.
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These lines include professional liability, contractual liability, energy, allied health, general liability, directors and officers liability, life sciences, inland marine, contractors equipment, contractors liability, student legal liability, hospitality and business owner policy. We also offer a range of personal lines programs including storage unit contents, manufactured housing, GAP, auto, credit life and disability and collateral insurance products.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

86 edited+48 added−9 removed350 unchanged
Biggest changeOur 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.
Biggest changeDue 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.
In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition. A number of new, proposed or potential legislative or industry developments could further increase competition in the insurance industry.
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.
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. Such risk could be difficult or impossible to eliminate and could adversely affect our business’s results of operations, financial condition and cash flows.
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 of their losses for certain P&C lines of insurance.
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.
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 new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems.
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.
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, 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.
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, 45 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.
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 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.
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 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 29 premiums from period to period as they concentrate on underwriting contracts that they believe will generate better long-term, rather than short-term, results.
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.
A downgrade or withdrawal of our insurance subsidiaries’ ratings could result in any of the following consequences, among others: 26 • 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.
A downgrade or withdrawal of our insurance subsidiaries’ ratings could result in any of the following consequences, among others: • 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.
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. Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business model and expose them to increased liability.
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. 48 Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business model and expose them to increased liability.
An event 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.
An event 42 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.
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. 44 We could be materially adversely affected by violations of the U.S.
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.
Downgrades in the credit ratings of fixed maturities may also have a significant negative effect on the market valuation of such securities. 23 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.
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.
Our insurance subsidiaries use reinsurance to reduce the severity and incidence of claims costs, and to provide relief with 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.
Our insurance subsidiaries use reinsurance to reduce the severity and incidence of claims costs, and to provide relief with 32 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.
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 excess of prescribed limits are deemed “extraordinary” and require insurance regulatory approval.
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 46 excess of prescribed limits are deemed “extraordinary” and require insurance regulatory approval.
Such restrictions would also affect our ability to pay dividends to stockholders, if and when we choose to do so. 39 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.
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.
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 25 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 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.
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 exchange derivatives, credit derivatives, freight forward agreements, fuel oil swaps and other derivative hedging instruments.
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 44 exchange derivatives, credit derivatives, freight forward agreements, fuel oil swaps and other derivative hedging instruments.
The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. 37 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.
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.
Catastrophic events could significantly impact the Company’s businesses. Unforeseen or catastrophic events, such as severe weather, natural disasters, pandemic (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.
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.
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. Risks Related to Regulatory and Legal Matters Maintenance of our 1940 Act exemption imposes limits on our operations.
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. 47 Risks Related to Regulatory and Legal Matters Maintenance of our 1940 Act exemption imposes limits on our operations.
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.
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 investments.
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 28 investments.
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 information and other data, manage significant databases and expand and upgrade their information systems.
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 29 information and other data, manage significant databases and expand and upgrade their information systems.
Even if our insurance subsidiaries were to prevail in 33 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.
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 could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel. 28 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.
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.
Due to such 41 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.
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.
In addition, any such action, particularly to the extent our insurance 42 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.
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.
Our insurance subsidiaries’ 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 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.
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 business.
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 33 business.
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. We leverage certain of our assets, including through borrowings, generally through warehouse credit facilities, secured loans, securitizations and other borrowings.
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. 43 We leverage certain of our assets, including through borrowings, generally through warehouse credit facilities, secured loans, securitizations and other borrowings.
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 43 Practices Act.
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.
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 35 and use asset-specific collateral data and market inputs for interest and discount rates.
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.
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 European Union on December 31, 2020 (which is commonly referred to as “Brexit”).
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”).
They 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.
They 34 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 we are required to indemnify or repurchase loans that we originate and sell that result in losses that exceed our reserve, this could 36 adversely affect our business, financial condition and results of operations.
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.
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. 40 Tiptree holds and manages multiple lines of business.
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.
However, any such coverage would be subject to a mandatory deductible based on 20% of earned premium for the prior year for the covered 2020 of commercial P&C 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.
The agreements governing their indebtedness include covenants restricting, among other things, their ability to: • incur or guarantee additional debt; 31 • 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.
The agreements governing their indebtedness include covenants restricting, among other things, their ability to: 37 • 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.
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 21 subsidiaries’ ability to price their products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms.
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 26 subsidiaries’ ability to price their products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms.
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.
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.
As of December 31, 2022, 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.
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 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, interest rates increased significantly, which caused a significant decrease in the value of our fixed income securities, the majority of which were unrealized and recorded in equity.
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.
With the increasing frequency of cyber-related frauds 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.
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.
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. 30 Our insurance subsidiaries may be adversely affected by negative publicity relating to brand and activities.
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. 36 Our insurance subsidiaries may be adversely affected by negative publicity relating to brand and activities.
Our participation in such joint investments is subject to the risks that: • 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. 34 Our mortgage business is significantly impacted by interest rates.
Our participation in such joint investments is subject to the risks that: • 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.
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 European Union, or EU.
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 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, denial-of-service attacks, viruses, worms, other malicious software programs, the loss of stored data, programming errors, the breakdown or malfunctioning of computer equipment or software systems, telecommunications failure or damage caused by weather or natural disasters, 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.
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.
Furthermore, the burden on management and our insurance subsidiaries’ IT of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of their system of internal controls.
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.
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 were at or near historic lows for an extended period of time.
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.
(“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. Item 1B.
(“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.
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 and/or new products or services, our insurance subsidiaries may invest significant time and resources.
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.
However, the steps they 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.
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.
New lines of business, new products and services or new geographic markets may subject our insurance subsidiaries to additional risks. 27 From time to time, our insurance subsidiaries may implement new lines of business or offer new products and services within existing lines of business, as well as expand into new geographic markets.
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, 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 intellectual property, which includes their rights in their technology platform and their 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.
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.
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.
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.
Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the EU and other jurisdictions. 51 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.
Despite such efforts, they may 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.
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.
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.
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.
For example, certain of our insurance and mortgage businesses are subject to the California Consumer Privacy Act of 2018 (“CCPA”), which among other things, requires companies covered by the legislation to provide new disclosures to California consumers and afford such consumers new rights of access and deletion of personal information.
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.
Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, our businesses and the third parties with whom they do business may be unable to anticipate these techniques or to implement adequate preventative measures.
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.
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.
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.
The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to factors outside of our control. 22 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.
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.
Changes in accounting practices and future pronouncements may materially affect our reported financial results. 38 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.
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.
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 or re-engineer all or a portion of their technology systems, each of which could reduce or eliminate the value of their technology 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.
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 24 and maintaining financial records.
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.
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 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.
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 the policies. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce their underwriting profit to the extent these factors are not reflected in the rates they charge.
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.
These cyclical patterns cause our revenues and net income to fluctuate, which may cause the price of our common stock to be volatile. 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.
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.
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.
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.
Our insurance subsidiaries primarily rely on a combination of copyright, trade secret and trademark laws and confidentiality agreements, procedures and contractual provisions with their employees, customers, service providers, partners and other third parties to protect their proprietary or confidential information and intellectual property rights.
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 39 information and intellectual property rights.
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 a result, decreases in interest rates could have a detrimental effect on our mortgage business. 41 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.
The regulatory environment surrounding information security, data privacy and cybersecurity is evolving and increasingly demanding. A number of our subsidiaries are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personally identifiable and confidential information of their customers and employees.
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.
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 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.
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.
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.
This rapid rise in interest rates 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.
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.
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. 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.
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.
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. 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.
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.
Factors that could affect such analyses include: • if our insurance subsidiaries change their business practices from their organizational business plan in a manner that no longer supports A.M.
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: 31 • if our insurance subsidiaries change their business practices from their organizational business plan in a manner that no longer supports A.M.
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 business’s results of operations and financial condition. 32 Failure of our insurance subsidiaries’ distribution partners to properly market, underwrite or administer policies could adversely affect our insurance subsidiaries.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties 45 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.
Biggest changeItem 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 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
Biggest changeItem 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 53

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis number does not include beneficial owners whose shares are held by nominees in street name.
Biggest changeThis number does not include beneficial owners whose shares are held by nominees in street name. Item 6. Reserved. 54
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, 2022, there were 48 common stockholders of record.
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.
Removed
Issuer Purchases of Equity Securities Share repurchase activity for the three months ended December 31, 2022 was as follows: Period Purchaser Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value ($ in thousands) of Shares That May Yet Be Purchased Under the Program (1) October 1, 2022 to October 31, 2022 Tiptree Inc. 6,878 $ 10.58 6,878 November 1, 2022 to November 30, 2022 Tiptree Inc. — $ — — December 1, 2022 to December 31, 2022 Tiptree Inc. — $ — — Total 6,878 $ 10.58 6,878 $ 11,945 (1) On November 2, 2020, the Board of Directors of Tiptree authorized Tiptree’s Executive Committee to repurchase up to $20 million of its outstanding common stock in the aggregate from time to time (the “Program”).
Removed
The Program does not obligate the Company to acquire a minimum amount of shares. Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Item 6. Reserved. 46

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data F- 1 Consolidated Balance Sheets for December 31, 202 2 and 202 1 F- 1 Consolidated Statements of Operations for the three years ended December 31, 2022, 2021, and 2020 F- 2 Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2022, 2021, and 2020 F- 3 Consolidated Statement of Changes in Stockholders’ Equity for the three years ended December 31, 2022, 2021, and 2020 F- 4 Consolidated Statements of Cash Flows for the three years ended December 31, 2022, 2021, and 2020 F- 6 Notes to Consolidated Financial Statements F- 8 (1) Organization F- 8 (2) Summary of Significant Accounting Policies F- 8 (3) Acquisitions F- 20 (4) Dispositions and Assets and Liabilities Held for Sale F- 21 (5) Segment Data F- 21 (6) Investments F- 23 (7) Notes and Accounts Receivable, net F- 28 (8) Reinsurance Receivables F- 29 (9) Goodwill and Intangible Assets, net F- 31 (10) Derivative Financial Instruments and Hedging F- 32 (11) Debt, net F- 34 (12) Fair Value of Financial Instruments F- 36 (13) Liability for Unpaid Claims and Claim Adjustment Expenses F- 43 (14) Revenue from Contracts with Customers F- 46 (15) Other Assets and Other Liabilities and Accrued Expenses F- 47 (16) Other Revenue and Other Expenses F- 48 ( 17) Stockholders’ Equity F- 49 (18) Accumulated Other Comprehensive Income (Loss) F- 51 (19) Stock Based Compensation F- 52 (20) Income Taxes F- 56 (21) Commitments and Contingencies F- 59 (22) Earnings Per Share F- 61 (23) Related Party Transactions F- 61 (24) Subsequent Events F- 62
Biggest changeFinancial Statements and Supplementary Data F- 1 Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets for December 31, 2023 and 2022 F- 5 Consolidated Statements of Operations for the three years ended December 31, 2023, 2022, and 2021 F- 6 Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2023, 2022, and 2021 F- 7 Consolidated Statement of Changes in Stockholders’ Equity for the three years ended December 31, 2023, 2022, and 2021 F- 8 Consolidated Statements of Cash Flows for the three years ended December 31, 2023, 2022, and 2021 F- 10 Notes to Consolidated Financial Statements F- 12 (1) Organization F- 12 (2) Summary of Significant Accounting Policies F- 12 (3) Acquisitions F- 23 (4) Dispositions and Assets and Liabilities Held for Sale F- 24 (5) Operating Segment Data F- 24 (6) Investments F- 26 (7) Notes and Accounts Receivable, net F- 32 (8) Reinsurance Receivables F- 32 (9) Goodwill and Intangible Assets, net F- 35 (10) Derivative Financial Instruments and Hedging F- 36 (11) Debt, net F- 38 (12) Fair Value of Financial Instruments F- 40 (13) Liability for Unpaid Claims and Claim Adjustment Expenses F- 47 (14) Revenue from Contracts with Customers F- 50 (15) Other Assets and Other Liabilities and Accrued Expenses F- 51 (16) Other Revenue and Other Expenses F- 52 ( 17) Stockholders’ Equity F- 53 (18) Accumulated Other Comprehensive Income (Loss) F- 56 (19) Stock Based Compensation F- 56 (20) Income Taxes F- 60 (21) Commitments and Contingencies F- 63 (22) Earnings Per Share F- 65 (23) Related Party Transactions F- 65 (24) Subsequent Events F- 66
Item 6. Reserved. 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 71 Item 8.
Item 6. Reserved. 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 55 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor the Year Ended December 31, 2022 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 68,150 $ 874 $ 31,403 $ (46,416) $ 54,011 Less: Income tax (benefit) expense (21,251) (363) (5,545) (23,291) (50,450) Less: Net realized and unrealized gains (losses) 20,347 (7,003) (18,788) — (5,444) Plus: Intangibles amortization (1) 16,229 — — — 16,229 Plus: Stock-based compensation expense 2,423 — — 7,093 9,516 Plus: Non-recurring expenses 3,374 — (729) 2,108 4,753 Plus: Non-cash fair value adjustments (939) — 3,555 — 2,616 Less: Tax on adjustments (2) (4,501) 1,834 3,731 31,106 32,170 Adjusted net income $ 83,832 $ (4,658) $ 13,627 $ (29,400) $ 63,401 Adjusted net income $ 83,832 $ (4,658) $ 13,627 $ (29,400) $ 63,401 Average stockholders’ equity $ 321,320 $ 57,575 $ 98,373 $ (10,390) $ 466,878 Adjusted return on average equity 26.1 % (8.1) % 13.9 % NM % 13.6 % 63 For the Year ended December 31, 2021 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 69,857 $ 28,407 $ 17,210 $ (50,132) $ 65,342 Less: Income tax (benefit) expense (18,438) (4,882) (1,992) 4,021 (21,291) Less: Net realized and unrealized gains (losses) (3,732) (5,798) (3,091) — (12,621) Plus: Intangibles amortization (1) 15,329 — — — 15,329 Plus: Stock-based compensation expense 2,006 331 213 8,581 11,131 Plus: Non-recurring expenses 2,158 — 938 2,171 5,267 Plus: Non-cash fair value adjustments — — (3,170) — (3,170) Less: Tax on adjustments (2) (398) (624) 655 4,249 3,882 Adjusted net income $ 66,782 $ 17,434 $ 10,763 $ (31,110) $ 63,869 Adjusted net income $ 66,782 $ 17,434 $ 10,763 $ (31,110) $ 63,869 Average stockholders’ equity $ 300,820 $ 60,433 $ 113,717 $ (88,111) $ 386,859 Adjusted return on average equity 22.2 % 28.8 % 9.5 % NM% 16.5 % The footnotes below correspond to the tables above, under “—Adjusted Net Income - Non-GAAP and “—Adjusted Return on Average Equity - Non-GAAP”.
Biggest changeAdjusted 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 Year Ended December 31, 2023 ($ in thousands) Tiptree Capital Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 129,816 $ (3,285) $ (3,264) $ (40,214) $ 83,053 Less: Income tax (benefit) expense (28,224) 837 153 (15,822) (43,056) Less: Net realized and unrealized gains (losses) (1) 4,207 1,861 5,289 — 11,357 Plus: Intangibles amortization (2) 16,919 — — — 16,919 Plus: Stock-based compensation expense 2,018 — — 6,251 8,269 Plus: Non-recurring expenses (3) 2,824 — — — 2,824 Plus: Non-cash fair value adjustments (4) (1,769) — — — (1,769) Plus: Impact of tax deconsolidation of Fortegra (5) — — — 19,101 19,101 Less: Tax on adjustments (6) (10,086) (495) (1,255) 797 (11,039) Adjusted net income (before NCI) $ 115,705 $ (1,082) $ 923 $ (29,887) $ 85,659 Less: Impact of non-controlling interests (23,742) — — — (23,742) Adjusted net income $ 91,963 $ (1,082) $ 923 $ (29,887) $ 61,917 Adjusted net income (before NCI) $ 115,705 $ (1,082) $ 923 $ (29,887) $ 85,659 Average stockholders’ equity $ 395,661 $ 53,520 $ 100,325 $ 5,564 $ 555,070 Adjusted return on average equity (7) 29.2 % (2.0) % 0.9 % NM% 15.4 % Year Ended December 31, 2022 ($ in thousands) Tiptree Capital Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 68,150 $ 874 $ 31,403 $ (46,416) $ 54,011 Less: Income tax (benefit) expense (21,251) (363) (5,545) (23,291) (50,450) Less: Net realized and unrealized gains (losses) (1) 20,347 (7,003) (18,788) — (5,444) Plus: Intangibles amortization (2) 16,229 — — — 16,229 Plus: Stock-based compensation expense 2,423 — — 7,093 9,516 Plus: Non-recurring expenses (3) 3,374 — (729) 2,108 4,753 Plus: Non-cash fair value adjustments (4) (939) — 3,555 — 2,616 Plus: Impact of tax deconsolidation of Fortegra (5) 1,560 — — 31,573 33,133 Less: Tax on adjustments (6) (6,061) 1,834 3,731 (467) (963) Adjusted net income (before NCI) $ 83,832 $ (4,658) $ 13,627 $ (29,400) $ 63,401 Less: Impact of non-controlling interests (10,367) $ — $ — $ — (10,367) Adjusted net income $ 73,465 $ (4,658) $ 13,627 $ (29,400) $ 53,034 Adjusted net income (before NCI) $ 83,832 $ (4,658) $ 13,627 $ (29,400) $ 63,401 Average stockholders’ equity $ 321,320 $ 57,575 $ 98,373 $ (10,390) $ 466,878 Adjusted return on average equity (7) 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”.
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, 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.
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.
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 this Annual Report on Form 10-K.
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.
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 unpredictable manner.
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.
In addition to GAAP results, management uses the Non-GAAP measures Adjusted net income, Adjusted return on average equity, Adjusted EBITDA 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.
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.
Impairment 66 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.
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.
The variability in these estimates can, and have in the past, been significant to pretax income. 67 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 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.
Adjusted net income, adjusted return on average equity, Adjusted EBITDA, 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.
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.
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, 69 including tax-planning strategies, by individual tax jurisdictions.
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.
Adjusted net income, Adjusted return on average equity and Adjusted EBITDA 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.
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.
Established in 2007, we have a significant track record investing in the insurance sector and across a variety of other industries, including mortgage origination, specialty finance and shipping. Our largest operating subsidiary, Fortegra, is a leading provider of specialty insurance products and related services.
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.
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.
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.
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 our distribution partners.
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 our 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.
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.
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, 2022 and 2021, 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.
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.
On October 21, 2022, Fortegra entered into a Second Amended and Restated Credit Agreement by and among Fortegra Financial, 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 65 lender (the “Fortegra Credit Agreement”).
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”).
These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, target loss ratios, in-force amounts, unearned premium reserves, industry recognized morbidity tables or a combination of these factors. In arriving at the unpaid claims reserves, the Company conducts an actuarial analysis on a basis gross of reinsurance.
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.
Insurance Our principal operating subsidiary, Fortegra, is a specialty insurance underwriter and service provider, which focuses on niche business mixes 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.
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.
Continued rising or elevated mortgage rates could have a materially negative impact on our mortgage business results of operations, and is likely 48 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.
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.
Our 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.
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.
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 68 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 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.
Net Realized and Unrealized Gains (Losses) on investments are a function of the difference between the amount received 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.
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.
Underwriting and fee margin represents income before taxes excluding net investment income, net realized and unrealized gains (losses), 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.
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.
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 (primarily Invesque); and charter revenues from vessels within the Company’s maritime transportation operations.
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.
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 o ur net losses and loss adjustment expenses and member benefit claims expenses.
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.
In 2021, the $2.6 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.
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.
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 and reinsurance receivables.
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.
Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts, vehicle service contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other actuarial methods as appropriate for the contract.
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.
Adjusted Net Income and Adjusted Return on Average Equity 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 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.
Underwriting and fee margin represents the underwriting performance of our underwriting and fee-based lines. 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 the Company’s business mix.
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.
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. 70
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
The Fortegra Credit Agreement provides for a $200 million revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $25 million for swing loans and matures on October 21, 2027.
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.
In general, the Company's loss ratio res ults 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 assumptions and variables could lead to significantly different unpaid claims estimates.
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.
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.
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.
As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2022 and 2021. Amortization of deferred acquisition costs was $479.1 million and $375.1 million for the years ended December 31, 2022 and 2021.
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.
Non-GAAP Financial Measures Underwriting and Fee Revenues and Underwriting and Fee Margin - Non-GAAP (1) In order to better explain to investors the underwriting performance 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.
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.
Revenues from contracts with customers were $300.2 million and $258.6 million for the years ended December 31, 2022 and 2021, 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.
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.
We generally manage our exposure to the risks we underwrite using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our agents (e.g., commissions paid are adjusted based on the actual underlying losses incurred), which mitigate our risk.
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.
Offsetting the impact of a rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth can result in higher interest income on investments over time. The weighted average duration of our fixed income available for sale securities is less than three years.
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.
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.
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.
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 auto, consumer goods and roadside service contracts.
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.
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 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.
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, motor club, and auto and consumer goods service contracts.
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.
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.
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.
Expense ratio is the ratio of the GAAP line items employee compensation and benefits and other underwriting, general and administrative expenses to earned premiums, net, service and administrative fees and ceding commissions and other revenue. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
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.
Interest Expense consists primarily of interest expense on our corporate revolving debt, our Notes, our preferred trust securities due June 15, 2037 (“Preferred Trust Securities”) and asset-based debt for our premium finance business, which is non-recourse to Fortegra. Depreciation is primarily associated with furniture, fixtures and equipment.
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.
For the year ended December 31, 2022, depreciation and amortization expense was $18.6 million, including $16.2 million of intangible amortization related to purchase accounting associated with acquisitions of ITC, Sky Auto, Smart AutoCare and Fortegra.
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 $16.2 million of intangible amortization from purchase accounting in 2022.
The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares. 64 ($ in thousands, except per share information) As of December 31, 2022 2021 Total stockholders’ equity $ 533,573 $ 400,181 Less: Non-controlling interests 136,208 17,227 Total stockholders’ equity, net of non-controlling interests $ 397,365 $ 382,954 Total common shares outstanding 36,385 34,124 Book value per share $ 10.92 $ 11.22 LIQUIDITY AND CAPITAL RESOURCES 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.
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) As of December 31, 2023 2022 Total stockholders’ equity $ 576,565 $ 533,573 Less: Non-controlling interests 159,699 136,208 Total stockholders’ equity, net of non-controlling interests $ 416,866 $ 397,365 Total common shares outstanding 36,756 36,385 Book value per share $ 11.34 $ 10.92 LIQUIDITY AND CAPITAL RESOURCES 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.
Expenses – 2022 compared to 2021 For the year ended December 31, 2022, net losses and loss adjustment expenses were $361.6 million, member benefit claims were $91.0 million and commission expense was $522.7 million, as compared to $253.5 million, $73.5 million, and $396.7 million, respectively, for the year ended December 31, 2021.
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 $522.7 million, respectively, for the year ended December 31, 2022.
Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting.
Adjusted net income is defined as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting, all of which is reduced for non-controlling interests.
The same estimates used as a basis in calculating the gross unpaid claims reserves are then used as the basis for calculating the net unpaid claims reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key assumption underlying these analyses.
The same estimates used as a basis in calculating the gross IBNR reserves are then used as the basis for calculating the net IBNR reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key assumption underlying these analyses. Our claims are generally reported and settled quickly, resulting in consistent historical loss development patterns.
Adjusted net income - Non-GAAP (1) ($ in thousands) For the Year Ended December 31, 2022 2021 Senior living (Invesque) $ — $ — Maritime transportation 12,707 10,713 Other 920 50 Total $ 13,627 $ 10,763 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Adjusted net income - Non-GAAP (1) ($ in thousands) Year Ended December 31, 2023 2022 Senior living (Invesque) $ — $ — Maritime transportation (2,769) 12,707 Other 3,692 920 Total $ 923 $ 13,627 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
We also use the non-GAAP financial measures adjusted net income, adjusted return on average equity and Adjusted EBITDA as measures of operating performance and as part of our resource and capital allocation process, to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers.
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.
Underwriting ratio is the ratio of the GAAP line items net losses and loss adjustment expenses, member benefit claims and commission expense to earned premiums, net, service and administrative fees and ceding commissions and other revenue.
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).
Corporate Debt ($ in thousands) Corporate Debt Outstanding as of December 31, Interest Expense for the year ended December 31, 2022 2021 2022 2021 Insurance $ 160,000 $ 162,160 $ 14,675 $ 14,232 Corporate — 114,063 4,615 10,193 Total $ 160,000 $ 276,223 $ 19,290 $ 24,425 The balance of the corporate credit facility was repaid during June 2022 as part of the WP Transaction.
Corporate Debt ($ in thousands) Corporate Debt Outstanding as of December 31, Interest Expense for the year ended December 31, 2023 2022 2023 2022 Insurance $ 290,000 $ 160,000 $ 19,531 $ 14,675 Corporate — — — 4,615 Total $ 290,000 $ 160,000 $ 19,531 $ 19,290 The balance of the corporate credit facility was repaid during June 2022 as part of the WP Transaction.
The effect of higher and lower levels of loss frequency and severity on our ultimate costs for claims occurring in 2021 would be as follows: Accident Year 2022 Sensitivity Test Change in Loss & Frequency & Severity on Ultimate ($ in thousands) Scenario Ultimate Cost Change 5% higher $ 380 $ 18,073 3% higher $ 372 $ 10,844 1% higher $ 365 $ 3,615 Base scenario $ 361 $ — 1% lower $ 358 $ (3,615) 3% lower $ 351 $ (10,844) 5% lower $ 343 $ (18,073) 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.
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 Ultimate Cost Change 5% higher $ 518 $ 25 3% higher $ 508 $ 15 1% higher $ 498 $ 5 Base scenario $ 493 $ — 1% lower $ 488 $ (5) 3% lower $ 478 $ (15) 5% lower $ 468 $ (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.
For the year ended December 31, 2022, employee compensation and benefits were $87.9 million and other expenses were $78.8 million, as compared to $76.6 million and $79.2 million, respectively, for the year ended December 31, 2021.
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.
Expenses - 2022 compared to 2021 For the year ended December 31, 2022, employee compensation and benefits were $41.6 million, compared to $56.8 million in 2021, a decrease of $15.2 million or 26.7%. The decrease was driven primarily by reduced commissions on lower origination volumes and lower performance related incentive compensation.
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.
Commission expense is incurred on most product lines, the 53 majority of which are retrospective commissions paid to agents, distributors and retailers selling our products, including credit insurance policies, auto and consumer goods service contracts and motor club memberships. When claims increase, in most cases our distribution partners bear the risk through a reduction in their retrospective commissions.
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.
The total income tax expense of $50.5 million for the year ended December 31, 2022 and $21.3 million for the year ended December 31, 2021 is reflected as a component of net income (loss). For the year ended December 31, 2022, the Company’s effective tax rate was equal to 93.4%.
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%.
Expenses Underwriting and fee expenses under insurance and service contracts include losses and loss adjustment expenses, member benefit claims and commissions expense. 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.
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.
Premium equivalents are used to compare sales performance of service and administrative contract volumes to gross written premiums. 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.
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.
As of December 31, 2022, there were 36,385,299 shares of common stock outstanding as compared to 34,124,153 shares as of December 31, 2021, with the increase driven by the exercise of warrants and the vesting of share-based incentive compensation, partially offset by stock repurchases.
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.
Tiptree Capital - Other The following tables present a summary of Tiptree Capital - Other results for the following periods: Results of Operations For the Year Ended December 31, ($ in thousands) Total revenue Income (loss) before taxes 2022 2021 2022 2021 Senior living (Invesque) $ (16,015) $ 3,091 $ (16,015) $ 3,091 Maritime transportation (1) 64,947 35,562 49,809 11,635 Other (2) 29,778 66,436 (2,391) 2,484 Total $ 78,710 $ 105,089 $ 31,403 $ 17,210 (1) Includes $15.1 million and $23.9 million of expenses related to our Maritime transportation operations for the years ended December 31, 2022 and 2021, respectively.
Tiptree Capital - Other The following tables present a summary of Tiptree Capital - Other results for the following periods: Results of Operations Year Ended December 31, ($ in thousands) Total revenue Income (loss) before taxes 2023 2022 2023 2022 Senior living (Invesque) $ (9,342) $ (16,015) $ (9,342) $ (16,015) Maritime transportation (1) 842 64,947 (4,517) 49,809 Other (2) 10,597 29,778 10,595 (2,391) Total $ 2,097 $ 78,710 $ (3,264) $ 31,403 (1) 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.
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 both measures to assess the on-going performance of our operations.
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.
(5) Adjusts for the comprehensive income (loss) (including EBITDA and AOCI impacts) for the non-controlling interests of The Fortegra Group. 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.
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.
Commission Expenses reflect commissions we pay retail agents, program administrators and managing general underwriters, net of ceding commissions we receive on business ceded under certain reinsurance contracts. In addition, commission expenses include premium-related taxes. Commission expenses related to each policy we write are deferred and amortized to expense in proportion to the premium earned over the policy life.
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.
Cash provided by operating activities was $204.3 million for the year ended December 31, 2021.
Cash provided by operating activities was $463.1 million for the year ended December 31, 2022.
Investing Activities Cash provided by investing activities was $9.5 million for the year ended December 31, 2022. In 2022, the primary sources of cash were proceeds from the sale of investments outpacing the purchases of investments. The primary uses of cash from investing activities were the issuance of notes receivable outpacing proceeds and the acquisition of ITC.
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.
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.
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.
Earned premiums, net in 2022 were $904.8 million and net losses and loss adjustment expenses were $361.6 million, which resulted to a loss ratio of 40.0%. Without the $0.9 million of favorable prior year development, the calendar year loss ratio would have been approximately 0.1% higher. For comparison, the 2021 and 2020 loss ratios were 37.0% and 37.2%, respectively.
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 $11.2 million of favorable prior year development, the 2023 loss ratio would have been approximately 0.8% higher. For comparison, the 2022 and 2021 loss ratios were 37.7% and 35.1%, respectively.
Selected Key Metrics ($ in thousands, except per share information) For the Year Ended December 31, GAAP: 2022 2021 Total revenues $ 1,397,752 $ 1,200,514 Net income (loss) attributable to common stockholders $ (8,274) $ 38,132 Diluted earnings per share $ (0.23) $ 1.09 Cash dividends paid per common share $ 0.16 $ 0.16 Return on average equity (2.1) % 11.4 % Non-GAAP: (1) Adjusted net income $ 63,401 $ 63,869 Adjusted return on average equity 13.6 % 16.5 % Adjusted EBITDA $ 81,124 $ 100,776 Book value per share $ 10.92 $ 11.22 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Selected Key Metrics ($ in thousands, except per share information) Year Ended December 31, GAAP: 2023 2022 Total revenues $ 1,649,031 $ 1,397,752 Net income (loss) attributable to common stockholders $ 13,951 $ (8,274) Diluted earnings per share $ 0.33 $ (0.23) Cash dividends paid per common share $ 0.20 $ 0.16 Return on average equity 3.4 % (2.1) % Non-GAAP: (1) Adjusted net income $ 61,917 $ 53,034 Adjusted return on average equity 15.2 % 13.6 % Book value per share $ 11.34 $ 10.92 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
We use adjusted net income as an internal operating performance measure in the management of business as part of our capital allocation process. We 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.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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.
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.
Service and Administrative Fees represent the earned portion of our gross written premiums and premium equivalents, which is generated from non-insurance products including auto and consumer goods service contracts, motor club contracts and other services offered as part of our vertically integrated product offerings.
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.
Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments Our 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.
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.
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.
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.
Underwriting risk is mitigated through a combination of reinsurance and retrospective commission structures with agents, distribution partners and/or third-party reinsurers. To mitigate counterparty risk, Fortegra ensures its distribution partners’ captive reinsurance entities are over-collateralized with highly liquid investments, primarily cash and cash equivalents.
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.
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.
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.
Corporate The following table presents a summary of corporate results for the following periods: Results of Operations ($ in thousands) For the Year Ended December 31, 2022 2021 Employee compensation and benefits $ 7,948 $ 7,406 Employee incentive compensation expense 19,240 20,654 Interest expense 4,225 10,032 Depreciation and amortization 807 805 Other expenses 14,196 11,235 Total expenses $ 46,416 $ 50,132 Corporate expenses include expenses of the holding company for interest expense, employee compensation and benefits, and public company and other expenses.
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) Year Ended December 31, 2023 2022 Employee compensation and benefits $ 8,885 $ 7,948 Employee incentive compensation expense 21,230 19,240 Interest expense — 4,225 Depreciation and amortization 1,327 807 Other expenses 8,772 14,196 Total expenses $ 40,214 $ 46,416 Corporate expenses include expenses of the holding company for employee compensation and benefits, interest expense, and public company and other expenses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe were also exposed to counterparty risk of approximately $191.1 million and $157.9 million as of December 31, 2022 and 2021, respectively, related to our retrospective commission arrangements; associated risks are offset by the Company’s contractual ability to withhold future commissions against the retrospective balances.
Biggest change($ in thousands) As of December 31, 2023 2022 Third-party captives Reinsurance receivables and prepaid reinsurance premiums $ 870,511 $ 603,428 Collateral $ 1,035,728 $ 700,086 % Collateralized 119 % 116 % Professional Reinsurers Reinsurance receivables and prepaid reinsurance premiums $ 983,900 $ 572,662 Collateral $ 643,853 $ 611,360 % Collateralized 65 % 107 % Total Reinsurance receivables and prepaid reinsurance premiums $ 1,854,410 $ 1,176,090 Collateral $ 1,679,581 $ 1,311,446 % Collateralized 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.
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, 2022, Tiptree’s holding company had no general purpose floating rate debt as it was repaid in June 2022.
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.
Invesque historically paid monthly dividends until April 2020, when dividends were discontinued. A loss in the fair market value of 72 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.
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, 2022 and 2021, 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”.
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”.
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, 2022 and 2021, 76% and 72%, respectively, of the investments subject to credit risk had investment grade ratings.
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.
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. 73
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
Foreign Currency Exchange Rate Ris k We have foreign currency exchange rate risk associated with certain assets and liabilities related to our foreign operations. At December 31, 2022 and 2021, 93% of our invested assets were denominated in United States (U.S.) Dollars.
Foreign Currency Exchange Rate Ris k 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.
A widening of credit spreads by 100 bps for the investments subject to credit risk would result in a decrease of $5.8 million and $6.3 million to the fair value of the portfolio as of December 31, 2022 and 2021, respectively. In addition, our mortgage business also underwrites mortgage loans for the purpose of selling them into the secondary market.
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.
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, 2022 and 2021, the total fair value of derivative assets subject to counterparty risk, including the effect of any legal right of offset, totaled $4.3 million and $8.2 million, respectively.
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.
Of those amounts, $603.3 million and $533.6 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.
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.
At December 31, 2022 and 2021, 93% and 94%, respectively, of our 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.
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.
(2) The Company also holds investments in mortgage loans held for sale of $50.5 million and $98.5 million as of December 31, 2022 and 2021, respectively. These investments do not represent a credit risk and are excluded.
(2) 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.
(3) The Company also holds other investments of $6.9 million and $88.7 million as of December 31, 2022 and 2021, respectively, primarily comprised of vessels and other investments. These investments do not represent a credit risk and are excluded.
(3) 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.
As of December 31, 2022, the Company had $125 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.
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.
Treasury securities and obligations of U.S. government authorities and agencies of $382.1 million and $351.2 million as of December 31, 2022 and 2021, respectively. These investments do not represent a credit risk and are excluded.
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.
As of December 31, 2022 and 2021, we owned 17.0 million shares of common stock, respectively, or approximately 31%, 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.
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.
The Company monitors authorization status and A.M. Best ratings of its reinsurers periodically. As of December 31, 2022, 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.
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.
As of December 31, 2022, we had $706.4 million invested in interest bearing instruments, which represents 61% 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 $24.8 million.
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.
We generally manage our counterparty risk to derivative counterparties by entering into contracts with counterparties of high credit quality. Total reinsurance receivables were $1,176.1 million and $880.8 million as of December 31, 2022 and 2021, 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.
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 and Canada Life Assurance Company are authorized reinsurers in the states in which Fortegra’s U.S. based insurance entities are domiciled.
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.
In addition, we are exposed to counterparty risk of approximately $121.3 million and $89.8 million as of December 31, 2022 and 2021, respectively, related to our premium financing business.
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.
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.
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 of December 31, 2021, we had $658.8 million invested in interest bearing instruments, which represented 72% of the total investment portfolio.
As of December 31, 2022, we had $706.4 million invested in interest bearing instruments, which represented 61% of the total investment portfolio.
As of December 31, 2022, the non-affiliated reinsurers from whom our insurance business has the largest reinsurance receivable balances represented $189.2 million, or 16.1% of the total, and included: Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), Canada Life Assurance Company (A.M. Best Rating: A+ rated), and Canada Life International Reinsurance (Bermuda) Corporation (A.M.
As of December 31, 2023, the non-affiliated reinsurers from whom our insurance business has the largest reinsurance receivable balances represented $235.7 million, or 12.7% of the total, and included: Accelerant Specialty Insurance Company (A.M. Best Rating: A- rated), Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), and Homesite Insurance Company (A.M. Best Rating: A rated).
Market Risk We are primarily exposed to market risk related to the following investments: ($ in thousands) As of December 31, 2022 As of December 31, 2021 Insurance Tiptree Capital - Other Total Insurance Tiptree Capital - Other Total Invesque $ 2,670 $ 12,784 $ 15,454 $ 6,015 $ 28,799 $ 34,814 Fixed income exchange traded fund 56,256 — 56,256 53,154 — 53,154 Other equity securities 14,066 — 14,066 50,515 — 50,515 Total equity securities $ 72,992 $ 12,784 $ 85,776 $ 109,684 $ 28,799 $ 138,483 A 10% increase or decrease in the fair value of such investments would result in $8.6 million and $13.8 million of unrealized gains and losses as of December 31, 2022 and 2021, respectively.
Market Risk We are primarily exposed to market risk related to the following investments: ($ in thousands) As of December 31, 2023 As of December 31, 2022 Insurance Tiptree Capital - Other Total Insurance Tiptree Capital - Other Total Invesque $ 719 $ 3,442 $ 4,161 $ 2,670 $ 12,784 $ 15,454 Fixed income exchange traded fund 1,349 — 1,349 56,256 — 56,256 Other equity securities 25,045 37,753 62,798 14,066 — 14,066 Total equity securities $ 27,113 $ 41,195 $ 68,308 $ 72,992 $ 12,784 $ 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.
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 $20.0 million. 71 Credit Risk We are exposed to credit risk in the form of available for sale securities, investments in loans, and other investments as follows: ($ in thousands) As of December 31, 2022 2021 Available for sale securities, at fair value (1) Obligations of state and political subdivisions $ 49,454 $ 58,660 Corporate securities 161,999 144,877 Asset backed securities 15,349 17,447 Certificates of deposit 756 2,696 Obligations of foreign governments 2,362 2,590 Loans, at fair value (2) Corporate loans 14,312 7,099 Other investments (3) Corporate bonds, at fair value 42,080 38,965 Debentures 23,853 21,057 Trade Claims — 19,737 Other 230 216 Total $ 310,395 $ 313,344 (1) The Company also holds investments in U.S.
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) As of December 31, 2023 2022 Available for sale securities, at fair value (1) Obligations of state and political subdivisions $ 45,459 $ 49,454 Corporate securities 254,598 161,999 Asset backed securities 26,186 15,349 Certificates of deposit 1,724 756 Obligations of foreign governments 4,557 2,362 Loans, at fair value (2) Corporate loans 11,218 14,312 Other investments (3) Corporate bonds, at fair value 62,081 42,080 Debentures 25,648 23,853 Investment in credit fund 11,830 — Other 7,201 230 Total $ 450,502 $ 310,395 (1) The Company also holds investments in U.S.
As of December 31, 2021, we had $114.1 million of general purpose floating rate debt with a weighted average rate of 7.75%. 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.
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.
Added
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%.

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