Trean Insurance Group, Inc. (Nasdaq: TIG) (“Trean” or the
“Company”), a leading provider of products and services to the
specialty insurance market, today reported results for the fourth
quarter and full year ended December 31, 2022.
Fourth Quarter and Full Year 2022
Highlights
-
Announced definitive merger agreement with affiliates of Altaris,
LLC (collectively with its affiliates, “Altaris”), which currently
owns approximately 47% of Trean’s outstanding common stock. The
transaction is expected to close during the first half of 2023,
subject to certain closing conditions, including obtaining approval
of a majority of the outstanding shares of Trean common stock held
by stockholders that are not affiliated with Altaris and receiving
certain regulatory approvals.
- Gross
written premiums were $173.5 million in the fourth quarter, a $20.3
million, or 13.2%, increase compared to the same prior-year period.
Full Year 2022 gross written premiums were $651.3 million, a $17.1
million, or 2.7%, increase compared to the same prior-year
period.
- Net
earned premiums were $83.1 million in the fourth quarter, a $25.4
million, or 44.1%, increase compared to the same prior-year period.
Full Year 2022 net earned premiums were $284.6 million, a $85.9
million, or 43.3%, increase compared to the same prior-year
period.
- Net loss
was $91.4 million, or $1.78 per diluted share, compared to net
income of $1.2 million, or $0.02 per diluted share in the same
prior-year period. Full Year 2022 net loss was $66.0
million, or $1.29 per diluted share, compared to net income of
$19.3 million, or $0.38 per diluted share, in the same prior-year
period. Net loss in the fourth quarter and Full Year 2022 was
primarily driven by a $76.1 million noncash impairment to
goodwill.
- Adjusted
net loss (1) was $11.4 million in the fourth quarter, or $0.22 per
diluted share, compared to adjusted net income of $2.0 million, or
$0.04 per diluted share in the same prior-year period. Full Year
2022 adjusted net income was $7.9 million, or $0.15 per diluted
share, compared to $22.1 million, or $0.43 per diluted share, in
the same prior-year period.
-
Underwriting loss was $18.1 million in the fourth quarter, compared
to a loss of $0.1 million in the same prior-year period. Full Year
2022 underwriting loss was $5.5 million, compared to underwriting
income of $13.2 million in the same prior-year period.
- The
Company’s fourth quarter loss and expense ratios were 94.1% and
27.7%, respectively, compared to 76.4% and 23.9%, respectively, in
the same prior-year period. Full Year 2022 loss and expense ratios
were 71.6% and 30.3%, respectively, compared to 65.8% and 27.5%,
respectively, in the same prior-year period.
- Combined
ratio was 121.8% for the fourth quarter, compared to 100.3% for the
same prior-year period. Full Year 2022 combined ratio was 101.9%,
compared to 93.3% for the same prior-year period.
- Fourth
quarter return on equity of (101.8)%; adjusted return on equity (1)
of (12.8)%; return on tangible equity of (195.6)%; and adjusted
return on tangible equity(1) of (24.5)%. Full Year 2022 return on
equity of (17.9)%; adjusted return on equity (1) of 2.1%; return on
tangible equity of (34.0)%; and adjusted return on tangible equity
of 4.1%.
(1) Adjusted net income (loss), adjusted diluted
earnings per share, adjusted return on equity, adjusted return on
tangible equity and underwriting income are non-GAAP financial
measures. See discussion of “Key Metrics” below.
Underwriting Results
Gross written premiums were $173.5 million for
the fourth quarter of 2022, a 13.2% increase compared to $153.3
million for the fourth quarter of 2021.
Gross unearned premiums increased $8.1 million
in the fourth quarter of 2022, compared to a decrease of $2.9
million in the same prior-year period. As of December 31, 2022, the
Company had net unearned premiums reflected on its balance sheet of
$104.8 million, an increase of $3.3 million, or 3.3%, compared to
September 30, 2022 and up $14.3 million, or 15.8%, from December
31, 2021.
Net earned premiums increased 44.1% to $83.1
million for the fourth quarter of 2022, compared to $57.6 million
for the fourth quarter of 2021, primarily driven by an increase in
both gross earned premiums and retention of gross written
premiums.
General and administrative expenses were $23.0
million for the fourth quarter of 2022, compared to $13.8 million
for the same prior-year period, primarily driven by an increase in
net commissions resulting from increased retention and increased
gross earned premiums. G&A operating expenses were $13.9
million in the fourth quarter of 2022, compared to $11.3 million in
the prior-year period. The Company’s expense ratio was 27.7% for
the fourth quarter of 2022, compared to 23.9% for the same
prior-year period.
Net loss was $91.4 million for the fourth
quarter of 2022, compared to net income of $1.2 million for the
same prior-year period; fourth quarter 2022 net loss was primarily
driven by a $76.1 million noncash impairment to goodwill to align
book value to the fair value of the Company. Diluted loss per share
for the fourth quarter of 2022 was $1.78. Adjusted net loss(1),
which excludes intangible asset amortization, noncash stock
compensation, the change in fair value of embedded derivatives and
their related tax impact, unrealized gains or losses on equity
securities and goodwill impairment, was $11.4 million for the
fourth quarter of 2022, compared to adjusted net income of $2.0
million for the same prior-year period. Adjusted diluted loss per
share for the fourth quarter of 2022 was $0.22.
Underwriting loss of $18.1 million resulted in a
combined ratio of 121.8% for the fourth quarter of 2022, compared
to underwriting loss of $0.1 million and a combined ratio of 100.3%
for the same prior-year period. Losses and loss adjustment expenses
for the fourth quarter of 2022 were $78.2 million, which resulted
in a 94.1% loss ratio, compared to 76.4% in the same prior-year
period primarily driven by development relating to the 2021
accident year and its effect on expected losses for 2022.
Investment Results
Net investment income was $5.0 million for the
fourth quarter of 2022, compared to $2.2 million in the same
prior-year period, primarily due to an increase in income from
fixed maturities, income from funds held investments and equity
securities.
Cash and invested assets consist primarily of
fixed maturities, equity securities and cash equivalents. The
Company’s investment portfolio totaled $587.3 million as of
December 31, 2022 and was primarily comprised of fixed maturity
securities that were classified as available-for-sale. The Company
also had $108.0 million of cash and cash equivalents on its balance
sheet as of December 31, 2022. The Company’s fixed maturities
portfolio had an average rating of “AA” as of both December 31,
2022 and September 30, 2022.
Other
Other revenue was $1.1 million for the fourth
quarter of 2022, compared to $1.6 million for the same prior-year
period, due primarily to a year-over-year decrease in brokerage
revenue.
Stockholders’ Equity and
Returns
Total stockholders’ equity was $315.0 million at
December 31, 2022, compared to $421.9 million at December 31, 2021.
Return on equity was (101.8)% for the fourth quarter of 2022,
compared to 1.2% for the same prior-year period, and adjusted
return on equity(1) was (12.8)% for the fourth quarter of 2022,
compared to 1.9% for the same prior-year period. Return on tangible
equity was (195.6)% for the fourth quarter of 2022, compared to
2.4% for the same prior-year period and adjusted return on tangible
equity was (24.5)% for the fourth quarter of 2022, compared to 3.9%
for the same prior-year period.
Conference Call and
Guidance
Due to the pending transaction with Altaris
announced on December 16, 2022, the Company will not host a
conference call in conjunction with its fourth quarter 2022
earnings release. Please visit the Investor Relations section of
the Company’s website at https://investors.trean.com for the latest
releases and information. In addition, the Company will not provide
guidance on its financial outlook for the first quarter 2023 or the
full year 2023 as a result of the pending transaction.
Key Metrics
The Company discusses certain key financial and
operating metrics, described below, which provide useful
information about its business and the operational factors
underlying its financial performance.
Underwriting income (loss) is a non-GAAP
financial measure defined as income (loss) before taxes excluding
net investment income, investment revaluation gains, net realized
capital gains or losses, noncash intangible asset amortization,
stock compensation and goodwill impairment, interest expense, other
revenue and other income and expenses. See “Reconciliation of
Non-GAAP Financial Measures” for a reconciliation of underwriting
income to income before taxes in accordance with GAAP.
Adjusted net income (loss) is a non-GAAP
financial measure defined as net income excluding the impact of
various specific events, noncash intangible asset amortization,
stock compensation and goodwill impairment, other expenses and
gains or losses that the Company does not believe reflect its core
operating performance, which items may have a disproportionate
effect in a given period, affecting comparability of the Company’s
results across periods. See “Reconciliation of Non-GAAP Financial
Measures” for a reconciliation of adjusted net income to net income
in accordance with GAAP.
Loss ratio, expressed as a percentage, is the
ratio of losses and loss adjustment expenses to net earned
premiums.
Expense ratio, expressed as a percentage, is the
ratio of general and administrative expenses to net earned
premiums.
Combined ratio is the sum of the loss ratio and
the expense ratio. A combined ratio under 100% generally indicates
an underwriting profit. A combined ratio over 100% generally
indicates an underwriting loss.
Return on equity is net income expressed on an
annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period.
Adjusted return on equity is a non-GAAP
financial measured defined as adjusted net income expressed on an
annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period. See “Reconciliation of
Non-GAAP Financial Measures” for a reconciliation of adjusted
return on equity to return on equity in accordance with GAAP.
Tangible stockholders’ equity is defined as
stockholders’ equity less goodwill and other intangible assets.
Return on tangible equity is a non-GAAP
financial measure defined as net income expressed on an annualized
basis as a percentage of average beginning and ending tangible
stockholders’ equity during the period.
Adjusted return on tangible equity is a non-GAAP
financial measure defined as adjusted net income expressed on an
annualized basis as a percentage of average beginning and ending
tangible stockholders’ equity during the period. See
“Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of adjusted return on tangible equity to return on
equity in accordance with GAAP.
Forward-Looking Statements
This press release contains forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include
statements that are not historical or current facts. These
statements may discuss the Company’s net income, cash flow,
financial condition, impairments, expenditures, growth, strategies,
plans, achievements, capital structure, organizational structure,
market opportunities and general market and industry conditions.
Such forward-looking statements can be identified by words such as
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “predict,”
“project,” “believe,” “seek,” “outlook,” “future,” “will,” “would,”
“should,” “could,” “may,” “can have,” “likely” and similar terms.
Forward-looking statements are based on management’s current
expectations and assumptions about future events. These statements
are only predictions and are not guarantees of future performance.
Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements if the underlying assumptions prove to
be incorrect or as a result of risks, uncertainties, and other
factors, including the impact of the COVID-19 pandemic on the
business and operations of the Company, our program partners and
other business relations. Other factors that may cause such
differences include the risks described in the Company’s filings
with the U.S. Securities and Exchange Commission, including the
Company’s Annual Report on Form 10-K for the year ended December
31, 2022. These forward-looking statements speak only as of the
date on which they are made. Except as required by applicable
securities laws, the Company disclaims any obligation to update or
revise any forward-looking statement, whether as a result of new
information, future developments, changes in assumptions or
otherwise. Investors are cautioned not to place undue reliance on
the forward-looking statements contained in this press release or
in other filings and public statements of the Company.
About Trean Insurance Group,
Inc.
Trean Insurance Group, Inc. (Nasdaq: TIG)
provides products and services to the specialty insurance market.
Trean underwrites specialty casualty insurance products both
through its program partners and its own managing general agencies.
Trean also provides its program partners with a variety of services
including issuing carrier services, claims administration and
reinsurance brokerage. Trean is licensed to write business across
49 states and the District of Columbia. For more information,
please visit www.trean.com.
Contacts
Investor Relationsinvestor.relations@trean.com(952) 974-2260
Trean Insurance Group, Inc. and
SubsidiariesCondensed Consolidated and Combined
Statements of Operations(in thousands, except for share
and per share amounts)(unaudited)
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Revenues |
|
|
|
|
|
|
|
Gross written premiums |
$ |
173,528 |
|
|
$ |
153,259 |
|
|
$ |
651,303 |
|
|
$ |
634,164 |
|
(Increase) decrease in gross unearned premiums |
|
(8,102 |
) |
|
|
2,925 |
|
|
|
(9,074 |
) |
|
|
(61,911 |
) |
Gross earned premiums |
|
165,426 |
|
|
|
156,184 |
|
|
|
642,229 |
|
|
|
572,253 |
|
Ceded earned premiums |
|
(82,370 |
) |
|
|
(98,536 |
) |
|
|
(357,605 |
) |
|
|
(373,573 |
) |
Net earned premiums |
|
83,056 |
|
|
|
57,648 |
|
|
|
284,624 |
|
|
|
198,680 |
|
Net investment income |
|
4,951 |
|
|
|
2,159 |
|
|
|
10,087 |
|
|
|
8,721 |
|
Net realized gains (losses) |
|
(26 |
) |
|
|
(23 |
) |
|
|
285 |
|
|
|
49 |
|
Other revenue |
|
1,101 |
|
|
|
1,557 |
|
|
|
8,246 |
|
|
|
10,240 |
|
Total revenue |
|
89,082 |
|
|
|
61,341 |
|
|
|
303,242 |
|
|
|
217,690 |
|
Expenses |
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
78,150 |
|
|
|
44,037 |
|
|
|
203,877 |
|
|
|
130,772 |
|
General and administrative expenses |
|
22,975 |
|
|
|
13,760 |
|
|
|
86,210 |
|
|
|
54,706 |
|
Other expenses |
|
3,081 |
|
|
|
- |
|
|
|
3,349 |
|
|
|
845 |
|
Intangible asset amortization |
|
1,500 |
|
|
|
1,500 |
|
|
|
5,998 |
|
|
|
5,826 |
|
Noncash stock compensation |
|
477 |
|
|
|
424 |
|
|
|
1,496 |
|
|
|
1,522 |
|
Interest expense |
|
1,464 |
|
|
|
414 |
|
|
|
3,270 |
|
|
|
1,685 |
|
Goodwill impairment |
|
76,053 |
|
|
|
- |
|
|
|
76,053 |
|
|
|
- |
|
Total expenses |
|
183,700 |
|
|
|
60,135 |
|
|
|
380,253 |
|
|
|
195,356 |
|
Gains (losses) on embedded derivatives |
|
(2,439 |
) |
|
|
357 |
|
|
|
12,024 |
|
|
|
2,226 |
|
Other income |
|
30 |
|
|
|
28 |
|
|
|
106 |
|
|
|
219 |
|
Income (loss) before taxes |
|
(97,027 |
) |
|
|
1,591 |
|
|
|
(64,881 |
) |
|
|
24,779 |
|
Income tax expense |
|
(5,667 |
) |
|
|
347 |
|
|
|
1,074 |
|
|
|
5,449 |
|
Net income (loss) |
$ |
(91,360 |
) |
|
$ |
1,244 |
|
|
$ |
(65,955 |
) |
|
$ |
19,330 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
Basic |
$ |
(1.78 |
) |
|
$ |
0.02 |
|
|
$ |
(1.29 |
) |
|
$ |
0.38 |
|
Diluted |
$ |
(1.78 |
) |
|
$ |
0.02 |
|
|
$ |
(1.29 |
) |
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
51,221,594 |
|
|
|
51,175,996 |
|
|
|
51,203,370 |
|
|
|
51,162,293 |
|
Diluted |
|
51,221,594 |
|
|
|
51,175,996 |
|
|
|
51,203,370 |
|
|
|
51,173,450 |
|
|
|
|
|
|
|
|
|
Key Metrics(in thousands, except
for percentages)(unaudited)
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Key metrics: |
|
|
|
|
|
|
|
Underwriting income (loss) (1) |
$ |
(18,069 |
) |
|
$ |
(149 |
) |
|
$ |
(5,463 |
) |
|
$ |
13,202 |
|
Adjusted net income (loss) (1) |
$ |
(11,446 |
) |
|
$ |
2,029 |
|
|
$ |
7,860 |
|
|
$ |
22,132 |
|
Loss ratio |
|
94.1 |
% |
|
|
76.4 |
% |
|
|
71.6 |
% |
|
|
65.8 |
% |
Expense ratio |
|
27.7 |
% |
|
|
23.9 |
% |
|
|
30.3 |
% |
|
|
27.5 |
% |
Combined ratio |
|
121.8 |
% |
|
|
100.3 |
% |
|
|
101.9 |
% |
|
|
93.3 |
% |
Return on equity |
|
(101.8 |
)% |
|
|
1.2 |
% |
|
|
(17.9 |
)% |
|
|
4.6 |
% |
Adjusted return on equity (1) |
|
(12.8 |
)% |
|
|
1.9 |
% |
|
|
2.1 |
% |
|
|
5.3 |
% |
Return on tangible equity (1) |
|
(195.6 |
)% |
|
|
2.4 |
% |
|
|
(34.0 |
)% |
|
|
9.7 |
% |
Adjusted return on tangible equity (1) |
|
(24.5 |
)% |
|
|
3.9 |
% |
|
|
4.1 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
(1) Adjusted net income, adjusted return on equity, return on
tangible equity, adjusted return on tangible equity and
underwriting income are non-GAAP financial measures. See
“Reconciliation of Non-GAAP Financial Measures” below for a
reconciliation to the applicable GAAP measure. |
|
|
|
|
|
|
|
|
Trean Insurance Group, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(in thousands)
|
December 31, 2022 |
|
December 31, 2021 |
Assets |
(unaudited) |
|
|
Fixed maturities, available for sale |
$ |
552,243 |
|
|
$ |
471,061 |
|
Equity securities, at fair value |
|
35,041 |
|
|
|
969 |
|
Total investments |
|
587,284 |
|
|
|
472,030 |
|
|
|
|
|
Cash and cash equivalents |
|
107,991 |
|
|
|
129,577 |
|
Restricted cash |
|
1,083 |
|
|
|
407 |
|
Accrued investment income |
|
3,726 |
|
|
|
2,344 |
|
Premiums and other receivables |
|
160,282 |
|
|
|
141,920 |
|
Income taxes receivable |
|
5,841 |
|
|
|
460 |
|
Reinsurance recoverable |
|
408,522 |
|
|
|
377,241 |
|
Prepaid reinsurance premiums |
|
124,269 |
|
|
|
129,411 |
|
Deferred policy acquisition cost, net |
|
18,858 |
|
|
|
13,344 |
|
Property and equipment, net |
|
7,151 |
|
|
|
7,632 |
|
Right of use asset |
|
2,764 |
|
|
|
4,530 |
|
Deferred tax asset |
|
5,958 |
|
|
|
- |
|
Goodwill |
|
66,294 |
|
|
|
142,347 |
|
Intangible assets, net |
|
67,117 |
|
|
|
73,114 |
|
Other assets |
|
14,799 |
|
|
|
8,658 |
|
Total assets |
$ |
1,581,939 |
|
|
$ |
1,503,015 |
|
|
|
|
|
Liabilities |
|
|
|
Unpaid loss and loss adjustment expenses |
$ |
632,910 |
|
|
$ |
544,320 |
|
Unearned premiums |
|
229,112 |
|
|
|
219,940 |
|
Funds held under reinsurance agreements |
|
241,291 |
|
|
|
199,410 |
|
Reinsurance premiums payable |
|
50,861 |
|
|
|
45,130 |
|
Accounts payable, accrued expenses and other liabilities |
|
32,609 |
|
|
|
29,448 |
|
Lease liability |
|
3,063 |
|
|
|
4,976 |
|
Deferred tax liability |
|
- |
|
|
|
7,520 |
|
Debt |
|
77,074 |
|
|
|
30,362 |
|
Total liabilities |
|
1,266,920 |
|
|
|
1,081,106 |
|
Commitments and contingencies |
|
|
|
Stockholders' Equity |
|
|
|
Preferred stock, $0.01 par value per share (100,000,000 authorized;
zero issued and outstanding) |
|
- |
|
|
|
- |
|
Common stock, $0.01 par value per share (600,000,000 authorized;
51,222,485 and 51,176,887 issued and outstanding as of December 31,
2022 and December 31, 2021, respectively) |
|
512 |
|
|
|
512 |
|
Additional paid-in capital |
|
290,095 |
|
|
|
288,623 |
|
Retained earnings |
|
62,435 |
|
|
|
128,390 |
|
Accumulated other comprehensive income (loss) |
|
(38,023 |
) |
|
|
4,384 |
|
Total stockholders' equity |
|
315,019 |
|
|
|
421,909 |
|
Total liabilities and stockholders' equity |
$ |
1,581,939 |
|
|
$ |
1,503,015 |
|
|
|
|
|
Supplemental Table of Other Revenue
Components
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Other Revenue |
|
|
|
|
|
|
|
Brokerage |
$ |
309 |
|
|
$ |
822 |
|
|
$ |
5,705 |
|
|
$ |
7,036 |
|
Managing general agent fees |
|
75 |
|
|
|
196 |
|
|
|
326 |
|
|
|
603 |
|
Third-party administrator fees |
|
520 |
|
|
|
417 |
|
|
|
1,358 |
|
|
|
1,608 |
|
Consulting and other fee-based revenue |
|
197 |
|
|
|
122 |
|
|
|
857 |
|
|
|
993 |
|
Total other revenue |
$ |
1,101 |
|
|
$ |
1,557 |
|
|
$ |
8,246 |
|
|
$ |
10,240 |
|
|
|
|
|
|
|
|
|
Supplemental Table of Net Investment Income
Components
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Fixed maturities |
|
$ |
3,127 |
|
|
$ |
1,597 |
|
|
$ |
9,316 |
|
|
$ |
6,331 |
|
Income on funds held investments |
|
|
1,273 |
|
|
|
555 |
|
|
|
3,668 |
|
|
|
2,338 |
|
Equity securities |
|
|
677 |
|
|
|
7 |
|
|
|
1,708 |
|
|
|
48 |
|
Unrealized losses on equity securities |
|
|
(255 |
) |
|
|
- |
|
|
|
(4,797 |
) |
|
|
- |
|
Interest on cash and short-term investments |
|
|
129 |
|
|
|
- |
|
|
|
192 |
|
|
|
4 |
|
Total net investment income |
|
$ |
4,951 |
|
|
$ |
2,159 |
|
|
$ |
10,087 |
|
|
$ |
8,721 |
|
|
|
|
|
|
|
|
|
|
Supplemental Table of Gains (Losses) on
Embedded Derivative Components
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Change in fair value of embedded derivatives |
|
$ |
(1,166 |
) |
|
$ |
905 |
|
|
$ |
15,682 |
|
|
$ |
4,666 |
|
Effect of net investment income on funds held investments |
|
|
(1,273 |
) |
|
|
(555 |
) |
|
|
(3,668 |
) |
|
|
(2,338 |
) |
Effect of realized (gains) losses on funds held investments |
|
|
- |
|
|
|
7 |
|
|
|
10 |
|
|
|
(102 |
) |
Total gains (losses) on embedded derivatives |
|
$ |
(2,439 |
) |
|
$ |
357 |
|
|
$ |
12,024 |
|
|
$ |
2,226 |
|
|
|
|
|
|
|
|
|
|
Supplemental Table of Net G&A
Components
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Direct commissions |
|
$ |
29,175 |
|
|
$ |
27,660 |
|
|
$ |
114,866 |
|
|
$ |
105,965 |
|
Ceding commissions |
|
|
(25,218 |
) |
|
|
(31,140 |
) |
|
|
(102,759 |
) |
|
|
(120,688 |
) |
Net commissions |
|
|
3,957 |
|
|
|
(3,480 |
) |
|
|
12,107 |
|
|
|
(14,723 |
) |
Insurance-related expense |
|
|
5,092 |
|
|
|
5,936 |
|
|
|
22,790 |
|
|
|
20,732 |
|
G&A operating expenses |
|
|
13,926 |
|
|
|
11,304 |
|
|
|
51,313 |
|
|
|
48,697 |
|
Total G&A expense |
|
$ |
22,975 |
|
|
$ |
13,760 |
|
|
$ |
86,210 |
|
|
$ |
54,706 |
|
|
|
|
|
|
|
|
|
|
G&A operating expense - % of GWP |
|
8.0 |
% |
|
|
7.4 |
% |
|
|
7.9 |
% |
|
|
7.7 |
% |
Retention rate(1) |
|
|
50.2 |
% |
|
|
36.9 |
% |
|
|
44.3 |
% |
|
|
34.7 |
% |
Direct commission rate(2) |
|
|
17.6 |
% |
|
|
17.7 |
% |
|
|
17.9 |
% |
|
|
18.5 |
% |
Ceding commission rate(3) |
|
|
30.6 |
% |
|
|
31.6 |
% |
|
|
28.7 |
% |
|
|
32.3 |
% |
|
|
|
|
|
|
|
|
|
(1) Net earned premiums as a percentage of gross earned
premiums. |
(2) Direct commissions as a percentage of gross earned
premiums. |
(3) Ceding commissions as a percentage of ceded earned
premiums. |
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Financial
Measures
Underwriting income (loss)
The Company defines underwriting income (loss)
as income (loss) before taxes excluding net investment income,
noncash changes in fair value of embedded derivatives, investment
revaluation gains, net realized capital gains or losses, noncash
intangible asset amortization, stock compensation and goodwill
impairment, interest expense, other revenue and other income and
expenses. Underwriting income (loss) represents the pre-tax
profitability of the Company’s underwriting operations and allows
management to evaluate the Company’s underwriting performance
without regard to investment income, intangible asset amortization,
noncash stock compensation, interest expense, other revenue and
other income and expenses. The Company uses this metric because the
Company believes it gives management and other users of the
Company’s financial information useful insight into the Company’s
underwriting business performance by adjusting for these expenses
and sources of income. Underwriting income (loss) should not be
viewed as a substitute for net income (loss) calculated in
accordance with GAAP, and other companies may define underwriting
income differently.
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net income (loss) |
$ |
(91,360 |
) |
|
$ |
1,244 |
|
|
$ |
(65,955 |
) |
|
$ |
19,330 |
|
Income tax expense |
|
(5,667 |
) |
|
|
347 |
|
|
|
1,074 |
|
|
|
5,449 |
|
Income (loss) before taxes |
|
(97,027 |
) |
|
|
1,591 |
|
|
|
(64,881 |
) |
|
|
24,779 |
|
Other revenue |
|
(1,101 |
) |
|
|
(1,557 |
) |
|
|
(8,246 |
) |
|
|
(10,240 |
) |
Change in fair value of embedded derivatives |
|
2,439 |
|
|
|
(357 |
) |
|
|
(12,024 |
) |
|
|
(2,226 |
) |
Net investment income |
|
(4,951 |
) |
|
|
(2,159 |
) |
|
|
(10,087 |
) |
|
|
(8,721 |
) |
Net realized losses (gains) |
|
26 |
|
|
|
23 |
|
|
|
(285 |
) |
|
|
(49 |
) |
Other expenses |
|
3,081 |
|
|
|
- |
|
|
|
3,349 |
|
|
|
845 |
|
Goodwill impairment |
|
76,053 |
|
|
|
- |
|
|
|
76,053 |
|
|
|
- |
|
Interest expense |
|
1,464 |
|
|
|
414 |
|
|
|
3,270 |
|
|
|
1,685 |
|
Intangible asset amortization |
|
1,500 |
|
|
|
1,500 |
|
|
|
5,998 |
|
|
|
5,826 |
|
Noncash stock compensation |
|
477 |
|
|
|
424 |
|
|
|
1,496 |
|
|
|
1,522 |
|
Other income |
|
(30 |
) |
|
|
(28 |
) |
|
|
(106 |
) |
|
|
(219 |
) |
Underwriting income (loss) |
$ |
(18,069 |
) |
|
$ |
(149 |
) |
|
$ |
(5,463 |
) |
|
$ |
13,202 |
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
The Company defines adjusted net income (loss)
as net income (loss) excluding the impact of certain items,
including noncash intangible asset amortization, stock compensation
and goodwill impairment, noncash changes in fair value of embedded
derivatives, other expenses and gains or losses that the Company
believes do not reflect its core operating performance, which items
may have a disproportionate effect in a given period, affecting
comparability the Company’s results across periods. The Company
calculates the tax impact only on adjustments that would be
included in calculating the Company’s income tax expense using an
expected effective tax rate for the applicable years. The Company
uses adjusted net income (loss) as an internal performance measure
in the management of its operations because the Company believes it
gives its management and other users of its financial information
useful insight into the Company’s results of operations and
underlying business performance by eliminating the effects of these
items. Adjusted net income (loss) should not be viewed as a
substitute for net income (loss) calculated in accordance with
GAAP, and other companies may define adjusted net income (loss)
differently.
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net income (loss) |
$ |
(91,360 |
) |
|
$ |
1,244 |
|
|
$ |
(65,955 |
) |
|
$ |
19,330 |
|
Intangible asset amortization |
|
1,500 |
|
|
|
1,500 |
|
|
|
5,998 |
|
|
|
5,826 |
|
Noncash stock compensation |
|
477 |
|
|
|
424 |
|
|
|
1,496 |
|
|
|
1,522 |
|
Change in fair value of embedded derivatives |
|
1,166 |
|
|
|
(905 |
) |
|
|
(15,682 |
) |
|
|
(4,666 |
) |
Unrealized losses on equity securities |
|
255 |
|
|
|
- |
|
|
|
4,797 |
|
|
|
- |
|
Realized (gain) loss on sale of investment |
|
(15 |
) |
|
|
- |
|
|
|
(1,415 |
) |
|
|
112 |
|
Other expenses |
|
3,081 |
|
|
|
- |
|
|
|
3,349 |
|
|
|
845 |
|
Goodwill impairment |
|
76,053 |
|
|
|
- |
|
|
|
76,053 |
|
|
|
- |
|
Total adjustments |
|
82,517 |
|
|
|
1,019 |
|
|
|
74,596 |
|
|
|
3,639 |
|
Tax impact of adjustments |
$ |
(2,603 |
) |
|
|
(234 |
) |
|
$ |
(781 |
) |
|
|
(837 |
) |
Adjusted net income (loss) |
$ |
(11,446 |
) |
|
$ |
2,029 |
|
|
$ |
7,860 |
|
|
$ |
22,132 |
|
|
|
|
|
|
|
|
|
Adjusted return on equity
The Company defines adjusted return on equity as
adjusted net income (loss) expressed on an annualized basis as a
percentage of average beginning and ending stockholders’ equity
during the period. The Company uses adjusted return on equity as an
internal performance measure in the management of its operations
because the Company believes it gives management and other users of
the Company’s financial information useful insight into the
Company’s results of operations and underlying business performance
by adjusting for items that the Company believes do not reflect its
core operating performance and that may diminish comparability
across periods. Adjusted return on equity should not be viewed as a
substitute for return on equity calculated in accordance with GAAP,
and other companies may define adjusted return on equity
differently.
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Adjusted return on equity calculation: |
|
|
|
|
|
|
|
Numerator: adjusted net income (loss) |
$ |
(11,446 |
) |
|
$ |
2,029 |
|
|
$ |
7,860 |
|
|
$ |
22,132 |
|
Denominator: average stockholders' equity |
|
359,038 |
|
|
|
422,101 |
|
|
|
368,464 |
|
|
|
416,008 |
|
Adjusted return on equity |
|
(12.8 |
)% |
|
|
1.9 |
% |
|
|
2.1 |
% |
|
|
5.3 |
% |
Return on equity |
|
(101.8 |
)% |
|
|
1.2 |
% |
|
|
(17.9 |
)% |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
Return on tangible equity and adjusted return on
tangible equity
The Company defines tangible stockholders’
equity as stockholders’ equity less goodwill and other intangible
assets. The Company defines return on tangible equity as net income
(loss) expressed on an annualized basis as a percentage of average
beginning and ending tangible stockholders’ equity during the
period. The Company defines adjusted return on tangible equity as
adjusted net income (loss) expressed on an annualized basis as a
percentage of average beginning and ending tangible stockholders’
equity during the period. The Company regularly evaluates
acquisition opportunities and have historically made acquisitions
that affect stockholders’ equity. The Company uses return on
tangible equity and adjusted return on tangible equity as internal
performance measures in the management of the Company’s operations
because the Company believes they give management and other users
of its financial information useful insight into the Company’s
results of operations and underlying business performance by
adjusting for the effects of acquisitions on the Company’s
stockholders’ equity and, in the case of adjusted return on
tangible equity, by adjusting for items that the Company believes
do not reflect its core operating performance and that may diminish
comparability across periods. Return on tangible equity and
adjusted return on tangible equity should not be viewed as
substitutes for return on equity calculated in accordance with
GAAP, and other companies may define return on tangible equity and
adjusted return on tangible equity differently.
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Return on tangible equity calculation: |
|
|
|
|
|
|
|
Numerator: net income (loss) |
$ |
(91,360 |
) |
|
$ |
1,244 |
|
|
$ |
(65,955 |
) |
|
$ |
19,330 |
|
Denominator: |
|
|
|
|
|
|
|
Average stockholders' equity |
|
359,038 |
|
|
|
422,101 |
|
|
|
368,464 |
|
|
|
416,008 |
|
Less: Average goodwill and other intangible assets |
|
172,187 |
|
|
|
216,108 |
|
|
|
174,436 |
|
|
|
215,709 |
|
Average tangible stockholders' equity |
|
186,851 |
|
|
|
205,993 |
|
|
|
194,028 |
|
|
|
200,299 |
|
Return on tangible equity |
|
(195.6 |
)% |
|
|
2.4 |
% |
|
|
(34.0 |
)% |
|
|
9.7 |
% |
Return on equity |
|
(101.8 |
)% |
|
|
1.2 |
% |
|
|
(17.9 |
)% |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
(unaudited, in thousands) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Adjusted return on tangible equity
calculation: |
|
|
|
|
|
|
|
Numerator: adjusted net income (loss) |
$ |
(11,446 |
) |
|
$ |
2,029 |
|
|
$ |
7,860 |
|
|
$ |
22,132 |
|
Denominator: average tangible stockholders' equity |
|
186,851 |
|
|
|
205,993 |
|
|
|
194,028 |
|
|
|
200,299 |
|
Adjusted return on tangible equity |
|
(24.5 |
)% |
|
|
3.9 |
% |
|
|
4.1 |
% |
|
|
11.0 |
% |
Return on equity |
|
(101.8 |
)% |
|
|
1.2 |
% |
|
|
(17.9 |
)% |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
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