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Item 7. Management’s Discussion and Analysis

2023-03-08 compared with 2022-03-14 · 213 added, 389 removed, 562 unchanged (52% of the section changed)

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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.

We evaluate performance primarily by the comparison of stockholders’ long-term total return on capital, as measured by growth in stock price plus dividends paid, in addition to Adjusted Net Income and Adjusted EBITDA.

Our 2022 highlights include:

• 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.

• Tiptree reported a net loss of $8.3 million for the year ended December 31, 2022, compared to net income of $38.1 million in the prior year, driven primarily by the gain on sale of five vessels and improved performance in our insurance business more than offset by realized and unrealized losses on the insurance investment portfolio and the deferred tax liability associated with the WP Transaction.

• Adjusted net income of $63.4 million decreased 0.7% from $63.9 million in 2021, driven by improvement in insurance and shipping operations more than offset by declines in mortgage volumes and margins.

Adjusted return on average equity was 13.6%, as compared to 16.5% in 2021.

• 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.

• 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.

• Total proceeds from vessel sales in 2022 were $116.7 million, or a net gain of $34.8 million, including the sale of two product tankers in the fourth quarter for an aggregate of $49.0 million, representing an approximate 44% gain as compared to the September 30, 2022 book value.

• In June 2022, Tiptree closed the previously announced $200 million investment in Fortegra, by Warburg.

The investment gives Warburg an approximate 24% ownership in Fortegra on an as converted basis.

• As a result of the WP Transaction, Tiptree recognized a $63.2 million pre-tax gain in stockholders’ equity in the year ended December 31, 2022, which was partially offset by increased deferred tax liabilities resulting from the tax deconsolidation as Tiptree’s ownership of Fortegra was reduced to below 80%.

The change in deferred tax liabilities was $44.8 million, with $11.7 million impacting stockholders’ equity directly (including AOCI) and $33.1 million impacting net income for the year ended December 31, 2022.

• Gross written premiums and premium equivalents were $2.7 billion for the year ended December 31, 2022, as compared to $2.2 billion for the year ended December 31, 2021, up 22.2% as a result of growth in specialty insurance lines and fee-based service contract offerings.

• Total revenues increased 26.9% to $1,248.8 million, from $984.1 million in 2021, driven by increases in earned premiums, net and service and administrative fees.

• The combined ratio remained consistent at 90.7%.

• Income before taxes of $68.2 million decreased by $1.7 million as compared to $69.9 million in 2021.

Return on average equity was 14.6% in 2022 as compared to 17.1% in 2021.

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.

The decreases resulted from increased investment losses in 2022 compared to 2021, partially offset by growth in underwriting and fee revenues.

• Adjusted net income increased 25.5% to $83.8 million, as compared to $66.8 million in 2021.

Adjusted return on average equity was 26.1%, as compared to 22.2% in 2021.

The increase in both metrics was driven by revenue growth and an improved combined ratio.

• In April 2022, Fortegra acquired ITC, a provider of regulatory and compliance services to the retail automotive sector in the United Kingdom, for net cash consideration of approximately $15.0 million, plus an earn-out.

• In February 2023, Fortegra acquired Premia Solutions Limited, one of the largest providers of automotive protection products in the United Kingdom, for net cash consideration of approximately $20.8 million.

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.

• Maritime transportation income before taxes was $49.8 million in 2022, as compared to $11.6 million in 2021, driven by a rise in dry bulk and tanker charter rates and the gain on sale of three dry bulk vessels and two product tankers.

• Mortgage income before taxes was $0.9 million in 2022, as compared to $28.4 million in 2021, with the decrease driven by declines in origination volumes and gain on sale margins, partially offset by higher servicing fees and positive fair value adjustments on the mortgage servicing portfolio.

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.

Conversely, rising unemployment, volatile markets, rapidly rising interest rates, inflation, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition.

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.

In addition, the business has historically generated significant fee-based revenues.

The types of products Fortegra offers tend to have limited aggregation risk and 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.

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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.

Factors affecting these items, including conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, including the current period of inflationary pressures, may have a material adverse effect on our results of operations or financial condition.

While Fortegra’s insurance operations have historically maintained a relatively stable combined ratio, initiatives to change the business mix along with these economic factors could generate different results than the business has historically experienced.

In particular, the current period of rising inflation can have an impact on replacement costs associated with claims from our customers.

To the extent we are unable to pass the higher costs of claims through higher premiums, lower underwriting margins could adversely affect our profitability.

In addition, fluctuations of the U.S.

dollar relative to other currencies, including the British pound and Euro, may have an impact on book value between periods, associated with the timing of the recognition of revenues and expenses related to multi-year insurance contracts.

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.

Many of those investments are held at fair value.

In 2022, the U.S.

fixed income markets experienced a significant rise in interest rates.

Rising interest rates have and could continue to impact the value of Fortegra’s fixed maturity securities, with any unrealized losses recorded in equity, and if realized, could impact our results of operations.

Offsetting the impact of a rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth 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.

The weighted average duration of our fixed income available for sale securities is less than three years.

In 2022, 2-year treasury yields increased significantly, which resulted in unrealized losses on Fortegra’s fixed income portfolio and book value.

While our asset and liability mix is relatively matched, should we need to liquidate any of these investments before maturity to pay claims, any realized losses could materially negatively impact our results of operations.

Changes in fair value for loans, credit investment funds, and equity securities in Fortegra’s investment portfolio are reported as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, currency risk, or market risk, including specific company or industry factors.

In addition, our equity holdings are relatively concentrated.

General equity market trends, along with company and industry specific factors, can impact the fair value which can result in unrealized gains and losses affecting our results.

Rising 10-year treasury yields, and the tapering of the Federal Reserve’s purchases of mortgage-backed securities, has resulted in substantial increases in mortgage interest rates.

Low mortgage interest rates driven by the Federal Reserve intervention in mortgage markets, and rising home prices in certain markets, provided tailwinds to the mortgage markets beginning in the second quarter of 2020 and through 2021, which benefited our mortgage operations and margins.

The substantial rise in rates in 2022 resulted in a sharp reversal of those trends, with volumes and margins declining significantly.

Only partially offsetting the declines in earnings in our origination business is an increase in the fair value of our mortgage servicing portfolio as rising rates slow prepayment speeds, with a resulting increase in servicing income.

Continued rising or elevated mortgage rates could have a materially negative impact on our mortgage business results of operations, and is likely

to be only partially mitigated by the improvement in mortgage servicing revenues.

A sustained period of negative profitability in the mortgage industry could also impact the availability of funding sources for our mortgage business.

Rising interest rates can also impact the cost of floating interest rate debt obligations, while declining rates can decrease the cost of debt.

Our secured revolving and term credit agreements, preferred trust securities and asset based revolving financing are all floating rate obligations.

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

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.

A continuation of rising rates could have a material impact on our costs of floating rate debt.

Common shares of Invesque represent a significant asset on our consolidated balance sheets, 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 sheets at fair value.

The combination of the COVID-19 pandemic impacting occupancy rates and other market factors impacting operating costs has resulted in a significant decline in Invesque’s stock price over the past three years.

Any additional declines in the fair value of Invesque’s common stock could continue to have a significant impact on our results of operations and the value of the investment.

A discussion of our performance for the year ended December 31, 2022 compared to the year ended December 31, 2021 appears below.

A discussion of our performance for the year ended December 31, 2021 compared to the year ended December 31, 2020 is set forth in Part II, Item 7 of our Form 10-K for the year ended December 31, 2021 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

RESULTS OF OPERATIONS

The following is a summary of our consolidated financial results for the year ended December 31, 2021, 2020 and 2019.

The following is a summary of our consolidated financial results for the years ended December 31, 2022 and 2021.

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.

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($ in thousands, except per share information) For the Year Ended December 31,

2021 2020 2019

Total revenues $ 1,397,752 $ 1,200,514

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(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

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.

For the year ended December 31, 2022, revenues were $1.4 billion, which increased $197.2 million, or 16.4%, compared to the prior year period.

The changes were primarily driven by growth in earned premiums, net, and service and administrative fees in our insurance business, increase in charter rates and the gain on sale of five vessels in our maritime transportation operations, and increased revenues from our mortgage servicing portfolio, partially offset by lower mortgage volumes and margins and investment losses on Invesque and other investments in 2022 compared to gains in 2021.

The table below highlights net realized and unrealized gains and losses from the sale of vessels, Invesque and other investments, 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.

As a result, we expect earnings related to these investments to be relatively volatile between periods.

Fixed income securities are primarily marked to market through AOCI in stockholders’ equity and do not impact net realized and unrealized gains and losses until they are sold.

($ in thousands) For the Year Ended December 31,

2021 2020 2019

Net realized gains - Maritime transportation $ 34,803 $ —

Net realized and unrealized gains (losses) - Invesque $ (19,360) $ 3,736

Net realized and unrealized gains (losses) (1)

$ (9,999) $ 8,885

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.

(1) Excludes Invesque, Maritime transportation and Mortgage realized and unrealized gains and losses.

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.

For the year ended December 31, 2022, net loss attributable to common stockholders was $8.3 million, a decrease of $46.4 million from net income of $38.1 million for the year ended December 31, 2021, primarily driven by net realized and unrealized losses on Invesque and other investments in 2022 compared to gains in 2021, lower mortgage origination revenues and the tax impacts of the WP Transaction, partially offset by growth in Fortegra’s underwriting and fee operations, increased revenues from our mortgage servicing portfolio and improvement in dry bulk and tanker charter rates, and the gain on sale of five vessels.

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 net income for the year ended December 31, 2022 was $63.4 million, a decrease of $0.5 million, or 0.7%, from the year ended December 31, 2021, driven by improved performance in our insurance and shipping operations, more than offset by declines in our mortgage business.

For the year ended December 31, 2022, adjusted return on average equity was 13.6%, as compared to 16.5% at December 31, 2021.

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.

Adjusted EBITDA for the year ended December 31, 2022 was $81.1 million, a decrease of $19.7 million from 2021, driven by realized and unrealized losses on Invesque and other investments in 2022 (including impacts to AOCI) compared to gains in 2021, partially offset by the WP Transaction gain and improved operating performance noted above.

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

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.

Total stockholders’ equity was $533.6 million as of December 31, 2022 compared to $400.2 million as of December 31, 2021, with the increase driven by the WP Transaction and cash exercise of Tiptree warrants, partially offset by comprehensive loss in 2022 primarily resulting from unrealized losses on Available for Sale (“AFS”) securities and negative impacts from foreign currency translation.

In the year ended December 31, 2022, Tiptree returne d $7.4 million t o stockholders through dividends paid and shares repurchased.

Book value per share for the period ended December 31, 2022 was $10.92, a decrease from book value per share of $11.22 as of December 31, 2021 driven by the comprehensive loss per share primarily associated with unrealized losses on AFS securities, dividends paid of $0.16 per share, and issuance of shares as a result of the exercise of warrants and exchanges of vested subsidiary equity awards, partially offset by the net increase to Tiptree Inc.

stockholders’ equity from the WP Transaction.

Results by Segment

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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

Insurance $ 1,248,796 $ 984,130

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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 combination of specialty insurance underwriting, service contract products, and related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting revenues, investment income and unregulated fee revenues.

The business is an agent-driven model, distributing products through independent insurance agents, consumer finance companies, online retailers, auto dealers, and regional big box retailers to deliver products that complement the consumer transaction.

The following tables present the Insurance segment results for the following periods:

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(2) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

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.

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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.

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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

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.

Other revenue also includes interest income earned on premium finance product offerings and cash and cash equivalents.

Net Investment Income is earned on the 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.

The principal factors that influence

net investment income are the size of the investment portfolio, the yield on investments and expenses of external investment managers.

Net Realized and Unrealized Gains (Losses) on investments are a function of the difference between the amount received on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances for credit losses which are recognized in earnings.

Equity securities are carried at fair value with unrealized gains and losses also included in this line.

Revenues – 2022 compared to 2021

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Service and administrative fees of $320.7 million increased by 23.1%, 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.

Ceding commissions of $13.9 million increased by $2.1 million, or 17.8%, driven by higher ceding fees as more 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.

Other revenues increased by $7.2 million, or 69.2%, driven by growth in our premium finance lines and interest income on cash and cash equivalents.

For the year ended December 31, 2022, net investment income of $12.2 million decreased by $5.7 million from 2021, driven by a reduction in special dividends on equity securities, increases in investment expenses on alternative investments, and a higher allocation to cash and cash equivalents which is recorded in other income.

Net realized and unrealized losses were $20.3 million, compared to losses of $2.0 million in 2021, with the increase driven by realized and unrealized losses on equity securities and credit investment funds in 2022.

For the year ended December 31, 2022, 28.2% of revenues were derived from fees that are not solely dependent upon the underwriting performance of insurance products, resulting in more diversified and consistent earnings.

For the year ended December 31, 2022, 78.0% of fee-based revenues were generated in non-regulated service companies, with the remainder in regulated insurance companies.

The combination of unearned premiums and deferred revenues on Fortegra’s balance sheet grew to $2.0 billion, representing an increase of $347.8 million, or 21.0%, from December 31, 2021 to December 31, 2022, 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.

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.

Member Benefit Claims

Member Benefit Claims represent the costs of services and replacement devices incurred in auto, consumer goods and roadside service contracts.

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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.

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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.

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.

Depreciation is primarily associated with furniture, fixtures and equipment.

Amortization is primarily associated with purchase accounting amortization including values associated with acquired customer relationships, trade names and internally developed software and technology.

Expenses – 2022 compared to 2021

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The increase in net losses and loss adjustment expenses of $108.1 million, or 42.7%, 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%.

Insurance lines, partially offset by the impact of favorable prior year development of $0.9 million.

In 2021, the impact of unfavorable prior year development was $2.6 million driven by higher-than-expected claim severity from business written by a small group of producers in the personal and commercial lines of business.

The impact of the prior year development in 2021 increased our ratio of net losses and loss adjustment expenses to earned premiums, net by 0.4%.

The increase in member benefit claims of $17.5 million, or 23.7%, was driven by growth in auto and consumer goods service contracts.

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For the year ended December 31, 2022, employee compensation and benefits were $87.9 million and other expenses were $78.8 million, as compared to $76.6 million and $79.2 million, respectively, for the year ended December 31, 2021.

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

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.

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

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 %

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

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.

Employee compensation and benefits increased by $11.4 million, or 14.8%, driven by investments in human capital associated with our growth objectives in E&S and service contract lines.

Other expenses decreased by $0.4 million, or 0.5%, driven primarily by a decrease in fair value of the Fortegra Additional Warrant liability.

Included in other expenses were $2.2 million for both the years ended December 31, 2022 and 2021, related to acquisition fees in 2022 and professional fees associated with preparation of the registration statement for the Fortegra initial public offering which was withdrawn in 2021.

For the year ended December 31, 2022, interest expense was $20.1 million as compared to $17.6 million for the year ended December 31, 2021.

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.

The increase in interest expense of $2.5 million, or 14.1%, was driven by increased asset-based borrowings to support growth in our premium finance lines, the increase in floating rate borrowing costs, 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, 2022, depreciation and amortization expense was $18.6 million, including $16.2 million of intangible amortization related to purchase accounting associated with acquisitions of ITC, Sky Auto, Smart AutoCare and Fortegra.

For the year ended December 31, 2021, depreciation and amortization expense was $17.2 million, including $15.3 million of intangible amortization from purchase accounting related to acquisitions of Sky Auto, Smart AutoCare and Fortegra.

Key Performance Metrics

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($ in thousands) Gross Written Premiums and Premium Equivalents

2021 2020 2019

Insurance $ 1,690,072 $ 1,438,393

Warranty Solutions 852,839 652,052

Europe Warranty Solutions 103,579 53,216 34,209

Europe 137,860 103,579

Total $ 2,680,771 $ 2,194,024

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The growth of $486.7 million, or 22.2%, 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 $347.8 million, or 21.0%, 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.

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.

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.

As of December 31, 2022, Fortegra’s unearned premiums and deferred revenues were $2.0 billion, as compared to $1.7 billion as of December 31, 2021.

Combined Ratio, Underwriting Ratio and Expense Ratio

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The combined ratio was 90.7% for the year ended December 31, 2022, which consisted of an underwriting ratio of 77.6% and an expense ratio of 13.1%, as compared to 90.6%, 74.7% and 15.9%, respectively, for the year ended December 31, 2021.

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.

The combined ratio remained consistent, driven by the scalability of Fortegra’s technology and shared service platform, which improved the expense ratio, while the underwriting ratio increased due to a shift in business mix toward lines with higher loss ratios and lower expense ratios.

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.

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

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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.

Return on average equity was 14.6% for the year ended December 31, 2022, as compared to 17.1%, for the year ended December 31, 2021, driven by an increase in net realized and unrealized losses in 2022 period compared to 2021 as well as higher average equity balances, partially offset by growth in underwriting and fee revenues.

Non-GAAP Financial Measures

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Warranty Solutions 274,923 230,942 88,264 90,255

Europe Warranty Solutions 47,144 22,652 6,834 13,032 7,496 2,808

Europe 59,708 47,144 21,323 13,032

Total $ 1,256,924 $ 968,240 $ 281,633 $ 244,545

(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,

for the year ended December 31, 2020.

Underwriting and fee revenues were $1,256.9 million for the year ended December 31, 2022, as compared to $968.2 million, for the year ended December 31, 2021.

Total underwriting and fee revenues were up $288.7 million, or 29.8%, driven by growth in all product lines.

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Warranty Solutions was $44.0 million, or 19.0%, 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.

Insurance grew by $34.5 million, or 32.3%, as the underwriting ratio was consistent year-over-year at 79.5% while revenues increased.

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.

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.

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.

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.

Europe increased by $12.6 million, or 26.7%, driven by growth in auto and consumer goods service contracts.

Underwriting and fee margin was $281.6 million for the year ended December 31, 2022 as compared to $244.5 million for the year ended December 31, 2021, representing an increase of $37.1 million, or 15.2%, driven by growth in U.S Insurance and Europe.

Insurance grew by $30.8 million, or 21.8%, from growth in specialty admitted and E&S lines.

Warranty Solutions decreased by $2.0 million, or 2.2%, primarily driven by the deferral of revenues associated with contracts acquired by Sky Auto.

This revenue deferral in 2022 for Sky Auto was partially offset by the deferral of direct marketing

costs in other expenses and therefore had minimal impact on the combined ratio or income before taxes in comparing 2022 versus 2021.

Europe increased by $8.3 million, or 63.6%, driven by growth in auto and consumer goods service contracts.

Adjusted Net Income and Adjusted Return on Average Equity

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For the year ended December 31, 2022, adjusted net income and adjusted return on average equity were $83.8 million and 26.1%, respectively, as compared to $66.8 million and 22.2%, respectively, for the year ended December 31, 2021.

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.

The improvement in metrics was driven by the growth in revenues and consistent combined ratio.

Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments

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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.

Unrealized gains and losses on equity securities and loans held at fair value impact current period net income, while unrealized gains and losses on AFS securities impact AOCI.

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.

For the year ended December 31, 2022, net investment income was $12.2 million compared to $17.9 million in 2021 with the decrease driven by a reduction in special dividend income on equity securities, increases in investment expenses on alternative investments, and a higher allocation to cash and cash equivalents which is recorded in other income.

Tiptree Capital

Tiptree Capital consists of our Mortgage segment, which includes the operating results of Reliance, our mortgage business, and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments.

As of December 31, 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.

As of December 31, 2022, Tiptree Capital - Other includes our Invesque shares and maritime transportation operations.

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.

We are also an approved issuer and servicer for Ginnie Mae.

We originate residential mortgage loans through our retail distribution channel (directly to consumers) in 39 states and the District of Columbia as of December 31, 2022.

The following tables present the Mortgage segment results for the following periods:

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($ in thousands) For the Year Ended December 31,

2021 2020 2019

Net realized and unrealized gains (losses) $ 51,345 $ 92,307

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(1) See “ — Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.

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.

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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.

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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.

Revenues - 2022 compared to 2021

For the year ended December 31, 2022, $1.1 billion of loans were funded, compared to $1.6 billion for 2021, a decrease of $474.0 million, or 29.5%.

Origination volumes for 2022 declined given the rise in mortgage interest rates.

Gain on sale margins decreased to 4.7% for the year ended December 31, 2022, down approximately 90 basis points from 5.6% for the year ended December 31, 2021.

Net realized and unrealized gains for the year ended December 31, 2022 were $51.3 million, compared to $92.3 million for 2021, a decrease of $41.0 million or 44.4%.

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

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.

Employee Compensation and Benefits

The primary driver of decreased gain on sale revenues was the decline in volumes and gain on sale margins, partially offset by positive fair value adjustments in mortgage servicing rights of $7.0 million as prepayment speeds declined from December 31, 2021.

Other revenue for the year ended December 31, 2022 was $18.9 million, compared to $19.0 million for 2021, a decrease of $0.1 million, or 0.5%.

As of December 31, 2022, the mortgage servicing asset was valued at $41.4 million, an increase from $29.8 million as of December 31, 2021.

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

Depreciation is mainly associated with furniture, fixtures and equipment.

Amortization is primarily associated with a trade name and internally developed software.

Other Expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing expense.

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.

Expenses - 2022 compared to 2021

For the year ended December 31, 2022, employee compensation and benefits were $41.6 million, compared to $56.8 million in 2021, a decrease of $15.2 million or 26.7%.

The decrease was driven primarily by reduced commissions on lower origination volumes and lower performance related incentive compensation.

For the year ended December 31, 2022, interest expense was at $1.6 million, an increase of $0.5 million or 39.6% driven by higher interest rates.

For the year ended December 31, 2022, other expenses were $25.3 million, compared to $24.0 million in 2021, with the $1.3 million increase driven by higher loan origination expense.

For the year ended December 31, 2022, depreciation and amortization were $0.8 million, compared to $0.9 million in 2021, with the decrease driven by lower depreciation expense.

Income (loss) before taxes

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, 2022 was $0.9 million, compared to $28.4 million in 2021.

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.

The primary driver of the decrease was a decline in volumes and 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 2021.

Tiptree Capital - Other

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64,947 35,562 49,809 11,635

29,778 66,436 (2,391) 2,484

Total $ 78,710 $ 105,089 $ 31,403 $ 17,210

(1) Includes our held for sale mortgage originator (Luxury), asset management, and certain intercompany elimination transactions.

(1) Includes $15.1 million and $23.9 million of expenses related to our Maritime transportation operations for the years ended December 31, 2022 and 2021, respectively.

(2) Includes our formerly held for sale mortgage originator (Luxury), asset management, and certain intercompany elimination transactions.

Tiptree Capital - Other earns revenues from the following sources:

net interest income;

revenues on our held for sale mortgage originator;

revenues on our formerly held for sale mortgage originator (Luxury);

realized and unrealized gains and losses on the Company’s investment holdings (primarily Invesque);

and charter 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.

and charter revenues from vessels within the Company’s maritime transportation operations.

Subsequent to the sale of our dry bulk and tanker vessels, operations include two smaller seaborne vessels and other ancillary assets.

Revenues for the year ended December 31, 2022 were $78.7 million compared to $105.1 million for 2021 with the decline primarily driven by unrealized losses on our investment in Invesque in the 2022 period compared to gains in the 2021 period and the deconsolidation of Luxury effective July 1, 2022, offset by higher charter rates and gain on sale of three dry bulk vessels and two product tankers in our maritime transportation business.

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.

The income before taxes from Tiptree Capital - Other for the year ended December 31, 2022 was $31.4 million, compared to income before taxes of $17.2 million in 2021, with the increase driven by the gain on sale of three dry bulk vessels and two product tankers, partially offset by the unrealized losses on Invesque.

Adjusted net income - Non-GAAP (1)

($ in thousands) Year Ended December 31,

2021 2020 2019

($ in thousands) For the Year Ended December 31,

Senior living (Invesque) $ — $ —

Maritime transportation 12,707 10,713

Other 50 205 4,384

Total $ 13,627 $ 10,763

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Adjusted net income increased to $13.6 million for the year ended December 31, 2022 compared to $10.8 million in 2021.

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.

The increase was driven by the improvement in maritime transportation operations.

The following table presents a summary of corporate results for the following periods:

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($ in thousands) For the Year Ended December 31,

2021 2020 2019

Employee compensation and benefits $ 7,948 $ 7,406

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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.

Employee compensation and benefits, including incentive compensation expense, were $27.2 million for the year ended December 31, 2022, compared to $28.1 million for 2021, driven by a decrease in performance related employee incentive compensation.

Of the 2022 and 2021 incentive compensation expense, $7.1 million and $8.6 million, respectively, was stock-based compensation expense primarily related to awards granted in third quarter 2021.

Interest expense for the year ended December 31, 2022 and 2021 was $4.2 million and $10.0 million, respectively.

As of December 31, 2022, the Company had no outstanding borrowings at the holding company, compared to $114.1 million at December 31, 2021.

Other expenses of $14.2 million increased by $2.9 milli on from the year ended December 31, 2021, primarily driven by a $2.1 million loss on extinguishment of debt and increased consulting and professional fees.

Provision for Income Taxes

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.

On June 21, 2022, the WP Transaction was completed, in which Warburg invested $200.0 million in Tiptree’s insurance subsidiary, Fortegra.

The WP Transaction, along with Fortegra management’s ownership, reduced Tiptree’s equity ownership in Fortegra below 80% such that, while still consolidated for GAAP financial reporting purposes, Fortegra will no longer be included in the consolidated tax return group with Tiptree.

Tiptree has recorded deferred tax liabilities related to the basis difference in Tiptree’s investment in Fortegra as of December 31, 2022.

This deferred tax liability represents the tax that would be due, before consideration of loss carryforwards, if Tiptree were to sell any of its Fortegra stock at its carrying value on Tiptree’s balance sheet.

The increase in deferred tax liabilities was $44.8 million, with $11.7 million impacting stockholders’ equity directly (including AOCI) and $33.1 million impacting net income for the year ended December 31, 2022.

The total income tax expense of $50.5 million for the year ended December 31, 2022 and $21.3 million for the year ended December 31, 2021 is reflected as a component of net income (loss).

For the year ended December 31, 2022, the Company’s effective tax rate was equal to 93.4%.

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.

The effective rate for the year ended December 31, 2022 was significantly higher than the U.S.

statutory income tax rate of 21.0%, primarily from the impact of recording deferred taxes relating to the tax deconsolidation of Fortegra.

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, 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.

The effective rate for the year ended December 31, 2021 was equal to the U.S.

federal statutory income tax rate of 21.0%, due to the impact of state taxes offset by other discrete items.

On August 16, 2022, the U.S.

government enacted Public Law no.

117-169, commonly referred to as the Inflation Reduction Act, which, among other things, establishes a corporate minimum tax on book earnings and an excise tax on stock buybacks.

It is not expected that this legislation will have a material financial impact on the Company or its operations.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses.

During the year ended December 31, 2020, the Company recorded a $7.3 million tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $16.8 million and an increase to our current receivable of $24.1 million.

Balance Sheet Information

Tiptree’s total assets were $4,039.6 million as of December 31, 2022, compared to $3,599.1 million as of December 31, 2021.

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 $440.4 million increase in assets is primarily attributable to the growth in the Insurance segment, proceeds from the WP Transaction and the increase in cash and equivalents from the sale of our dry bulk vessels and product tankers.

Total stockholders’ equity was $533.6 million as of December 31, 2022, compared to $400.2 million as of December 31, 2021, with the increase primarily driven by the WP Transaction, partially offset by other comprehensive losses on AFS securities for the year ended December 31, 2022.

As of December 31, 2022, there were 36,385,299 shares of common stock outstanding as compared to 34,124,153 shares as of December 31, 2021, with the increase driven by the exercise of warrants and the vesting of share-based incentive compensation, partially offset by stock repurchases.

The following table is a summary of certain balance sheet information:

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stockholders’ equity $ 205,666 $ 54,743 $ 71,666 $ 65,290 $ 397,365

Non-controlling interests - Other 11,066 1,169 3,930 1,062 17,227

Non-controlling interests:

Fortegra preferred interests 77,679 — — — 77,679

Common interests 55,364 — 3,165 — 58,529

Total stockholders’ equity $ 338,709 $ 54,743 $ 74,831 $ 65,290 $ 533,573

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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.

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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 — 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.

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($ in thousands) For the Year Ended December 31,

2021 2020 2019

Total revenues $ 1,248,796 $ 984,130

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Underwriting and fee revenues $ 1,256,924 $ 968,240

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 — 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.

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($ in thousands) For the Year Ended December 31,

2021 2020 2019

Income (loss) before income taxes $ 68,150 $ 69,857

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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

management of business as part of our capital allocation process.

We use adjusted net income as an internal operating performance measure in the management of business as part of our capital allocation process.

We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies.

Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently.

Adjusted net income is presented before the impacts of non-controlling interests.

We present adjustments for amortization associated with acquired intangible assets.

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Tax on adjustments (2)

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)

Income tax (benefit) expense (3,725) (7,066) 13,624 10,794 13,627

Net realized and unrealized gains (losses) 13,804 4,018 67,668 — 85,490

Intangibles amortization (1)

(4,501) 1,834 3,731 31,106 32,170

Stock-based compensation expense 2,287 2,482 174 3,172 8,115

Non-recurring expenses 3,418 — 624 758 4,800

Non-cash fair value adjustments — — (2,141) — (2,141)

Tax on adjustments (8,522) (1,958) (14,210) (4,131) (28,821)

Adjusted net income $ 83,832 $ (4,658) $ 13,627 $ (29,400) $ 63,401

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Tax on adjustments (2)

(398) (624) 655 4,249 3,882

Adjusted net income $ 66,782 $ 17,434 $ 10,763 $ (31,110) $ 63,869

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(1) Specifically associated with acquisition purchase accounting.

See Note (3) Acquisitions.

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

(2) Tax on adjustments represents the tax applied to the total non-GAAP adjustments and includes adjustments for non-recurring or discrete tax impacts.

For the year ended December 31, 2022, included in the adjustment is an add-back of $33.1 million, respectively, related to deferred tax expense from the WP Transaction.

Adjusted EBITDA - Non-GAAP

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($ in thousands) For the Year Ended December 31,

2021 2020 2019

Net income (loss) attributable to common stockholders $ (8,274) $ 38,132

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Non-recurring expenses (3)

5,267 4,800 4,257

Unrealized gains (losses) on AFS securities (10,751) 5,125 5,008

Other comprehensive income (loss), pre-tax (62,536) (10,751)

Warburg gain to book value (4)

Third party non-controlling interests (5)

Adjusted EBITDA $ 81,124 $ 100,776

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For maritime transportation operations, depreciation and amortization is deducted as a reduction in the value of the vessel.

From insurance operations, changes in the fair value of the Fortegra Additional Warrant liability is added back.

Acquisition, start-up and disposition costs, including debt extinguishment, legal, taxes, banker fees and other costs.

The pre-tax gain recorded directly to Tiptree Inc.

stockholders’ equity was included in Adjusted EBITDA, net of add-backs included in prior period Adjusted EBITDA.

Adjusts for the comprehensive income (loss) (including EBITDA and AOCI impacts) for the non-controlling interests of The Fortegra Group.

Book Value per share - Non-GAAP

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As of December 31,

2021 2020 2019

Total stockholders’ equity $ 533,573 $ 400,181

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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 are a holding company and our liquidity needs are primarily for compensation, professional fees, office rent and insurance costs.

Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in agreements for the strategic investment by Warburg in Fortegra, our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings.

We expect our cash and cash equivalents and distributions from operating subsidiaries, our subsidiaries’ access to financing, and sales of investments to be adequate to fund our operations for at least the next 12 months, as well as the long term.

As of December 31, 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.

As of December 31, 2022, cash and cash equivalents, excluding restricted cash, were $538.1 million, compared to $175.7 million at December 31, 2021, an increase of $362.3 million primarily as a result of the WP Transaction, growth in gross written premium and premium equivalents at Fortegra, sales and maturities of investments within Fortegra and the sale of three dry bulk vessels and two product tankers in our maritime transportation business.

Our mortgage business relies on short term uncommitted sources of financing as a part of their normal course of operations.

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Total $ 160,000 $ 276,223 $ 19,290 $ 24,425

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

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.

The balance of the corporate credit facility was repaid during June 2022 as part of the WP Transaction.

See Note (11) Debt, net in the notes to consolidated financial statements for details for prior periods.

On October 21, 2022, Fortegra entered into a Second Amended and Restated Credit Agreement by and among Fortegra Financial, and its subsidiary, LOTS Intermediate Co., as borrowers, the lenders from time to time party thereto, certain of Fortegra’s subsidiaries, as guarantors, and Fifth Third Bank, National Association, as the administrative agent and issuing

lender (the “Fortegra Credit Agreement”).

The Fortegra Credit Agreement provides for a $200 million revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $25 million for swing loans and matures on October 21, 2027.

Consolidated Comparison of Cash Flows

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Total cash provided by (used in):

2021 2020 2019

Net cash (used in) provided by:

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Cash provided by operating activities was $463.1 million for the year ended December 31, 2022.

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.

In 2022, the primary sources of cash from operating activities included proceeds from mortgage loans outpacing originations and growth in insurance premiums written resulting in increases in unearned premiums, policy liabilities and unpaid claims and deferred revenues, which were partially offset by increases in deferred acquisition costs and reinsurance receivables.

Cash provided by operating activities was $204.3 million for the year ended December 31, 2021.

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 provided by investing activities was $9.5 million for the year ended December 31, 2022.

In 2022, the primary sources of cash were proceeds from the sale of investments outpacing the purchases of investments.

The primary uses of cash from investing activities were the issuance of notes receivable outpacing proceeds and the acquisition of ITC.

Cash used in investing activities was $273.8 million for the year ended December 31, 2021.

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.

In 2021, the primary uses of cash from investing activities were the purchase of investments outpacing proceeds from the sales of investments in our insurance investment portfolio, and the issuance of notes receivable outpacing proceeds.

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

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 used in financing activities was $115.2 million for the year ended December 31, 2022.

In 2022, the cash usage was from a combination of principal repayments on corporate borrowings and mortgage warehouse facilities exceeded proceeds from borrowings, the repurchase of the Company’s common stock and the payment of dividends, which was partially offset by cash received from the WP Transaction and the exercise of warrants.

Cash provided by financing activities was $73.7 million for the year ended December 31, 2021.

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.

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, the repurchase of the Company’s common stock and the payment of dividends.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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

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.

During the year ended December 31, 2022 the Company experienced favorable prior year development of $0.9 million, compared to unfavorable prior year development of $2.6 million and $5.4 million for the years ended December 31, 2021 and 2020, respectively.

In 2022, the $0.9 million favorable prior year development is primarily due to lower-than-expected claim severity in our commercial lines business.

In 2021, the $2.6 million increase in prior year development is primarily due to higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business.

In 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 non-standard programs which contributed to the prior year development in 2020 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.

Management considers the prior year development for all three years to be insignificant when considered in the context of our annual earned premiums, net as well as o ur net losses and loss adjustment expenses and member benefit claims expenses.

Earned premiums, net in 2022 were $904.8 million and net losses and loss adjustment expenses were $361.6 million, which resulted to a loss ratio of 40.0%.

Without the $2.6 million prior year development, the calendar year loss ratio would have been approximately 0.4% lower.

Without the $0.9 million of favorable prior year development, the calendar year loss ratio would have been approximately 0.1% higher.

For comparison, the 2021 and 2020 loss ratios were 37.0% and 37.2%, respectively.

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.

In general, the Company's loss ratio res ults have been predictable and consistent over time.

Actuarial estimates are subject to estimation variability, and while management uses its best judgment in establishing the estimate of required unpaid claims, different assumptions and variables could lead to significantly different unpaid claims estimates.

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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.

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.

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As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2022 and 2021.

Amortization of deferred acquisition costs was $375.1 million, $265.8 million and $287.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Amortization of deferred acquisition costs was $479.1 million and $375.1 million for the years ended December 31, 2022 and 2021.

Revenue Recognition

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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

detailed disclosure regarding these revenues.

Revenues from contracts with customers were $300.2 million and $258.6 million for the years ended December 31, 2022 and 2021, respectively, and include auto and consumer goods service contracts, motor clubs, other service and administrative fees, vessel related revenue and management fee income.

See Note (14) Revenue from Contracts with Customers for more detailed disclosure regarding these revenues.

Service fee revenue is recognized as the services are performed.

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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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis