TIPTREE INC. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 F- 1 Consolidated Statements of Operations for the years ended December 31, 202 2 , 202 1 and 20 20 F- 2 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 2 , 202 1 and 20 20 F- 3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 2 , 202 1 and 20 20 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 and 20 20 F- 6 Notes to Consolidated Financial Statements F- 8 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Policy liabilities and unpaid claims – Refer to Notes 2 and 13 to the financial statements Critical Audit Matter Description Policy liabilities and unpaid claims include claims in the normal course of settlement and reserve estimates. The Company estimates policy liabilities and unpaid claims reserves by applying a variety of generally accepted actuarial methods to historical loss development patterns, which require numerous assumptions and significant judgment. We identified policy liabilities and unpaid claims as a critical audit matter because of the significant estimates and assumptions management made in forecasting ultimate losses. This critical audit matter required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate management’s selection of various assumptions in determining unpaid claims reserves. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to policy liabilities and unpaid claims included the following, among others: • We tested the design and operating effectiveness of controls over policy liabilities and unpaid claims, including those related to the estimation and management’s review of the estimates as well as the selection of underlying assumptions. • We tested the design and operating effectiveness of controls over the completeness and accuracy of the premium and claim data utilized by management and their third-party actuaries. • We evaluated the methods and assumptions used by the Company to estimate the policy liabilities and unpaid claims reserves through the following procedures: ◦ With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims reserves based on historical and industry claim development factors. ◦ With assistance from our actuarial specialists, we performed retrospective procedures comparing actual loss development with expected loss development to assess the reasonableness of assumptions used, including consideration of potential bias, in the estimation of policy liabilities and unpaid claims. ◦ We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test that the inputs to the actuarial estimates were complete and accurate. /s/ Deloitte & Touche LLP New York, New York March 8, 2023 We have served as the Company's auditor since 2017. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Tiptree Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Tiptree Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated March 8, 2023 expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/Deloitte & Touche LLP New York, New York March 8, 2023 TIPTREE INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) As of December 31, 2022 2021 Assets: Investments: Available for sale securities, at fair value, net of allowance for credit losses $ 611,980 $ 577,448 Loans, at fair value 64,843 105,583 Equity securities 85,776 138,483 Other investments 73,025 168,656 Total investments 835,624 990,170 Cash and cash equivalents 538,065 175,718 Restricted cash 12,782 19,368 Notes and accounts receivable, net 502,311 454,369 Reinsurance receivables 1,176,090 880,836 Deferred acquisition costs 498,925 379,373 Goodwill 186,608 179,103 Intangible assets, net 117,015 122,758 Other assets 172,143 146,844 Assets held for sale — 250,608 Total assets $ 4,039,563 $ 3,599,147 Liabilities and Stockholders’ Equity Liabilities: Debt, net $ 259,366 $ 393,349 Unearned premiums 1,357,436 1,123,952 Policy liabilities and unpaid claims 567,193 331,703 Deferred revenue 649,150 534,863 Reinsurance payable 305,097 265,569 Other liabilities and accrued expenses 367,748 306,536 Liabilities held for sale — 242,994 Total liabilities $ 3,505,990 $ 3,198,966 Stockholders’ Equity: Preferred stock: $ 0.001 par value, 100,000,000 shares authorized, none issued or outstanding $ — $ — Common stock: $ 0.001 par value, 200,000,000 shares authorized, 36,385,299 and 34,124,153 shares issued and outstanding, respectively 36 34 Additional paid-in capital 382,645 317,459 Accumulated other comprehensive income (loss), net of tax ( 39,429 ) ( 2,685 ) Retained earnings 54,113 68,146 Total Tiptree Inc. stockholders’ equity 397,365 382,954 Non-controlling interests: Fortegra preferred interests 77,679 — Common interests 58,529 17,227 Total non-controlling interests 136,208 17,227 Total stockholders’ equity 533,573 400,181 Total liabilities and stockholders’ equity $ 4,039,563 $ 3,599,147 See accompanying notes to consolidated financial statements. F-1 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share data) For the Year Ended December 31, 2022 2021 2020 Revenues: Earned premiums, net $ 904,765 $ 685,552 $ 477,991 Service and administrative fees 320,720 260,525 186,973 Ceding commissions 13,880 11,784 21,101 Net investment income 12,219 17,896 9,916 Net realized and unrealized gains (losses) 69,983 151,350 62,410 Other revenue 76,185 73,407 51,910 Total revenues 1,397,752 1,200,514 810,301 Expenses: Policy and contract benefits 452,605 327,012 236,898 Commission expense 522,686 396,683 280,210 Employee compensation and benefits 182,657 207,322 172,737 Interest expense 30,240 37,674 32,582 Depreciation and amortization 22,973 24,437 17,578 Other expenses 132,580 142,044 109,148 Total expenses 1,343,741 1,135,172 849,153 Income (loss) before taxes 54,011 65,342 ( 38,852 ) Less: provision (benefit) for income taxes 50,450 21,291 ( 13,627 ) Net income (loss) 3,561 44,051 ( 25,225 ) Less: net income (loss) attributable to non-controlling interests 11,835 5,919 3,933 Net income (loss) attributable to common stockholders $ ( 8,274 ) $ 38,132 $ ( 29,158 ) Net income (loss) per common share: Basic earnings per share $ ( 0.23 ) $ 1.13 $ ( 0.86 ) Diluted earnings per share $ ( 0.23 ) $ 1.09 $ ( 0.86 ) Weighted average number of common shares: Basic 35,531,149 33,223,792 33,859,775 Diluted 35,531,149 33,688,256 33,859,775 Dividends declared per common share $ 0.16 $ 0.16 $ 0.16 See accompanying notes to consolidated financial statements. F-2 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the Year Ended December 31, 2022 2021 2020 Net income (loss) $ 3,561 $ 44,051 $ ( 25,225 ) Other comprehensive income (loss), net of tax: Change in unrealized gains (losses) on available for sale securities ( 55,290 ) ( 10,750 ) 5,125 Change in unrealized currency translation adjustments ( 7,351 ) — — Related (provision) benefit for income taxes 14,973 2,362 ( 1,176 ) Other comprehensive income (loss), net of tax ( 47,668 ) ( 8,388 ) 3,949 Comprehensive income (loss) ( 44,107 ) 35,663 ( 21,276 ) Less: comprehensive income (loss) attributable to non-controlling interests 8,104 5,890 3,948 Comprehensive income (loss) attributable to common stockholders $ ( 52,211 ) $ 29,773 $ ( 25,224 ) See accompanying notes to consolidated financial statements. F-3 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except shares) Common stock Non-controlling interests Number of shares Par value Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total Tiptree Inc. stockholders’ equity Fortegra preferred interests Common interests Total stockholders' equity Balance at December 31, 2019 34,562,553 $ 35 $ 326,140 $ 1,698 $ 70,189 $ 398,062 $ — $ 13,353 $ 411,415 Adoption of accounting standard (1) — — — 42 ( 42 ) — — — — Amortization of share-based incentive compensation — — 3,441 — — 3,441 — 4,130 7,571 Vesting of share-based incentive compensation (2) 504,195 — 100 — — 100 — ( 2,223 ) ( 2,123 ) Shares purchased under stock purchase plan ( 2,384,286 ) ( 2 ) ( 13,887 ) — — ( 13,889 ) — — ( 13,889 ) Non-controlling interest distributions — — ( 645 ) — — ( 645 ) — ( 1,389 ) ( 2,034 ) Net change in non-controlling interests and other — — ( 135 ) — — ( 135 ) — ( 425 ) ( 560 ) Common stock dividends declared — — — — ( 5,566 ) ( 5,566 ) — — ( 5,566 ) Other comprehensive income (loss), net of tax — — — 3,934 — 3,934 — 15 3,949 Net income (loss) — — — — ( 29,158 ) ( 29,158 ) — 3,933 ( 25,225 ) Balance at December 31, 2020 32,682,462 $ 33 $ 315,014 $ 5,674 $ 35,423 $ 356,144 $ — $ 17,394 $ 373,538 Amortization of share-based incentive compensation — — 2,331 — — 2,331 — 1,725 4,056 Vesting of share-based incentive compensation 596,601 — 3,563 — — 3,563 — ( 4,816 ) ( 1,253 ) Shares issued in exchange for vested subsidiary awards (3) 1,166,307 2 105 — — 107 — ( 1,565 ) ( 1,458 ) Shares purchased under stock purchase plan ( 528,662 ) ( 1 ) ( 2,881 ) — — ( 2,882 ) — — ( 2,882 ) Shares issued upon exercise of warrants 207,445 — — — — — — — — Repurchase of vested subsidiary awards — — ( 770 ) — — ( 770 ) — ( 309 ) ( 1,079 ) Non-controlling interest contributions — — — — — — — 100 100 Non-controlling interest distributions — — — — — — — ( 1,095 ) ( 1,095 ) Net change in non-controlling interests and other — — 97 — — 97 — ( 97 ) — Common stock dividends declared — — — — ( 5,409 ) ( 5,409 ) — — ( 5,409 ) Other comprehensive income (loss), net of tax — — — ( 8,359 ) — ( 8,359 ) — ( 29 ) ( 8,388 ) Net income (loss) — — — — 38,132 38,132 — 5,919 44,051 Balance at December 31, 2021 34,124,153 $ 34 $ 317,459 $ ( 2,685 ) $ 68,146 $ 382,954 $ — $ 17,227 $ 400,181 F-4 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except shares) Common stock Non-controlling interests Number of shares Par value Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total Tiptree Inc. stockholders’ equity Fortegra preferred interests Common interests Total stockholders' equity Balance at December 31, 2021 34,124,153 34 317,459 ( 2,685 ) 68,146 382,954 — 17,227 400,181 Amortization of share-based incentive compensation — — 6,600 — — 6,600 — 869 7,469 Vesting of share-based incentive compensation 292,548 — ( 172 ) — — ( 172 ) — ( 1,086 ) ( 1,258 ) Shares issued in exchange for vested subsidiary awards (4) 114,353 — 866 — — 866 — ( 1,047 ) ( 181 ) Shares purchased under stock purchase plan ( 165,040 ) — ( 1,727 ) — — ( 1,727 ) — — ( 1,727 ) Shares issued upon exercise of warrants 1,999,989 2 13,722 — — 13,724 — — 13,724 Shares issued upon exercise of options 19,296 — — — — — — — — Transfer of liability awards — — 4,847 — — 4,847 — — 4,847 WP Transaction — — 41,092 7,193 — 48,285 77,679 41,044 167,008 Non-controlling interest contributions — — — — — — — 250 250 Non-controlling interest distributions — — — — — — — ( 3,939 ) ( 3,939 ) Net change in non-controlling interests and other — — ( 42 ) — — ( 42 ) — 491 449 Common stock dividends declared — — — — ( 5,759 ) ( 5,759 ) — — ( 5,759 ) Other comprehensive income (loss), net of tax — — — ( 43,937 ) — ( 43,937 ) — ( 3,731 ) ( 47,668 ) Subsidiary preferred dividends declared — — — — ( 3,384 ) ( 3,384 ) — — ( 3,384 ) Net income (loss) — — — — ( 4,890 ) ( 4,890 ) — 8,451 3,561 Balance at December 31, 2022 36,385,299 $ 36 $ 382,645 $ ( 39,429 ) $ 54,113 $ 397,365 $ 77,679 $ 58,529 $ 533,573 (1) Amounts reclassified due to adoption of ASU 2016-13. See Note (2) Summary of Significant Accounting Policies. (2) Includes subsidiary RSU exchanges. See Note (19) Stock Based Compensation. (3) Exchange included $ 1,458 in cash. (4) Exchange included $ 181 in cash . See accompanying notes to consolidated financial statements. F-5 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) For the Year Ended December 31, 2022 2021 2020 Operating Activities: Net income (loss) attributable to common stockholders $ ( 8,274 ) $ 38,132 $ ( 29,158 ) Net income (loss) attributable to non-controlling interests 11,835 5,919 3,933 Net income (loss) 3,561 44,051 ( 25,225 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities Net realized and unrealized (gains) losses ( 69,983 ) ( 151,350 ) ( 62,410 ) Net (gain) loss on held for sale of business ( 3,825 ) 1,928 4,428 Non-cash compensation expense 9,705 11,130 8,117 Amortization/accretion of premiums and discounts 976 2,947 2,229 Depreciation and amortization expense 22,973 24,437 17,578 Non-cash lease expense 9,301 8,924 7,374 Deferred provision (benefit) for income taxes 47,548 17,730 10,733 Amortization of deferred financing costs 1,341 1,607 1,015 Change in fair value of liability classified warrants ( 939 ) — — Net loss on extinguishment of debt 940 — 353 Other 197 291 ( 686 ) Changes in operating assets and liabilities: Mortgage loans originated for sale ( 2,136,005 ) ( 3,884,533 ) ( 3,064,003 ) Proceeds from the sale of mortgage loans originated for sale 2,403,223 3,925,984 3,152,104 (Increase) decrease in notes and accounts receivable ( 13,227 ) ( 54,378 ) ( 48,527 ) (Increase) decrease in reinsurance receivables ( 295,254 ) ( 152,827 ) ( 116,839 ) (Increase) decrease in deferred acquisition costs ( 119,552 ) ( 149,943 ) ( 62,937 ) (Increase) decrease in other assets 7,463 ( 7,065 ) ( 22,417 ) Increase (decrease) in unearned premiums 233,484 263,262 105,697 Increase (decrease) in policy liabilities and unpaid claims 235,490 98,265 33,968 Increase (decrease) in deferred revenue 113,899 135,652 122,042 Increase (decrease) in reinsurance payable 39,528 40,909 53,716 Increase (decrease) in other liabilities and accrued expenses ( 27,771 ) 27,295 23,859 Net cash provided by (used in) operating activities 463,073 204,316 140,169 Investing Activities: Purchases of investments ( 1,197,383 ) ( 1,430,879 ) ( 1,494,688 ) Proceeds from sales and maturities of investments 1,260,594 1,172,044 1,400,229 Proceeds from the sale of real estate, businesses and other assets 742 8,729 3,481 Purchases of property, plant and equipment ( 10,727 ) ( 2,764 ) ( 6,694 ) Proceeds from notes receivable 85,435 56,055 41,582 Issuance of notes receivable ( 114,187 ) ( 77,077 ) ( 62,088 ) Business and asset acquisitions, net of cash and deposits ( 14,960 ) 133 ( 5,313 ) Net cash provided by (used in) investing activities 9,514 ( 273,759 ) ( 123,491 ) Financing Activities: Dividends paid ( 7,775 ) ( 5,409 ) ( 5,566 ) Cash received for the exercise of warrants 13,724 — Net non-controlling interest (redemptions) contributions ( 5,590 ) ( 3,532 ) ( 2,134 ) Issuance of Fortegra Common Stock 98,433 — — Issuance of Fortegra Warrants 13,101 — — Issuance of Fortegra Additional Warrants (Warburg) 6,230 — — Issuance of Fortegra Preferred Stock 83,486 — — Payment of WP Transaction costs ( 12,910 ) — — Payment of debt issuance costs ( 1,380 ) ( 114 ) ( 4,571 ) Proceeds from borrowings and mortgage notes payable 2,365,320 4,084,299 3,379,688 Principal paydowns of borrowings and mortgage notes payable ( 2,666,098 ) ( 3,993,364 ) ( 3,321,779 ) Repurchases of common stock and other changes in additional paid-in capital ( 1,727 ) ( 8,145 ) ( 13,889 ) Net cash provided by (used in) financing activities ( 115,186 ) 73,735 31,749 Effect of exchange rate changes on cash ( 1,828 ) — — Net increase (decrease) in cash, cash equivalents and restricted cash 355,573 4,292 48,427 Cash, cash equivalents and restricted cash – beginning of period 195,086 195,275 144,590 Cash, cash equivalents and restricted cash – beginning of period - held for sale 9,360 4,879 7,137 Cash, cash equivalents and restricted cash – end of period 560,019 204,446 200,154 Less: Reclassification of cash to held for sale / deconsolidation of cash previously held for sale 9,172 9,360 4,879 Cash, cash equivalents and restricted cash – end of period $ 550,847 $ 195,086 $ 195,275 F-6 TIPTREE INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) For the Year Ended December 31, 2022 2021 2020 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest expense $ 29,442 $ 36,885 $ 29,538 Cash (received) paid during the period for income taxes $ 2,259 $ 2,079 $ 1,066 Supplemental Schedule of Non-Cash Investing and Financing Activities: Right of use asset obtained in exchange for lease liability $ 14,698 $ 4,281 $ 9,989 Bonds and trade receivables exchanged for corporate loans and equity securities $ 19,846 $ — $ — Shares issued in exchange for vested subsidiary awards $ 866 $ 107 $ — Equity securities acquired as part of a dividend reinvestment plan $ — $ — $ 953 As of December 31, Reconciliation of cash, cash equivalents and restricted cash 2022 2021 2020 Cash and cash equivalents $ 538,065 $ 175,718 $ 136,920 Restricted cash 12,782 19,368 58,355 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 550,847 $ 195,086 $ 195,275 See accompanying notes to consolidated financial statements. F-7 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (1) Organization Tiptree Inc. (together with its consolidated subsidiaries, collectively, Tiptree, the Company, or we) is a Maryland Corporation that was incorporated on March 19, 2007. Tiptree’s common stock trades on the Nasdaq Capital Market under the symbol “TIPT”. Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. We classify our business into two reportable segments: Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, which is comprised of our Mortgage reportable segment and our non-reportable segments and other business activities, as Tiptree Capital. On June 21, 2022, the Company closed the WP Transaction whereby Warburg invested $ 200,000 in Fortegra in exchange for Fortegra Common Stock, Fortegra Preferred Stock, Fortegra Warrants and Fortegra Additional Warrants. See Note (17) Stockholders’ Equity for additional information regarding the terms of the securities issued in connection with the closing of the WP Transaction. As of December 31, 2022, Fortegra was owned approximately 79.5 % by Tiptree Holdings, 17.4 % by Warburg and 3.1 % by management and directors of Fortegra, before giving effect to the exercise of outstanding warrants and the conversion of outstanding preferred stock. (2) Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements of Tiptree have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. Non-controlling interests on the consolidated financial statements represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Tiptree. Accounts and transactions between consolidated entities have been eliminated. Reclassifications As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the current present ation. These reclassif ications had no effect on the reported results of operations. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management makes estimates and assumptions that include, but are not limited to, the determination of the following significant items: • Fair value of financial assets and liabilities, including, but not limited to, securities, loans and derivatives • Value of acquired assets and liabilities; • Carrying value of goodwill and other intangibles, including estimated amortization period and useful lives; • Reserves for unpaid losses and loss adjustment expenses, estimated future claims and losses, potential litigation and other claims; • Revenue recognition including, but not limited to, the timing and amount of insurance premiums, service and administration fees, and loan origination fees; • Deferred acquisition costs • The realization of deferred tax assets, and recognition and measurement of uncertain tax positions; and • Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial statements Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates. F-8 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Business Combination Accounting The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other expense in the consolidated statements of operations. Acquisition and transaction costs are expensed as incurred. In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The measurement of assets and liabilities acquired and non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period, primarily due to the results of valuation studies applicable to the business combination. Acquisitions that do not meet the criteria for the acquisition method of accounting are accounted for as acquisitions of assets. Dispositions and Assets and Liabilities Held for Sale The results of operations of a business that has either been disposed of or are classified as held for sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceases the recording of depreciation and amortization on assets transferred. Accounting policies specific to our dispositions and assets and liabilities held for sale are described in more detail in Note (4) Dispositions and Assets and Liabilities Held for Sale. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows: • Level 1 – Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 – Significant inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The types of financial assets and liabilities carried at Level 2 are valued based on one or more of the following: a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in nonactive markets; c) Pricing models whose inputs are observable for substantially the full term of the asset or liability; d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. • Level 3 – Significant inputs that are unobservable inputs for the asset or liability, including the Company’s own data and assumptions that are used in pricing the asset or liability. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of F-9 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Tiptree’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the instrument. From time to time, Tiptree’s assets and liabilities will transfer between one level to another level. It is Tiptree’s policy to recognize transfers between different levels at the end of each reporting period. Tiptree utilizes both observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. For broker quotes, quotes are obtained from sources recognized to be market participants. Unobservable inputs may include expected cash flow streams, default rates, supply and demand considerations and market volatility. Fair Value Option In addition to the financial instruments that the Company is required to measure at fair value, the Company has elected to make an irrevocable election to utilize fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in Net realized and unrealized gains (losses) within the consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Derivative Financial Instruments and Hedging The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily entered into in order to manage underlying credit risk, market risk, interest rate risk and currency exchange rate risk. As a matter of policy, derivatives are not used for speculative purposes. Derivative instruments are measured at fair value on a recurring basis and are included in other investments or other liabilities and accrued expenses on the consolidated balance sheets. See Note (10) Derivative Financial Instruments and Hedging. The Fortegra Additional Warrants (Warburg) are classified as a derivative liability given that (i) the holder can exercise the warrant for a variable number of shares and (ii) and the value of the warrant varies inversely with the value of Fortegra’s common stock. As such, the derivative liability is marked to fair value at each reporting period and its change in fair value is recorded in other expenses. See Note (10) Derivative Financial Instruments and Hedging, Note (12) Fair Value of Financial Instruments and Note (17) Stockholders’ Equity for additional information. Derivative Instruments Designated as Cash Flow Hedging Instruments The Company uses cash flow hedges from time to time to reduce the exposure to variability of cash flows from floating rate borrowings. If a derivative instrument meets certain cash flow hedge accounting criteria, it is recorded on the consolidated balance sheet at its fair value, as either an asset or a liability, with offsetting changes in fair value recognized in AOCI. The effective portion of the changes in fair value of derivatives are reported in AOCI and amounts previously recorded in AOCI are recognized in earnings in the period in which the hedged transaction affects earnings. Any ineffective portions of the change in fair value of the derivative are recognized in current earnings. Stock Based Compensation The Company accounts for share‑based compensation issued to employees, directors, and affiliates of the Company using the current fair value methodology based on the type of vesting condition – time based, performance based or market based or combination. See Note (19) Stock Based Compensation. F-10 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The Company initially measures the cost of all share-based compensation incentive awards at fair value on the date of grant, whether accounted for as an equity or liability award. The compensation cost is recognized over the required service period, generally defined as the vesting period using the straight-line method. When the share-based compensation awards are accounted for as equity awards, the compensation cost is charged to expense with a corresponding credit to additional paid-in capital. If the share-based compensation awards are accounted for as liability awards, their fair value is remeasured at each reporting period, with the compensation cost charged to expense with a corresponding credit to other liabilities. Grants of subsidiary restricted stock units (RSUs) exchangeable into common stock of the Company are accounted for as equity based upon their expected settlement method. The Company recognizes the cost of such awards over the vesting period using the straight-line method and uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs. Compensation expense will be recognized to the extent that it is probable that the performance condition will be achieved. The Company reassesses the probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period. Income Taxes Deferred tax assets and liabilities are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are established for future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to reverse. A valuation allowance is established when necessary to reduce a deferred tax asset to the amount expected to be realized. Several of the Company’s subsidiaries file state tax returns on a standalone basis. As of June 21, 2022, Fortegra began filing federal and state tax returns on a stand-alone basis. These U.S. federal and state income tax returns, when filed, will be subject to examination by the Internal Revenue Service and state departments of revenue. See Note (20) Income Taxes. The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. The Company’s provision or benefit for income taxes is adjusted accordingly for tax positions not deemed to meet the more likely than not threshold. The Company’s policy is to account for interest as a component of interest expense and penalties as a component of other expenses. Earnings Per Share The Company presents both basic and diluted earnings per Common Share in its consolidated financial statements and footnotes thereto. Basic earnings per Common Share (Basic EPS) excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, which includes vested RSUs, for the period. Diluted earnings per Common Share (Diluted EPS) reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares where such exercise or conversion would result in a lower earnings per share amount. The Company calculates EPS using the two-class method, which is an earnings allocation formula that determines EPS for common shares and participating securities. Unvested RSUs contain non-forfeitable rights to distributions or distribution equivalents (whether paid or unpaid) and are participating securities that are included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive distributions. The participating securities do not have a contractual obligation to absorb losses and are only allocated in periods where there is income. See Note (22) Earnings Per Share, for EPS computations. Investments The Company records all investment transactions on a trade‑date basis. Realized gains (losses) are determined using the specific-identification method. The Company classifies its investments in debt securities as available for sale, trading or held-to-maturity based on the Company’s intent and ability to hold the debt security to maturity. The Company did not have any held-to-maturity securities at December 31, 2022 and 2021. See Note (6) Investments . Available for Sale Securities, at Fair Value (AFS) F-11 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) AFS are securities that are not classified as trading or held-to-maturity and are intended to be held for indefinite periods of time. AFS securities include those debt securities that management may sell as part of its asset/liability management strategy or in response to changes in interest rates, resultant prepayment risk or other factors. AFS securities are held at fair value on the consolidated balance sheet with changes in fair value including non-credit related losses, net of related tax effects, recorded in the AOCI component of stockholders’ equity in the period of change. Upon the disposition of an AFS security, the Company reclassifies the gain or loss on the security from AOCI to net realized and unrealized gains (losses) on the consolidated statements of operations. For AFS securities, the Company reviews its securities portfolio for impairment and determines if impairment is related to credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Subsequent activity related to the credit loss component (e.g. write-offs, recoveries) is recognized as part of the allowance for credit losses on AFS securities. For AFS securities which have an expectation of zero risk of nonpayment of the amortized cost basis (e.g. U.S. Treasury securities or agency securities), the expected credit loss is zero. Loans, at Fair Value Loans, at fair value is substantially comprised of (i) corporate loans and (ii) loans originated by the Company’s mortgage finance business. Changes in their fair value are reported within net realized and unrealized gains (losses) in our consolidated statements of operations. Corporate Loans Corporate loans are comprised of middle market loans and bank loans which are carried at fair value. In general, the fair value is obtained from an independent pricing service which provides coverage of secondary market participants. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of loans based on internal models and other unobservable inputs. Mortgage Loans Held for Sale Mortgage loans held for sale represent loans originated and held until sold to secondary market investors. Such loans are typically warehoused for a period after origination or purchase before sale into the secondary market. Loans are sold either servicing released, or in select instances, servicing retained into the secondary loan market. The Company has elected to measure all mortgage loans held for sale at fair value. These loans are considered sold when the Company surrenders control to the purchaser. The gains or losses on sales of such loans, net of any accrual for standard representations and warranties, are reported in operating results as a component of net realized and unrealized gains (losses) in the consolidated statements of operations in the period when the sale occurs. Equity Securities Equity securities are investments consisting of equity securities that are purchased principally for the purpose of selling them in the near term. Changes in fair value are recorded in net realized and unrealized gains (losses) on investments on the consolidated statements of operations in the period of change. Other Investments Vessels, net Investments in vessels, net are carried at cost (inclusive of capitalized acquisition costs, where applicable) less accumulated depreciation. Subsequent expenditures are also capitalized when they appreciably extend the life, increase the earning F-12 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are expensed as incurred. Vessels acquired are recognized at their fair value as of the date of the acquisition. Depreciation is computed using the straight-line method over the vessel’s estimated remaining useful life, after considering the estimated salvage value. A vessel’s salvage value is equal to the product of its lightweight tonnage and estimated scrap rate. Vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Upon transferring the vessels and related assets to held for sale on the consolidated balance sheets, the vessels are no longer depreciated. Vessels are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable. Potential impairment indicators are primarily based upon a comparison of the market value of a vessel to its carrying value. Market values are based upon quoted prices from industry-recognized sources. The Company evaluates market quotes of vessels for reasonableness by comparison to available market transactions or internal valuation models. An impairment charge would be recognized if the estimated undiscounted future net cash flows expected to result from the operation and subsequent disposal of the vessel are less than the vessel’s carrying amount. The Company’s estimate of future revenue is based upon time charter equivalent (TCE) rates using current market rates. The Company uses average historical rates for periods beyond those for which rates are available. Estimated cash flows are net of brokerage and address commissions, vessel operating expenses, and estimated costs of drydocking and include an inflation factor, as appropriate. The projected undiscounted future cash flows are comprised of the net of these inflows and outflows, plus an estimated salvage value. There were no impairments recognized for the years ended December 31, 2022 or 2021. As of December 31, 2022, all remaining tanker and dry-bulk vessels had been sold. See Note (4) Dispositions and Assets and Liabilities Held for Sale. Cash and Cash Equivalents The Company considers all highly liquid investments of sufficient credit quality purchased with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of U.S. denominated cash on hand, cash held in banks and investments in money market funds. Restricted Cash The Company’s restricted cash primarily consists of cash for unremitted premiums received from agents and insurers, fiduciary cash for reinsurers and pledged assets for the protection of policy holders in various state jurisdictions. Restricted cash also includes cash posted as collateral under credit facilities to maintain borrowing base sufficiency, borrower escrow funds for taxes, insurance, rate-lock fees and servicing related escrow funds and collateral on warehouse borrowings. Notes and Accounts Receivable, Net Notes Receivable, Net The Company’s notes receivable, net includes receivables related to the insurance business for its premium financing programs. The Company accrues interest income on its notes receivable based on the contractual terms of the respective note. The Company monitors all notes receivable for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. In addition to allowances for bad debt for specific notes receivable, a general provision for bad debt is estimated for the Company’s notes receivable based on history. Account balances are generally charged against the allowance when the Company believes it is probable that the note receivable will not be recovered and has exhausted its contractual and legal remedies. Generally, receivables overdue more than 120 days are written off when the Company determines it has exhausted reasonable collection efforts and remedies, see Note (7) Notes and Accounts Receivable, net. Accounts and Premiums Receivable, Net F-13 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Accounts and premiums receivable, net are primarily trade receivables from the insurance business that are carried at their approximate fair value. Accounts and premiums receivable from the Company’s insurance business consist primarily of advance commissions and agents' balances in course of collection and billed but not collected policy premiums, presented net of the allowance for doubtful accounts. For policy premiums that have been billed but not collected, the Company records a receivable on its consolidated balance sheets for the full amount of the premium billed, with a corresponding liability, net of its commission, to insurance carriers. The Company earns interest on the premium cash during the period of time between receipt of the funds and payment of these funds to insurance carriers. The Company maintains an allowance for doubtful accounts based on an estimate of uncollectible accounts. Retrospective commissions receivable, Trust receivables and Other receivables Retrospective commissions receivable, trust receivables and other receivables are primarily trade receivables from the insurance business that are carried net of allowance at their approximate fair value. Reinsurance Receivables Through the insurance business, the Company has various reinsurance agreements in place whereby the amount of risk in excess of its retention goals is reinsured by unrelated domestic and foreign insurance companies. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. Reinsurance receivables are based upon estimates and are reported on the consolidated balance sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. Management continually monitors the financial condition and agency ratings of the Company’s reinsurers and believes that the reinsurance receivables accrued are collectible. Balances recoverable from reinsurers and amounts ceded to reinsurers relating to the unexpired portion of reinsured policies are presented as assets. Experience refunds from reinsurers are recognized based on the underwriting experience of the underlying contracts. Deferred Acquisition Costs The Company defers certain costs of acquiring new and renewal insurance policies and other products as follows within the Company’s insurance business. Amortization of deferred acquisition costs was $ 479,125 , $ 375,052 , and $ 265,781 for the years ended December 31, 2022, 2021 and 2020, respectively. Insurance policy related deferred acquisition costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company’s insurance company subsidiaries had the transactions not occurred. These capitalized costs are amortized as the related premium is earned. Other deferred acquisition costs are limited to prepaid direct costs, typically commissions and contract transaction fees, that resulted from successful contract transactions and would not have been incurred by the Company had the transactions not occurred. These capitalized costs are amortized as the related service and administrative fees are earned. The Company evaluates whether all deferred acquisition costs are recoverable at year end, and considers investment income in the recoverability analysis for insurance policy related deferred acquisition costs. As a result of the Company’s evaluations, no write-offs for unrecoverable deferred acquisition costs were recognized during the years ended December 31, 2022, 2021 and 2020. F-14 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Goodwill and Intangible Assets, net The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill and indefinite-lived intangible assets are not amortized but subject to tests for impairment annually or if events or circumstances indicate it is more likely than not they may be impaired. Finite-lived intangible assets are amortized over their estimated useful lives principally using a pattern of economic benefit for customer relationships and a straight-line method for other intangible assets. Finite-lived intangible assets are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The Company carries intangible assets, which represent customer and agent relationships, trade names, insurance licenses (certificates of authority granted by individual state departments of insurance), the value of in-force insurance policies acquired, software acquired or internally developed and fishing licenses. Management has deemed the insurance licenses to have an indefinite useful life. Costs incurred to renew or maintain insurance licenses are recorded as operating costs in the period in which they arise. See Note (9) Goodwill and Intangible Assets, net. Other Assets Other assets primarily consist of mortgage servicing rights, loans eligible for repurchase, right of use assets, prepaid expenses, and furniture, fixtures and equipment, net. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. Mortgage Servicing Rights Mortgage servicing rights represent the fair value of the right to service the underlying mortgage loans. The estimated fair value is provided by a third-party valuation service and represents the price that a willing buyer would currently pay for the Company’s mortgage servicing rights. Changes in fair value are recorded in net realized and unrealized gains (losses) on the consolidated statements of operations in the period of change. Debt, net Debt is carried on the consolidated balance sheets at an amount equal to the unpaid principal balance, net of any remaining unamortized discount or premium and direct and any incremental costs attributable to issuance. Discounts, premiums and direct and incremental costs are amortized as a component of interest expense in the consolidated statements of operations over the life of the debt. See Note (11) Debt, net. Unearned Premiums Premiums written are earned over the life of the respective policy using the Rule of 78's, pro rata, or other actuarial methods as appropriate for the type of business. Unearned premiums represent the portion of premiums that will be earned in the future. A premium deficiency reserve is recorded if anticipated losses, loss adjustment expenses, deferred acquisition costs and policy maintenance costs exceed the recorded unearned premium reserve and anticipated investment income. As of December 31, 2022 and 2021, no deficiency reserves were recorded. Policy Liabilities and Unpaid Claims Policyholder account balances relate to investment-type individual annuity contracts in the accumulation phase. Policyholder account balances are carried at accumulated account values, which consist of deposits received, plus interest credited, less withdrawals and assessments. Minimum guaranteed interest credited to these contracts ranges from 3.0 % to 4.0 %. The Company’s claims are generally reported and settled quickly, resulting in consistent historical loss development patterns. The Company’s actuaries apply a variety of generally accepted actuarial methods to the historical loss development patterns, to derive cumulative development factors. These cumulative development factors are applied to reported losses for each accident quarter to compute ultimate losses. The indicated required reserve is the difference between the ultimate losses and the reported losses. The actuarial methods used include but are not limited to the chain ladder method, the Bornhuetter-Ferguson method, and the expected loss ratio method. The actuarial analyses are performed on a basis gross of ceded reinsurance, and the resulting factors and estimates are then used in calculating the net loss reserves which take into account the impact of reinsurance. The Company has not made any changes to its methodologies for determining claim reserves in the periods presented. F-15 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Credit life and accidental death and dismemberment (AD&D) unpaid claims reserves include claims in the course of settlement and incurred but not reported (IBNR). Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other product lines, unpaid claims reserves include case reserves for reported claims and bulk reserves for IBNR claims. The Company uses a number of algorithms in establishing its unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, reported incurred losses, target loss ratios, and in-force amounts or a combination of these factors. Anticipated future loss development patterns form a key assumption underlying these analyses. Generally, unpaid claims reserves, and associated incurred losses, are impacted by loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity may include changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation, economic conditions, morbidity patterns and the attitudes of claimants towards settlements. The unpaid claims reserves represent the Company’s best estimates at a given time, based on the projections and analyses discussed above. Actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. The Company periodically reviews and updates its methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. The Company has not made any changes to its methodologies for determining unpaid claims reserves in the periods presented. In accordance with applicable statutory insurance company regulations, the Company’s recorded unpaid claims reserves are evaluated by appointed independent third-party actuaries, who perform this function in compliance with the Standards of Practice and Codes of Conduct of the American Academy of Actuaries. The independent actuaries perform their actuarial analyses annually and prepare opinions, statements, and reports documenting their determinations. For December 31, 2022 and 2021, our appointed independent third-party actuaries found the Company’s reserves to be adequate. Deferred Revenue Deferred revenues represent the portion of income that will be earned in the future attributable to motor club memberships, mobile device protection plans, and other non-insurance service contracts that are earned over the respective contract periods using the Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. A deficiency reserve would be recorded if anticipated contract benefits, deferred acquisition costs and contract service costs exceed the recorded deferred revenues and anticipated investment income. As of December 31, 2022 and 2021, no deficiency reserves were recorded. Other Liabilities and Accrued Expenses Other liabilities and accrued expenses primarily consist of lease liabilities, accounts payable and accrued expenses, deferred tax liabilities, net, securities sold, not yet purchased, commissions payable and accrued interest payable. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. Revenue Recognition The Company earns revenues from a variety of sources: Earned Premiums, Net Net earned premium is from direct and assumed earned premium consisting of revenue generated from the direct sale of insurance policies by the Company’s distributors and premiums written for insurance policies by another carrier and assumed by the Company. Whether direct or assumed, the premium is earned over the life of the respective policy using methods appropriate to the pattern of losses for the type of business. Methods used include the Rule of 78's, pro rata, and other actuarial methods. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Direct and assumed premiums are offset by premiums ceded to the Company’s reinsurers, including producer owned reinsurance companies (PORCs), earned in the same manner. The amount ceded is proportional to the amount of risk assumed by the reinsurer. F-16 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Service and Administrative Fees The Company earns service and administrative fees from a variety of activities. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned. Service Fees. S ervice fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Collateral tracking fee income is recognized when the service is performed and billed. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable. During the years ended December 31, 2022, 2021 and 2020, respectively, the Company did not incur a loss with respect to a specific significant service fee contract. Administrative Fees. Administrative fee revenue includes the administration of premium associated with our producers and their PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and service contract products. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts, auto and consumer goods service contracts, and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other actuarial methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. Ceding Commissions Ceding commissions earned under reinsurance agreements are based on contractual formulas that take into account, in part, underwriting performance and investment returns experienced by the assuming companies. As experience changes, adjustments to the ceding commissions are reflected in the period incurred and are based on the claim experience of the related policy. The adjustment is calculated by adding the earned premium and investment income from the assets held in trust for the Company’s benefit less earned commissions, incurred claims and the reinsurer's fee for the coverage. Vessel Related Revenue The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and at a specified daily charter rate. Charter revenues are recognized as earned on a straight-line basis over the term of the charter as service is provided. Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to services to be rendered after the balance sheet date. Vessel related revenue is recorded in other investment income as a part of other revenue. See Note (16) Other Revenue and Other Expenses. Policy and Contract Benefits Member Benefit Claims Member benefit claims represent claims paid on behalf of contract holders directly to third-party providers for roadside assistance and for the repair or replacement of covered products. Claims can also be paid directly to contract holders as a reimbursement payment, provided supporting documentation of loss is submitted to the Company. Claims are recognized as expense when incurred. Net Losses and Loss Adjustment Expenses Net losses and loss adjustment expenses represent losses and related claim adjudication and processing costs on insurance contract claims, net of amounts ceded. Net losses include actual claims paid and the change in unpaid claim reserves. F-17 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Commissions Payable and Expense Commissions are paid to distributors and retailers selling credit insurance policies, motor club memberships, mobile device protection, and vehicle service contracts, and are generally deferred and expensed in proportion to the earning of related revenue. Credit insurance commission rates, in many instances, are set by state regulators and are also impacted by market conditions. In certain instances, credit insurance commissions are subject to retrospective adjustment based on the profitability of the related policies. Under these retrospective commission arrangements, the producer of the credit insurance policies receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the costs associated with those policies, which includes the Company’s administrative fees, claims, reserves, and premium taxes. The Company analyzes the retrospective commission calculation periodically for each producer and, based on the analysis associated with each such producer, the Company records a liability for any positive net retrospective commission earned and due to the producer or, conversely, records a receivable, net of allowance, for amounts due from such producer for instances where the net result of the retrospective commission calculation is negative. Commissions payable are included in other liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. F-18 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Recent Accounting Standards Recently Adopted Accounting Pronouncements Accounting Standard Update Description Adoption Date Impact on Financial Statements 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) The standard simplifies the accounting for certain financial instruments. The guidance reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. This standard amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. Either a full or modified retrospective method of transition is permissible for the adoption of this standard. January 1, 2022 The adoption of the standard did not materially impact the Company’s consolidated financial statements. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers This standard addresses diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. This standard is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Entities should apply the provisions of the new standard prospectively to business combinations occurring on or after the effective date of the standard. Early adoption is permitted, including in an interim period . We early adopted this standard and applied it to all 2022 business combinations. January 1, 2022 The adoption of the standard did not materially impact the Company’s consolidated financial statements. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The standard eliminates the need for an organization to analyze whether the following apply in a given period (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods. January 1, 2021 The standard makes changes to areas of tax accounting for transactions and situations which do not currently apply to the Company’s activity, so the adoption of the standard does not currently impact the Company’s financial statements. 2016-13 Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Topic 326 amended guidance on reporting credit losses for assets held on an amortized cost basis and AFS debt securities. For assets held on an amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in previous GAAP and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For AFS debt securities, credit losses should be measured in a manner similar to previous GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. Changes in the allowance account are recorded in the period of change as a credit loss expense or reversal of credit loss expense. The measurement of credit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost. January 1, 2020 The adoption of this guidance resulted in an immaterial reclassification from AOCI to retained earnings in the Company’s consolidated financial statements. F-19 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Recently Issued Accounting Pronouncements, Not Yet Adopted Standard Description Adoption Date Impact on Financial Statements 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 The amendments in these updates provide optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020, through December 31, 2024. The Company is evaluating its option to adopt the guidance when it is applicable. (3) Acquisitions Acquisition of ITC Compliance GRP Limited On April 1, 2022, a subsidiary in our insurance business acquired all of the equity interests in ITC for total cash consideration of approximately $ 15,000 , net of cash acquired of $ 6,123 , plus earn out payments based on achievement of specific performance metrics. ITC is a provider of regulatory support and compliance services to the retail automotive sector in the United Kingdom. The preliminary purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of ITC as of the acquisition date and is subject to the completion of management’s final analysis. Identifiable assets acquired were primarily made up of goodwill and intangible assets. Management’s preliminary allocation of the purchase price to the net assets acquired resulted in the recording of goodwill and intangible assets of $ 8,122 and $ 10,964 , respectively, which the Company may modify during the one year period allowed for purchase accounting adjustments during the measurement period. See Note (9) Goodwill and Intangible Assets, net. F-20 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (4) Dispositions and Assets and Liabilities Held for Sale Dispositions During the year ended December 31, 2022, the Company completed the sale of three dry bulk vessels and two product tankers from its maritime shipping operations. The Company recognized a net gain of $ 34,803 , based on proceeds of $ 116,678 plus final settlement of assets. The transactions did not meet the requirements to be classified as discontinued operations. Assets and Liabilities Held for Sale The Company entered into a definitive agreement to sell Luxury, which was classified as held for sale at December 31, 2021. The Company deconsolidated Luxury effective as of July 1, 2022 due to the execution of an amendment to the definitive agreement to sell Luxury on that date. As of that date, Tiptree no longer had a variable interest in Luxury and all of the risks and rewards associated with Luxury were transferred to the buyer. The transaction did not meet the requirements to be classified as a discontinued operation. The following table presents detail of Luxury’s assets and liabilities held for sale in the consolidated balance sheets for the following periods: As of December 31, 2021 Assets: Investments: Loans, at fair value $ 236,810 Other investments 2,071 Total investments 238,881 Cash, cash equivalents and restricted cash 9,360 Notes and accounts receivable, net 157 Other assets 2,210 Assets held for sale $ 250,608 Liabilities: Debt, net $ 227,973 Other liabilities and accrued expenses (1) 15,021 Liabilities held for sale $ 242,994 (1) Includes deferred tax liabilities of $ 659 as of December 31, 2021. Luxury’s earni ngs had no impact to net income (loss) attributable to common stockholders for the years ended December 31, 2022 and 2021. (5) Operating Segment Data Tiptree is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. Tiptree’s principal operating subsidiary, Fortegra, is a leading provider of specialty insurance, service contract products and related service solutions. Based on the ASC 280, Segment Reporting, quantitative analysis performed as of December 31, 2022, our reportable segments are Insurance and Mortgage. We refer to our non-insurance operations, assets and other investments, comprised of our Mortgage reportable segment and our non-reportable operating segments and other business activities, as Tiptree Capital. Corporate activities include holding company interest expense, employee compensation and benefits, and other expenses. Our reportable segments’ income or loss is reported before income taxes and non-controlling interests. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired. Intercompany transactions are eliminated. Descriptions of our Insurance reportable segment and Tiptree Capital, including our Mortgage reportable segment, are as follows: Insurance operations are conducted through Fortegra, which is a leading provider of specialty insurance products and related F-21 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) services. Fortegra designs, markets and underwrites specialty property and casualty insurance products incorporating value-added coverages and services for select target markets or niches. Fortegra’s products and services include niche commercial and personal lines, service contracts, and other insurance services. Tiptree Capital: Mortgage operations are conducted through Reliance. The Company’s mortgage business originates loans for sale to institutional investors, including GSEs and FHA/VA and services loans on behalf of Fannie Mae, Freddie Mac, and Ginnie Mae. Other includes our maritime shipping operations, asset management, other investments (including our Invesque shares), and Luxury mortgage operations (deconsolidated effective as of July 1, 2022). The tables below present the components of revenue, expense, income (loss) before taxes, and assets for our reportable segments as well as Tiptree Capital - Other for the following periods: For the Year Ended December 31, 2022 Tiptree Capital Insurance Mortgage Other Total Total revenues $ 1,248,796 $ 70,246 $ 78,710 $ 1,397,752 Total expenses ( 1,180,646 ) ( 69,372 ) ( 47,307 ) ( 1,297,325 ) Corporate expenses — — — ( 46,416 ) Income (loss) before taxes $ 68,150 $ 874 $ 31,403 $ 54,011 Less: provision (benefit) for income taxes 50,450 Net income (loss) $ 3,561 Less: net income (loss) attributable to non-controlling interests 11,835 Net income (loss) attributable to common stockholders $ ( 8,274 ) For the Year Ended December 31, 2021 Tiptree Capital Insurance Mortgage Other Total Total revenues $ 984,130 $ 111,295 $ 105,089 $ 1,200,514 Total expenses ( 914,273 ) ( 82,888 ) ( 87,879 ) ( 1,085,040 ) Corporate expenses — — — ( 50,132 ) Income (loss) before taxes $ 69,857 $ 28,407 $ 17,210 $ 65,342 Less: provision (benefit) for income taxes 21,291 Net income (loss) $ 44,051 Less: net income (loss) attributable to non-controlling interests 5,919 Net income (loss) attributable to common stockholders $ 38,132 For the Year Ended December 31, 2020 Tiptree Capital Insurance Mortgage Other Total Total revenue $ 691,061 $ 112,165 $ 7,075 $ 810,301 Total expense ( 664,113 ) ( 81,063 ) ( 68,317 ) ( 813,493 ) Corporate expense — — — ( 35,660 ) Income (loss) before taxes $ 26,948 $ 31,102 $ ( 61,242 ) $ ( 38,852 ) Less: provision (benefit) for income taxes ( 13,627 ) Net income (loss) $ ( 25,225 ) Less: net income (loss) attributable to non-controlling interests 3,933 Net income (loss) attributable to common stockholders $ ( 29,158 ) The Company conducts its operations primarily in the U.S. w ith 8.8 %, 7.2 % and 5.2 % of total revenues generated overseas for the years ended December 31, 2022, 2021 and 2020, respectively. F-22 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the reportable segments. Tiptree Capital - Other and Corporate assets for the following periods: As of December 31, 2022 As of December 31, 2021 Tiptree Capital Tiptree Capital Insurance Mortgage Other Corporate Total Insurance Mortgage Other Corporate Total Total assets $ 3,702,577 $ 156,122 $ 86,402 $ 94,462 $ 4,039,563 $ 3,002,152 $ 201,134 $ 384,564 $ 11,297 $ 3,599,147 (6) Investments The following table presents the Company's investments related to insurance operations and other Tiptree investing activities, measured at fair value as of the following periods: As of December 31, 2022 Tiptree Capital Insurance Mortgage Other Total Available for sale securities, at fair value, net of allowance for credit losses $ 611,980 $ — $ — $ 611,980 Loans, at fair value 14,312 50,531 — 64,843 Equity securities 72,992 — 12,784 85,776 Other investments 66,163 4,038 2,824 73,025 Total investments $ 765,447 $ 54,569 $ 15,608 $ 835,624 As of December 31, 2021 Tiptree Capital Insurance Mortgage Other Total Available for sale securities, at fair value, net of allowance for credit losses $ 577,448 $ — $ — $ 577,448 Loans, at fair value 7,099 98,484 — 105,583 Equity securities 109,684 — 28,799 138,483 Other investments 79,975 7,981 80,700 168,656 Total investments $ 774,206 $ 106,465 $ 109,499 $ 990,170 Available for Sale Securities, at fair value All of the Company’s investments in Available for Sale Securities, at fair value, net of allowance for credit losses (AFS securities) as of December 31, 2022 and 2021 are held by subsidiaries in the insurance segment. The following tables present the Company's investments in AFS securities: As of December 31, 2022 Amortized cost Allowance for Credit Losses (1) Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 417,278 $ — $ 844 $ ( 36,062 ) $ 382,060 Obligations of state and political subdivisions 54,390 ( 3 ) 4 ( 4,937 ) 49,454 Corporate securities 176,187 ( 183 ) 1 ( 14,006 ) 161,999 Asset backed securities 19,596 ( 1 ) — ( 4,246 ) 15,349 Certificates of deposit 756 — — — 756 Obligations of foreign governments 2,629 ( 3 ) — ( 264 ) 2,362 Total $ 670,836 $ ( 190 ) $ 849 $ ( 59,515 ) $ 611,980 As of December 31, 2021 Amortized cost Allowance for Credit Losses (1) Gross unrealized gains Gross unrealized losses Fair value U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 352,288 $ — $ 2,087 $ ( 3,197 ) $ 351,178 Obligations of state and political subdivisions 57,923 — 1,050 ( 313 ) 58,660 F-23 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Corporate securities 145,997 ( 241 ) 517 ( 1,396 ) 144,877 Asset backed securities 19,511 — 82 ( 2,146 ) 17,447 Certificates of deposit 2,696 — — — 2,696 Obligations of foreign governments 2,649 ( 4 ) 3 ( 58 ) 2,590 Total $ 581,064 $ ( 245 ) $ 3,739 $ ( 7,110 ) $ 577,448 (1) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in net realized and unrealized gains (losses) as a credit loss on AFS securities. Amount excludes unrealized losses relating to non-credit factors. The amortized cost and fair values of AFS securities, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. As of December 31, 2022 December 31, 2021 Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 52,265 $ 51,315 $ 41,033 $ 41,150 Due after one year through five years 300,767 280,965 269,487 268,537 Due after five years through ten years 54,419 49,465 52,561 52,000 Due after ten years 243,789 214,887 198,472 198,314 Asset backed securities 19,596 15,348 19,511 17,447 Total $ 670,836 $ 611,980 $ 581,064 $ 577,448 The following tables present the gross unrealized losses on AFS securities by length of time that individual AFS securities have been in a continuous unrealized loss position for less than twelve months, and twelve months or greater and do not have an allowance for credit losses: As of December 31, 2022 Less Than or Equal to One Year More Than One Year Fair value Gross unrealized losses # of Securities (1) Fair value Gross unrealized losses # of Securities (1) U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 164,593 $ ( 9,357 ) 354 $ 186,591 $ ( 26,705 ) 385 Obligations of state and political subdivisions 25,507 ( 1,076 ) 97 20,219 ( 3,861 ) 78 Corporate securities 45,016 ( 1,446 ) 176 114,683 ( 12,560 ) 417 Asset backed securities 10,298 ( 3,642 ) 46 5,051 ( 604 ) 34 Certificates of deposit — — — — — — Obligations of foreign governments 309 ( 1 ) 1 2,054 ( 263 ) 8 Total $ 245,723 $ ( 15,522 ) 674 $ 328,598 $ ( 43,993 ) 922 As of December 31, 2021 Less Than or Equal to One Year More Than One Year Fair value Gross unrealized losses # of Securities (1) Fair value Gross unrealized losses # of Securities (1) U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 216,378 $ ( 2,827 ) 324 $ 11,920 $ ( 370 ) 47 Obligations of state and political subdivisions 17,190 ( 275 ) 64 1,152 ( 38 ) 5 Corporate securities 99,434 ( 1,159 ) 326 9,722 ( 237 ) 45 Asset backed securities 7,454 ( 84 ) 38 2,316 ( 2,062 ) 5 Certificates of deposit 1,339 — 2 — — — Obligations of foreign governments 2,278 ( 58 ) 8 — — — Total $ 344,073 $ ( 4,403 ) 762 $ 25,110 $ ( 2,707 ) 102 (1) Presented in whole numbers. Management believes that it is more likely than not that the Company will be able to hold the fixed maturity AFS securities F-24 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) that were in an unrealized loss position as of December 31, 2022 until full recovery of their amortized cost basis. The table below presents a roll-forward of the activity in the allowance for credit losses on AFS securities by type as of December 31, 2022: Obligations of state and political subdivisions Corporate securities Asset backed securities Obligations of foreign governments Total Balance at December 31, 2020 $ — $ — $ — $ — $ — (Increase) in allowance for credit losses — ( 296 ) — ( 6 ) ( 302 ) Reduction in credit losses due to AFS securities sold during the year — 3 — 1 4 Gains from recoveries of amounts previously written off — 52 — 1 53 Balance at December 31, 2021 $ — $ ( 241 ) $ — $ ( 4 ) $ ( 245 ) Balance at December 31, 2021 $ — $ ( 241 ) $ — $ ( 4 ) $ ( 245 ) (Increase) in allowance for credit losses ( 3 ) ( 69 ) ( 1 ) ( 1 ) ( 74 ) Gains from recoveries of amounts previously written off — 127 — 2 129 Balance at December 31, 2022 $ ( 3 ) $ ( 183 ) $ ( 1 ) $ ( 3 ) $ ( 190 ) The Company applies a discounted cash flow model, based on assumptions and model outputs provided by an investment management company, in determining its lifetime expected credit losses on AFS securities. This includes determining the present value of expected future cash flows discounted at the book yield of the security. The table below presents the amount of gains from recoveries (credit losses) on AFS securities recorded by the Company for the following period: For the Year Ended December 31, 2022 2021 Net gains from recoveries (credit losses) on AFS securities 55 ( 245 ) Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company cannot remove or replace investments in regulatory deposit accounts without prior approval of the contractual party or regulatory authority, as applicable. The following table presents the Company's restricted investments included in the Company's AFS securities: As of December 31, 2022 2021 Fair value of restricted investments in trust pursuant to reinsurance agreements $ 34,386 $ 42,471 Fair value of restricted investments for special deposits required by state insurance departments 16,816 7,189 Total fair value of restricted investments $ 51,202 $ 49,660 The following table presents additional information on the Company’s AFS securities: For the Year Ended December 31, 2022 2021 2020 Purchases of AFS securities $ 233,541 $ 368,913 $ 158,357 Proceeds from maturities, calls and prepayments of AFS securities $ 77,703 $ 68,923 $ 84,923 Gross proceeds from sales of AFS securities $ 63,066 $ 86,981 $ 35,603 F-25 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the gross realized gains and gross realized losses from sales and redemptions of AFS securities: For the Year Ended December 31, 2022 2021 2020 Gross realized gains $ 1,543 $ 661 $ 594 Gross realized (losses) ( 184 ) ( 23 ) ( 66 ) Total net realized gains (losses) from investment sales and redemptions $ 1,359 $ 638 $ 528 Loans, at fair value The following table presents the Company’s investments in loans measured at fair value and the Company’s investments in loans measured at fair value pledged as collateral: As of December 31, 2022 As of December 31, 2021 Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as collateral Fair value Unpaid principal balance (UPB) Fair value exceeds / (below) UPB Pledged as collateral Insurance: Corporate loans (1) $ 14,312 $ 16,032 $ ( 1,720 ) $ — $ 7,099 $ 10,156 $ ( 3,057 ) $ — Mortgage: Mortgage loans held for sale (2) 50,531 49,361 1,170 50,113 98,484 95,264 3,220 95,542 Total loans, at fair value $ 64,843 $ 65,393 $ ( 550 ) $ 50,113 $ 105,583 $ 105,420 $ 163 $ 95,542 (1) The cost basis of Corporate loans was approximately $ 16,032 and $ 9,094 at December 31, 2022 and 2021, respectively. (2) As of December 31, 2022, there were no mortgage loans held for sale that were 90 days or more past due. As of December 31, 2021, t here was one mortgage loan held for sale that was 90 days or more past due, with a fair value of $ 136 . Equity Securities Equity securities consist mainly of publicly traded common and preferred stocks and fixed income exchange traded funds. Included within the equity securities balance are 17.0 million shares of Invesque as of December 31, 2022 and 2021, for which the Company has elected to apply the fair value option. The following table presents information on the cost and fair value of the Company’s equity securities related to insurance operations and other Tiptree investing activity as of the following periods: As of December 31, 2022 Insurance Tiptree Capital - Other Total Cost Fair Value Cost Fair Value Cost Fair Value Invesque $ 23,339 $ 2,670 $ 111,491 $ 12,784 $ 134,830 $ 15,454 Fixed income exchange traded fund 56,263 56,256 — — 56,263 56,256 Other equity securities 15,773 14,066 — — 15,773 14,066 Total equity securities $ 95,375 $ 72,992 $ 111,491 $ 12,784 $ 206,866 $ 85,776 As of December 31, 2021 Insurance Tiptree Capital - Other Total Cost Fair Value Cost Fair Value Cost Fair Value Invesque $ 23,339 $ 6,015 $ 111,491 $ 28,799 $ 134,830 $ 34,814 Fixed income exchange traded fund 52,176 53,154 — — 52,176 53,154 Other equity securities 49,664 50,515 — — 49,664 50,515 Total equity securities $ 125,179 $ 109,684 $ 111,491 $ 28,799 $ 236,670 $ 138,483 F-26 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Other Investments The following table contains information regarding the Company’s other investments as of the following periods: As of December 31, 2022 Tiptree Capital Insurance Mortgage Other Total Corporate bonds, at fair value (1) $ 42,080 $ — $ — $ 42,080 Vessels, net (2) — — 930 930 Debentures 23,853 — — 23,853 Other 230 4,038 1,894 6,162 Total other investments $ 66,163 $ 4,038 $ 2,824 $ 73,025 As of December 31, 2021 Tiptree Capital Insurance Mortgage Other Total Corporate bonds, at fair value (1) $ 38,965 $ — $ — $ 38,965 Vessels, net (2) — — 79,368 79,368 Debentures 21,057 — — 21,057 Trade claims 19,737 — — 19,737 Other 216 7,981 1,332 9,529 Total other investments $ 79,975 $ 7,981 $ 80,700 $ 168,656 (1) The cost basis of corporate bonds was $ 45,630 and $ 36,436 as of December 31, 2022 and 2021, respectively. (2) Net of accumulated depreciation of $ 118 and $ 13,059 as of December 31, 2022 and 2021, respectively. Net Investment Income - Insurance Net investment income represents investment income and expense from investments related to insurance operations as disclosed within net investment income on the consolidated statements of operations. The following table presents the components of net investment income by source of income: For the Year Ended December 31, 2022 2021 2020 Interest: AFS securities $ 11,262 $ 7,153 $ 7,685 Loans, at fair value 780 802 801 Other investments 5,346 5,792 4,253 Dividends from equity securities 1,398 7,355 1,482 Subtotal 18,786 21,102 14,221 Less: investment expenses 6,567 3,206 4,305 Net investment income $ 12,219 $ 17,896 $ 9,916 Other Investment Income - Tiptree Capital Other investment income represents revenue from non-insurance activities as disclosed within other revenue on the consolidated statements of operations, see Note (16) Other Revenue and Other Expenses. The following tables present the components of other investment income by type: For the Year Ended December 31, 2022 2021 2020 Interest: Loans, at fair value (1) $ 5,384 $ 7,184 $ 5,617 Dividends from equity securities — — 2,533 Loan fee income 18,132 21,834 17,900 Vessel related revenue 30,144 35,562 22,697 Other investment income $ 53,660 $ 64,580 $ 48,747 F-27 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (1) Includes income related to loans at fair value classified as Held for Sale for the periods prior to July 1, 2022. See Note (4) Dispositions and Assets and Liabilities Held for Sale. Net Realized and Unrealized Gains (Losses) The following table presents the components of net realized and unrealized gains (losses) recorded on the consolidated statements of operations. Net unrealized gains (losses) on AFS securities are included within other comprehensive income (loss) (“OCI”), net of tax, and, as such, are not included in this table. Net realized and unrealized gains (losses) on non-investment related financial assets and liabilities are included below: For the Year Ended December 31, 2022 2021 2020 Net realized gains (losses) Insurance: Reclass of unrealized gains (losses) on AFS securities from OCI $ 1,359 $ 638 $ 528 Net gains from recoveries (credit losses) on AFS securities 55 ( 245 ) 53 Net realized gains (losses) on loans ( 1,505 ) ( 389 ) ( 945 ) Net realized gains (losses) on equity securities ( 4,231 ) ( 10,434 ) ( 24,586 ) Net realized gains (losses) on corporate bonds ( 3,542 ) 3,917 7,299 Other ( 2,432 ) 1,346 2,511 Tiptree Capital Mortgage: Net realized gains (losses) on loans 38,608 91,538 111,725 Other 16,942 2,165 ( 10,314 ) Other: Net realized gains (losses) on loans (1) 24,403 61,312 40,466 Net realized gains on vessel sales 34,803 — — Other 761 1,632 ( 4,713 ) Total net realized gains (losses) 105,221 151,480 122,024 Net unrealized gains (losses) Insurance: Net change in unrealized gains (losses) on loans 117 1,330 ( 1,461 ) Net unrealized gains (losses) on equity securities held at period end ( 6,462 ) 12,445 ( 22,793 ) Reclass of unrealized (gains) losses from prior periods for equity securities sold ( 142 ) ( 814 ) 17,290 Other ( 3,564 ) ( 9,800 ) 10,162 Tiptree Capital Mortgage: Net change in unrealized gains (losses) on loans ( 2,049 ) ( 1,127 ) 1,270 Other ( 2,156 ) ( 268 ) ( 6,093 ) Other: Net change in unrealized gains (losses) on loans (1) ( 4,513 ) 815 2,185 Net unrealized gains (losses) on equity securities held at period end ( 16,015 ) 3,090 ( 67,656 ) Other ( 454 ) ( 5,801 ) 7,482 Total net unrealized gains (losses) ( 35,238 ) ( 130 ) ( 59,614 ) Total net realized and unrealized gains (losses) $ 69,983 $ 151,350 $ 62,410 (1) Relates to Loans, at fair value classified as Held for Sale. See Note (4) Dispositions and Assets and Liabilities Held for Sale. (7) Notes and Accounts Receivable, net The following table presents the total notes and accounts receivable, net: F-28 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2022 2021 Accounts and premiums receivable, net $ 142,011 $ 137,082 Retrospective commissions receivable 191,092 157,853 Notes receivable, net - premium financing program 121,419 89,788 Trust receivables 18,455 41,889 Other receivables 29,334 27,757 Total notes and accounts receivable, net $ 502,311 $ 454,369 The following table presents the total valuation allowance and bad debt expense for the following periods: Valuation allowance Bad Debt Expense As of December 31, For the Year Ended December 31, 2022 2021 2022 2021 2020 Notes receivable, net - premium financing program (1) $ 85 $ 123 $ 141 $ 274 $ 223 Accounts and premiums receivable, net $ 94 $ 120 $ 56 $ 33 $ 28 (1) As of December 31, 2022 and 2021, there were $ 168 and $ 1,311 in balances classified as 90 days plus past due, respectively. (8) Reinsurance Receivables The following table presents the effect of reinsurance on premiums written and earned by our insurance business for the following periods: Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net As of December 31, 2022 Life insurance in force $ 6,139,755 $ 2,892,889 $ — $ 3,246,866 For the Year Ended December 31, 2022 Premiums written: Life insurance $ 88,430 $ 41,218 $ 193 $ 47,405 0.4 % Accident and health insurance 142,132 96,923 7,519 52,728 14.3 % Property and liability insurance 1,284,543 661,871 366,585 989,257 37.1 % Total premiums written $ 1,515,105 $ 800,012 $ 374,297 $ 1,089,390 34.4 % Premiums earned: Life insurance $ 82,730 $ 41,359 $ 522 $ 41,893 1.2 % Accident and health insurance 141,662 96,725 7,734 52,671 14.7 % Property and liability insurance 1,090,744 582,711 302,168 810,201 37.3 % Total premiums earned $ 1,315,136 $ 720,795 $ 310,424 $ 904,765 34.3 % As of December 31, 2021 Life insurance in force $ 5,921,446 $ 3,068,761 $ — $ 2,852,685 For the Year Ended December 31, 2021 Premiums written: Life insurance $ 91,865 $ 46,920 $ 808 $ 45,753 1.8 % Accident and health insurance 146,256 100,717 5,790 51,329 11.3 % Property and liability insurance 1,141,979 558,471 214,150 797,658 26.8 % Total premiums written $ 1,380,100 $ 706,108 $ 220,748 $ 894,740 24.7 % Premiums earned: Life insurance $ 74,151 $ 39,881 $ 1,194 $ 35,464 3.4 % Accident and health insurance 126,501 85,457 7,219 48,263 15.0 % Property and liability insurance 902,439 504,785 204,171 601,825 33.9 % Total premiums earned $ 1,103,091 $ 630,123 $ 212,584 $ 685,552 31.0 % F-29 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the components of policy and contract benefits, including the effect of reinsurance on losses and loss adjustment expenses (LAE) incurred: Direct amount Ceded to other companies Assumed from other companies Net amount Percentage of amount - assumed to net For the Year Ended December 31, 2022 Losses and LAE Incurred Life insurance $ 52,186 $ 28,214 $ 504 $ 24,476 2.1 % Accident and health insurance 29,221 21,860 6,780 14,141 47.9 % Property and liability insurance 447,294 307,052 182,742 322,984 56.6 % Total losses and LAE incurred 528,701 357,126 190,026 361,601 52.6 % Member benefit claims (1) 91,004 Total policy and contract benefits $ 452,605 For the Year Ended December 31, 2021 Losses and LAE Incurred Life insurance $ 59,526 $ 34,030 $ 869 $ 26,365 3.3 % Accident and health insurance 21,509 18,091 2,225 5,643 39.4 % Property and liability insurance 354,308 239,678 106,835 221,465 48.2 % Total losses and LAE incurred 435,343 291,799 109,929 253,473 43.4 % Member benefit claims (1) 73,539 Total policy and contract benefits $ 327,012 For the Year Ended December 31, 2020 Losses and LAE Incurred Life insurance $ 46,268 $ 27,292 $ 645 $ 19,621 3.3 % Accident and health insurance 18,354 15,715 7,032 9,671 72.7 % Property and liability insurance 282,906 182,115 48,165 148,956 32.3 % Total losses and LAE incurred 347,528 225,122 55,842 178,248 31.3 % Member benefit claims (1) 58,650 Total policy and contract benefits $ 236,898 (1) Member benefit claims are not covered by reinsurance. The following table presents the components of the reinsurance receivables: As of December 31, 2022 2021 Prepaid reinsurance premiums: Life insurance (1) $ 75,553 $ 73,478 Accident and health insurance (1) 81,718 81,521 Property and liability insurance 568,199 479,091 Total 725,470 634,090 Ceded claim reserves: Life insurance 3,965 3,928 Accident and health insurance 19,408 12,239 Property and liability insurance 243,726 148,962 Total ceded claim reserves recoverable 267,099 165,129 Other reinsurance settlements recoverable 183,521 81,617 Reinsurance receivables $ 1,176,090 $ 880,836 (1) Including policyholder account balances ceded. The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from non-affiliated reinsurers: As of December 31, 2022 Total of the three largest receivable balances from non-affiliated reinsurers $ 189,233 F-30 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2022, the non-affiliated reinsurers from whom our insurance business has the largest receivable balances were: Allianz Global Corporate & Specialty SE (A.M. Best Rating: A+ rated), Canada Life Assurance Company (A.M. Best Rating: A+ rated), and Canada Life International Reinsurance (Bermuda) Corporation (A.M. Best Rating: A+ rated). A majority of the related receivables from these reinsurers are collateralized by assets on hand and letters of credit; receivable balances from authorized reinsurers do not require collateral. Allianz Global Corporate & Specialty SE and Canada Life Assurance Company are authorized reinsurers in the states in which Fortegra’s U.S. based insurance entities are domiciled. The Company monitors authorization status and A.M. Best ratings of its reinsurers periodically. As of December 31, 2022, the Company does not believe there is a risk of loss due to the concentration of credit risk in the reinsurance program given the collateralization. (9) Goodwill and Intangible Assets, net The following table presents identifiable finite and indefinite-lived intangible assets, accumulated amortization, and goodwill by operating segment and/or reporting unit, as appropriate: As of December 31, 2022 As of December 31, 2021 Finite-Lived Intangible Assets: Insurance Other Total Insurance Other Total Customer relationships $ 149,835 $ — $ 149,835 $ 143,300 $ — $ 143,300 Accumulated amortization ( 60,401 ) — ( 60,401 ) ( 45,997 ) — ( 45,997 ) Trade names 15,028 800 15,828 14,750 800 15,550 Accumulated amortization ( 7,039 ) ( 600 ) ( 7,639 ) ( 5,633 ) ( 520 ) ( 6,153 ) Software licensing 12,386 640 13,026 9,300 640 9,940 Accumulated amortization ( 9,084 ) ( 640 ) ( 9,724 ) ( 8,790 ) ( 594 ) ( 9,384 ) Insurance policies and contracts acquired 36,500 — 36,500 36,500 — 36,500 Accumulated amortization ( 36,374 ) — ( 36,374 ) ( 36,320 ) — ( 36,320 ) Other 751 — 751 640 — 640 Accumulated amortization ( 276 ) — ( 276 ) ( 203 ) — ( 203 ) Total finite-lived intangible assets 101,326 200 101,526 107,547 326 107,873 Indefinite-Lived Intangible Assets: (1) Insurance licensing agreements 13,761 — 13,761 13,761 — 13,761 Other — 1,728 1,728 — 1,124 1,124 Total indefinite-lived intangible assets 13,761 1,728 15,489 13,761 1,124 14,885 Total intangible assets, net $ 115,087 $ 1,928 $ 117,015 $ 121,308 $ 1,450 $ 122,758 Goodwill 184,900 1,708 186,608 177,395 1,708 179,103 Total goodwill and intangible assets, net $ 299,987 $ 3,636 $ 303,623 $ 298,703 $ 3,158 $ 301,861 (1) Impairment tests are performed at least annually on indefinite-lived intangible assets. Goodwill The following table presents the activity in goodwill, by operating segment and/or reporting unit, as appropriate, and includes the adjustments made to the balance of goodwill to reflect the effect of the final valuation adjustments made for acquisitions, as well as the reduction to any goodwill attributable to impairment related charges: Insurance Other Total Balance at December 31, 2020 177,528 1,708 179,236 Purchase accounting adjustments ( 133 ) — ( 133 ) Balance at December 31, 2021 $ 177,395 $ 1,708 $ 179,103 Goodwill acquired (1) 8,112 — 8,112 Foreign currency translation and other ( 607 ) — ( 607 ) Balance at December 31, 2022 $ 184,900 $ 1,708 $ 186,608 (1) See Note (3) Acquisitions for more information. The Company conducts annual impairment tests of its goodwill as of October 1. For the years ended December 31, 2022, 2021 and 2020, no impairments were recorded on the Company’s goodwill. There is no accumulated impairment recorded in the goodwill balance as of December 31, 2022 or 2021. F-31 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Intangible Assets, net The following table presents the activity, by operating segment and/or reporting unit, as appropriate, in finite and indefinite-lived other intangible assets and includes the adjustments made to the balance to reflect the effect of any final valuation adjustments made for acquisitions, as well as any reduction attributable to impairment-related charges: Insurance Other Total Balance at December 31, 2020 $ 136,718 $ 1,497 $ 138,215 Intangible assets acquired — 124 124 Less: amortization expense ( 15,410 ) ( 171 ) ( 15,581 ) Balance at December 31, 2021 $ 121,308 $ 1,450 $ 122,758 Intangible assets acquired (1) 10,964 604 11,568 Amortization expense ( 16,229 ) ( 126 ) ( 16,355 ) Foreign currency translation and other ( 956 ) — ( 956 ) Balance at December 31, 2022 $ 115,087 $ 1,928 $ 117,015 (1) See Note (3) Acquisitions for more information. The following table presents the amortization expense on finite-lived intangible assets for the following periods: For the Year Ended December 31, 2022 2021 2020 Amortization expense on intangible assets $ 16,355 $ 15,581 $ 9,499 For the years ended December 31, 2022, 2021, and 2020, no impairments were recorded on the Company’s intangible assets. The following table presents the amortization expense on finite-lived intangible assets for the next five years and thereafter by operating segment and/or reporting unit, as appropriate: As of December 31, 2022 Insurance Other Total 2023 $ 15,595 $ 80 $ 15,675 2024 13,906 80 13,986 2025 11,792 40 11,832 2026 9,543 — 9,543 2027 8,200 — 8,200 2028 and thereafter 43,207 — 43,207 Total (1) $ 102,243 $ 200 $ 102,443 (1) Does not include foreign currency translation adjustment of ( $ 917 ) as of December 31, 2022. (10) Derivative Financial Instruments and Hedging The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily entered into in order to manage underlying credit risk, market risk, interest rate risk and currency exchange rate risk. In addition, the Company is also subject to counterparty risk should its counterparties fail to meet the contract terms. Derivative assets are reported in other investments. Derivative liabilities are reported within other liabilities and accrued expenses . Interest Rate Lock Commitments Derivatives for our mortgage business are primarily comprised of interest rate lock commitments (IRLCs), forward delivery contracts, and TBA mortgage backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiary issues IRLCs to their customers, which are carried at estimated fair value on the Company’s F-32 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these commitments generally fall under Level 3 in the fair value hierarchy. Forward Delivery Contracts and TBA Mortgage Backed Securities Our mortgage origination subsidiary manages their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage-backed securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy. The remaining derivatives are generally comprised of a combination of swaps and options, which are generally classified as Level 2 in the fair value hierarchy. In addition, the Fortegra Additional Warrant (Warburg) is a derivative liability and classified as Level 3 in the fair value hierarchy. See Note (17) Stockholders’ Equity for additional information regarding the Fortegra Additional Warrant. The following table presents the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk: As of December 31, 2022 As of December 31, 2021 Notional values Asset derivatives Liability derivatives Notional values Asset derivatives Liability derivatives Interest rate lock commitments $ 147,963 $ 3,652 $ — $ 268,878 $ 7,514 $ — Forward delivery contracts 32,160 112 39 56,593 204 59 TBA mortgage backed securities 133,500 273 141 316,000 262 425 Fortegra Additional Warrants (Warburg) (1) — — 5,291 — — — Other 13,427 230 7,730 9,232 216 1,657 Total $ 327,050 $ 4,267 $ 13,201 $ 650,703 $ 8,196 $ 2,141 (1) See Note (17) Stockholders’ Equity for additional information . F-33 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (11) Debt, net The following table presents the balance of the Company’s debt obligations, net of discounts and deferred financing costs for our corporate and asset based debt. Asset based debt is generally recourse only to specific assets and related cash flows. As of December 31, 2022 Corporate debt Insurance Other Corporate Total Secured revolving credit agreements (1) $ — $ — $ — $ — Secured term credit agreement — — — — Preferred trust securities (LIBOR + 4.10 %) 35,000 — — 35,000 8.50 % Junior subordinated notes 125,000 — — 125,000 Total corporate debt 160,000 — — 160,000 Asset based debt Asset based revolving financing (LIBOR + 2.75 %) (2) 60,628 — — 60,628 Residential mortgage warehouse borrowings ( 1.88 % to 2.50 % over SOFR; 2.00 % to 3.00 % over BSBY) (3)(4) — 47,454 — 47,454 Total asset based debt 60,628 47,454 — 108,082 Total debt, face value 220,628 47,454 — 268,082 Unamortized discount, net — — — — Unamortized deferred financing costs ( 8,703 ) ( 13 ) — ( 8,716 ) Total debt, net $ 211,925 $ 47,441 $ — $ 259,366 As of December 31, 2021 Corporate debt Insurance Other Corporate Total Secured revolving credit agreements (1) $ 2,160 $ — $ — $ 2,160 Secured term credit agreement (LIBOR + 6.75 %) (5) — — 114,063 114,063 Preferred trust securities (LIBOR + 4.10 %) 35,000 — — 35,000 8.50 % Junior subordinated notes 125,000 — — 125,000 Total corporate debt 162,160 — 114,063 276,223 Asset based debt Asset based revolving financing (LIBOR + 2.75 %) (2) 42,310 — — 42,310 Residential mortgage warehouse borrowings (LIBOR + 1.88 % to 3.00 %) (3)(4) — 72,518 — 72,518 Vessel backed term loan (LIBOR + 4.75 %) — 13,600 — 13,600 Total asset based debt 42,310 86,118 — 128,428 Total debt, face value 204,470 86,118 114,063 404,651 Unamortized discount, net — — ( 1,458 ) ( 1,458 ) Unamortized deferred financing costs ( 8,474 ) ( 1,069 ) ( 301 ) ( 9,844 ) Total debt, net $ 195,996 $ 85,049 $ 112,304 $ 393,349 (1) The secured credit agreements include separate tranches with multiple rate structures which are adjustable based on Fortegra’s senior leverage ratio, which as of December 31, 2022 was SOFR + 1.50 %. (2) On January 31, 2023, the borrowing was amended to use SOFR as the reference rate. See Note (24) Subsequent Events. (3) Includes SOFR floor and BSBY floor o f 0.25 % and 0.50 %, r espectively, as of December 31, 2022. (4) The weighted average coupon rate for residential mortgage warehouse borrowings was 6.31 % a nd 2.76 % at December 31, 2022 and 2021, respectively. (5) Includes LIBOR floor o f 1 %. The following table presents the amount of interest expense the Company incurred on its debt for the following periods: For the Year Ended December 31, 2022 2021 2020 Total Interest expense - corporate debt $ 19,290 $ 24,425 $ 23,322 Total Interest expense - asset based debt 10,950 13,018 9,260 Interest expense on debt $ 30,240 $ 37,443 $ 32,582 F-34 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the contractual principal payments and future maturities of the unpaid principal balance on the Company’s debt for the following periods: As of December 31, 2022 2023 $ 108,082 2024 — 2025 — 2026 — 2027 — 2028 and thereafter 160,000 Total $ 268,082 The following narrative is a summary of certain terms of our debt agreements for the year ended December 31, 2022: Corporate Debt Secured Revolving Credit Agreements As of December 31, 2022 and 2021, a total of $ 0 and $ 2,160 , respectively, was outstanding under the revolving line of credit in our insurance business. The maximum borrowing capacity under the agreements as of December 31, 2022 was $ 200,000 . 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 $ 200,000 revolving credit facility, all of which is available for the issuance of letters of credit, with a sub-limit of $ 25,000 for swing loans and matures on October 1, 2027. Secured Term Credit Agreement The remaining balance of the corporate secured term credit agreement was fully repaid during June 2022 in connection with the WP Transaction. As of December 31, 2021, the maximum borrowing capacity and borrowings outstanding were $ 114,063 . Junior Subordinated Notes On October 16, 2017, a subsidiary of Fortegra issued $ 125,000 of 8.50 % Fixed Rate Resetting Junior Subordinated Notes due October 2057. Substantially all of the net proceeds were used to repay the existing secured credit agreement at that time, which was terminated thereafter. The notes are unsecured obligations of the subsidiary and rank in right of payment and upon liquidation, junior to all of the Fortegra subsidiary’s current and future senior indebtedness. The notes are not obligations of or guaranteed by any other subsidiaries of Fortegra, or any other Tiptree entities. So long as no event of default has occurred and is continuing, all or part of the interest payments on the notes can be deferred on one or more occasions for up to five consecutive years per deferral period. This credit agreement contains customary financial covenants that require, among other items, maximum leverage and limitations on restricted payments under certain circumstances. Preferred Trust Securities On June 20, 2007, a subsidiary of Fortegra issued $ 35,000 of preferred trust securities due June 15, 2037. Interest is payable quarterly at an interest rate of LIBOR plus 4.10 %. The Company may redeem the preferred trust securities, in whole or in part, at a price equal to the full outstanding principal amount of such preferred trust securities outstanding plus accrued and unpaid interest. F-35 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Asset Based Debt Asset Based Revolving Financing On October 16, 2020, subsidiaries of Fortegra entered into a three year $ 75,000 secured credit agreement, which replaced the individual agreements in its premium finance and service contract finance businesses. The borrowers can select from various borrowing and rate options under the agreement, as well the option to convert certain borrowings to term loans, if no default or event of default exists. The obligations under the agreement are non-recourse to Fortegra and its other subsidiaries (other than borrowers and their subsidiaries). As of December 31, 2022 and 2021, a total of $ 60,628 and $ 42,310 , respectively, was outstanding under the borrowing related to our premium finance and service contract finance offerings in our insurance business. Residential Mortgage Warehouse Borrowings In March 2021, the $ 60,000 warehouse line of credit was renewed and the maturity date was extended from April 2021 to April 2022. In April 2022, the $ 60,000 warehouse line of credit was renewed and the maturity date was extended from April 2022 to April 2023. In January 2023, the $ 60,000 warehouse line of credit was renewed and the maturity date was extended from January 2023 to January 2024. In July 2021, the $ 50,000 warehouse line of credit was renewed and the maturity date was extended from August 2021 to August 2022. In August 2022, the $ 50,000 warehouse line of credit was renewed and the maturity date was extended from August 2022 to August 2023. As of December 31, 2022 and 2021, a total of $ 47,454 and $ 72,518 , respectively, was outstanding under such financing agreements. Vessel-Backed Term Loan The remaining balance of the vessel backed term loan was fully repaid at a discount during May 2022, for a net gain of $ 1,168 . As of December 31, 2021, the maximum borrowing capacity and borrowings outstanding were $ 13,600 . Debt Covenants As of December 31, 2022, the Company was in compliance with the representations and covenants for its outstanding debt or obtained waivers for any events of non-compliance. (12) Fair Value of Financial Instruments The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note (2) Summary of Significant Accounting Policies which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy. The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review F-36 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources. The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility. Available for Sale Securities, at fair value The fair values of AFS securities are based on prices provided by an independent pricing service and a third-party investment manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager by analyzing the investment manager-provided pricing report. The following details the methods and assumptions used to estimate the fair value of each class of AFS securities and the applicable level each security falls within the fair value hierarchy: U.S. Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third-party investment manager. The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy. Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy. Equity Securities The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks are based on prices derived from multiples of comparable public companies and fall under Level 3 in the fair value hierarchy. Loans, at fair value Corporate Loans : These loans are comprised of middle market loans and bank loans and are generally classified under either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices, including those provided from pricing vendors, which provide coverage of secondary market participants, where available. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of loans based on internal models and other unobservable inputs. Mortgage Loans Held for Sale : Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs. Derivative Assets and Liabilities Derivatives for our mortgage business are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these commitments generally fall under Level 3 in the fair value hierarchy. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a F-37 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy. The remaining derivatives are generally comprised of a combination of swaps and options, which are generally classified as Level 2 in the fair value hierarchy. In addition, the Fortegra Additional Warrants (Warburg) are a derivative liability and classified as Level 3 in the fair value hierarchy. See Note (17) Stockholders’ Equity for additional information regarding the Fortegra Additional Warrant. Corporate Bonds Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable. Trade Claims Trade claims represent unsecured claims of bankrupt companies and are generally classified under Level 3 in the fair value hierarchy. The fair value is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs are intended to reflect the assumptions a market participant would use in pricing the asset or liability. Securities Sold, Not Yet Purchased Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable. Mortgage Servicing Rights Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed. F-38 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring basis: As of December 31, 2022 Quoted prices in active markets Level 1 Other significant observable inputs Level 2 Significant unobservable inputs Level 3 Fair value Assets: Available for sale securities, at fair value: U.S. Treasury securities and obligations of U.S. government authorities and agencies $ — $ 382,060 $ — $ 382,060 Obligations of state and political subdivisions — 49,454 — 49,454 Obligations of foreign governments — 2,362 — 2,362 Certificates of deposit 756 — — 756 Asset backed securities — 15,254 95 15,349 Corporate securities — 161,999 — 161,999 Total available for sale securities, at fair value 756 611,129 95 611,980 Loans, at fair value: Corporate loans — 3,104 11,208 14,312 Mortgage loans held for sale — 50,531 — 50,531 Total loans, at fair value — 53,635 11,208 64,843 Equity securities: Invesque 15,454 — — 15,454 Fixed income ETFs 56,256 — — 56,256 Other equity securities 7,181 — 6,885 14,066 Total equity securities 78,891 — 6,885 85,776 Other investments, at fair value: Corporate bonds — 42,080 — 42,080 Derivative assets 7 608 3,652 4,267 Other — — 324 324 Total other investments, at fair value 7 42,688 3,976 46,671 Mortgage servicing rights (1) — — 41,426 41,426 Total $ 79,654 $ 707,452 $ 63,590 $ 850,696 Liabilities: (2) Securities sold, not yet purchased $ 10,263 $ 6,312 $ — $ 16,575 Derivative liabilities — 7,910 — 7,910 Fortegra Additional Warrants (Warburg) — — 5,291 5,291 Contingent consideration payable — — 2,904 2,904 Total $ 10,263 $ 14,222 $ 8,195 $ 32,680 (1) Included in other assets. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. (2) Included in other liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. F-39 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2021 Quoted prices in active markets Level 1 Other significant observable inputs Level 2 Significant unobservable inputs Level 3 Fair value Assets: Available for sale securities, at fair value: U.S. Treasury securities and obligations of U.S. government authorities and agencies $ — $ 351,178 $ — $ 351,178 Obligations of state and political subdivisions — 58,660 — 58,660 Obligations of foreign governments — 2,590 — 2,590 Certificates of deposit 2,696 — — 2,696 Asset backed securities — 16,832 615 17,447 Corporate securities — 144,877 — 144,877 Total available for sale securities, at fair value 2,696 574,137 615 577,448 Loans, at fair value: Corporate loans — 5,002 2,097 7,099 Mortgage loans held for sale — 98,484 — 98,484 Total loans, at fair value — 103,486 2,097 105,583 Equity securities: Invesque 34,814 — — 34,814 Fixed income ETFs 53,154 — — 53,154 Other equity securities 49,309 — 1,206 50,515 Total equity securities 137,277 — 1,206 138,483 Other investments, at fair value: Corporate bonds — 38,965 — 38,965 Derivative assets 113 569 7,514 8,196 Trade claims — — 19,737 19,737 Other — — 441 441 Total other investments, at fair value 113 39,534 27,692 67,339 Mortgage servicing rights (1) — — 29,833 29,833 Total $ 140,086 $ 717,157 $ 61,443 $ 918,686 Liabilities: (2) Securities sold, not yet purchased $ 242 $ — $ — $ 242 Derivative liabilities — 2,141 — 2,141 Contingent consideration payable — — 200 200 Total $ 242 $ 2,141 $ 200 $ 2,583 (1) Included in other assets. (2) Included in other liabilities and accrued expenses. F-40 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation. The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods: For the Year Ended December 31, 2022 2021 Balance at January 1, $ 61,443 $ 33,455 Net realized and unrealized gains or losses included in: Earnings 9,467 14,206 OCI ( 520 ) ( 243 ) Origination of IRLCs 52,932 109,330 Purchases 13 24,956 Sales and repayments ( 3,815 ) ( 9,238 ) Conversions to mortgage loans held for sale ( 56,794 ) ( 111,023 ) Settlement of trade claims ( 19,169 ) — Exchange of bonds for term loans 12,673 — Exchange of trade receivables for equity securities 7,360 — Balance at December 31, $ 63,590 $ 61,443 Changes in unrealized gains (losses) included in earnings related to assets still held at period end ( 3,870 ) $ ( 2,421 ) Changes in unrealized gains (losses) included in OCI related to assets still held at period end $ ( 520 ) $ ( 243 ) The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities. As of December 31, As of December 31, 2022 2021 Valuation technique Unobservable input(s) 2022 2021 Assets Fair value Range WA (1) Range WA (1) IRLCs $ 3,652 $ 7,514 Internal model Pull through rate 55 % to 95 % 65 % 55 % to 95 % 66 % Mortgage servicing rights 41,426 29,833 External model Discount rate 9 % to 14 % 9 % 10 % to 12 % 9 % Cost to service $ 65 to $ 80 $ 72 $ 65 to $ 80 $ 71 Prepayment speed 4 % to 85 % 9 % 5 % to 100 % 15 % Trade claims — 19,737 Internal model Plan projected recovery rate N/A 15 % to 18 % 17 % Equity securities 6,837 — Internal model Forecast EBITDAR $ 728 to $ 1,039 N/A N/A Corporate loans and related receivables 11,208 — Internal model EBITDA $ 170,000 N/A N/A Total $ 63,123 $ 57,084 Liabilities Fortegra Additional Warrants (Warburg) $ 5,291 $ — External model Discount rate 3 % to 5 % 3.3 % N/A Implied Equity Volatility 40 % to 50 % 45 % Contingent consideration payable 2,904 — Cash Flow model Forecast Cash EBITDA $ 2,500 to $ 4,000 N/A N/A Cash Flow model Forecast Underwriting EBITDA $ — to $ 2,000 N/A N/A Total $ 8,195 $ — (1) Unobservable inputs were weighted by the relative fair value of the instruments. F-41 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy: As of December 31, 2022 As of December 31, 2021 Level within fair value hierarchy Fair value Carrying value Level within fair value hierarchy Fair value Carrying value Assets: Debentures (1) 2 $ 23,853 $ 23,853 2 $ 21,057 $ 21,057 Notes receivable, net 2 121,419 121,419 2 89,788 89,788 Total assets $ 145,272 $ 145,272 $ 110,845 $ 110,845 Liabilities: Debt, net 3 $ 262,932 $ 268,082 3 $ 419,599 $ 403,193 Total liabilities $ 262,932 $ 268,082 $ 419,599 $ 403,193 (1) Included in other investments. Debentures: Since interest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts. Notes Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net. Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes is determined based on dealer quotes. Categorized under Level 3 in the fair value hierarchy. Additionally, the following financial assets and liabilities on the consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value: Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized under Level 1 in the fair value hierarchy. Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net. Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short term nature. Categorized under Level 2 in the fair value hierarchy. F-42 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (13) Liability for Unpaid Claims and Claim Adjustment Expenses Roll forward of Claim Liability The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short duration contracts for the following periods: For the Year Ended December 31, 2022 2021 Policy liabilities and unpaid claims balance as of January 1, $ 331,703 $ 233,438 Less: liabilities of policy-holder account balances, gross ( 801 ) ( 5,419 ) Less: non-insurance warranty benefit claim liabilities ( 10,785 ) ( 30,664 ) Gross liabilities for unpaid losses and loss adjustment expenses 320,117 197,355 Less: reinsurance recoverable on unpaid losses - short duration ( 165,129 ) ( 113,163 ) Less: other lines, gross ( 576 ) ( 247 ) Net balance as of January 1, short duration 154,412 83,945 Incurred (short duration) related to: Current year 361,462 250,300 Prior years ( 858 ) 2,606 Total incurred 360,604 252,906 Paid (short duration) related to: Current year 165,710 174,334 Prior years 51,249 8,105 Total paid 216,959 182,439 Net balance as of December 31, short duration 298,057 154,412 Plus: reinsurance recoverable on unpaid losses - short duration 266,889 165,129 Plus: other lines, gross 184 576 Gross liabilities for unpaid losses and loss adjustment expenses 565,130 320,117 Plus: liabilities of policy-holder account balances, gross 1,923 801 Plus: non-insurance warranty benefit claim liabilities 140 10,785 Policy liabilities and unpaid claims balance as of December 31, $ 567,193 $ 331,703 The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member benefit claims: For the Year Ended December 31, 2022 2021 2020 Short duration incurred $ 360,604 $ 252,906 $ 177,450 Other lines incurred 354 ( 284 ) 27 Unallocated loss adjustment expenses 643 851 771 Total losses incurred $ 361,601 $ 253,473 $ 178,248 During the year ended December 31, 2022, the Company experienced favorable prior year development of $ 858 , primarily as a result of lower-than-expected claim severity in our commercial lines business. During the year ended December 31, 2021, the Company experienced unfavorable prior year development of $ 2,606 , primarily 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. Management considers the prior year development for each of these years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings. The favorable prior year development of $ 858 in 2022 represented 1.3 % of our insurance business pre-tax income of $ 68,150 and 0.6 % of the opening net liability for losses and loss adjustment expenses of F-43 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) $ 154,412 , as of January 1, 2022. The unfavorable prior year development of $ 2,606 in 2021 represented 3.7 % of our insurance business pretax income of $ 69,857 , and 3.1 % of the opening net liability for losses and loss adjustment expenses of $ 83,945 , as of January 1, 2021. Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represent the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date. F-44 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Incurred and Paid Development The following table presents information about incurred and paid loss development and average claim duration as of December 31, 2022 , net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated count of unreported claims. The number of claims is measured by claim event. The Company considers a claim that does not result in a liability as a claim closed without payment. Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance As of December 31, 2022 For the Years Ended December 31, Total of IBNR Liabilities Plus Expected Development of Reported Claims Cumulative Number of Reported Claims Unaudited Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 $ 43,449 $ 39,614 $ 39,914 $ 39,887 $ 39,874 $ 39,869 $ 39,883 $ 39,884 $ 39,932 $ 5 122 2015 59,579 57,470 57,588 57,815 58,141 58,194 58,248 58,285 $ 6 178 2016 84,178 87,290 87,993 88,615 89,629 89,981 89,516 $ 133 257 2017 103,306 104,898 105,601 105,787 106,446 106,517 $ 205 326 2018 129,352 133,225 133,158 134,392 123,228 $ 6,644 399 2019 144,925 149,166 151,772 153,325 $ 10,352 422 2020 172,007 169,706 165,820 $ 20,818 344 2021 250,300 263,249 $ 13,964 492 2022 361,462 $ 160,915 516 Total $ 1,361,334 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Unaudited Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 $ 30,435 $ 38,752 $ 39,596 $ 39,822 $ 39,818 $ 39,874 $ 39,878 $ 39,881 $ 39,927 2015 41,578 56,445 57,130 57,610 58,096 58,175 58,243 58,274 2016 62,989 84,185 86,531 88,482 88,976 89,474 89,286 2017 84,493 102,620 105,075 105,852 106,402 106,249 2018 105,740 112,619 114,490 115,407 114,756 2019 122,348 128,787 132,747 131,885 2020 127,721 129,832 132,997 2021 174,334 224,193 2022 165,710 Total $ 1,063,277 All outstanding liabilities before 2014, net of reinsurance — Liabilities for loss and loss adjustment expenses, net of reinsurance $ 298,057 Duration The following table presents supplementary information about average historical claims duration as of December 31, 2022 for short duration contracts: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Years 1 2 3 4 5 6 7 8 9 Short duration 72.4 % 14.6 % 2.0 % 0.7 % 0.3 % 0.2 % — % — % 0.1 % F-45 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Reconciliation of Reserves to Balance Sheet The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims: As of December 31, 2022 Net outstanding liabilities: Short duration $ 298,057 Insurance lines other than short duration ( 26 ) Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance 298,031 Reinsurance recoverable on unpaid losses and loss adjustment expenses: Short duration 266,889 Other insurance lines 210 Total reinsurance recoverable on unpaid losses and loss adjustment expenses 267,099 Total gross liability for unpaid losses and loss adjustment expenses 565,130 Liabilities of policy-holder account balances, gross 1,923 Non-insurance warranty benefit claim liabilities 140 Total policy liabilities and unpaid claims $ 567,193 (14) Revenue from Contracts with Customers The Company’s revenues from insurance and contractual and liability insurance operations are primarily accounted for under Financial Services-Insurance (Topic 944) that are not within the scope of Revenue for Contracts with Customers (Topic 606). The Company’s remaining revenues that are within the scope of Topic 606 are primarily comprised of revenues from contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided for premiums, claims and reinsurance processing revenues, vehicle service contracts, vessel related revenue and revenues for household goods and appliances service contracts (collectively, remaining contracts). The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods: For the Year Ended December 31, 2022 2021 2020 Service and Administrative Fees: Service contract revenue $ 210,817 $ 163,583 $ 98,574 Motor club revenue 53,346 41,634 36,159 Vessel related revenue 30,144 35,562 22,697 Other 5,916 17,784 6,127 Revenue from contracts with customers $ 300,223 $ 258,563 $ 163,557 Service and Administrative Fees Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable. Administrative fee revenue includes the administration of premium associated with our producers and PORCs. In addition, we also earn fee revenue from debt cancellation, motor club, and auto and consumer goods service contracts. Related administrative fee revenue is recognized consistent with the earnings recognition pattern of the underlying insurance policies, debt cancellation contracts and motor club memberships being administered, using Rule of 78's, modified Rule of 78's, pro rata, or other methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available. F-46 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material as of December 31, 2022. The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied. Vessel Related Revenue The Company generates its revenues from charterers for the charter hire of its vessels. Vessels are chartered under time or voyage charters, where a contract is entered into for the use of a vessel for a specific voyage or a specific period of time and at a specified daily charter rate. Charter revenues are recognized as earned on the straight-line basis over the term of the charter as service is provided. Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Unearned revenue includes revenue received prior to the balance sheet date relating to services to be rendered after the balance sheet date. The following table presents the activity in the significant deferred assets and liabilities related to revenue from contracts with customers for the following period: January 1, 2022 December 31, 2022 Beginning balance Additions Amortization Ending balance Deferred acquisition costs Service and Administrative Fees: Service contract revenue $ 110,220 $ 114,219 $ 52,310 $ 172,129 Motor club revenue 19,424 39,695 41,977 17,142 Total $ 129,644 $ 153,914 $ 94,287 $ 189,271 Deferred revenue Service and Administrative Fees: Service contract revenue $ 470,399 $ 322,300 $ 210,817 $ 581,882 Motor club revenue 24,870 51,425 53,346 22,949 Total $ 495,269 $ 373,725 $ 264,163 $ 604,831 For the periods presented, no write-offs for unrecoverable deferred acquisition costs and deferred revenue were recognized. (15) Other Assets and Other Liabilities and Accrued Expenses Other Assets The following table presents the components of other assets as reported in the consolidated balance sheets: As of December 31, 2022 2021 Loans eligible for repurchase $ 32,136 $ 36,732 Mortgage servicing rights 41,426 29,833 Right of use asset - Operating leases (1) 31,499 23,870 Income tax receivable 19,790 19,824 Furniture, fixtures and equipment, net 21,829 14,878 Prepaid expenses 18,526 10,722 Other 6,937 10,985 Total other assets $ 172,143 $ 146,844 F-47 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (1) See Note (21) Commitments and Contingencies for additional information. The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods: For the Year Ended December 31, 2022 2021 2020 Depreciation expense related to furniture, fixtures and equipment $ 3,954 $ 3,621 $ 3,257 Other Liabilities and Accrued Expenses The following table presents the components of other liabilities and accrued expenses as reported in the consolidated balance sheets: As of December 31, 2022 2021 Accounts payable and accrued expenses $ 119,394 $ 149,816 Loans eligible for repurchase liability 32,136 36,732 Deferred tax liabilities, net 90,391 40,049 Operating lease liability (1) 38,031 29,396 Commissions payable 42,741 20,412 Securities sold, not yet purchased 16,575 242 Other 28,480 29,889 Total other liabilities and accrued expenses $ 367,748 $ 306,536 (1) See Note (21) Commitments and Contingencies for additional information. (16) Other Revenue and Other Expenses Other Revenue The following table presents the components of other revenue as reported in the consolidated statement of operations. Other revenue is primarily generated by Tiptree Capital’s non-insurance activities except as noted in the footnote to the table. For the Year Ended December 31, 2022 2021 2020 Other investment income (1) $ 53,660 $ 64,580 $ 48,747 Other (2) 22,525 8,827 3,163 Total other revenue $ 76,185 $ 73,407 $ 51,910 (1) See Note (6) Investments for the components of Other investment income. (2) Includes $ 17,559 , $ 10,384 , and $ 7,025 for the years ended December 31, 2022, 2021, and 2020, respectively, related to Insurance. Other Expenses The following table presents the components of other expenses as reported in the consolidated statement of operations: For the Year Ended December 31, 2022 2021 2020 General and administrative $ 26,216 $ 36,654 $ 22,295 Professional fees 26,614 27,285 20,711 Premium taxes 22,362 20,196 15,824 Mortgage origination expenses 17,540 17,451 14,603 Rent and related 17,635 17,009 14,074 Operating expenses from vessels 6,418 13,797 13,210 Other 15,795 9,652 8,431 Total other expenses $ 132,580 $ 142,044 $ 109,148 F-48 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) (17) Stockholders' Equity Stock Repurchases The Board of Directors authorized the Company to make repurchases of up to $ 20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. During the year ended December 31, 2022, 165,040 shares were repurchased for a weighted average price per share of $ 10.44 . As of December 31, 2022, the remaining repurchase authorization was $ 11,945 . Tiptree Warrants In the year ended December 31, 2022, warrant s were exercised for 1,999,989 shares of Tiptree common stock, with 1,979,325 warrants exercised for $ 13,724 in cash, and 20,664 exercised cashless. As of December 31, 2022, there were no warrants for shares of Tiptree common stock outstanding. Dividends The Company declared cash dividends per share for the following periods presented below: Dividends per share for the For the Year Ended December 31, 2022 2021 2020 First quarter $ 0.04 $ 0.04 $ 0.04 Second quarter 0.04 0.04 0.04 Third quarter 0.04 0.04 0.04 Fourth quarter 0.04 0.04 0.04 Total cash dividends declared $ 0.16 $ 0.16 $ 0.16 Fortegra Non-Controlling Interests On June 21, 2022, the Company closed the WP Transaction. On that date, Fortegra converted to a Delaware corporation and Warburg made a $ 200,000 investment in Fortegra in exchange for Fortegra Common Stock, Fortegra Preferred Stock, Fortegra Warrants and Fortegra Additional Warrants. Also, in connection with the closing of the Warburg Transaction, Tiptree was issued Fortegra Additional Warrants, and management’s interests in LOTS Intermediate were exchanged for interests in Fortegra. As of December 31, 2022, Fortegra was owned approximately 79.5 % by Tiptree Holdings, 17.4 % by Warburg and 3.1 % by management and directors of Fortegra. As a result of the WP Transaction, the Company recorded an increase of $ 167,008 to total stockholders’ equity of which $ 48,285 impacted Tiptree Inc. stockholders’ equity and $ 118,723 impacted non-controlling interests. Of the increase to Tiptree Inc. stockholders’ equity, $ 41,092 impacted additional paid in capital and $ 7,193 impacted accumulated other comprehensive income (loss). Additionally, the Company recognized $ 9,059 of net income attributable to non-controlling interests during the year ended December 31, 2022 due to the increase in non-controlling interest. Fortegra Preferred Stock The face amount of the Fortegra Preferred Stock is $ 80,000 . Dividends are cumulative and accrue at a rate of 8 % per annum, compounding quarterly. Any quarterly dividend may be paid in cash, at Fortegra’s option. For the year ended December 31, 2022, the Company declared $ 3,384 of cash dividends, of which $ 2,016 was paid in cash and $ 1,368 was accrued in other liabilities and accrued expenses. See Note (15) Other Assets and Other Liabilities and Accrued Expenses. F-49 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Warburg has the option to convert, at any time, its shares of Fortegra Preferred Stock into shares of Fortegra Common Stock at an initial conversion premium of 33 % to Warburg’s initial investment valuation (the “Fortegra Preferred Stock Conversion Price”). The Fortegra Preferred Stock Conversion Price is adjusted for any Fortegra Common Stock splits, dividends, extraordinary dividends and similar transactions. All of the Fortegra Preferred Stock will automatically convert into shares of Fortegra Common Stock at the Fortegra Preferred Stock Conversion Price upon the closing of a qualifying initial public offering, subject to a five year make-whole provision. Upon conversion, the Fortegra Preferred Stock would result in Warburg owning an additional 6.6 % interest in Fortegra, for a total as converted ownership of 24.0 % (including its ownership of Fortegra Common Stock). Fortegra Warrants The Fortegra Warrants have a seven-year term and an exercise premium of 33 % to Warburg’s initial investment valuation (the “Fortegra Warrant Exercise Price”). The Fortegra Warrant Exercise Price will be reduced by any Fortegra Common Stock cash dividends made by Fortegra and adjusted for stock splits, common stock dividends, extraordinary dividends and similar transactions. The Fortegra Warrants, if exercised with cash, would result in Warburg owning an additional 3.8 % interest in Fortegra. Fortegra Additional Warrants The Fortegra Additional Warrants issued to both Warburg and Tiptree have a seven-year term and an exercise price of $ 0.01 per share of Fortegra Common Stock. The Fortegra Additional Warrants issued to Warburg will be forfeited based on Warburg achieving an all-in return on its investment in excess of 23 %, as measured primarily by Fortegra’s Common Stock price. The Fortegra Additional Warrants issued to Warburg are classified as liabilities, at fair value. The Fortegra Additional Warrants issued to Tiptree will vest based on Warburg achieving an all-in return on its investment in excess of 30 %, as measured primarily by Fortegra’s Common Stock price. The number of shares of Fortegra Common Stock issuable to Warburg or Tiptree with respect to the Fortegra Additional Warrants is subject to adjustment for Fortegra Common Stock splits, stock or cash dividends and similar transactions. The Fortegra Additional Warrants are exercisable from the earlier of a transaction that results in Warburg having sold 50 % of its Fortegra Common Stock or the fifth anniversary of the closing date. The maximum number of shares issued to Warburg or Tiptree, if exercised with cash, would be an additional 1.7 % interest in Fortegra on an as converted basis (including its ownership of Fortegra Common and Preferred Stock). The following table presents the components of non-controlling interests as reported in the consolidated balance sheets: As of December 31, 2022 2021 Fortegra preferred interests $ 77,679 $ — Fortegra common interests 55,364 11,066 Other third-party common interests 3,165 6,161 Total non-controlling interests $ 136,208 $ 17,227 Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions The Company’s U.S. insurance subsidiaries prepare financial statements in accordance with Statutory Accounting Principles (SAP) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (the NAIC) as well as state laws, regulations and administrative rules. Statutory Capital and Surplus The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as of December 31, 2022 and 2021. As of December 31, 2022 2021 Combined statutory capital and surplus of the Company's insurance company subsidiaries $ 370,340 $ 286,015 Required minimum statutory capital and surplus $ 75,750 $ 75,750 F-50 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Under the National Association of Insurance Commissioners Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's U.S. domiciled insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of December 31, 2022 and 2021. The following table presents the statutory net income of the Company’s U.S. domiciled statutory insurance companies for the following periods: For the Year Ended December 31, 2022 2021 2020 Net income of statutory insurance companies $ 12,964 $ 33,999 $ 19,647 The Company also has a foreign insurance subsidiary that is not subject to SAP. The statutory capital and surplus amounts and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP. Statutory Dividends The Company’s U.S. domiciled insurance company subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance department of the applicable state of domicile. The Company eliminates all dividends from its subsidiaries in the consolidated financial statements. There were no dividends paid to the Company by its U.S. domiciled insurance company subsidiaries for the years ended December 31, 2022 and 2021. The following table presents the combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the following periods: As of December 31, 2022 2021 Amount available for ordinary dividends of the Company's insurance company subsidiaries $ 35,145 $ 18,519 At December 31, 2022, the maximum amount of dividends that our U.S. domiciled insurance company subsidiaries could pay under applicable laws and regulations without regulatory approval was approximately $ 35,145 . The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought. (18) Accumulated Other Comprehensive Income (Loss) The following table presents the activity of AFS securities in AOCI, net of tax, for the following periods: Unrealized gains (losses) on available for sale securities Foreign currency translation adjustment Total AOCI Amount attributable to non-controlling interests Total AOCI to Tiptree Inc. Balance at December 31, 2020 $ 5,702 $ — $ 5,702 $ ( 28 ) $ 5,674 Other comprehensive income (losses) before reclassifications ( 7,889 ) — ( 7,889 ) 29 ( 7,860 ) Amounts reclassified from AOCI ( 499 ) — ( 499 ) — ( 499 ) OCI ( 8,388 ) — ( 8,388 ) 29 ( 8,359 ) Balance at December 31, 2021 $ ( 2,686 ) $ — $ ( 2,686 ) $ 1 $ ( 2,685 ) Balance at December 31, 2021 $ ( 2,686 ) $ — $ ( 2,686 ) $ 1 $ ( 2,685 ) Other comprehensive income (losses) before reclassifications ( 39,514 ) ( 7,311 ) ( 46,825 ) 3,731 ( 43,094 ) Amounts reclassified from AOCI ( 843 ) — ( 843 ) — ( 843 ) WP Transaction — — — 7,193 7,193 OCI ( 40,357 ) ( 7,311 ) ( 47,668 ) 10,924 ( 36,744 ) Balance at December 31, 2022 $ ( 43,043 ) $ ( 7,311 ) $ ( 50,354 ) $ 10,925 $ ( 39,429 ) F-51 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the consolidated statement of operations for the following periods: For the Year Ended December 31, Affected line item in consolidated statements of operations Components of AOCI 2022 2021 2020 Unrealized gains (losses) on available for sale securities $ 1,359 $ 638 $ 528 Net realized and unrealized gains (losses) Related tax (expense) benefit ( 516 ) ( 139 ) ( 113 ) Provision for income tax Net of tax $ 843 $ 499 $ 415 (19) Stock Based Compensation Equity Plans 2017 Omnibus Incentive Plan The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum o f 6,100,000 sh ares of common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027. Amendment No. 1 to the 2017 Equity Plan, to increase the aggregate shares issuable under the pl an by 4,000,000 shares, was approved by stockholders on June 7, 2022. The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock: 2017 Equity Plan Number of shares (1) Available for issuance as of December 31, 2019 4,765,863 RSU, stock and option awards granted ( 977,446 ) Available for issuance as of December 31, 2020 3,788,417 RSU, stock and option awards granted ( 61,713 ) PRSU awards vested ( 215,583 ) Exchanged for vested subsidiary awards ( 1,166,307 ) Available for issuance as of December 31, 2021 2,344,814 RSU, stock and option awards granted ( 247,093 ) Forfeited 5,276 Amendment to 2017 Equity Plan 4,000,000 PRSU awards granted ( 3,616,667 ) Exchanged for vested subsidiary awards ( 114,353 ) Available for issuance as of December 31, 2022 2,371,977 (1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock. Restricted Stock Units and Stock Awards Tiptree Corporate Incentive Plans The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs vest and become non-forfeitable either (i) after the third anniversary, or (ii) with respect to one-third of Tiptree shares granted on each of the first, second and third year anniversaries of the date of the grant. RSU awards are expensed using the straight-line method over the requisite service period. The RSUs granted after 2019 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. F-52 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Stock Awards - Directors’ Compensation The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested. The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated: Number of shares issuable Weighted average grant date fair value Unvested units as of December 31, 2019 958,609 $ 6.23 Granted 552,169 7.04 Vested ( 557,633 ) 6.54 Unvested units as of December 31, 2020 953,145 $ 6.52 Granted 61,713 7.81 Vested ( 415,846 ) 6.62 Unvested units as of December 31, 2021 599,012 $ 6.59 Granted 247,093 12.83 Vested ( 339,822 ) 7.13 Forfeited ( 5,276 ) 10.10 Unvested units as of December 31, 2022 501,007 $ 9.63 The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated: For the Year Ended December 31, For the Year Ended December 31, Granted 2022 2021 2020 Vested 2022 2021 2020 Directors 39,517 61,713 82,912 Directors 39,517 61,713 82,912 Employees (1) 207,576 — 469,257 Employees 300,305 354,133 474,721 Total Granted 247,093 61,713 552,169 Total Vested 339,822 415,846 557,633 Taxes ( 47,274 ) ( 34,828 ) ( 53,438 ) Net Vested 292,548 381,018 504,195 (1) Includes 94,410 shares that vest ratably over three years and 113,166 shares that cliff vest in 2025 for the year ended December 31, 2022. Tiptree Senior Management Incentive Plan On August 4, 2021, a total of 3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the Company’s senior management. An additional 350,000 PRSUs were awarded on October 14, 2022. The PRSUs have a 10-year term and are subject to the recipient’s continuous service and a market requirement. A portion of the PRSUs will generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $ 15 to $ 60 , adjusted for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on the second, fourth, sixth, eighth and tenth anniversaries of the grant date. In November 2021, the first tranche of the PRSUs vested, resulting in a net issuance of 215,583 shares of Tiptree common stock. As of December 31, 2022, 3,616,667 PRSUs are unvested. The below table illustrates the aggregate number of PRSUs that will vest upon the achievement of each Tiptree share price target. Such price targets are adjusted down for cumulative dividends paid by the Company since grant (e.g., the next share price target is $ 19.76 as adjusted for cumulative dividends paid to date). Original Tiptree Share Price Target Number of PRSUs that Vest $ 20 516,667 $ 30 775,000 $ 45 1,033,333 $ 60 1,291,667 F-53 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Upon vesting, the Company will issue shares, or if shares are not available under the 2017 Equity Plan, then the Company may in its sole discretion instead deliver cash equal to the fair market value of the underlying shares. As of December 31, 2021, the Company did not have sufficient shares available in the 2017 Equity Plan to settle the PRSUs awarded; as such, the PRSUs were classified as liability awards and were remeasured at each subsequent reporting date, and expensed using the straight-line method over the requisite service period. On June 7, 2022, the Board of Directors authorized additional shares, and the Company now has sufficient shares available in the 2017 Equity Plan to settle the PRSUs awarded. As such, the PRSUs were valued on June 7, 2022, and converted to equity awards on that date, and will be expensed using the straight-line method over the remaining derived service period. The fair value of the PRSUs was estimated using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. The historical volatility was computed based on historical daily returns of the Company’s stock price simulated over the performance period using a lookback period of 10 years. The valuation was done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the reporting date. The current quarterly dividend rates in effect as of the reporting date are used to calculate a spot dividend yield for use in the model. The following table presents the assumptions used to remeasure the fair value of the PRSUs issued in 2021 as of June 7, 2022, when they were converted to equity awards. Valuation Input Assumption Historical volatility 38.75 % Risk-free rate 3.04 % Dividend yield 1.45 % Cost of equity 11.72 % Expected term (years) 6 Subsidiary Incentive Plans Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, certain vested awards may be exchanged at fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in cash. The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated: Grant date fair value of equity shares issuable Unvested balance as of December 31, 2019 $ 4,279 Granted 1,108 Vested ( 4,237 ) Performance assumption adjustment 3,155 Unvested balance as of December 31, 2020 $ 4,305 Granted 1,278 Vested ( 3,472 ) Performance assumption adjustment 123 Unvested balance as of December 31, 2021 $ 2,234 Granted 282 Vested ( 1,124 ) Performance assumption adjustment 95 Unvested balance as of December 31, 2022 $ 1,487 F-54 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The net vested balance of subsidiary awards eligible for exchange as of December 31, 2022 translates to 87,052 shares of Tiptree common stock. Stock Option Awards Tiptree Corporate Incentive Plans Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and vest one third on each of the three , four , and five-year anniversaries of the grant date. During the year ended December 31, 2021, the market requirement for all outstanding options was achieved. There were no stock option awards granted in 2022 or 2021. The following table presents the Company's stock option activity for the current period: Options outstanding Weighted average exercise price (in dollars per stock option) Weighted average grant date value (in dollars per stock option) Options exercisable Balance, December 31, 2021 1,715,619 $ 6.49 $ 2.29 712,542 Balance, December 31, 2022 1,675,514 $ 6.50 $ 2.30 1,018,805 Weighted average remaining contractual term at December 31, 2022 (in years) 5.2 Fortegra Equity Incentive Plan Fortegra adopted the 2022 Equity Incentive Plan (“Fortegra Plan”) on June 21, 2022, which permits the grant of RSUs, stock based awards and options up to approximately 7 % of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock), of which the substantial majority is expected to be delivered in options. The general purpose of the Fortegra Plan is to attract, motivate and retain selected employees of Fortegra, to provide them with incentives and rewards for performance and to better align their interests with those of Fortegra’s stockholders. Unless otherwise extended, the Fortegra Plan terminates automatically on June 21, 2032. The awards under the Fortegra Plan are not exchangeable for Tiptree common stock. As of December 31, 2022, time vesting RSUs and options equal to approximately 0.4 % of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock) have been granted under the Fortegra Plan. The unvested RSUs were exchanged for prior RSUs granted to management of Fortegra under the LOTS Intermediate Co. Restricted Stock Unit Program. F-55 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) Stock Based Compensation Expense The following table presents total stock based compensation expense and the related income tax benefit recognized on the consolidated statements of operations: For the Year Ended December 31, 2022 2021 2020 Employee compensation and benefits $ 9,219 $ 10,665 $ 7,571 Director compensation 469 465 546 Income tax benefit ( 2,034 ) ( 2,338 ) ( 1,705 ) Net stock based compensation expense $ 7,654 $ 8,792 $ 6,412 Additional information on total non-vested stock based compensation is as follows: As of December 31, 2022 Stock options Restricted stock awards and RSUs Performance Restricted Stock Units Unrecognized compensation cost related to non-vested awards (1) $ 137 $ 536 $ 8,429 Weighted - average recognition period (in years) 1.19 0.89 1.09 (1) Includes $ 105 of unrecognized compensation cost related to stock options at The Fortegra Group that vest ratably over three years . (20) Income Taxes The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss): For the Year Ended December 31, 2022 2021 2020 Current provision (benefit) for income taxes: Federal $ 250 $ 1,393 $ ( 26,273 ) State 1,612 1,330 1,692 Foreign 1,041 838 221 Total current provision (benefit) for income taxes 2,903 3,561 ( 24,360 ) Deferred provision (benefit) for income taxes: Federal 39,983 13,819 10,415 State 7,155 4,435 697 Foreign 409 ( 524 ) ( 379 ) Total deferred provision (benefit) for income taxes 47,547 17,730 10,733 Total provision (benefit) for income taxes $ 50,450 $ 21,291 $ ( 13,627 ) On June 21, 2022, the WP Transaction was completed, in which Warburg invested $ 200,000 in Tiptree’s insurance subsidiary, Fortegra. The WP Transaction, along with Fortegra management’s ownership, reduced Tiptree’s 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 the Company’s balance sheet. The deferred tax liability as of December 31, 2022 relating to the WP Transaction is $ 39,970 , of which $ 14,064 was recorded directly in stockholders’ equity, a benefit of $ 2,424 in other comprehensive income and $ 28,330 as a provision for income taxes in the consolidated statements of operations for the year ended December 31, 2022. Additional one time impacts from the transaction caused $ 4,803 of expense, leading to $ 33,133 of expense in the statement of 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 $ 7,293 tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $ 16,795 and an increase to our current receivable of $ 24,088 . F-56 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) The U.S. federal rate is before the consideration of rate reconciling items. A reconciliation of the expected federal provision (benefit) for income taxes on income using the federal statutory income tax rate to the actual provision (benefit) for income taxes and resulting effective income tax rate is as follows for the periods indicated below: For the Year Ended December 31, 2022 2021 2020 Income (loss) before income taxes $ 54,011 $ 65,342 $ ( 38,852 ) Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Expected federal provision (benefit) for income taxes at the federal statutory income tax rate 11,342 13,721 ( 8,159 ) Effect of state provision (benefit) for income taxes, net of federal benefit 2,034 2,858 1,170 Effect of non-deductible compensation 3,292 4,518 769 Effect of CARES Act refund claims — — ( 7,293 ) Effect of tax deconsolidation of subsidiaries 33,133 — — Effect of change in valuation allowance 3,285 1,692 759 Effect of foreign operations ( 18 ) ( 541 ) ( 938 ) Effect of stock-based compensation ( 556 ) ( 1,642 ) ( 676 ) Effect of return-to-accrual ( 509 ) 154 330 Effect of other items ( 1,553 ) 531 411 Tax (benefit) on income $ 50,450 $ 21,291 $ ( 13,627 ) Effective tax rate 93.4 % 32.6 % 35.1 % For the year ended December 31, 2022, the Company’s effective tax rate on income was equal to 93.4 % . The effective tax rate for the year ended December 31, 2022 is higher than the U.S. statutory income tax rate of 21.0 % primarily from the impact of the tax deconsolidation of Fortegra and non-deductible compensation. For the year ended December 31, 2021, the Company’s effective tax rate on income was equal to 32.6 %. The effective tax rate for the year ended December 31, 2021 is higher than the U.S. statutory income tax rate of 21.0 % primarily from the impact of expected refunds arising from the CARES Act. For the year ended December 31, 2020, the Company’s effective tax rate on losses was equal to 35.1 %. The effective tax rate for the year ended December 31, 2020 is higher than the U.S. statutory income tax rate of 21.0 % primarily due to the return-to-provision, as well as ongoing state and foreign taxes. The table below presents the components of the Company’s net deferred tax assets and liabilities as of the respective balance sheet dates: F-57 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 37,857 $ 39,047 Unrealized losses 31,482 23,419 Accrued expenses 2,409 4,434 Unearned premiums 52,904 39,221 Deferred revenue 15,700 8,706 Other deferred tax assets 14,505 10,475 Total deferred tax assets 154,857 125,302 Less: Valuation allowance ( 11,848 ) ( 8,563 ) Total net deferred tax assets 143,009 116,739 Deferred tax liabilities: Property 3,058 2,467 Unrealized gains 9,812 17,012 Other deferred tax liabilities 5,942 7,819 Deferred acquisition cost 116,373 84,079 Advanced commissions 43,961 34,700 Intangibles 14,284 11,370 Investment in Fortegra 39,970 — Total deferred tax liabilities 233,400 157,447 Net deferred tax liability (1) $ 90,391 $ 40,708 (1) Includes $ 659 classified as held for sale as of December 31, 2021. See Note (4) Dispositions and Assets and Liabilities Held for Sale. As of January 2016, Tiptree established a U.S. federal consolidated income tax group and files on a consolidated basis, with limited exceptions. As of June 2022, Fortegra and its subsidiaries are no longer part of Tiptree’s consolidated income tax group and formed their own tax consolidation group. Tiptree’s consolidated group, and certain subsidiaries on a separate basis, file returns in various state jurisdictions, and as such may have state tax obligations. Additionally, as needed the Company will take all necessary steps to comply with any income tax withholding requirements. F-58 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2022, the Company had total U.S. Federal net operating loss carryforwards (NOLs) of $ 98,605 . The following table presents the U.S. Federal NOLs by tax year of expiration: As of December 31, 2022 Tax Year of Expiration 2026 $ — 2027 — 2028 — 2029 — 2030 359 2031 — 2032 — 2033 — 2034 — 2035 — 2036 15,046 2037 — 2038 — 2039 — 2040 — 2041 42,155 Indefinite 41,045 Total $ 98,605 In addition to the U.S. Federal NOL, Tiptree and its subsidiaries have NOLs in various state jurisdictions totaling $ 17,110 as of December 31, 2022. Valuation allowances of $ 11,848 have been established for primarily state deferred tax assets, which are primarily state NOLs, since management has concluded it is more likely than not they will expire unutilized based on existing positive and negative evidence. Management believes it is more likely than not the remaining NOLs and deferred tax assets will be utilized prior to their expiration dates. As of December 31, 2022, the consolidated valuation allowance for the Company was $ 11,848 . In 2022, the Company recorded a net increase in its valuation allowances equal to $ 3,285 , compared to a net increase in its valuation allowance of $ 1,692 in 2021. As of December 31, 2022 and 2021, the Company had no material unrecognized tax benefits or accrued interest and penalties. Federal tax years 2017 and onward are open for examination as of December 31, 2022. (21) Commitments and Contingencies Operating Leases All leases are office space leases and are classified as operating leases that expire through 2033. Some of our office leases include the option to extend for up to five years or less at management’s discretion. Such extension options were not included in the measurement of the lease liability. Below is a summary of our right of use asset and lease liability as of December 31, 2022: F-59 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) As of December 31, 2022 Right of use asset - Operating leases $ 31,499 Operating lease liability $ 38,031 Weighted-average remaining lease term (years) 7.42 Weighted-average discount rate (1) 7.9 % (1) Discount rate was determined by applying available market rates to lease obligations based upon their term. As of December 31, 2022, the approximate aggregate minimum future lease payments required for our lease liability over the remaining lease periods are as follows: As of December 31, 2022 2023 9,490 2024 9,186 2025 8,880 2026 8,301 2027 6,647 2028 and thereafter 22,192 Total minimum payments 64,696 Less: present value adjustment 23,799 Total (1) $ 40,897 (1) Does not include lease incentive receivable of $ 2,866 as of December 31, 2022 The following table presents rent expense for the Company’s office leases recorded on the consolidated statements of operations for the following periods: For the Year Ended December 31, 2022 2021 2020 Rent expense for office leases (1) $ 9,301 $ 8,924 $ 7,374 (1) Includes lease exp ense of $ 202 , $ 609 and $ 509 for the year ended December 31, 2022, 2021 and 2020, respectively, for assets held for sale. The Company entered into a sublease of their former corporate office space in December 2022. As a result of the sublease, future lease payments will be offset by $ 1,842 annually beginning July 2023 through and August 2029. Litigation The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., a class action filed in February 2006, in Pike County Circuit Court in the Commonwealth of Kentucky on behalf of Kentucky consumers that purchased certain credit life and disability insurance coverage between 1997-2007. The action alleges violations of the Kentucky Consumer Protection Act (“KCPA”) and certain insurance statutes, common law fraud and breach of contract and the covenant of good faith and fair dealing. The plaintiffs seek compensatory and punitive damages, attorneys’ fees and interest. Two classes were certified in June 2010: Subclass A includes class members who suffered a disability during the coverage period but allegedly received less than full disability benefits; Subclass B includes all class members whose loan termination date extended beyond the termination date of the credit disability coverage period. In a series of orders issued in October 2022 on competing motions for partial summary judgment, the court found in favor of the plaintiffs as to the Subclass A breach of contract claim (the “Subclass A Order”) and, as to Subclass B, found that the Company was unjustly enriched to the extent the premium it collected exceeded the proportion of the premium for which the Company provided benefits coverage (the “Subclass B Order”). The court found in favor of the Company as to the plaintiffs’ claims for common law fraud and violation of Kentucky’s insurance statutes and ordered the plaintiffs’ Motion for Sanctions for Spoliation of Evidence held in abeyance. The Company has appealed the Subclass A Order and Subclass B Order and all interlocutory orders made final by entry of the Subclass A Order and Subclass B Order. F-60 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) In December 2022, the court dismissed the plaintiffs’ KCPA claims as to both Subclass A and Subclass B. The court also dismissed the plaintiffs’ breach of covenant of good faith and fair dealing claim as to Subclass B but declined to dismiss such claim as to Subclass A pending resolution of the Company’s appeal. A trial has been scheduled for December 2023. The Company considers such litigation customary in the insurance industry. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible. The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on the Company’s financial position. (22) Earnings Per Share The Company calculates basic net income per share of common stock (common share) based on the weighted average number of common shares outstanding, which includes vested corporate RSUs. Unvested corporate RSUs have a non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method under which the income available to common stockholders is allocated to the unvested corporate RSUs. Diluted net income attributable to common stockholders includes the effect of unvested subsidiaries’ RSUs, when dilutive. The assumed exercise of all potentially dilutive instruments is included in the diluted net income per common share calculation, if dilutive. The following table presents a reconciliation of basic and diluted net income per common share for the following periods: For the Year Ended December 31, 2022 2021 2020 Net income (loss) $ 3,561 $ 44,051 $ ( 25,225 ) Less: Net income (loss) attributable to non-controlling interests 11,835 5,919 3,933 Net income allocated to participating securities — 703 — Net income (loss) attributable to Tiptree Inc. common shares - basic ( 8,274 ) 37,429 ( 29,158 ) Effect of Dilutive Securities: Securities of subsidiaries — ( 780 ) — Adjustments to income relating to exchangeable interests and contingent considerations, net of tax — 9 — Net income (loss) attributable to Tiptree Inc. common shares - diluted $ ( 8,274 ) $ 36,658 $ ( 29,158 ) Weighted average number of shares of common stock outstanding - basic 35,531,149 33,223,792 33,859,775 Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations — 464,464 — Weighted average number of shares of common stock outstanding - diluted 35,531,149 33,688,256 33,859,775 Basic net income (loss) attributable to common shares $ ( 0.23 ) $ 1.13 $ ( 0.86 ) Diluted net income (loss) attributable to common shares $ ( 0.23 ) $ 1.09 $ ( 0.86 ) (23) Related Party Transactions Corvid Peak is a related party of the Company because Corvid Peak is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman. The Company is invested in funds managed by Corvid Peak (the “Corvid Peak Funds”) and Corvid Peak manages investment portfolio accounts of Fortegra and certain of its subsidiaries under an investment advisory agreement (the “IAA”). With respect to the Corvid Peak Funds and IAA, the Company incurred $ 3,808 , $ 1,988 and $ 2,792 of management and incentive fees for the years ended December 31, 2022, 2021 and 2020, respectively. Beginning January 1, 2021, Tiptree has been allocated 10.2 % of certain profits interests earned by Corvid Peak with an F-61 TIPTREE INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 (in thousands, except share data) additional 10.2 % interest for each of the next consecutive four years . Beginning on January 1, 2023, Tiptree’s percentage interest increased to 31.84 % (includi ng interests acquired from former Corvid Peak equity holders). On November 10, 2022, the Company contributed $ 505 of cash (representing its pro rata share) to Corvid Peak to fund an escrow account for the repurchase of a revenue share by a third party effective as of January 1, 2025. Pursuant to the Transition Services Agreement, Tiptree and Corvid Peak have mutually agreed to provide certain services to one another. Payments under the Transition Services Agreement in the year ended December 31, 2022 and 2021 were not material. Pursuant to a Partner Emeritus Agreement, Tiptree agreed to provide Mr. Inayatullah, a greater than 5 % stockholder of the Company, support services and reimburse Mr. Inayatullah for a portion of benefit expenses in exchange for advice and other consulting services as requested by the Company’s Executive Committee. Transactions related to the Partner Emeritus Agreement in the year ended December 31, 2022 and 2021 were not material. In 2022, Michael Barnes, the Company’s Executive Chairman, exercised warrants for 979,146 shares of Tiptree common stock for $ 6,783 and Mr. Inayatullah exercised warrants for 440,318 shares of Tiptree common stock for $ 3,050 . (24) Subsequent Events On January 31, 2023, subsidiaries of Fortegra amended the asset backed revolving financing to increase the revolving commitment to $ 100,000 and transition to SOFR. On March 7, 2023, the Company’s board of directors declared a quarterly cash dividend of $ 0.05 per share to holders of common stock with a record date of March 20, 2023, and a payment date of March 27, 2022. F-62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.