TIPTREE INC. 10-K

tipt-20211231 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31 , 2021 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 001-33549 Tiptree Inc. (Exact name of Registrant as Specified in Its Charter) Maryland 38-3754322 (State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification No.) 299 Park Avenue 13th Floor New York New York 10171 (Address of Principal Executive Offices) (Zip Code) (Registrant’s telephone number, including area code) ( 212 ) 446-1400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered common stock, par value $0.001 per share TIPT NASDAQ Capital Market Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $ 226,808,986 , based upon the closing sales price of $9.30 per share as reported on the Nasdaq Capital Market. For purposes of this calculation, all of the registrant’s directors and executive officers were deemed to be affiliates of the registrant. As of March 7, 2022, there were 34,385,602 shares, par value $0.001, of the registrant’s common stock outstanding. Documents Incorporated by Reference Certain information in the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relating to the registrant’s 2022 Annual Meeting of Stockholders is incorporated by reference into Part III. F -1 TIPTREE INC. Annual Report on Form 10-K December 31, 2021 Table of Contents ITEM Page Number PART I 4 Item 1. Business 8 Item 1A. Risk Factors 19 Item 1B. Unresolved Staff Comments 45 Item 2. Properties 45 Item 3. Legal Proceedings 45 Item 4. Mine Safety Disclosures 45 PART II 45 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45 Item 6. Reserved. 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 76 Item 8. Financial Statements and Supplementary Data F- 1 Consolidated Balance Sheets for December 31, 2021 and 2020 F- 1 Consolidated Statements of Operations for the three years ended December 31, 2021, 2020 and 2019 F- 2 Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2021, 2020 and 2019 F- 3 Consolidated Statement of Changes in Stockholders’ Equity for the three years ended December 31, 2021, 2020 and 2019 F- 4 Consolidated Statements of Cash Flows for the three years ended December 31, 2021, 2020 and 2019 F- 5 Notes t o C onsolidated Financial Statements F- 6 (1) Organization F- 6 (2) Summary of Significant Accounting Policies F- 6 (3) Acquisitions F- 17 (4) Dispositions and Assets and Liabilities Held for Sale F- 19 (5) Segment Data F- 20 (6) Investments F- 22 (7) Notes and Accounts Receivable, net F- 28 (8) Reinsurance Receivables F- 28 (9) Goodwill and Intangible Assets, net F- 31 (10) Derivative Financial Instruments and Hedging F- 32 (11) Debt, net F- 34 (12) Fair Value of Financial Instruments F- 37 (13) Liability for Unpaid Claims and Claim Adjustment Expenses F- 44 (14) Revenue from Contracts with Customers F- 46 (15) Other Assets and Other Liabilities and Accrued Expenses F- 48 (16) Other Revenue and Other Expenses F- 48 ( 17) Stockholders’ Equity F- 49 (18) Accumulated Other Comprehensive Income (Loss) F- 50 (19) Stock Based Compensation F- 51 (20) Income Taxes F- 56 (21) Commitments and Contingencies F- 59 (22) Earnings Per Share F- 60 (23) Related Party Transactions F- 60 (24) Subsequent Events F- 61 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 56 Item 9A. Controls and Procedures 56 Item 9B. Other Information 57 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 57 PART III 57 Item 10. Directors, Executive Officers and Corporate Governance 57 Item 11. Executive Compensation 57 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 57 Item 13. Certain Relationships and Related Transactions, and Director Independence 57 2 TIPTREE INC. Annual Report on Form 10-K December 31, 2021 Table of Contents ITEM Page Number Item 14. Principal Accountant Fees and Services 57 PART IV 58 Item 15. Exhibits, Financial Statement Schedules 58 Item 16. Form 10-K Summary 61 Signatures 62 3 PART I Forward-Looking Statements Except for the historical information included and incorporated by reference in this Annual Report on Form 10-K, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, the closing of the transaction with Warburg Pincus, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “project,” “should,” “target,” “will,” or similar expressions, we intend to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K and in our other public filings with the SEC. The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the applicable law, we undertake no obligation to update any forward-looking statements. Market and Industry Data This Annual Report on Form 10-K includes certain market and industry data and statistics, which are based on publicly available information, industry publications and surveys, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the insurance industry and market segments in which we compete. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. In addition, certain information contained in this Form 10-K, including information relating to the proportion of new opportunities we pursue, represents management estimates. While we believe our internal estimates to be reasonable, they have not been verified by any independent sources. Such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the captions “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 4 Summary Risk Factors Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risks include, but are not limited to, the following: • A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable prices or at all and creates uncertainty in connection with valuing such assets. • Our investment in Invesque shares is subject to market volatility. • We operate in highly competitive markets for business opportunities and personnel, which could impede our growth and negatively impact our results of operations. • Failure to consummate the proposed WP Transaction could have a material adverse impact on our business. • The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to factors outside of our control. • Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to establish additional reserves. • Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks. • Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements. • We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no assurance that such capital will be available on a timely basis, on acceptable terms or at all. • Cybersecurity attacks or information system failures could disrupt our businesses, including our insurance businesses. • Third-party vendors our insurance subsidiaries rely upon to provide certain business and administrative services on their behalf may not perform as anticipated. These include independent financial institutions, lenders, distribution partners, agents and retailers for distribution of its products and services, and the loss of these distribution sources, or their failure to sell our insurance business’s products and services could be adverse. • A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales. • If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to bear increased risks or reduce the level of their underwriting commitments. • Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under reinsurance contracts. • New lines of business or new products and services may subject our insurance subsidiaries to additional risks. • The effects of emerging claim and coverage issues on our insurance subsidiaries’ business are uncertain. • Our insurance subsidiaries’ international operations expose them to investment, political and economic risks, including foreign currency and credit risk. • Our insurance subsidiaries’ continued growth depends partly on the continued growth of their business’s customer base. • Our results of operations have in the past varied quarterly and may not be indicative of our long-term prospects. • Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity, could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance subsidiaries’ growth and profitability. • Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to unidentified or unanticipated risk. • Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful. • Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to pursue their business strategies. • Retentions in various lines of business and catastrophic events expose our insurance subsidiaries to potential losses. • The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business. • Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the creditworthiness of some of its independent agents and program partners. • Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they underwrite. 5 • The insurance industry is cyclical in nature, competition is intense and our insurance business may lose clients or business as a result of consolidation within the financial services industry or otherwise. • Any failure to protect our insurance subsidiaries’ intellectual property rights could impair their intellectual property, technology platform and brand. In addition, they may be sued for alleged infringement of their proprietary rights. • Our insurance subsidiaries employ third-party licensed software for use in their business, and the inability to maintain these licenses, errors in the software they license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely affect their business. • A significant decrease of the market values of our vessels could cause us to incur impairment losses. • Our vessels may suffer damage and we may face unexpected drydocking costs. • The operation of dry bulk vessels and product tankers has certain unique operational risks, including piracy. • Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to such jointly owned investments. • Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our mortgage business. • Our mortgage business is highly dependent upon programs administered by GSEs, such as Fannie Mae and Freddie Mac, as well as Ginnie Mae, to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our mortgage business, financial condition and results of operations. • We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business. • In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or will originate, if, among other things, our loans fail to meet certain criteria or characteristics. • We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income. • We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial condition and results of operations. • Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our assets, our results of operations and our financial condition. • Our risk mitigation or hedging strategies could result in our experiencing significant losses. • The values we record for certain investments and liabilities are based on estimates of fair value made by our management, which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a sale. • The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements. • Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend on distributions from our subsidiaries that may be subject to restrictions and income from assets. • Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests. • Maryland takeover statutes may prevent a change of our control, which could depress our stock price. • Our holding company structure with multiple lines of business, may adversely impact the market price of our common stock and our ability to raise equity and debt capital. • Maintenance of our 1940 Act exemption imposes limits on our operations. • Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business models and expose them to increased liability. • Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective. • Our businesses are subject to risks related to litigation and regulatory actions, including increased compliance costs. • Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the EU and other jurisdictions. • We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in other applicable jurisdictions. • Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability. 6 Note to Reader In reading this Annual Report on Form 10-K, references to: “1940 Act” means the Investment Company Act of 1940, as amended. “A.M. Best” means A.M. Best Company, Inc. “CFPB” means the Consumer Financial Protection Bureau. “CLOs” means collateralized loan obligations. “Code” means the Internal Revenue Code of 1986, as amended. “Common Stock” or “Common Shares” means Tiptree’s common stock $0.001 par value per share. “Corvid Peak” means collectively: Corvid Peak Holdings, L.P., Corvid Peak Capital Management, LLC, Corvid Peak GP Holdings, LLC and Corvid Peak Holdings GP, LLC. “Defend” means Defend Insurance Group. “Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act. “EBITDA” means earnings before interest, taxes, depreciation and amortization. “E&S” means excess and surplus. “EU” means European Union. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Fortress” means Fortress Credit Corp., as administrative agent, collateral agent and lead arranger, and affiliates of Fortress that are lenders under the Credit Agreement among the Company, Fortress and the lenders party thereto. “Fortegra” or “The Fortegra Group” means The Fortegra Group, LLC. “Fortegra Financial” means Fortegra Financial Corporation. “Fortegra Warranty” mean Fortegra Warranty Holdings, LLC. “GAAP” means U.S. generally accepted accounting principles. “GSE” means government-sponsored enterprise. “Invesque” means Invesque Inc. “Luxury” or “Luxury Mortgage” means Luxury Mortgage Corp. “MGAs” means managing general agents. “NAIC” means the National Association of Insurance Commissioners. “Operating Company” means Tiptree Operating Company, LLC. “Reliance” means Reliance First Capital, LLC. “SEC” means the U.S. Securities and Exchange Commission. “Securities Act” means the Securities Act of 1933, as amended. “Sky Auto” means Sky Services LLC. “Smart AutoCare” means the following entities and their subsidiaries operating under the Smart AutoCare brand: SAC Holdings, Inc., Freedom Insurance Company, Ltd., Dealer Motor Services, Inc., Independent Dealer Group, Inc., Ownershield, Inc. and Accelerated Service Enterprise, LLC. “Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Tiptree Inc. and its consolidated subsidiaries. “Transition Services Agreement” means the Amended and Restated Transition Services Agreement between Corvid Peak and Tiptree Inc., effective as of January 1, 2019. “VSC” means vehicle service contracts. “WP Transaction” means the $200 million strategic investment in Fortegra by Warburg Pincus pursuant to the Securities Purchase Agreement between and among Tiptree, Fortegra and WP Falcon Aggregator, L.P. dated October 11, 2021. 7 Item 1. Business OVERVIEW Our Business At Tiptree, our mission is to build long-term value by allocating capital to select small and middle market companies across industries. We have a significant track record investing in the insurance and credit-related financial sectors. With proprietary access and a flexible capital base, we seek to uncover compelling investment opportunities and support management teams in unlocking the full value potential of their businesses. This investment philosophy, executed by our experienced leadership, is our hallmark and has delivered consistent risk-adjusted returns to our shareholders since 2007. We categorize our businesses into: Insurance and Tiptree Capital. Insurance: Our Insurance segment is a group of companies operating as part of The Fortegra Group (“Fortegra”), which is a leading provider of specialty insurance products and related services. Fortegra designs, markets and underwrites specialty commercial and personal property and casualty insurance products incorporating value-added coverages and services for select target markets or niches. We target markets with specialized areas of demand, including smaller niche lines, and by offering innovative policy features. We believe this approach allows us to compete by offering customized coverage and solutions, rather than competing solely on price. Our products are distributed through a diverse multi-channel delivery system centered around our production underwriting organization and large independent agent network. We use proprietary technology to efficiently and effectively administer business to specialty markets that we believe are underserved by larger, less agile insurers. Our underwriting expertise, strong agent relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities. Tiptree Capital: We own a diversified group of businesses and investments that are owned and managed separately as Tiptree Capital, and include our Mortgage segment operations. We manage Tiptree Capital with a long-term focus, balancing current cash flow and long-term value appreciation. Today, Tiptree Capital consists primarily of our mortgage origination operations, maritime shipping operations and investments in shares of Invesque. Our Operating Principles We acquire controlling interests and invest in businesses that we believe (i) operate in industries with long-term macroeconomic growth opportunities, (ii) have positive and stable cash flows, (iii) offer scalable business models with embedded optionality, and (iv) have strong management teams. We believe that our patient capital approach and long-term outlook enhances the ability for our businesses to grow earnings and cash flows across market cycles. Underwrite to a Profit . Our principal strategic objective is to continue expanding Fortegra’s operations, particularly the specialty insurance and service contract businesses. Our highest priority is to maintain strong underwriting practices, with attention paid to the insurance disciplines of pricing, underwriting and claims management. Invest for Long-term Returns. Our financial goals are to generate consistent and growing earnings and cash flow, and to enhance shareholder value as measured by growth in stock price plus dividends paid. We manage Tiptree with a long-term perspective, balancing cash-flowing investments with opportunities for capital appreciation. We focus on targeting investment returns that have a combination of current earnings and long-term capital appreciation, understanding that temporary accounting gains and losses may vary significantly from one period to the next. Think Like Owners. Efficient deployment of capital is our top priority. We aim to find the best use of capital to create long-term value for our shareholders. We hope to achieve this through a combination of investments in our existing businesses, select acquisitions and monetization opportunities, opportunistic share repurchases and paying a consistent dividend. As of March 7, 2022, directors, officers, employees and related trusts owned 32% of the Company. As of December 31, 2021, Tiptree and its consolidated subsidiaries had 1,472 employees, 21 of whom were at our corporate headquarters. Corporate employees are responsible for overall strategy, capital allocation and investment decisions, as well as public company reporting and compliance. Our businesses are subject to regulation as described below. The 1940 Act may limit the types and nature of businesses that we engage in and assets that we may acquire. See “Risk Factors-Risks Related to Regulatory and Legal Matters-Maintenance of our 1940 Act exemption will impose limits on our operations.” 8 Insurance Overview Fortegra is an established, growing and consistently profitable specialty insurer. We focus on niche business lines and fee-oriented services, providing us with a unique combination of insurance, service contract products and related service solutions. Our vertically integrated business model creates an attractive blend of traditional underwriting revenues, unregulated fee revenues and investment income. This differentiated approach has led to robust growth, consistent profitability and high cash flows. The business was founded in 1978 and is headquartered in Jacksonville, Florida. We target lines of business with lower risk limits and use risk mitigation to limit both aggregation and catastrophic exposures. We believe this focus has allowed us to produce superior underwriting results through a more granular spread of risk. We use proprietary technology to efficiently and effectively administer business to specialty markets that we feel are underserved by larger, less agile insurers. Our underwriting expertise, strong distribution relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities in all market conditions. We use an agent-focused distribution model, employing a “one-to-many” strategy, which allows us to leverage our high-quality partners and their customer bases. We deliver our insurance products through independent insurance agents. We also partner with agents that are embedded in consumer finance companies, online and regional big box retailers, auto dealers and other companies to deliver our products that complement retail and consumer purchases. We use artificial intelligence (“A.I.”) technology to create a distinct lead generation advantage for our insurance distribution partners and over the past five years have maintained a greater than 95% persistency rate, which represents the annual retention of the number of our producing agents. We align our agents’ economics with their underwriting results via risk-sharing agreements, which we believe has enabled us to better manage uncertainties and deliver more consistent profit margins. Combined with our underwriting expertise and technology-enabled administration, we provide a high-value proposition to our distribution relationships. Products and Services U.S. Insurance: Provides niche, specialty insurance products distributed through managing general agents (“MGAs”), wholesale agents, retail agents and brokers. We offer an array of commercial programs with a particular focus on casualty lines. These lines include professional liability, contractual liability, energy, allied health, general liability, directors and officers liability, life sciences, inland marine, contractors equipment, contractors liability, student legal liability, hospitality and business owner policy. We also offer a range of personal lines programs including storage unit contents, manufactured housing, GAP, auto, credit life and disability and collateral insurance products. Additionally, we offer related fee-earning, unregulated products and services, such as captive administration services, program administration and premium financing, to our U.S. Insurance customers. We are active in 50 states in the United States. • Commercial Lines: Our business is focused on underwriting specialty commercial insurance coverages for agents, retail agents, MGAs, brokers and other program managers that require broad licensure, an “A-” or better A.M. Best rating, and specialized knowledge and expertise to deliver our products. Our commercial lines include a wide array of niche products, including admitted and excess and surplus (“E&S”) lines. With each program, we grant agents and program managers the authority to produce, underwrite and administer policies subject to our pricing and underwriting guidelines. We typically transfer a substantial portion of the underwriting risk to third-party reinsurers for which we are paid a ceding fee. We generally retain between 40-60% of the premium on a net basis. • Personal Lines: Our personal lines offer a diverse set of specialty products including credit insurance, collateral insurance, non-standard auto and other niche personal lines. Credit insurance products offer consumers and lenders protection from life events that limit a borrower’s ability to make payments on outstanding loan balances. These products offer consumers and lenders the option to protect loan balance repayment in the event of death, involuntary unemployment or disability. Our collateral insurance products are designed to primarily protect the lender from losses to collateral pledged to secure an installment loan. In most instances, these products offer lenders the option to protect collateral from a comprehensive loss due to fire, wind, flood and theft. Additionally, if the collateral is an automobile, the coverage does protect against collision losses. U.S. Warranty Solutions: Provides consumers with protection from certain covered losses on automobiles, mobile devices, consumer electronics, appliances and furniture in the United States. Our offerings include, but are not limited to, vehicle service contracts, roadside assistance and motor clubs, GAP, automobile dent and ding repair, key replacement, cellular handset protection 9 and service contracts on other consumer goods. We distribute our products through agents, retailers, auto dealerships and cell-phone carriers. We are active in 50 states in the United States. Our service contract products and solutions provide consumers with coverage for specific losses to automobiles, recreation vehicles, mobile devices, consumer electronics, appliances and furniture and bedding. These products offer benefits such as replacement, service or repair coverage in the event of mechanical breakdown, accidental damage and water or spill damage. Some of our service contract products are extensions of coverage provided by their original equipment manufacturers. As part of our vertically integrated offering, we provide valuable services to our distribution partners including premium financing, lead generation support, insurance sales, and business process outsourcing. Europe Warranty Solutions: Provides consumers with protection from certain covered losses on automobiles, mobile devices, consumer electronics, appliances and furniture in the European region. We offer a variety of programs, including GAP, VSCs, automobile dent and ding repair, tire and wheel protection, cellular handset protection, consumer products accidental damage and others. We distribute our programs through MGAs, retail agents and auto dealerships. Our Competitive Strengths Focus on Niche, Underserved Specialty Lines with Significant Fee-Based Income We focus on specialty insurance business and have continued to diversify our revenues. We use three distinct approaches to grow our business: (i) we pursue and acquire agents with select books of business that we believe will maintain risk-appropriate rates; (ii) we seek agents with what we believe is distinct underwriting expertise to select specific niches; and (iii) we target the lines of business we believe are overlooked by the standard markets. For example, we often target the smaller premium-per-risk lines that we believe are highly profitable, have the potential to grow and are underserved by our competitors. We believe we have a unique ability to source small programs that meet our rate, form and risk threshold through our extensive distribution network and A.I. technology. We believe our underwriting expertise, proprietary technology and deep distribution relationships allow us to serve our specialty markets and capture share. We cross-sell multiple products to our customers through the breadth of our products and solutions, including fee-based services. We believe the combination of a low limits profile, low severity products and attractive fee income provides higher underwriting margin and earnings stability for our business. While low limits and low severity constitute most of our underwritten business, we believe we are agile enough to take advantage of attractive opportunities in challenging market conditions. For the year ended December 31, 2021, Fortegra produced gross written premium and premium equivalents of $2,194 million, an increase from $963 million in 2017, representing a 23% compounded annual growth rate over the past five years. Track Record of Growth, Profitable Underwriting and Strong Economic Alignment with Our Distribution Network Consistent underwriting is a function of rate adequacy and risk selection by our specialized agents. While we regularly establish sound actuarial rates similar to our insurance peers, we believe our stringent risk selection requires unique underwriting expertise by our agents and a high degree of specialty underwriting skillsets. After we establish relationships with our targeted agents, we further solidify our alliance by creating additional value for our distribution partners through our technology platform. We believe our A.I. algorithm and machine learning assisted underwriting drives a distinct lead generation advantage for our agents. Using A.I. technology and machine learning, we identify risks that fit into an acceptable profile, enhancing the agent’s efficiency and revenue base while allowing us to experience what we believe is a superior spread of risk and exceptional underwriting results. For the year ended December 31, 2021, our combined ratio was 90.6% and has averaged 91.6% over the past five years. Scalable, Proprietary Technology, Which Drives Efficiency and Delivers Premium Customer Service We provide many aspects of insurance, including admitted specialty property-casualty products, E&S line offerings, administration, premium finance and other value-added services. We have a scalable and flexible technology infrastructure, together with highly trained and knowledgeable IT personnel and consultants. These resources allow us to launch new insurance and fee for service programs and expand gross written premiums and premium equivalents volume quickly and seamlessly without significant incremental expenses. Our technology also delivers low-cost, highly automated underwriting and administration services to our partners without substantial up-front investments. This technology-enhanced platform enables us to automate core business processes, reduce our operating costs, increase our operating efficiency and secure high agent retention. We have maintained a 95% persistency rate with our insurance producing agents over the past five years. Our underwriting expertise, strong distribution relationships and proprietary technology empower us to remain agile and take advantage of attractive opportunities in 10 challenging market conditions. Our systems also enable us to provide a high level of service to our distribution partners and customers through technology. High-Quality, Conservative Balance Sheet with Solid Capitalization and Ratings We maintain a high quality, S&P “AA+” rated, fixed income investment portfolio. Our investment portfolio’s principal objectives are to preserve capital and surplus, to maintain appropriate liquidity for corporate requirements, to support our strong ratings and to maximize returns. We have a track record of reducing our reinsurance counterparty exposure by partnering with reinsurers that have high-grade credit quality, ensuring high-quality recoverable assets and by effectively using collateral and partnering with producer owned reinsurance companies (“PORCs”). Our financial strength ratings of “A-” (Excellent) (Stable Outlook) from A.M. Best and “A-” (Stable Outlook) from KBRA reflect our adherence to our core values. Distribution and Marketing Our products are marketed and sold by agents and distribution partners. Our commercial and personal lines insurance products are marketed through a network of independent insurance agents, retailers, brokers and managing general agencies. Our partners that market and sell service contracts, collateral protection and credit insurance include financial services companies, big-box retailers, furniture stores, automobile dealerships, regional cellular service providers and mobile device service providers. Our service contract offerings are primarily marketed and sourced through insurance intermediaries including third-party administrators (“TPAs”), insurance brokers, MGAs and agents. Our vertically integrated platform also allows us to engage and enter into direct relationships with distributors. In each case, we pay our partners a commission-based fee (or a dealer net equivalent in the case of our service contract and protection product business). We generally target markets that are niche and specialty in nature, which we believe are underserved by competitors and have high barriers to entry. We focus on establishing quality client relationships and emphasizing customer service. This focus, along with our ability to help clients enhance revenue and reduce costs, has enabled us to develop and maintain numerous long-term client relationships. A significant portion of our marketing partnership commission agreements are on a variable or retrospective commission basis, which allows us to adjust commissions on the basis of claims experience. Under these types of arrangements, the compensation to our marketing partners is based upon the actual losses incurred compared to premiums earned. We believe these types of contractual arrangements align their economic interests with ours, help us to better manage our risk exposure and deliver more consistent profit margins with respect to these types of arrangements. Underwriting Our underwriting team consists of 90 underwriting professionals as of December 31, 2021. Our underwriters are industry veterans with deep knowledge of the specialty products that they underwrite, and they have longstanding relationships with our agents and distribution partners. We give limited underwriting authority to our MGAs. This means that we give our MGAs quote, bind and policy issuance authority within specifically agreed underwriting guidelines. Our underwriters work with our MGA partners to develop the underwriting guidelines for each program. Exceptions to the underwriting guidelines require approval from a senior underwriter. Our portfolio of risk predominantly consists of business that is low severity and high frequency. Our underwriting team prices the business to a target margin, taking into account anticipated claims and administrative services. We believe our pricing encompasses prudent risk evaluation based on historical data, while remaining commercially competitive and sustainable. We believe our approach to risk selection, pricing and underwriting has contributed to our superior combined ratio, which has averaged 91.6% over the past five years. Technology Fortegra is a data driven, technology enabled insurance platform that uses technology to support the business strategy through: (i) the ability to effectively serve small policies in a cost efficient manner; (ii) the ability to generate business leads that fit our risk profile using A.I.; (iii) enhancing underwriting results, improving the experience of our distribution partners; and (iv) the ability to grow our business and add new product lines with minimal incremental expense. Our integrated, proprietary technology efficiently manages the high volume of policies and claims that result from servicing large numbers of small policyholders and contract holders. Our technology is highly automated, scalable and allows us to operate at a 11 low cost. We believe this is a significant barrier to entry as many of our competitors have IT systems designed for larger policies, and do not have the ability to service a high volume of small policies in a cost efficient manner. Through our A.I. algorithm and machine learning assisted underwriting, we provide qualified leads for new business to our agents. We gather proprietary customer performance data, correlated characteristics and macro-economic research to generate an ideal customer profile across our targeted business mixes. We then work with a third-party marketing consultant to translate the ideal customer profiles into a proprietary target customer list that can be shared with our agents. This both enhances the agent’s efficiency and revenue base while allowing us to experience a superior spread of risk. Our flexible technology platform provides value-added services that we believe creates stronger relationships with our agents. In addition to the A.I. based lead generation service that we provide, our technology platform is connected to our agents and provides them with access to claims, research and reporting portals. We believe our technology makes it easier for agents to do business with us. These value-added services deepen our relationships and contribute to the high persistency rate with our agents. Our technology infrastructure is scalable and affords us the opportunity to add new agents, distribution partners and services without significant additional expense. Claims Management We organize our claims department by lines of business, with specialized teams aligned by the line of business in which they have expertise. Each claims adjuster is trained and experienced in evaluating the coverage applicable to the noticed matter and effectuating an appropriate resolution. When an insured reports a claim, it is immediately directed to the proper unit for handling. We maintain claims disposition authority for greater than 90% of claims adjudicated within the credit and service contract lines. We maintain claims disposition authority for greater than 70% of claims adjudicated within the property and casualty lines. When necessary, the claims team has access to a panel of expert attorneys, mediators, investigators and independent adjusters who will be retained in connection with litigation or loss inspection. Our claims adjusters work closely with our underwriting team by keeping them apprised of loss trends early in a program’s development. For certain lines of business that have high frequency and low severity, we utilize TPAs to process claims. This allows our claims professionals to focus on more complex claims, and enhances the efficiency of our claims department. Our MGAs do not have claims authority and the TPAs that we use do not have underwriting authority. Our claims are generally reported and settled quickly, resulting in consistent historical loss development patterns and limited tail risk. We have data systems that allow for the centralization of data and creation of reports, which creates a management reporting tool allowing for the identification of trends within a product, specific jurisdiction or across multiple jurisdictions. Investments We invest in asset classes that we believe will maintain liquidity and support capital preservation while producing attractive risk-adjusted returns. Most of these securities are invested in short-duration fixed income securities that are both highly liquid and highly rated. Our fixed maturity securities totaled $767 million and include cash and cash equivalents, available for sale securities, at fair value, exchange traded funds and investment grade securities classified in other investments, had a weighted-average effective duration of 2.6 years, an average S&P rating of AA+, and a book yield of 1.3% as of December 31, 2021. These securities, representing 84% of our total investments, are primarily managed by BlackRock with direction from internal asset management professionals. We internally manage credit risk assets, equities and alternative assets, which represented 16% of total investments as of December 31, 2021. We conduct monthly stress tests and use predictive analytics to manage our investments, which we believe reduces risk to our investment performance. We also maintain an investment committee that meets monthly to ensure our investment objectives remain aligned with our broader strategic and financial objectives. Risk Management and Reinsurance Consistent with standard industry practice for most insurance companies, we use reinsurance to manage our underwriting risk and efficiently utilize capital. In our commercial insurance lines, our reinsurers tend to be highly rated, well-capitalized professional third-party reinsurers. We typically contract with third-party reinsurers that have attained an “A-” or better financial strength rating from A.M. Best. Those reinsurers that fall below this threshold are required to post collateral on a funds held basis or with a letter of credit. A significant portion of our distribution partners of credit and service contract insurance products have captive reinsurance companies to assume the insurance risk on the products they deliver. These captive reinsurance companies are known as PORCs and in most instances each PORC assumes almost all of the underwriting risk associated with the insurance products 12 they deliver. When we use PORCs, consistent with applicable laws and insurance regulations, we act in a fronting and administrative capacity on behalf of each PORC, providing underwriting and claims management services. We receive an administration fee that compensates us for our expenses associated with underwriting and servicing the underlying policies. Because reinsurance does not relieve us of our primary liability to the policyholder, we generally require cash collateral to secure the reinsurance receivable in the event that a PORC is unable to pay the claims it has assumed. Market Opportunity Commercial Lines We underwrite and administer both admitted and E&S business. We believe underwriting business across multiple industries and geographies creates a conducive environment for targeting profitable programs, supporting agents with highly specialized skillsets and focusing on overlooked business lines. Our approach facilitates participation in niche markets when the rate environment presents actionable opportunities. We believe the breadth of our underwriting capacity, services and expertise afford our agents with a platform that meets the entirety of their needs. Our risk-sharing model aligns agents’ economics to their underwriting performance, incentivizing agents to grow while maintaining strict profit margin discipline. Through long-term relationships with our agents and substantial experience in the markets we serve, we believe we operate in an advantageous position against new market entrants, who we believe would find it time-consuming and expensive to compete against or replicate our success. Our commercial lines gross written premiums (including E&S lines) grew to $656.6 million in the year ended December 31, 2021, compared to $469.8 million in the year ended December 31, 2020, an increase of 39.7%. Personal Lines We are a leading provider of credit insurance and collateral protection products in the United States and believe we are well positioned to increase our market share both organically and potentially through acquisition. We believe our capabilities and reputation have allowed us to better position ourselves competitively for new business and renewals in the marketplace. We also believe our market position, capabilities and reputation will make us a preferred acquisition partner for smaller competitors that may choose to exit the market or desire a partner with more resources. Our personal lines gross written premiums grew to $781.8 million in the year ended December 31, 2021, compared to $593.9 million in the year ended December 31, 2020, an increase of 31.6%. U.S. Warranty Solutions We believe we can significantly increase our market presence in the service contract sector. We entered the service contract market as a natural extension of our insurance products given that it possesses similar attributes and distribution channels. Our service contract gross written premium equivalents grew to $652.1 million in the year ended December 31, 2021, compared to $550.0 million in the year ended December 31, 2020, an increase of 18.6%. We believe the demand from consumers for extended service contracts on products such as automobiles, furniture, mobile phones and electronics will continue to drive long-term growth opportunities. Europe Warranty Solutions In 2018, we expanded into Europe where we believe our existing protection solutions and service contract offerings can be successfully distributed while maintaining similar levels of historical underwriting performance. Our European gross written premiums and equivalents grew to $103.6 million in the year ended December 31, 2021, compared to $53.2 million in the year ended December 31, 2020, an increase of 94.6%. Competition We operate in several markets, and believe that no single company competes against us in all of our business lines. We may compete with other specialty carriers or program managers within a given program, but no specific insurers can be identified as clear competition across all of our business lines. Within the United States, we compete with specialty insurers like Markel Corporation, RLI Corporation and Clear Blue Insurance Group. We also compete with larger insurance companies that may selectively underwrite specialty or credit lines such as AIG and Allianz SE. Within our U.S. and European Warranty Solutions lines of business, we compete with Assurant, Securian Financial, Great American, Asurion, LLC, AmTrust Financial, SquareTrade Inc., Allianz SE, Helvetia Insurance and AXA SA. These lists are not exhaustive and are constantly evolving as we and our competitors expand coverages. 13 In general, the insurance markets we operate in are highly competitive. The competition we face is due to a confluence of factors, including product pricing, industry knowledge and expertise, quality of customer service, effectiveness of distribution channels, technology platforms and underwriting processes, the quality of information systems, financial strength ratings, size, breadth of products offered, overall reputation, and other factors. We primarily compete by leveraging our proprietary technological platform, decades of underwriting expertise, robust distribution relationships, data-driven marketing initiatives, our “agent-first” mentality, and best-in-class reputation. Regulation We are subject to federal, state, local and foreign regulation and supervision. Our insurance subsidiaries are generally restricted by the insurance laws of their respective domiciles as to the amount of dividends they may pay without the prior approval of the respective regulatory authorities. Generally, the maximum dividend that may be paid by an insurance subsidiary during any year without prior regulatory approval is limited to a stated percentage of that subsidiary’s statutory surplus as of a certain date, or net income of the subsidiary for the preceding year. Our U.S. insurance company subsidiaries are domiciled in several states, including Arizona, California, Delaware, Georgia, Kentucky and Louisiana. The regulation, supervision and administration by state departments of insurance relate, among other things, to: standards of solvency that must be met and maintained, restrictions on the payment of dividends, changes in control of insurance companies, the licensing of insurers and their agents and other producers, the types of insurance that may be written, privacy practices, the ability to enter and exit certain insurance markets, the nature of and limitations on investments and premium rates, or restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, payment of sales compensation to third parties, approval of policy forms and the regulation of market conduct, including underwriting and claims practices. As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed financial examinations of the books, records, accounts and operations of insurance companies that are domiciled in their states. Our insurance company subsidiaries are also subject to certain state regulations that define eligible investments and establish diversification requirements and concentration limits among asset classes. Failure to comply with these regulations would cause non-conforming investments to be treated as non-admitted assets in the states in which we are licensed to sell insurance policies for purposes of measuring statutory surplus and, in some instances, would require us to sell those investments. Such investment laws are generally permissive with respect to federal, state and municipal obligations, and more restrictive with respect to corporate obligations, particularly non-investment grade obligations, foreign investment, equity securities and real estate investments. Each insurance company is therefore limited by the investment laws of its state of domicile from making excessive investments in any given security (such as single issuer limitations) or in certain classes or riskier investments (such as aggregate limitation in non-investment grade bonds). The NAIC provides model insurance laws and regulations for adoption by the states and standardized insurance industry accounting and reporting guidance. However, model insurance laws and regulations only become effective when adopted and enacted by the states, and statutory accounting and reporting principles continue to be established by individual state laws, regulations and permitted practices. The NAIC has adopted a model act with risk-based capital (“RBC”) formulas to be applied to insurance companies to measure the minimum amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. State insurance regulators use RBC standards as a tool to monitor capital adequacy and to determine appropriate actions relating to insurers that show signs of weak or deteriorating conditions. The domiciliary states of our insurance company subsidiaries have adopted laws substantially similar to the NAIC’s RBC model act. Our insurance holding company is subject to the respective state insurance holding company statutes which may require prior regulatory approval or non-disapproval of material transactions between an insurance company and an affiliate or of an acquisition of control of a domestic insurer and payments of extraordinary dividends or distributions. Our insurance and service contract businesses are subject to U.S. federal and state regulations governing the protection of personal confidential information and data security, including the Gramm-Leach-Bliley Act, New York Department of Financial Services Cybersecurity Regulation and California Consumer Privacy Act. Our subsidiaries operating in the EU are subject to the General Data Protection Regulation, or the “GDPR,” which regulates data protection for all individuals within the EU. A portion of our foreign business is conducted via our insurance company in Malta. Malta is a member country of the EU, and we are active in fourteen countries in the EU, plus the United Kingdom. The EU’s executive body, the European Commission, implemented insurance directives and capital adequacy and risk management regulations. EU member countries follow the insurance directives approved by the European Commission. The insurance directives set forth a regulatory regime for the authorization and supervision of insurers, with a minimum set of rules and standards for protecting policyholders across the EU. 14 These directives give insurers authorized in any one EU country or territory the freedom to conduct insurance business in any other EU country or territory, referred to as passporting. Procedures are in place regarding the notifications and approvals by the home state regulator for passporting. Insurers exercising this freedom continue to be regulated by their home state regulator, although the host state is entitled to impose domestic rules with which passporting insurers are required to follow for their business in the host state, in the interest of the general good. Within this context, our Malta company is authorized and supervised by the Malta Financial Services Authority (“MFSA”) and passports across EU member states. In addition to the regulation of authorization and distribution, the European Commission established capital adequacy and risk management regulations, called Solvency II, that apply to businesses within the EU. Solvency II includes capital requirements, risk management and corporate governance frameworks, and financial reporting requirements, which are subject to MFSA regulatory oversight. Even though the United Kingdom exited the EU, United Kingdom insurance regulation generally follows the same insurance directives and Solvency II principles. After Brexit, United Kingdom regulators established the Temporary Permissions Regime, which permits passporting insurers to continue operating in the United Kingdom for up to three years post-Brexit. We are active in and subject to regulation in the United Kingdom. Our Malta company was passporting into the United Kingdom prior to Brexit and registered to operate under the Temporary Permissions Regime until permanent authority is granted by United Kingdom regulators. Aspects of the relationship between the United Kingdom and the EU remain to be negotiated and their relationship will continue to evolve, including with respect to the cross-border provision of products and services and related compliance requirements. Post-transition period changes to the EU and United Kingdom legal, trade and regulatory frameworks, as well as changes to United Kingdom regulatory requirements for insurers operating in that host country, could increase our compliance costs and subject us to operational challenges in the region. Additionally, a portion of our US and EU business is also ceded to our reinsurance company subsidiary domiciled in Turks and Caicos. Our Turks and Caicos company is subject to Solvency II type of regulation by the domestic regulator. We are also subject to federal and state laws and regulations related to the administration of insurance products on behalf of other insurers. In order for us to process and administer insurance products of other companies, we are required to maintain licenses of a third-party administrator in the states where those insurance companies operate. We are also subject to the related federal and state privacy laws and must comply with federal and state data protection and privacy laws. Seasonality Our financial results historically have been, and we expect to continue to be, affected by seasonal variations. Revenues may fluctuate seasonally based on consumer spending, which has historically been higher in September and December, corresponding to auto-sales events and the back-to-school and holiday seasons. Accordingly, our revenues have historically been higher in the third and fourth quarters than in the first half of the year. Intellectual Property We own or license a number of trademarks, patents, trade names, copyrights, service marks, trade secrets and other intellectual property rights that relate to our services and products within the various jurisdictions we operate. Although we believe that these intellectual property rights are, in the aggregate, important to our business, we also believe that our business is not materially dependent upon any particular trademark, trade name, copyright, service mark, license or other intellectual property right. Additionally, our insurance subsidiaries have entered into confidentiality agreements with their clients that impose restrictions on client use of our proprietary software and other intellectual property rights. Employees As of December 31, 2021, Fortegra had 778 employees across 15 offices in four countries. Tiptree Capital We own a diversified group of investments that are owned and managed separately as Tiptree Capital, and include our Mortgage segment operations. Consistent with our operating principles, we manage Tiptree Capital with a long-term focus, balancing current cash flow and long-term value appreciation. 15 We expect the investments within Tiptree Capital to change over time as we exit investments and reallocate capital to new investment opportunities. Though we do not have any specific sector focus, historically, the majority of our investments have occurred within four major sectors: asset management, real assets, specialty finance and credit investments. Tiptree Capital – Mortgage Operations Our mortgage operations are conducted through Reliance First Capital, LLC. Our mortgage business has been focused on primarily originating and servicing agency-eligible (Federal Housing Administration (“FHA”) and Veterans Administration (“VA”)) and conventional loans that can be transferred to Government National Mortgage Association (“Ginnie Mae”) pools or sold on a servicing-retained or servicing-released basis to Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) or secondary market investors and aggregators. Revenues are primarily generated from gain on sale income, loan fee income, servicing fee income, and net interest income. The growth in our mortgage business is expected primarily to come from increased origination volume, retention of additional mortgage servicing rights, and new products. Competition The residential mortgage market is highly competitive. There are a large number of institutions offering these products, including many that operate on a national scale, as well as local savings banks, commercial banks, and other lenders. Many of our competitors are larger and have access to greater financial resources. In addition, many of the largest competitors are banks or are affiliated with banking institutions, the advantages of which include, but are not limited to, having access to financing with more favorable terms, including lower interest rate bank deposits as a favorable source of funding. Regulation We are subject to extensive regulation by federal, state and local governmental authorities, including the CFPB, the Federal Trade Commission and various state agencies that license, audit and conduct examinations. Our mortgage operations must comply with a number of federal, state and local consumer protection and privacy laws including laws that apply to loan origination, fair lending, debt collection, use of credit reports, safeguarding of non-public personally identifiable information about customers, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to borrowers. Employees At December 31, 2021, our Mortgage operations had 442 employees. Tiptree Capital - Other Tiptree Capital - Other currently includes: • Our investment holdings in the maritime transportation sector, primarily in dry bulk vessels and product tankers that transport commodities, such as coal, grains and clean petroleum products. • Our share holdings of Invesque, a publicly traded real estate investment company that specializes in health care and senior living property investment throughout North America. • Our ownership of Corvid Peak, a credit oriented, special situations asset manager. • Our held for sale mortgage originator, Luxury Mortgage. Competitive Strengths The depth and breadth of experience of our management team enables us to source, structure, execute and manage the capital allocated to Tiptree Capital. In addition, in each of our investments, we benefit by partnering with experienced management teams and third-party managers, which we have hired or chosen based on their depth of experience in their respective sectors. Competition In the sectors in which Tiptree Capital participates, the markets are highly competitive. There are a large number of competitors offering similar products and services, including many that operate on an international scale, and which are often affiliated with 16 major multi-national companies. Many of these organizations have substantially more personnel and greater financial and commercial resources than we do. Some of these competitors have proprietary products and distribution capabilities that may make it more difficult for us to compete with them. Some competitors also have greater name recognition, have managed their businesses for longer periods of time, have greater experience over a wider range of products or have other competitive advantages. Regulation In the sectors in which Tiptree Capital participates, we are subject to extensive regulation by international, federal, state and local governmental authorities, including the SEC, the Federal Trade Commission, the EU, the UK and various state agencies. Our asset manager is registered with the SEC as an investment advisor and is subject to various federal and state laws and regulations and rules of various securities regulators and exchanges. These laws and regulations primarily are intended to protect clients and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. Our investments in maritime transportation are regulated under international conventions, classification societies, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, that mandate safety and environmental protection policies. Government regulation of vessels, particularly environmental regulations, have become more stringent and may require us to incur significant capital expenditures on our vessels. Our international operations and activities also expose us to risks associated with trade and economic sanctions, prohibitions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other penalties. In our international activities, we are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. We operate in countries known to present heightened risks for corruption, and our dry bulk shipping and related operations requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs officials and pilots. Employees At December 31, 2021, Tiptree Capital - Other’s combined operations had 231 employees. Human Capital The success of our businesses depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about their industry and business. We recruit talent in diverse communities. Tiptree’s seven member board of directors includes two women and one underrepresented minority. Tiptree’s seven person senior management team includes two women and one underrepresented minority. Our talent strategy is focused on employee engagement and investments in programs to support career development, as well as recognizing and rewarding performance. An important element of our talent strategy is succession planning and building leadership at various levels across the organization. We strive to: • Provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. • Align executives’ long-term equity compensation with stockholders’ interests by linking realizable pay with earnings and total stockholder return. • Ensure that annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through their talent management process as part of the annual review procedures and upon internal transfer and/or promotion. • Ensure that all employees are eligible for health insurance, paid and unpaid leaves, and life and disability/accident coverage as well as access to wellness programs. The Fortegra Foundation, a non-profit corporation chaired by Fortegra’s Chief Executive Officer, Mr. Richard S. Kahlbaugh, is a 501(c)(3) tax-exempt charity committed to giving back to our communities by lending a helping hand to those in need. We undertake multiple initiatives to support military families and local charities focused on the health and welfare of children and families. We also support clean water initiatives in Africa. Fortegra N.O.W. (Network of Women) is working to ensure equal access to leadership positions in the insurance industry regardless of gender or race. This is being accomplished through 17 unconscious bias training, mentoring programs, education reimbursement, and policies that support work/life balance and equal pay for equal jobs. This group is led by female executives at Fortegra. The programming and resources provided are available to all Fortegra employees. At Fortegra, we have developed an education program that assists employees in developing key skills that enable them to perform their jobs and to advance their careers. We also have a Leadership Development Program (“LDP”) that identifies new talent and prepares them for success within the organization. The program hires recent college graduates who will typically rotate through several departments over a two-year period, becoming fully immersed in the insurance company’s business. Our goal for successful LDP participants is to hire them on a full time basis upon completion of the program. We invest in our employees’ career growth and provide employees with a wide range of training and development opportunities, including face-to-face, virtual and self-directed learning, mentoring, external development opportunities and continuing education required by certain professional organizations. AVAILABLE INFORMATION We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available free of charge on our Internet site at www.tiptreeinc.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC. Our Investor Relations Department can be contacted at Tiptree Inc., 299 Park Avenue, 13th Floor, New York, NY, 10171, Attn: Investor Relations, telephone: (212) 446-1400, email: IR@tiptreeinc.com . 18 Item 1A. Risk Factors We are subject to certain risks and uncertainties in our business operations which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are not presently known or are currently deemed immaterial may also impair our business, results of operations and financial condition. Risks Related to our Businesses A portion of our assets are illiquid or have limited liquidity, which may limit our ability to sell those assets at favorable prices or at all and creates uncertainty in connection with valuing such assets. Our assets include equity securities, real estate, dry-bulk vessels and product tankers, non-controlling interests in credit assets and related equity interests which may be illiquid or have limited liquidity. It may be difficult for us to dispose of assets with limited liquidity rapidly, or at favorable prices, if at all. In addition, assets with limited liquidity may be more difficult to value and may be sold at a substantial discount or experience more volatility than more liquid assets. We may not be able to dispose of assets at the carrying value reflected in our financial statements. Our results of operations and cash flows may be materially and adversely affected if our determinations regarding the fair value of our illiquid assets are materially higher than the values ultimately realized upon their disposal. Our investment in Invesque shares is subject to market volatility. As of December 31, 2021, we owned 16.98 million shares, or approximately 30%, of Invesque, a real estate investment company that specializes in health care real estate and senior living property investment throughout North America. The value of our Invesque shares is reported at fair market value on a quarterly basis and fluctuates. A loss in the fair market value of our Invesque shares could have a material adverse effect on our financial condition and results of operations. To the extent we determine to sell all or a portion of our Invesque shares, there can be no assurance that we will be able to do so on a timely basis or at acceptable prices. We operate in highly competitive markets for business opportunities and personnel, which could impede our growth and negatively impact our results of operations. We operate in highly competitive markets for business opportunities in each of our areas of focus. Many of our competitors have financial, personnel and other resource advantages relative to us and may be better able to react to market conditions. These factors may place us at a competitive disadvantage in successfully competing for future business opportunities and personnel, which could impede our growth and negatively impact our business, financial condition and results of operations. Our insurance subsidiaries face competition from other specialty insurance companies, standard insurance companies and underwriting agencies, as well as from diversified financial services companies that are larger than we are and that have greater financial, marketing, personnel and other resources than we do. Many of these competitors have more experience and market recognition than our insurance subsidiaries. In addition, it may be difficult or prohibitively expensive for our insurance subsidiaries to implement technology systems and processes that are competitive with the systems and processes of these larger companies. In particular, competition in the insurance industry is based on many factors, including price of coverage, general reputation and perceived financial strength, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of an underwriting team in the particular lines of insurance they seek to underwrite. In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition. A number of new, proposed or potential legislative or industry developments could further increase competition in the insurance industry. These developments include: • an increase in capital raising by companies in the industry, which could result in new entrants to the insurance markets and an excess of capital in the industry; and • the deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers. 19 Our insurance subsidiaries may not be able to continue to compete successfully in one or more insurance markets. Increased competition in these markets could result in a change in the supply and demand for insurance, affect our insurance subsidiaries’ ability to price their products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition limits our insurance subsidiaries’ ability to transact business, their results of operations would be adversely affected. Failure to consummate the proposed WP Transaction could have a material adverse impact on our business, financial condition and results of operations, and if the proposed WP Transaction is consummated, Warburg Pincus may exert substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s shareholders’ interests. The consummation of the proposed WP Transaction is subject to the satisfaction or waiver of specified closing conditions, including filings with, and approvals from, insurance and other relevant regulatory agencies. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all. A failed transaction may result in negative publicity and a negative impression of us in the investment community or business community generally. We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed WP Transaction, for which we will have received little or no benefit if the proposed WP Transaction is not completed. If the WP Transaction is consummated, Warburg Pincus would acquire an approximate 24% ownership in Fortegra on an as converted basis from us and would have contractual consent rights over Fortegra, including but not limited to certain acquisitions or dispositions, a sale or change of control of Fortegra that does not achieve certain thresholds, an initial public offering that does not achieve certain gross proceeds thresholds, incurrence of certain indebtedness, the issuance of equity senior in right to shares of Fortegra common or preferred stock, or amendments to the terms thereof, affiliated or related party transactions and transactions between Fortegra and us, any hiring or firing of certain management of Fortegra, and any material change in the nature of the business conducted by Fortegra. Warburg Pincus would also have pro rata representation on the Fortegra board of directors. As a result of their substantial ownership in Fortegra if the WP transaction in consummated, Warburg Pincus may exert a substantial influence on Fortegra, potentially in a manner that is not in Tiptree’s shareholder’s interests. We are exposed to risks associated with acquiring or divesting businesses or business operations. We regularly evaluate strategic acquisition opportunities for growth. Acquired companies and operations may have unforeseen operating difficulties and may require greater than expected financial and other resources. In addition, potential issues associated with acquisitions, including Smart AutoCare, could among other things, include: • our ability to realize the full extent of the benefits, synergies or cost savings that we expect to realize as a result of the completion of an acquisition within the anticipated time frame, or at all; • receipt of necessary consents, clearances and approvals in connection with the acquisition; • diversion of management’s attention from other strategies and objectives; • motivating, recruiting and retaining executives and key employees; and • conforming and integrating financial reporting, standards, controls, procedures and policies, business cultures and compensation structures. If an acquisition is not successfully completed or integrated into our existing operations, our business, results of operations and financial condition could be materially adversely effected. We have also divested, and may in the future divest, businesses or business operations. Any divestitures may involve a number of risks, including the diversion of management’s attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of the affected business or business operations. Failure to timely complete or to consummate a divestiture may negatively affect the valuation of the affected business or business operations or result in restructuring charges. We may need to raise additional capital in the future or may need to refinance existing indebtedness, but there is no assurance that such capital will be available on a timely basis, on acceptable terms or at all. We may need to raise additional funds or refinance our indebtedness in order to grow our business or fund our strategy or acquisitions. Additional financing may not be available in sufficient amounts, if at all, or on terms acceptable to us and may be dilutive to existing stockholders. Additionally, any securities issued to raise such funds may have rights, preferences and privileges 20 senior to those of our existing stockholders. We also cannot predict the extent and duration of future economic and market disruptions, the impact of government interventions into the market to address these disruptions and their combined impact on our industries, businesses and our insurance subsidiaries’ investment portfolios. If adequate funds are not available on a timely basis, if at all, or on acceptable terms, our ability to expand, develop or enhance our subsidiaries’ services and products, enter new markets, consummate acquisitions or respond to competitive pressures could be materially limited. The amount of statutory capital and reserve requirements applicable to our insurance subsidiaries can increase due to factors outside of our control. Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease depending on a variety of factors, most of which are outside our control, such as the amount of statutory income or losses generated, changes in equity market levels, the value of fixed-income and equity securities in the subsidiary’s investment portfolio, changes in interest rates and foreign currency exchange rates, as well as changes to the RBC formulas used by insurance regulators. The laws of the various states in which our insurance subsidiaries operate establish insurance departments and other regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some or all of these activities or otherwise fine or penalize our insurance subsidiaries in any jurisdiction in which we operate. Such regulation or compliance could reduce our insurance subsidiaries’ profitability or limit their growth by increasing the costs of compliance, limiting or restricting the products or services they sell, or the methods by which they sell services and products, or subject them to the possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory reserves that our insurance subsidiaries are required to hold could have a material adverse effect on our business, results of operations, financial condition and cash flows. Our insurance subsidiaries’ actual claims losses may exceed their reserves for claims, which may require them to establish additional reserves that may materially and adversely affect their business, results of operations and financial condition. Our insurance subsidiaries maintain reserves to cover their estimated ultimate exposure for claims with respect to reported claims, and incurred, but not reported, claims as of the end of each accounting period. Reserves, whether calculated under GAAP or statutory accounting principles, do not represent an exact calculation of exposure. Instead, they represent our insurance subsidiaries’ best estimates, generally involving actuarial projections, of the ultimate settlement and administration costs for a claim or group of claims, based on our assessment of facts and circumstances known at the time of calculation. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by external factors such as changes in the economic cycle, unemployment, inflation, judicial trends, legislative changes, as well as changes in claims handling procedures. Many of these items are not directly quantifiable, particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of operations of the period in which such estimates are updated. Because the establishment of reserves is an inherently uncertain process involving estimates of future losses, we can give no assurances that ultimate losses will not exceed existing claims reserves. In general, future loss development could require reserves to be increased, which could have a material adverse effect on our insurance subsidiaries’ business, results of operations and financial condition. Performance of our insurance subsidiaries’ investment portfolio is subject to a variety of investment risks. Our insurance subsidiaries’ results of operations depend significantly on the performance of their investment portfolio. We manage our insurance subsidiaries’ portfolio of investments along with one or more additional advisers. Such investments are subject to general economic conditions and market risks in addition to risks inherent to particular securities and risks relating to the performance of our investment advisers. Our primary market risk exposures are to changes in interest rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.” In recent years, interest rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure on our insurance subsidiaries’ net investment income, which, in turn, would have a material adverse effect on our profitability. Future increases in interest rates could cause the values of our insurance subsidiaries’ fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our insurance subsidiaries’ portfolio and the amount by which interest rates increase. Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage backed and asset backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected. 21 The value of our insurance subsidiaries’ investment portfolio is also subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities our insurance subsidiaries’ hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities may also have a significant negative effect on the market valuation of such securities. Such factors could reduce our insurance subsidiaries’ net investment income and result in realized investment losses. Our insurance subsidiaries’ investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities our insurance subsidiaries’ hold in their portfolio does not reflect prices at which actual transactions would occur. The performance of our insurance subsidiaries’ investments also depends heavily on our skills and those of our insurance subsidiaries’ other investment advisers, in analyzing, selecting and managing the investments. Our insurance subsidiaries’ investment policy establishes investment parameters such as maximum percentages of investment in certain types of securities and minimum levels of credit quality and is designed to manage investment risk. Achievement of our insurance subsidiaries’ investment objectives will depend, in part, on our ability and other investment advisers’ ability to provide competent, attentive and efficient services to our insurance subsidiaries’ portfolio under the terms of the respective investment management agreement and to successfully manage their investment risk. There can be no assurance that, over time, we or our insurance subsidiaries’ other investment advisers will be able to provide services on that basis or that we or they will be able to invest such assets on attractive terms or generate any investment returns for stockholders or avoid investment losses. Our insurance subsidiaries’ investment objectives may not be achieved and results may vary substantially over time. In addition, although we and our insurance subsidiaries’ other investment advisers seek to employ investment strategies that are not correlated with our insurance subsidiaries’ insurance and reinsurance exposures, losses in their investment portfolio may occur at the same time as underwriting losses. Our insurance subsidiaries’ portfolio is highly dependent on the financial and managerial experience of certain investment professionals associated with our insurance subsidiaries’ investment advisers, none of whom are under any contractual obligation to our insurance subsidiaries to continue to be associated with such investment advisers. The loss of one or more of these individuals could have a material adverse effect on the performance of our insurance subsidiaries’ investment portfolio. A shift in our insurance subsidiaries’ investment strategy could increase the riskiness of our insurance subsidiaries’ investment portfolio and the volatility of our results, which, in turn, may have a material adverse effect on our profitability. Our insurance subsidiaries’ investment strategy has historically been largely focused on fixed income securities which are subject to less volatility but also lower returns as compared to certain other asset classes. In the future, our insurance subsidiaries’ investment strategy may include a greater focus on investments in equity securities, which are subject, among other things, to changes in value that may be attributable to market perception of a particular issuer or to general stock market fluctuations that affect all issuers. Investments in equity securities may be more volatile than investments in other asset classes such as fixed income securities. Common stocks generally subject their holders to more risks than preferred stocks and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of the issuer. An increase in the riskiness of our insurance subsidiaries’ investment portfolio could lead to volatility of our results, which, in turn, may have a material adverse effect on our profitability. Our insurance subsidiaries could be forced to sell investments to meet their liquidity requirements. Our insurance subsidiaries invest the premiums they receive from their insureds until they are needed to pay policyholder claims. Consequently, o ur insurance subsidiaries seek to manage the duration of their investment portfolio based on the duration of their losses and loss adjustment expenses reserves to ensure sufficient liquidity and avoid having to liquidate investments to fund claims. Risks such as inadequate losses and loss adjustment expenses reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. Our insurance subsidiaries may not be able to sell their investments at favorable prices or at all. Sales could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities. Cybersecurity attacks, technology breaches or failures of our or our third-party service providers’ information systems could disrupt our various business operations and could result in the loss of critical and personally identifiable information, which could result in the loss of reputation and customers, reduce profitability, subject our businesses to fines, penalties and litigation and have a material adverse effect on our business’s results of operation, financial condition and cash flows. 22 Tiptree’s businesses are highly dependent upon the effective operation of their information systems and those of their third-party service providers and their ability to collect, use, store, transmit, retrieve and otherwise process personally identifiable information and other data, manage significant databases and expand and upgrade their information systems. Our businesses rely on these systems for a variety of functions, including marketing and selling their products and services, performing their services, managing their operations, processing claims and applications, providing information to customers, performing actuarial analyses and maintaining financial records. Some of these systems may include or rely on third-party systems not located on their premises or under their control. The interruption or loss of their information processing capabilities, or those of their third-party service providers, through cybersecurity attacks, computer hacks, theft, malicious software, phishing, employee error, ransomware, denial-of-service attacks, viruses, worms, other malicious software programs, the loss of stored data, programming errors, the breakdown or malfunctioning of computer equipment or software systems, telecommunications failure or damage caused by weather or natural disasters, catastrophes, terrorist attacks, industrial accidents or any other significant disruptions or security breaches could harm our businesses by hampering their ability to generate revenues and could negatively affect their partner relationships, competitive position and reputation. In addition, our business’s information systems may be vulnerable to physical or electronic intrusions, computer viruses or other attacks which could disable their information systems and their security measures may not prevent such attacks. There are numerous and evolving risks to cybersecurity and privacy from cyber threat actors, including criminal hackers, state-sponsored intrusions, industrial espionage and employee malfeasance. Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (“IT”) systems and those of our business partners or third-party service providers to sophisticated and targeted measures known as advanced persistent threats. These cyber threat actors are becoming more sophisticated and coordinated in their attempts to access IT systems and data, including the IT systems of cloud providers and third parties with whom our businesses conduct or may conduct business. Although our businesses devote significant resources to prevent, detect, address and mitigate unwanted intrusions and other threats and protect their systems and data, whether such data is housed internally or by external third parties, such internal controls may not be adequate or successful in protecting against all security breaches and cybersecurity attacks, social-engineering attacks, computer break-ins, theft and other improper activity. Our businesses have experienced immaterial cybersecurity incidents and they and their third-party service providers will likely continue to experience cybersecurity incidents of varying degrees. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, our businesses and the third parties with whom they do business may be unable to anticipate these techniques or to implement adequate preventative measures. With the increasing frequency of cyber-related frauds to obtain inappropriate payments and other threats related to cybersecurity attacks, our businesses may find it necessary to expend resources to remediate cyber-related incidents or to enhance and strengthen their cybersecurity. Such remediation efforts may not be successful and could result in interruptions, delays or cessation of service. Our businesses have also implemented physical, administrative and logical security systems with the intent of maintaining the physical security of their facilities and systems and protecting their and their customers’ confidential and personally identifiable information against unauthorized access through their information systems or by other electronic transmission or through misdirection, theft or loss of data. Despite such efforts, they may be subject to a breach of their security systems that results in unauthorized access to their facilities or the information they are trying to protect. Anyone who is able to circumvent their security measures or those of their third-party service providers and penetrate their information systems could access, view, misappropriate, alter, destroy, misuse or delete any information in such systems, including personally identifiable information and proprietary business information (their own or that of third parties) or compromise of their control networks or other critical systems and infrastructure, resulting in disruptions to their business operations or access to their financial reporting systems. While our businesses have implemented business contingency plans and other reasonable plans to protect their systems, sustained or repeated system failures or service denials could severely limit their ability to write and process new and renewal business, provide customer service or otherwise operate in the ordinary course of business. In addition, most states require that customers be notified if a security breach results in the disclosure of personally identifiable customer information and the trend toward general public notification of such incidents could exacerbate the harm to our companies’ business, financial condition and results of operations. Any failure, interruption or compromise of the security of our business’s information systems or those of their third-party service providers that result in inappropriate disclosure of such information could result in, among other things, significant financial losses, unfavorable publicity and damage to their reputation, governmental inquiry and oversight, difficulty in marketing their services, loss of customers, significant civil and criminal liability related to legal or regulatory violations, litigation and the incurrence of significant technical, legal and other expenses, any of which may have a material adverse effect on their business, results of operations, financial condition and cash flows. In some cases, our businesses rely on the safeguards put in place by third parties to protect against security threats. These third parties, including vendors that provide products and services for their operations, could also be a source of security risk to them in the event of a failure or a security incident affecting such third parties’ own security systems and infrastructure. Our 23 business’s network of ecosystem partners could also be a source of vulnerability to the extent their applications interface with our businesses, whether unintentionally or through a malicious backdoor. Our businesses do not review the software code included in third-party integrations in all instances. Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents and retailers for distribution of its products and services, and the loss of these distribution sources, or their failure to sell our insurance business’s products and services could materially and adversely affect its business, results of operations and financial condition and cash flows. Our insurance business is dependent on independent financial institutions, lenders, distribution partners, agents and retailers to distribute its products and services and its revenue is dependent on the level of business conducted by such distributors as well as the effectiveness of their sales efforts, each of which is beyond our insurance business’s control because such distributors typically do not have any minimum performance or sales requirements. Further, although its contracts with these distributors are typically exclusive, they can be canceled on relatively short notice. Therefore, our insurance business’s growth is dependent, in part, on its ability to identify and attract new distribution relationships and successfully integrate its information systems with those of its new distributors. The impairment of our insurance business’s distribution relationships, the loss of a significant number of its distribution relationships, the failure to establish new distribution relationships, the failure to offer increasingly competitive products, the increase in sales of competitors’ services and products by these distributors or the decline in distributors’ overall business activity or the effectiveness of their sales of our insurance business’s products could materially reduce our insurance business’s sales and revenues and have a material adverse effect on its business, results of operations, financial condition and cash flows. Our insurance business may lose clients or business as a result of consolidation within the financial services industry or otherwise. There has been considerable consolidation in the financial services industry, driven primarily by the acquisition of small and mid-size organizations by larger entities. We expect this trend to continue. Our insurance business may lose business or suffer decreased revenues if one or more of its significant clients or distributors consolidate or align themselves with other companies. While our insurance business has not been materially affected by consolidation to date, it may be affected by industry consolidation that occurs in the future, particularly if any of its significant clients are acquired by organizations that already possess the operations, services and products that it provides. A downgrade in our insurance subsidiaries’ claims paying ability or financial strength ratings could increase policy surrenders and withdrawals, adversely affecting relationships with distributors and reducing new policy sales. Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best and KBRA, as an important means of assessing the financial strength and quality of insurers, including their ability to pay claims. In setting its ratings, A.M. Best and KBRA perform quantitative and qualitative analyses of a company’s balance sheet strength, operating performance and business profile. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation. KBRA’s ratings range from AAA (extremely strong) to R (under regulatory supervision). Currently, A.M. Best has assigned a financial strength of “A-” (Excellent) (Outlook Stable) and KBRA has assigned a financial strength rating of “A–” (Outlook Stable) to our insurance subsidiaries. A.M. Best and KBRA assign ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best and KBRA periodically review our insurance subsidiaries’ financial strength ratings and may, at their discretion, revise downward or revoke their ratings based primarily on their analyses of our insurance subsidiaries’ balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analyses include: • if our insurance subsidiaries change their business practices from their organizational business plan in a manner that no longer supports A.M. Best’s or KBRA’s ratings; • if unfavorable financial, regulatory or market trends affect our insurance subsidiaries , including excess market capacity; • if our insurance subsidiaries’ losses exceed their loss reserves; • if our insurance subsidiaries have unresolved issues with government regulators; • if our insurance subsidiaries are unable to retain their senior management or other key personnel; 24 • if our insurance subsidiaries’ investment portfolio incurs significant losses; or • if A.M. Best or KBRA alters its capital adequacy assessment methodology in a manner that would adversely affect our insurance subsidiaries’ ratings. These and other factors could result in a downgrade of our insurance subsidiaries’ financial strength ratings. A downgrade or withdrawal of our insurance subsidiaries’ ratings could result in any of the following consequences, among others: • causing our insurance subsidiaries’ current and future distribution partners and insureds to choose other, more highly-rated competitors; • increasing the cost or reducing the availability of reinsurance to our insurance subsidiaries ; or • severely limiting or preventing our insurance subsidiaries from writing new and renewal insurance contracts. In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. We can offer no assurance that our insurance subsidiaries’ ratings will remain at their current levels. It is possible that such reviews of our insurance subsidiaries may result in adverse ratings consequences, which could have a material adverse effect on our insurance subsidiaries’ business, results of operations , financial condition and cash flows . If market conditions cause reinsurance to be more costly or unavailable, our insurance subsidiaries may be required to bear increased risks or reduce the level of their underwriting commitments. Our insurance subsidiaries’ reinsurance facilities are generally subject to annual renewal. They may not be able to maintain their current reinsurance facilities and their customers may not be able to continue to operate their captive reinsurance companies. As a result, even where highly desirable or necessary, they may not be able to obtain other reinsurance facilities in adequate amounts and at favorable rates. If our insurance subsidiaries are unable to renew their expiring facilities or to obtain or structure new reinsurance facilities, either their net exposures would increase or, if they are unwilling to bear an increase in net exposures, they may have to reduce the level of their underwriting commitments. Either of these potential developments could have a material adverse effect on their business, results of operations, financial condition and cash flows. Our insurance subsidiaries’ failure to accurately pay claims in a timely manner could have a material adverse effect on their business, results of operations, financial condition and cash flows. Our insurance subsidiaries must accurately and timely evaluate and pay claims that are made under their policies. Many factors affect their ability to pay claims accurately and timely, including the training and experience of their claims representatives, including their distribution partners, the effectiveness of their management, and their ability to develop or select and implement appropriate procedures and systems to support their claims functions and other factors. Their failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine their reputation in the marketplace and have a material adverse effect on their business, financial condition, results of operations and cash flows. In addition, if our insurance subsidiaries do not manage their distribution partners effectively, or if their distribution partners are unable to effectively handle their volume of claims, their ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, our insurance subsidiaries’ business could suffer from decreased quality of claims work which, in turn, could have a material adverse effect on their operating margins. Our insurance subsidiaries may incur losses if reinsurers are unwilling or unable to meet their obligations under reinsurance contracts. Our insurance subsidiaries use reinsurance to reduce the severity and incidence of claims costs, and to provide relief with regard to certain reserves. Under these reinsurance arrangements, other insurers assume a portion of our losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, reinsurance arrangements do not eliminate our obligation to pay claims and we assume credit risk with respect to our ability to recover amounts due from reinsurers. The inability or unwillingness of any reinsurer to meet its financial obligations could negatively affect our business, results of operations, financial condition and cash flows. As credit risk is generally a function of the economy, our insurance subsidiaries face a greater credit risk in an economic downturn. While our insurance subsidiaries attempt to manage credit risks through underwriting guidelines, collateral requirements and other oversight mechanisms, their efforts may not be successful. For example, to reduce such credit risk, our insurance subsidiaries require certain third parties to post collateral for some or all of their 25 obligations to them. In cases where our insurance subsidiaries receive letters of credit from banks as collateral and one of their counterparties is unable to honor its obligations, our insurance subsidiaries are exposed to the credit risk of the banks that issued the letters of credit. New lines of business or new products and services may subject our insurance subsidiaries to additional risks. From time to time, our insurance subsidiaries may implement new lines of business or offer new products and services within existing lines of business. In addition, our insurance subsidiaries will continue to make investments in development and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts. In developing and marketing new lines of business and/or new products or services, our insurance subsidiaries may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. Furthermore, new lines of business and/or new product or service offerings may not gain market acceptance. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our insurance subsidiaries’ IT of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of their system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our insurance subsidiaries’ business, financial condition, results of operations and cash flows. If our insurance subsidiaries fail to manage future growth effectively, their business, results of operations, financial condition and cash flows would be harmed. Our insurance subsidiaries have expanded their operations significantly and anticipate that further expansion will be required in order for them to significantly grow their business. In particular, they may require additional capital, systems development and skilled personnel. Their growth has placed and may continue to place increasing and significant demands on their management, operational and financial systems and infrastructure and their other resources. If our insurance subsidiaries do not effectively manage their growth, the quality of their services could suffer, which could harm their business, results of operations, financial condition and cash flows. In order to manage future growth, they may need to hire, integrate and retain highly skilled and motivated employees. Our insurance subsidiaries may not be able to hire new employees quickly enough to meet their needs. If they fail to effectively manage their hiring needs and successfully integrate new hires, their efficiency and their employee morale, productivity and retention could suffer, and their business, results of operations, financial condition and cash flows could be harmed. They may also be required to continue to improve their existing systems for operational and financial management, including their reporting systems, procedures and controls. These improvements may require significant capital expenditures and place increasing demands on their management. They may not be successful in managing or expanding their operations or in maintaining adequate financial and operating systems and controls. If they do not successfully implement any required improvements in these areas, their business, results of operations, financial condition and cash flows could be harmed. The effects of emerging claim and coverage issues on our insurance subsidiaries’ business are uncertain. As industry practices and economic, legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may have a material adverse effect on our insurance subsidiaries’ business by either extending coverage beyond their underwriting intent or by increasing the number or size of claims. In some instances, these emerging issues may not become apparent for some time after they have issued the affected insurance policies. As a result, the full extent of liability under their insurance policies may not be known until many years after the policies are issued. In addition, the potential passage of new legislation designed to expand the right to sue, to remove limitations on recovery, to extend the statutes of limitations or otherwise to repeal or weaken tort reforms could have an adverse impact on their business. The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could harm their business and have a material adverse effect on their results of operations. Our insurance subsidiaries’ international operations expose them to investment, political and economic risks, including foreign currency and credit risk. Our insurance subsidiaries’ expanding international operations in the United Kingdom, continental Europe and the Asia-Pacific region, expose them to increased investment, political and economic risks, including foreign currency and credit risk. Changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on their business, results of operations, financial condition and cash flows. Their investments in non-U.S.-denominated assets are subject to fluctuations in non-U.S. securities and currency markets, and those markets can be volatile. Non-U.S. currency fluctuations also affect the value of any dividends paid by their non-U.S. subsidiaries to their parent companies in the United States. 26 Our businesses could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel. The success of our businesses depend on their ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about their industry and business. The pool of talent from which they actively recruit is limited and may fluctuate based on market dynamics specific to their industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for them to retain and recruit key personnel and maintain labor costs at desired levels. Should any of their key executives cease to be employed by them, or if they are unable to retain and attract talented personnel, they may be unable to maintain their current competitive position in the specialized markets in which they operate, which could have a material adverse effect on their results of operations. Our insurance subsidiaries’ continued growth depends in part on their ability to continue to grow their customer base. Increasing the customer base of our insurance subsidiaries will depend, to a significant extent, on their ability to effectively expand their sales and marketing activities, as well as their partner ecosystem and other customer referral sources. They may not be able to recruit qualified sales and marketing personnel, train them to perform and achieve an acceptable level of sales production from them on a timely basis or at all. If our insurance subsidiaries are unable to maintain effective sales and marketing activities and maintain and expand their partner network, their ability to attract new customers could be harmed and their business, results of operations, financial condition and cash flows would suffer. Our insurance subsidiaries may not be able to effectively start up or integrate new program opportunities, and they may invest in new program opportunities or initiatives that are ultimately unsuccessful. Our insurance subsidiaries’ ability to grow their business depends, in part, on their creation, implementation and acquisition of new insurance programs that are profitable and fit within their business model. New program launches as well as resources to integrate business acquisitions are subject to many obstacles, including ensuring they have sufficient business and systems processes, determining appropriate pricing, obtaining reinsurance, assessing opportunity costs and regulatory burdens and planning for internal infrastructure needs. If they cannot accurately assess and overcome these obstacles or they improperly implement new insurance programs, their ability to grow profitably will be impaired. Additionally, they may be unsuccessful in identifying new program opportunities, or they may be unable to develop or market new programs or initiatives in a timely or cost-effective manner. In addition, new programs or initiatives may not achieve the market penetration or price levels necessary for profitability. If they are unable to develop timely enhancements to, and new features for, their existing programs and services or if they are unable to develop new programs and services, their programs and services may become less marketable and less competitive, and their business, results of operations, financial condition and cash flows would be harmed. If our businesses are unable to maintain a high level of service, their business, results of operations, financial condition and cash flows may be harmed. One of the key attributes of our various businesses is providing high quality service to their partners and customers. They may be unable to sustain these levels of service, which would harm their reputation and our business. Alternatively, they may only be able to sustain high levels of service by significantly increasing their operating costs, which would materially and adversely affect their results of operations. The level of service they are able to provide depends on their personnel to a significant extent. Their personnel must be well-trained in their processes and able to handle customer calls effectively and efficiently. Any inability of their personnel to meet service level demands, whether due to absenteeism, training, turnover, disruptions at their facilities, including as a result of the COVID-19 pandemic, bad weather, power outages or other reasons, could adversely impact their business. If they are unable to maintain high levels of service performance, their reputation could suffer and their business, results of operations, financial condition and cash flows would be harmed. Our business’s results of operations have in the past varied from quarter to quarter and may not be indicative of our long-term prospects. Our business’s results of operations are subject to fluctuation and have historically varied from quarter to quarter. We expect their quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where they operate, the frequency, occurrence or severity of catastrophic or other insured events or otherwise, fluctuating interest rates, claims exceeding their loss reserves, competition in their industry, deviations from expected renewal rates of their existing policies and contracts, adverse investment performance and the cost of reinsurance coverage. 27 In particular, our insurance subsidiaries seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long-term. In addition, their opportunistic nature may result in fluctuations in gross written premiums from period to period as they concentrate on underwriting contracts that they believe will generate better long-term, rather than short-term, results. Accordingly, their short-term results of operations may not be indicative of their long-term prospects. The industries in which our businesses operate are cyclical in nature. The financial performance of the insurance industry has historically fluctuated with periods of lower premium rates and excess underwriting capacity resulting from increased competition (a “soft market”) followed by periods of higher premium rates and reduced underwriting capacity resulting from decreased competition (a “hard market”). Our commercial & personal lines program business is exposed to these hard and soft market cycles. We seek to isolate ourselves from these trends by focusing on smaller risks with lower severities and utilizing reinsurance. Because this market cyclicality is due in large part to the actions of our insurance subsidiaries’ competitors and general economic factors, the timing or duration of changes in the market cycle is unknown. We expect these cyclical patterns will cause our insurance subsidiaries’ revenues and net income to fluctuate, which may cause their results of operations, financial condition and cash flows to be more volatile. We believe that we are currently in the second year of a hardening market. Furthermore, adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity, could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our insurance subsidiaries’ growth and profitability. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenue, the demand for insurance products is generally adversely affected, which directly affects their premium levels and profitability. Negative economic factors may also affect their ability to receive the appropriate rate for the risk they insure with their policyholders and may adversely affect the number of policies they can write, and their opportunities to underwrite profitable business. In an economic downturn, our insurance subsidiaries’ customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew the policies. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce their underwriting profit to the extent these factors are not reflected in the rates they charge. The financial performance of the mortgage segment largely depends on the health of the U.S. residential real estate industry, which is seasonal, cyclical, and affected by changes in general economic conditions beyond our control. Economic factors such as increased interest rates, slow economic growth or recessionary conditions, the pace of home price appreciation or the lack of it, changes in household debt levels, and increased unemployment or stagnant or declining wages affect our clients’ income and thus their ability and willingness to make loan payments. National or global events including, but not limited to the COVID-19 pandemic, affect all such macroeconomic conditions. Weak or a significant deterioration in economic conditions reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified potential clients to take out loans. As a result, such economic factors affect loan origination volume. The dry bulk and product tanker shipping industry is cyclical with high volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels and product tankers has varied widely. Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and changes in the supply of and demand for the major commodities carried by dry bulk vessels internationally and for oil, oil products and chemicals carried by product tankers. Demand is a function of world economic conditions and the consequent requirement for commodities, oil and oil products, production and consumption patterns, as well as events, which interrupt production, trade routes, and consumption. The factors affecting the supply of and demand for vessels are outside of our control and are unpredictable. We may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels profitably. Significant declines in dry bulk or product tanker charter rates could adversely affect our revenues and profitability. If our insurance subsidiaries are not able to maintain and enhance their brand, their business and results of operations will be harmed. Damage to their reputation and negative publicity could have a material adverse effect on their business, results of operations, financial condition and cash flows. We believe that maintaining and enhancing our insurance subsidiaries’ brand identity is critical to their relationships with their existing customers and partners and to their ability to attract new customers and partners. They also intend to grow their brand awareness among consumers and potential program partners in order to further expand their reach and attract new customers and program partners. The promotion of their brand in these and other ways may require them to make substantial investments and it is 28 anticipated that, as their market becomes increasingly competitive, these branding initiatives may become increasingly difficult and expensive. Our insurance subsidiaries’ brand promotion activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses they incur and their results of operations could be harmed. If they do not successfully maintain and enhance their brand, their business may not grow and they could lose their relationships with customers or partners, which would harm their business, results of operations, financial condition and cash flows. Our insurance subsidiaries may be adversely affected by negative publicity relating to brand and activities. For instance, if their brand receives negative publicity, the number of customers visiting their platforms could decrease, and their cost of acquiring customers could increase as a result of a reduction in the number of consumers coming from their direct customer acquisition channel. Our business’s risk management policies and procedures may prove to be ineffective and leave them exposed to unidentified or unanticipated risk, which could adversely affect their business, results of operations, financial condition or cash flows. Our businesses have developed and continue to develop enterprise-wide risk management policies and procedures to mitigate risk and loss to which they are exposed. There are, however, inherent limitations to risk management strategies because there may exist, or develop in the future, risks that they have not appropriately anticipated or identified. If their risk management policies and procedures are ineffective, they may suffer unexpected losses and could be materially adversely affected. As their business changes and the markets in which they operate evolve, their risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new products or new business strategies may present risks that are not appropriately identified, monitored or managed. In times of market stress, unanticipated market movements or unanticipated claims experience, the effectiveness of their risk management strategies may be limited, resulting in losses to them. In addition, there can be no assurance that they can effectively review and monitor all risks or that all of their employees will follow their risk management policies and procedures. Moreover, state legislatures and regulators have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to insurers and within mortgage originators that may pose risk to borrowers. Our insurance and mortgage subsidiaries operate within an enterprise risk management (“ERM”) framework designed to assess and monitor their risks. However, there can be no assurance that they can effectively review and monitor all risks, or that all of their employees will operate within the ERM framework or that their ERM framework will result in their accurately identifying all risks and accurately limiting their exposures based on our business’s assessments. Our insurance subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful. Our insurance subsidiaries’ ability to make scheduled payments on or refinance their debt obligations depends on their financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond their control. They may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on their indebtedness. If their cash flows and capital resources are insufficient to fund their debt service obligations, they could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter their dividend policy, seek additional debt or equity capital or restructure or refinance their indebtedness. They may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow them to meet their scheduled debt service obligations. The instruments that will govern their indebtedness may restrict their ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict their ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. They may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due. Our insurance subsidiaries’ inability to generate sufficient cash flows to satisfy their debt obligations, or to refinance their indebtedness on commercially reasonable terms or at all, may materially adversely affect their business, results of operations, financial condition and cash flows. Restrictive covenants in the agreements governing our insurance subsidiaries’ indebtedness may restrict their ability to pursue their business strategies. 29 The agreements governing our insurance subsidiaries’ indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on them and may limit their ability to pursue their business strategies or undertake actions that may be in their best interests. The agreements governing their indebtedness include covenants restricting, among other things, their ability to: • incur or guarantee additional debt; • incur liens; • complete mergers, consolidations and dissolutions; • enter into transactions with affiliates; • pay dividends or other distributions; • sell certain of their assets that have been pledged as collateral; and • undergo a change in control. A breach of the covenants under the indenture that governs our insurance subsidiaries’ 8.50% Fixed Rate Resetting Junior Subordinated Notes due in October 2057 (the “Notes”) and Amended and Restated Credit Agreement dated as of August 4, 2020 among Fortegra Financial and Lots Intermediate Co., as Borrowers, Fifth Third Bank, National Association, as Administrative Agent and Issuing Lender, Citizens Bank, N.A., as Syndication Agent, and First Horizon Bank, Keybank National Association and Synovus Bank as Co-Documentation Agents could result in an event of default. Such default may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event our insurance subsidiaries’ lenders or noteholders accelerate the repayment of their indebtedness, they and their subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, they may be: • unable to raise additional debt or equity financing to operate during general economic or business downturns; or • unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect their ability to grow in accordance with their strategy. In addition, their financial results, substantial indebtedness and credit ratings could materially adversely affect the availability and terms of future financing. Retentions in various lines of business expose our insurance subsidiaries to potential losses. Our insurance subsidiaries retain risk for their own account on business underwritten by their insurance subsidiaries. The determination to reduce the amount of reinsurance they purchase, or not to purchase reinsurance for a particular risk, customer segment or category is based on a variety of factors, including market conditions, pricing, availability of reinsurance, their capital levels and their loss history. Such determinations increase their financial exposure to losses associated with such risks, customer segments or categories and, in the event of significant losses associated with such risks, customer segments or categories, could have a material adverse effect on their business, results of operations, financial condition and cash flows. The exit of the United Kingdom from the European Union could adversely affect our insurance subsidiaries’ business. The United Kingdom ceased to be a part of the European Union on December 31, 2020 (which is commonly referred to as “Brexit”). Aspects of the relationship between the United Kingdom and the European Union remain to be negotiated and their relationship will continue to evolve, including with respect to the cross-border provision of products and services and related compliance requirements. The effects of Brexit on our insurance subsidiaries’ business will depend on the manner in which it is implemented and any other relevant agreements between the United Kingdom and the European Union, among other factors. The Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom established the Temporary Permissions Regime, which creates a three year post-Brexit period where companies can continue to operate until their permanent establishment is authorized in the United Kingdom. Fortegra’s Malta based insurance subsidiary registered for the Temporary Permissions Regime and entered into it on December 31, 2020. Because our insurance subsidiaries conduct business in both the United Kingdom and the European Union and because they rely on their Malta insurance subsidiary’s ability to conduct business in the United Kingdom, they face risks associated with the potential uncertainty and disruptions relating to Brexit, including the risk of additional regulatory and other costs and challenges and/or limitations on their ability to sell particular products and services. As a result, the ongoing uncertainty surrounding Brexit could have a material adverse effect on their business (including their European growth plans), results of operations, financial condition and cash flows. Due to the structure of some of our insurance business’s commissions, it is exposed to risks related to the 30 creditworthiness of some of its independent agents and program partners. Our insurance business is subject to the credit risk of some of the independent agents and program partners with which it contracts to sell its products and services. Our insurance business typically advances commissions as part of its product offerings. These advances are a percentage of the premiums charged. If our insurance business over-advances such commissions, the agents and program partners may not be able to fulfill their payback obligations, which could have a material adverse effect on our insurance business’s results of operations and financial condition. Failure of our insurance subsidiaries’ distribution partners to properly market, underwrite or administer policies could adversely affect our insurance subsidiaries. The marketing, underwriting, claims administration and other administration of policies in connection with our insurance subsidiaries’ issuing carrier services are the responsibility of their distribution partners. Any failure by them to properly handle these functions could result in liability to our insurance subsidiaries. Even though their distribution partners may be required to compensate them for any such liability, there are risks that they do not pay them because such partners become insolvent or otherwise. Any such failures could create regulatory issues or harm our insurance subsidiaries’ reputation, which could have a material adverse effect on their business, results of operations, financial condition and cash flows. Third-party vendors our businesses rely upon to provide certain business and administrative services on their behalf may not perform as anticipated, which could have an adverse effect on their business, results of operations, financial condition and cash flows. Our businesses have taken action to reduce coordination costs and take advantage of economies of scale by transitioning multiple functions and services to third-party providers. They periodically negotiate provisions and renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third parties. If such third-party providers experience disruptions or do not perform as anticipated, or our businesses experience problems with a transition to a third-party provider, they may experience operational difficulties, an inability to meet obligations (including policyholder obligations), a loss of business and increased costs, or suffer other negative consequences, all of which may have a material adverse effect on their business, results of operations, liquidity and cash flows. Our insurance subsidiaries may act based on inaccurate or incomplete information regarding the accounts they underwrite. Our insurance subsidiaries rely on information provided by insureds or their representatives when underwriting insurance policies. While they may make inquiries to validate or supplement the information provided, they may make underwriting decisions based on incorrect or incomplete information. It is possible that they will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that they insure because of their reliance on inadequate or inaccurate information. Any failure to protect or enforce our insurance subsidiaries’ intellectual property rights could impair their intellectual property, technology platform and brand. In addition, they may be sued by third parties for alleged infringement of their proprietary rights. Our insurance subsidiaries’ success and ability to compete depend in part on their intellectual property, which includes their rights in their technology platform and their brand. Our insurance subsidiaries primarily rely on a combination of copyright, trade secret and trademark laws and confidentiality agreements, procedures and contractual provisions with their employees, customers, service providers, partners and other third parties to protect their proprietary or confidential information and intellectual property rights. However, the steps they take to protect their intellectual property may be inadequate and despite their efforts to protect their proprietary rights and intellectual property, unauthorized parties may attempt to copy aspects of their solutions or to obtain and use information that they regard as proprietary, and third parties may attempt to independently develop similar technology. Policing unauthorized use of their technology and intellectual property rights may be difficult and may not be effective. Litigation brought to protect and enforce their intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of their intellectual property. Additionally, their efforts to enforce their intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of their intellectual property rights. Our insurance subsidiaries’ failure to secure, protect, defend and enforce their intellectual property rights could adversely affect their brand and adversely affect their business. Our insurance subsidiaries’ success also depends in part on them not infringing, misappropriating or otherwise violating the intellectual property rights of others. Their competitors and other third parties may own or claim to own intellectual property 31 relating to our insurance subsidiaries’ industry and, in the future, may claim that our insurance subsidiaries are infringing, misappropriating or otherwise violating their intellectual property rights, and our insurance subsidiaries may be found to be infringing on such rights. The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. The disposition of any such claims, whether through settlement or licensing discussions or litigation, could cause our insurance subsidiaries to incur significant expenses and, if successfully asserted against them, could require that they pay substantial damages or ongoing royalty payments, prevent them from offering certain of their products and services, require them to change their technology or business practices or require that they comply with other unfavorable terms. Even if our insurance subsidiaries were to prevail in such a dispute, any litigation could be costly and time-consuming, divert the attention of their management and key personnel from their business operations and materially adversely affect their business, financial condition and results of operations. Our businesses employ third-party licensed software for use in their business, and the inability to maintain these licenses, errors in the software they license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely affect their business. Our businesses rely on certain third-party software obtained under licenses from other companies and anticipate that they will continue to rely on such third-party software in the future. Although they believe that there are commercially reasonable alternatives to the third-party software they currently license, this may not always be the case, or it may be difficult or costly to replace their existing third-party software. In addition, integration of new third-party software may require significant work and require substantial investment of their time and resources. Our business’s use of additional or alternative third-party software would require them to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all. Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could negatively impact their respective business. Additionally, some of the software powering our business’s technology systems incorporates software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on their ability to operate their systems. In the event that portions of their proprietary software are determined to be subject to an open source license, they could be required to publicly release the affected portions of their source code or re-engineer all or a portion of their technology systems, each of which could reduce or eliminate the value of their technology systems. Such risk could be difficult or impossible to eliminate and could adversely affect our business’s results of operations, financial condition and cash flows. A significant decrease of the market values of our vessels could cause us to incur an impairment loss. We review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the vessels may not be recoverable. Such indicators include declines in the fair market value of vessels, decreases in market charter rates, vessel sale and purchase considerations, fleet utilization, vessels’ useful lives, scrap values, regulatory changes in the dry bulk and product tanker shipping industry or changes in business plans or overall market conditions that may adversely affect cash flows. We may be required to record an impairment charge with respect to our vessels and any such impairment charge may have a material adverse effect on our business, financial condition and results of operations. Our vessels may suffer damage and we may face unexpected drydocking costs. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while a vessel is being repaired and repositioned, as well as the actual cost of these repairs not covered by our insurance, would decrease our earnings and available cash. While we carry insurance on our vessels, that insurance may not be sufficient to cover all or any of the costs or losses for damages to our vessels and we may have to pay drydocking costs not covered by our insurance. The operation of dry bulk vessels and product tankers has certain unique operational risks. With a dry bulk vessel, the cargo itself and its interaction with the vessel may create operational risks. By their nature, dry bulk cargoes are often heavy, dense and easily shifted, and they may react badly to water exposure. In addition, dry bulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach while at sea. Breaches of a dry bulk vessel’s hull may lead to the flooding of the vessel’s holds. If a dry bulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we do not adequately maintain our vessels, we may be unable to prevent these events. 32 In addition, the operation of product tankers has unique operational risks associated with the transportation of oil and chemical products. An oil or chemical spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil or chemicals transported in tankers. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. Acts of piracy on ocean-going vessels occur and may increase in frequency. Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Sulu Sea and the Gulf of Guinea, with dry bulk vessels and tankers particularly vulnerable to such attacks. Acts of piracy could result in harm or danger to the crews that man our vessels. If these piracy attacks occur in regions in which our vessels are deployed that insurers characterized as “war risk” zones or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including the employment of onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold payment until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled to cancel the charter. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and earnings. Some of our investments are made jointly with other persons or entities, which may limit our flexibility with respect to such jointly owned investments and could, thereby, have a material adverse effect on our business, results of operations and financial condition and our ability to sell these investments. Some of our current investments are, and future investments may be, made jointly with other persons or entities when circumstances warrant the use of such structures and we may continue to do so in the future. Our participation in such joint investments is subject to the risks that: • we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes; • our partners could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments; • our partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations as partners, which may require us to infuse our own capital into such venture(s) on behalf of the partner(s) despite other competing uses for such capital; • our partners may have competing interests in our markets that could create conflict of interest issues; • any sale or other disposition of our interest in such a venture may require consents which we may not be able to obtain; • such transactions may also trigger other contractual rights held by a partner, lender or other third-party depending on how the transaction is structured; and • there may be disagreements as to whether consents and/or approvals are required in connection with the consummation of a particular transaction with a partner, lender and/or other third-party, or whether such transaction triggers other contractual rights held by a partner, lender and/or other third-party, and in either case, those disagreements may result in litigation. 33 Our mortgage business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our mortgage business . Changes in interest rates and the level of interest rates are key drivers that impact the volatility of our mortgage loan originations. Due to the unprecedented events surrounding the COVID-19 pandemic along with the associated severe market dislocation, there is an increased degree of uncertainty and unpredictability concerning current interest rates, future interest rates and potential negative interest rates. The historically low interest rate environment over the last several years has created strong demand for mortgages. Increases in interest rates could result in us having lower revenue or profitability. The overwhelming majority of our mortgage loan originations have historically been refinancing existing homeowner’s mortgage loans. With rates at or near historically low levels, we have been able to continue to grow our mortgage loan originations by focusing on refinances. With rising interest rates, we may not be able to continue to do so in the future. With regard to the portion of our mortgage business that is centered on refinancing existing mortgages, we generally note that the refinance market experiences more significant fluctuations than the purchase market as a result of interest rate changes. Long-term residential mortgage interest rates have been at or near record lows for an extended period, but they may increase in the future. As interest rates rise, refinancing generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages. With regard to our purchase mortgage loan business, higher interest rates may also reduce demand for purchase mortgages as home ownership becomes more expensive. This could adversely affect our mortgage business’s revenues or require our mortgage business to increase marketing expenditures in an attempt to increase or maintain its volume of mortgages. Decreases in interest rates can also adversely affect our mortgage business’s financial condition, the value of its mortgage servicing rights (“MSRs”) portfolio, and its results of operations. With sustained low interest rates, as we have been experiencing, refinancing transactions decline over time, as many clients and potential clients have already taken advantage of the low interest rates. Changes in interest rates are also a key driver of the performance of our servicing business, particularly because our mortgage business’s portfolio is composed primarily of MSRs related to high-quality loans, the values of which are highly sensitive to changes in interest rates. Historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates. As a result, decreases in interest rates could have a detrimental effect on our mortgage business. Borrowings under some of our mortgage business’s finance and warehouse facilities are at variable rates of interest, which also expose us to interest rate risk. If interest rates increase, our mortgage business’s debt service obligations on certain of its variable-rate indebtedness will increase even though the amount borrowed remains the same, and net income and cash flows, including cash available for servicing indebtedness, will correspondingly decrease. Our mortgage business currently has entered into, and in the future may continue to enter into, interest rate swaps that involve the exchange of floating for fixed-rate interest payments to reduce interest rate volatility. However, our mortgage business may not maintain interest rate swaps with respect to all of its variable-rate indebtedness, and any such swaps may not fully mitigate its interest rate risk, may prove disadvantageous, or may create additional risks. In addition, our mortgage business is materially affected by the monetary policies of the U.S. government and its agencies. Our mortgage business is particularly affected by the policies of the U.S. Federal Reserve, which influence interest rates and impact the size of the loan origination market. In 2017, the U.S. Federal Reserve ended its quantitative easing program and started its balance sheet reduction plan. The U.S. Federal Reserve's balance sheet consists of U.S. Treasuries and mortgage backed securities (“MBS”) issued by Fannie Mae, Freddie Mac and Ginnie Mae. To shrink its balance sheet prior to the COVID-19 pandemic, the U.S. Federal Reserve had slowed the pace of MBS purchases to a point at which natural runoff exceeded new purchases, resulting in a net reduction. In response to the COVID-19 pandemic, state and federal authorities took several actions to provide relief to those negatively affected by COVID-19, such as the CARES Act and the Federal Reserve's support of the financial markets. In particular, U.S. Federal Reserve announced programs to increase its purchase of certain MBS products in response to the COVID-19 pandemic's effect on the U.S. economy, and the market for MBS in particular. The lasting results of this policy change by the U.S. Federal Reserve are unknown at this time, as is its duration, but could affect the liquidity of MBS in the future. Our mortgage business’s MSRs are highly volatile assets with continually changing values, and these changes in value, or inaccuracies in estimates of their value, could adversely affect our mortgage business’s financial condition and results of operations. The value of our mortgage business’s MSRs is based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuates due to a number of factors. These factors include changes in interest rates; historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates and refinancings. Other market 34 conditions also affect the number of loans that are refinanced and thus no longer result in cash flows, and the number of loans that become delinquent. Our mortgage business uses two external valuation firms to fair value its MSR assets. These valuation firms utilize market participant data and actual MSR market trades to value our MSRs for purposes of financial reporting, These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs, and because of the complexity involved with anticipating such variables over the life of the MSR. Even if the general accuracy of their valuation models is validated, valuations are highly dependent upon the reasonableness of their assumptions and the results of the models. If loan delinquencies or prepayment speeds are higher than anticipated or other factors perform worse than modeled, the recorded value of certain of their MSRs may decrease, which could adversely affect their business and financial condition. Our mortgage business is highly dependent upon programs administered by GSEs, such as Fannie Mae and Freddie Mac, as well as Ginnie Mae, to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our mortgage business, financial condition and results of operations. There is uncertainty regarding the future of Fannie Mae and Freddie Mac, including with respect to how long they will continue to be in existence, the extent of their roles in the market and what forms they will have. The future roles of Fannie Mae and Freddie Mac could be reduced or eliminated and the nature of their guarantees could be limited or eliminated relative to historical measurements. The elimination or modification of the traditional roles of Fannie Mae or Freddie Mac could adversely affect our mortgage business, financial condition and results of operations. Furthermore, any discontinuation of, or significant reduction in, the operation of these GSEs and Ginnie Mae, or any significant adverse change in the level of activity of these agencies in the primary or secondary mortgage markets or in the underwriting criteria of these agencies could materially and adversely affect our business, financial condition and results of operations. We may be unable to obtain sufficient capital to meet the financing requirements of our mortgage business. We fund substantially all of the loans which we originate through borrowings under warehouse financing and repurchase facilities. Our borrowings are in turn repaid with the proceeds we receive from selling such loans through whole loan sales. As we expand our operations, we will require increased financing. There can be no assurance that such financing will be available on terms reasonably satisfactory to us or at all. An event of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit-similar to the market conditions experienced in recent years-may increase our cost of funds and make it difficult for us to obtain new, or retain existing, warehouse financing facilities. If we fail to maintain, renew or obtain adequate funding under these warehouse financing facilities or other financing arrangements, or there is a substantial reduction in the size of or increase in the cost of such facilities, we would have to curtail our mortgage loan production activities, which could have a material adverse effect on our business, financial condition and operating results in our mortgage business. If the value of the collateral underlying certain of our mortgage business’s loan funding facilities decreases, they could be required to satisfy a margin call, and an unanticipated margin call could have a material adverse effect on their liquidity. Certain of our mortgage business’s loan funding, early buy-out facilities, and MSR-backed facilities are subject to margin calls based on the lender's opinion of the value of the loan collateral securing such financing and certain of their hedges related to newly originated mortgages are also subject to margin calls. A margin call would require our mortgage business to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on their liquidity. In our mortgage business, we may sustain losses and/or be required to indemnify or repurchase loans we originated, or will originate, if, among other things, our loans fail to meet certain criteria or characteristics. The contracts with purchasers of our whole loans contain provisions that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain provisions that require us to repurchase loans if: • our representations and warranties concerning loan quality and loan circumstances are inaccurate, including representations concerning the licensing of a mortgage broker; • we fail to secure adequate mortgage insurance within a certain period after closing; • a mortgage insurance provider denies coverage; or • we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic regulatory environment. 35 We maintain reserves that we believe are appropriate to cover potential loan repurchase or indemnification losses, but there can be no assurance that such reserves will, in fact, be sufficient to cover future repurchase and indemnification claims. If we are required to indemnify or repurchase loans that we originate and sell that result in losses that exceed our reserve, this could adversely affect our business, financial condition and results of operations. Furthermore, in the ordinary course of our mortgage business, we are subject to claims made against us by borrowers and private investors arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of our employees, officers and agents (including our appraisers), incomplete documentation and our failure to comply with various laws and regulations applicable to our business. In addition, should the mortgage loans we originate sustain higher levels of delinquencies and/or defaults, we may lose the ability to originate and/or sell FHA loans, or to do so profitably and investors to whom we currently sell our mortgage loans may refuse to continue to do business with us, or may reduce the prices they are willing to purchase our mortgage loans and it may be difficult or impossible to sell any of our mortgage loans in the future. Any of the foregoing risks could adversely affect our business, financial condition and results of operations in our mortgage business. We may be limited in the future in utilizing net operating losses incurred during prior periods to offset taxable income. We previously incurred net operating losses. In the event that we experience an “ownership change” within the meaning of Section 382 of the Code, our ability to use those net operating losses to offset taxable income could be subject to an annual limitation. The annual limitation would be equal to a percentage of our equity value at the time the ownership change occurred. In general, such an “ownership change” would occur if the percentage of our stock owned by one or more 5% stockholders (including certain groups or persons acting in concert) were to increase by 50 percentage points during any three-year period. All stockholders that own less than 5% of our stock are treated as a single 5% stockholder. In addition, the Treasury Regulations under Section 382 of the Code contain additional rules the effect of which is to make it more likely that an ownership change could be deemed to occur. Accordingly, our ability to use prior net operating losses to offset future taxable income would be subject to a limitation if we experience an ownership change. We may leverage certain of our assets and a decline in the fair value of such assets may adversely affect our financial condition and results of operations. We leverage certain of our assets, including through borrowings, generally through warehouse credit facilities, secured loans, securitizations and other borrowings. A rapid decline in the fair value of our leveraged assets may adversely affect us. Lenders may require us to post additional collateral to support the borrowing. If we cannot post the additional collateral, we may have to rapidly liquidate assets, which we may be unable to do on favorable terms or at all. Even after liquidating assets, we may still be unable to post the required collateral, further harming our liquidity and subjecting us to liability to lenders for the declines in the fair values of the collateral. A reduction in credit availability may adversely affect our business, financial condition and results of operations. Certain of our and our subsidiaries’ assets are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk, and any one of these risks may materially and adversely affect the value of our assets, our results of operations and our financial condition. Some of our assets, including our direct investments, are subject to credit risk, market risk, interest rate risk, credit spread risk, call and redemption risk and refinancing risk. Credit risk is the risk that the obligor will be unable to pay scheduled principal and/or interest payments. Defaults by third parties in the payment or performance of their obligations could reduce our income and realized gains or result in the recognition of losses. The fair value of our assets may be materially and adversely affected by increases in interest rates, downgrades in our direct investments and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may cause us to reduce the fair value of our assets. Interest rate risk is the risk that general interest rates will rise or that the risk spread used in our financings will increase. Although interest rates have been at historically low levels for the last several years, a period of sharply rising interest rates could have an adverse impact on our business by negatively impacting demand for mortgages and increasing our cost of borrowing to finance operations. In addition, in July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates 36 LIBOR, announced its intent to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. On March 5, 2021, the ICE Benchmark Administration and the United Kingdom Financial Conduct Authority confirmed that most USD LIBOR tenors will continue to be published through the second quarter of 2023. We have exposure to LIBOR–based contracts within certain of our finance receivables and loans primarily related to commercial automotive loans, corporate finance loans, and mortgage loans, as well as certain investment securities, derivative contracts, and trust preferred securities, among other arrangements. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has recommended the Secured Overnight Finance Rate (SOFR), as an alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. treasury repo market. There can be no assurance that rates linked to SOFR, or associated changes related to the adoption of SOFR, will be as favorable to us as LIBOR and may result in an effective increase in the applicable interest rate on our current or future debt obligations. As a result, the discontinuation of LIBOR or LIBOR–based rates will present risks to our business. Market risk is the risk that one or more markets to which the assets relate will decline in value, including the possibility that such markets will deteriorate sharply and unpredictably, which will likely impair the market value of the related instruments. Credit spread risk is the risk that the market value of fixed income investments will change in response to changes in perceived or actual credit risk beyond changes that would be attributable to changes, if any, in interest rates. Call and redemption risk is the risk that fixed income investments will be called or redeemed prior to maturity at a time when yields on other debt instruments in which the call or redemption proceeds could be invested are lower than the yield on the called or redeemed investments. Refinancing risk is the risk that we will be unable to refinance some or all of our indebtedness or that any refinancing will not be on terms as favorable as those of our existing indebtedness, which could increase our funding costs, limit our ability to borrow, or result in a sale of the leveraged asset on disadvantageous terms. Any one of the risks described above may materially and adversely affect the value of our assets, our results of operations and our financial condition. Our risk mitigation or hedging strategies could result in our experiencing significant losses that may materially adversely affect us. We may pursue risk mitigation and hedging strategies to seek to reduce our exposure to losses from adverse credit events, interest rate changes, market risk and other risks. These strategies may include short Treasury positions, interest rate swaps, foreign exchange derivatives, credit derivatives, freight forward agreements, fuel oil swaps and other derivative hedging instruments. Since we account for derivatives at fair market value, changes in fair market value are reflected in net income other than derivative hedging instruments which are reflected in accumulated other comprehensive income in stockholders’ equity. Some of these strategies could result in our experiencing significant losses that may materially adversely affect our business, financial condition and results of operations. The values we record for certain investments and liabilities are based on estimates of fair value made by our management, which may cause our operating results to fluctuate and may not be indicative of the value we can realize on a sale. Some of our investments and liabilities are not actively traded and the fair value of such investments and liabilities are not readily determinable. Each of these carrying values is based on an estimate of fair value by our management. Management reports the estimated fair value of these investments and liabilities quarterly, which may cause our quarterly operating results to fluctuate. Therefore, our past quarterly results may not be indicative of our performance in future quarters. In addition, because such valuations are inherently uncertain, in some cases based on internal models and unobservable inputs, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments and liabilities existed. As such, we may be unable to realize the carrying value upon a sale of these investments or liabilities. The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements. Accounting rules for consolidations, income taxes, business acquisitions, transfers of financial assets and other aspects of our operations are highly complex and require the application of judgment and assumptions by our management. In addition, changes in accounting rules, interpretations or assumptions could materially impact the presentation, disclosure and usability of our 37 financial statements. For more information see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates”. Changes in accounting practices and future pronouncements may materially affect our reported financial results. Developments in accounting practices may require us to incur considerable additional expenses to comply with new rules, particularly if we are required to prepare information relating to prior periods for comparative purposes or to otherwise apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, stockholders’ equity and other relevant financial statement line items. Our insurance subsidiaries are required are required to comply with Statutory Accounting Principles (“SAP”). SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. Whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us is unknown. Catastrophic events could significantly impact the Company’s businesses. Unforeseen or catastrophic events, such as severe weather, natural disasters, pandemic, cybersecurity attacks, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s ability to conduct business. Although the Company and its subsidiaries have established disaster recovery plans, there is no guarantee that such plans will allow the Company and its subsidiaries to operate without disruption if such an event was to occur and the occurrence of any such event could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations. The global spread of the coronavirus (COVID-19) created significant market volatility and uncertainty and economic disruption. In addition, the impact of COVID-19 and measures to prevent its spread caused, and may continue to cause, substantial disruption to distribution channels, auto dealer partners and contract counterparties, and may limit our access to capital and customers through self-isolation, travel limitations, business restrictions, margin calls, and otherwise. These effects, individually or in the aggregate, could materially adversely impact our businesses, financial condition, operating results, liquidity and cash flows and such adverse impacts may be material to our results of operations and liquidity position. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted at this time. Acts of war may disrupt international trade, create market volatility in debt, equity and commodities markets and result in import bans, export control regulations, increased costs, and sanctions by governmental authorities. These effects, individually or in the aggregate, could materially adversely impact our businesses, operations, financial condition, operating results, liquidity and cash flows and such adverse impacts may be material to our results of operations and liquidity position. Whether or to what extent damage that may be caused by natural events, such as wildfires, severe tropical storms and hurricanes, will affect our insurance subsidiaries’ ability to write new insurance policies and reinsurance contracts is unknown, but, to the extent our insurance subsidiaries’ policies are concentrated in the specific geographic areas in which these events occur, any increase in frequency and severity of such events and the total amount of our loss exposure in the impacted areas of such events may adversely affect their business, financial condition and results of operations. In addition, although our insurance subsidiaries have historically had limited exposure to catastrophic risk, claims from catastrophe events could reduce their earnings and cause substantial volatility in their business, financial condition and results of operations for any period. Assessing the risk of loss and damage associated with natural and catastrophic events remains a challenge and might adversely affect their business, results of operations, financial condition and cash flows. U.S. insurers are required by state and federal law to offer coverage for acts of terrorism in certain commercial lines. The Terrorism Risk Insurance Act, as extended by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) requires commercial property and casualty (“P&C”) insurance companies to offer coverage for acts of terrorism, whether foreign or domestic, and established a federal assistance program through the end of 2020 to help cover claims related to future terrorism-related losses. The likelihood and impact of any terrorist act is unpredictable, and the ultimate impact on our insurance subsidiaries would depend upon the nature, extent, location and timing of such an act. Although our insurance subsidiaries reinsure a portion of the terrorism risk they retain under TRIPRA, such terrorism reinsurance does not provide full coverage for an act stemming from 38 nuclear, biological or chemical terrorism. To the extent an act of terrorism, whether a domestic or foreign act, is certified by the Secretary of Treasury, our insurance subsidiaries may be covered under TRIPRA of their losses for certain P&C lines of insurance. However, any such coverage would be subject to a mandatory deductible based on 20% of earned premium for the prior year for the covered 2020 of commercial P&C insurance. Risks Related to our Structure Because we are a holding company, our ability to meet our obligations and pay dividends to stockholders will depend on distributions from our subsidiaries that may be subject to restrictions and income from assets. We are a holding company and do not have any significant operations of our own, other than our principal investments. Our ability to meet our obligations will depend on distributions from our subsidiaries and income from assets. The amount of dividends and other distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur. Such restrictions would also affect our ability to pay dividends to stockholders, if and when we choose to do so. Our insurance business’s Junior Subordinated Notes due 2057 and $200 million revolving credit facility restrict dividends to us based on the leverage ratio of our insurance business and its subsidiaries. Additionally, our regulated insurance company subsidiaries are required to satisfy minimum capital and surplus requirements according to the laws and regulations of the states in which they operate, which regulate the amount of dividends and distributions we receive from them. In general, dividends in excess of prescribed limits are deemed “extraordinary” and require insurance regulatory approval. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. Some states have an additional stipulation that dividends may only be paid out of earned surplus. States also regulate transactions between our insurance company subsidiaries and us or our other subsidiaries, such as those relating to compensation for shared services, and in some instances, require prior approval of such transactions within the holding company structure. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance company subsidiaries to us or our other subsidiaries (such as payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block or otherwise restrict such payments that would otherwise be permitted without prior approval. In addition, there could be future regulatory actions restricting the ability of our insurance company subsidiaries to pay dividends or share services. The primary factor in determining the amount of capital available for potential dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies for our insurance company subsidiaries. Given recent economic events that have affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance company subsidiaries which, in turn, could negatively affect our capital resources. Some provisions of our charter may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests. Our charter restricts any person that owns 9.8% or more of our capital stock, other than stockholders approved by applicable state insurance regulators, from voting in excess of 9.8% of our voting securities. This provision is intended to satisfy the requirements of applicable state regulators in connection with insurance laws and regulations that prohibit any person from acquiring control of a regulated insurance company without the prior approval of the insurance regulators. In addition, our charter provides for the classification of our board of directors into three classes, one of which is to be elected each year. Our charter also generally only permits stockholders to act without a meeting by unanimous consent. These provisions may delay, deter or prevent takeovers and business combinations that stockholders consider in their best interests. Maryland takeover statutes may prevent a change of our control, which could depress our stock price. Maryland law provides that “control shares” of a corporation acquired in a “control share acquisition” will have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. “Control shares” means voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: one-tenth or more but less than one-third; one-third or more but less than a majority; or a majority or more of all voting power. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions. Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an 39 affiliate of an interested stockholder are prohibited for five years after the most recent date on which such stockholder became an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Our bylaws contain a provision exempting from the control share statute any and all acquisitions by any person of our shares of stock. Our board of directors has also adopted a resolution which provides that any business combination between us and any other person is exempted from the provisions of the business combination statute, provided that the business combination is first approved by the board of directors. However, our board of directors may amend or eliminate this provision in our bylaws regarding the control share statute or amend or repeal this resolution regarding the business combination statute. If our board takes such action in the future, the control share and business combination statutes may prevent or discourage others from trying to acquire control of us and increase the difficulty of consummating any offer, including potential acquisitions that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. Our holding company structure with multiple lines of business, may adversely impact the market price of our common stock and our ability to raise equity and debt capital. Tiptree holds and manages multiple lines of business. Analysts, investors and lenders may have difficulty analyzing and valuing a company with multiple lines of business, which could adversely impact the market price of our common stock and our ability to raise equity and debt capital at a holding company level. Moreover, our management is required to make decisions regarding the allocation of capital among the different lines of business, and such decisions could materially and adversely affect our business or one or more of our lines of business. Risks Related to Regulatory and Legal Matters Maintenance of our 1940 Act exemption imposes limits on our operations. We conduct our operations so that we are not required to register as an investment company under the 1940 Act. Therefore, we must limit the types and nature of businesses in which we engage and assets that we acquire. We monitor our compliance with the 1940 Act on an ongoing basis and may be compelled to take or refrain from taking actions, to acquire additional income or loss generating assets or to forgo opportunities that might otherwise be beneficial or advisable, including, but not limited to selling assets that are considered to be investment securities or forgoing the sale of assets that are not investment securities, in order to ensure that we (or a subsidiary) may continue to rely on the applicable exceptions or exemptions. These limitations on our freedom of action could have a material adverse effect on our financial condition and results of operations. If we fail to maintain an exemption, exception or other exclusion from registration as an investment company, we could, among other things, be required to substantially change the manner in which we conduct our operations either to avoid being required to register as an investment company or to register as an investment company. If we were required to register as an investment company under the 1940 Act, we would become subject to substantial regulation with respect to, among other things, our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and our financial condition and results of operations may be adversely affected. If we did not register despite being required to do so, criminal and civil actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business. A change in law, regulation or regulatory enforcement applicable to insurance products could adversely affect our financial condition and results of operations. A change in state or U.S. federal tax laws could materially affect our insurance businesses. For example, tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017, fundamentally overhauled the U.S. tax system by, among other significant changes, reducing the U.S. corporate income tax rate to 21%. In the context of the taxation of U.S. P&C insurance companies such as our insurance companies, the TCJA also modified the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions to reflect the lower corporate income tax rate, which could have an adverse impact on our insurance subsidiaries. It is possible that other legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on our insurance subsidiaries. Additional regulations or pronouncements interpreting or clarifying provisions of the TCJA have been and will continue to be issued, and such regulations or pronouncements may be different from our insurance subsidiaries’ interpretation and thus adversely affect their results. If, when or in what form such regulations or pronouncements may be provided or finalized, whether such guidance will have a retroactive effect or such regulations’ or pronouncements’ potential impact on our insurance subsidiaries is unknown. 40 Currently, our insurance business does not collect sales or other related taxes on its services. Whether sales of our insurance business’s services are subject to state sales and use taxes is uncertain, due in part to the nature of its services and the relationships through which its services are offered, as well as changing state laws and interpretations of those laws. One or more states may seek to impose sales or use tax or other tax collection obligations on our insurance business, whether based on sales by our insurance business or its resellers or clients, including for past sales. A successful assertion that our insurance business should be collecting sales or other related taxes on its services could result in substantial tax liabilities for past sales, discourage customers from purchasing its services, discourage clients from offering or billing for its services, or otherwise cause material harm to its business, financial condition and results of operations. With regard to our insurance business’s payment protection products and financing of VSCs, there are federal and state laws and regulations that govern the disclosures related to the sales of those products. Our insurance business’s ability to offer and administer these products on behalf of their distribution partners is dependent upon their continued ability to sell such products. To the extent that federal or state laws or regulations change to restrict or prohibit the sale of these products, our insurance business’s revenues would be adversely affected. For example, the CFPB’s enforcement actions have resulted in large refunds and civil penalties against financial institutions in connection with their marketing of payment protection and other products. Due to such regulatory actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which may adversely affect our insurance business’s revenues. The full impact of the CFPB’s oversight is unpredictable and continues to evolve. With respect to the P&C insurance policies our insurance business underwrites, federal legislative proposals regarding national catastrophe insurance, if adopted, could reduce the business need for some of the related products that our insurance business provides. Increasing regulatory focus on privacy issues and expanding laws could affect our various subsidiaries’ business model and expose them to increased liability. Some of our subsidiaries collect, use, store, transmit, retrieve, retain and otherwise process confidential and personally identifiable information in their information systems in and across multiple jurisdictions, and they are subject to a variety of confidentiality obligations and privacy, data protection and information security laws, regulations, orders and industry standards in the jurisdictions in which they do business. The regulatory environment surrounding information security, data privacy and cybersecurity is evolving and increasingly demanding. A number of our subsidiaries are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personally identifiable and confidential information of their customers and employees. On October 24, 2017, the NAIC adopted an Insurance Data Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The NAIC model law has been adopted by certain states and is under consideration by others. It is not yet known whether or not, and to what extent, states legislatures or insurance regulators where our insurance subsidiaries operate will enact the Insurance Data Security Model Law in whole or in part, or in a modified form. Such enactments, especially if inconsistent between states or with existing laws and regulations, could raise compliance costs or increase the risk of noncompliance, and noncompliance could subject our insurance subsidiaries to regulatory enforcement actions and penalties, as well as reputational harm. Any such events could potentially have an adverse impact on our insurance subsidiaries’ business, results of operations, financial condition and cash flows. Our insurance and mortgage subsidiaries are subject to the privacy regulations of the Gramm-Leach-Bliley Act of 1999 (the “Gramm-Leach-Bliley Act”), along with its implementing regulations, which restricts certain collection, processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices, provides individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information and imposes requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In addition, on March 1, 2017, new cybersecurity rules took effect for financial institutions, insurers and certain other companies, like our insurance and mortgage subsidiaries, supervised by the NY Department of Financial Services (the “NY DFS Cybersecurity Regulation”). The NY DFS Cybersecurity Regulation imposes significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. Our insurance and mortgage subsidiaries also have contractual obligations to protect confidential and personally identifiable information we obtain from third parties. These obligations generally require them, in accordance with applicable laws, to protect such information to the same extent that they protect their own such information. Many states in which our insurance and mortgage subsidiaries operate have laws that protect the privacy and security of sensitive and personal information. Certain current or proposed state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, certain of our insurance and mortgage businesses are subject to the California Consumer Privacy Act of 2018 (“CCPA”), which among other things, requires companies covered by the legislation to provide new disclosures to California consumers and afford such consumers new rights of access and 41 deletion of personal information. Additionally, when it becomes effective on January 1, 2023, our insurance subsidiaries will be subject to the California Privacy Rights Act (“CPRA”), which will significantly expand consumers’ rights under the CCPA. Internationally, many jurisdictions have established their own data security and privacy legal framework with which our insurance subsidiaries operating in such jurisdictions, or their customers, may need to comply, including, but not limited to, the European Union, or EU. The EU has adopted the General Data Protection Regulation, or the GDPR, which contains numerous requirements, robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Because the interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our insurance subsidiaries’ existing data management practices or the features of their services and platform capabilities. Any failure or perceived failure by our insurance subsidiaries, or any third parties with which they do business, to comply with their posted privacy policies, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which they or such third parties are or may become subject, may result in actions or other claims against our insurance subsidiaries by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant fines, penalties or other liabilities. In addition, any such action, particularly to the extent our insurance subsidiaries were found to be guilty of violations or otherwise liable for damages, would damage their reputation and adversely affect their business, financial condition and results of operations. Compliance with existing and new regulations affecting our business in regulated industries may increase costs and limit our ability to pursue business opportunities. We are subject to extensive laws and regulations administered and enforced by a number of different federal and state governmental authorities in the industries in which we operate. Regulation of such industries may increase. In the past, there has been significant legislation affecting financial services and insurance, including the Dodd-Frank Act. In addition, we are subject to regulations governing the protection of personal confidential information and data security including the Gramm-Leach-Bliley Act, the GDPR, the NY DFS Cybersecurity Regulation and the CCPA. Accordingly, the impact that any new laws and regulations will have on us is unknown. The costs to comply with these laws and regulations may be substantial and could have a significant negative impact on us and limit our ability to pursue business opportunities. We can give no assurances that with changes to laws and regulations, our businesses can continue to be conducted in each jurisdiction in the manner as we have in the past. Our insurance subsidiaries are subject to regulation by state and, in some cases, foreign insurance authorities with respect to statutory capital, reserve and other requirements, including statutory capital and reserve requirements established by applicable insurance regulators based on RBC and Solvency II formulas. In any particular year, these requirements may increase or decrease depending on a variety of factors, most of which are outside our insurance subsidiaries’ control, such as the amount of statutory income or losses generated, changes in equity market levels, the value of fixed-income and equity securities in our investment portfolio, changes in interest rates and foreign currency exchange rates, as well as changes to the RBC formulas used by insurance regulators. The laws of the various states in which our insurance businesses operate establish insurance departments and other regulatory agencies with broad powers to preclude or temporarily suspend our insurance subsidiaries from carrying on some or all of their activities or otherwise fine or penalize them in any jurisdiction in which they operate. Such regulation or compliance could reduce our insurance business’s profitability or limit their growth by increasing the costs of compliance, limiting or restricting the products or services they sell, or the methods by which they sell their services and products, or subjecting their business to the possibility of regulatory actions or proceedings. Additionally, increases in the amount of additional statutory reserves that our insurance subsidiaries are required to hold could have a material adverse effect on their business, results of operations, financial condition and cash flows. While the CFPB does not have direct jurisdiction over insurance products, it is possible that regulatory actions taken by the CFPB may affect the sales practices related to these products and thereby potentially affect our insurance business or the clients that it serves. In 2017, the CFPB issued rules under its unfair, deceptive and abusive acts and practices rulemaking authority relating to consumer installment loans, among other things. Such CFPB rules regarding consumer installment loans could adversely impact our insurance business’s volume of insurance products and services and cost structure. Due to such regulatory actions, some lenders may reduce their sales and marketing of payment protection and other ancillary products, which may adversely affect our insurance business’s revenues. Due to the highly regulated nature of the residential mortgage industry, our mortgage subsidiaries are required to comply with a wide array of federal, state and local laws and regulations that regulate licensing, allowable fees and loan terms, permissible servicing and debt collection practices, limitations on forced-placed insurance, special consumer protections in connection with default and foreclosure, and protection of confidential, nonpublic consumer information. These laws and regulations are constantly changing and the volume of new or modified laws and regulations has increased in recent years as states and local cities and counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination, 42 acquisition and servicing activities in those cities and counties. These laws and regulations are complex and vary greatly among different states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. A failure by us or our servicers to comply with applicable laws or regulations could subject our mortgage business and/or our mortgage servicers to lawsuits or governmental actions, which could result in the loss or suspension of our licenses in the applicable jurisdictions where such violations occur and/or monetary fines or changes in our mortgage operations. If we were to determine to change servicers, there is no assurance that we could find servicers that satisfy our requirements or with whom we could enter into agreements on satisfactory terms. Any of these outcomes could materially and adversely affect our mortgage business. Our dry bulk shipping and product tanker business and the operation of our vessels are regulated under international conventions, classification societies, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, that mandate safety and environmental protection policies. Government regulation of vessels, particularly environmental regulations, have become more stringent and may require us to incur significant capital expenditures on our vessels. For example, various jurisdictions have regulated management of ballast waters to prevent the introduction of non-indigenous species that are considered invasive which requires us to make changes to the ballast water management plans we currently have in place and to install new equipment on board our vessels. Various jurisdictions have also regulated or are considering the further regulation of greenhouse gases from vessels and emissions of sulfur and nitrogen oxides, which may increase the cost of new vessels and require retrofitting equipment on existing vessels. Effective January 1, 2020, the International Maritime Organization (“IMO”) imposed the IMO 2020 Regulations which require all ships to burn fuel with a maximum sulfur content of 0.5%, which is a significant reduction from the previous threshold of 3.5%. Commencing January 1, 2020, ships are required to remove sulfur from emissions through the use of scrubbers or other emission control equipment, or purchase marine fuel with 0.5% sulfur content, which has led to increased demand for this type of fuel compared to the price we would have paid had the IMO 2020 Regulations not been adopted. Substantially all of the vessels chartered by us do not have scrubbers, which means we are required to purchase low sulfur fuel for our vessels. Our vessels began operating on 0.5% low sulfur fuel in compliance with the IMO 2020 Regulations. As a result of the IMO 2020 Regulations and any future regulations with which we must comply, we may incur substantial additional operating costs. These requirements can also affect the resale prices or useful lives of our vessels or require reductions in cargo capacity, ship modifications or operational changes or restrictions. Failure to comply with these requirements could lead to decreased availability of, or more costly insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and claims for natural resource, personal injury and property damages in the event that there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under, environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels. In addition, we are subject to the risk that we, our affiliated entities, or our or their respective officers, directors, shore employees, crew on board and agents may take actions determined to be in violation of such environmental regulations and laws and our environmental policies. Any such actual or alleged environmental laws regulations and policies violation, under negligence, willful misconduct or fault, could result in substantial fines, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Events of this nature could have a material adverse effect on our business, financial condition and results of operations. The CFPB continues to be active in its monitoring of the loan origination and servicing sectors, and its recently issued rules increase our regulatory compliance burden and associated costs. Our mortgage business is subject to the regulatory, supervisory and examination authority of the CFPB, which has oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including the Truth in Lending Act (“TILA”), the Real Estate Settlement Procedures Act and the Fair Debt Collections Practices Act. The CFPB has issued a number of regulations under the Dodd-Frank Act relating to loan origination and servicing activities, including ability to repay and "Qualified Mortgage" standards and other origination standards and practices. The CFPB’s examinations have increased, and will likely continue to increase, our mortgage business’s administrative and compliance costs. They could also greatly influence the availability and cost of residential mortgage credit and increase servicing costs and risks. These increased costs of compliance, the effect of these rules on the lending industry and loan servicing, and any failure in our mortgage business’s ability to comply with the new rules by their effective dates, could be detrimental to 43 their business. The CFPB also issued guidelines on sending examiners to banks and other institutions that service and/or originate mortgages to assess whether consumers' interests are protected. The CFPB also has broad enforcement powers, and can order, among other things, rescission or reformation of contracts, the refund of moneys or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment of damages or other monetary relief, public notifications regarding violations, limits on activities or functions, remediation of practices, external compliance monitoring and civil money penalties. The CFPB has been active in investigations and enforcement actions and, when necessary, has issued civil money penalties to parties the CFPB determines has violated the laws and regulations it enforces. Our mortgage business’s failure to comply with the federal consumer protection laws, rules and regulations to which they are subject, whether actual or alleged, could expose them to enforcement actions or potential litigation liabilities. Our insurance subsidiaries could be adversely affected if their controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective. Our insurance business is highly dependent on the ability of our insurance subsidiaries to engage on a daily basis in a large number of insurance underwriting, claim processing and investment activities, many of which are highly complex. These activities often are subject to internal guidelines and policies, as well as legal and regulatory standards, including those related to privacy, anti-corruption, anti-bribery and global finance and insurance (“F&I”) matters. The continued expansion into new products and geographic markets has brought about additional requirements. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. If our insurance subsidiaries’ controls are not effective, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage to their reputation. Our businesses are subject to risks related to litigation and regulatory actions. Over the last several years, businesses in many areas of the financial services industry have been subject to increasing amounts of regulatory scrutiny. In addition, there has been an increase in litigation involving firms in the financial services industry and public companies generally, some of which have involved new types of legal claims, particularly in the insurance industry. We may be materially and adversely affected by judgments, settlements, fines, penalties, unanticipated costs or other effects of legal and administrative proceedings now pending or that may be instituted in the future, including from investigations by regulatory bodies or administrative agencies. An adverse outcome of any investigation by, or other inquiries from, any such bodies or agencies also could result in non-monetary penalties or sanctions, loss of licenses or approvals, changes in personnel, increased review and scrutiny of us by our clients, counterparties, regulatory authorities, potential litigants, the media and others, any of which could have a material adverse effect on us. We are involved in various litigation matters from time to time. For example, we are a defendant in Mullins v. Southern Financial Life Insurance Co. , a class action lawsuit alleging violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud. This and other such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Our insurance and indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could have a material adverse effect our business, results of operations, financial condition or cash flows. Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the EU and other jurisdictions. Our international operations and activities expose us to risks associated with trade and economic sanctions, prohibitions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other penalties. We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in other applicable jurisdictions. We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct business, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. We operate in countries known to present heightened risks for corruption and our dry bulk shipping and product tankers and related 44 operations requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs officials and pilots. Non-compliance with anti-corruption, anti-bribery or anti-money laundering laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and other mandatory pooling arrangements may reduce our insurance subsidiaries’ profitability. Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. Accordingly, the assessments levied on our insurance subsidiaries may increase as they increase their written premiums. These funds are supported by either assessments or premium surcharges based on incurred losses. In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although our insurance subsidiaries price their insurance to account for their potential obligations under these pooling arrangements, they may not be able to accurately estimate their liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in their profits. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool. The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our insurance subsidiaries’ profitability in any given period or limit the ability to grow their business. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our principal executive office is located at 299 Park Avenue, 13th Floor, New York, New York 10171. We and our subsidiaries lease properties throughout the United States and Europe, all of which are used as administrative offices. We believe that the terms of the leases at each of our subsidiaries are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms. Item 3. Legal Proceedings Our legal proceedings are discussed under the heading “Litigation” in Note (21) — Commitments and Contingencies in the Notes to the consolidated financial statements in this report. Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Tiptree’s common stock is traded on the Nasdaq Capital Market under the ticker symbol “TIPT”. Holders 45 As of December 31, 2021, there were 59 common stockholders of record. This number does not include beneficial owners whose shares are held by nominees in street name. Item 6. Reserved. 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in this section as follows: • Overview • Results of Operations • Non-GAAP Measures and Reconciliations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates OVERVIEW Tiptree allocates capital to select small and middle market companies with the mission of building long-term value. Established in 2007, we have a significant track record investing in the insurance sector and across a variety of other industries, including mortgage origination, specialty finance and shipping. Our largest operating subsidiary, Fortegra, is a leading provider of specialty insurance products and related services. We also generate earnings from a diverse group of select investments that we refer to as Tiptree Capital, which includes our Mortgage segment and other, non-insurance businesses and assets. We evaluate performance primarily by the comparison of shareholders’ long-term total return on capital, as measured by growth in stock price plus dividends paid, in addition to Adjusted Net Income and Adjusted EBITDA. Our 2021 highlights include: Overall: • Net income of $38.1 million increased from a net loss of $29.2 million in 2020, driven by growth in insurance and shipping operations, in addition to realized and unrealized gains on investments as compared to losses in 2020. • Adjusted net income of $63.9 million increased 24.2% from $51.4 million in 2020, driven by improvement in insurance and shipping operations. Adjusted return on average equity was 16.5%, as compared to 13.1% in 2020. • On October 12, 2021, Tiptree announced a $200 million strategic investment in its insurance subsidiary, Fortegra, by Warburg Pincus, a leading global growth investor. The investment will give Warburg Pincus an approximate 24% ownership in Fortegra on an as converted basis and is expected to close in the second quarter 2022, subject to regulatory approvals. Insurance: • Gross written premiums and premium equivalents were $2,194.0 million for the year ended December 31, 2021, as compared to $1,666.9 million for the year ended December 31, 2020, up 31.6% as a result of growth in admitted and E&S insurance lines as well as growth in fee-based service contract offerings. • Total revenues increased 42.4% to $984.1 million, from $691.1 million in 2020, driven by increases in earned premiums, net, service and administrative fees, and net investment income. • The combined ratio improved to 90.6%, as compared to 91.5% in 2020, driven by the continued scalability of Fortegra’s technology and shared service platform, which improved the expense ratio, while the underwriting ratio remained stable. • Income before taxes of $69.9 million increased by $42.9 million as compared to $26.9 million in 2020. Return on average equity was 17.1% in 2021 as compared to 8.1% in 2020. The increase in both metrics was driven by revenue growth and an improved combined ratio, in addition to improved returns on investments as compared to the prior year. • Adjusted net income increased 53.8% to $66.8 million, as compared to $43.4 million in 2020. Adjusted return on average equity was 22.2%, as compared to 15.2% in 2020. The increase in both metrics was driven by revenue growth and an improved combined ratio. Tiptree Capital: • Mortgage income before taxes was $28.4 million in 2021, as compared to $31.1 million in 2020, with the decrease driven by a decline in gain on sale margins, partially offset by higher servicing fees and positive fair value adjustments on the mortgage servicing portfolio. Return on average equity was 38.9% in 2021. • Maritime transportation income before taxes was $11.6 million in 2021, as compared to $1.5 million in 2020, with the increase driven by a rise in dry-bulk charter rates. Key Trends: 47 Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth, business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the other factors set forth in Part I, Item 1A in this Form 10-K. Generally, our businesses are positively affected by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and global growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition. Fortegra generally offers products which have low severity but high frequency loss experiences and are short duration. As a result, the business has historically generated significant fee-based revenues. In general, the types of products Fortegra offers tend to have limited aggregation risk and, thus, limited exposure to catastrophic and residual risk. Underwriting risk is mitigated through a combination of reinsurance and retrospective commission structures with agents, distribution partners and/or third-party reinsurers. To mitigate counterparty risk, Fortegra ensures its distribution partners’ captive reinsurance entities are over-collateralized with highly liquid investments, primarily cash and cash equivalents. Insurance results primarily depend on pricing, underwriting, risk retention and the accuracy of reserves, reinsurance arrangements, returns on invested assets, and policy and contract renewals and run-off. While Fortegra’s insurance operations have historically maintained a relatively stable combined ratio, initiatives to change the business mix along with economic factors could generate different results than the business has historically experienced. We believe there will continue to be growth opportunities to expand Fortegra’s specialty insurance offerings to other niche products and markets. Fortegra’s investment portfolio includes fixed maturity securities, loans, credit investment funds, and equity securities. Many investments are held at fair value. Changes in fair value for loans, credit investment funds, and equity securities are reported quarterly as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, or market risk, including specific company or industry factors. Our equity holdings are relatively concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value which can result in unrealized gains and losses affecting our results. The Federal Reserve has signaled that it intends to raise interest rates in the near term. Rising 10-year treasury yields, and the tapering of the Federal Reserve’s purchases of mortgage backed securities, has resulted in increases to mortgage interest rates as well, although those rates still remain at relative historic lows. Our businesses can also be impacted in various ways by changes in interest rates, which can result in fluctuations in the fair value of investments, revenues associated with floating rate investments, volume and revenues in mortgage operations and interest expenses associated with floating rate debt used to fund operations. Rising interest rates could impact the value of certain fixed maturity securities, with any unrealized losses recorded in equity, and if realized, could impact our results of operations. Offsetting the impact of a rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth can result in higher interest income on investments over time. In declining interest rate environments, the opposite impacts could occur. In addition, certain investments are based on floating interest rates, which has resulted in lower investment income during the recent period of extended low rates. Rising interest rates can also impact the cost of floating interest rate debt obligations, while declining rates can decrease the cost of debt. Our secured revolving and term credit agreements, preferred trust securities and asset-based revolving financing are all floating rate obligations. Low mortgage rates due to the Federal Reserve intervention in mortgage markets, and rising home prices in certain markets, has resulted in a combination of higher mortgage volumes and margins beginning in the second quarter of 2020 and continuing through 2021, which has been a benefit to our mortgage operations. The recent low interest rate environment also benefits interest cost on debt, although corporate debt remains above current LIBOR rates. There can be no assurance that these positive trends will continue, the reversal of which could have a materially negative impact on our results of operations, and which may only be partially mitigated by the benefit to LIBOR based investments. Authorities that regulate LIBOR have announced plans to phase out LIBOR, such that LIBOR is expected to cease to exist as a benchmark for floating interest rates. The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for USD-LIBOR. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets as a replacement reference rate. Such uncertainty may result in a sudden or prolonged increase or decrease in reported LIBOR and/or its replacement rate. To address the phase out of LIBOR, the agreements for our debt facilities include a mechanism to replace LIBOR with an alternative reference rate under specified circumstances, whether that replacement is SOFR or another benchmark. If future rates based upon the successor reference 48 rate are higher than LIBOR rates as currently determined due to illiquidity or other factors, our interest expense could increase. Common shares of Invesque represent a significant asset on our consolidated balance sheet, both as part of insurance investments and separately in Tiptree Capital. Our investment in Invesque, which operates in the seniors housing, skilled nursing and medical office industries, is carried on our consolidated balance sheet at fair value. In April 2020, in response to the uncertainty in the industry, Invesque suspended its dividend to conserve liquidity. In combination with the impact of the COVID-19 pandemic on occupancy rates, Invesque’s stock declined significantly, which had a material impact on the carrying value of the investment and results of operations in 2020. While their stock price and the value of the investment increased modestly in 2021, any additional declines in the fair value of Invesque’s common stock could have a significant impact on our results of operations and the value of the investment. The maritime transportation industry is highly competitive and fragmented. Demand for shipping capacity is a function of global economic conditions and the related demand for commodities, production and consumption patterns, and is affected by events which interrupt production, trade routes, and consumption. The shipping industry is cyclical with significant volatility in charter hire rates and profitability, which can change rapidly. General global economic conditions, along with company and industry specific factors, are expected to continue to impact the fair value of our vessels and associated operating results. While there is a current imbalance in supply and demand for shipping capacity, which led to a cyclical high in dry-bulk charter rates, a change in those factors and/or changes in global economic conditions could result in substantially lower charter rates, which could negatively impact our results of operations and the carrying value of our vessels. RESULTS OF OPERATIONS The following is a summary of our consolidated financial results for the year ended December 31, 2021, 2020 and 2019. In addition to GAAP results, management uses the Non-GAAP measures Adjusted net income, Adjusted return on average equity, Adjusted EBITDA and book value per share as measurements of operating performance. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and comparison among companies. Management uses Adjusted net income and adjusted return on average equity as part of its capital allocation process and to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting. The Company defines Adjusted EBITDA as GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, plus non-cash fair value adjustments, plus significant non-recurring expenses, and plus unrealized gains (losses) on available for sale securities that are reported in other comprehensive income. Adjusted net income, Adjusted return on average equity and Adjusted EBITDA are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. See “Non-GAAP Reconciliations” for a reconciliation of these measures to their GAAP equivalents. Selected Key Metrics ($ in thousands, except per share information) For the Year Ended December 31, GAAP: 2021 2020 2019 Total revenues $ 1,200,514 $ 810,301 $ 772,728 Net income (loss) attributable to common stockholders $ 38,132 $ (29,158) $ 18,361 Diluted earnings per share $ 1.09 $ (0.86) $ 0.50 Cash dividends paid per common share $ 0.16 $ 0.16 $ 0.16 Return on average equity 11.4 % (6.4) % 5.0 % Non-GAAP: (1) Adjusted net income $ 63,869 $ 51,431 $ 27,598 Adjusted return on average equity 16.5 % 13.1 % 6.8 % Adjusted EBITDA $ 100,776 $ 4,541 $ 68,085 Book value per share $ 11.22 $ 10.90 $ 11.52 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Revenues 49 For the year ended December 31, 2021, revenues were $1,200.5 million, which increased $390.2 million, or 48.2% compared to the prior year period, primarily driven by growth in earned premiums, net, and service and administrative fees in the insurance business, increased revenues from our dry-bulk vessels and mortgage servicing portfolio, and net realized and unrealized gains on Invesque and other investments in 2021 compared to losses in 2020. For the year ended December 31, 2020, revenues were $810.3 million, which increased $37.6 million, or 4.9% compared to the prior year, primarily due to a combination of growth in commercial and service contract lines in our insurance business and revenues associated with our mortgage business. Offsetting these increases were net realized and unrealized losses of $83.6 million for the year ended December 31, 2020, on Invesque and other equity securities. The table below provides a break down between net realized and unrealized gains and losses from Invesque and other securities which impacted our consolidated results on a pre-tax basis. Many investments are carried at fair value and marked to market through unrealized gains and losses. As a result, we expect earnings relating to these investments to be relatively volatile between periods. Fixed income securities are primarily marked to market through AOCI in stockholders’ equity and do not impact net realized and unrealized gains and losses until they are sold. ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Net realized and unrealized gains (losses) (1) $ 8,885 $ (1,817) $ 12,189 Net realized and unrealized gains (losses) - Invesque $ 3,736 $ (81,813) $ (1,200) (1) Excludes Invesque and Mortgage realized and unrealized gains and losses. The year ended December 31, 2019 includes a $7.6 million gain on sale of our CLO business. Net Income (Loss) Attributable to common stockholders For the year ended December 31, 2021, net income attributable to common stockholders was $38.1 million, an increase of $67.3 million from a net loss of $29.2 million for the year ended December 31, 2020, primarily driven by net realized and unrealized gains on Invesque and other investments in 2021 compared to losses in 2020, in addition to growth in Fortegra’s underwriting and fee operations, increased revenues from our mortgage servicing portfolio and improvement in dry-bulk shipping rates. For the year ended December 31, 2020, net loss attributable to common stockholders was $29.2 million, a decrease of $47.5 million from net income of $18.4 million in 2019. The decrease for the year ended December 31, 2020 was primarily driven by the same factors that impacted revenues in the respective periods. Adjusted net income & Adjusted return on average equity - Non-GAAP Adjusted net income for the year ended December 31, 2021 was $63.9 million, an increase of $12.4 million, or 24.2%, from the year ended December 31, 2020. For the year ended December 31, 2021, adjusted return on average equity was 16.5%, as compared to 13.1% at December 31, 2020, with the increase in both metrics driven by improved performance in our insurance and shipping operations. Adjusted net income for the year ended December 31, 2020 was $51.4 million, an increase of $23.8 million from 2019. The 2020 Adjusted return on average equity was 13.1%, as compared to 6.8% in 2019, with the increase in both metrics driven by improved performance in our insurance and mortgage operations. Adjusted EBITDA - Non-GAAP Adjusted EBITDA for the year ended December 31, 2021 was $100.8 million, an increase of $96.2 million from 2020, driven by realized and unrealized gains in 2021 compared to losses in 2020 (primarily Invesque), in addition to the improved operating performance noted above. Adjusted EBITDA for the year ended December 31, 2020 was $4.5 million, a decrease of $63.5 million from 2019, which was substantially driven by unrealized losses on Invesque and other equity securities. Book Value per share - Non-GAAP Total stockholders’ equity was $400.2 million as of December 31, 2021 compared to $373.5 million as of December 31, 2020. In the year ended December 31, 2021, Tiptree returned $8.2 million to stockholders through share repurchases and dividends paid. Book value per share for the period ended December 31, 2021 was $11.22, an increase from book value per 50 share of $10.90 as of December 31, 2020. The key drivers of the increase over the past four quarters were income per share and the purchase of 0.5 million shares at a discount to book value, partially offset by other comprehensive losses, dividends paid of $0.16 per share, and issuance of shares related to warrants and vested subsidiary equity awards. Total stockholders’ equity was $373.5 million as of December 31, 2020 compared to $411.4 million as of December 31, 2019. In 2020, Tiptree returned $19.3 million to shareholders through share repurchases and dividends paid. Book value per share for the period ended December 31, 2020 was $10.90, a decrease from book value per share of $11.52 as of December 31, 2019. The key drivers of the reduction from the prior year were losses per share and dividends paid of $0.160 per share. The decrease was partially offset by the purchase of 2.4 million shares. Results by Segment We classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations aggregated into Tiptree Capital - Other. Corporate activities include holding company interest expense, corporate employee compensation and benefits, and other expenses, including, but not limited to, public company expenses. Mortgage has been broken out of Tiptree Capital as a reportable segment because for the years ended December 31, 2021 and 2020 it met the quantitative threshold for disclosure. Segments for the year ended December 31, 2019 were conformed to this presentation as of December 31, 2020. The following tables present the components of Revenue, Income (loss) before taxes and Adjusted net income for the following periods: ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Revenues: Insurance $ 984,130 $ 691,061 $ 635,085 Mortgage 111,295 112,165 66,121 Tiptree Capital - other 105,089 7,075 71,522 Corporate — — — Total revenues $ 1,200,514 $ 810,301 $ 772,728 Income (loss) before taxes: Insurance $ 69,857 $ 26,948 $ 37,030 Mortgage 28,407 31,102 2,959 Tiptree Capital - other 17,210 (61,242) 23,391 Corporate (50,132) (35,660) (34,241) Total income (loss) before taxes $ 65,342 $ (38,852) $ 29,139 Non-GAAP - Adjusted net income (1) : Insurance $ 66,782 $ 43,423 $ 32,806 Mortgage 17,434 28,578 3,929 Tiptree Capital - other 10,763 4,497 14,083 Corporate (31,110) (25,067) (23,220) Total adjusted net income $ 63,869 $ 51,431 $ 27,598 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Insurance Our principal operating subsidiary, Fortegra, is a specialty insurance underwriter and service provider, which focuses on niche business mixes and fee-oriented services. Our combination of specialty insurance underwriting, service contract products, and related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting revenues, investment income and unregulated fee revenues. We are an agent-driven business model, distributing our products through independent insurance agents, consumer finance companies, online retailers, auto dealers, and regional big box retailers to deliver products that complement the consumer transaction. The following tables present the Insurance segment results for the following periods: 51 Results of Operations - 2021 Compared to 2020 ($ in thousands) For the Year Ended December 31, 2021 2020 Change % Change Revenues: Earned premiums, net $ 685,552 $ 477,991 $ 207,561 43.4 % Service and administrative fees 260,525 186,973 73,552 39.3 % Ceding commissions 11,784 21,101 (9,317) (44.2) % Net investment income 17,896 9,916 7,980 80.5 % Net realized and unrealized gains (losses) (2,006) (11,944) 9,938 NM % Other revenue 10,379 7,024 3,355 47.8 % Total revenues $ 984,130 $ 691,061 $ 293,069 42.4 % Expenses: Net losses and loss adjustment expenses 253,473 178,248 75,225 42.2 % Member benefit claims 73,539 58,650 14,889 25.4 % Commission expense 396,683 280,210 116,473 41.6 % Employee compensation and benefits 76,552 65,089 11,463 17.6 % Interest expense 17,576 15,487 2,089 13.5 % Depreciation and amortization 17,223 10,835 6,388 59.0 % Other expenses 79,227 55,594 23,633 42.5 % Total expenses $ 914,273 $ 664,113 $ 250,160 37.7 % Income (loss) before taxes (1) $ 69,857 $ 26,948 $ 42,909 159.2 % Key Performance Metrics: Gross written premiums and premium equivalents $ 2,194,024 $ 1,666,942 $ 527,082 31.6 % Return on average equity 17.1 % 8.1 % Underwriting ratio 74.7 % 74.6 % Expense ratio 15.9 % 16.9 % Combined ratio 90.6 % 91.5 % Non-GAAP Financial Measures (2) : Adjusted net income $ 66,782 $ 43,423 $ 23,359 53.8 % Adjusted return on average equity 22.2 % 15.2 % (1) Net income was $48,755 and $22,821 for the years ended December 31, 2021 and 2020, respectively. (2) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Revenues Earned Premiums, net Earned premiums, net represent the earned portion of our gross written premiums, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements, as well as the earned portion of our assumed premiums. Our insurance policies generally have a term of six months to seven years depending on the underlying product and premiums are earned pro rata over the term of the policy. At the end of each reporting period, premiums written but not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Service and Administrative Fees Service and administrative fees represent the earned portion of our gross written premiums and premium equivalents, which is generated from non-insurance products including auto and consumer goods service contracts, motor club contracts and other services offered as part of our vertically integrated product offerings. Such fees are typically positively correlated with transaction volume and are recognized as revenue when realized and earned. At the end of each reporting period, gross written premiums and premium equivalents written for service contracts not earned are classified as deferred revenue, which are earned in subsequent periods over the remaining term of the policy. Ceding Commissions and Other Revenue 52 Ceding commissions and other revenue consists of commissions earned on policies written on behalf of third-party insurance companies with no exposure to the insured risk and certain fees earned in conjunction with underwriting policies. Other revenue also includes the interest income earned on our premium finance product offering. Net Investment Income We earn investment income on our portfolio of invested assets. Our invested assets are primarily comprised of fixed maturity securities, and may also include cash and cash equivalents and equity securities. The principal factors that influence net investment income are the size of our investment portfolio, the yield on that portfolio and expenses due to external investment managers. Net Realized and Unrealized Gains (Losses) Net realized and unrealized gains (losses) on investments are a function of the difference between the amount received by us on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances for credit losses which are recognized in earnings. In addition, we carry our equity securities at fair value with unrealized gains and losses included in this line. Revenues – 2021 compared to 2020 For the year ended December 31, 2021, total revenues increased 42.4%, to $984.1 million, as compared to $691.1 million for the year ended December 31, 2020. Earned premiums, net of $685.6 million increased $207.6 million, or 43.4%, driven by growth in commercial and personal lines, including E&S insurance offerings. Service and administrative fees of $260.5 million increased by 39.3%, driven by growth in auto and consumer goods service contract revenues. Ceding commissions of $11.8 million decreased by $9.3 million, or 44.2%, driven by lower ceding fees as less business was ceded in our U.S. Insurance lines. Other revenues increased by $3.4 million, or 47.8%, driven by growth in our premium finance lines. For the year ended December 31, 2021, net investment income of $17.9 million increased $8.0 million from 2020, driven by increased interest income from growth in fixed income securities and higher dividends on equity securities. Net realized and unrealized losses were $2.0 million, a reduction in losses of $9.9 million, driven by realized and unrealized gains on equity securities in 2021, as compared to losses on equity securities and other investments in 2020. For the year ended December 31, 2021, 28.7% of our revenues were derived from fees that are not solely dependent upon the underwriting performance of our insurance products, resulting in more diversified and consistent earnings. For the year ended December 31, 2021, 81.7% of our fee-based revenues were generated in non-regulated service companies, with the remainder in our regulated insurance companies. The combination of unearned premiums and deferred revenues on Fortegra’s balance sheet grew to $1,658.8 million, representing an increase of $399.1 million, or 31.7%, from December 31, 2020 to December 31, 2021 as a result of growth in gross written premiums and premium equivalents, primarily related to admitted and E&S insurance lines as well as auto and consumer goods service contracts. Expenses Underwriting and fee expenses under insurance and service contracts include losses and loss adjustment expenses, member benefit claims and commissions expense. Net Losses and Loss Adjustment Expenses Net losses and loss adjustment expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded and the costs of administering claims for insurance lines. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Loss occurrences in our insurance products are characterized by low severity and high frequency. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements, and original pricing of the product for purposes of the loss ratio in relation to loss emergence over time. Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. 53 Member Benefit Claims Member benefit claims represent the costs of services and replacement devices incurred in auto, consumer goods and roadside service contracts. Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized as expense when incurred. Commission Expense Commission expenses reflect commissions we pay retail agents, program administrators and managing general underwriters, net of ceding commissions we receive on business ceded under certain reinsurance contracts. In addition, commission expenses include premium-related taxes. Commission expenses related to each policy we write are deferred and amortized to expense in proportion to the premium earned over the policy life. Commission expense is incurred on most product lines, the majority of which are retrospective commissions paid to agents, distributors and retailers selling our products, including credit insurance policies, auto and consumer goods service contracts and motor club memberships. When claims increase, in most cases our distribution partners bear the risk through a reduction in their retrospective commissions. Commission rates are, in many cases, set by state regulators, such as in credit and collateral protection programs and are also impacted by market conditions and the retention levels of our distribution partners. Operating and Other Expenses Operating and other expenses represent the general and administrative expenses of our insurance operations including employee compensation and benefits and other expenses, including, technology costs, office rent, and professional services fees, such as legal, accounting and actuarial services. Interest Expense Interest expense consists primarily of interest expense on our corporate revolving debt, our Notes, our preferred trust securities due June 15, 2037 (“Preferred Trust Securities”) and asset-based debt for our premium finance business, which is non-recourse to Fortegra. Depreciation and Amortization Depreciation expense is primarily associated with furniture, fixtures and equipment. Amortization expense is primarily associated with purchase accounting amortization including values associated with acquired customer relationships, trade names and internally developed software and technology. Expenses – 2021 compared to 2020 For the year ended December 31, 2021, net losses and loss adjustment expenses were $253.5 million, member benefit claims were $73.5 million and commission expense was $396.7 million, as compared to $178.2 million, $58.7 million and $280.2 million, respectively, for the year ended December 31, 2020. The increase in net losses and loss adjustment expenses of $75.2 million, or 42.2%, was driven by growth in U.S. Insurance lines and the impact of prior year development of $2.6 million as a result of higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business . The impact of the prior year development increased our ratio of net losses and loss adjustment expenses to earned premiums, net by 0.4%. The increase in member benefit claims of $14.9 million, or 25.4%, was driven by growth in auto and consumer goods service contracts. Commission expense increased by $116.5 million, or 41.6%, in line with growth in earned premiums, net and service and administrative fees. For the year ended December 31, 2021, employee compensation and benefits were $76.6 million and other expenses were $79.2 million, as compared to $65.1 million and $55.6 million, respectively, for the year ended December 31, 2020. Employee compensation and benefits increased by $11.5 million, or 17.6%, driven by the acquisition of Sky Auto and investments in human capital associated with our growth objectives in E&S and service contract lines. Other expenses increased by $23.6 million, or 42.5%, driven by increased marketing costs aligned with revenue growth in Sky Auto, and increases in premium taxes, which grew in line with earned premiums. Included in other expenses were $2.2 million and $3.4 54 million for the years ended December 31, 2021 and 2020, respectively, related to non-recurring professional fees associated with preparation of the registration statement for the Fortegra initial public offering which was withdrawn in April 2021, and investment banking and legal expenses associated with the acquisition of Smart AutoCare and Sky Auto in January 2020. For the year ended December 31, 2021, interest expense was $17.6 million as compared to $15.5 million for the year ended December 31, 2020. The increase in interest expense of $2.1 million, or 13.5%, was driven by increased asset-based borrowings to support growth in our premium finance lines and higher usage of the revolving working capital facility and letters of credit to support net written premium growth. For the year ended December 31, 2021, depreciation and amortization expense was $17.2 million, including $15.3 million of intangible amortization related to purchase accounting associated with the acquisitions of Sky Auto, Smart AutoCare and Fortegra. For the year ended December 31, 2020, depreciation and amortization expense was $10.8 million including $9.2 million of intangible amortization from purchase accounting related to Smart AutoCare and Fortegra. 55 The following tables present the Insurance segment results for the following periods: Results of Operations - 2020 Compared to 2019 ($ in thousands) For the Year Ended December 31, 2020 2019 Change % Change Revenues: Earned premiums, net $ 477,991 $ 499,108 $ (21,117) (4.2) % Service and administrative fees 186,973 106,239 80,734 76.0 % Ceding commissions 21,101 9,608 11,493 119.6 % Net investment income 9,916 8,667 1,249 14.4 % Net realized and unrealized gains (losses) (11,944) 6,896 (18,840) NM % Other revenue 7,024 4,567 2,457 53.8 % Total revenues $ 691,061 $ 635,085 $ 55,976 8.8 % Expenses: Net losses and loss adjustment expenses 178,248 151,009 27,239 18.0 % Member benefit claims 58,650 19,672 38,978 198.1 % Commission expense 280,210 303,057 (22,847) (7.5) % Employee compensation and benefits 65,089 49,789 15,300 30.7 % Interest expense 15,487 14,766 721 4.9 % Depreciation and amortization 10,835 9,105 1,730 19.0 % Other expenses 55,594 50,657 4,937 9.7 % Total expenses $ 664,113 $ 598,055 $ 66,058 11.0 % Income (loss) before taxes (1) $ 26,948 $ 37,030 $ (10,082) (27.2) % Key Performance Metrics: Gross written premiums and premium equivalents $ 1,666,942 $ 1,297,042 $ 369,900 28.5 % Return on average equity 8.1 % 10.7 % Underwriting ratio 74.6 % 76.5 % Expense ratio 16.9 % 15.9 % Combined ratio 91.5 % 92.4 % Non-GAAP Financial Measures (2) : Adjusted net income $ 43,423 $ 32,806 $ 10,617 32.4 % Adjusted return on average equity 15.2 % 12.3 % (1) Net income was $22,821 and $27,160 for the year ended December 31, 2020 and 2019, respectively. (2) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Revenues – 2020 compared to 2019 For the year ended December 31, 2020, total revenues increased 8.8%, to $691.1 million, as compared to $635.1 million for the year ended December 31, 2019. Earned premiums, net of $478.0 million decreased $21.1 million, or 4.2%, driven by increased ceding of credit insurance and collateral protection premiums, and increased credit insurance cancellations driven by COVID-19 stimulus payments to consumers. This was partially offset by growth in commercial, service contract and niche personal lines programs. Service and administrative fees of $187.0 million increased by 76.0% driven by our acquisition of Smart AutoCare and growth in service contract revenues. Excluding Smart AutoCare, service and administrative fees increased by 11.7%, driven by growth in our consumer goods and roadside service contracts. Ceding commissions of $21.1 million increased by $11.5 million, or 119.6%, driven by growth in commercial lines and higher fees associated with the increase in ceded premiums in credit insurance and collateral protection programs. Other revenues increased by $2.5 million, or 53.8%, driven by growth in our premium finance lines. For the year ended December 31, 2020, 31.1% of our revenues were derived from fees that are not solely dependent upon the underwriting performance of our insurance products, resulting in more diversified and consistent earnings. For the year ended December 31, 2020, 79.3% of our fee-based revenues were generated in non-regulated service companies, with the remainder in our regulated insurance companies. For the year ended December 31, 2020, net investment income was $9.9 million driven by interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $11.9 million, a decline of $18.8 56 million, driven by realized and unrealized losses on equity securities in 2020, as compared to gains on equity securities and other investments in 2019. Expenses – 2020 compared to 2019 For the year ended December 31, 2020, net losses and loss adjustment expenses were $178.2 million, member benefit claims were $58.7 million and commission expense was $280.2 million, as compared to $151.0 million, $19.7 million and $303.1 million, respectively, for the year ended December 31, 2019. The increase in net losses and loss adjustment expenses of $27.2 million, or 18.0%, was driven by growth in our U.S. Insurance business and the impact of prior year development of $5.4 million related to higher than expected claims frequency in certain programs associated with a small group of producers. The impact of the prior year development increased our ratio of net losses and loss adjustment expenses to earned premiums, net by 1.1%. The increase in member benefit claims of $39.0 million, or 198.1%, was driven by the acquisition of Smart AutoCare. Commission expense declined by $22.8 million, or 7.5%, driven by a decline in retrospective commission payments, largely offsetting the increase in net losses and loss adjustment expense. For the year ended December 31, 2020, employee compensation and benefits were $65.1 million and other expenses were $55.6 million, as compared to $49.8 million and $50.7 million, respectively, for the year ended December 31, 2019. Employee compensation and benefits increased by $15.3 million, or 30.7%, driven by the acquisition of Smart AutoCare and investments in human capital associated with our growth objectives in E&S and service contract lines. Other expenses increased by $4.9 million, or 9.7%, driven by increases in acquisition related expenses, and premium taxes, which grew in line with premiums. Included in other expenses were $3.4 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively, related to non-recurring professional fees associated with investment banking and legal expenses for our acquisitions of Smart AutoCare and Sky Auto. For the year ended December 31, 2020, interest expense was $15.5 million as compared to $14.8 million for the year ended December 31, 2019. The increase in interest expense of $0.7 million, or 4.9%, was driven by higher outstanding asset-based debt for our premium finance business, partially offset by decreases in LIBOR over 2020. For the year ended December 31, 2020, depreciation and amortization expense was $10.8 million, including $9.2 million of intangible amortization related to purchase accounting associated with the acquisitions of both Smart AutoCare and Fortegra, as compared to $9.1 million and $7.5 million of intangible amortization from purchase accounting related to Fortegra, respectively, for 2019. Key Performance Metrics We discuss certain key performance metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance. Gross Written Premiums and Premium Equivalents Gross written premiums and premium equivalents represent total gross written premiums from insurance policies and service contracts issued, as well as premium finance volumes during a reporting period. They represent the volume of insurance policies written or assumed and service contracts issued during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. Gross written premiums is a volume measure commonly used in the insurance industry to compare sales performance by period. Premium equivalents are used to compare sales performance of service and administrative contract volumes to gross written premiums. Investors also use these measures to compare sales growth among comparable companies, while management uses these measures to evaluate the relative performance of various sales channels. The below table shows gross written premiums and premium equivalents by business mix for the following periods: 57 For the Year Ended December 31, ($ in thousands) Gross Written Premiums and Premium Equivalents 2021 2020 2019 U.S. Insurance $ 1,438,393 $ 1,063,743 $ 965,544 U.S. Warranty Solutions 652,052 549,983 297,289 Europe Warranty Solutions 103,579 53,216 34,209 Total $ 2,194,024 $ 1,666,942 $ 1,297,042 Total gross written premiums and premium equivalents for the year ended December 31, 2021 were $2.2 billion as compared to $1.7 billion in 2020. The growth of $527.1 million, or 31.6%, is driven by a combination of factors including Fortegra’s growing distribution partner network, expanding admitted and E&S insurance lines, and increasing market penetration in the service contract sector through the acquisitions of Smart AutoCare (January 2020) and Sky Auto (December 2020). Additionally, certain retail-oriented distribution partners were impacted by COVID-19 shutdowns in 2020, providing for a more favorable period over period comparison. We believe the continued growth in commercial E&S and service contract lines will result in increased gross written premiums and premium equivalents, and therefore growth in unearned premiums and deferred revenues on the balance sheet. The growth in gross written premiums and premium equivalents, combined with higher retention in select products, has resulted in an increase of $399.1 million, or 31.7%, in Fortegra’s unearned premiums and deferred revenue on the balance sheet. As of December 31, 2021, Fortegra’s unearned premiums and deferred revenues were $1,658.8 million, as compared to $1,259.7 million as of December 31, 2020. Total gross written premiums and premium equivalents for the year ended December 31, 2020 were $1.7 billion as compared to $1.3 billion in 2019. U.S. Insurance lines increased by $98.2 million for the year ended December 31, 2019, or 10.2%, driven by growth in commercial, service contract insurance and collateral protection lines. U.S. Warranty Solutions increased by $252.7 million for the year ended December 31, 2020, or 85.0%, driven primarily by the acquisition of Smart AutoCare and growth in premium finance volumes. Europe Warranty Solutions increased by $19.0 million, or 55.6%, driven by growth in auto and consumer goods service contracts. The growth in gross written premiums and premium equivalents, combined with higher risk retention in select products, increased unearned premiums and deferred revenue on Fortegra’s balance sheet by $410.4 million, or 48.3%. As of December 31, 2020, Fortegra’s unearned premiums and deferred revenues were $1,259.7 million, as compared to $849.3 million as of December 31, 2019. Combined Ratio, Underwriting Ratio and Expense Ratio Combined ratio is an operating measure, which equals the sum of the underwriting ratio and the expense ratio. Underwriting ratio is the ratio of the GAAP line items net losses and loss adjustment expenses, member benefit claims and commission expense to earned premiums, net, service and administrative fees and ceding commissions and other revenue. Expense ratio is the ratio of the GAAP line items employee compensation and benefits and other underwriting, general and administrative expenses to earned premiums, net, service and administrative fees and ceding commissions and other revenue. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss. These ratios are commonly used in the insurance industry as a measure of underwriting profitability, excluding earnings on the insurance portfolio. Investors commonly use these measures to compare underwriting performance among companies separate from the performance of the investment portfolio. Management uses these measures to compare the profitability of various products we underwrite as well as profitability among our various agents and sales channels. The combined ratio was 90.6% for the year ended December 31, 2021, which consisted of an underwriting ratio of 74.7% and an expense ratio of 15.9%, as compared to 91.5%, 74.6% and 16.9%, respectively, for the year ended December 31, 2020. The improvement in the combined ratio year over year is primarily driven by the continued scalability of the technology and shared service platform, decreasing the expense ratio, while maintaining consistent underwriting performance. Our focus on underwriting expertise, A.I. driven lead generation, and technology-enhanced administration improves productivity, lowers administrative costs and results in agent relationships sustained over the long-term. The combined ratio was 91.5% for the year ended December 31, 2020, which consisted of an underwriting ratio of 74.6% and an expense ratio of 16.9%, as compared to 92.4%, 76.5% and 15.9%, respectively, for the year ended December 31, 2019. 58 The improvement in the combined ratio and underwriting ratio from 2019 to 2020 was primarily due to the shift in business mix as the result of the growth in commercial and service contract lines, while the increase in the expense ratio was primarily driven by the impact of purchase accounting on the recognition of revenues and expenses associated with our acquisition of Smart AutoCare. Return on Average Equity Return on average equity is expressed as the ratio of net income to average stockholders’ equity during the period. Management uses this ratio as a measure of the on-going performance of the totality of the Company’s operations. Return on average equity was 17.1% for the year ended December 31, 2021, as compared to 8.1%, for the year ended December 31, 2020, with the increase driven by growth in underwriting and fee revenues, improvement in the combined ratio and realized and unrealized gains in 2021, as compared to realized and unrealized losses in 2020. Return on average equity was 8.1% for the year ended December 31, 2020, as compared to 10.7%, for the year ended December 31, 2019, with the decline driven by realized and unrealized losses in 2020, as compared to realized and unrealized gains in 2019, partially offset by improvement in revenues associated with underwriting activities. Non-GAAP Financial Measures Underwriting and Fee Revenues and Underwriting and Fee Margin - Non-GAAP (1) In order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics – underwriting and fee revenues and underwriting and fee margin. We generally manage our exposure to the risks we underwrite using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our agents (e.g., commissions paid are adjusted based on the actual underlying losses incurred), which mitigate our risk. Period-over-period comparisons of revenues and expenses are often impacted by the agents and their PORC’s choice as to their risk retention appetite, specifically earned premiums, net, service and administration fees, ceding commissions, and other revenue, all components of revenue, and losses and loss adjustment expenses, member benefit claims, and commissions paid to our agents and reinsurers. Generally, when losses are incurred, the risk which is retained by our agents and reinsurers is reflected in a reduction in commissions paid. Underwriting and fee revenues represents total revenues excluding net investment income, net realized and unrealized gains (losses). See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee revenues to total revenues in accordance with GAAP. Underwriting and fee margin represents income before taxes excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. We deliver our products and services on a vertically integrated basis to our agents. As such, underwriting and fee margin exclude general and administrative expenses, interest income, depreciation and amortization and other corporate expenses, including income taxes, as these corporate expenses support our vertically integrated delivery model and are not specifically supporting any individual business line. See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee margin to total revenues in accordance with GAAP. The below table shows underwriting and fee revenues and underwriting and fee margin by business mix for the following periods: For the Year Ended December 31, ($ in thousands) Underwriting and Fee Revenues (1) Underwriting and Fee Margin (1) 2021 2020 2019 2021 2020 2019 U.S. Insurance $ 690,154 $ 507,537 $ 525,554 $ 141,258 $ 106,763 $ 105,492 U.S. Warranty Solutions 230,942 162,900 87,130 90,255 61,722 37,478 Europe Warranty Solutions 47,144 22,652 6,834 13,032 7,496 2,808 Total $ 968,240 $ 693,089 $ 619,518 $ 244,545 $ 175,981 $ 145,778 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Underwriting and fee revenues were $968.2 million for the year ended December 31, 2021, as compared to $693.1 million, 59 for the year ended December 31, 2020. Total underwriting and fee revenues were up $275.2 million, or 39.7%, driven by growth in all product lines. U.S. Insurance revenues increased $182.6 million, or 36.0%, driven by growth in E&S commercial, collateral protection and credit insurance lines. The increase in U.S. Warranty Solutions was $68.0 million, or 41.8%, driven by growth in auto, consumer goods, and premium finance. Europe Warranty Solutions increased by $24.5 million, or 108.1%, driven by growth in auto and consumer goods service contracts. Underwriting and fee margin was $244.5 million for the year ended December 31, 2021 as compared to $176.0 million for the year ended December 31, 2020, representing an increase of $68.6 million, or 39.0%, driven by growth in all product lines. U.S. Insurance grew by $34.5 million, or 32.3%, as the underwriting ratio was consistent year-over-year at 79.5% while revenues increased. U.S. Warranty Solutions increased by $28.5 million, or 46.2%, driven by the growth in revenues and improvement in the underwriting ratio. Europe Warranty Solutions increased by $5.5 million, or 73.9%, driven by growth in auto and consumer goods service contracts in those markets. Underwriting and fee revenues were $693.1 million for the year ended December 31, 2020, as compared to $619.5 million, for the year ended December 31, 2019. Total underwriting and fee revenues were up $73.6 million, or 11.9%, driven by growth in U.S. and Europe Warranty Solutions, partially offset by a decline in U.S. Insurance. The decrease in U.S. Insurance was $18.0 million, or 3.4%, driven by increased ceded premiums and cancellations from the impacts of stimulus related to COVID-19 in our credit insurance and collateral protection lines. This was partially offset by growth in commercial and niche personal lines. The increase in U.S. Warranty Solutions was $75.8 million, or 87.0%, driven by the acquisition of Smart AutoCare and growth in auto, consumer goods, and premium finance. Europe Warranty Solutions increased by $15.8 million, or 231.5%, driven by growth in auto and consumer goods service contracts. Underwriting and fee margin was $176.0 million for the year ended December 31, 2020 as compared to $145.8 million for the year ended December 31, 2019. Total underwriting and fee margin was up $30.2 million, or 20.7%, driven by growth in U.S. and Europe Warranty Solutions. U.S. Insurance was flat to prior year as the growth in commercial and niche personal lines offset the impacts of COVID-19 on our credit insurance and collateral protection lines. U.S. Warranty Solutions increased by $24.2 million, or 64.7%, driven by the acquisition of Smart AutoCare and growth in auto, consumer goods, and premium finance lines. Europe Warranty Solutions increased by $4.7 million, or 167.0%, driven by growth in auto and consumer goods service contracts in those markets. Adjusted Net Income and Adjusted Return on Average Equity Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting. Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. Management uses both measures to assess the on-going performance of our operations. See “—Non-GAAP Reconciliations” for a reconciliation of adjusted net income and adjusted return on average equity to income before taxes and adjusted return on average equity. For the year ended December 31, 2021, adjusted net income and adjusted return on average equity were $66.8 million and 22.2%, respectively, as compared to $43.4 million and 15.2%, respectively, for the year ended December 31, 2020. The improvement in metrics was driven by the growth in revenues and improvement in the combined ratio. For the year ended December 31, 2020, adjusted net income and adjusted return on average equity were $43.4 million and 15.2%, respectively, as compared to $32.8 million and 12.3%, respectively, for the year ended December 31, 2019. The improvement in both of these metrics was driven by the growth in commercial, service contracts and niche personal lines. See “—Non-GAAP Reconciliations” for a reconciliation of adjusted net income and adjusted return on average equity to income before taxes and adjusted return on average equity. Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments 60 Our insurance investment portfolio includes investments held in statutory insurance companies and in unregulated entities. The portfolios held in statutory insurance companies are subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility from realized and unrealized gains and losses may impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on Available for Sale (“AFS”) securities impact AOCI. Our net investment income includes interest and dividends, net of investment expenses, on our invested assets. We report net realized and unrealized gains and losses on our investments separately from our net investment income. For the year ended December 31, 2021, net investment income was $17.9 million compared to $9.9 million in 2020 with the increase driven by growth in investments, resulting in incremental interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $2.0 million, a decline of $9.9 million, driven by a reduction in realized and unrealized losses on equity securities from 2020 to 2021. For the year ended December 31, 2020, net investment income was $9.9 million driven by growth in investments, resulting in incremental interest income on fixed income securities and dividends on equity securities. Net realized and unrealized losses were $11.9 million, a decline of $18.8 million, driven by realized and unrealized losses on equity securities in 2020 (primarily Invesque), as compared to gains on equity securities and other investments in 2019. Tiptree Capital Tiptree Capital consists of our Mortgage segment, which includes the operating results of Reliance, our mortgage business, and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments. As of December 31, 2021, Tiptree Capital - Other includes our Invesque shares, maritime transportation operations, and the mortgage operations of Luxury, which is classified as held for sale on the balance sheet. Mortgage Through our Mortgage operating subsidiary, Reliance, we originate, sell, securitize and service one-to-four-family, residential mortgage loans, comprised of conforming mortgage loans, Federal Housing Administration (“FHA”), Veterans Administration (“VA”), United States Department of Agriculture (“USDA”), and to a lesser extent, non-agency jumbo prime. We are an approved seller/servicer for Fannie Mae and Freddie Mac. The Company is also an approved issuer and servicer for Ginnie Mae. The Company originates residential mortgage loans through its retail distribution channel (directly to consumers) in 39 states and the District of Columbia as of December 31, 2021. The following tables present the Mortgage segment results for the following periods: 61 Results of Operations ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Revenues: Net realized and unrealized gains (losses) $ 92,307 $ 96,590 $ 53,815 Other revenue 18,988 15,575 12,306 Total revenues $ 111,295 $ 112,165 $ 66,121 Expenses: Employee compensation and benefits $ 56,819 $ 58,226 $ 42,411 Interest expense 1,168 1,188 1,790 Depreciation and amortization 885 956 809 Other expenses 24,016 20,693 18,152 Total expenses $ 82,888 $ 81,063 $ 63,162 Income (loss) before taxes $ 28,407 $ 31,102 $ 2,959 Key Performance Metrics: Origination volumes $ 1,608,311 $ 1,658,126 $ 1,142,642 Gain on sale margins 5.6 % 6.3 % 4.7 % Return on average equity 38.9 % 50.9 % 7.1 % Non-GAAP Financial Measures (1) : Adjusted net income $ 17,434 $ 28,578 $ 3,929 Adjusted return on average equity 28.8 % 60.5 % 12.0 % (1) See “Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Revenues Net Realized and Unrealized Gains (Losses) Net realized and unrealized gains (losses) include gains on sale of mortgage loans and the fair value adjustment in mortgage servicing rights. Gains on the sale of mortgage loans represent the difference between the selling price and carrying value of loans sold and are recognized upon settlement. Such gains also include the changes in fair value of loans held for sale and loan-related hedges and derivatives. We transfer the risk of loss or default to the loan purchaser, however, in some cases we are required to indemnify purchasers for losses related to non-compliance with borrowers’ creditworthiness and collateral requirements. Because of this, we recognize gains on sale net of required indemnification and premium recapture reserves. The fair value adjustment on mortgage servicing rights represents fair value adjustments considering estimated prepayments and other factors associated with changes in interest rates, plus actual run-off in the servicing portfolio. We report these adjustments separate from servicing income and servicing expense. Other Revenue Other revenue includes loan origination fees, interest income, and mortgage servicing income. Loan origination fees are earned as mortgage loans are funded. Servicing fees are earned over the life of the loan. Interest income includes interest earned on loans held for sale and interest income on bank balances and short-term investments. Revenues – 2021 compared to 2020 and 2020 compared to 2019 For the year ended December 31, 2021, $1,608.3 million of loans were funded, compared to $1,658.1 million for 2020, a decrease of $49.8 million, or 3.0%. Origination volumes in 2021 and 2020 were primarily attributed to the lower interest rate environment and home price appreciation in the United States. Gain on sale margins decreased to 5.6% for the year ended December 31, 2021, down approximately 70 basis points from 6.3% for the year ended December 31, 2020. Net realized and unrealized gains for the year ended December 31, 2021 were $92.3 million, compared to $96.6 million for 2020, a decrease of $4.3 million or 4.4%. The primary driver of decreased gain on sale revenues were the decline in volumes and gain on sale margins, partially offset by positive fair value adjustments in mortgage servicing rights of $5.8 million as interest rates increased from the year ended December 31, 2020. Other revenue for the year ended December 31, 2021 was $19.0 million, compared to $15.6 million for 2020, an increase of $3.4 million, or 21.9%, driven primarily by higher servicing fees from an increase in loans serviced. As of December 31, 2021, the mortgage servicing asset recorded in other assets on the balance 62 sheet was $29.8 million, an increase from $14.8 million as of December 31, 2020. For the year ended December 31, 2020, $1,658.1 million of loans were funded, compared to $1,142.6 million for 2019, an increase of $515.5 million, or 45.1%. The increase in origination volumes is primarily attributed to the lower interest rate environment and rising home prices in 2020 compared to 2019. Gain on sale margins also increased to 6.3% for the year ended December 31, 2020, up 165 basis points from 4.7% for the year ended December 31, 2019. Net realized and unrealized gains (losses) for the year ended December 31, 2020 were $96.6 million, compared to $53.8 million for 2019, an increase of $42.8 million or 79.5%. The primary drivers of increased gains on sale were increases in origination volumes and gains on sale margins, partially offset by negative fair value adjustments in our mortgage servicing rights of $4.0 million as interest rates declined. Other revenue for the year ended December 31, 2020 was $15.6 million, compared to $12.3 million for 2019, an increase of $3.3 million or 26.8%, driven by increased loan origination volumes and servicing fees. As of December 31, 2020, the mortgage servicing asset recorded in other assets on the balance sheet was $14.8 million, an increase from $8.8 million as of December 31, 2019. Expenses Employee Compensation and Benefits Employee compensation and benefits includes salaries, commissions, benefits, bonuses, other incentive compensation and related taxes for employees. Commissions expense for sales staff generally varies with loan origination volumes. Interest Expense Interest expense represents borrowing costs under warehouse and other credit facilities used primarily to fund loan originations. Amortization of deferred financing costs, including commitment fees, is included in interest expense. Depreciation and Amortization Depreciation expense is mainly associated with furniture, fixtures and equipment while amortization expense is primarily associated with a trade name and internally developed software. Other Expenses Other expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing expense. Expenses – 2021 compared to 2020 and 2020 compared to 2019 For the year ended December 31, 2021, employee compensation and benefits was $56.8 million, compared to $58.2 million in 2020, a decrease of $1.4 million or 2.4%. This decrease was driven primarily by reduced commissions on lower origination volumes. For the year ended December 31, 2021 and 2020, interest expense and depreciation and amortization expense were both flat, at $1.2 million and $0.9 million, respectively. For the year ended December 31, 2021, other expenses were $24.0 million, compared to $20.7 million in 2020 with the $3.3 million increase driven by increased loan origination expenses, including marketing costs. For the year ended December 31, 2020, employee compensation and benefits was $58.2 million, compared to $42.4 million in 2019, an increase of $15.8 million or 37.3%. This increase was driven primarily by increased commissions on higher origination volumes, in addition to increased incentive compensation. For the year ended December 31, 2020, interest expense was $1.2 million, compared to $1.8 million in 2019, a decrease of $0.6 million, or 33.3%. This is due to the reduced interest rate environment decreasing our cost of funds, partially offset by higher loan volumes. For the year ended December 31, 2020, depreciation and amortization expense was $1.0 million, compared to $0.8 million for 2019, up $0.2 million, due to purchases of fixed assets. For the year ended December 31, 2020, other expenses were $20.7 million, compared to $18.2 million in 2019, driven by increased loan origination expenses, including marketing costs, and rent. Income (loss) before taxes 63 Income before taxes for the year ended December 31, 2021 was $28.4 million, compared to income before taxes of $31.1 million in 2020. The primary driver of the decrease was a decline in margins partially offset by higher servicing fees attributable to the larger servicing portfolio, in addition to positive fair value adjustments on the mortgage servicing rights asset, as compared to 2020. Income before taxes for the year ended December 31, 2020 was $31.1 million, compared to $3.0 million in 2019. The primary driver of the increase was the increase in revenue noted above, partially offset by higher compensation and other costs associated with the improved financial performance. Tiptree Capital - Other The following tables present a summary of Tiptree Capital - Other results for the following periods: Results of Operations For the Year Ended December 31, ($ in thousands) Total revenue Income (loss) before taxes 2021 2020 2019 2021 2020 2019 Senior living (Invesque) $ 3,091 $ (65,123) $ 9,140 $ 3,091 $ (65,123) $ 9,140 Maritime transportation 35,562 22,697 16,591 11,635 1,493 1,610 Other (1) 66,436 49,501 45,791 2,484 2,388 12,641 Total $ 105,089 $ 7,075 $ 71,522 $ 17,210 $ (61,242) $ 23,391 (1) Includes our held for sale mortgage originator (Luxury), asset management, and certain intercompany elimination transactions. Revenues Tiptree Capital - Other earns revenues from the following sources: net interest income; revenues on our held for sale mortgage originator; realized and unrealized gains and losses on the Company’s investment holdings (primarily Invesque); and charter revenue from vessels within the Company’s maritime transportation operations. Revenues for the year ended December 31, 2021 were $105.1 million compared to $7.1 million for 2020. The primary driver of the change in revenues for the year ended December 31, 2021 was unrealized gains on Invesque in 2021 compared to unrealized losses in 2020, partially offset by the suspension of its monthly dividend payment in April 2020, increased dry-bulk charter rates earned by the maritime transportation business, and growth in mortgage gain on sale revenues in the held for sale mortgage originator. Revenues for the year ended December 31, 2020 were $7.1 million, compared to $71.5 million for 2019. The primary driver of revenues for the year ended December 31, 2020 were unrealized losses of $67.7 million on Invesque and the suspension of its monthly dividend payment, offset by a full year of tanker operations in our maritime transportation business and growth in mortgage gain on sale revenues in our held for sale mortgage originator. Income (loss) before taxes The income before taxes from Tiptree Capital - Other for the year ended December 31, 2021 was $17.2 million, compared to a loss before taxes of $61.2 million in 2020. The primary driver of the increase was unrealized gains in 2021 compared to losses in 2020 on our investment in Invesque, in addition to increased income before taxes in our maritime transportation business due to a rise in dry-bulk charter rates. The loss before taxes from Tiptree Capital - Other for the year ended December 31, 2020 was $61.2 million, compared to income of $23.4 million in 2019. The primary drivers of the decrease were unrealized losses and discontinued dividend income on our investment in Invesque. Non-recurrence of the gain on sale of the management contracts and related assets for the CLOs managed in our asset management business in 2019 also drove the 2020 decline in income before taxes. 64 Adjusted net income - Non-GAAP (1) ($ in thousands) Year Ended December 31, 2021 2020 2019 Senior living (Invesque) $ — $ 2,001 $ 8,004 Maritime transportation 10,713 2,291 1,695 Other 50 205 4,384 Total $ 10,763 $ 4,497 $ 14,083 (1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures. Adjusted net income increased to $10.8 million for the year ended December 31, 2021 compared to $4.5 million in 2020. The increase was driven by improvement in maritime transportation operations from higher dry-bulk charter rates, partially offset by the impact of the discontinuation of the Invesque dividend in April 2020. Adjusted net income decreased to $4.5 million for the year ended December 31, 2020 compared to $14.1 million in 2019. The key driver of the decrease was the dividend income on our investment in Invesque was discontinued in April 2020. See “— Non-GAAP Reconciliations” for a reconciliation to GAAP net income. Corporate The following table presents a summary of corporate results for the following periods: Results of Operations ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Employee compensation and benefits $ 7,406 $ 7,718 $ 6,542 Employee incentive compensation expense 20,654 7,477 9,323 Interest expense 10,032 10,016 6,292 Depreciation and amortization 805 807 652 Other expenses 11,235 9,642 11,432 Total expenses $ 50,132 $ 35,660 $ 34,241 Corporate expenses include expenses of the holding company for interest expense, employee compensation and benefits, and public company and other expenses. Corporate employee compensation and benefits includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses. Employee compensation and benefits, including incentive compensation expense, was $28.1 million for the year ended December 31, 2021, compared to $15.2 million for 2020, driven by an increase in performance related employee incentive compensation. Of the incentive compensation expense, $8.6 million was related to stock-based compensation expense in 2021 primarily driven by the increase in Tiptree’s stock price, compared to $3.2 million in 2020. Interest expense for the year ended December 31, 2021 and 2020 was $10.0 million. As of December 31, 2021, the outstanding borrowing was $114.1 million, compared to $120.3 million at December 31, 2020. Other expenses of $11.2 million increased by $1.6 million from the year ended December 31, 2020, primarily driven by $2.2 million of non-recurring professional and legal fees associated with preparation of the registration statement for the potential Fortegra initial public offering in 2021 (which registration statement has been withdrawn), compared to $0.8 million of non-recurring debt extinguishment fees associated with the refinancing of the corporate credit facility and acquisition-related legal fees in the prior year. Employee compensation and benefits, including incentive compensation expense, was $15.2 million for the year ended December 31, 2020 compared to $15.9 million for 2019, driven primarily by a reduction in employee incentive compensation. Interest expense for the year ended December 31, 2020 was $10.0 million, up from $6.3 million in 2019, driven by a higher average outstanding balance during 2020 associated with our acquisition of Smart AutoCare in January 2020. As of December 31, 2020, the outstanding borrowing was $120.3 million, compared to $68.2 million at December 31, 2019. Provision for Income Taxes 65 The total income tax expense of $21.3 million for the year ended December 31, 2021, and the total income tax benefit of $13.6 million for the year ended December 31, 2020 and total income tax expense of $9.0 million for the year ended December 31, 2019 are reflected as components of net income (loss). For the year ended December 31, 2021, the Company’s effective tax rate was equal to 32.6%. The effective rate for the year ended December 31, 2021 was higher than the U.S. statutory income tax rate of 21.0% primarily from the impact of state taxes and non-deductible compensation, partially offset by the effect of stock based compensation. For the year ended December 31, 2020, the Company’s effective tax rate was equal to 35.1%. The effective rate for the year ended December 31, 2020 was higher than the U.S. federal 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 was equal to 31.0%. The effective rate for the year ended December 31, 2019 was higher than the U.S. federal statutory income tax rate of 21.0%, primarily from the impact of the non-recurring return-to-provision, as well as ongoing state and foreign taxes. On March 27, 2020, the 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 $7.3 million tax benefit related to the ability to carry back net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $16.8 million and increase to our current receivable of $24.1 million. Balance Sheet Information Tiptree’s total assets were $3,599.1 million as of December 31, 2021, compared to $2,995.8 million as of December 31, 2020. The $603.4 million increase in assets is primarily attributable to the growth in the Insurance segment. Total stockholders’ equity was $400.2 million as of December 31, 2021, compared to $373.5 million as of December 31, 2020, primarily driven by net income for year ended December 31, 2021, partially offset by dividends. As of December 31, 2021, there were 34,124,153 shares of common stock outstanding as compared to 32,682,462 as of December 31, 2020. The following table is a summary of certain balance sheet information: As of December 31, 2021 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Total assets $ 3,002,152 $ 201,134 $ 384,564 $ 11,297 $ 3,599,147 Corporate debt $ 162,160 $ — $ — $ 114,063 $ 276,223 Asset based debt 42,310 72,518 13,600 — 128,428 Tiptree Inc. stockholders’ equity $ 292,865 $ 59,237 $ 117,984 $ (87,132) $ 382,954 Non-controlling interests - Other 11,066 1,169 3,930 1,062 17,227 Total stockholders’ equity $ 303,931 $ 60,406 $ 121,914 $ (86,070) $ 400,181 NON-GAAP MEASURES AND RECONCILIATIONS Non-GAAP Reconciliations In addition to GAAP results, management uses the non-GAAP financial measures underwriting and fee revenues and underwriting and fee margin in order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners. We also use the non-GAAP financial measures adjusted net income, adjusted return on average equity and Adjusted EBITDA as measures of operating performance and as part of our resource and capital allocation process, to assess comparative returns on invested capital. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and to compare relative performance among comparable companies. Adjusted net income, adjusted return on average equity, Adjusted EBITDA, underwriting and fee revenues and underwriting and fee margin are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for earned premiums, net income or any other measure derived in accordance with GAAP. 66 Underwriting and Fee Revenues and Underwriting and Fee Margin — Non-GAAP (Insurance only) The following tables present revenue and expenses by business mix. We generally manage exposure to underwriting risks written by using both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid are adjusted based on the actual underlying losses incurred), which mitigates Fortegra’s risk. Period-over-period comparisons of revenues and expenses are often impacted by the PORCs and distribution partners’ choice as to whether to retain risk, specifically service and administration fees and ceding commissions, both components of revenue, and policy and contract benefits and commissions paid to our partners and reinsurers. Generally, when losses are incurred, the risk which is retained by our partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics underwriting and fee revenues and underwriting and fee margin. Underwriting and Fee Revenues — Non-GAAP We define underwriting and fee revenues as total revenues from the Insurance segment excluding net investment income and net realized and unrealized gains (losses). Underwriting and fee revenues represents revenues generated by underwriting and fee-based operations and allows us to evaluate the Company’s underwriting performance without regard to investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP, and other companies may define underwriting and fee revenues differently. ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Total revenues $ 984,130 $ 691,061 $ 635,085 Less: Net investment income (17,896) (9,916) (8,667) Less: Net realized and unrealized gains (losses) 2,006 11,944 (6,896) Underwriting and fee revenues $ 968,240 $ 693,089 $ 619,522 Underwriting and Fee Margin — Non-GAAP We define underwriting and fee margin as income before taxes from the Insurance segment, excluding net investment income, net realized and unrealized gains (losses), employee compensation and benefits, other expenses, interest expense and depreciation and amortization. Underwriting and fee margin represents the underwriting performance of our underwriting and fee-based lines. As such, underwriting and fee margin excludes general administrative expenses, interest expense, depreciation and amortization and other corporate expenses as those expenses support the vertically integrated business model and not any individual component of the Company’s business mix. We use this metric as we believe it gives our management and other users of our financial information useful insight into the specific performance of our underlying business mix. Underwriting and fee margin should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define underwriting and fee margin differently. ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Income (loss) before income taxes $ 69,857 $ 26,948 $ 37,030 Less: Net investment income (17,896) (9,916) (8,667) Less: Net realized and unrealized gains (losses) 2,006 11,944 (6,896) Plus: Depreciation and amortization 17,223 10,835 9,105 Plus: Interest expense 17,576 15,487 14,766 Plus: Employee compensation and benefits 76,552 65,089 49,789 Plus: Other expenses 79,227 55,594 50,657 Underwriting and fee margin $ 244,545 $ 175,981 $ 145,784 Adjusted Net Income — Non-GAAP We define adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. We use adjusted net income as an internal operating performance measure in the 67 management of business as part of our capital allocation process. We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently. We present adjustments for amortization associated with acquired intangible assets. The intangible assets were recorded as part of purchase accounting in connection with Tiptree’s acquisition of Fortegra Financial in 2014, Defend in 2019, and Smart AutoCare and Sky Auto in 2020. The intangible assets acquired contribute to overall revenue generation, and the respective purchase accounting adjustments will continue to occur in future periods until such intangible assets are fully amortized in accordance with the respective amortization periods required by GAAP. Adjusted Return on Average Equity — Non-GAAP We define adjusted return on average equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “—Adjusted Net Income—Non-GAAP” above. We use adjusted return on average equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently. For the Year Ended December 31, 2021 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 69,857 $ 28,407 $ 17,210 $ (50,132) $ 65,342 Less: Income tax (benefit) expense (18,438) (4,882) (1,992) 4,021 (21,291) Less: Net realized and unrealized gains (losses) (3,732) (5,798) (3,091) — (12,621) Plus: Intangibles amortization (1) 15,329 — — — 15,329 Plus: Stock-based compensation expense 2,006 331 213 8,581 11,131 Plus: Non-recurring expenses 2,158 — 938 2,171 5,267 Plus: Non-cash fair value adjustments — — (3,170) — (3,170) Less: Tax on adjustments (398) (624) 655 4,249 3,882 Adjusted net income $ 66,782 $ 17,434 $ 10,763 $ (31,110) $ 63,869 Adjusted net income $ 66,782 $ 17,434 $ 10,763 $ (31,110) $ 63,869 Average stockholders’ equity 300,820 60,433 113,717 (88,111) 386,859 Adjusted return on average equity 22.2 % 28.8 % 9.5 % NM% 16.5 % For the Year Ended December 31, 2020 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 26,948 $ 31,102 $ (61,242) $ (35,660) $ (38,852) Less: Income tax (benefit) expense (3,725) (7,066) 13,624 10,794 13,627 Less: Net realized and unrealized gains (losses) 13,804 4,018 67,668 — 85,490 Plus: Intangibles amortization (1) 9,213 — — — 9,213 Plus: Stock-based compensation expense 2,287 2,482 174 3,172 8,115 Plus: Non-recurring expenses 3,418 — 624 758 4,800 Plus: Non-cash fair value adjustments — — (2,141) — (2,141) Less: Tax on adjustments (8,522) (1,958) (14,210) (4,131) (28,821) Adjusted net income $ 43,423 $ 28,578 $ 4,497 $ (25,067) $ 51,431 Adjusted net income $ 43,423 $ 28,578 $ 4,497 $ (25,067) $ 51,431 Average stockholders’ equity 285,760 47,202 138,606 (79,092) 392,476 Adjusted return on average equity 15.2 % 60.5 % 3.2 % NM% 13.1 % 68 For the Year Ended December 31, 2019 Tiptree Capital ($ in thousands) Insurance Mortgage Other Corporate Total Income (loss) before taxes $ 37,030 $ 2,959 $ 23,391 $ (34,241) $ 29,139 Less: Income tax (benefit) expense (8,455) (640) (4,457) 4,535 (9,017) Less: Net realized and unrealized gains (losses) (6,896) 2,056 (6,148) — (10,988) Plus: Intangibles amortization (1) 7,510 — — — 7,510 Plus: Stock-based compensation expense 2,891 170 — 3,299 6,360 Plus: Non-recurring expenses 1,975 — 202 2,079 4,256 Plus: Non-cash fair value adjustments — — (153) — (153) Less: Tax on adjustments (1,249) (616) 1,248 1,108 491 Adjusted net income $ 32,806 $ 3,929 $ 14,083 $ (23,220) $ 27,598 Adjusted net income $ 32,806 $ 3,929 $ 14,083 $ (23,220) $ 27,598 Average stockholders’ equity 266,397 32,785 161,133 (54,978) 405,337 Adjusted return on average equity 12.3 % 12.0 % 8.7 % NM% 6.8 % The footnotes below correspond to the tables above, under “—Adjusted Net Income - Non-GAAP and “—Adjusted Return on Average Equity - Non-GAAP”. (1) Specifically associated with acquisition purchase accounting. See Note (3) Acquisitions. Adjusted EBITDA - Non-GAAP The Company defines Adjusted EBITDA as GAAP net income of the Company plus corporate interest expense, plus income taxes, plus depreciation and amortization expense, less the effects of purchase accounting, plus non-cash fair value adjustments, plus significant non-recurring expenses, and plus unrealized gains (losses) on available for sale securities reported in other comprehensive income. Adjusted EBITDA is used to determine incentive compensation for the Company’s executive officers. Adjusted EBITDA is not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. ($ in thousands) For the Year Ended December 31, 2021 2020 2019 Net income (loss) attributable to common stockholders $ 38,132 $ (29,158) $ 18,361 Add: net (loss) income attributable to non-controlling interests 5,919 3,933 1,761 Corporate debt related interest expense (1) 24,426 23,322 19,754 Consolidated provision (benefit) for income taxes 21,291 (13,627) 9,017 Depreciation and amortization 24,437 17,268 13,083 Non-cash fair value adjustments (2) (7,945) (7,122) (3,156) Non-recurring expenses (3) 5,267 4,800 4,257 Unrealized gains (losses) on AFS securities (10,751) 5,125 5,008 Adjusted EBITDA $ 100,776 $ 4,541 $ 68,085 (1) Corporate debt interest expense includes interest expense from secured corporate credit agreements, junior subordinated notes and preferred trust securities. Interest expense associated with asset-specific debt is not added-back for Adjusted EBITDA. (2) For maritime transportation operations, depreciation and amortization is deducted as a reduction in the value of the vessel. (3) Acquisition, start-up and disposition costs, including debt extinguishment, legal, taxes, banker fees and other costs. Book Value per share - Non-GAAP Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares. ($ in thousands, except per share information) As of December 31, 2021 2020 2019 Total stockholders’ equity $ 400,181 $ 373,538 $ 411,415 Less: Non-controlling interests 17,227 17,394 13,353 Total stockholders’ equity, net of non-controlling interests $ 382,954 $ 356,144 $ 398,062 Total common shares outstanding 34,124 32,682 34,563 Book value per share $ 11.22 $ 10.90 $ 11.52 69 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries, including income from our investment portfolio and sales of assets and investments. We intend to use our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs. In February 2020, we refinanced our existing facility with Fortress, extending the maturity to February 2025 and increasing the principal amount to $125 million, generating approximately $53 million of cash after repaying the existing facility and expenses. A portion of those funds were invested in Fortegra to fund growth, with the remainder used to provide additional liquidity. As a condition to the closing of the WP Transaction, we will assign the Fortress credit facility to Fortegra who will use proceeds from the WP Transaction to payoff all of the unpaid principal balance of the Fortress credit facility. In addition, on or prior to the closing of the WP Transaction, Fortegra will have certain of its subsidiaries repay $30.0 million principal balance of aggregate intercompany promissory notes to Tiptree Holdings LLC, plus accrued interest. Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in agreements for the strategic investment by Warburg Pincus in Fortegra, our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect our cash and cash equivalents and distributions from operating subsidiaries, our subsidiaries’ access to financing, and sales of investments to be adequate to fund our operations for at least the next 12 months, as well as the long term. As of December 31, 2021, cash and cash equivalents, excluding restricted cash, were $175.7 million, compared to $136.9 million at December 31, 2020, an increase of $38.8 million primarily as a result of additional gross written premium and premium equivalents at Fortegra. Our mortgage business relies on short term uncommitted sources of financing as a part of their normal course of operations. To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note (11) Debt, net in the notes to consolidated financial statements, for additional information regarding our mortgage warehouse borrowings. We believe that cash flow from operations will provide sufficient capital to continue to grow the business and fund interest on the outstanding debt, capital expenditures and other general corporate needs over the next several years. As we continue to expand our business, including by any acquisitions we may make, we may, in the future, require additional working capital for increased costs. For purposes of determining enterprise value and Adjusted EBITDA, we consider corporate credit agreements and preferred trust securities, which we refer to as corporate debt, as corporate financing and associated interest expense is added back. The below table outlines this amount by debt outstanding and interest expense at the insurance company and corporate level. Corporate Debt ($ in thousands) Corporate Debt Outstanding as of December 31, Interest Expense for the year ended December 31, 2021 2020 2019 2021 2020 2019 Insurance $ 162,160 $ 160,000 $ 185,000 $ 14,232 $ 13,305 $ 13,390 Corporate 114,063 120,313 68,210 10,193 10,017 6,292 Total $ 276,223 $ 280,313 $ 253,210 $ 24,425 $ 23,322 $ 19,682 As of December 31, 2021, the credit facility with Fortress carries a rate of LIBOR (with a minimum LIBOR rate of 1.0%), plus a margin of 6.75% per annum. The agreement requires quarterly principal payments of approximately $1.56 million. See Note (11) Debt, net in the notes to consolidated financial statements for details. On August 4, 2020, Fortegra entered into an Amended and Restated Credit Agreement by and among Fortegra and its wholly-owned subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of 70 Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing lender (the “Fortegra Credit Agreement”). The Fortegra Credit Agreement provides for a $200.0 million revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $17.5 million for swing loans, and matures on August 4, 2023. Consolidated Comparison of Cash Flows ($ in thousands) For the Year Ended December 31, Total cash provided by (used in): 2021 2020 2019 Net cash (used in) provided by: Operating activities $ 204,316 $ 140,169 $ 23,742 Investing activities (273,759) (123,491) (8,327) Financing activities 73,735 31,749 36,928 Net increase (decrease) in cash, cash equivalents and restricted cash $ 4,292 $ 48,427 $ 52,343 Operating Activities Cash provided by operating activities was $204.3 million for the year ended December 31, 2021. In 2021, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), proceeds from mortgage loans outpacing originations and growth in insurance company unearned premiums and net deferred revenues, partially offset by increases in deferred acquisition costs and reinsurance receivables. Cash provided by operating activities was $140.2 million for the year ended December 31, 2020. In 2020, the primary sources of cash from operating activities included proceeds from mortgage loans outpacing originations, offset by increases in notes and accounts receivable and decreases in unearned premiums from our insurance operations. Cash provided by operating activities was $23.7 million for the year ended December 31, 2019. In 2019, the primary sources of cash from operating activities included consolidated net income (excluding unrealized gains and losses), increases in unearned premiums, reinsurance payables, and deferred revenues, offset by increases in notes and accounts receivable and reinsurance receivables related to growth in our insurance operations. Investing Activities Cash used in investing activities was $273.8 million for the year ended December 31, 2021. In 2021, the primary use of cash from investing activities was the purchase of investments outpacing proceeds from the sales of investments in our insurance investment portfolio, and the issuance of notes receivable outpacing proceeds. Cash used in investing activities was $123.5 million for the year ended year ended December 31, 2020. In 2020, the primary use of cash from investing activities was the purchase of investments outpacing proceeds from the sales of investments in our insurance investment portfolio and the issuance of notes receivables outpacing proceeds. This was partially offset by proceeds received in connection with the acquisition of Smart AutoCare. Cash used in investing activities was $8.3 million for the year ended December 31, 2019. In 2019, the primary use of cash from investing activities was the issuance of notes receivables outpacing proceeds. This was offset by proceeds associated with a contingent earn-out from our sale of Care, proceeds from the sale of our Telos business, and sales and maturities of investments in excess of purchases in our insurance investment portfolio. Financing Activities Cash provided by financing activities was $73.7 million for the year ended December 31, 2021. In 2021, proceeds from borrowings exceeded principal repayments on mortgage warehouse facilities and asset-based debt supporting our premium finance operations in the insurance business, partially offset by net redemptions of non-controlling interest of $3.5 million, the repurchase of the Company’s common stock and other changes in additional paid-in capital of $8.1 million and the payment of $5.3 million in dividends. Cash provided by financing activities was $31.7 million for the year ended December 31, 2020. In 2020, our new borrowings exceeded our principal paydowns, primarily from increased borrowings on our secured term credit agreement and our secured corporate revolving credit agreement in our insurance operations, partially offset by decreased borrowings on our mortgage 71 warehouse facilities. Net cash provided by increased borrowings was offset by the repurchase of $13.9 million of the Company’s common stock and the payment of $5.6 million in dividends. Cash provided by financing activities was $36.9 million for the year ended December 31, 2019. In 2019, our new borrowings exceeded our principal repayments primarily from increased borrowings on our mortgage warehouse facilities due to increased volume in our mortgage business, increased borrowing on our secured corporate credit agreement in our insurance business to support growth, and a vessel backed term loan, offset by the repayment of asset based borrowings in our credit loan fund, held within our insurance investment portfolio. Net cash provided by increased borrowings was partially offset by the repurchase of $9.1 million of the Company’s common stock and the payment of $5.5 million in dividends. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s significant accounting policies are described in Note (2) Summary of Significant Accounting Policies. As disclosed in Note (2), the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Impairment Goodwill and Intangible Assets, net The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. At both December 31, 2021 and 2020, we had two reporting units for goodwill impairment testing, of which the fair value substantially exceeded carrying value as of that date. See Note (9) Goodwill and Intangible Assets, net. Reserves Unpaid claims are reserve estimates that are established in accordance with GAAP using generally accepted actuarial methods. Credit life and accidental death and destruction (AD&D) unpaid claims reserves include claims in the course of settlement and incurred but not reported (IBNR) claims. Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other Fortegra product lines, unpaid claims reserves are bulk reserves and are entirely IBNR. The Company uses a number of algorithms in establishing its unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, target loss ratios, in-force amounts, unearned premium reserves, industry recognized morbidity tables or a combination of these factors. In arriving at the unpaid claims reserves, the Company conducts an actuarial analysis on a basis gross of reinsurance. The same estimates used as a basis in calculating the gross unpaid claims reserves are then used as the basis for calculating the net unpaid claims reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key assumption underlying these analyses. Our claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. From the anticipated loss development patterns, a variety of actuarial loss projection techniques are employed, such as the chain ladder method, the Bornhuetter-Ferguson method and expected loss ratio method. The unpaid claims reserves represent the Company’s best estimates, generally involving actuarial projections at a given time. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims reserves in the periods presented. During the years ended December 31, 2021, 2020, and 2019, the Company experienced an increase in prior year development of $2.6 million , $5.4 million , and $5.2 million, respectively. In 2021, the $2.6 million increase in prior year development is 72 primarily due to higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business. In 2020, the $5.4 million increase was due to higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business, of which $2.2 million related to our non-standard auto business. The underlying cause of the 2020 prior year 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. In 2019, the entire $5.2 million increase related to our non-standard auto business. The underlying cause of this development was higher than expected claim frequency. The non-standard programs which contributed to the prior year development in both 2020 and 2019, one active program which was new in 2018 and two programs in run-off, experienced loss emergence in excess of levels contemplated when originally pricing the products. The Company responded to this emergence by filing for increased rates for the one underperforming active program and non-renewing all business for the two programs in run-off. Management considers the prior year development for all three years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. Earned premiums, net in 2021 were $685.6 million and net losses and loss adjustment expenses were $253.5 million , which resulted to a loss ratio of 37.0%. Without the $2.6 million prior year development, the calendar year loss ratio would have been approximately 0.4% lower. For comparison, the 2020 and 2019 loss ratios were 37.2% and 30.3%, respectively. In general, the Company's loss ratio results have been predictable and consistent over time. In 2021, the $2.6 million prior year development represented only 3.7% of pretax income of our insurance business of $69.9 million, and 3.1% of the opening net liability for losses and loss adjustment expense of $83.9 million in the same year. Actuarial estimates are subject to estimation variability, and while management uses its best judgment in establishing the estimate of required unpaid claims, different assumptions and variables could lead to significantly different unpaid claims estimates. The variability in these estimates can, and have in the past, been significant to pretax income. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings. Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date. While management has used its best judgment in establishing the estimate of required unpaid claims, different assumptions and variables could lead to significantly different unpaid claims estimates. The determination of best estimates is affected by many factors, including but not limited to: • the quality and applicability of historical data, • current and future economic conditions, • trends in loss frequencies and severities for various causes of loss, • changes in claims reporting patterns, • claims settlement patterns and timing, • regulatory, legislative and judicial decisions, • morbidity patterns, and • the attitudes of claimants towards settlements. The adequacy of our unpaid claims reserves will be impacted by future trends that impact these factors. Two key measures of loss activity are loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls, changes in economic activity and weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be different than management’s estimate. Based on our actuarial analysis, we have determined that an aggregate change that is greater than 5% in loss frequency and loss severity is not reasonably likely given the Company’s low limit underwriting and low severity philosophies. The effect of higher and lower levels of loss frequency and severity on our ultimate costs for claims occurring in 2021 would be as follows: 73 Accident Year 2021 Sensitivity Test Change in Loss & Frequency & Severity on Ultimate ($ in thousands) Scenario Ultimate Cost Change 5% higher $ 263 $ 12,515 3% higher $ 258 $ 7,509 1% higher $ 253 $ 2,503 Base scenario $ 250 $ — 1% lower $ 248 $ (2,503) 3% lower $ 243 $ (7,509) 5% lower $ 238 $ (12,515) Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date. Deferred Acquisition Costs The Company defers certain costs of acquiring new and renewal insurance policies, and other products as follows: Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not occurred. These capitalized costs are amortized as the related premium is earned. Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred. These capitalized costs are amortized as the related service and administrative fees are earned. The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2021, 2020 and 2019. Amortization of deferred acquisition costs was $375.1 million, $265.8 million and $287.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Revenue Recognition The Company earns revenues from a variety of sources: Earned Premiums, net Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company's reinsurers, including PORCs, earned in the same manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer. Service and Administrative Fees The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned. Revenues from contracts with customers were $258.6 million, $163.6 million and $89.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, and include auto and consumer goods service contracts, motor clubs, other service and administrative fees, vessel related revenue and management fee income. See Note (14) Revenue from Contracts with Customers for more 74 detailed disclosure regarding these revenues. Service fee revenue is recognized as the services are performed. Administrative fee revenue includes the administration of premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and auto and consumer goods service contracts. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts, vehicle service contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other actuarial methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Income Taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in earnings in the period that includes the enactment date. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting guidance requires these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. The Company establishes valuation allowances for deferred tax assets when, in its judgment, it concludes that it is more likely than not that the deferred tax assets will not be realized. These judgments are based on projections of future income, including tax-planning strategies, by individual tax jurisdictions. Changes in economic conditions and the competitive environment may impact the accuracy of the Company’s projections. On a quarterly basis, the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to the Company’s valuation allowance is appropriate. Recently Issued Accounting Standards For a discussion of recently issued accounting standards, see Note (2) Summary of Significant Accounting Policies, in the accompanying consolidated financial statements. 75 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We are exposed to interest rate risk related to borrowings in various businesses. These risks result primarily from changes in LIBOR rates and the spread over LIBOR rates related to the credit risks of our businesses. For fixed rate debt, interest rate fluctuations generally affect the fair value of our liabilities, but do not impact our earnings. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until such obligations mature or until we elect to prepay and refinance such obligations. If interest rates have risen at the time our fixed rate debt matures or is refinanced, our future earnings could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of maturity or refinancing may lower our overall interest expense. As of December 31, 2021, the Company had $125 million of general purpose fixed rate debt outstanding maturing in 2057. For general purpose floating rate debt, interest rate fluctuations primarily affect interest expense and cash flows. If market interest rates rise, our earnings could be adversely affected by an increase in interest expense. In contrast, lower interest rates may reduce our interest expense and improve our earnings, except to the extent that our borrowings are subject to interest rate floors. The floating interest rate risk of asset based financing is generally offset as the financing and the purchased financial asset are generally subject to the same interest rate risk. For floating rate risk of other asset based financing such as borrowings to finance acquisitions of real estate, we generally hedge our exposure to the variability of the benchmark index with an interest rate swap. As of December 31, 2021, we had $114.1 million of general purpose floating rate debt with a weighted average rate of 7.75%. A 100 basis point change in interest rates would increase interest expense by $0.2 million and decrease interest expense by an insignificant amount (including the effect of applicable minimum interest rates) on an annualized basis. As of December 31, 2020, we had $120.3 million of general purpose floating rate debt with a weighted average rate of 7.2%. Our consolidated results include investments in bonds, loans or other interest bearing instruments. The fair values of such investments fluctuate in response to changes in market interest rates. Increases and decreases in interest rates generally translate into decreases and increases in fair values of these instruments. Some of these investments bear a floating rate of interest which subjects the Company to cash flow risk based upon changes in the underlying interest rate index. As noted above in the discussion of risks related to floating rate borrowings, the Company mitigates a significant amount of our floating rate risk by matching the funding of such investments with borrowings based upon the same interest rate index. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. As of December 31, 2021, we had $658.8 million invested in interest bearing instruments, which represents 72% of the total investment portfolio. The estimated effects of a hypothetical increase in interest rates of 100 bps would result in a decrease to the fair value of the portfolio by $20.0 million. As of December 31, 2020, we had $510.0 million invested in interest bearing instruments, which represented 63% of the total investment portfolio. The estimated effects of a hypothetical increase in interest rates of 100 bps would result in a decrease to the fair value of the portfolio by $14.2 million. 76 Credit Risk We are exposed to credit risk in the form of available for sale securities, investments in loans, and other investments as follows: ($ in thousands) As of December 31, 2021 2020 Available for sale securities, at fair value (1) Obligations of state and political subdivisions $ 58,660 $ 44,350 Corporate securities 144,877 94,941 Asset backed securities 17,447 36,192 Certificates of deposit 2,696 1,355 Obligations of foreign governments 2,590 3,992 Loans, at fair value (2) Corporate loans 7,099 7,795 Other investments (3) Corporate bonds, at fair value 38,965 105,777 Debentures 21,057 17,703 Trade Claims 19,737 — Other 216 802 Total $ 313,344 $ 312,907 (1) The Company also holds investments in U.S. Treasury securities and obligations of U.S. government authorities and agencies of $351.2 million and $196.3 million as of December 31, 2021 and 2020, respectively. These investments do not represent a credit risk and are excluded. (2) The Company also holds investments in mortgage loans held for sale of $98.5 million and $82.9 million as of December 31, 2021 and 2020, respectively. These investments do not represent a credit risk and are excluded. (3) The Company also holds other investments of $88.7 million and $95.4 million as of December 31, 2021 and 2020, respectively, primarily comprised of vessels. These investments do not represent a credit risk and are excluded. Credit risk within the Company’s investments represents the exposure to the adverse changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries, and countries. As of December 31, 2021 and 2020, 72% and 62%, respectively, of the investments subject to credit risk had investment grade ratings. A widening of credit spreads by 100 bps for the investments subject to credit risk would result in a decrease of $6.3 million and $5.9 million to the fair value of the portfolio as of December 31, 2021 and 2020, respectively. In addition, our mortgage business also underwrites mortgage loans for the purpose of selling them into the secondary market. Due to the relatively short holding period, the credit risk associated with mortgage loans held for sale is not expected to be significant. See Note (6) Investments to the consolidated financial statements for more information regarding our investments in loans by type. Market Risk We are primarily exposed to market risk related to the following investments: ($ in thousands) As of December 31, 2021 As of December 31, 2020 Insurance Tiptree Capital - Other Total Insurance Tiptree Capital - Other Total Invesque $ 6,015 $ 28,799 $ 34,814 $ 5,370 $ 25,708 $ 31,078 Fixed income exchange traded fund 53,154 — 53,154 63,875 — 63,875 Other equity securities 50,515 — 50,515 28,885 — 28,885 Total equity securities $ 109,684 $ 28,799 $ 138,483 $ 98,130 $ 25,708 $ 123,838 A 10% increase or decrease in the fair value of such investments would result in $13.8 million and $12.3 million of unrealized gains and losses as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, we owned 17.0 million shares of common stock, respectively, or approximately 31%, of Invesque, a real estate investment company that specializes in health care real estate and senior living property investment throughout North America. The value of our Invesque shares is reported at fair market value on a quarterly basis. Invesque historically paid monthly dividends until April 2020, when dividends were discontinued. A loss in the fair market value of 77 our Invesque shares or a reduction or discontinuation in the dividends paid on our Invesque shares could have a material adverse effect on our financial condition and results of operations. As of December 31, 2021 and 2020, the fair value of the Invesque shares was based on the market price. See “Risk Factors — Risks Related to our Business - Our investment in Invesque shares is subject to market volatility and the risk that Invesque changes its dividend policy”. Counterparty Risk We are subject to counterparty risk to the extent that we engage in derivative activities for hedging or other purposes. As of December 31, 2021 and 2020, the total fair value of derivative assets subject to counterparty risk, including the effect of any legal right of offset, totaled $8.2 million and $11.5 million, respectively. We generally manage our counterparty risk to derivative counterparties by entering into contracts with counterparties of high credit quality. Total reinsurance receivables were $880.8 million and $728.0 million as of December 31, 2021 and 2020, respectively. Of those amounts, $533.6 million and $442.2 million, respectively, related to contracts with third-party captives in which we hold collateral or receive letters of credit in excess of the reinsurance receivables. The remainder is held with high quality reinsurers, substantially all of which have a rating of A or better by A.M. Best. As of December 31, 2021, the non-affiliated reinsurers from whom our insurance business has the largest reinsurance receivable balances represented $126.1 million, or 14.3% of the total, and included: Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), Canada Life International Reinsurance (Bermuda) Corporation (A.M. Best Rating: A+ rated), and Canada Life Assurance Company (A.M. Best Rating: A+ 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, 2021, 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. We were also exposed to counterparty risk of approximately $157.9 million and $131.8 million as of December 31, 2021 and 2020, respectively, related to our retrospective commission arrangements; associated risks are offset by the Company’s contractual ability to withhold future commissions against the retrospective balances. In addition, we are exposed to counterparty risk of approximately $89.8 million and $62.1 million as of December 31, 2021 and 2020, respectively, related to our premium financing business. The risk associated with such arrangements is mitigated by the fact that we have the contractual ability to cancel the insurance policy and have premiums refunded to us by the insurer in the event of a counterparty default. 78 Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 1 Consolidated Statements of Operations for the years ended December 31, 202 1 , 20 20 and 201 9 F- 2 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 1 , 20 20 and 201 9 F- 3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 1 , 20 20 and 201 9 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 202 1 , 20 20 and 201 9 F- 5 Notes to Consolidated Financial Statements F- 6 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements Critical Audit Matter Description Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates. The Company estimates policy liabilities and unpaid claims 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 made in forecasting ultimate losses. This critical audit matter required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves. How the Critical Audit Matter Was Addressed in the Audit 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 reserves through the following procedures: ◦ With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims reserves based on historical and industry claim development factors. ◦ With assistance from our actuarial specialists, we performed retrospective procedures comparing actual loss development with expected loss development to assess the reasonableness of assumptions used, including consideration of potential bias, in the estimation of policy liabilities and unpaid claims. ◦ We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test that the inputs to the actuarial estimates were complete and accurate. /s/ Deloitte & Touche LLP New York, New York March 11, 2022 We have served as the Company's auditor since 2017. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 11, 2022 expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/Deloitte & Touche LLP New York, New York March 11, 2022 TIPTREE INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) As of December 31, 2021 2020 Assets: Investments: Available for sale securities, at fair value, net of allowance for credit losses $ 577,448 $ 377,133 Loans, at fair value 105,583 90,732 Equity securities 138,483 123,838 Other investments 168,656 219,701 Total investments 990,170 811,404 Cash and cash equivalents 175,718 136,920 Restricted cash 19,368 58,355 Notes and accounts receivable, net 454,369 370,452 Reinsurance receivables 880,836 728,009 Deferred acquisition costs 379,373 229,430 Goodwill 179,103 179,236 Intangible assets, net 122,758 138,215 Other assets 146,844 162,034 Assets held for sale 250,608 181,705 Total assets $ 3,599,147 $ 2,995,760 Liabilities and Stockholders’ Equity Liabilities: Debt, net $ 393,349 $ 366,246 Unearned premiums 1,123,952 860,690 Policy liabilities and unpaid claims 331,703 233,438 Deferred revenue 534,863 399,211 Reinsurance payable 265,569 224,660 Other liabilities and accrued expenses 306,536 362,865 Liabilities held for sale 242,994 175,112 Total liabilities $ 3,198,966 $ 2,622,222 Stockholders’ Equity: Preferred stock: $ 0.001 par value, 100,000,000 shares authorized, none issued or outstanding $ — $ — Common stock: $ 0.001 par value, 200,000,000 shares authorized, 34,124,153 and 32,682,462 shares issued and outstanding, respectively 34 33 Additional paid-in capital 317,459 315,014 Accumulated other comprehensive income (loss), net of tax ( 2,685 ) 5,674 Retained earnings 68,146 35,423 Total Tiptree Inc. stockholders’ equity 382,954 356,144 Non-controlling interests 17,227 17,394 Total stockholders’ equity 400,181 373,538 Total liabilities and stockholders’ equity $ 3,599,147 $ 2,995,760 See accompanying notes to consolidated financial statements. F-1 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share data) For the Year Ended December 31, 2021 2020 2019 Revenues: Earned premiums, net $ 685,552 $ 477,991 $ 499,108 Service and administrative fees 260,525 186,973 106,239 Ceding commissions 11,784 21,101 9,608 Net investment income 17,896 9,916 14,017 Net realized and unrealized gains (losses) 151,350 62,410 83,868 Other revenue 73,407 51,910 59,888 Total revenues 1,200,514 810,301 772,728 Expenses: Policy and contract benefits 327,012 236,898 170,681 Commission expense 396,683 280,210 303,057 Employee compensation and benefits 207,322 172,737 129,479 Interest expense 37,674 32,582 27,059 Depreciation and amortization 24,437 17,578 13,569 Other expenses 142,044 109,148 99,744 Total expenses 1,135,172 849,153 743,589 Income (loss) before taxes 65,342 ( 38,852 ) 29,139 Less: provision (benefit) for income taxes 21,291 ( 13,627 ) 9,017 Net income (loss) 44,051 ( 25,225 ) 20,122 Less: net income (loss) attributable to non-controlling interests 5,919 3,933 1,761 Net income (loss) attributable to common stockholders $ 38,132 $ ( 29,158 ) $ 18,361 Net income (loss) per common share: Basic earnings per share $ 1.13 $ ( 0.86 ) $ 0.52 Diluted earnings per share $ 1.09 $ ( 0.86 ) $ 0.50 Weighted average number of common shares: Basic 33,223,792 33,859,775 34,578,292 Diluted 33,688,256 33,859,775 34,578,292 Dividends declared per common share $ 0.16 $ 0.16 $ 0.16 See accompanying notes to consolidated financial statements. F-2 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the Year Ended December 31, 2021 2020 2019 Net income (loss) $ 44,051 $ ( 25,225 ) $ 20,122 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available for sale securities: Unrealized holding gains (losses) arising during the period ( 10,112 ) 5,653 6,320 Related (provision) benefit for income taxes 2,223 ( 1,289 ) ( 1,409 ) Reclassification of (gains) losses included in net income (loss) ( 638 ) ( 528 ) ( 1,312 ) Related (provision) benefit for income taxes 139 113 280 Unrealized gains (losses) on available for sale securities, net of tax ( 8,388 ) 3,949 3,879 Other comprehensive income (loss), net of tax ( 8,388 ) 3,949 3,879 Comprehensive income (loss) 35,663 ( 21,276 ) 24,001 Less: comprehensive income (loss) attributable to non-controlling interests $ 5,890 3,948 1,785 Comprehensive income (loss) attributable to common stockholders $ 29,773 $ ( 25,224 ) $ 22,216 See accompanying notes to consolidated financial statements. F-3 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except shares) Common stock Number of shares Par value Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total Tiptree Inc. 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 (1) — — — ( 99 ) 99 — — — Amortization of share-based incentive compensation — — 3,145 — — 3,145 2,917 6,062 Vesting of share-based incentive compensation (2) 164,935 — 187 — — 187 ( 2,483 ) ( 2,296 ) Shares purchased under stock purchase plan ( 1,472,730 ) ( 1 ) ( 9,084 ) — — ( 9,085 ) — ( 9,085 ) Non-controlling interest contributions — — — — — — 61 61 Non-controlling interest distributions — — — — — — ( 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 (2) 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 contributions — — Non-controlling interest distributions — — ( 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 (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 Amortization of share-based incentive compensation — — 2,331 — — 2,331 1,725 4,056 Vesting of share-based incentive compensation 596,601 — 3,563 — — 3,563 ( 4,816 ) ( 1,253 ) Shares issued in exchange for vested subsidiary awards (4) 1,166,307 2 105 — — 107 ( 1,565 ) ( 1,458 ) Shares purchased under stock purchase plan ( 528,662 ) ( 1 ) ( 2,881 ) — — ( 2,882 ) — ( 2,882 ) Shares issued upon exercise of warrants 207,445 — — — — — — — Repurchase of vested subsidiary awards — — ( 770 ) — — ( 770 ) ( 309 ) ( 1,079 ) Non-controlling interest contributions — — — — — — 100 100 Non-controlling interest distributions — — — — — — ( 1,095 ) ( 1,095 ) Net change in non-controlling interest — — 97 — — 97 ( 97 ) — Dividends declared — — — — ( 5,409 ) ( 5,409 ) — ( 5,409 ) Other comprehensive income (loss), net of tax — — — ( 8,359 ) — ( 8,359 ) ( 29 ) ( 8,388 ) Net income (loss) — — — — 38,132 38,132 5,919 44,051 Balance at December 31, 2021 34,124,153 $ 34 $ 317,459 $ ( 2,685 ) $ 68,146 $ 382,954 $ 17,227 $ 400,181 (1) Amounts reclassified due to adoption of ASU 2018-02. See Note (2) Summary of Significant Accounting Policies. (2) Includes subsidiary RSU exchanges. See Note (19) Stock Based Compensation. (3) Amounts reclassified due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies. (4) Exchange included $ 1,458 in cash. See accompanying notes to consolidated financial statements. F-4 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) For the Year Ended December 31, 2021 2020 2019 Operating Activities: Net income (loss) attributable to common stockholders $ 38,132 $ ( 29,158 ) $ 18,361 Net income (loss) attributable to non-controlling interests 5,919 3,933 1,761 Net income (loss) 44,051 ( 25,225 ) 20,122 Adjustments to reconcile net income to net cash provided by (used in) operating activities Net realized and unrealized (gains) losses ( 151,350 ) ( 62,410 ) ( 83,868 ) Net (gain) loss on sale of businesses 1,928 4,428 ( 7,598 ) Non-cash compensation expense 11,130 8,117 6,363 Amortization/accretion of premiums and discounts 2,947 2,229 1,161 Depreciation and amortization expense 24,437 17,578 13,569 Non-cash lease expense 8,924 7,374 7,568 Deferred provision (benefit) for income taxes 17,730 10,733 6,815 Amortization of deferred financing costs 1,607 1,015 714 Other 291 ( 333 ) 1,381 Changes in operating assets and liabilities: Mortgage loans originated for sale ( 3,884,533 ) ( 3,064,003 ) ( 2,048,228 ) Proceeds from the sale of mortgage loans originated for sale 3,925,984 3,152,104 2,043,097 (Increase) decrease in notes and accounts receivable ( 54,378 ) ( 48,527 ) ( 33,085 ) (Increase) decrease in reinsurance receivables ( 152,827 ) ( 116,839 ) ( 119,482 ) (Increase) decrease in deferred acquisition costs ( 149,943 ) ( 62,937 ) 3,570 (Increase) decrease in other assets ( 7,065 ) ( 22,417 ) 269 Increase (decrease) in unearned premiums 263,262 105,697 155,549 Increase (decrease) in policy liabilities and unpaid claims 98,265 33,968 12,773 Increase (decrease) in deferred revenue 135,652 122,042 16,397 Increase (decrease) in reinsurance payable 40,909 53,716 26,272 Increase (decrease) in other liabilities and accrued expenses 27,295 23,859 383 Net cash provided by (used in) operating activities 204,316 140,169 23,742 Investing Activities: Purchases of investments ( 1,430,879 ) ( 1,494,688 ) ( 389,206 ) Proceeds from sales and maturities of investments 1,172,044 1,400,229 394,331 Proceeds from the sale of real estate and other assets 8,604 2,981 11,857 Purchases of property, plant and equipment ( 2,764 ) ( 6,694 ) ( 8,519 ) Proceeds from the sale of businesses 125 500 18,329 Proceeds from notes receivable 56,055 41,582 36,690 Issuance of notes receivable ( 77,077 ) ( 62,088 ) ( 67,176 ) Business and asset acquisitions, net of cash, restricted cash and deposits (1) 133 ( 5,313 ) ( 4,633 ) Net cash provided by (used in) investing activities ( 273,759 ) ( 123,491 ) ( 8,327 ) Financing Activities: Dividends paid ( 5,409 ) ( 5,566 ) ( 5,502 ) Net non-controlling interest (redemptions) contributions ( 3,532 ) ( 2,134 ) ( 3,524 ) Payment of debt issuance costs ( 114 ) ( 4,571 ) ( 586 ) Proceeds from borrowings and mortgage notes payable 4,084,299 3,379,688 2,237,329 Principal paydowns of borrowings and mortgage notes payable ( 3,993,364 ) ( 3,321,779 ) ( 2,181,704 ) Repurchases of common stock and other changes in additional paid-in capital ( 8,145 ) ( 13,889 ) ( 9,085 ) Net cash provided by (used in) financing activities 73,735 31,749 36,928 Net increase (decrease) in cash, cash equivalents and restricted cash 4,292 48,427 52,343 Cash, cash equivalents and restricted cash – beginning of period 195,275 144,590 96,524 Cash, cash equivalents and restricted cash – beginning of period - held for sale 4,879 7,137 2,860 Cash, cash equivalents and restricted cash – end of period 204,446 200,154 151,727 Less: Reclassification of cash to assets held for sale 9,360 4,879 7,137 Cash, cash equivalents and restricted cash – end of period $ 195,086 $ 195,275 $ 144,590 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest expense $ 36,885 $ 29,538 $ 26,224 Cash (received) paid during the period for income taxes $ 2,079 $ 1,066 $ 3,301 Supplemental Schedule of Non-Cash Investing and Financing Activities: Right of use asset obtained in exchange for lease liability $ 4,281 $ 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 Shares issued in exchange for vested subsidiary awards $ 107 $ — $ — Acquisition of non-controlling interest $ — $ — $ 2,500 As of December 31, Reconciliation of cash, cash equivalents and restricted cash 2021 2020 2019 Cash and cash equivalents $ 175,718 $ 136,920 $ 133,117 Restricted cash 19,368 58,355 11,473 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 195,086 $ 195,275 $ 144,590 (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. F-5 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 (in thousands, except share data) (1) Organization Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. We classify our business into two reportable segments: Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital. (2) Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. Non-controlling interests on the consolidated financial statements represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated. Reclassifications As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current present ation. These reclassif ications had no effect on the reported results of operations. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of the following significant items: • Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives • Value of acquired assets and liabilities; • Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives; • Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims; • Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and administration fees, and loan origination fees; • Deferred acquisition costs • The realization of deferred tax assets, and recognition and measurement of uncertain tax positions; • Vessel valuations, residual value of vessels and the useful lives of vessels; and • Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial statements Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates. Business Combination Accounting The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated F-6 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 (in thousands, except share data) useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other expense in the consolidated statements of operations. Acquisition and transaction costs are expensed as incurred. In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of valuation studies applicable to the business combination. Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets. Dispositions, 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. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceases the recording of depreciation and amortization on assets transferred. Accounting policies specific to our dispositions, assets and liabilities held for sale and discontinued operations are described in more detail in (4) Dispositions and Assets and Liabilities Held for Sale. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows: • Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at Level 2 are valued based on one or more of the following: a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in nonactive markets; c) Pricing models whose inputs are observable for substantially the full term of the asset or liability; d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. • Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within F-7 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 (in thousands, except share data) which the fair value measurement in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Tiptree’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the instrument. From time to time, Tiptree’s assets and liabilities will transfer between one level to another level. It is Tiptree’s policy to recognize transfers between different levels at the end of each reporting period. Tiptree utilizes both observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. For broker quotes, quotes are obtained from sources recognized to be market participants. Unobservable inputs may include expected cash flow streams, default rates, supply and demand considerations and market volatility. Fair Value Option In addition to the financial instruments that the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Derivative Financial Instruments and Hedging From time to time, derivative instruments are used in the overall strategy to manage exposure to market risks primarily related to fluctuations in interest rates. As a matter of policy, derivatives are not used for speculative purposes. Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on the consolidated balance sheets. Derivative Instruments Designated as Cash Flow Hedging Instruments The Company uses cash flow hedges from time to time to reduce the exposure to variability of cash flows from floating rate borrowings. If a derivative instrument meets certain cash flow hedge accounting criteria, it is recorded on the consolidated balance sheet at its fair value, as either an asset or a liability, with offsetting changes in fair value recognized in AOCI. The effective portion of the changes in fair value of derivatives are reported in AOCI and amounts previously recorded in AOCI are recognized in earnings in the period in which the hedged transaction affects earnings. Any ineffective portions of the change in fair value of the derivative are recognized in current earnings. Stock Based Compensation The Company accounts for share‑based compensation issued to employees, directors, and affiliates of the Company using the current fair value based methodology. The Company initially measures the cost of all share-based compensation incentive awards at fair value on the date of grant, whether accounted for as an equity or liability award. The compensation cost is recognized over the required service period, generally defined as the vesting period using the straight-line method. When the share-based compensation awards are accounted for as equity awards, the compensation cost is charged to expense with a corresponding credit to additional paid-in capital. If the share-based compensation awards are accounted for as liability awards, their fair value is remeasured at each reporting period, with the compensation cost charged to expense with a corresponding credit to other liabilities. Grants of subsidiary restricted stock units (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. F-8 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 (in thousands, except share data) Income Taxes Deferred tax assets and liabilities are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are established for future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to reverse. A valuation allowance is established when necessary to reduce a deferred tax asset to the amount expected to be realized. Several of the Company’s subsidiaries file state tax returns on a standalone basis. Two of our subsidiaries file federal and state tax returns on a stand-alone basis, one of which is held for sale. These U.S. federal and state income tax returns, when filed, will be subject to examination by the Internal Revenue Service and state departments of revenue. See Note (20) Income Taxes. The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. The Company’s provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold. The Company’s policy is to account for interest as a component of interest expense and penalties as a component of other expenses. Earnings Per Share The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and footnotes thereto. Basi