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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-12 · 1103 added, 1067 removed, 1458 unchanged (60% of the section changed)

26 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements

Critical Audit Matter Description

Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates.

The Company estimates policy liabilities and unpaid claims reserves by applying a variety of generally accepted actuarial methods to historical loss development patterns, which require numerous assumptions and significant judgment.

We identified policy liabilities and unpaid claims as a critical audit matter because of the significant estimates and assumptions management make in forecasting ultimate losses.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to policy liabilities and unpaid claims included the following, among others:

• We tested the design and operating effectiveness of controls over policy liabilities and unpaid claims, including those related to the estimation and management’s review of the estimates as well as the selection of underlying assumptions.

• We tested the design and operating effectiveness of controls over the completeness and accuracy of the premium and claim data utilized by management and their third-party actuaries.

• We evaluated the methods and assumptions used by the Company to estimate the policy liabilities and unpaid claims reserve through the following procedures:

◦ With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims based on historical and industry claim development factors.

◦ With assistance from our actuarial specialists, we performed retrospective procedures comparing actual loss development with expected loss development to assess the reasonableness of assumption used, including consideration of potential bias, in the estimation of policy liabilities and unpaid claims.

◦ We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test that the inputs to the actuarial estimates were complete and accurate.

/s/ Deloitte & Touche LLP

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 11, 2021 expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”), management excluded from its assessment the internal control over financial reporting at Smart AutoCare as the business was acquired on January 3, 2020.

Smart AutoCare constitutes 12% of total assets and 9% of total revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2020.

Accordingly, our audit did not include the internal control over financial reporting at Smart AutoCare.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

18 unchanged sentences

(in thousands, except share data)

As of December 31,

Available for sale securities, at fair value

2020 December 31, 2019

Available for sale securities, at fair value, net of allowance for credit losses $ 377,133 $ 335,192

Loans, at fair value 90,732 108,894

7 unchanged sentences

Deferred acquisition costs 229,430 166,493

Goodwill 179,236 99,147

Intangible assets, net 138,215 47,974

Other assets 162,034 68,510

Assets held for sale 181,705 107,835

Total assets $ 2,995,760 $ 2,198,286

Liabilities and Stockholders’ Equity

Debt, net $ 366,246 $ 374,454

Unearned premiums 860,690 754,993

15 unchanged sentences

stockholders’ equity 356,144 398,062

Non-controlling interests - Other

Non-controlling interests 17,394 13,353

Total stockholders’ equity 373,538 411,415

4 unchanged sentences

(in thousands, except share data)

Year Ended December 31,

For the Year Ended

2020 2019 2018

Earned premiums, net $ 477,991 $ 499,108 $ 427,837

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Total expenses 849,153 743,589 645,622

Other income:

Results of consolidated CLOs:

Income attributable to consolidated CLOs

Expenses attributable to consolidated CLOs

Net income (loss) attributable to consolidated CLOs

Total other income

Income (loss) before taxes from continuing operations

Income (loss) before taxes ( 38,852 ) 29,139 ( 19,796 )

provision (benefit) for income taxes ( 13,627 ) 9,017 ( 5,909 )

5 unchanged sentences

Net income (loss) from discontinued operations — — 43,770

Net income (loss) before non-controlling interests

Net income (loss) ( 25,225 ) 20,122 29,883

net income (loss) attributable to non-controlling interests - TFP — — 5,500

net income (loss) attributable to non-controlling interests - Other

net income (loss) attributable to non-controlling interests 3,933 1,761 450

Net income (loss) attributable to common stockholders $ ( 29,158 ) $ 18,361 $ 23,933

7 unchanged sentences

Weighted average number of common shares:

Basic 33,859,775 34,578,292 34,715,852

Diluted 33,859,775 34,578,292 34,715,852

Dividends declared per common share $ 0.16 $ 0.16 $ 0.14

3 unchanged sentences

(in thousands)

Year Ended December 31,

Net income (loss) before non-controlling interests

For the Year Ended

2020 2019 2018

Net income (loss) $ ( 25,225 ) $ 20,122 $ 29,883

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Unrealized holding gains (losses) arising during the period 5,653 6,320 ( 2,919 )

Related tax (expense) benefit

Related (provision) benefit for income taxes ( 1,289 ) ( 1,409 ) 662

Reclassification of (gains) losses included in net income ( 528 ) ( 1,312 ) 819

Related tax expense (benefit)

Related (provision) benefit for income taxes 113 280 ( 171 )

Unrealized gains (losses) on available for sale securities, net of tax 3,949 3,879 ( 1,609 )

1 unchanged sentence

Unrealized gains (losses) on interest rate swaps — — 1,111

Related tax (expense) benefit

Related (provision) benefit for income taxes — — ( 276 )

Reclassification of (gains) losses included in net income (1)

Related tax expense (benefit)

— — ( 3,845 )

Related (provision) benefit for income taxes — — 936

Unrealized (losses) gains on interest rate swaps from cash flow hedges, net of tax — — ( 2,074 )

2 unchanged sentences

Comprehensive income (loss) attributable to non-controlling interests - TFP — — 5,278

Comprehensive income (loss) attributable to non-controlling interests - Other

Comprehensive income (loss) attributable to non-controlling interests 3,948 1,785 13

Comprehensive income (loss) attributable to common stockholders $ ( 25,224 ) $ 22,216 $ 20,909

(1) Deconsolidated as part of the sale of Care.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations.

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

Statements of Changes in Stockholders’ Equity

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except shares)

Number of Shares

Additional paid in capital

Number of Shares Par Value Additional paid in capital Accumulated

comprehensive

income (loss)

Shares held by subsidiaries

Total stockholders’ equity to Tiptree Inc.

Non-controlling

interests - TFP

income (loss) Retained

earnings Shares held by subsidiaries Total stockholders’ equity to Tiptree Inc.

Non-controlling

interests - Other

Total stockholders' equity

Common Stock Amount

Class B Shares

Class B Amount

Balance at December 31, 2016

Amortization of share-based incentive compensation

Vesting of share-based incentive compensation

Shares issued to settle contingent consideration

Issuance of common stock for cash upon exercise of stock options

Shares acquired by subsidiaries

Non-controlling interest contributions

Non-controlling interest distributions

Net changes in non-controlling interest

Dividends declared

Other comprehensive income, net of tax

interests - TFP Non-controlling

interests - Other Total stockholders' equity

Common stock Class B Common stock Class B Common stock Common stock Amount Class B Shares Class B Amount

Balance at December 31, 2017 35,003,004 8,049,029 $ 35 $ 8 $ 295,582 $ 966 $ 38,079 ( 5,197,551 ) $ ( 34,585 ) ( 8,049,029 ) $ ( 8 ) $ 300,077 $ 77,494 $ 19,203 $ 396,774

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Reorganization merger (1) (2)

8,049,029 ( 8,049,029 ) 8 ( 8 ) 82,523 ( 341 ) — — — 8,049,029 8 82,190 ( 82,190 ) — —

Cancellation of treasury shares ( 5,035,977 ) — ( 5 ) — ( 33,530 ) — — 5,035,977 33,535 — — — — — —

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Non-controlling interest distributions — — — — — — — — — — — — ( 241 ) — ( 241 )

Net changes in non-controlling interest

Net change in non-controlling interest — — — — ( 132 ) — — — — — — ( 132 ) — ( 14,097 ) ( 14,229 )

Dividends declared — — — — — — ( 4,781 ) — — — — ( 4,781 ) — — ( 4,781 )

Other comprehensive income, net of tax — — — — — ( 2,683 ) — — — — — ( 2,683 ) ( 563 ) ( 437 ) ( 3,683 )

Net income (loss) — — — — — — 23,933 — — — — 23,933 5,500 450 29,883

Balance at December 31, 2018 35,870,348 — $ 36 $ — $ 331,892 $ ( 2,058 ) $ 57,231 — $ — — $ — $ 387,101 $ — $ 12,158 $ 399,259

(1) Includes the exchange of 424,399 units of TFP for 1,187,468 shares of common stock.

(2) On April 10, 2018, the Company completed a reorganization merger whereby TFP merged with and into the Company with the Company continuing as the surviving company (Reorganization Merger).

After the Reorganization Merger, TFP ceased to exist and the Company owned 100 % of Operating Company.

See Note (17) Stockholders’ Equity for more information.

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

Statements of Changes in Stockholders’ Equity

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except shares)

Number of shares

Additional paid in capital

Accumulated other comprehensive income (loss)

Retained earnings

Total stockholders’ equity to Tiptree Inc.

Non-controlling interests - Other

Total stockholders' equity

Number of shares Par value Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total

stockholders’ equity Non-controlling interests Total stockholders' equity

Balance at December 31, 2018 35,870,348 $ 36 $ 331,892 $ ( 2,058 ) $ 57,231 $ 387,101 $ 12,158 $ 399,259

Adoption of accounting standard (3)

— — — ( 99 ) 99 — — —

Amortization of share-based incentive compensation — — 3,145 — — 3,145 2,917 6,062

Vesting of share-based incentive compensation (4)

164,935 — 187 — — 187 ( 2,483 ) ( 2,296 )

Shares purchased under stock purchase plan ( 1,472,730 ) ( 1 ) ( 9,084 ) — — ( 9,085 ) — ( 9,085 )

1 unchanged sentence

Non-controlling interest distributions (5)

— — — — — — ( 3,585 ) ( 3,585 )

Net change in non-controlling

interest — — — — — — 2,500 2,500

Dividends declared — — — — ( 5,502 ) ( 5,502 ) — ( 5,502 )

Other comprehensive income (loss), net of tax — — — 3,855 — 3,855 24 3,879

Net income (loss) — — — — 18,361 18,361 1,761 20,122

Balance at December 31, 2019 34,562,553 $ 35 $ 326,140 $ 1,698 $ 70,189 $ 398,062 $ 13,353 $ 411,415

Adoption of accounting standard (3)

— — — 42 ( 42 ) — — —

Amortization of share-based incentive compensation — — 3,441 — — 3,441 4,130 7,571

Vesting of share-based incentive compensation (4)

504,195 — 100 — — 100 ( 2,223 ) ( 2,123 )

Shares purchased under stock purchase plan ( 2,384,286 ) ( 2 ) ( 13,887 ) — — ( 13,889 ) — ( 13,889 )

Non-controlling interest distributions (5)

— — ( 645 ) — — ( 645 ) ( 1,389 ) ( 2,034 )

Net change in non-controlling interest — — ( 135 ) — — ( 135 ) ( 425 ) ( 560 )

Dividends declared — — — — ( 5,566 ) ( 5,566 ) — ( 5,566 )

Other comprehensive income, net of tax

Other comprehensive income (loss), net of tax — — — 3,934 — 3,934 15 3,949

Net income (loss) — — — — ( 29,158 ) ( 29,158 ) 3,933 ( 25,225 )

Balance at December 31, 2020 32,682,462 $ 33 $ 315,014 $ 5,674 $ 35,423 $ 356,144 $ 17,394 $ 373,538

3 unchanged sentences

See Note (19) Stock Based Compensation.

(5) Amounts reclassified due to adoption of ASU 2016-13.

See Note (2) Summary of Significant Accounting Policies.

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Operating Activities:

2020 2019 2018

Net income (loss) attributable to common stockholders $ ( 29,158 ) $ 18,361 $ 23,933

Net income (loss) attributable to non-controlling interests - TFP — — 5,500

Net income (loss) attributable to non-controlling interests - Other

Net income (loss) attributable to non-controlling interests 3,933 1,761 450

Net income (loss) ( 25,225 ) 20,122 29,883

1 unchanged sentence

Net realized and unrealized (gains) losses ( 62,410 ) ( 83,868 ) ( 28,782 )

Net (gain) on sale of businesses

Realized (gain) on cash flow hedge

Change in fair value of contingent consideration

Net (gain) loss on sale of businesses 4,428 ( 7,598 ) ( 56,860 )

Non-cash compensation expense 8,117 6,363 6,657

2 unchanged sentences

Non-cash lease expense 7,374 7,568 —

Bad debt expense

Deferred provision (benefit) for income taxes 10,733 6,815 4,011

Amortization of deferred financing costs 1,015 714 934

Loss on extinguishment of debt

Deferred tax expense (benefit)

Other ( 333 ) 1,381 671

Changes in operating assets and liabilities:

10 unchanged sentences

Increase (decrease) in other liabilities and accrued expenses 23,859 383 6,687

Operating activities from consolidated CLOs

Net cash provided by (used in) operating activities 140,169 23,742 57,724

2 unchanged sentences

Proceeds from sales and maturities of investments 1,400,229 394,331 190,942

(Increase) decrease in loans owned, at amortized cost, net

Proceeds from the sale of real estate 2,981 11,857 17,705

3 unchanged sentences

Issuance of notes receivable ( 62,088 ) ( 67,176 ) ( 31,331 )

Business and asset acquisitions, net of cash and deposits

Investing activities from consolidated CLOs

Business and asset acquisitions, net of cash, restricted cash and deposits (1)

( 5,313 ) ( 4,633 ) —

Net cash provided by (used in) investing activities ( 123,491 ) ( 8,327 ) ( 109,107 )

6 unchanged sentences

Principal paydowns of borrowings and mortgage notes payable ( 3,321,779 ) ( 2,181,704 ) ( 1,617,346 )

Proceeds from the exercise of options for Common Stock

Repurchases of common stock ( 13,889 ) ( 9,085 ) ( 14,111 )

Financing activities from consolidated CLOs

Net cash provided by (used in) financing activities 31,749 36,928 ( 2,003 )

5 unchanged sentences

Cash, cash equivalents and restricted cash – end of period $ 195,275 $ 144,590 $ 96,524

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

Year ended December 31,

Supplemental Disclosure of Cash Flow Information:

3 unchanged sentences

Right of use asset obtained in exchange for lease liability $ 9,989 $ 33,558 $ —

Equity securities acquired as part of a dividend reinvestment plan $ 953 $ — $ —

Acquired real estate properties through, or in lieu of, foreclosure of the related loan $ — $ 2,596 $ 7,367

2 unchanged sentences

Cancellation of treasury shares $ — $ — $ 33,535

Assets of consolidated CLOs deconsolidated due to sale and redemption

Liabilities of consolidated CLOs deconsolidated due to sale and redemption

Real estate acquired through asset acquisition

Seller provided financing related to the sale of subsidiary

Intangible assets related to in-place leases acquired through asset acquisition

Settlement of contingent consideration payable with Common Stock

Debt assumed through acquisitions

As of December 31,

Reconciliation of cash, cash equivalents and restricted cash shown in the statement of cash flows

Reconciliation of cash, cash equivalents and restricted cash 2020 2019 2018

Cash and cash equivalents $ 136,920 $ 133,117 $ 86,003

Restricted cash 58,355 11,473 10,521

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

Includes cash in assets held for sale

Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 195,275 $ 144,590 $ 96,524

(1) Changes in balance sheet balances due to acquisitions have been netted down in the respective line items.

See Note (3) Acquisitions for additional information.

See accompanying notes to consolidated financial statements.

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We allocate our capital across our insurance operations and other investments.

We classify our business into one reportable segment:

Tiptree Insurance.

We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable segments and other business activities, as Tiptree Capital.

In this report, “Common Stock” means Class A common stock $0.001 par value for periods prior to June 7, 2018 and thereafter the common stock $0.001 par value.

We classify our business into two reportable segments:

Insurance and Mortgage.

We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital.

(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of Tiptree have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries.

The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries.

The consolidated financial statements are presented in U.S.

dollars, the main operating currency of the Company.

Tiptree consolidates those entities in which it has an investment 50% or more of voting rights or has control over significant operating, financial and investing decisions of the entity as well as variable interest entities (VIEs) in which Tiptree is determined to be the primary beneficiary.

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.

Non-controlling interests on the consolidated balance sheets represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree.

Accounts and transactions between consolidated entities have been eliminated.

As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current presentation.

These reclassifications had no effect on the reported results of operations.

As a result of the adoption of ASU 2016-02, Leases (Topic 842), the Company’s operating leases are now recognized on the consolidated balance sheets as of January 1, 2019.

See Note (14) Other Assets and Other Liabilities and Accrued Expenses for additional information.

Accounts and transactions between consolidated entities have been

Reclassifications

As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current present ation.

These reclassif ications had no effect on the reported results of operations.

Use of Estimates

7 unchanged sentences

• Deferred acquisition costs and value of business acquired (VOBA);

Valuation of contingent share issuances for compensation and purchase consideration, including estimates of number

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

of shares and vesting schedules;

• The realization of deferred tax assets, and recognition and measurement of uncertain tax positions;

• Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and administration fees, and loan origination fees;

4 unchanged sentences

The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition.

The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill.

The net assets acquired may consist of tangible and intangible assets and the

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

excess of purchase price over the fair value of identifiable net assets acquired, or goodwill.

The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges.

5 unchanged sentences

Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets.

On July 1, 2019, a subsidiary in our insurance business acquired a majority interest in Ingenasys, Ltd., the parent holding company of Defend Insurance Group (Defend), for total net cash consideration of approximately $4.6 million .

Defend is an automotive finance and insurance provider and insurance administrator operating in the Czech Republic, Poland, Hungary, Slovakia, and the UK.

Identifiable assets acquired were primarily made up of goodwill and intangible assets.

See Note (8) Goodwill and Intangible Assets, net .

Dispositions, Assets Held for Sale and Discontinued Operations

Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

The results of operations of a business that has either been disposed of or are classified as held for sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

1 unchanged sentence

At the time of reclassification to held for sale, the Company ceases the recording of depreciation and amortization on assets transferred.

Accounting policies specific to our dispositions, assets held for sale and discontinued operations are described in more detail in (3) Dispositions, Assets Held for Sale and Discontinued Operations .

Accounting policies specific to our dispositions, assets and liabilities held for sale and discontinued operations are described in more detail in (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations.

Fair Value Measurement

5 unchanged sentences

Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

The types of financial

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

assets and liabilities carried at Level 2 are valued based on one or more of the following:

The types of financial assets and liabilities carried at Level 2 are valued based on one or more of the following:

a) Quoted prices for similar assets or liabilities in active markets;

6 unchanged sentences

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In certain cases, the inputs used to measure fair value may fall into

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

different levels of the fair value hierarchy.

In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

8 unchanged sentences

Fair Value Option

In addition to the financial instruments the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities.

In addition to the financial instruments that the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities.

Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the consolidated statements of operations.

3 unchanged sentences

As a matter of policy, derivatives are not used for speculative purposes.

Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses in the consolidated balance sheets.

Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on the consolidated balance sheets.

Derivative Instruments Designated as Cash Flow Hedging Instruments

5 unchanged sentences

The Company accounts for equity‑based compensation issued to employees, directors, and affiliates of the Company using the current fair value based methodology.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The Company initially measures the cost of restricted stock unit (RSUs) and restricted stock awards at fair value on the date of grant and subsequently recognizes the cost of such awards over the vesting period using the straight-line method.

2 unchanged sentences

Compensation cost is recognized over the required service period, generally defined as the vesting period.

Grants of subsidiary RSUs exchangeable into Common Stock of the Company were initially accounted for as liabilities based upon their expected settlement method.

Changes in fair value of the awards were recognized in earnings for the relative amount of cumulative compensation cost.

The Company used the straight-line method to recognize compensation expense for the time vesting RSUs over the requisite service periods, beginning on the grant date.

In June 2017, when sufficient shares were made available, we accounted for these RSUs under the fair value method and ceased marking the shares to market.

The Company uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs.

Changes in fair value of shares underlying liability awards are recognized in earnings to the extent of the accumulated amortization.

Grants of subsidiary RSUs exchangeable into common stock of the Company are accounted for as equity based upon their expected settlement method.

The Company recognizes the cost of such awards over the vesting period using the straight-line method and uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs.

Compensation expense will be recognized to the extent that it is probable that the performance condition will be achieved.

The Company reassesses the probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Deferred tax assets and liabilities are determined using the asset and liability method.

7 unchanged sentences

The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority.

The Company’s tax benefit or tax expense is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold.

The Company’s provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold.

The Company’s policy is to account for interest as a component of interest expense and penalties as a component of other expenses.

1 unchanged sentence

The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and footnotes thereto.

Basic earnings per Common Share (Basic EPS) excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, including vested restricted share units, for the period.

Diluted earnings per Common Share (Diluted EPS) reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares where such exercise or conversion would result in a lower earnings per share amount.

6 unchanged sentences

Realized gains (losses) are determined using the specific-identification method.

The Company classifies its investments in debt securities as available for sale or held-to-maturity based

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

on the Company’s intent and ability to hold the debt security to maturity.

The Company classifies its investments in debt securities as available for sale or held-to-maturity based on the Company’s intent and ability to hold the debt security to maturity.

The Company did not have any held-to-maturity securities at December 31, 2020 and 2019.

2 unchanged sentences

AFS securities include those debt securities that management may sell as part of its asset/liability management strategy or in response to changes in interest rates, resultant prepayment risk or other factors.

AFS securities are held at fair value on the consolidated balance sheet with changes in fair value, net of related tax effects, recorded in the AOCI component of stockholders’ equity in the period of change.

AFS securities are held at fair value on the consolidated balance sheet with changes in fair value including non-credit related losses, net of related tax effects, recorded in the AOCI component of stockholders’ equity in the period of change.

Upon the disposition of an AFS security, the Company reclassifies the gain or loss on the security from AOCI to net realized and unrealized gains (losses) on the consolidated statements of operations.

The Company regularly reviews AFS securities, held-to-maturity and cost investments with unrealized losses in order to evaluate whether the impairment is other-than-temporary.

Under the guidance for debt securities, other-than-temporary impairment (OTTI) is recognized in earnings in the consolidated statements of operations for debt securities that the Company has an intent to sell or that it believes it is more likely than not that it will be required to sell prior to recovery of the amortized cost basis.

For those securities that the Company does not intend to sell nor expect to be required to sell, credit-related impairment is recognized in earnings, with the non-credit-related impairment recorded in AOCI.

An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.

Unrealized losses for AFS securities that are determined to be temporary in nature are recorded, net of tax, in AOCI.

Management’s estimate of OTTI includes, among other things:

(i) the duration of time and the relative magnitude to which fair value of the security has been below amortized cost;

(ii) the financial condition and near‑term prospects of the issuer of the investment;

(iii) extraordinary events, including negative news releases and rating agency downgrades, with respect to the issuer of the investment;

(iv) whether it is more likely than not that the Company will sell a security before recovery of its amortized cost basis;

(v) whether a debt security exhibits cash flow deterioration;

and (vi) whether the security’s decline is attributable to specific conditions, such as conditions in an industry or in a geographic location.

For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to credit loss or non-credit loss.

In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

agency, and adverse conditions related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.

Subsequent activity related to the credit loss component (e.g.

write-offs, recoveries) is recognized as part of the allowance for credit losses on AFS securities.

For AFS securities which have an expectation of zero risk nonpayment of the amortized cost basis (e.g.

Treasury securities or agency securities), the expected credit loss is zero.

Loans, at Fair Value

Loans, at fair value is substantially comprised of (i) non-performing residential loans (NPLs), (ii) middle market leveraged loans held by the Company and (iii) loans originated by the Company’s mortgage finance business.

Loans, at fair value is substantially comprised of (i) corporate loans, (ii) non-performing residential loans (NPLs) and (iii) loans originated by the Company’s mortgage finance business.

Changes in their fair value are reported within net realized and unrealized gains (losses) in our consolidated statements of operations.

1 unchanged sentence

Corporate loans are comprised of a diversified portfolio of middle market leveraged loans which are carried at fair value.

In general, the fair value of leveraged loans are obtained from an independent pricing service which provides coverage of secondary market participants.

In general, the fair value of leveraged loans is obtained from an independent pricing service which provides coverage of secondary market participants.

The values represent a composite of mark-to-market bid/offer prices.

In certain circumstances, the Company will make its own determination of fair value of leveraged loans based on internal models and other unobservable inputs.

Mortgage Loans Held for Sale

Mortgage loans held for sale represent loans originated and held until sold to secondary market investors.

Such loans are typically warehoused for a period after origination or purchase before sale into the secondary market.

Loans are sold either servicing released, or in select instances, servicing maintained into the secondary loan market.

The Company has elected to measure all mortgage loans held for sale at fair value.

These loans are considered sold when the Company surrenders control to the purchaser.

The gains or losses on sales of such loans, net of any accrual for standard representations and warranties, are reported in operating results as a component of net realized and unrealized gains (losses) in the consolidated statement of operations in the period when the sale occurs.

Non-Performing Loans (NPLs)

Non-Performing Residential Loans (NPLs)

The Company has purchased portfolios of NPLs which consist of residential mortgage loans.

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We seek to either (i) convert such loans into real estate owned property (REO) through foreclosure or another resolution process that can then be sold, or (ii) modify and resell them at higher prices if circumstances warrant.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The Company has elected the fair value option for NPLs as we have concluded that fair value timely reflects the results of our investment performance.

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The fair value of NPLs are determined using a discounted cash flow model.

As such, both the changes in fair value and the net periodic cash flows related to NPLs are recorded in net realized and unrealized gains (losses) in the consolidated statement of operations.

As such, both the changes in fair value and the net periodic cash flows related to NPLs are recorded in net realized and unrealized gains (losses) in the consolidated statements of operations.

The Company does not hold any NPLs as of December 31, 2020.

Mortgage Loans Held for Sale

Mortgage loans held for sale represent loans originated and held until sold to secondary market investors.

Such loans are typically warehoused for a period after origination or purchase before sale into the secondary market.

Loans are sold either servicing released, or in select instances, servicing retained into the secondary loan market.

The Company has elected to measure all mortgage loans held for sale at fair value.

These loans are considered sold when the Company surrenders control to the purchaser.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Equity Securities

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The projected undiscounted future cash flows are comprised of the net of these inflows and outflows, plus an estimated salvage value.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

As of December 31, 2020, the undiscounted future cash flows were higher than the carrying amount of each of the vessels in the Company’s fleet and, as such, no loss on impairment was recognized.

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The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers, fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions.

Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings.

Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings.

Notes and Accounts Receivable, Net

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Accounts and premiums receivable from the Company’s insurance business consist primarily of advance commissions and agents' balances in course of collection and billed but not collected policy premiums, presented net of the allowance for doubtful accounts.

For policy premiums that have been billed but not collected, the Company records a receivable on its consolidated balance sheet for the full amount of the premium billed, with a corresponding liability, net of its commission, to insurance carriers.

For policy premiums that have been billed but not collected, the Company records a receivable on its consolidated balance sheets for the full amount of the premium billed, with a corresponding liability, net of its commission, to insurance carriers.

The Company earns interest on the premium cash during the period of time between receipt of the funds and payment of these funds to insurance carriers.

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Management continually monitors the financial condition and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible.

Balances recoverable from reinsurers

Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets.

Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts.

Deferred Acquisition Costs

The Company defers certain costs of acquiring new and renewal insurance policies and other products as follows within the Company’s insurance business.

Amortization of deferred acquisition costs was $ 265,781 , $ 287,834 and $ 246,330 for the years ended December 31, 2020, 2019 and 2018, respectively.

Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets.

Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts.

Deferred Acquisition Costs

The Company defers certain costs of acquiring new and renewal insurance policies and other products within the Company’s insurance business.

Amortization of deferred acquisition costs was $287,834 , $246,330 and $221,362 for the years ended December 31, 2019 , 2018 and 2017, respectively.

Insurance Policy Related

Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company's insurance company subsidiaries had the transactions not occurred.

These capitalized costs are amortized as the related premium is earned.

The Company evaluates whether insurance related deferred acquisition costs are recoverable at year-end, and considers investment income in the recoverability analysis.

As a result of the Company's evaluations, no write-offs for unrecoverable insurance related deferred acquisition costs were recognized during the years ended December 31, 2019 , 2018 and 2017.

Non-insurance Policy Related

Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred.

These capitalized costs are amortized as the related service and administrative fees are earned.

The Company evaluates whether deferred acquisition costs - non-insurance policy related are recoverable at year-end.

The Company evaluates whether all deferred acquisition costs are recoverable at year-end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs.

As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2020, 2019 and 2018.

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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.

Other intangible assets are amortized over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount.

The Company carries intangible assets, which represent customer and agent relationships, trade names, insurance licenses (certificates of authority granted by individual state departments of insurance), the value of in-force insurance policies acquired, software acquired or internally developed, and leases in-place.

Finite-lived intangible assets are amortized over their estimated useful lives principally using a pattern of economic benefit for customer relationships and a straight-line method for other intangible assets.

Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount.

Management has deemed the insurance licenses to have an indefinite useful life.

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Discounts, premiums and direct and incremental costs are amortized as a component of interest expense in the consolidated statements of operations over the life of the debt.

See Note (11) Debt, net.

Unearned Premiums

1 unchanged sentence

Unearned premiums represent the portion of premiums that will be earned in the future.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income.

As of December 31, 2019 and December 31, 2018 , no deficiency reserves were recorded.

A premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income.

As of December 31, 2020 and 2019, no deficiency reserves were recorded.

Policy Liabilities and Unpaid Claims

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The actuarial methods used include but are not limited to the chain ladder method, the Bornhuetter-Ferguson method, and the expected loss ratio method.

The actuarial analyses are performed on a basis gross of ceded reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account the impact of reinsurance.

The actuarial analyses are performed on a basis gross of ceded

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account the impact of reinsurance.

The Company has not made any changes to its methodologies for determining claim reserves in the periods presented.

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A deficiency reserve would be recorded if anticipated contract benefits, deferred acquisition costs and contract service costs exceed the recorded deferred revenues and anticipated investment income.

As of December 31, 2019 and 2018 , respectively, no deficiency reserves were recorded.

As of December 31, 2020 and 2019 no deficiency reserves were recorded.

Other Liabilities and Accrued Expenses

Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

liabilities, net, commissions payable and accrued interest payable.

Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable.

See Note (15) Other Assets and Other Liabilities and Accrued Expenses.

5 unchanged sentences

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.

Management selects the appropriate method based on available information, and periodically reviews the

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

selections as additional information becomes available.

Direct and assumed premiums are offset by premiums ceded to the Company’s reinsurers, including producer owned reinsurance companies (PORCs), earned in the same manner.

26 unchanged sentences

Vessel related revenue is recorded in other investment income as a part of other revenue.

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Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Policy and Contract Benefits

4 unchanged sentences

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance contract claims, net of amounts ceded.

Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

contract claims, net of amounts ceded.

Net losses include actual claims paid and the change in unpaid claim reserves.

8 unchanged sentences

Recently Adopted Accounting Pronouncements

In the first quarter of 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and applicable amendments, ASU 2016-08, Revenue from Contracts with Customers (Topic 606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , ASU 2016-10, Revenue from Contracts with Customers (Topic 606):

Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers (Topic 606):

Narrow-Scope Improvements and Practical Expedients .

These standards establish a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

A substantial majority of the Company’s non-investment related revenues are comprised of revenues from insurance contracts that are accounted for under Financial Services-Insurance (Topic 944) or certain financial services products (e.g.

gains upon the origination of mortgages) that are not within the scope of the new standard.

The Company’s remaining revenues that are within the scope of Topic 606 are primarily comprised of revenues from contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided for premiums, claims and reinsurance processing revenues, vehicle service contracts and warranty coverage revenues for household goods and appliances (collectively, remaining contracts).

Vessel related revenue is also under the scope of this standard.

The Company has chosen the modified-retrospective method of adopting Topic 606, and has assessed these contracts and concluded that changes in accounting and revenue recognition upon adoption of Topic 606 was not material to the Company’s financial position as of January 1, 2018, and did not have a material impact on the Company’s consolidated financial statements.

No cumulative effect adjustment was made due to the adoption of this standard.

See Note (13) Revenue From Contracts with Customers for disclosures required under ASU 2014-09 and others related to Topic 606.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , which makes targeted improvements to the recognition, measurement, presentation and disclosure of certain financial instruments.

ASU 2016-01 focuses primarily on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for certain financial

Standard Description Adoption Date Impact on Financial Statements

2016-13 Financial Instruments -Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments Topic 326 amended guidance on reporting credit losses for assets held on an amortized cost basis and AFS debt securities.

For assets held on an amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in previous GAAP and instead requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For AFS debt securities, credit losses should be measured in a manner similar to previous GAAP;

however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.

Changes in the allowance account are recorded in the period of change as a credit loss expense or reversal of credit loss expense.

The measurement of credit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost.

January 1, 2020 The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements.

2018-13 Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement The amendments in this update require additions, modifications and elimination to the fair value measurement disclosure.

The objective of these disclosure requirements is to provide users of financial statements with information about assets and liabilities measured at fair value:

(a) The valuation techniques and inputs that a reporting entity uses to arrive at its measures of fair value, including judgments and assumptions that the entity makes,

(b) The uncertainty in the fair value measurements as of the reporting date, and

January 1, 2020 The retrospective adoption of this standard resulted in additional disclosures related to inputs of Level 3 investments.

This adoption resulted in no material impact to the Company’s consolidated financial statements.

See Note (12) Fair Value of Financial Instruments.

2018-02 Income Statement—Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income The amendments in this update allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.

The amendments in this update affect any entity that is required to apply the provisions of Topic 220 and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

January 1, 2019 The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

Among its provisions for public business entities, ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires the separate presentation in other comprehensive income of the change in fair value of a liability due to instrument-specific credit risk for a liability for which the reporting entity has elected the fair value option, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) and clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available for sale debt securities.

ASU 2016-01 was effective for the Company as of January 1, 2018.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815):

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met.

ASU 2016-05 was effective for the Company for the annual and interim periods beginning after December 15, 2016.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.

Some of the areas for simplification apply only to nonpublic entities.

In addition, the amendments in this Update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No.

123 (revised 2004), Share-Based Payment.

The standard was effective for the Company for the annual and interim periods beginning after December 15, 2016.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments, which addresses the following eight specific cash flow issues:

Debt prepayment or debt extinguishment costs;

settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;

contingent consideration payments made after a business combination;

proceeds from the settlement of insurance claims;

proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs));

distributions received from equity method investees;

beneficial interests in securitization transactions;

and separately identifiable cash flows and application of the predominance principle.

The standard was effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those annual periods.

Early adoption was permitted, including the adoption in an interim period.

The amendments in this Update should be applied using a retrospective transition method to each period presented.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which addresses classification and presentation of changes in restricted cash on the statement of cash flows.

ASU 2016-18 requires an entity’s reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents.

The ASU does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions.

ASU 2016-18 was effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017.

The adoption of ASU 2016-18 resulted in reclassification of restricted cash balances into cash, cash equivalents and restricted cash on the consolidated statements of cash flows in the first quarter of 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business , which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

The definition of a business affects many areas of accounting including the treatment of acquisitions, disposals, goodwill, and consolidation.

There are no disclosures required for a change in accounting principle at transition.

Early adoption was permitted for transactions (i.e., acquisitions or dispositions) that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance.

The Company elected to early adopt this standard, effective for transactions on or after October 1, 2016.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Standard Description Adoption Date Impact on Financial Statements

2016-02 Leases (Topic 842) This new standard introduced a new lessee model that brings substantially all leases onto the balance sheet.

In addition, while the new guidance retains most of the principles of the previous existing lessor model in GAAP, it aligns many of those principles with ASC 606, Revenue From Contracts With Customers.

January 1, 2019 The adoption of this guidance (practical expedient) resulted in the Company recognizing a right of use asset of $ 32,052 as part of other assets and a lease liability of $ 33,558 as part of other liabilities and accrued expenses in the consolidated balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance for its operating lease agreements at January 1, 2019.

2014-09 Revenue from Contracts with Customers (Topic 606) This ASU outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance, including industry-specific guidance.

January 1, 2018 The Company has chosen the modified-retrospective method of adopting Topic 606, and has assessed these contracts and concluded that changes in accounting and revenue recognition upon adoption of Topic 606 were not material to the Company’s financial position as of January 1, 2018, and did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements, Not Yet Adopted

Standard Description Adoption Date Impact on Financial Statements

2019-12 Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods.

For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued.

An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.

Additionally, an entity that elects early adoption must adopt all the amendments in the same period.

The Company is currently evaluating the effect on its consolidated financial statements.

2020-04 Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this update provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met.

The standard is effective for all entities as of March 12, 2020, through December 31, 2022.

The Company is evaluating their option to adopt the guidance when it is applicable.

The Company is currently evaluating the effect on its consolidated financial statements.

(3) Acquisitions

Acquisition of Sky Auto

On December 31, 2020, a subsidiary in our insurance business acquired all of the equity interests in Sky Auto for total net cash consideration of approximately $ 25,200 .

Sky Auto markets vehicle service contracts to consumers within the United States.

Identifiable assets acquired were primarily made up of goodwill and intangible assets.

Management’s preliminary allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of approximately

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets .

The new guidance was effective for fiscal years beginning after December 15, 2017 and interim periods within those years.

Early adoption was permitted for interim or annual reporting periods beginning after December 15, 2016.

The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption.

The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also added guidance for partial sales of nonfinancial assets.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718):

Scope of Modification Accounting , which provided clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718.

ASU 2017-09 was effective for the Company for interim and annual periods beginning after December 15, 2017, with early adoption permitted, and was applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) , Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815):

Accounting for Certain Financial Instruments with Down Round Features;

Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.

Part I of this Update addressed the complexity of accounting for certain financial instruments with down round features.

Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings.

Previous accounting guidance created cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option.

Part II of this Update addressed the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification.

This pending content was the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.

The amendments in Part II of this Update did not have an accounting effect.

The Company elected to early adopt this standard as of December 31, 2017.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today.

The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.

ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840).

The standard is effective on January 1, 2019, with early adoption permitted.

The Company adopted the standard in the first quarter of 2019 under the modified retrospective approach without restating prior comparative periods.

The adoption of the updated guidance resulted in the Company recognizing a right of use asset of $32,052 as part of other assets and a lease liability of $33,558 as part of other liabilities and accrued expenses in the consolidated balance sheets, as well as de-recognizing the liability for deferred rent that was required under the previous guidance for its operating lease agreements at January 1, 2019.

We have elected the practical expedient to not separate lease components and non-lease components, and leases with an initial term of 12 months or less are not recorded on the balance sheet.

The cumulative effect adjustment to the opening balance of retained earnings was zero .

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased Callable Debt Securities .

The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years.

Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2017.

The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.

The guidance shortens the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

$ 20,000 and $ 5,340 .

It is expected that the tax basis in goodwill and intangible assets will be similar to the GAAP values provided above.

See Note (9) Goodwill and Intangible Assets, net.

Acquisition of Smart AutoCare

On January 3, 2020, a subsidiary of the Company acquired (the Acquisition) all of the equity interests of Accelerated Service Enterprise LLC., SAC Holdings Inc., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc., Freedom Insurance Company, Ltd.

(Freedom), SAC Admin, Inc., SAC Insurance Company, Inc., Smart AutoCare, Inc.

and Smart AutoCare Administration Solutions, Inc.

(together Smart AutoCare), pursuant to the Equity Interest Purchase Agreement (the Purchase Agreement) between Fortegra Warranty Holdings, LLC.

(Buyer) and Peter Masi (Seller), dated as of December 16, 2019.

Concurrent with the Acquisition, Freedom terminated reinsurance agreements with affiliates of Seller (the Commutation Transaction).

Tiptree paid Seller $ 111,804 , net of working capital true-ups, in cash at closing, $ 8,250 of which will be held in an escrow account for 18 months to satisfy indemnity claims.

Simultaneously, pursuant to the Commutation Transaction, affiliates of Seller paid Freedom $ 102,000 in cash.

The Purchase Agreement also provides for an earn out of up to $ 50,000 in cash based on Smart AutoCare achieving specified performance metrics measured on the 3 -year and 5 -year anniversary of closing (Reserve Based Earn-Out Amount) and an additional earn out of up to $ 30,000 payable in cash or Tiptree common stock based on Smart AutoCare achieving other certain specified performance metrics measured on the 4 -year and 5 -year anniversary of closing (Profits Based Earn-Out Amount).

In addition, the purchase price will be subject to a true-up following the 5 -year anniversary of the closing (Underwriting Profitability True-Up) based on the adequacy of certain legacy reserves, offset by certain earnings on new business.

Fortegra Warranty may hold back all or a portion of any Reserve Based Earn-Out Amounts until final determination of the legacy reserves used to calculate the Underwriting Profitability True-Up if in Tiptree’s reasonable opinion such amount may be needed to offset a deficiency in such legacy reserves.

In addition, if the deficiency in the legacy reserves used to calculate the Underwriting Profitability True-Up is greater than the aggregate amount owing to Seller for the Reserve-Based Earn-Out Amount and Profits-Based Earn-Out Amount, Seller shall pay Tiptree an amount equal to the lesser of such difference and $ 10,000 .

Smart AutoCare’s results are included in the Company’s Insurance segment.

The financial results of Smart AutoCare have been included in the Company’s results as of the acquisition date.

For the period from the Acquisition until December 31, 2020, Smart AutoCare total revenue was $ 70,022 and the loss before taxes was $ 226 .

The fair value of assets acquired and liabilities assumed represent the allocation as our evaluation of facts and circumstances available as of the acquisition date.

The allocation of the purchase price to the intangible assets is based on fair value estimates and have been reviewed by management.

The allocation of the purchase price has been finalized and all measurement period adjustments have been recorded.

Management’s allocation of the purchase price to the net assets acquired resulted in the recording of finite-lived intangible assets valued at $ 93,700 , with an estimated amortization period of 5 to 13.5 years.

It is expected that the tax basis in intangible assets will be similar to the GAAP values provided above.

The residual amount of the purchase price after the allocation to net assets acquired and identifiable intangibles of $ 60,346 has been allocated to goodwill.

This goodwill is included in the Insurance segment.

It is expected that $ 21,127 of this goodwill will be tax deductible over a 15 year period.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activitie s, which amends the guidance on hedge accounting.

The amendment will make more financial and nonfinancial hedging strategies eligible for hedge accounting and amend the presentation and disclosure requirements.

It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.

ASU 2017-12 can be adopted immediately in any interim or annual period.

The mandatory effective date for calendar year-end public companies is January 1, 2019.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which permits companies to reclassify stranded tax effects caused by Public Law no.

115-97, commonly referred to as the Tax Cuts and Jobs Act (Tax Act), from AOCI to retained earnings.

Deferred tax assets (DTA) on unrealized gains and losses related to available for sale (AFS) securities that were revalued as of December 31, 2017 created stranded tax effects in AOCI due to the enactment of the Tax Act, due to the nature of existing GAAP requiring recognition of tax rate change effects on the DTA revaluation related to AFS securities as an adjustment to the provision for income taxes.

Specifically, ASU 2018-02 permits a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act.

Additionally, the ASU requires new disclosures by all companies, whether they opt to do the reclassification or not.

The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.

The Company adopted the standard effective January 1, 2019, and reclassified the stranded tax effects caused by the Tax Act from AOCI to retained earnings.

The standard is applied in the period of adoption, and the impact to the Company’s consolidated financial statements in the period of adoption is not material.

The Company’s accounting policy for the release of stranded tax effects in AOCI is the aggregate portfolio approach.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and AFS debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For AFS debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.

This ASU affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The amendments will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company does not believe the adoption of this standard will have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.

ASU 2017-04 does not change the qualitative assessment;

however, it removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test.

Therefore, as the FASB notes in the ASU’s Basis for Conclusions, the goodwill of reporting units with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit indicate that goodwill is impaired.

Entities will, however, be required to disclose any reporting units with zero or negative carrying amounts and the respective amounts of goodwill allocated to those reporting units.

The amendments in ASU 2017-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company is currently evaluating the effect on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820.

The modifications include the removal of certain requirements, modifications to existing requirements and additional requirements.

The amendments in ASU 2018-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after

The following table presents the determination of the acquisition date fair value amounts for the identifiable assets acquired, liabilities assumed, and goodwill recorded in connection with the Acquisition, in accordance with the acquisition method of accounting:

Available for sale securities, at fair value $ 110

Total investments 110

Cash and cash equivalents 120,934

Restricted cash 764

Notes and accounts receivable, net 6,214

Reinsurance receivables 71,337

Intangible assets, net 93,700

Other assets 34,053

Total assets $ 327,112

Policy liabilities and unpaid claims $ 55,151

Deferred revenue 182,568

Reinsurance payable 27,075

Other liabilities and accrued expenses 10,860

Total liabilities 275,654

Net assets acquired 51,458

Goodwill 60,346

Acquisition costs $ 3,539

Supplemental pro forma results of operations have not been presented for the Acquisition as they are not material in relation to the Company’s reported results.

The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and the range of their estimated amortization period:

Intangible Assets Weighted Average Amortization Period

(in Years) Value as of acquisition date

Customer relationships 7.2 $ 86,000

Software licensing 5.0 600

Trade names 13.5 7,100

Total acquired finite-lived intangible assets 7.7 $ 93,700

Defend is an automotive finance and insurance provider and insurance administrator operating in the Czech Republic, Poland, Hungary, Slovakia, and the UK.

Identifiable assets acquired were primarily made up of goodwill and intangible assets.

See Note (9) Goodwill and Intangible Assets, net.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

December 15, 2019, with early adoption permitted.

The Company is currently evaluating the effect on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the application of Topic 740 while maintaining or improving the usefulness of the information provided to users of financial statements.

The modifications include the removal of certain exceptions and simplification to existing requirements.

The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the effect on its consolidated financial statements.

(3) Dispositions, Assets Held for Sale and Discontinued Operations

(4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

On April 26, 2019, the Company completed the sale of the management contracts and related assets for the CLOs managed by Telos Asset Management, LLC (Telos).

The pre-tax gain on sale for the year ended December 31, 2019 was $7.6 million , which is included in other revenue.

See Note (15) Other Revenue, Other Expenses and Other Income .

The pre-tax gain on sale for the year ended December 31, 2019 was $ 7,598 , which is included in other revenue.

See (16) Other Revenue and Other Expenses.

The sale did not meet the requirements to be classified as a discontinued operation.

2 unchanged sentences

On February 1, 2018, the Company completed the sale of Care, as well as two senior living properties held in our insurance business, to Invesque Inc.

The pre-tax comprehensive income on the sale was approximately $54.9 million , which consists of $56.9 million gain on sale of a subsidiary, $1.8 million of realized gain on the sale of the insurance properties, offset by the reclassification of the interest rate swap from AOCI of $3.8 million .

The gain on sale of a subsidiary includes $10.7 million of earnout consideration recognized in December 2018 as a result of a portfolio disposition by Invesque.

Total consideration received for the sale of Care was $150.7 million , including approximately 16.6 million shares of Invesque, resulting in an ownership of approximately 34% of the acquiring company at the time of sale.

The pre-tax comprehensive income on the sale was approximately $ 54,860 , which consists of $ 56,860 gain on sale of a subsidiary, $ 1,845 of realized gain on the sale of the insurance properties, offset by the reclassification of an interest rate swap from AOCI of $ 3,845 .

The gain on sale of a subsidiary includes $ 10,676 of earnout consideration recognized in December 2018 as a result of a portfolio disposition by Invesque.

Total consideration received for the sale of Care was $ 150,741 , including approximately 16.6 million shares of Invesque, resulting in an ownership of approximately 34 % of the acquiring company at the time of sale.

The Company has elected to apply the fair value option to the investment in Invesque.

2 unchanged sentences

As a result, the Company reclassified the income and expenses attributable to Care to net income (loss) from discontinued operations through the completion of the sale.

The Company has entered into a definitive agreement to sell Luxury, which is pending regulatory approval, and is classified as held for sale at December 31, 2019 and December 31, 2018.

Assets and Liabilities Held for Sale

The Company has entered into a definitive agreement to sell Luxury, and it is classified as held for sale at December 31, 2020 and December 31, 2019.

The agreement did not meet the requirements to be classified as a discontinued operation.

On January 18, 2017 and November 7, 2017, the Company sold its ownership in the subordinated notes in two CLOs (collectively, the Disposed CLOs).

On August 10, 2017, the Company’s ownership in the subordinated notes of an additional CLO was redeemed for cash as part of the complete liquidation of the CLO.

The operations of the Disposed CLOs and redeemed CLO were consolidated in the results of the Company through the redemption date.

The Company sold its interest in its commercial lending business on October 1, 2017.

Consideration consisted of $2,500 in cash and $11,000 of seller provided financing at the time of sale.

The financing had an interest rate of 10% and was settled in cash in December 2018.

The operations of this business were consolidated in the results of the Company through the sale date.

As of December 31, 2019 and December 31, 2018 , the Company did not record any impairments with respect to assets held for sale.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Assets Held for Sale

The following table presents detail of Luxury’s assets and liabilities held for sale in the consolidated balance sheets for the following periods:

As of December 31,

2020 December 31, 2019

Loans, at fair value $ 164,802 $ 98,272

2 unchanged sentences

Cash and cash equivalents 4,870 7,137

Restricted cash 9 —

Notes and accounts receivable, net 1,760 238

1 unchanged sentence

Assets held for sale $ 181,705 $ 107,835

Debt, net $ 162,072 $ 97,822

Other liabilities and accrued expenses (1)

Liabilities held for sale $ 175,112 $ 102,430

Includes $318 and $0 of a right of use asset as of December 31, 2019 and December 31, 2018, respectively.

Includes $341 and $0 of a lease liability as of December 31, 2019 and December 31, 2018, respectively.

(1) Includes deferred tax liabilities of $ 939 as of December 31, 2020.

During the year ended December 31, 2020, the Company recorded an impairment of $ 4,428 related to assets and liabilities held for sale.

See Note (16) Other Revenue and Other Expenses.

No impairment related to assets and liabilities held for sale was recorded for the years ended December 31, 2019 or 2018.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Luxury has a total borrowing capacity at December 31, 2020 of $ 214,000 .

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

Rental and related revenue $ — $ — $ 6,476

3 unchanged sentences

Interest expense — — 1,252

Depreciation and amortization

Other expenses — — 1,961

4 unchanged sentences

Net income (loss) from discontinued operations $ — $ — $ 43,770

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents a summary of cash flows related to discontinued operations included in the consolidated statements of cash flows for the following periods:

Year Ended December 31,

2020 2019 2018

Net cash provided by (used in):

4 unchanged sentences

Significant Accounting Policies Related to Dispositions and Discontinued Operations

Except as noted below, Care, Luxury and our commercial lending business adhered to the Significant Accounting Policies as described in Note (2) Summary of Significant Accounting Policies .

Loans, at Amortized Cost, Net

Interest income related to loans at amortized cost was generally recognized using the effective interest method or on a basis approximating a level rate of return over the term of the loan.

Nonaccrual loans were those on which the accrual of interest was suspended.

Loans were placed on nonaccrual status and considered nonperforming when full payment of principal and interest was in doubt, or when principal or interest was 90 days or more past due and collateral, if any, was insufficient to cover principal and interest.

Interest accrued but not collected at the date a loan was placed on nonaccrual status was reversed against interest income.

In addition, the amortization of net deferred loan fees was suspended.

Interest income on nonaccrual loans was recognized only to the extent it was received in cash.

However, when there was doubt regarding the ultimate collectability of loan principal, cash receipts on such nonaccrual loans were applied to reduce the carrying value of such loans.

Nonaccrual loans were returned to accrual status when repayment was reasonably assured and there had been demonstrated performance under the terms of the loan or, if applicable, the restructured terms of such loan.

The Company deferred nonrefundable loan origination and commitment fees collected on originated loans and amortized the net amount as an adjustment of the interest income over the contractual life of the loan.

If a loan was prepaid, the net deferred amount was recognized in loan fee income within the consolidated statements of operations in the period.

Loan fee income included prepayment fees and late charges collected.

Except as noted below, Care and our CLO management business adhered to the Significant Accounting Policies as described in Note (2) Summary of Significant Accounting Policies.

Revenue Recognition

6 unchanged sentences

Revenue related to rental revenue was primarily attributable to services provided to the occupants of our senior living properties.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Management Fee Income

4 unchanged sentences

The Company did not recognize incentive fees until all contractual contingencies were removed.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Management fee income is recorded in other revenue.

(4) Operating Segment Data

(5) Segment Data

Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments.

Tiptree’s principal operating subsidiary and primary source of earnings, Tiptree Insurance, along with its subsidiaries, is a leading provider of specialty insurance, warranty products and related administration services.

We classify our business into one reportable segment – Tiptree Insurance, formally referred to as Specialty Insurance.

This change for the year ended December 31, 2019 did not change any previously reported balances.

We refer to our non-insurance operations, assets and other investments, which is comprised of our non-reportable operating segments and other business activities, as Tiptree Capital.

Tiptree’s principal operating subsidiary, The Fortegra Group, LLC (Fortegra), along with its subsidiaries, is a leading provider of specialty insurance underwriting, warranty and service contract products and related service solutions.

Based on the ASC 280 quantitative analysis performed as of December 31, 2020, our reportable segments are Insurance and Mortgage.

We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable operating segments and other business activities, as Tiptree Capital.

Corporate activities include holding company interest expense, employee compensation and benefits, and other expenses.

Our reportable segment’s income or loss is reported before income taxes, discontinued operations and non-controlling interests.

Our reportable segments’ income or loss is reported before income taxes and non-controlling interests.

Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired.

For the year ended December 31, 2020, Mortgage has been broken out of Tiptree Capital as a reportable segment since it meets the quantitative threshold for disclosure.

Prior year segments have been conformed to the current year presentation.

Intercompany transactions are eliminated.

Descriptions of our reportable segment and of Tiptree Capital are as follows:

Tiptree Insurance operations are conducted through Tiptree Insurance, which includes Fortegra Financial Corporation (Fortegra), an insurance holding company incorporated in 1981, and Tiptree Warranty.

Descriptions of our Insurance reportable segment and Tiptree Capital, including our Mortgage reportable segment are as follows:

Insurance operations are conducted through Fortegra, which includes Fortegra Financial Corporation and Fortegra Warranty.

Fortegra underwrites and administers specialty insurance programs and products, and is a leading provider of credit and asset protection products and administration services.

Fortegra’s programs are provided across a diverse range of products and services including credit protection insurance, warranty and service contract products, premium finance, and niche personal and commercial lines of insurance.

On January 3, 2020, Tiptree Warranty acquired Smart AutoCare, a rapidly growing vehicle warranty solutions provider in the United States.

Tiptree Capital includes our asset management, mortgage and shipping operations, and other investments (including our Invesque shares).

The tables below present the components of revenue, expense, pre-tax income (loss), and assets for our reportable segment as well as Tiptree Capital for the following periods:

On January 3, 2020, Fortegra Warranty acquired Smart AutoCare, a vehicle warranty solutions provider in the United States.

On December 31, 2020, Fortegra acquired Sky Auto, a vehicle service contract marketer within the United States.

See Note (3) Acquisitions.

Tiptree Capital:

Mortgage operations are conducted through Reliance.

The Company’s mortgage origination business originates loans for sale to institutional investors, including GSEs and FHA/VA and services loans on behalf of Fannie Mae, Freddie Mac, and GNMA.

Other includes our asset management, mortgage operations of Luxury, shipping operations, and other investments (including our Invesque shares).

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

The tables below present the components of revenue, expense, income (loss) before taxes, and assets for our reportable segments as well as Tiptree Capital - Other for the following periods:

Year Ended December 31, 2020

Tiptree Insurance

Tiptree Capital

Total revenue

Total expense

Corporate expense

Income (loss) before taxes from continuing operations

Insurance Mortgage Other Total

Total revenues $ 691,061 $ 112,165 $ 7,075 $ 810,301

Total expenses ( 664,113 ) ( 81,063 ) ( 68,317 ) ( 813,493 )

Corporate expenses — — — ( 35,660 )

Income (loss) before taxes $ 26,948 $ 31,102 $ ( 61,242 ) $ ( 38,852 )

provision (benefit) for income taxes ( 13,627 )

Net income (loss) before non-controlling interests

Net income (loss) $ ( 25,225 )

net income (loss) attributable to non-controlling interests 3,933

1 unchanged sentence

Year Ended December 31, 2019

Tiptree Insurance

Total revenue

Total expense

Corporate expense

Income (loss) before taxes from continuing operations

Tiptree Capital

Insurance Mortgage Other Total

Total revenues $ 635,085 $ 66,121 $ 71,522 $ 772,728

Total expenses ( 598,055 ) ( 63,162 ) ( 48,131 ) ( 709,348 )

Corporate expenses — — — ( 34,241 )

Income (loss) before taxes $ 37,030 $ 2,959 $ 23,391 $ 29,139

provision (benefit) for income taxes 9,017

Net income (loss) from discontinued operations

Net income (loss) before non-controlling interests

Net income (loss) $ 20,122

net income (loss) attributable to non-controlling interests 1,761

Net income (loss) attributable to common stockholders $ 18,361

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Year Ended December 31, 2018

Tiptree Insurance

Total revenue

Total expense

Net income attributable to consolidated CLOs

Corporate expense

Tiptree Capital

Insurance Mortgage Other Total

Total revenues $ 544,586 $ 51,624 $ 29,616 $ 625,826

Total expenses ( 530,414 ) ( 51,289 ) ( 33,675 ) ( 615,378 )

Corporate expenses — — — ( 30,244 )

Income (loss) before taxes from continuing operations $ 14,172 $ 335 $ ( 4,059 ) $ ( 19,796 )

1 unchanged sentence

Net income (loss) from discontinued operations 43,770

Net income (loss) before non-controlling interests

Net income (loss) $ 29,883

net income (loss) attributable to non-controlling interests 5,950

Net income (loss) attributable to Common Stockholders $ 23,933

The following table presents sources of revenue from Tiptree Capital:

Year Ended December 31,

Net realized and unrealized gains (losses) (1)

Other investment income (2)

Gain on sale of businesses (3)

Management fee income

Total revenue

See Note (5) Investments for the components of Net realized and unrealized gains (losses) related to Tiptree Capital.

See Note (5) Investments for the components of Other investment income.

Related to the sale of Telos and our commercial lending business for the year ended December 31, 2019 and 2017, respectively.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

The following table presents the reportable segment and Tiptree Capital assets for the following periods:

As of December 31, 2019

As of December 31, 2018

Tiptree Insurance

Tiptree Capital

Tiptree Insurance

Tiptree Capital

The Company conducts its operations primarily in the U.S.

with less than 6 % of total revenues generated overseas for the years ended December 31, 2020, 2019 and 2018.

The following table presents the reportable segments and Tiptree Capital - Other assets for the following periods:

As of December 31, 2020 As of December 31, 2019

Tiptree Capital Tiptree Capital

Insurance Mortgage Other Corporate Total Insurance Mortgage Other Corporate Total

Total assets $ 2,452,798 $ 217,138 $ 302,068 $ 23,756 $ 2,995,760 $ 1,730,636 $ 154,589 $ 297,009 $ 16,052 $ 2,198,286

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(6) Investments

The following table presents the Company's investments related to insurance operations (Tiptree Insurance) and investments from other Tiptree investing activities (Tiptree Capital), measured at fair value as of the following periods:

As of December 31, 2019

The following table presents the Company's investments related to insurance operations (Insurance) and investments from other Tiptree investing activities (Tiptree Capital), measured at fair value as of the following periods:

As of December 31, 2020

Tiptree Insurance

Tiptree Capital

Tiptree Insurance

Insurance Mortgage Other Total

Available for sale securities, at fair value, net of allowance for credit losses $ 377,133 $ — $ — $ 377,133

Loans, at fair value 7,795 82,937 — 90,732

Equity securities 98,130 — 25,708 123,838

Other investments 125,833 9,439 84,429 219,701

Total investments $ 608,891 $ 92,376 $ 110,137 $ 811,404

As of December 31, 2019

Tiptree Capital

Available for sale securities, at fair value

Insurance Mortgage Other Total

Available for sale securities, at fair value, net of allowance for credit losses $ 335,192 $ — $ — $ 335,192

Loans, at fair value 10,174 98,720 — 108,894

6 unchanged sentences

(in thousands, except share data)

Available for Sale Securities, at fair value

All of the Company’s investments in AFS securities as of December 31, 2019 and December 31, 2018 are held by subsidiaries in the insurance business.

Available for Sale Securities, at fair value, net of allowance for credit losses

All of the Company’s investments in Available for Sale Securities, at fair value, net of allowance for credit losses (AFS securities) as of December 31, 2020 and December 31, 2019 are held by subsidiaries in the insurance business.

The following tables present the Company's investments in AFS securities:

As of December 31, 2020

Amortized cost

unrealized gains

unrealized losses

Amortized cost Allowance for Credit Losses (1)

unrealized gains Gross

unrealized losses Fair value

Treasury securities and obligations of U.S.

5 unchanged sentences

Obligations of foreign governments 3,961 — 31 — 3,992

Total $ 369,751 $ — $ 9,541 $ ( 2,159 ) $ 377,133

(1) - Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statements of operations (as a credit loss on AFS securities).

Amount excludes unrealized losses relating to non-credit factors.

As of December 31, 2019

Amortized cost

unrealized gains

unrealized losses

Amortized cost Gross

unrealized gains Gross

unrealized losses Fair value

Treasury securities and obligations of U.S.

5 unchanged sentences

Obligations of foreign governments 1,099 20 — 1,119

Total $ 332,988 $ 4,070 $ ( 1,866 ) $ 335,192

The amortized cost and fair values of AFS securities, by contractual maturity date, are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

December 31, 2019

December 31, 2018

Amortized Cost

December 31, 2020 December 31, 2019

Amortized Cost Fair Value Amortized Cost Fair Value

Due in one year or less $ 30,306 $ 30,602 $ 9,584 $ 9,602

3 unchanged sentences

Asset backed securities 37,975 36,192 45,634 44,018

Total $ 369,751 $ 377,133 $ 332,988 $ 335,192

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities have been in a continuous unrealized loss position:

The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities have been in a continuous unrealized loss position for less than twelve months, and twelve months or greater and do not have an allowance for credit losses:

As of December 31, 2020

Less Than or Equal to One Year

More Than One Year

unrealized losses

# of Securities

Gross unrealized losses

# of Securities

Less Than or Equal to One Year More Than One Year

Fair value Gross

unrealized losses # of Securities Fair value Gross unrealized losses # of Securities

Treasury securities and obligations of U.S.

government authorities and agencies

$ 15,323 $ ( 58 ) 41 $ 2 $ — 2

Obligations of state and political subdivisions 379 ( 1 ) 5 — — —

1 unchanged sentence

Asset backed securities — — — 18,927 ( 2,099 ) 9

$ 16,603 $ ( 60 ) 49 $ 18,929 $ ( 2,099 ) 11

As of December 31, 2019

Less Than or Equal to One Year

More Than One Year

unrealized losses

# of Securities

Gross unrealized losses

# of Securities

Less Than or Equal to One Year More Than One Year

Fair value Gross

unrealized losses # of Securities Fair value Gross unrealized losses # of Securities

Treasury securities and obligations of U.S.

government authorities and agencies

$ 31,416 $ ( 132 ) 75 $ 3,888 $ ( 12 ) 38

Obligations of state and political subdivisions 3,774 ( 15 ) 20 — — —

1 unchanged sentence

Asset backed securities 3,878 ( 11 ) 17 19,480 ( 1,694 ) 11

Obligations of foreign governments

$ 41,888 $ ( 160 ) 124 $ 24,110 $ ( 1,706 ) 56

Management believes that it is more likely than not that the Company will be able to hold the fixed maturity AFS securities that were in an unrealized loss position as of December 31, 2020 until full recovery of their amortized cost basis.

The unrealized losses were attributable to changes in interest rates and not credit-related issues.

As of December 31, 2019 and December 31, 2018 , based on the Company's review, none of the AFS securities were deemed to be other-than-temporarily impaired based on the Company's analysis of the securities and its intent to hold the securities until recovery.

The table below presents a roll-forward of the activity in the allowance for credit losses on AFS securities by type as of December 31, 2020:

Obligations of state and political subdivisions Corporate securities Asset backed securities Total

Increase in the allowance for the initial adoption of ASU 2016-13 $ ( 1 ) $ ( 50 ) $ ( 2 ) $ ( 53 )

Reduction in credit losses due to AFS securities sold during the year — 3 — 3

Recoveries of amounts previously written off during the year 1 47 2 50

Ending balance of the allowance for credit losses on AFS securities $ — $ — $ — $ —

The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment management company, in determining its lifetime expected credit losses on AFS securities.

This includes determining the present value of expected future cash flows discounted at the book yield of the security.

The table below presents the amount of credit losses (gains from recoveries) on AFS securities recorded by the Company for the following period:

Year Ended December 31, 2020

Credit losses (gains from recoveries) on AFS securities $ ( 53 )

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts.

The Company cannot remove or replace investments in regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable.

The Company cannot remove or replace investments in

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable.

The following table presents the Company's restricted investments included in the Company's AFS securities:

As of December 31,

Fair value of restricted investments for special deposits required by state insurance departments

2020 December 31, 2019

Fair value of restricted investments in trust pursuant to reinsurance agreements $ 44,349 $ 33,478

Fair value of restricted investments for special deposits required by state insurance departments 9,447 6,275

Total fair value of restricted investments $ 53,796 $ 39,753

The following table presents additional information on the Company’s AFS securities:

Year Ended December 31,

For the Year Ended

2020 2019 2018

Purchases of AFS securities $ 158,357 $ 253,415 $ 192,288

2 unchanged sentences

Gross proceeds from sales of AFS securities $ 35,603 $ 170,495 $ 56,191

Gains (losses) realized on sales of AFS securities

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents the gross realized gains and gross realized losses from sales and or redemptions of AFS securities:

For the Year Ended

2020 2019 2018

Gross realized gains $ 594 $ 1,558 $ 50

Gross realized (losses) ( 66 ) ( 246 ) ( 839 )

Total net realized gains (losses) from investment sales and redemptions 528 1,312 ( 789 )

Loans, at fair value

The following tables present the Company’s investments in loans measured at fair value and the Company’s investments in loans measured at fair value pledged as collateral:

As of December 31, 2019

As of December 31, 2018

Unpaid principal balance (UPB)

Fair value exceeds / (below) UPB

Pledged as Collateral

Unpaid principal balance (UPB)

Fair value exceeds / (below) UPB

Pledged as Collateral

Tiptree Insurance:

The following table presents the Company’s investments in loans measured at fair value and the Company’s investments in loans measured at fair value pledged as collateral:

As of December 31, 2020 As of December 31, 2019

Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as Collateral Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as Collateral

Corporate loans (1)

$ 7,795 $ 12,281 $ ( 4,486 ) $ — $ 9,787 $ 12,006 $ ( 2,219 ) $ —

Non-performing loans (2)

Tiptree Capital:

— — — — 387 409 ( 22 ) —

Mortgage loans held for sale (3)

82,937 78,590 4,347 81,630 98,720 95,680 3,040 98,086

Total loans, at fair value $ 90,732 $ 90,871 $ ( 139 ) $ 81,630 $ 108,894 $ 108,095 $ 799 $ 98,086

The UPB of these loans approximates cost basis.

The cost basis of NPLs was approximately $282 and $21,555 at December 31, 2019 and December 31, 2018 , respectively.

As of December 31, 2019 , there was one mortgage loan held for sale with a fair value of $198 that was 90 days or more past due.

As of December 31, 2018 , there were no mortgage loans held for sale 90 days or more past due.

(1) The cost basis of Corporate loans was approximately $ 11,282 and $ 11,969 at December 31, 2020 and December 31, 2019, respectively.

(2) The cost basis of NPLs was approximately $ 282 at December 31, 2019, respectively.

The are no NPLs as of December 31, 2020.

(3) As of December 31, 2020 and December 31, 2019, there were two mortgage loans held for sale and one mortgage loan held for sale that were 90 days or more past due, respectively, with a fair value of $ 534 and $ 198 , respectively.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Equity securities

Equity securities represents the carrying amount of the Company's basis in equity investments.

Included within the equity securities balance are 16.6 million shares of Invesque for which the Company has elected to apply the fair value option.

The following table presents the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods:

Included within the equity securities balance are 17.0 million shares of Invesque as of December 31, 2020, and 16.6 million as of December 31, 2019, for which the Company has elected to apply the fair value option.

The following table presents information on the cost and fair value of the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods:

As of December 31, 2020

Insurance Tiptree Capital - Other Total

Cost Fair Value Cost Fair Value Cost Fair Value

Invesque $ 23,339 $ 5,370 $ 111,491 $ 25,708 $ 134,830 $ 31,078

Fixed income exchange traded fund 62,438 63,875 — — 62,438 63,875

Other equity securities 38,069 28,885 — — 38,069 28,885

Total equity securities $ 123,846 $ 98,130 $ 111,491 $ 25,708 $ 235,337 $ 123,838

As of December 31, 2019

Tiptree Insurance

Tiptree Capital

Tiptree Insurance

Tiptree Capital

Insurance Tiptree Capital - Other Total

Cost Fair Value Cost Fair Value Cost Fair Value

Invesque $ 23,188 $ 19,376 $ 110,688 $ 92,562 $ 133,876 $ 111,938

Fixed income exchange traded fund 25,256 25,039 — — 25,256 25,039

4 unchanged sentences

As of December 31, 2020

As of December 31, 2018

Tiptree Insurance

Tiptree Capital

Tiptree Insurance

Tiptree Capital

Insurance Mortgage Other Total

Corporate bonds, at fair value (1)

$ 105,777 $ — $ — $ 105,777

Vessels, net (2)

— — 83,028 83,028

Debentures 17,703 — — 17,703

Other 2,353 9,439 1,401 13,193

Total other investments $ 125,833 $ 9,439 $ 84,429 $ 219,701

As of December 31, 2019

Tiptree Capital

Insurance Mortgage Other Total

Corporate bonds, at fair value (1)

$ 20,705 $ — $ — $ 20,705

Vessels, net (2)

— — 85,991 85,991

Debentures 15,423 — — 15,423

Other 6,324 7,490 1,539 15,353

Total other investments $ 42,452 $ 7,490 $ 87,530 $ 137,472

Net of accumulated depreciation of $3,817 and $898 , respectively.

(1) The cost basis of corporate bonds was $ 97,284 and $ 20,146 as of December 31, 2020 and December 31, 2019, respectively.

(2) Net of accumulated depreciation of $ 8,372 and $ 3,817 as of December 31, 2020 and December 31, 2019, respectively.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

Net Investment Income - Tiptree Insurance

Net Investment Income - Insurance

Net investment income represents investment income and expense from investments related to insurance operations as disclosed within net investment income on the consolidated statements of operations.

The following tables present the components of net investment income by source of income:

Year Ended December 31,

AFS securities, at fair value

The following table presents the components of net investment income by source of income:

For the Year Ended December 31,

2020 2019 2018

AFS securities $ 7,685 $ 8,404 $ 6,560

Loans, at fair value 801 3,284 10,809

1 unchanged sentence

Dividends from equity securities 1,482 2,813 2,092

Subtotal 14,221 15,719 20,908

investment expenses 4,305 1,702 1,729

1 unchanged sentence

Other Investment Income - Tiptree Capital

Other investment income represents other income from other Tiptree non-insurance activities as disclosed within other revenue on the consolidated statements of operations, see Note (15) Other Revenue, Other Expenses and Other Income .

Other investment income represents other revenue from other Tiptree non-insurance activities as disclosed within other revenue on the consolidated statements of operations, see Note (16) Other Revenue and Other Expenses.

The following tables present the components of other investment income by type:

Year Ended December 31,

Interest income:

For the Year Ended December 31,

2020 2019 2018

Loans, at fair value (1)

Loans at amortized cost, net

$ 5,617 $ 6,206 $ 4,343

Other — 269 175

Dividends from equity securities 2,533 10,132 9,224

Loan fee income 17,900 12,631 7,827

Loans, at fair value

Loans at amortized cost, net

Vessel related revenue 22,697 16,747 3,972

Other investment income $ 48,747 $ 45,985 $ 25,541

(1) Primarily relates to Loans, at fair value classified as Held for Sale.

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

AND SUBSIDIARIES

4 unchanged sentences

The following table presents the components of net realized and unrealized gains (losses) recorded on the consolidated statements of operations.

Net unrealized gains (losses) on AFS securities are included within other comprehensive income, and as such, are not included in this table.

Net unrealized gains (losses) on AFS securities are included within other comprehensive income (OCI), and as such, are not included in this table.

Net realized and unrealized gains (losses) on non-investment financial assets and liabilities are included below:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Net realized gains (losses)

Tiptree Insurance:

Reclass of unrealized gains (losses) on AFS securities from OCI $ 528 $ 1,312 $ ( 819 )

Gains from recoveries (credit losses) on AFS securities 53 — —

Net realized gains (losses) on loans ( 945 ) 2,100 2,071

Net realized gains (losses) on equity securities ( 24,586 ) 947 2,721

Net realized gain on corporate bonds 7,299 39 1,627

Other 2,511 279 —

Tiptree Capital

Net realized gains (losses) on loans 101,411 52,617 44,509

Net realized gains (losses) on loans (1)

35,753 23,403 16,638

Other — ( 260 ) ( 2,084 )

Total net realized gains (losses) 122,024 80,437 64,663

Net unrealized gains (losses)

Tiptree Insurance:

Net change in unrealized gains (losses) on loans ( 1,461 ) ( 3,899 ) ( 4,730 )

1 unchanged sentence

Reclass of unrealized (gains) losses from prior periods for equity securities sold 17,290 ( 807 ) ( 2,291 )

Other 10,162 ( 697 ) ( 428 )

Tiptree Capital

Net change in unrealized gains (losses) on loans 1,270 840 134

Other ( 6,093 ) 357 ( 2,246 )

Net change in unrealized gains (losses) on loans (1)

Net unrealized gains (losses) on equity securities held at period end ( 67,656 ) ( 992 ) ( 17,134 )

Other 7,482 25 569

Total net unrealized gains (losses) ( 59,614 ) 3,431 ( 35,881 )

Total net realized and unrealized gains (losses) $ 62,410 $ 83,868 $ 28,782

(1) Primarily relates to Loans, at fair value classified as Held for Sale.

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

(7) Notes and Accounts Receivable, net

7 unchanged sentences

Total notes and accounts receivable, net $ 370,452 $ 286,968

The following table presents the total valuation allowance and bad debt expense for the following periods:

Valuation allowance

Bad debt expense

As of December 31,

Year Ended December 31,

Notes receivable, net - premium financing program (1)

Accounts and premiums receivable, net

As of December 31, 2019 and December 31, 2018 , there were $93 and $368 in balances classified as 90 days plus past due, respectively.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

The following table presents the total valuation allowance and bad debt expense for the following periods:

Valuation allowance Bad Debt Expense

As of December 31, For the Year Ended December 31,

2020 2019 2020 2019 2018

Notes receivable, net - premium financing program (1)

$ 101 $ 95 $ 223 $ 175 $ 195

Accounts and premiums receivable, net $ 169 $ 109 $ 28 $ 36 $ 39

(1) As of December 31, 2020 and December 31, 2019, there were $ 215 and $ 93 in balances classified as 90 days plus past due, respectively.

(8) Reinsurance Receivables

The following table presents the effect of reinsurance on premiums written and earned by our insurance business for the following periods:

Direct amount

Ceded to other companies

Assumed from other companies

Percentage of amount - assumed to net

Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net

As of December 31, 2020

Life insurance in force $ 5,153,151 $ 2,985,196 $ — $ 2,167,955

For the Year Ended December 31, 2020

9 unchanged sentences

Total premiums earned $ 878,130 $ 521,028 $ 120,889 $ 477,991 25.3 %

As of December 31, 2019

Life insurance in force $ 5,176,056 $ 2,884,009 $ — $ 2,292,047

For the Year Ended December 31, 2019

9 unchanged sentences

Total premiums earned $ 789,316 $ 360,769 $ 70,561 $ 499,108 14.1 %

As of December 31, 2018

Life insurance in force $ 4,846,303 $ 2,662,173 $ — $ 2,184,130

For the Year ended December 31, 2018

4 unchanged sentences

Total premiums written 812,602 401,231 55,449 466,820 11.9 %

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net

Premiums earned:

3 unchanged sentences

Total premiums earned $ 735,620 $ 344,216 $ 36,433 $ 427,837 8.5 %

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses (LAE) incurred:

Direct amount

Ceded to other companies

Assumed from other companies

Percentage of amount - assumed to net

Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net

For the Year Ended December 31, 2020

24 unchanged sentences

The following table presents the components of the reinsurance receivables:

As of December 31,

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

2020 December 31, 2019

Prepaid reinsurance premiums:

Accident and health (1)

Life insurance (1)

$ 70,066 $ 72,675

Accident and health insurance (1)

66,261 66,393

Property and liability insurance (2)

423,868 286,411

Total 560,195 425,479

Ceded claim reserves:

Accident and health

Life insurance 4,133 3,350

Accident and health insurance 11,118 11,065

Property and liability insurance 98,092 74,384

Total ceded claim reserves recoverable 113,343 88,799

2 unchanged sentences

(1) Including policyholder account balances ceded.

Includes a non-cash transaction, as part of a reinsurance contract that resulted in an increase of $57,815 in reinsurance receivables, offset by a decrease of $40,295 in deferred acquisition costs and increases of $15,491 in reinsurance payables and $2,029 in deferred revenue.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

(2) Includes amounts from the acquired balance sheet of Smart AutoCare.

See Note (3) Acquisitions.

The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from non-affiliated reinsurers:

3 unchanged sentences

MFI Insurance Company, LTD (A.

Not rated), Freedom Insurance Company, LTD (A.

Not rated) and London Life International Reinsurance Corporation (A.

The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit.

Not rated), Frandisco Property and Casualty Company (A.

Not rated) and Canada Life International Reinsurance (Barbados) Corporation (A.

Not rated).The related receivables of these reinsurers are collateralized by assets on hand, assets held in trust accounts and letters of credit.

As of December 31, 2020, 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.

On January 3, 2020, Tiptree acquired Freedom Insurance Company, LTD as part of our acquisition of Smart AutoCare.

See Note (24) Subsequent Events .

(9) Goodwill and Intangible Assets, net

The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by operating segment and/or reporting unit, as appropriate:

As of December 31, 2019

As of December 31, 2018

Tiptree Insurance

As of December 31, 2020 As of December 31, 2019

Insurance Other Total Insurance Other Total

Customer relationships $ 143,300 $ — $ 143,300 $ 53,500 $ — $ 53,500

Accumulated amortization ( 32,263 ) — ( 32,263 ) ( 24,318 ) — ( 24,318 )

Trade names 14,750 800 15,550 6,750 800 7,550

Accumulated amortization ( 4,382 ) ( 440 ) ( 4,822 ) ( 3,273 ) ( 360 ) ( 3,633 )

4 unchanged sentences

Insurance licensing agreements (1)

13,761 — 13,761 14,261 — 14,261

Other 640 1,000 1,640 — — —

Intangible assets, net 136,718 1,497 138,215 47,305 669 47,974

Goodwill 177,528 1,708 179,236 97,439 1,708 99,147

Total goodwill and intangible assets, net $ 314,246 $ 3,205 $ 317,451 $ 144,744 $ 2,377 $ 147,121

Other is primarily comprised of mortgage operations.

(1) Represents intangible assets with an indefinite useful life.

Impairment tests are performed at least annually on these assets.

The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to discontinued operations or impairment related charges:

Tiptree Insurance

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Insurance Other (1)

Balance at December 31, 2018 $ 89,854 $ 1,708 $ 91,562

Goodwill acquired (2)

7,585 — 7,585

Balance at December 31, 2019 97,439 1,708 99,147

Goodwill acquired (2)

84,476 — 84,476

Purchase accounting adjustments (3)

( 4,387 ) — ( 4,387 )

Balance at December 31, 2020 $ 177,528 $ 1,708 $ 179,236

Accumulated impairments $ — $ 699 $ 699

Relates to an acquisition in our insurance business as of July 1, 2019 based on the initial valuation, and may be adjusted during the measurement period as permitted under ASC 805.

See Note (2) Summary of Significant Accounting Policies .

(1) Other is primarily comprised of Mortgage.

(2) Relates to acquisitions in respective years.

See Note (3) Acquisitions.

(3) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of acquisitions in our insurance business as of July 1, 2019 and January 3, 2020.

The Company conducts annual impairment tests of its goodwill as of October 1.

The Company’s impairment testing for each

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

period did not indicate any goodwill impairment, as each of the Company’s reporting units with goodwill had a fair value that was substantially in excess of its carrying value.

For the years ended December 31, 2019, 2018 and 2017, respectively, no impairment was recorded on the Company’s goodwill or intangibles.

For the years ended December 31, 2020, 2019 and 2018, no impairments were recorded on the Company’s goodwill.

Intangible Assets, net

The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation adjustments made for acquisitions, as well as any reduction attributable to discontinued operations or impairment-related charges:

Tiptree Insurance

Insurance Other Total

Balance at December 31, 2018 $ 51,281 $ 840 $ 52,121

Intangible assets divested

Intangible assets acquired (1)

3,750 — 3,750

amortization expense ( 7,726 ) ( 171 ) ( 7,897 )

1 unchanged sentence

Intangible assets acquired (1) (2)

99,040 1,000 100,040

Purchase accounting adjustment (3)

( 300 ) — ( 300 )

amortization expense ( 9,327 ) ( 172 ) ( 9,499 )

Balance at December 31, 2020 $ 136,718 $ 1,497 $ 138,215

Relates to an acquisition in our insurance business as of July 1, 2019 based on the initial valuation, and may be adjusted during the measurement period as permitted under ASC 805.

See Note (2) Summary of Significant Accounting Policies .

(1) Relates to acquisitions in respective years.

See Note (3) Acquisitions.

(2) The addition to Other relates to a fishing license acquired by our shipping operations.

(3) Relates to adjustments during the measurement period as permitted under ASC 805 for the final valuation of an acquisition in our insurance business as of July 1, 2019.

The following table presents the amortization expense on finite-lived intangible assets for the following periods:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Amortization expense on intangible assets $ 9,499 $ 7,897 $ 9,729

The following table presents the amortization expense on finite-lived intangible assets for the next five years by operating segment and/or reporting unit, as appropriate:

For the years ended December 31, 2020, 2019 and 2018, no impairments were recorded on the Company’s intangible assets.

The following table presents the amortization expense on finite-lived intangible assets for the next five years and thereafter by operating segment and/or reporting unit, as appropriate:

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

As of December 31, 2020

Tiptree Insurance

Insurance Other (1)

2021 $ 12,951 $ 170 $ 13,121

2022 14,459 127 14,586

2023 14,198 80 14,278

2024 12,811 80 12,891

2025 11,101 40 11,141

2026 and thereafter 57,437 — 57,437

Total $ 122,957 $ 497 $ 123,454

(1) Other is primarily comprised of Mortgage.

(10) Derivative Financial Instruments and Hedging

8 unchanged sentences

The Company enters into interest rate lock commitments (IRLCs) with customers in connection with its mortgage banking activities to fund residential mortgage loans with certain terms at specified times in the future.

IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance.

As such, these IRLCs are recorded at fair value with changes in fair value typically resulting in recognition of a gain when the Company enters into IRLCs.

8 unchanged sentences

The following table presents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk:

As of December 31, 2019

As of December 31, 2018

As of December 31, 2020 As of December 31, 2019

derivatives Liability

derivatives Notional

derivatives Liability

Interest rate lock commitments $ 219,929 $ 9,207 $ — $ 279,048 $ 7,336 $ —

1 unchanged sentence

TBA mortgage backed securities 291,000 232 1,508 235,000 118 428

Derivatives Designated as Cash Flow Hedging Instruments

The following table presents the pre-tax impact of the cash flow hedging derivative instruments on the consolidated financial statements for the following periods:

Year Ended December 31,

Gains (losses) recognized in AOCI on the derivative-effective portion

(Gains) losses reclassified from AOCI into income-effective portion

Other 3,058 2,090 560 10,360 — 3,330

Total $ 549,966 $ 11,529 $ 2,090 $ 612,181 $ 7,490 $ 3,758

AND SUBSIDIARIES

4 unchanged sentences

The following table presents the balance of the Company’s debt obligations, net of discounts and deferred financing costs.

Stated interest rate or range of rates

Maximum borrowing capacity as of

As of December 31,

Stated maturity date

December 31, 2019

Stated interest rate or range of rates Maximum borrowing capacity as of As of

Debt Type Stated maturity date December 31, 2020 December 31,

2020 December 31, 2019

Corporate debt

Secured corporate credit agreements

April 2020 - September 2020

LIBOR + 1.20% to 5.50%

Junior subordinated notes

Preferred trust securities

LIBOR + 4.10%

Secured revolving credit agreements August 2023 LIBOR + 2.25 % $ 200,000 $ — $ 25,000

Secured term credit agreements February 2025 LIBOR + 6.75 % 120,313 120,313 68,210

Preferred trust securities June 2037 LIBOR + 4.10 % 35,000 35,000 35,000

Junior subordinated notes October 2057 8.50 % 125,000 125,000 125,000

Total corporate debt 280,313 253,210

Asset based debt (1)

Asset based revolving financing (2)

LIBOR + 2.40%

Asset based revolving financing October 2023 LIBOR + 2.75 % 75,000 27,510 21,576

Residential mortgage warehouse borrowings (2)

May 2020 - August 2020

LIBOR + 2.00% to 2.50%

Vessel backed term loan

November 2024

LIBOR + 4.75%

April 2021 - LIBOR + 2.00 % 110,000 55,994 90,673

August 2021 to LIBOR + 3.00 %

Vessel backed term loan November 2024 LIBOR + 4.75 % 15,800 15,800 18,000

Total asset based debt 99,304 130,249

4 unchanged sentences

(1) Asset based debt is generally recourse only to specific assets and related cash flows.

The weighted average coupon rate for asset based revolving financing was 4.16% and 4.30% at December 31, 2019 and December 31, 2018 , respectively.

(2) The weighted average coupon rate for residential mortgage warehouse borrowings was 2.75 % and 3.83 % at December 31, 2020 and December 31, 2019, respectively.

The following table presents the amount of interest expense the Company incurred on its debt for the following periods:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Interest expense - corporate debt $ 23,322 $ 19,682 $ 18,162

1 unchanged sentence

Interest expense on debt $ 32,582 $ 27,059 $ 27,013

The following table presents the future maturities of the unpaid principal balance on the Company’s debt for the following period:

The following table presents the contractual principal payments and future maturities of the unpaid principal balance on the Company’s debt for the following periods:

December 31, 2020

2021 $ 64,444

2026 and thereafter 160,000

Total $ 379,617

The following narrative is a summary of certain terms of our debt agreements for the period ended December 31, 2020:

Corporate Debt

Secured Corporate Credit Agreements

On May 4, 2018, the Company entered into a Fifth Amendment to the Credit Agreement with Fortress providing for an additional $47,000 borrowing for a total principal amount outstanding of $75,000 as of the borrowing date.

The Fifth Amendment extends

Secured Revolving Credit Agreements

As of December 31, 2020 and December 31, 2019, a total of $ 0 and $ 25,000 , respectively, was outstanding under the revolving line of credit in our insurance business.

AND SUBSIDIARIES

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(in thousands, except share data)

the maturity date of all term loans under the Credit Agreement from September 18, 2018 to September 18, 2020.

The amended facility also has a new interest rate at a variable rate equal to one-month LIBOR with a LIBOR floor of 1.25% , plus a margin of 5.50% per annum.

As of December 31, 2019 and December 31, 2018 , a total of $68,210 and $72,090 , respectively, was outstanding under the Operating Company credit agreement.

On December 21, 2017, a subsidiary in our insurance business entered into a $30,000 revolving line of credit which bears interest at a rate equal to LIBOR rate plus 1.00% and has a $30,000 accordion feature.

The facility is secured by substantially all the assets of the subsidiary and had an original maturity date of December 20, 2018, which was renewed with a new maturity date of April 28, 2019.

During April 2019, the maturity date of this borrowing was extended to April 2020 with a new rate of LIBOR plus 1.20% .

On December 31, 2019, the borrowing was amended to increase the revolving credit exposure to $75,000 with a sublimit of $30,000 of revolving loans and requiring that any revolving loans in excess of $30,000 be cash collateralized.

As of December 31, 2019 and December 31, 2018 , a total of $25,000 and $0 , respectively, was outstanding under this facility.

On August 4, 2020, Fortegra entered into an 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 lender (the Fortegra Credit Agreement).

The Fortegra Credit Agreement provides for a $ 200,000 revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $ 17,500 for swing loans and matures on August 4, 2023.

The Fortegra Credit Agreement replaced the $ 30,000 revolving line of credit with the Fifth Third Bank (the “Working Capital Facility”) .

As of December 31, 2019, the Company had the Working Capital Facility of $ 30,000 , which provided for a $ 30,000 accordion feature.

The Working Capital Facility had a maturity date of April 28, 2020 and an interest rate of 30-day LIBOR rate plus 1.20 %.

On December 30, 2019, the Working Capital Facility was amended, adding the ability to issue up to $ 75,000 in standby letters of credit (“SBLCs”), and applying an aggregate maximum of $ 75,000 for the combined values of outstanding debt and issued SBLCs.

The Working Capital Facility contained terms and conditions typical for a transaction of this type.

Secured Term Credit Agreement

On February 21, 2020, the Operating Company borrowed $ 125,000 under a new credit agreement (Credit Agreement) with Fortress Credit Corp.

The proceeds were used to repay the Company’s prior credit agreement with Fortress, with a balance of $ 68,210 as of December 31, 2019, and for working capital and general corporate purposes.

Pursuant to an Amendment, Assumption and Consent Agreement, dated July 17, 2020 by and among Tiptree, certain of its subsidiaries and Fortress, Tiptree Holdings LLC (Tiptree Holdings) became the borrower under the Credit Agreement, dated as of February 21, 2020, by and among Tiptree, certain of its subsidiaries and Fortress.

The Credit Agreement will mature on February 21, 2025, with principal amounts of the loans to be repaid in consecutive quarterly installments.

Loans under the Credit Agreement bear interest at a variable rate per annum equal to LIBOR (with a minimum LIBOR rate of 1.00 %), plus a margin of 6.75 % per annum.

The obligations under the Credit Agreement are secured by liens on substantially all of the assets of Tiptree Holdings and guaranteed by the Company and Tiptree Holdings’ direct wholly owned first tier subsidiaries (Guarantors).

The Credit Agreement contains various customary affirmative and negative covenants of the Company, Tiptree Holdings and the other Guarantors (subject to customary exceptions), including, but not limited to, limitations on indebtedness, liens, investments and acquisitions, negative pledges, junior payments, conduct of business, transactions with affiliates, dispositions of assets, prepayment of certain indebtedness and limits on guarantees by subsidiaries of Tiptree Holdings’ and the Guarantors’ indebtedness.

The Credit Agreement also contains a financial covenant which limits corporate leverage as defined by its Corporate Leverage Ratio (as defined in the Credit Agreement).

The Credit Agreement also contains customary mandatory repayment provisions (subject to customary exceptions) and requires that net cash proceeds from the sale by Tiptree and certain of its subsidiaries of capital stock of Invesque be applied to prepay loans until the outstanding principal amount of loans is $ 62,500 , with remaining proceeds subject to reinvestment rights.

Prepayments, whether mandatory or voluntary, reduce future scheduled amortization payments in the order they come due.

The Credit Agreement also requires the payment of a prepayment fee upon a repricing transaction or equity issuance consummated after the closing date, or the sale of Fortegra, or any of its material subsidiaries.

As of December 31, 2020, a total of $ 120,313 was outstanding under this agreement.

Junior Subordinated Notes

On October 16, 2017, a subsidiary in our insurance business issued $125,000 of 8.50% Fixed Rate Resetting Junior Subordinated Notes due October 2057.

A subsidiary in our insurance business issued $ 125,000 of 8.50 % Fixed Rate Resetting Junior Subordinated Notes due October 2057.

Substantially all of the net proceeds were used to repay the existing secured credit agreement, which was terminated thereafter.

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This credit agreement contains customary financial covenants that require, among other items, maximum leverage and limitations on restricted payments under certain circumstances.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Preferred Trust Securities

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Asset Backed Revolving Financing

As of December 31, 2019 and December 31, 2018 , a total of $9,840 and $4,749 , respectively, was outstanding under the borrowing related to our premium finance business in our insurance business.

As of December 31, 2019, a total of $ 9,840 was outstanding under the borrowing related to our premium finance business in our insurance business.

During April 2019, the maturity date of this borrowing was extended to April 2021 with a new rate of LIBOR plus 2.40 %.

On December 30, 2019, the maximum borrowing capacity of this borrowing was reduced from $ 25,000 to $ 13,000 .

This agreement was replaced on October 16, 2020 with a new agreement, described below.

On August 5, 2019, a subsidiary in our insurance business entered into a $ 15,000 revolving line of credit agreement related to our warranty service contract finance business.

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As of December 31, 2019, a total of $ 11,736 was outstanding under the borrowing.

The $81,343 balance as of December 31, 2018 of the corporate loan financing agreement in our insurance business was paid off and the borrowing was extinguished in March 2019.

This agreement was replaced on October 16, 2020 with a new agreement, described below.

On October 16, 2020, subsidiaries in our insurance business entered into a three year $ 75,000 secured credit agreement which replaced the individual agreements in our premium finance and warranty service contract finance businesses.

The borrowers can select from various borrowing and rate options under the agreement, as well the option to convert certain borrowings to term loans, if no default or event of default exists.

The agreement extends up to $ 20,000 for our premium finance business and up to $ 55,000 for our warranty service contract finance business, and is secured by substantially all of the assets of the borrowers.

The obligations under the agreement are non-recourse to Fortegra and its subsidiaries (other than borrowers and their subsidiaries).

As of December 31, 2020, a total of $ 27,510 was outstanding under the borrowing.

Residential Mortgage Warehouse Borrowings

The Company, through a subsidiary in its mortgage business has three warehouse borrowings with a total borrowing capacity

at December 31, 2019 of $111,000 .

Such warehouse facilities are recourse to the assets of the subsidiary and are secured by liens on cash escrow and the loans held for sale in the warehouse.

These credit agreements contain customary financial covenants that require, among other items, minimum amounts of tangible net worth, profitability, maximum indebtedness ratios, and minimum liquid assets.

In April 2020, a subsidiary in our mortgage business renewed a $ 60,000 warehouse line of credit, extending the maturity date to April 2021 and establishing a LIBOR floor of 1.0 %.

Additionally, during March 2020, another warehouse line maturing in August 2020 temporarily raised the maximum borrowing capacity to $ 65,000 , returning to a maximum borrowing capacity of $ 50,000 in May 2020 and establishing a LIBOR floor of 0.50 %.

In August 2020, the $ 50,000 warehouse line of credit was extended to August 2021, and established a LIBOR floor of 0.50 % to 1.00 %.

As of December 31, 2020 and December 31, 2019, a total of $ 55,994 and $ 90,673 , respectively, was outstanding under such financing agreements.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Vessel Backed Term Loan

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The borrowing has a maturity date of November 28, 2024 and a rate of LIBOR plus 4.75 %, with quarterly principal payments of $ 550 .

This facility is secured by liens on two of our vessels as well as the assets of the borrowing entities and their parent guarantor.

This facility is secured by liens on 2.00 of our vessels as well as the assets of the borrowing entities and their parent guarantor.

This credit agreement contains customary financial covenants that require, among other items, minimum liquidity, positive working capital, minimum required security coverage ratio of 150 %, and the existence of a maintenance reserve account funded on a quarterly basis prior to anticipated scheduled drydocking costs.

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As of December 31, 2020, the Company is in compliance with the representations and covenants for outstanding borrowings or has obtained waivers for any events of non-compliance.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(12) Fair Value of Financial Instruments

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Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurement is based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments.

The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments.

Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices.

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Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

In addition, the Company utilizes an income approach to measure the fair value of NPLs, as discussed below.

The Company utilizes observable and unobservable inputs within its valuation methodologies.

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Available for Sale Securities, at fair value

Available for sale securities fair values are based on prices provided by an independent pricing service and a third party investment manager.

The fair values of available for sale securities are based on prices provided by an independent pricing service and a third-party investment manager.

The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager by analyzing the investment manager-provided pricing report.

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The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Certificates of Deposit:

1 unchanged sentence

Equity Securities

The fair values of publicly traded common and preferred stocks are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy.

The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy.

The fair values of non-publicly traded common and preferred stocks are based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 in the fair value hierarchy.

The Company’s investment in Invesque was subject to certain contractual and functional sale restrictions.

As of December 31, 2018 , the fair value of the Invesque shares was based on the market price adjusted for the impact of these restrictions, and was classified under Level 2 in the fair value hierarchy.

As of December 31, 2019 , these restrictions are no longer applicable and the shares are classified under Level 1.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Loans, at fair value

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Mortgage Loans Held for Sale :

Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third party investors, including estimated loan costs, and reserves.

Nonperforming Loans and REO:

The Company determines the purchase price for NPLs at the time of acquisition and for each subsequent valuation by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to REO.

The significant unobservable inputs used in the fair value measurement of our NPLs are discount rates, loan resolution timeline, and the value of underlying properties.

The fair values of NPLs which are making payments (generally based on a modification or a workout plan) are primarily based upon secondary market transaction prices, which are expressed as a percentage of unpaid principal balance (UPB).

Observable inputs to the model include loan amounts, payment history, and property types.

Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible.

NPLs are included in loans, at fair value and fall under Level 3 in the fair value hierarchy.

NPLs that have become REOs were measured at fair value on a non-recurring basis at the time of transfer during the year ended December 31, 2019 and the year ended December 31, 2018 .

The carrying value of REOs at December 31, 2019 and December 31, 2018 was $2,188 and $10,019 , respectively.

Upon conversion to REO, the fair value is estimated using a broker price opinion (BPO).

BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales.

These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales.

REO is included in other investments.

Subsequent to conversion, REOs are carried at lower of cost or market.

Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.

Derivative Assets and Liabilities

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Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s consolidated balance sheet.

The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected fall out assumption.

The fair values of these commitments generally fall under Level 3 in the fair value hierarchy.

Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates.

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Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices.

We perform internal price verification procedures monthly.

Securities Sold, Not Yet Purchased

Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices.

We perform internal price verification procedures to ensure that the prices provided are reasonable.

Mortgage Servicing Rights

Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service.

Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed.

The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring basis:

2 unchanged sentences

active markets

Other significant

Level 1 Other significant

observable inputs

Significant unobservable inputs

Level 2 Significant unobservable inputs

Level 3 Fair value

Available for sale securities, at fair value:

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Obligations of state and political subdivisions — 44,350 — 44,350

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

As of December 31, 2020

Quoted prices in

active markets

Level 1 Other significant

observable inputs

Level 2 Significant unobservable inputs

Level 3 Fair value

Obligations of foreign governments — 3,992 — 3,992

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Mortgage loans held for sale — 82,937 — 82,937

Non-performing loans

Total loans, at fair value — 82,937 7,795 90,732

Equity securities:

Invesque 31,078 — — 31,078

Fixed income exchange traded fund 63,875 — — 63,875

Other equity securities 28,850 — 35 28,885

Total equity securities 123,803 — 35 123,838

Other investments, at fair value:

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Derivative assets 2,090 232 9,207 11,529

CLOs — — 802 802

Total other investments, at fair value 2,090 106,009 10,009 118,108

Derivative liabilities (included in other liabilities and accrued expenses)

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Mortgage servicing rights (1)

— — 14,758 14,758

Total $ 127,248 $ 563,866 $ 33,455 $ 724,569

Derivative liabilities (2)

$ — $ 2,090 $ — $ 2,090

Securities sold, not yet purchased (2)

16,479 30,158 — 46,637

Contingent consideration payable (2)

Total $ 16,479 $ 32,248 $ 200 $ 48,927

(1) Included in other assets.

(2) Included in other liabilities and accrued expenses.

As of December 31, 2019

Other significant

Level 1 Other significant

observable inputs

Significant unobservable inputs

Level 2 Significant unobservable inputs

Level 3 Fair value

Available for sale securities, at fair value:

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Non-performing loans — — 387 387

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

As of December 31, 2019

Level 1 Other significant

observable inputs

Level 2 Significant unobservable inputs

Level 3 Fair value

Total loans, at fair value — 98,720 10,174 108,894

Equity securities:

Invesque 111,938 — — 111,938

Fixed income exchange traded fund 25,039 — — 25,039

Other equity securities 18,158 — 243 18,401

Total equity securities 155,135 — 243 155,378

Other investments, at fair value:

Corporate bonds — 20,705 — 20,705

Derivative assets — 154 7,336 7,490

CLOs — — 4,768 4,768

Total other investments, at fair value — 20,859 12,104 32,963

Derivative liabilities (included in other liabilities and accrued expenses)

Mortgage servicing rights (1)

— — 8,764 8,764

Total $ 156,031 $ 452,690 $ 32,470 $ 641,191

Derivative liabilities (2)

$ — $ 3,758 $ — $ 3,758

Total $ — $ 3,758 $ — $ 3,758

(1) Included in other assets.

(2) Included in other liabilities and accrued expenses.

The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:

Year Ended December 31,

For the Year Ended

Balance at January 1, $ 32,470 $ 152,845

Net realized gains (losses)

Net unrealized gains (losses)

Origination of IRLC

Transfers into Level 3 (1)

Transfer adjustments (out of) Level 3 (1)

Net realized and unrealized gains or losses included in:

Earnings 2,253 1,901

OCI ( 329 ) ( 323 )

Origination of IRLCs 120,267 77,082

Purchases 3,862 153

Sales ( 6,672 ) ( 123,497 )

Issuances — 111

Conversions to real estate owned — ( 2,596 )

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Changes in unrealized gains (losses) included in earnings related to assets still held at period end $ ( 7,978 ) $ ( 1,884 )

All transfers are deemed to occur at end of period.

Changes in unrealized gains (losses) included in OCI related to assets still held at period end $ ( 329 ) $ ( 323 )

(1) Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.

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(in thousands, except share data)

The following is quantitative information about Level 3 assets with significant unobservable inputs used in fair valuation.

Fair Value as of

Actual or Range

(Weighted average)

Valuation technique

Unobservable input(s)

December 31, 2019

December 31, 2018

Internal model

Pull through rate

Discounted cash flow (1)

See table below (1) (2)

See table below

As of December 31, 2019, there was one NPL remaining, which is making payments.

The value as of December 31, 2019 is based on the expected sale price into the secondary market.

Significant changes in any of these inputs in isolation could result in a significant change to the fair value measurement.

A decline in the discount rate in isolation would increase the fair value.

A decrease in the housing pricing index in isolation would decrease the fair value.

Individual loan characteristics, such as location and value of underlying collateral, affect the loan resolution timeline.

An increase in the loan resolution timeline in isolation would decrease the fair value.

A decrease in the value of underlying properties in isolation would decrease the fair value.

The following table presents quantitative information about the significant unobservable inputs used to measure the fair value of our NPLs.

For NPLs that are not making payments, discount rate, loan resolution time-line, value of underlying properties, holding costs and liquidation costs are the primary inputs used to measure fair value.

For NPLs that are making payments, note rate and secondary market transaction prices/UPB are the primary inputs used to measure fair value.

As of December 31, 2019, there was one NPL remaining, which is making payments.

The value as of December 31, 2019 is based on the expected sale price into the secondary market.

As of December 31, 2018

Unobservable inputs

Discount rate

Loan resolution time-line (Years)

Value of underlying properties

Holding costs

Liquidation costs

Secondary market transaction prices/UPB

Weighted based on value of underlying properties.

The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities.

As of December 31, As of December 31,

Assets 2020 2019 Valuation technique Unobservable input(s) (1)

Fair Value Range WA Range WA

IRLCs $ 9,207 $ 7,336 Internal model Pull through rate 50 % to 95 % 68 % 50 % to 95 % 61 %

Mortgage servicing rights 14,758 8,764 External model Discount rate 10 % to 13 % 11 % 10 % to 13 % 11 %

Cost to service $ 75 to $ 90 $ 82 $ 75 to $ 90 $ 86

Prepayment speed 8 % to 60 % 22 % 7 % to 50 % 18 %

Total $ 23,965 $ 16,100

Contingent consideration payable - Smart AutoCare $ 200 $ — Cash Flow Model Forecast Cash EBITDA $ 20,000 to $ 30,000 N/A N/A

Actuarial Analysis Assumed Claim Liabilities $ 55,000 $ 55,000 N/A

Total $ 200 $ —

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:

As of December 31, 2019

As of December 31, 2018

Carrying value

As of December 31, 2020 As of December 31, 2019

hierarchy Fair value Carrying value Level within

hierarchy Fair value Carrying value

Debentures (1)

Notes and accounts receivable, net

2 $ 17,703 $ 17,703 2 $ 15,423 $ 15,423

Notes receivable, net 2 62,075 62,075 2 42,192 42,192

Total assets $ 79,778 $ 79,778 $ 57,615 $ 57,615

Debt, net 3 $ 392,951 $ 377,582 3 $ 396,699 $ 383,261

Total liabilities $ 392,951 $ 377,582 $ 396,699 $ 383,261

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These values are net of allowance for doubtful accounts.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Notes and Accounts Receivable:

Notes Receivable, net:

To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits.

Categorized under Level 2 in the fair value hierarchy.

See Note (7) Notes and Accounts Receivable, net.

The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount.

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Categorized under Level 1 in the fair value hierarchy.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables:

5 unchanged sentences

Categorized under Level 2 in the fair value hierarchy.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

(13) Liability for Unpaid Claims and Claim Adjustment Expenses

The following tables present undiscounted information about incurred and paid claims development as of December 31, 2019, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts.

The following tables present undiscounted information about incurred and paid claims development as of December 31, 2020 and 2019, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts.

This information is presented in the aggregate for all short duration contracts, due to the commonality of claims characteristics.

The tables reflect three years of information because historically over 95% of incurred losses have been paid within three years of the accident period.

The tables reflect five years of information because historically approximately 95 % of incurred losses have been paid within five years of the accident period.

Roll forward of Claim Liability

The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short duration contracts for the following periods:

Year Ended December 31,

For the Year Ended

Policy liabilities and unpaid claims balance as of January 1, $ 144,384 $ 131,611

liabilities of policy-holder accounts balances, gross

liabilities of policy-holder account balances, gross ( 11,589 ) ( 13,659 )

non-insurance warranty benefit claim liabilities ( 85 ) ( 94 )

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Incurred (short duration) related to:

Current year 172,007 144,925

Prior years 5,443 5,169

Total incurred 177,450 150,094

Paid (short duration) related to:

Current year 127,721 122,348

Prior years 9,665 11,480

Total paid 137,386 133,828

Net balance as of December 31, short duration 83,945 43,881

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Gross liabilities for unpaid losses and loss adjustment expenses 197,355 132,710

liabilities of policy-holder accounts balances, gross

liabilities of policy-holder account balances, gross 5,419 11,589

non-insurance warranty benefit claim liabilities (1)

Policy liabilities and unpaid claims balance as of December 31, $ 233,438 $ 144,384

The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statement of operations, excluding the amount for member benefit claims:

Year Ended December 31,

Short duration incurred

Other lines incurred

Unallocated loss adjustment expense

Total losses incurred

For the year ended December 31, 2019 , the Company’s insurance business experienced an increase in prior year case development of $5,169 , primarily from its non-standard auto business.

For the year ended December 31, 2018 , the Company’s insurance business experienced an increase in prior year case development of $2,509 , primarily from its non-standard auto business.

Incurred and Paid Development

The following table presents information about incurred and paid loss development and average claim duration as of December 31,

(1) Primarily relates to Smart AutoCare which was acquired on January 3, 2020.

See Note (3) Acquisitions for more information.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

2019, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts.

The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member benefit claims:

For the Year Ended December 31,

2020 2019 2018

Short duration incurred $ 177,450 $ 150,094 $ 131,861

Other lines incurred 27 184 124

Unallocated loss adjustment expenses 771 731 2,867

Total losses incurred $ 178,248 $ 151,009 $ 134,852

During the year ended December 31, 2020 , the Company experienced an increase in prior year development of $ 5,443 primarily as a result of higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business.

The underlying cause of this development was the result of a subset of risk where the loss ratio pegs used in our year end actuarial determination was low given the ultimate frequency that emerged.

During the year ended December 31, 2019 , the Company experienced an increase in prior year development of $ 5,169 primarily in our non-standard auto business.

The underlying cause of this development was higher than expected claim frequency.

Management considers the prior year development for each of the two years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses.

We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings.

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.

I ncurred and Paid Development

The following table presents information about incurred and paid loss development and average claim duration as of December 31, 2020, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts.

The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment.

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The Company considers a claim that does not result in a liability as a claim closed without payment.

Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance

As of December 31, 2019

For the Years Ended December 31,

Total of IBNR Liabilities Plus Expected Development of Reported Claims

Cumulative Number of Reported Claims

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance As of December 31, 2020

For the Years Ended December 31, Total of IBNR Liabilities Plus Expected Development of Reported Claims Cumulative Number of Reported Claims

Accident Year 2016

(Unaudited) 2017

(Unaudited) 2018

(Unaudited) 2019

(Unaudited) 2020

2016 $ 84,178 $ 87,290 $ 87,993 $ 88,615 $ 89,629 $ 17 257

2017 103,306 104,898 105,601 105,787 $ 96 326

2018 129,352 133,225 133,158 $ 2,366 399

2019 144,925 149,166 $ 15,572 403

2020 172,007 $ 52,734 328

Total $ 649,747

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance

Accident Year 2016

(Unaudited) 2017

(Unaudited) 2018

(Unaudited) 2019

(Unaudited) 2020

2016 62,989 $ 84,185 $ 86,531 $ 88,482 $ 88,976

2017 84,493 102,620 105,075 105,852

2018 105,740 112,619 114,490

2019 122,348 128,787

Total $ 565,826

All outstanding liabilities before 2016, net of reinsurance 24

1 unchanged sentence

The following table presents supplementary information about average historical claims duration as of December 31, 2020 for short duration contracts:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)

Years 1 2 3 4 5

Short duration 77.2 % 12.6 % 2.1 % 1.5 % 0.6 %

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Reconciliation of Reserves to Balance Sheet

The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short duration contracts to the consolidated balance sheet value of policy liabilities and unpaid claims:

The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims:

December 31, 2020

8 unchanged sentences

Total gross liability for unpaid losses and loss adjustment expenses 197,355

Liabilities of policy-holder accounts balances, gross

Liabilities of policy-holder account balances, gross 5,419

Non-insurance warranty benefit claim liabilities 30,664

Total policy liabilities and unpaid claims $ 233,438

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

(14) Revenue from Contracts with Customers

Revenue from contracts with customers is primarily comprised of asset management fee income included as a part of other revenue, vessel related revenue included as a part of other revenue, and warranty coverage, motor club and other revenues included as a part of service and administrative fees in our insurance business.

The Company’s revenues from insurance and warranty operations are primarily accounted for under Financial Services-Insurance (Topic 944) that are not within the scope of Revenue for Contracts with Customers (Topic 606).

The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Motor club revenue $ 36,159 $ 36,076 $ 32,242

2 unchanged sentences

Management fee income — 1,267 6,694

Other 6,127 7,317 7,840

Revenue from contracts with customers $ 163,557 $ 89,004 $ 76,806

7 unchanged sentences

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 Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract.

Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.

Management selects the

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

appropriate method based on available information, and periodically reviews the selections as additional information becomes available.

Information on Remaining Performance Obligations

17 unchanged sentences

The Company did not recognize incentive fees until all contractual contingencies were removed.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the year ended December 31, 2019 .

January 1, 2019

December 31, 2019

Beginning balance

Amortizations

Ending balance

The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the following period:

January 1, 2020 December 31, 2020

Beginning balance Additions Amortizations Ending balance

Deferred acquisition costs

1 unchanged sentence

Warranty coverage revenue 1,027 58,906 11,199 48,734

Total $ 14,727 $ 85,920 $ 38,832 $ 61,815

Deferred revenue

1 unchanged sentence

Warranty coverage revenue (1)

49,368 405,537 106,514 $ 348,391

Total $ 67,278 $ 440,755 $ 142,673 $ 365,360

(1) Additions include $ 182,568 from the acquired balance sheet of Smart AutoCare.

See Note (3) Acquisitions.

Write-offs were not material for any period presented.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(15) Other Assets and Other Liabilities and Accrued Expenses

2 unchanged sentences

Right of use asset - Operating leases (1)

$ 27,291 $ 23,832

Furniture, fixtures and equipment, net 15,798 12,305

Income tax receivable 19,513 817

Mortgage servicing rights 14,758 8,764

Prepaid expenses 8,159 8,461

Subsidiary sale receivable (2)

Loans eligible for repurchase 70,593 6,733

Other 5,922 7,598

Total other assets $ 162,034 $ 68,510

See Note (2) Summary of Significant Accounting Policies - Recent Accounting Standards and Note (20) Commitments and Contingencies for additional information.

Related to the gain contingency on sale of Care recorded in December 2018.

$10,051 was received in cash in 2019.

The remaining amount is expected to be paid off by 2021.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

(1) See Note (21) Commitments and Contingencies for additional information.

The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Depreciation expense related to furniture, fixtures and equipment $ 3,257 $ 2,753 $ 1,984

4 unchanged sentences

Operating lease liability (1)

32,914 29,491

Deferred tax liabilities, net 24,183 32,306

Securities sold, not yet purchased 46,637 —

Due to brokers 45,047 1,140

Loans eligible for repurchase liability 70,593 6,733

Commissions payable 18,678 9,179

Other 18,671 24,462

Total other liabilities and accrued expenses $ 362,865 $ 172,140

See Note (2) Summary of Significant Accounting Policies - Recent Accounting Standards and Note (20) Commitments and Contingencies for additional information.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

(15) Other Revenue, Other Expenses and Other Income

(1) See Note (21) Commitments and Contingencies for additional information.

(16) Other Revenue and Other Expenses

Other Revenue

1 unchanged sentence

Other revenue is primarily generated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table.

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Other investment income (1)

Gain on sale of businesses (2)

$ 48,747 $ 45,985 $ 25,541

Gain (loss) on sale of businesses (2)

( 4,428 ) 7,598 —

Management fee income — 1,267 6,694

7,591 5,038 5,827

Total other revenue $ 51,910 $ 59,888 $ 38,062

(1) See Note (6) Investments for the components of Other investment income.

Related to the sale of Telos and our commercial lending business, for the years ended December 31, 2019 and 2017, respectively.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

Includes $4,566 , $2,554 and $3,552 related to Tiptree Insurance for the year ended December 31, 2019 , 2018 and 2017, respectively.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(2) Related to the impairment of Luxury for the year ended December 31, 2020, and the sale of Telos for the year ended December 31, 2019.

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations.

(3) Includes $ 7,025 , $ 4,566 and $ 2,554 for the year ended December 31, 2020, 2019 and 2018, respectively, related to Insurance.

Other Expenses

The following table presents the components of other expenses as reported in the consolidated statement of operations:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Professional fees $ 20,711 $ 20,820 $ 15,216

5 unchanged sentences

Loss on extinguishment of debt 353 1,241 428

Other 8,078 9,292 8,265

Total other expenses $ 109,148 $ 99,744 $ 77,901

The CLOs are considered variable interest entities (VIE) and the Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.

The following table represents revenue and expenses of the consolidated CLOs included in the Company’s consolidated statements of operations for the periods indicated:

Year Ended December 31,

Net realized and unrealized gains (losses)

Interest income

Interest expense

Other expense

Total expense

Net income (loss) attributable to consolidated CLOs

In 2017, the Company exited all consolidated CLOs.

The operations of the CLOs were consolidated in the results of the Company through the redemption date.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

As summarized in the table below, the application of the measurement alternative results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the CLOs which are eliminated upon consolidation:

Economic interests:

Year Ended December 31,

Distributions received

Realized and unrealized gains on subordinated notes held by the Company, net

Management fee income

Total economic interests

(17) Stockholders’ Equity

Stock Repurchases

On May 2, 2019, the Board of Directors replenished the Company’s authorization to make repurchases of up to $20.0 million of shares of the Company’s outstanding Common Stock in the aggregate, at the discretion of the Company's Executive Committee.

The shares purchased during the first quarter of 2019 were purchased under a previous authorization.

On November 2, 2020, the Board of Directors authorized the Company to make repurchases of up to $ 20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee.

The shares purchased during the first, second and third quarters of 2020 were purchased under a previous authorization.

The following table presents the Company’s stock repurchase activity and remaining authorization.

Year Ended December 31, 2019

Number of shares purchased

Average price per share

Share repurchase programs

Block repurchase program

For the Year Ended

December 31, 2020

Number of shares purchased Average price per share

Share repurchase plan 1,884,286 $ 5.51

Block repurchase 500,000 7.00

Total 2,384,286 $ 5.82

Remaining repurchase authorization $ 16,571

1 unchanged sentence

Dividends per share for the

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

First quarter $ 0.04 $ 0.04 $ 0.035

2 unchanged sentences

Fourth quarter (1)

0.04 0.04 0.035

Total cash dividends declared $ 0.16 $ 0.16 $ 0.140

2 unchanged sentences

On April 10, 2018, the Company completed a reorganization merger whereby TFP merged with and into the Company with the Company continuing as the surviving company (Reorganization Merger).

After the Reorganization Merger, TFP ceased to exist and the Company owned 100% of Operating Company.

As a result of the merger, the balance of Non-controlling interest - TFP as of the merger date was allocated to Additional paid in capital and Accumulated other comprehensive income (loss), as detailed in the consolidated statement of changes in stockholders’ equity.

In connection with the Reorganization Merger, each TFP limited partner other than Tiptree received 2.798 shares of Class A common stock for each partnership unit, 6,861,561 Class A common shares were issued, and all outstanding Class B common

After the Reorganization Merger, TFP ceased to

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

stock was canceled.

exist and the Company owned 100 % of Operating Company.

As a result of the merger, the balance of Non-controlling interest - TFP as of the merger date was allocated to Additional paid-in capital and Accumulated other comprehensive income (loss), as detailed in the consolidated statement of changes in stockholders’ equity.

Outstanding warrants to acquire 652,500 shares of Class A common stock at an exercise price of $ 11.33 per share owned by TFP were canceled.

1 unchanged sentence

Warrants to acquire 805,986 TFP LP units at $ 21.232 per unit were canceled and Tiptree issued warrants for 2,255,149 Tiptree shares of Class A common stock at an exercise price of $ 7.59 per share to holders of the canceled TFP warrants.

On April 16, 2018, the Company canceled 5,035,977 shares of Class A common stock held by a subsidiary of the Company, which had no effect on total Tiptree Inc.

On April 16, 2018, the Company canceled 5,035,977 shares of Class A common stock held by a subsidiary of the Company,

which had no effect on total Tiptree Inc.

stockholders’ equity.

At the 2018 Annual Meeting of Stockholders of the Company held on June 6, 2018, the Company’s stockholders approved an amendment and restatement (the Amendment) to the Fourth Articles of Amendment and Restatement of the Company (as amended by the Amendment, the Fifth A&R Charter) to remove all references to the Company’s Class B common stock as well as other ministerial changes, including changing the name of our Class A common stock to Common Stock.

At the 2018 Annual Meeting of Stockholders of the Company held on June 6, 2018, the Company’s stockholders approved an

amendment and restatement (the Amendment) to the Fourth Articles of Amendment and Restatement of the Company (as amended by the Amendment, the Fifth A&R Charter) to remove all references to the Company’s Class B common stock as well as other ministerial changes, including changing the name of our Class A common stock to Common Stock.

The Amendment was filed with the State Department of Assessments and Taxation of Maryland on June 7, 2018.

4 unchanged sentences

Statutory Capital, Surplus and Net Income

The following table presents the combined statutory capital and surplus of the Company's U.S.

domiciled insurance company subsidiaries and the required minimum statutory capital and surplus, as required by the laws of the states in which they are domiciled for the following periods:

The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required by regulatory authorities, including the NAIC;

their capital and surplus levels exceeded respective minimum requirements as of December 31, 2020 and December 31, 2019.

As of December 31,

7 unchanged sentences

domiciled statutory insurance companies for the following periods:

Year Ended December 31,

For the Year Ended December 31,

2020 2019 2018

Net income of statutory insurance companies $ 19,647 $ 8,444 $ 13,986

1 unchanged sentence

The statutory capital and surplus amounts and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Statutory Dividends

5 unchanged sentences

domiciled insurance company subsidiaries for the following periods:

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

For the Year Ended

2 unchanged sentences

Total dividends $ — $ 10,189

As of December 31,

2020 December 31, 2019

Amount available for ordinary dividends of the Company's insurance company subsidiaries $ 13,418 $ 4,527

2 unchanged sentences

The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(18) Accumulated Other Comprehensive Income (Loss)

The following table presents the activity in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods:

Unrealized gains (losses) on

Amount attributable to noncontrolling interests

Available for sale securities

Interest rate swaps

Total AOCI (loss)

Total AOCI (loss) to Tiptree Inc.

Unrealized gains (losses) on Amount attributable to

non-controlling interests

Available for sale securities Interest rate swaps Total AOCI (loss) TFP Other Total AOCI (loss) to Tiptree Inc.

Balance at December 31, 2017 $ ( 460 ) $ 2,074 $ 1,614 $ ( 222 ) $ ( 426 ) $ 966

1 unchanged sentence

Amounts reclassified from AOCI 648 — 648 — — 648

Reclassification of AOCI - interest rate swaps (1)

— ( 2,909 ) ( 2,909 ) 502 226 ( 2,181 )

Reorganization merger — — — ( 341 ) — ( 341 )

Period change ( 1,609 ) ( 2,074 ) ( 3,683 ) 222 437 ( 3,024 )

2 unchanged sentences

Amounts reclassified from AOCI ( 1,032 ) — ( 1,032 ) — — ( 1,032 )

Reclassification of AOCI - interest rate swaps (1)

Reorganization merger

Period change 3,879 — 3,879 — ( 24 ) 3,855

Adoption of accounting standard (1)

( 99 ) — ( 99 ) — ( 99 )

Balance at December 31, 2019 $ 1,711 $ — $ 1,711 $ — $ ( 13 ) $ 1,698

3 unchanged sentences

Adoption of accounting standard (1)

42 — 42 — — 42

Balance at December 31, 2020 $ 5,702 $ — $ 5,702 $ — $ ( 28 ) $ 5,674

Relates to the sale of Care.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

Amounts reclassified to retained earnings due to adoption of ASU 2018-02.

(1) Due to adoption of 2018-02 and 2016-13, respectively.

See Note (2) Summary of Significant Accounting Policies.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the consolidated statement of operations for the following periods:

Year Ended December 31,

Affected line item in consolidated statement of operations

For the Year Ended December 31, Affected line item in consolidated statements of operations

Components of AOCI 2020 2019 2018

Unrealized gains (losses) on available for sale securities

Net realized and unrealized gains (losses)

Related tax (expense) benefit

Provision for income tax

Unrealized gains (losses) on interest rate swaps

Interest expense

Unrealized gains (losses) on available for sale securities $ 528 $ 1,312 $ ( 819 ) Net realized and unrealized gains (losses)

Related tax (expense) benefit ( 113 ) ( 280 ) 171 Provision for income tax

Net of tax $ 415 $ 1,032 $ ( 648 )

Reclassification of AOCI - interest rate swaps (1)

$ — $ — $ 3,845 Gain on sale of discontinued operations

Related tax (expense) benefit

Provision for income tax

Related tax (expense) benefit — — ( 936 ) Provision for income tax

Net of tax $ — $ — $ 2,909

(1) Relates to the sale of Care.

See Note (3) Dispositions, Assets Held for Sale and Discontinued Operations .

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations.

(19) Stock Based Compensation

2017 Omnibus Incentive Plan

The Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) was adopted on August 8, 2013.

On June 6, 2017, the 7,359 remaining shares of Common Stock available for issuance under the 2013 Equity Plan was rolled into the 2017 Equity Plan and the 2013 Equity Plan was simultaneously terminated.

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of stock units, stock, and stock options up to a maximum of 6,100,000 shares of Common Stock.

The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders.

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of common stock.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

interests of the Company’s stockholders.

Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027.

The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock:

2013 Equity Plan

Number of shares (1)

Available for issuance as of December 31, 2016

Awards granted

Awards rolled into 2017 Equity Plan

Available for issuance as of December 31, 2017

2017 Equity Plan

Available for issuance as of December 31, 2016

Available from 2017 Equity Plan (1) (2)

Awards granted

2017 Equity Plan Number of shares (1)

Available for issuance as of December 31, 2017 6,017,012

RSU and option awards granted ( 558,034 )

Forfeited 15,236

Available for issuance as of December 31, 2018 5,474,214

RSU and option awards granted ( 702,264 )

Forfeited 8,318

Subsidiary exchanged shares ( 14,405 )

Available for issuance as of December 31, 2019 4,765,863

RSU, stock and option awards granted ( 977,446 )

Available for issuance as of December 31, 2020 3,788,417

(1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.

Includes remaining awards from 2013 Equity Plan.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

Restricted Stock Units (RSUs)

Restricted Stock Units and Stock Awards

Tiptree Corporate Incentive Plans

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price.

Generally, the Tiptree RSUs vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

The following table presents changes to the issuances of RSUs under the 2017 Equity Plan for the periods indicated:

Number of shares issuable

Weighted average grant date fair value

Generally, the Tiptree RSUs vest and become non-forfeitable with respect to one-third of Tiptree shares granted on each of the one , two and three year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

Stock Awards - Directors’ Compensation

The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price.

Upon issuance, the awards are deemed to be granted and immediately vested.

The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated:

Number of shares issuable Weighted average grant date fair value

Unvested units as of December 31, 2017 598,882 $ 6.48

Granted 315,371 5.95

Vested ( 222,387 ) 6.39

Forfeited ( 15,236 ) 6.04

Unvested units as of December 31, 2018 676,630 $ 6.27

Granted 476,449 6.25

Vested ( 186,152 ) 6.44

Forfeited ( 8,318 ) 6.10

Unvested units as of December 31, 2019 958,609 $ 6.23

Vested ( 557,633 ) 6.54

Unvested units as of December 31, 2020 953,145 $ 6.52

(1) Includes grants of 48,076 , 46,572 and 39,164 shares of Common Stock to directors for the years ended December 31, 2019, 2018 and 2017, respectively.

The following tables present the detail of the granted and vested RSUs for the periods indicated:

Year Ended December 31, 2019

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:

For the Year Ended December 31, For the Year Ended December 31,

Granted 2020 2019 2018 Vested 2020 2019 2018

Directors 82,912 48,076 46,572 Directors 82,912 48,076 46,572

Employees (1)

Total Granted

Includes 307,148 shares that vest ratably over three years, 112,907 shares that cliff vest in February 2021 and the remaining shares vested immediately.

469,257 428,373 268,799 Employees 474,721 138,076 175,815

Total Granted 552,169 476,449 315,371 Total Vested 557,633 186,152 222,387

Taxes ( 53,438 ) ( 35,622 ) ( 29,286 )

Exchanged — 14,405 —

Net Vested 504,195 164,935 193,101

(1) Includes 256,619 , 307,148 and 147,467 shares that vest ratably over three years and 212,638 , 112,907 and 121,332 shares that cliff vest in February 2023, 2022 and 2021, respectively, for the years ended December 31, 2020, 2019 and 2018, respectively.

Subsidiary Incentive Plans

5 unchanged sentences

The Company has the option, but not the obligation to settle the exchange right in cash.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:

1 unchanged sentence

Unvested balance as of December 31, 2017 $ 8,792

Grant value adjustment (1)

Granted 1,113

Vested ( 1,771 )

Performance assumption adjustment 576

Unvested balance as of December 31, 2018 $ 8,710

Vested ( 4,991 )

Performance assumption adjustment 560

Unvested balance as of December 31, 2019 $ 4,279

Granted 1,108

Vested ( 4,237 )

Performance assumption adjustment 3,155

Unvested balance as of December 31, 2020 $ 4,305

Due to the approval of the 2017 Equity Plan, the Company changed the classification of the subsidiary RSU’s during the year ended December 31, 2017

from liability to equity awards because the Company expects to settle these awards in stock.

The net vested and unvested balance of subsidiary awards (assuming full vesting) translates to an aggregate of 2,529,709 shares of Common Stock if converted as of December 31, 2019 , of which 891,933 are vested and eligible for exchange as of December 31, 2019 .

Stock Options - Tiptree Corporate

The net vested and unvested balance of subsidiary awards (assuming full vesting) translates to an aggregate of 2,954,566 which are eligible for exchange as of December 31, 2020.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Stock Option Awards

Tiptree Corporate Incentive Plans

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant.

The option awards have a 10 -year term and are subject the recipient’s continuous service, a market requirement, and vest one third on each of the third, fourth and fifth anniversary of the grant date.

The option awards have a 10 -year term and are subject the recipient’s continuous service, a market requirement, and vest one third on each of the three , four , and five year anniversaries of the grant date.

The market requirement is a book value per share target that can be met at any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term.

If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not.

The options granted in 2018 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date.

The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date.

Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $ 11.52 , $ 10.79 , $ 9.97 , $ 10.14 and $ 8.96 , respectively.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved.

5 unchanged sentences

Valuation Input 2020 2019

Historical volatility

Risk-free rate

Dividend yield

Assumption Average Assumption Average

Historical volatility 27.60 % N/A 27.69 % N/A

Risk-free rate 1.51 % N/A 2.62 % N/A

Dividend yield 2.20 % N/A 2.21 % N/A

Expected term (years) 7.0 6.5

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

The following table presents the Company's stock option activity for the current period:

Options outstanding

Weighted average exercise price (in dollars per stock option)

Weighted average grant date value (in dollars per stock option)

Options exercisable

Options outstanding Weighted average exercise price (in dollars per stock option) Weighted average grant date value (in dollars per stock option) Options exercisable

Balance, December 31, 2017 821,864 $ 6.36 $ 2.82 —

Granted 242,663 5.85 1.88 —

Balance, December 31, 2018 1,064,527 $ 6.24 $ 2.61 —

Granted 225,815 6.26 1.69 —

Balance, December 31, 2019 1,290,342 $ 6.24 $ 2.45 —

Granted 425,277 7.25 1.83 —

Balance, December 31, 2020 1,715,619 $ 6.49 $ 2.29 —

Weighted average remaining contractual term at December 31, 2020 (in years) 7.1

Book value targets for grants in 2019, 2018, 2017 and 2016 are $10.79 , $9.97 , $10.14 and $8.96 , respectively.

Stock Based Compensation Expense

The following table presents total stock based compensation expense and the related income tax benefit recognized on the consolidated statements of operations:

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

Year Ended December 31,

2020 2019 2018

Employee compensation and benefits $ 7,571 $ 6,062 $ 6,354

4 unchanged sentences

December 31, 2020

Stock options

Restricted stock awards and RSUs

Stock options Restricted stock awards and RSUs

Unrecognized compensation cost related to non-vested awards $ 521 $ 4,551

Weighted - average recognition period (in years) 1.27 1.43

(20) Income Taxes

The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss):

Year Ended December 31,

2020 2019 2018

Current provision (benefit) for income taxes:

Federal $ ( 26,273 ) $ 991 $ ( 9,650 )

State 1,692 386 ( 1,182 )

Foreign 221 825 754

Total current provision (benefit) for income taxes ( 24,360 ) 2,202 ( 10,078 )

Deferred provision (benefit) for income taxes:

Federal 10,415 6,502 4,110

State 697 335 59

Foreign ( 379 ) ( 22 ) —

Total deferred provision (benefit) for income taxes 10,733 6,815 4,169

Total provision (benefit) for income taxes from continuing operations $ ( 13,627 ) $ 9,017 $ ( 5,909 )

Provision (benefit) for income taxes from discontinued operations — — 13,714

Total provision (benefit) for income taxes $ ( 13,627 ) $ 9,017 $ 7,805

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses.

During the year ended December 31, 2020, the Company recorded a $ 7,293 tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $ 16,795 and an increase to our current receivable of $ 24,088 .

The Company continues to assess the potential tax impacts of this legislation on its financial position and results of operations.

federal rate is before the consideration of rate reconciling items.

A reconciliation of the expected federal provision (benefit) for income taxes on income from continuing operations using the federal statutory income tax rate to the actual provision (benefit) for income taxes and resulting effective income tax rate is as follows for the periods indicated below:

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

(19) Income Taxes

The Company’s provision (benefit) for income taxes is reflected as a component of income (loss) from continuing and discontinued operations and consists of the following:

Year Ended December 31,

Current tax expense (benefit):

Total current tax expense (benefit)

Deferred tax expense (benefit):

Total deferred tax (benefit)

Total income tax expense (benefit) from continuing operations

Income tax (benefit) from discontinued operations

Total tax expense (benefit)

The Company’s primary tax jurisdiction is the United States, which currently has a statutory income tax rate equal to 21% .

On December 22, 2017, the U.S.

government enacted Public Law no.

115-97, commonly referred to as the Tax Cuts and Jobs Act (Tax Act), which, among other things, reduced the federal income tax rate from 35% to 21% effective January 1, 2018, and requires mandatory deemed repatriation of foreign earnings.

As a result of the Tax Act, we re-measured our net deferred tax liabilities and recognized a net tax benefit of $15,238 in 2017.

federal rate is before the consideration of rate reconciling items.

A reconciliation of the expected federal income tax expense on income from continuing operations using the federal statutory income tax rate to the actual income tax expense and resulting effective income tax rate is as follows for the periods indicated below:

Year Ended December 31,

2020 2019 2018

Income (loss) before income taxes from continuing operations $ ( 38,852 ) $ 29,139 $ ( 19,796 )

Federal statutory income tax rate 21.0 % 21.0 % 21.0 %

Expected federal income tax expense (benefit) at the federal statutory income tax rate

Effect of change in U.S.

federal tax rate effective 2018

Effect of Reliance contingent liability valuation

Effect of state income tax expense, net of federal benefit

Effect of dividends received deduction

Expected federal provision (benefit) for income taxes at the federal statutory income tax rate ( 8,159 ) 6,119 ( 4,157 )

Effect of state provision (benefit) for income taxes, net of federal benefit 1,929 549 ( 471 )

Effect of CARES Act refund claims ( 7,293 ) — —

Effect of foreign operations ( 938 ) 440 1,053

Effect of permanent differences 62 ( 30 ) 170

Effect of changes in valuation allowance

Effect of dividends received deduction ( 26 ) ( 29 ) ( 1,534 )

Effect of return-to-accrual 330 1,524 ( 404 )

4 unchanged sentences

The effective tax rate for the year ended December 31, 2020 is higher than the U.S.

statutory income tax rate of 21.0 % primarily from the impact of expected refunds arising from the CARES Act.

For the year ended December 31, 2019, the Company’s effective tax rate on income from continuing operations was equal to 31 %.

The effective tax rate for the year ended December 31, 2019 is higher than the U.S.

statutory income tax rate of 21.0 % primarily due to the non-recurring return-to-provision, as well as ongoing state and foreign taxes.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

For the year ended December 31, 2018, the Company’s effective tax rate on losses from continuing operations was equal to 29.9 %.

1 unchanged sentence

statutory income tax rate of 21.0 % primarily due to the dividends received deduction, offset by the effect of foreign operations.

For the year ended December 31, 2017, the Company’s effective tax rate on income from continuing operations was equal to 377.2% , which does not bear a customary relationship to statutory income tax rates.

The effective tax rate for the year ended December 31, 2017 is higher than the U.S.

statutory income tax rate of 35.0% primarily due to the $15,238 discrete tax benefit of the U.S.

federal tax law change and resulting revaluation of the net deferred tax liability, partially offset by an increase in the valuation allowance on certain deferred tax assets and the impact of the Reliance contingent liability revaluation.

The table below presents the components of the Company’s net deferred tax assets and liabilities as of the respective balance sheet dates:

11 unchanged sentences

Deferred tax liabilities:

Property 2,697 1,554

Unrealized gains 17,968 6,005

2 unchanged sentences

Advanced commissions 30,977 25,392

Intangibles 10,741 9,264

Total deferred tax liabilities 113,501 80,651

Net deferred tax liability (1)

As of January 2016, Tiptree has established a U.S.

federal consolidated income tax group and as such files on a consolidated basis, with certain exceptions such as a Fortegra life insurance company and Luxury.

Tiptree consolidated, and certain subsidiaries on a separate basis, file returns in various state jurisdictions, and as such may have state tax obligations.

Additionally, as needed the Company will take all necessary steps to comply with any income tax withholding requirements.

$ 25,122 $ 32,306

(1) Includes $939 classified as held for sale.

See Note (4) Dispositions, Assets and Liabilities Held for Sale and Discontinued Operations

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

As of December 31, 2019, the Company had total U.

Federal net operating loss carryforwards (NOLs) of $46.2 million arising from continuing operations.

As of January 2016, Tiptree has established a U.S.

federal consolidated income tax group and as such files on a consolidated basis, with certain exceptions such as a Fortegra life insurance company and Luxury.

Tiptree consolidated, and certain subsidiaries on a separate basis, file returns in various state jurisdictions, and as such may have state tax obligations.

Additionally, as needed the Company will take all necessary steps to comply with any income tax withholding requirements.

As of December 31, 2020, the Company had total U.S.

Federal net operating loss carryforwards (NOLs) of $ 70,803 arising from continuing operations.

The following table presents the U.S.

1 unchanged sentence

Tax Year of Expiration

Indefinite 26,327

Total $ 70,803

In addition to the U.S.

Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $7.4 million .

Valuation allowances have been established for net operating loss carryforwards and other deferred tax assets generated by Luxury, and certain state NOLs of $4,961 , since management has concluded it is more likely than not they will expire unutilized based on existing positive and negative evidence.

Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $ 11,446 as of December 31, 2020.

Valuation allowances have been established for various state deferred tax assets of $ 6,871 , which are primarily state NOLs, since management has concluded it is more likely than not they will expire unutilized based on existing positive and negative evidence.

Management believes it is more likely than not the remaining NOLs and deferred tax assets will be utilized prior to their expiration dates.

As of December 31, 2020, the consolidated valuation allowance for Tiptree was $ 6,871 .

In 2019, the Company recorded a net increase in its valuation allowances equal to $1,869 , compared to a net decrease in its valuation allowance of $1,211 in 2018.

In 2020, the Company recorded a net increase in its valuation allowances equal to $ 1,910 , compared to a net increase in its valuation allowance of $ 1,869 in 2019.

As of December 31, 2020, the Company had no material unrecognized tax benefits or accrued interest and penalties.

This is consistent with the tax years ending December 31, 2018 and December 31, 2017 as well.

Federal tax years 2016 through 2018 were open for examination as of December 31, 2019.

This is consistent with the tax years ending December 31, 2019 and December 31, 2018.

Federal tax years 2017 and onward are open for examination as of December 31, 2020.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

(21) Commitments and Contingencies

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All leases are office space leases and are classified as operating leases that expire through 2031.

Some of our office leases include the option to extend for up to five years or less at management’s discretion.

Some of our office leases include the option to extend for up to 5 years or less at management’s discretion.

Such extension options were not included in the measurement of the lease liability.

Below is a summary of our right of use asset and lease liability as of December 31, 2020:

December 31, 2019

Right of use asset - Operating leases $ 27,291

3 unchanged sentences

(1) Discount rate was determined by applying available market rates to lease obligations based upon their term.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

As of December 31, 2020, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows:

December 31, 2019

2026 and thereafter 16,091

2 unchanged sentences

present value adjustment ( 17,365 )

Total $ 32,914

The following table presents rent expense for the Company’s office leases recorded on the consolidated statements of operations for the following periods:

Year Ended December 31,

For the Year Ended

2020 2019 2018

Rent expense for office leases (1)

$ 7,374 $ 8,612 $ 7,519

(1) Includes lease expense of $ 509 and $ 385 for the years ended December 31, 2020 and 2019, respectively, for assets held for sale.

The Company is a defendant in Mullins v.

7 unchanged sentences

In January 2018, the court vacated its November 2017 order granting Company’s Motion for Summary Judgment as to the life certificates at issue with leave to refile.

No trial or additional hearings are currently scheduled.

No trial or additional hearings are currently

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

(in thousands, except share data)

The Company considers such litigation customary in the insurance industry.

5 unchanged sentences

(22) Earnings Per Share

The Company calculates basic net income per share of Common Stock (Common Share) based on the weighted average number of Common Shares outstanding, which includes vested corporate restricted share units.

Unvested corporate restricted share units have a non-forfeitable right to participate in dividends declared and paid to the Company’s Common Stock on an as vested basis and are therefore considered a participating security.

The Company calculates basic earnings per share using the “two-class” method under which the income available to Common Stockholders is allocated to the unvested corporate restricted stock units.

The Company calculates basic net income per share of common stock (common share) based on the weighted average number of common shares outstanding, which includes vested corporate RSUs.

Unvested corporate RSUs have a non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are therefore considered a participating security.

The Company calculates basic earnings per share using the “two-class” method under which the income available to common stockholders is allocated to the unvested corporate RSUs.

Diluted net income attributable to common stockholders includes the effect of unvested subsidiaries’ RSUs, when dilutive.

5 unchanged sentences

The following table presents a reconciliation of basic and diluted net income per common share for the following periods:

Year Ended December 31,

For the Year Ended

2020 2019 2018

Net income (loss) from continuing operations $ ( 25,225 ) $ 20,122 $ ( 13,887 )

1 unchanged sentence

Net income allocated to participating securities — 472 —

Net income (loss) from continuing operations attributable to Common Shares

Net income (loss) attributable to common stockholders ( 29,158 ) 17,889 ( 13,275 )

Net income (loss) from discontinued operations — — 43,770

Net income (loss) from discontinued operations attributable to non-controlling interests — — 6,562

Net income allocated to participating securities

Net income (loss) from discontinued operations attributable to Common Shares

Net income (loss) from discontinued operations attributable to common stockholders — — 37,208

Net income (loss) attributable to common shares - basic $ ( 29,158 ) $ 17,889 $ 23,933

1 unchanged sentence

Securities of subsidiaries — ( 723 ) —

Adjustments to income relating to exchangeable interests, net of tax

Net income (loss) attributable to common shares - diluted $ ( 29,158 ) $ 17,166 $ 23,933

2 unchanged sentences

Weighted average number of shares of common stock outstanding - diluted

33,859,775 34,578,292 34,715,852

Net income (loss) from continuing operations $ ( 0.86 ) $ 0.52 $ ( 0.38 )

Net income (loss) from discontinued operations — — 1.07

Net income (loss) attributable to Common Shares

Basic net income (loss) attributable to common shares $ ( 0.86 ) $ 0.52 $ 0.69

Net income (loss) from continuing operations $ ( 0.86 ) $ 0.50 $ ( 0.38 )

Net income (loss) from discontinued operations — — 1.07

Net income (loss) attributable to Common Shares

Diluted net income (loss) attributable to common shares $ ( 0.86 ) $ 0.50 $ 0.69

(23) Related Party Transactions

On February 15, 2019, the Company and Corvid Peak (formerly known as Tricadia) entered into a Strategic Combination Agreement (the Strategic Combination Agreement) and Amended and Restated Transition Services Agreement (the Transition Services Agreement).

Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman.

Tiptree agreed to invest $75 million to seed new investment funds to be managed by Corvid Peak.

As of December 31, 2019 , $25 million was funded with the remainder funded in the first quarter of 2020.

The Company will pay Corvid Peak an annual management fee of 1.25% of the net asset value of invested capital, 1.25% of the $75 million commitment to the extent not invested, and an incentive fee equal to 20% of the net profits.

The Company incurred $1,006 of management and incentive fees to Corvid Peak for the year ended December 31, 2019.

No consideration was paid at the closing of the Strategic Combination Agreement.

Tiptree will over time receive a 51% economic interest in certain profit share interests in Corvid Peak, in increments stepping up by 10.2% each year, beginning in 2021.

Beginning on January 1, 2026, Tiptree has the right to acquire the remaining economic interests in Corvid Peak that are held by Mr.

Barnes, based upon a fair value-based formula.

Beginning on January 1, 2027, Mr.

Barnes has the reciprocal right to put his remaining economic interests in Corvid Peak to Tiptree using the same formula.

Barnes has substantive participating rights over specified actions at Corvid Peak so long as he owns at least 10% of the equity of Corvid Peak.

The Company has concluded that it will account for any ownership interest it obtains in Corvid Peak using the equity method of accounting until such time as a controlling financial interest (as defined in the applicable accounting guidance) in Corvid Peak is obtained.

Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another (the Services).

At the present time, the Services consist primarily of Tiptree providing to Corvid Peak office space, legal

Tiptree agreed to invest $ 75,000 to seed new investment funds to be managed by Corvid Peak, which was completely funded in the first quarter of 2020.

The Company will pay Corvid Peak an annual management fee of 1.25 % of the net asset value of invested capital and an incentive fee equal to 20 % of the net profits , subject to a conventional high water mark.

The Company incurred $ 2,792 and $ 1,006 of management and incentive fees to Corvid Peak for the year ended December 31, 2020 and 2019, respectively.

Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another.

Payments under the Transition Services Agreement in the year ended December 31, 2020 and 2019 were not material.

Pursuant to the Emeritus Agreement, Tiptree agreed to provide Mr.

Inayatullah, a greater than 5 % stockholder of the Company, office space and support services, and reimburse Mr.

Inayatullah for a portion of benefit expenses in exchange for advice and other consulting services as requested by the Company’s Executive Committee.

Transactions related to the Emeritus Agreement in the year ended December 31, 2020 were not material.

AND SUBSIDIARIES

2 unchanged sentences

(in thousands, except share data)

and compliance services, information technology services, insurance coverage, and certain finance, accounting and tax services.

The Services are provided on arms’-length terms.

The effective date of the Transition Services Agreement is January 1, 2019.

The Transition Services Agreement will terminate upon a change of control of Corvid Peak.

Corvid Peak may terminate any Services upon 30 days written notice and Tiptree may terminate any Services upon 150 days written notice, but Tiptree may not terminate any Services prior to June 30, 2020.

Payments under the Transition Services Agreement in the year ended December 31, 2019 , 2018 and 2017 were not material.

On December 20, 2019, the Company and Arif Inayatullah, a greater than 5% stockholder of the Company, entered into a partner emeritus agreement (Emeritus Agreement), effective January 1, 2020.

The Company will provide Mr.

Inayatullah office space, accounting, tax research and IT support services, one Bloomberg terminal and healthcare and other benefits consistent with Company employees in exchange for advice and other consulting services as requested by the Company’s Executive Committee.

(24) Summarized Quarterly Information (Unaudited)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

First Quarter Second Quarter Third Quarter Fourth Quarter

Total revenues $ 129,671 $ 199,194 $ 224,041 $ 257,395

Total expenses 211,422 194,760 210,144 232,827

Income (loss) before taxes from continuing operations

Income (loss) before taxes ( 81,751 ) 4,434 13,897 24,568

provision (benefit) for income taxes ( 21,181 ) ( 5 ) ( 844 ) 8,403

Net income (loss) from continuing operations

Net income (loss) ( 60,570 ) 4,439 14,741 16,165

net income (loss) attributable to non-controlling interests ( 563 ) 623 1,978 1,895

1 unchanged sentence

Net (loss) income per Common Share:

Basic, continuing operations, net

Basic, discontinued operations, net

Basic earnings per share $ ( 1.74 ) $ 0.11 $ 0.37 $ 0.42

Diluted, continuing operations, net

Diluted, discontinued operations, net

Diluted earnings per share $ ( 1.74 ) $ 0.10 $ 0.35 $ 0.40

Weighted average number of Common Shares:

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Basic 34,566,330 33,984,195 33,684,301 33,213,307

Diluted 34,566,330 33,984,195 33,684,301 33,213,307

First Quarter Second Quarter Third Quarter Fourth Quarter

Total revenues $ 183,903 $ 191,072 $ 189,185 $ 208,568

Total expenses 178,748 175,367 190,783 198,691

Income (loss) before taxes from continuing operations

provision (benefit) for income taxes

Net income (loss) from continuing operations

Income (loss) before taxes from discontinued operations

Gain on sale of discontinued operations

Income (loss) before taxes 5,155 15,705 ( 1,598 ) 9,877

provision (benefit) for income taxes 854 3,501 ( 649 ) 5,311

Net income (loss) from discontinued operations

Net income (loss) before non-controlling interests

Net income (loss) 4,301 12,204 ( 949 ) 4,566

net income (loss) attributable to non-controlling interests 376 458 508 419

1 unchanged sentence

Net (loss) income per Common Share:

Basic, continuing operations, net

Basic, discontinued operations, net

Basic earnings per share $ 0.11 $ 0.33 $ ( 0.04 ) $ 0.12

Diluted, continuing operations, net

Diluted, discontinued operations, net

Diluted earnings per share $ 0.11 $ 0.32 $ ( 0.04 ) $ 0.11

Weighted average number of Common Shares:

Basic 34,673,054 34,527,230 34,552,171 34,562,219

Diluted 34,673,054 34,527,230 34,552,171 34,578,357

(25) Subsequent Events

Acquisition of Smart AutoCare

On January 3, 2020, a subsidiary of the Company acquired (the Acquisition) all of the equity interests of Accelerated Service Enterprise LLC, SAC Holdings Inc., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc., Freedom Insurance Company, Ltd., SAC Admin, Inc., SAC Insurance Company, Inc., Smart AutoCare, Inc.

and Smart AutoCare Administration Solutions, Inc.

(together the Target Entities), pursuant to the Equity Interest Purchase Agreement (the Purchase Agreement) between Tiptree Warranty Holdings, LLC (Buyer) and Peter Masi (Seller), dated as of December 16, 2019.

Concurrent with the Acquisition, Freedom Insurance Company, Ltd, (Freedom) terminated reinsurance agreements with affiliates of Seller (the Commutation Transaction).

Tiptree paid Seller $110 million in cash at closing, $8.25 million of which will be held in an escrow account for 18 months to satisfy indemnity claims.

Simultaneously, pursuant to the Commutation Transaction, affiliates of Seller paid Freedom $102 million in cash.

The Purchase Agreement also provides for an earn out of up to $50 million in cash based on the Target Entities achieving specified performance metrics measured on the third and fifth anniversary of closing and an additional earn out of up to $30 million payable in cash or Tiptree Common Stock based on the Target Entities achieving other certain specified performance metrics measured on the fourth and fifth anniversary of closing.

In addition, the purchase price will be subject to a true-up following the fifth anniversary of the closing based on the adequacy of certain legacy reserves, offset by certain earnings on new business.

New Fortress Credit Facility

On February 21, 2020, Tiptree Operating Company, LLC (Borrower) borrowed $125 million under a new credit agreement (Credit Agreement) with Fortress Credit Corp.

The proceeds were used to repay the Borrower’s prior credit agreement with Fortress described in (10) Debt, net , in the notes to consolidated financial statements, and for working capital and general corporate purposes.

The Credit Agreement will mature on February 21, 2025.

Loans under the Credit Agreement bear interest

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

(in thousands, except share data)

at a variable rate per annum equal to the LIBOR (with a minimum LIBOR rate of 1.00% ), plus a margin of 6.75% per annum.

The principal amounts of the loans are to be repaid in consecutive quarterly installments.

Borrower’s obligations under the Credit Agreement are guaranteed by Tiptree Inc., Tiptree Insurance Holdings, LLC, Caroline Holdings LLC, Reliance Holdings, LLC, Tiptree Asset Management Company, LLC, Tiptree Marine LLC, Tiptree Direct Holdings LLC, Tiptree Warranty Holdings, LLC and each of Borrower’s subsequently acquired or organized direct wholly owned first-tier domestic subsidiaries that is a holding company for investments, assets, operations or business lines, and any other subsidiary of the Borrower that guarantees the payment of any other material indebtedness of the Borrower or a Guarantor (collectively, the Guarantors).

The obligations under the Credit Agreement are secured by liens on substantially all of the assets of the Borrower and each Guarantor (subject to certain customary exceptions).

The Credit Agreement contains various customary affirmative and negative covenants of Tiptree Inc., the Borrower and the Guarantors (subject to customary exceptions), including, but not limited to, limitations on indebtedness, liens, investments and acquisitions, negative pledges, junior payments, conduct of business, transactions with affiliates, dispositions of assets, prepayment of certain indebtedness and limits on guarantees by subsidiaries of the Borrower’s and the Guarantors’ indebtedness.

The Credit Agreement also contains a financial covenant which provides that Tiptree will not permit its Corporate Leverage Ratio (as defined in the Credit Agreement) as of the last day of any fiscal quarter to be greater than 4.5:1.00 in 2020 and 2021, 4.25:1:00 in 2022, 4:00:1:00 in 2023 and 3.75:1:00 in 2024.

The Credit Agreement also requires customary mandatory repayment provisions (subject to customary exceptions) and requires that net cash proceeds from the sale by Tiptree and certain of its subsidiaries of capital stock of Invesque Inc.

be applied to prepay loans until the outstanding principal amount of loans is $62.5 million , with remaining proceeds subject to reinvestment rights.

Prepayments, whether mandatory or voluntary, reduce future scheduled amortization payments in the order they come due.

The Credit Agreement also requires the payment of a prepayment fee upon a repricing transaction or equity issuance consummated after the closing date, or the sale of Tiptree Insurance, or any of its material subsidiaries.

The Credit Agreement contains events of default customary for similar financings with corresponding grace periods, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgment defaults and a change of control.

Upon the occurrence of an event of default, the outstanding obligations under the Credit Agreement may be accelerated and become immediately due and payable.

On March 9, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.04 per share to holders of common stock with a record date of March 22 2021, and a payment date of March 29, 2021.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data