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2w
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 001-39252
________________________________________
Clover Health Investments, Corp.
(Exact Name of Registrant as Specified in its Charter)
________________________________________
Delaware 98-1515192
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3401 Mallory Lane, Suite 210
Franklin, Tennessee
37067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 432-2133
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share CLOV The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o    No  x
As of November 2, 2022, the registrant had 383,548,896 shares of Class A Common Stock, $0.0001 par value per share, and 94,394,852 shares of Class B Common Stock, $0.0001 par value per share, issued and outstanding.


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Table of Contents
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As used in this report, "Company," "Clover," "Clover Health," "we," "us," "our," and similar terms refer to Clover Health Investments, Corp. and its consolidated subsidiaries, unless otherwise noted or the context otherwise requires.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements contained in this document other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "should," "would," "can," "expect," "project," "outlook," "forecast," "objective," "plan," "potential," "seek," "grow," "target," "if," and the negative or plural of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including the risk factors described in our filings with the Securities and Exchange Commission (the "SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this document may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this document involve a number of judgments, risks and uncertainties, including, without limitation, risks related to:

our expectations regarding results of operations, financial condition, and cash flows;
our expectations regarding the development and expansion of our Insurance and Non-Insurance businesses;
our ability to successfully enter new service markets and manage our operations;
anticipated trends and challenges in our business and in the markets in which we operate;
our ability to expand our beneficiary base and provider network;
our ability to maintain and increase adoption and use of Clover Assistant;
the anticipated benefits associated with the use of Clover Assistant, including our ability to utilize the platform to manage our medical care ratios;
our ability to develop new features and functionality that meet market needs and achieve market acceptance;
our ability to retain and hire necessary employees and staff our operations appropriately;
the timing and amount of certain investments in growth;
the effect of uncertainties related to the global COVID-19 pandemic on our business, results of operations, and financial condition;
the outcome of any known and unknown litigation and regulatory proceedings;
any current, pending, or future legislation, regulations or policies that could have a negative effect on our revenue and businesses, including rules, regulations, and policies relating to healthcare and Medicare;
our ability to maintain or improve our Star Ratings or otherwise continue to improve the financial performance of our business;
our ability to maintain, protect, and enhance our intellectual property; and
general economic conditions and uncertainty, including the societal and economic impact of the COVID-19 pandemic and its variants, inflation, and geopolitical uncertainty and instability.

We caution you that the foregoing list of judgments, risks, and uncertainties that may cause actual results to differ materially from those in the forward-looking statements may not be complete. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur or may be materially different from what we expect. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update any of these forward-looking statements after the date of this document or to conform these statements to actual results or revised expectations.

This document contains estimates, projections, and other information concerning our industry, our business, and the markets for our products. We obtained the industry, market, and similar data set forth in this document from our own internal estimates and research and from industry research, publications, surveys, and studies conducted by third parties, including governmental agencies, and such information is inherently subject to uncertainties. Actual events or circumstances may differ materially from events and circumstances that are assumed in this information. You are cautioned not to give undue weight to any such information, projections, or estimates.

3


As a result of a number of known and unknown risks and uncertainties, including without limitation, the important factors described in our reports filed with the SEC, including the discussion under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

Additional Information

Our website address is www.cloverhealth.com. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The content on our website or on any other website referred to in this document is not incorporated by reference in this document. Further, the Company's references to website URLs are intended to be inactive textual references only.

Channels for Disclosure of Information

Investors and others should note that we routinely announce material information to investors and the marketplace using filings with the SEC, press releases, public conference calls, presentations, webcasts, and the investor relations page of our website. We use the investor relations page of our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, and corporate governance practices. We also use certain social media channels as a means of disclosing information about the Company and our products to our customers, investors, and the public, including @CloverHealth and #CloverHealth on Twitter, and the LinkedIn account of our President, Andrew Toy. The information posted on social media channels is not incorporated by reference in this report or in any other report or document we file with the SEC. While not all of the information that we post to the investor relations page of our website or to social media accounts is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in the Company to review the information that we share at the "Investors" link located on our webpage at https://investors.cloverhealth.com/investor-relations and to sign up for and regularly follow our social media accounts. Users may automatically receive email alerts and other information about the Company when enrolling an email address by visiting "Email Alerts" in the "Investor Resources" section of our website at https://investors.cloverhealth.com/investor-relations.
4



Part I
Item 1. Financial Statements and Supplementary Data


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)


September 30, 2022
(Unaudited)
December 31, 2021
Assets
Current assets
Cash and cash equivalents $ 382,869  $ 299,968 
Short-term investments 153,799  293,851 
Investment securities, available-for-sale (Amortized cost: 2022: $179,774; 2021: $21,142)
175,116  21,131 
Investment securities, held-to-maturity (Fair value: 2022: $0; 2021: $307)
—  305 
Accrued retrospective premiums 13,894  34,923 
Other receivables 23,085  14,282 
Healthcare receivable 58,886  48,042 
Non-Insurance performance year receivable 585,901  — 
Surety bonds and deposits 11,844  12,613 
Prepaid expenses 17,816  9,409 
Other assets, current 36,782  18,022 
Total current assets 1,459,992  752,546 
Investment securities, available-for-sale (Amortized cost: 2022: $76,339; 2021: $177,527)
70,237  175,604 
Investment securities, held-to-maturity (Fair value: 2022: $596; 2021: $364)
700  335 
Equity method investment 970  — 
Property and equipment, net 2,526  2,287 
Operating lease right-of-use assets 4,259  5,367 
Goodwill and other intangible assets 4,233  4,233 
Other assets, non-current 14,762  10,432 
Total assets $ 1,557,679  $ 950,804 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)


September 30, 2022
(Unaudited)
December 31, 2021
Liabilities and Stockholders' Equity
Current liabilities
Unpaid claims $ 140,276  $ 138,604 
Due to related parties, net 1,661  2,320 
Non-Insurance performance year obligation, current 655,849  36,891 
Non-Insurance payable 147,132  37,773 
Accounts payable and accrued expenses 37,735  28,129 
Accrued salaries and benefits 19,636  15,147 
Deferred revenue 96,358  — 
Operating lease liabilities 2,000  3,059 
Premium deficiency reserve 27,657  110,628 
Other liabilities, current 42  73 
Total current liabilities 1,128,346  372,624 
Notes and securities payable, net of discounts and deferred issuance costs 19,965  19,938 
Long-term operating lease liabilities 4,267  4,830 
Other liabilities, non-current 13,121  14,095 
Total liabilities 1,165,699  411,487 
Commitments and Contingencies (Note 15)
Stockholders' equity
Class A Common Stock, $0.0001 par value; 2,500,000,000 shares authorized as of September 30, 2022, and December 31, 2021; 383,526,634 and 352,645,626 issued and outstanding as of September 30, 2022, and December 31, 2021, respectively
37  34 
Class B Common Stock, $0.0001 par value; 500,000,000 shares authorized as of September 30, 2022, and December 31, 2021; 94,394,852 and 118,206,768 issued and outstanding as of September 30, 2022, and December 31, 2021, respectively
12 
Additional paid-in capital 2,280,697  2,154,187 
Accumulated other comprehensive loss (10,760) (1,934)
Accumulated deficit (1,871,536) (1,616,738)
Less: Treasury stock, at cost; 2,041,948 and 14,730 shares held as of September 30, 2022, and December 31, 2021, respectively
(6,467) (147)
Clover stockholders' equity 391,980  535,414 
Noncontrolling interest —  3,903 
Total stockholders' equity 391,980  539,317 
Total liabilities and stockholders' equity $ 1,557,679  $ 950,804 


The accompanying notes are an integral part of these condensed consolidated financial statements.


6


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(Dollars in thousands, except per share and share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022 2021 2022 2021
Revenues:
Premiums earned, net (Net of ceded premiums of $116 and $120 for the three months ended September 30, 2022 and 2021, respectively; net of ceded premiums of $354 and $370 for the nine months ended September 30, 2022 and 2021, respectively)
$ 267,892  $ 203,657  $ 814,566  $ 598,390 
Non-Insurance revenue 585,311  222,647  1,757,579  439,020 
Other income 3,614  859  5,751  2,550 
Total revenues 856,817  427,163  2,577,896  1,039,960 
Operating expenses:
Net medical claims incurred 839,799  436,325  2,560,307  1,109,248 
Salaries and benefits 70,142  73,364  209,724  201,555 
General and administrative expenses 47,832  45,846  152,569  130,110 
Premium deficiency reserve (benefit) expense (27,657) 20,761  (82,971) 48,661 
Depreciation and amortization 616  120  2,028  398 
Other expense —  —  —  191 
Total operating expenses 930,732  576,416  2,841,657  1,490,163 
Loss from operations (73,915) (149,253) (263,761) (450,203)
Change in fair value of warrants payable —  (115,152) —  (66,146)
Interest expense 404  404  1,197  2,790 
Amortization of notes and securities discounts 22  27  13,708 
Loss (gain) on investment 980  —  (10,187) — 
Net loss $ (75,308) $ (34,527) $ (254,798) $ (400,555)
Per share data:
Net loss per share attributable to Class A and Class B common stockholders – basic and diluted (1)
$ (0.16) $ (0.08) $ (0.54) $ (0.98)
Weighted average number of common shares outstanding
Basic and diluted weighted average number of Class A and Class B common shares and common share equivalents outstanding (1)
477,690,204  414,572,706  475,609,571  410,417,493 
Net unrealized loss on available-for-sale investments $ (2,407) $ (197) $ (8,826) $ (620)
Comprehensive loss $ (77,715) $ (34,724) $ (263,624) $ (401,175)
(1) Because the Company had a net loss during the three and nine months ended September 30, 2022 and 2021, the Company's potentially dilutive securities, which include stock options, restricted stock, preferred stock, and warrants to purchase shares of common stock and preferred stock, have been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive.
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except share amounts)
Convertible Preferred stock
Class A Common Stock (1)
Class B Common Stock (1)
Treasury Stock Additional paid-in capital Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total stockholders' equity (deficit)
Shares
Amount Shares Amount
Shares
Amount
Shares
Amount
Balance, December 31, 2020
139,444,346  $ 447,747  —  $ —  89,206,266  $ —  $ —  $ 411,867  $ (1,028,982) $ 10  $ 3,903  $ (613,193)
Stock issuance for exercise of stock options, net of early exercise liability —  —  761,480  —  —  —  —  —  1,282  —  —  —  1,282 
Stock-based compensation —  —  —  —  —  —  —  —  42,713  —  —  —  42,713 
Unrealized holdings loss on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  (493) —  (493)
Preferred stock conversion (139,444,346) (447,747) —  —  139,444,346  14  —  —  447,733  —  —  —  447,747 
Issuance of common stock related to exercises of legacy warrants —  —  —  —  7,205,490  —  —  97,781  —  —  —  97,782 
Convertible debt conversion and other issuances —  —  —  —  75,084,703  —  —  16,052  —  —  —  16,059 
Issuance of common stock in connection with Business Combination and PIPE offering —  —  146,373,904  15  (49,975,104) (5) —  —  666,232  —  —  —  666,242 
Conversion from Class B Common Stock to Class A Common Stock —  —  1,143,863  —  (1,143,863) —  —  —  —  —  —  —  — 
Capital contribution for extinguishment of debt —  —  —  —  —  —  —  —  126,795  —  —  —  126,795 
Acquisition of public and private placement warrants —  —  —  —  —  —  —  —  (147,582) —  —  —  (147,582)
Net loss —  —  —  —  —  —  —  —  —  (48,417) —  —  (48,417)
Balance, March 31, 2021 —  $ —  148,279,247  $ 15  259,821,838  $ 26  —  $ —  $ 1,662,873  $ (1,077,399) $ (483) $ 3,903  $ 588,935 
Stock issuance for exercise of stock options, net of early exercise liability —  —  204,366  —  —  —  —  —  435  —  —  —  435 
Stock-based compensation —  —  —  —  —  —  —  —  43,026  —  —  —  43,026 
Unrealized holdings gain on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  70  —  70 
Conversion from Class B Common Stock to Class A Common Stock —  —  77,364  —  (77,364) —  —  —  —  —  —  —  — 
Net loss —  —  —  —  —  —  —  —  —  (317,611) —  —  (317,611)
Balance, June 30, 2021 —  $ —  148,560,977  $ 15  259,744,474  $ 26  —  $ —  $ 1,706,334  $ (1,395,010) $ (413) $ 3,903  $ 314,855 
Stock issuance for exercise of stock options, net of early exercise liability —  —  2,893,802  —  —  —  —  —  3,830  —  —  —  3,830 
Stock-based compensation —  —  —  —  —  —  —  —  46,803  —  —  —  46,803 
Vested restricted stock units —  —  34,888  —  —  —  —  —  —  —  —  —  — 
Unrealized holdings loss on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  (197) —  (197)
Conversion from Class B Common Stock to Class A Common Stock —  —  117,425,763  12  (117,425,763) (12) —  —  —  —  —  —  — 
Issuance of common stock related to exercises of public and private placement warrants —  —  9,408,264  —  —  —  —  81,672  —  —  —  81,673 
Treasury Stock —  —  (14,730) —  —  —  14,730  (147) —  —  —  —  (147)
Net loss —  —  —  —  —  —  —  —  —  (34,527) —  —  (34,527)
Balance, September 30, 2021
—  $ —  278,308,964  $ 28  142,318,711  $ 14  14,730  $ (147) $ 1,838,639  $ (1,429,537) $ (610) $ 3,903  $ 412,290 
8


Convertible Preferred stock
Class A Common Stock (1)
Class B Common Stock (1)
Treasury Stock Additional paid-in capital Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total stockholders' equity (deficit)
Shares
Amount Shares Amount
Shares
Amount
Shares
Amount
Balance, December 31, 2021
—  $ —  352,645,626  $ 34  118,206,768  $ 12  14,730  $ (147) $ 2,154,187  $ (1,616,738) $ (1,934) $ 3,903  $ 539,317 
Stock issuance for exercise of stock options, net of early exercise liability —  —  151,620  —  —  —  —  —  331  —  —  —  331 
Stock-based compensation —  —  —  —  —  —  —  —  40,640  —  —  —  40,640 
Vested restricted stock units —  —  2,275,946  —  1,677,873  —  —  —  —  —  —  —  — 
Vested performance restricted stock units —  —  8,951  —  —  —  —  —  —  —  —  —  — 
Unrealized holdings loss on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  (5,324) —  (5,324)
Conversion from Class A Common Stock to Class B Common Stock —  —  25,436,433  (25,436,433) (3) —  —  —  —  —  —  — 
Treasury stock acquired —  —  (1,879,063) —  —  —  1,879,063  (5,939) —  —  —  —  (5,939)
Issuance of common stock under Employee Stock Purchase Plan —  —  214,797  —  —  —  —  —  —  —  —  —  — 
Derecognition of noncontrolling interest —  —  —  —  —  —  —  —  —  —  —  (3,903) (3,903)
Net loss —  —  —  —  —  —  —  —  —  (75,309) —  —  (75,309)
Balance, March 31, 2022 —  $ —  378,854,310  $ 37  94,448,208  $ 1,893,793  $ (6,086) $ 2,195,158  $ (1,692,047) $ (7,258) $ —  $ 489,813 
Stock issuance for exercise of stock options, net of early exercise liability —  —  4,016,336  —  —  —  —  —  563  —  —  —  563 
Stock-based compensation —  —  —  —  —  —  —  —  41,927  —  —  —  41,927 
Vested restricted stock units —  —  122,672  —  —  —  —  —  —  —  —  —  — 
Treasury stock acquired —  —  (37,744) —  —  —  37,744  (105) —  —  —  —  (105)
Unrealized holdings gain on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  (1,095) —  (1,095)
Conversion from Class A Common Stock to Class B Common Stock —  —  53,040  —  (53,040) —  —  —  —  —  —  —  — 
Net loss —  —  —  —  —  —  —  —  —  (104,181) —  —  (104,181)
Balance, June 30, 2022 —  $ —  383,008,614  $ 37  94,395,168  $ 1,931,537  $ (6,191) $ 2,237,648  $ (1,796,228) $ (8,353) $ —  $ 426,922 
Stock issuance for exercise of stock options, net of early exercise liability —  —  190,052  —  —  —  —  —  408  —  —  —  408 
Stock-based compensation —  —  —  —  —  —  —  —  42,641  —  —  —  42,641 
Vested restricted stock units —  —  438,063  —  —  —  —  —  —  —  —  —  — 
Treasury stock acquired —  —  (110,411) —  —  —  110,411  (276) —  —  —  —  (276)
Unrealized holdings gain on investment securities, available-for-sale —  —  —  —  —  —  —  —  —  —  (2,407) —  (2,407)
Conversion from Class A Common Stock to Class B Common Stock —  —  316  —  (316) —  —  —  —  —  —  —  — 
Net loss —  —  —  —  —  —  —  —  —  (75,308) —  —  (75,308)
Balance, September 30, 2022
—  $ —  383,526,634  $ 37  94,394,852  $ 2,041,948  $ (6,467) $ 2,280,697  $ (1,871,536) $ (10,760) $ —  $ 391,980 
(1) The presentation of Common Stock has been updated to separately disclose the changes in Class A and Class B common stock in all periods.

The accompanying notes are an integral part of these condensed consolidated financial statements.
9


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
2022 2021
Cash flows from operating activities:
Net loss $ (254,798) $ (400,555)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense 2,028  398 
Amortization of notes and securities discounts and debt issuance costs 27  13,708 
Stock-based compensation expense 125,211  132,542 
Change in fair value of warrants payable and amortization of warrants —  (66,146)
Accretion, net of amortization (730) 142 
Net realized losses on investment securities 18  55 
Gain on investment (10,187) — 
Premium deficiency reserve (82,971) 48,661 
Changes in operating assets and liabilities:
Accrued retrospective premiums 21,029  4,645 
Other receivables (8,803) (9,759)
Surety bonds and deposits 769  (13,165)
Prepaid expenses (8,407) (4,347)
Other assets (19,263) (10,291)
Healthcare receivables (10,844) 4,089 
Operating lease right-of-use assets 1,750  2,636 
Unpaid claims 1,013  36,465 
Accounts payable and accrued expenses 9,606  1,386 
Accrued salaries and benefits 4,489  9,458 
Deferred revenue 96,358  — 
Other liabilities (1,005) 1,013 
Performance year obligation 33,057  23,861 
Non-Insurance payable 109,359  26,233 
Operating lease liabilities (2,264) (3,179)
Net cash provided by (used in) operating activities 5,442  (202,150)
Cash flows from investing activities:
Purchases of short-term investments, available-for-sale, and held-to-maturity securities (276,848) (705,598)
Proceeds from sales of short-term investments and available-for-sale securities 9,710  126,862 
Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities 350,455  250,265 
Purchases of property and equipment (590) (485)
Acquisition of Character Biosciences, Inc. Series A preferred shares (250) — 
Net cash provided by (used in) investing activities 82,477  (328,956)
Cash flows from financing activities:
Payment of notes payable principal —  (30,925)
Issuance of common stock, net of early exercise liability 1,302  5,547 
Proceeds from reverse recapitalization, net of transaction costs —  666,242 
Proceeds received for the exercise of public and private warrants —  390 
Payment for the redemptions of public warrants —  (85)
Treasury stock acquired (6,320) (147)
Net cash (used in) provided by financing activities (5,018) 641,022 
Net increase in cash and cash equivalents 82,901  109,916 
Cash and cash equivalents, beginning of period 299,968  92,348 
Cash and cash equivalents, end of period $ 382,869  $ 202,264 
Supplemental cash flow disclosures
Supplemental disclosure of non-cash activities
Performance year receivable $ (585,901) $ (220,738)
Performance year obligation 585,901  220,738 
Conversion of preferred stock to common stock —  447,747 
Issuance of common stock related to convertible debt —  16,059 
Capital contribution for extinguishment of debt —  126,795 
Issuance of common stock related to warrants exercised —  97,782 
Acquisition of public and private warrants —  147,582 
Right-of-use assets obtained in exchange for lease liabilities 642  582 
Recognition of equity method investments and preferred stock 8,644  — 
Derecognition of noncontrolling interest 3,903  — 
Conversion of Character Biosciences, Inc. convertible note to preferred stock 250  — 
The accompanying notes are an integral part of these consolidated financial statements.
10


CLOVER HEALTH INVESTMENTS, CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Operations
Clover Health Investments, Corp. (collectively with its affiliates and subsidiaries, "Clover" or the "Company") is singularly focused on creating great, sustainable healthcare to improve every life. Clover has centered its strategy on building and deploying technology through its flagship software platform, Clover Assistant, to help America's seniors receive better care at lower costs.
Clover provides affordable, high-quality Medicare Advantage ("MA") plans, including Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") plans, through its regulated insurance subsidiaries. The Company's regulated insurance subsidiaries consist of Clover Insurance Company and Clover HMO of New Jersey Inc., which operate the Company's PPO and HMO health plans, respectively. On April 1, 2021, the Company's subsidiary, Clover Health Partners, LLC, began participating as a Direct Contracting Entity ("DCE") in the Global and Professional Direct Contracting Model ("DC Model") of the Centers for Medicare and Medicaid Services ("CMS"), an agency of the United States Department of Health and Human Services, through which the Company provides care to aligned Original Medicare beneficiaries (the "Non-Insurance Beneficiaries"). Medical Service Professionals of NJ, LLC, houses Clover's employed physicians and the related support staff for Clover's in-home care program. Clover's administrative functions and insurance operations are primarily operated by its Clover Health, LLC and Clover Health Labs, LLC subsidiaries.
Clover's approach is to combine technology, data analytics, and preventive care to lower costs and increase the quality of health and life of Medicare beneficiaries. Clover's technology platform is designed to use machine learning-powered systems to deliver data and insights to physicians at the point of care in order to improve outcomes for beneficiaries and drive down costs. Clover's MA plans generally provide access to a wide network of primary care providers, specialists, and hospitals, enabling its members to see any doctor participating in Medicare willing to accept them. Clover focuses on minimizing members' out-of-pocket costs and offers many plans that allow members to pay the same co-pays for primary care provider visits regardless of whether their physician is in- or out-of-network. Through its Non-Insurance operations, the Company assumes full risk (i.e., 100.0% shared savings and shared losses) for the total cost of care of aligned Non-Insurance Beneficiaries, empowers providers with Clover Assistant, and offers a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for Non-Insurance Beneficiaries. For additional information related to the Company's Non-Insurance operations, see Note 16 in this report.
The Company was originally incorporated as a Cayman Islands exempted company on October 18, 2019, as a special purpose acquisition company under the name Social Capital Hedosophia Holdings Corp. III ("SCH"). On October 5, 2020, SCH entered into a Merger Agreement (the "Merger Agreement") with Clover Health Investments, Corp., a corporation originally incorporated on July 17, 2014, in the state of Delaware ("Legacy Clover"). Pursuant to the Merger Agreement, and a favorable vote of SCH's stockholders at an extraordinary general meeting on January 6, 2021 (the "Special Meeting"), on January 7, 2021, Asclepius Merger Sub Inc., a Delaware corporation and a newly formed, wholly-owned subsidiary of SCH ("Merger Sub"), merged with and into Legacy Clover. The separate corporate existence of Merger Sub ceased, Legacy Clover survived and merged with and into SCH, with SCH as the surviving corporation, and SCH was redomesticated as a Delaware corporation and renamed Clover Health Investments, Corp. (the "Business Combination"). The Business Combination was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States ("GAAP"). Under the guidance in Accounting Standards Codification ("ASC") 805, Legacy Clover is treated as the "acquirer" for financial reporting purposes, Legacy Clover is deemed the accounting predecessor of the combined business, and Clover Health Investments, Corp., as the parent company of the combined business, is the successor Securities and Exchange Commission ("SEC") registrant, meaning that Legacy Clover's financial statements for previous periods are disclosed in periodic reports filed with the SEC.
The Business Combination has had a significant impact on the Company's reported financial position and results as a consequence of the reverse recapitalization. The Business Combination closed on January 7, 2021, and on the following day the Company's Class A Common Stock and then outstanding public warrants were listed on the Nasdaq Global Select Market ("Nasdaq") under the symbols "CLOV" and "CLOVW," respectively, for trading in the public market.
For additional information, see Note 1 (Organization and Operations) and Note 3 (Business Combination) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K").

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2. Summary of Significant Accounting Policies
Basis of presentation
The Company's interim condensed consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Company and its wholly-owned subsidiaries. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair presentation of its financial position and its results of operations for the interim periods presented. All material intercompany balances and transactions have been eliminated in consolidating these financial statements. Investments over which we exercise significant influence, but do not control, are accounted for using the applicable accounting treatment based on the nature of the investment. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the 2021 Form 10-K.
Use of estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the amounts reported in the condensed consolidated financial statements and the accompanying notes.
The areas involving the most significant use of estimates are the amounts of incurred but not reported claims. Many factors can cause actual outcomes to deviate from these assumptions and estimates, such as changes in economic conditions, changes in government healthcare policy, advances in medical technology, changes in treatment patterns, and changes in average lifespan. Accordingly, the Company cannot determine with precision the ultimate amounts that it will pay for, or the timing of payment of actual claims, or whether the assets supporting the liabilities will grow to the level the Company assumes prior to payment of claims. If the Company's actual experience is different from its assumptions or estimates, the Company's reserves may prove inadequate. As a result, the Company would incur a charge to operations in the period in which it determines such a shortfall exists, which could have a material adverse effect on the Company's business, results of operations, and financial condition. Other areas involving significant estimates include risk adjustment provisions related to Medicare contracts and the valuation of the Company's investment securities, goodwill and other intangible assets, reinsurance, premium deficiency reserve, warrants, embedded derivative related to convertible securities, stock-based compensation, recoveries from third parties for coordination of benefits, Direct Contracting benchmark, specifically cost trend and risk score estimates that can develop over time, and final determination of medical cost adjustment pools.
Deferred revenue

Premiums earned, net is recognized as income in the period members are entitled to receive services, risk adjustment revenue, and other ancillary income. Premiums received in advance of the service period are reported as deferred revenue on the Condensed Consolidated Balance Sheets and recognized within Premiums earned, net once earned. Premiums anticipated to be received within twelve months based on the documented diagnostic criteria of the Company's members are estimated and included in revenue for the period including the member months for which the payment is designated by CMS.
Equity method of accounting and variable interest entities
Investments in entities in which the Company does not have control but its ownership falls between 20.0% and 50.0%, or it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method of accounting.
The Company continuously assesses its partially-owned entities to determine if these entities are variable interest entities ("VIEs") and, if so, whether the Company is the primary beneficiary and, therefore, required to consolidate the VIE. To make this determination, the Company applies a qualitative approach to determine whether the Company has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. If the Company has an interest in a VIE but is determined to not be the primary beneficiary, the Company accounts for the interest under the equity method of accounting.
Segment information
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM") in deciding how to allocate resources to an individual segment and in assessing performance. The Company's CODM is its Chief Executive Officer. The Company has two reporting segments: Insurance and Non-Insurance.

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Performance guarantees
Certain of the Company's arrangements with third-party providers require it to guarantee the performance of its care network to CMS. As a result of the Company's participation in the DC Model, the Company determined that it was making a performance guarantee with respect to providers under the Non-Insurance arrangement that should be recognized in the financial statements. The performance guarantee identified relates to the Company guaranteeing the performance of the third-party medical providers. Thus, the contract with CMS is accounted for as a performance guarantee under ASC 460-Guarantees. Accordingly, a liability for the performance guarantee was recorded on the Condensed Consolidated Balance Sheet. Each month, as the performance guarantee is fulfilled, the guarantee is amortized on a straight-line basis for the amount that represents the completed performance. With respect to each performance year in which the DCE is a participant, the final consideration due to the DCE from CMS ("shared savings") or the consideration due to CMS from the DCE ("shared loss") is reconciled in the subsequent years following the performance year. The shared savings or loss is measured periodically and will be applied to the Non-Insurance performance obligation or Non-Insurance performance receivable if the Company is in a probable loss position or probable savings position, respectively. The DCE has entered into a surety bond agreement with CMS and a third-party surety to cover the financial threshold determined by CMS. The surety bond is partially collateralized by a cash deposit from the Company.
Capitalized software development costs - cloud computing arrangements
The Company's cloud computing arrangements are mostly comprised of hosting arrangements that are service contracts, whereby the Company gains remote access to use enterprise software hosted by the vendor or another third party on an as-needed basis for a period of time in exchange for a subscription fee. Implementation costs for cloud computing arrangements are capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring cloud computing software for its intended use. These capitalized implementation costs are presented in the Condensed Consolidated Balance Sheets in other assets, and are generally amortized over the fixed, non-cancelable term of the associated hosting arrangement on a straight-line basis.
Deferred acquisition costs
Acquisition costs directly related to the successful acquisition of new business, which are primarily made up of commissions costs, are deferred and subsequently amortized. Deferred acquisition costs are recorded as other assets on the Condensed Consolidated Balance Sheet and are amortized over the estimated life of the related contracts. The amortization of deferred acquisition costs is recorded in general and administrative expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss. As of September 30, 2022, and December 31, 2021, there were no deferred acquisition costs as a result of the acceleration of amortization for deferred acquisition costs due to the recognition of a premium deficiency reserve. For the three and nine months ended September 30, 2022, charges related to deferred acquisition costs of $1.9 million and $15.6 million, respectively, were recognized in general and administrative expenses. For the three and nine months ended September 30, 2021, charges related to deferred acquisition costs of $1.1 million and $9.6 million, respectively, were recognized in general and administrative expenses.
COVID-19
The societal and economic impact of the Coronavirus Disease 2019 ("COVID-19") pandemic and its variants are continuing to evolve, and the ultimate impact on the Company's business, results of operations, financial condition, and cash flows is uncertain and difficult to predict. The global pandemic has severely impacted businesses worldwide, including many in the health insurance sector. In response to the pandemic, the Company has implemented additional steps related to its care delivery, member support, and internal policies and operations.

Recent accounting pronouncements
Accounting pronouncements effective in future periods

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, which was subsequently amended by ASU 2019-09, Financial Services—Insurance (Topic 944): Effective Date and ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application. ASU 2020-11 was issued in consideration of the implications of COVID-19 and to provide transition relief and additional time for implementation by deferring the effective date by one year. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred acquisition costs and add new disclosure requirements about the assumptions used to measure liabilities and the potential impact to future cash flows. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period
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presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. ASU 2020-11 is effective for public entities for periods beginning after December 15, 2022. The Company is currently evaluating the effects the adoption of ASU 2018-12 and ASU 2020-11 will have on its financial statements.

3. Investment Securities
The following tables present amortized cost and fair values of investments as of September 30, 2022, and December 31, 2021, respectively:
September 30, 2022 Amortized cost Accumulated unrealized gains Accumulated unrealized losses Fair value
(in thousands)
Investment securities, held-to-maturity
U.S. government and government agencies and authorities
$ 700  $ —  $ (104) $ 596 
Investment securities, available-for-sale
U.S. government and government agencies and authorities
232,189  18  (10,539) 221,668 
Corporate debt securities 23,924  (243) 23,685 
Total investment securities
$ 256,813  $ 22  $ (10,886) $ 245,949 

December 31, 2021 Amortized cost Accumulated unrealized gains Accumulated unrealized losses Fair value
(in thousands)
Investment securities, held-to-maturity
U.S. government and government agencies and authorities
$ 640  $ 40  $ (9) $ 671 
Investment securities, available-for-sale
U.S. government and government agencies and authorities
198,669  10  (1,944) 196,735 
Total investment securities
$ 199,309  $ 50  $ (1,953) $ 197,406 
The following table presents the amortized cost and fair value of debt securities as of September 30, 2022, by contractual maturity:
September 30, 2022 Held-to-maturity Available-for-sale
Amortized cost Fair value Amortized cost Fair value
(in thousands)
Due within one year $ —  $ —  $ 179,774  $ 175,116 
Due after one year through five years 590  502  76,339  70,237 
Due after five years through ten years —  —  —  — 
Due after ten years 110  94  —  — 
Total $ 700  $ 596  $ 256,113  $ 245,353 
For the three and nine months ended September 30, 2022 and 2021, respectively, net investment income, which is included within other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss, was derived from the following sources:
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Three Months Ended
September 30,
Nine Months Ended
September 30,
2022 2021 2022 2021
(in thousands)
Cash and cash equivalents $ 1,428  $ —  $ 1,567  $ — 
Short-term investments 879  62  1,001  139 
Investment securities 543  117  1,057  201 
Investment income, net $ 2,850  $ 179  $ 3,625  $ 340 
Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at September 30, 2022, and December 31, 2021:
September 30, 2022 Less than 12 months Greater than 12 months Total
Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss
(in thousands, except number of positions)
U.S. government and government agencies and authorities $ 141,377  $ (4,723) $ 65,926  $ (5,920) $ 207,303  $ (10,643)
Corporate debt securities 19,624  (243) —  —  6,997  (243)
Total $ 161,001  $ (4,966) $ 65,926  $ (5,920) $ 214,300  $ (10,886)
Number of positions 36  18  54 
December 31, 2021 Less than 12 months Greater than 12 months Total
Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss
(in thousands, except number of positions)
U.S. government and government agencies and authorities $ 187,251  $ (1,555) $ 7,902  $ (398) $ 195,153  $ (1,953)
Total $ 187,251  $ (1,555) $ 7,902  $ (398) $ 195,153  $ (1,953)
Number of positions 18  22 
The Company did not record any credit allowances for debt securities that were in an unrealized loss position as of September 30, 2022, and December 31, 2021.
As of September 30, 2022, all securities were investment grade, with credit ratings of BBB+ or higher by S&P Global or as determined by other credit rating agencies within the Company's investment policy. Unrealized losses on investment grade securities are principally related to changes in interest rates or changes in issuer or sector related credit spreads since the securities were acquired. The gross unrealized investment losses as of September 30, 2022, were assessed, based on, among other things:
The relative magnitude to which fair values of these securities have been below their amortized cost was not indicative of an impairment loss;
The absence of compelling evidence that would cause the Company to call into question the financial condition or near-term prospects of the issuer of the applicable security; and
The Company's ability and intent to hold the applicable security for a period of time sufficient to allow for any anticipated recovery.
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Proceeds from sales and maturities of investment securities, inclusive of short-term investments, and related gross realized gains (losses) which are included within other income in the Condensed Consolidated Statements of Operations and Comprehensive Loss, were as follows for the three and nine months ended September 30, 2022 and 2021, respectively:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022 2021 2022 2021
(in thousands)
Proceeds from sales of investment securities $ 3,829  $ 89,997  $ 9,710  $ 126,862 
Proceeds from maturities of investment securities 60,000  50,000  350,455  250,265 
Gross realized gains —  25 
Gross realized losses (2) —  (23) (80)
Net realized losses $ (2) $ $ (18) $ (55)
As of September 30, 2022, and December 31, 2021, the Company had $14.2 million and $11.1 million, respectively, in deposits with various states and regulatory bodies that are included as part of the Company's investment balances.

4. Fair Value Measurements
The following tables present a summary of fair value measurements for financial instruments as of September 30, 2022, and December 31, 2021, respectively:
September 30, 2022 Level 1 Level 2 Level 3
Total fair
value
(in thousands)
U.S. government and government agencies $ —  $ 221,668  $ —  $ 221,668 
Corporate debt securities —  23,685  —  23,685 
Total assets at fair value $ —  $ 245,353  $ —  $ 245,353 
December 31, 2021 Level 1 Level 2 Level 3
Total fair
value
(in thousands)
U.S. government and government agencies $ —  $ 196,735  $ —  $ 196,735 
Total assets at fair value $ —  $ 196,735  $ —  $ 196,735 

The fair value of Legacy Clover's convertible securities was based on Level 3 inputs, which were unobservable and reflected management's best estimate of what market participants would use when pricing the asset or liability, including assumptions about risk. There was no fair value associated with convertible securities at September 30, 2022, due to the conversion of the securities to shares of the Company's common stock upon the completion of the Business Combination.
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There were no changes in balances of Legacy Clover's Level 3 financial liabilities during the nine months ended September 30, 2022. The changes in balances of Legacy Clover's Level 3 financial liabilities during the nine months ended September 30, 2021, were as follows:
Convertible securities Derivative liabilities Warrants payable Total
(in thousands)
Balance, December 31, 2020
$ 949,553  $ 44,810  $ 97,782  $ 1,092,145 
Issuances —  —  —  — 
Settlements (949,553) (44,810) (97,782) (1,092,145)
Transfers in —  —  —  — 
Transfers out —  —  —  — 
Total realized losses (gains) —  —  —  — 
Balance, September 30, 2021
$ —  $ —  $ —  $ — 
In addition to the Level 3 financial liabilities in the table above, on September 25, 2020, Seek Insurance Services, Inc. ("Seek"), a field marketing organization and an indirect wholly-owned subsidiary of the Company, entered into a note purchase agreement with a third-party investor and issued a note (the "Seek Convertible Note") in the principal amount of $20.0 million, for which the carrying value is approximately the same as the fair value. For additional information, see Note 8 (Notes and Securities Payable). As of September 30, 2022, and December 31, 2021, both the carrying value, which includes accrued interest, and the fair value of the Seek Convertible Note were $23.2 million and $22.0 million, respectively, and these were considered Level 3 financial liabilities. Seek is currently in the process of winding down its operations.
There were no transfers in or out of Level 3 financial assets or liabilities for the nine months ended September 30, 2022 or 2021.
Warrants
Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrants payable on the Condensed Consolidated Balance Sheet. The warrant liabilities were measured at fair value at inception and measured on a recurring basis, with changes in fair value presented within change in fair value of warrants payable in the Condensed Consolidated Statement of Operations and Comprehensive Loss. The Company determined that the public warrants assumed in connection with the Business Combination were classified within Level 1 of the fair value hierarchy as the fair value was equal to the publicly traded price of the public warrants, and the private placement warrants, also assumed in connection with the Business Combination, were classified within Level 2 of the fair value hierarchy as the fair value was estimated using the price of the public warrants. On July 22, 2021, the Company issued a press release stating that it would redeem all of its public and private placement warrants. In connection with the redemption, effective August 24, 2021, the public warrants were delisted and classified within Level 2 of the fair value hierarchy as the fair value of the public warrants was based on proportional changes in the price of the Company's common stock. The end of the redemption period was September 9, 2021, at which time the Company redeemed all unexercised public and private placement warrants at a price of $0.10 per warrant. Following the redemption, no public or private placement warrants were outstanding. For additional information, see Note 5 (Fair Value Measurements) and Note 13 (Warrants Payable) in the 2021 Form 10-K.
5. Healthcare Receivables
Healthcare receivables include pharmaceutical rebates which are accrued as they are earned and estimated based on contracted rebate rates, eligible amounts submitted to the manufacturers by the Company's pharmacy manager, pharmacy utilization volume, and historical collection patterns. Also included in healthcare receivables are Medicare Part D settlement receivables, member premium receivables, and other CMS receivables. The Company reported $58.9 million and $48.0 million of healthcare receivables at September 30, 2022, and December 31, 2021, respectively.
6. Related Party Transactions
Related party agreements
The Company has various contracts with IJKG Opco LLC (d/b/a CarePoint Health - Bayonne Medical Center), Hudson Hospital Opco, LLC (d/b/a CarePoint Health - Christ Hospital) and Hoboken University Medical Center Opco LLC (d/b/a CarePoint Health - Hoboken University Medical Center), which collectively do business as the CarePoint Health System ("CarePoint Health"), for the provision of inpatient and hospital-based outpatient services. CarePoint Health was ultimately held and controlled by Vivek Garipalli, the Company's Chief Executive Officer and a significant stockholder of the Company. In May 2022, Mr. Garipalli and his family completed a donation of their interest in CarePoint Health to a non-profit organization called CarePoint Health Systems, Inc.
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Following the donation, Mr. Garipalli has remained a Manager of Hudson Hospital Propco, LLC, an affiliate of Hudson Hospital Opco, LLC. Additionally, certain affiliates of Mr. Garipalli are owed certain money from CarePoint Health for prior obligations, and Mr. Garipalli has an indirect interest in Sequoia Healthcare Services, LLC, which provides healthcare services to CarePoint Health. Expenses and fees incurred related to Clover's contracts with CarePoint Health, recorded in net medical claims incurred, were $3.2 million and $1.7 million for the three months ended September 30, 2022 and 2021, respectively, and $8.9 million and $9.2 million for the nine months ended September 30, 2022 and 2021, respectively. Additionally, $1.7 million and $2.3 million were payable to CarePoint Health as of September 30, 2022, and December 31, 2021, respectively.
The Company has contracted with Rogue Trading, LLC ("Rogue"), a marketing services provider. The Company's President, Andrew Toy, is related to the Chief Executive Officer of Rogue. There were no expenses and fees related to these contracts for the three and nine months ended September 30, 2022. Expenses and fees incurred related to these contracts were $0.3 million for the three and nine months ended September 30, 2021.
The Company has a contract with Medical Records Exchange, LLC (d/b/a ChartFast) pursuant to which the Company receives administrative services related to medical records via ChartFast's electronic applications and web portal platform. ChartFast is ultimately owned and controlled by Mr. Garipalli. Expenses and fees incurred related to this agreement were $0.1 million for the three months ended September 30, 2022 and 2021, and $0.2 million and $0.1 million for the nine months ended September 30, 2022 and 2021, respectively.
On July 2, 2021, the Company entered into a contract with Thyme Care, Inc. ("Thyme Care"), an oncology benefit management company, through which Thyme Care was engaged to provide concierge cancer coordination services to the Company's Insurance members in New Jersey and develop a provider network to help ensure member access to high-value oncology care. Mr. Garipalli is a member of the board of directors of Thyme Care and holds an equity interest of less than five percent (5%) of that entity. Expenses and fees incurred related to this agreement were $0.5 million and $1.3 million for the three and nine months ended September 30, 2022, respectively. Additionally, $0.3 million and $0.1 million were payable to Thyme Care as of September 30, 2022, and December 31, 2021, respectively.

7. Unpaid Claims
Activity in the liability for unpaid claims, including claims adjustment expenses, for the nine months ended September 30, 2022 and 2021, is summarized as follows:
Nine Months Ended September 30, 2022 2021
(in thousands)
Gross and net balance, beginning of period (1)
$ 136,317  $ 103,976 
Incurred related to:
Current year 773,530  617,035 
Prior years (36,149) 17,095 
Total incurred 737,381  634,130 
Paid related to:
Current year 649,223  494,045 
Prior years 89,055  109,362 
Total paid 738,278  603,407 
Gross and net balance, end of period (1)(2)
$ 135,420  $ 134,699 
(1)    Includes amounts due to related parties.
(2)    Differs from the total unpaid claims amount reported on the Condensed Consolidated Balance Sheets due to the fact the figure here excludes unpaid claims for the Company's Non-Insurance operations of $6.5 million and $4.6 million as of September 30, 2022 and December 31, 2021, respectively.
Unpaid Claims for Insurance Operations

Unpaid claims for Insurance operations were $135.4 million as of September 30, 2022. During the nine months ended September 30, 2022, $89.1 million was paid for incurred claims attributable to insured events of prior years. A favorable development of $36.1 million was recognized during the nine months ended September 30, 2022, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates as of December 31, 2021. An unfavorable development of $17.1 million was recognized during the nine months ended September 30, 2021, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates as of December 31, 2020. Original estimates are increased or
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decreased, as additional information becomes known regarding individual claims. The ratio of current year medical claims paid as a percentage of current year net medical claims incurred was 83.9% for the nine months ended September 30, 2022, and 80.1% for the nine months ended September 30, 2021. This ratio serves as an indicator of claims processing speed, indicating that claims were processed at a faster rate during the nine months ended September 30, 2022, than during the nine months ended September 30, 2021.
The Company uses a variety of standard actuarial techniques to establish unpaid claims reserves. Management estimates are supported by the Company's actuarial analysis. The Company utilizes an internal actuarial team to review the adequacy of unpaid claim and unpaid claim adjustment expense. The estimation of claim costs is inherently difficult and requires significant judgment. The estimation has considerable inherent variability and can fluctuate significantly depending upon several factors, including medical cost trends and claim payment patterns, general economic conditions, and regulatory changes. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. Management believes that the current reserves are adequate based on currently available information.
8. Notes and Securities Payable
Seek Convertible Note
On September 25, 2020, Seek issued the Seek Convertible Note in the principal amount of $20.0 million. The note bears simple interest at an annual rate of 8.0% and matures on September 25, 2023, unless earlier accelerated, converted, or paid in full. The outstanding principal and any accrued but unpaid interest will become immediately due and payable at the election of the note holder upon the occurrence of any event of default as defined in the note. The outstanding principal and accrued but unpaid interest will convert into an equity interest in Seek if prior to maturity, repayment, or conversion of the note: (1) the note holder elects to convert the note, (2) upon the closing of Seek's next equity financing; or (3) upon consummation of an initial public offering of Seek's common stock or a SPAC or reverse merger transaction with Seek. The Seek Convertible Note is not guaranteed by Clover Health Investments, Corp. or any of its subsidiaries, other than Seek.
The Company analyzed the embedded features for derivative accounting consideration and determined that the features are clearly and closely related to the debt host and do not require separate accounting as a derivative.
The carrying amount of the note was $20.0 million and $19.9 million at September 30, 2022, and December 31, 2021, respectively. The Company capitalized $0.1 million of issuance costs which are being amortized using the effective interest method over the term of the note. Unamortized debt issuance costs were less than $0.1 million and $0.1 million at September 30, 2022, and December 31, 2021. Amortization of the debt issuance costs and interest expense on the note was $0.4 million and $0.4 million during the three months ended September 30, 2022 and 2021, respectively, and $0.8 million and $1.2 million during the nine months ended September 30, 2022 and 2021, respectively.
The effective interest rate was 8.2% during the three months ended September 30, 2022 and 2021, respectively, and 8.2% during the nine months ended September 30, 2022 and 2021, respectively.
The below table summarizes maturities of the Company's securities payable over the next five years as of September 30, 2022:

(in thousands)
2023 $ 20,000 
2024 — 
2025 — 
2026 — 
2027 — 
Total $ 20,000 

Seek is currently in the process of winding down its operations. Upon the dissolution of Seek, the Seek Convertible Note will be deemed waived and all outstanding amounts thereunder will be cancelled and forgiven and all other rights, covenants and obligations shall terminate.
9. Letter of Credit
On April 19, 2018, the Company entered into a secured letter of credit agreement (the "Letter") required for its subsidiary, Clover HMO of New Jersey, Inc., for an aggregate amount of up to $2.5 million with a commercial lender that renews on an annual basis. The
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Letter bears interest at a rate of 0.75%. There was an unused balance of $2.5 million at both September 30, 2022, and December 31, 2021.
10. Stockholders' Equity and Convertible Preferred Stock
Stockholders' Equity
The Company was authorized to issue up to 2,500,000,000 shares of Class A common stock as of September 30, 2022, and December 31, 2021, and up to 500,000,000 shares of Class B common stock as of September 30, 2022, and December 31, 2021. As of September 30, 2022, and December 31, 2021, there were 383,526,634 and 352,645,626 shares of Class A common stock issued and outstanding, respectively. There were 94,394,852 and 118,206,768 shares of Class B common stock issued and outstanding as of September 30, 2022, and December 31, 2021, respectively. Class B common stock has 10 votes per share, and Class A common stock has one vote per share. The Company had 2,041,948 and 14,730 shares held in treasury as of September 30, 2022, and December 31, 2021, respectively. These amounts represent shares withheld to cover taxes upon vesting of employee stock-based awards.
The Company is authorized to issue 25,000,000 shares of preferred stock having a par value of $0.0001 per share, and the Company's board of directors (the "Board") has the authority to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares. As of September 30, 2022, there were no shares of preferred stock issued and outstanding.
Issuance of Common Stock
In November 2021, the Company sold 52,173,913 shares of Class A common stock at a public offering price of $5.75 per share for gross proceeds of approximately $300.0 million, before deducting underwriting discounts and commissions and other expenses payable by the Company, of $16.2 million.

Convertible Preferred Stock
Each share of Legacy Clover's preferred stock was convertible at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into fully paid and non-assessable shares of common stock.
Pursuant to the Merger Agreement, all outstanding shares of Legacy Clover's preferred stock automatically converted into 139,444,346 shares of Class B Common Stock upon the closing of the Business Combination. For additional information, see Note 3 (Business Combination) in the 2021 Form 10-K.

11. Variable Interest Entity and Equity Method of Accounting

On February 4, 2022, Character Biosciences, Inc. (f/k/a Clover Therapeutics Company) ("Character Biosciences"), a subsidiary of the Company, completed a private capital transaction in which it raised $17.9 million from the issuance of 16,210,602 shares of its preferred stock. Upon completion of the transaction, the Company owned approximately 25.46% of Character Biosciences. As a result, the Company reassessed its interest in Character Biosciences and determined that while Character Biosciences is a VIE, the Company is not considered as the primary beneficiary of the VIE because it does not have the power, through voting or similar rights and the license agreements, to direct the activities of Character Biosciences that most significantly impact Character Biosciences' economic performance.
The Company determined that it does have a significant influence over Character Biosciences and, therefore, it began accounting for its common stock investment in Character Biosciences using the equity method on February 4, 2022. The Company derecognized all of Character Biosciences' assets and liabilities from its balance sheet and its noncontrolling interest related to Character Biosciences, and recognized the retained common stock and preferred stock equity interests at fair values of $3.7 million and $4.9 million, respectively, which are included in equity method investment and other assets on the Condensed Consolidated Balance Sheets, and recognized a loss of $1.0 million and gain of $10.2 million, respectively, which is included in loss (gain) on investment on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022.
As the Company applies the equity method to account for its common stock interest in Character Biosciences, the initial value of the investment is adjusted periodically to recognize (1) the proportionate share of the investee's net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value. The Company eliminates all intercompany transactions in accounting for equity method investments and records the proportionate share of the investee's net income or loss in equity in loss on investment on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
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With respect to the Company's preferred stock equity interest in Character Biosciences, the Company elected the measurement alternative to value this equity investment without a readily determinable fair value in accordance with ASC 321, Investments – Equity Securities. The carrying amount of the investment is included in other assets in the Condensed Consolidated Balance Sheets. In accordance with ASC 321, for each reporting period, the Company completes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
12. Employee Benefit Plans
Employee Savings Plan
The Company has a defined contribution retirement savings plan (the "401(k) Plan") covering eligible employees, which includes safe harbor matching contributions based on the amount of employees' contributions to the 401(k) Plan. The Company contributes to the 401(k) Plan annually 100.0% of the first 4.0% compensation that is contributed by the employee up to 4.0% of eligible annual compensation after one year of service. The Company's service contributions to the 401(k) Plan amounted to approximately $0.4 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $1.1 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively, and are included in salaries and benefits on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company's cash match is invested pursuant to the participant's contribution direction. Employer contributions are immediately 100.0% vested.

Stock-based Compensation
The Company's 2020 Equity Incentive Plan (the "2020 Plan") provides for grants of restricted stocks units ("RSUs") and options to acquire shares of the Company's common stock, par value $0.0001 per share, to employees, directors, officers, and consultants of the Company, and the Company's 2020 Management Incentive Plan (the "2020 MIP") provides for grants of RSUs to our Chief Executive Officer and President. During the year ended December 31, 2021, the Company approved the 2020 Plan and the 2020 MIP, and the Company's 2014 Equity Incentive Plan (the "2014 Plan") was terminated. On March 9, 2022, the Board adopted the 2022 Inducement Award Plan (the "Inducement Plan" and, collectively with the 2020 Plan, the 2020 MIP, and the 2014 Plan, the "Plans") and reserved 11,000,000 shares of Class A common stock for issuance under the Inducement Plan. The Inducement Plan was adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may be made only to an employee who has not previously been an employee or member of the Board, or following a bona fide period of non-employment, if he or she is granted such award in connection with his or her commencement of employment with the Company, and such grant is an inducement material to his or her entering into employment with the Company.
The maximum number of shares of the Company's common stock reserved for issuance over the term of the Plans, shares outstanding under the Plans, and shares remaining under the Plans as of September 30, 2022, and December 31, 2021, were as follows:
September 30, 2022 Shares Authorized Under Plans Shares Outstanding Under Plans Shares Remaining Under Plans
2014 Plan 54,402,264  36,662,098  N/A
2020 Plan 31,884,272  22,576,925  7,608,767 
2020 MIP 33,426,983  30,084,285  — 
Inducement Plan 11,000,000  11,000,000  — 
December 31, 2021 Shares Authorized Under Plans Shares Outstanding Under Plans Shares Remaining Under Plans
2014 Plan 54,402,264  41,905,875  N/A
2020 Plan 30,641,401  6,690,048  23,442,323 
2020 MIP 33,426,983  33,426,983  — 
Effective as of the closing of the Business Combination, the 2014 Plan was terminated, at which time the outstanding awards previously granted thereunder were assumed by the Company, and no new awards are available for grant under the 2014 Plan. Shares that are expired, terminated, surrendered, or canceled under the 2014 Plan without having been fully exercised are available for awards under the 2020 Plan. Shares may be issued from authorized but unissued Company stock.
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The Plans are administered by the Talent and Compensation Committee of the Board (the "Compensation Committee"). The options are subject to the terms and conditions applicable to options granted under the Plans, as described in the applicable Plan and the applicable stock option grant agreement. The exercise prices, vesting, and other restrictions applicable to the stock options are determined at the discretion of the Compensation Committee, except that the exercise price per share of incentive stock options may not be less than 100.0% of the fair value of a share of common stock on the date of grant. Stock options awarded under the Plans expire 10 years after the grant date. Incentive stock options and non-statutory options granted to employees, directors, officers, and consultants of the Company typically vest over four or five years. RSU awards are subject to the terms and conditions set forth in the Plans and the applicable RSU grant agreement. Vesting and other restrictions applicable to RSU awards are determined at the discretion of the Compensation Committee. The number of shares of common stock subject to an RSU award is determined by dividing the cash value of an RSU award by the average closing price of a share of the Company's Class A common stock over a specified period through the date of grant, and such awards typically vest over four years from the grant date. The total estimated fair value is amortized as an expense over the requisite service period as approved by the Compensation Committee.
The Company recorded stock-based compensation expense for options, RSUs, and performance restricted stock units ("PRSUs") granted under the Plans, the Inducement Plan, and discounts offered in connection with the Company's 2020 Employee Stock Purchase Plan ("ESPP") of $42.6 million and $46.8 million during the three months ended September 30, 2022 and 2021, respectively, and $125.2 million and $132.5 million during the nine months ended September 30, 2022 and 2021, respectively, and such expenses are presented in salaries and benefits in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Compensation cost presented in salaries and benefits in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss were as follows:
Three Months Ended September 30, 2022 2021
(in thousands)
Stock options $ 1,051  $ 1,665 
RSUs 19,499  17,396 
PRSUs 21,903  27,675 
ESPP 188  67 
Total compensation cost recognized for stock-based compensation plans $ 42,641  $ 46,803 
Nine Months Ended September 30, 2022 2021
(in thousands)
Stock options $ 3,530  $ 6,734 
RSUs 54,782  45,725 
PRSUs 66,461  80,016 
ESPP 435  67 
Total compensation cost recognized for stock-based compensation plans $ 125,208  $ 132,542 
As of September 30, 2022, there was approximately $381.0 million of unrecognized stock-based compensation expense related to unvested stock options, RSUs, PRSUs, and the ESPP, estimated to be recognized over a period of 3.96 years.
Stock Options
No stock options were granted during the nine months ended September 30, 2022. The assumptions that the Company used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted for the nine months ended September 30, 2021, respectively, were as follows:
Nine Months Ended September 30, 2021
Weighted-average risk-free interest rate 1.06  %
Expected term (in years) 6.06
Expected volatility 37.74  %
Expected dividend yield — 
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A summary of option activity under the 2020 Plan during the nine months ended September 30, 2022, is as follows:
Number of options Weighted-average exercise price
Outstanding, January 1, 2022
1,753,799  $ 8.88 
Granted during 2022
—  — 
Exercised —  — 
Forfeited (295,549) 8.88 
Outstanding, September 30, 2022
1,458,250  $ 8.88 
A summary of option activity under the 2014 Plan during the nine months ended September 30, 2022, is as follows:
Number of options Weighted-average exercise price
Outstanding, January 1, 2022
31,155,742  $ 2.35 
Granted during 2022
—  — 
Exercised (4,358,008) 0.22 
Forfeited (882,509) 2.69 
Outstanding, September 30, 2022
25,915,225  $ 2.69 
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company's common stock for those stock options that had exercise prices lower than the fair value of the Company's common stock.
The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2021, was $3.36 per share.
As of September 30, 2022, outstanding stock options, substantially all of which are expected to vest, had an aggregate intrinsic value of $0.8 million, and a weighted-average remaining contractual term of 6.54 years. As of September 30, 2022, there were 21,039,422 options exercisable under the Plan, with an aggregate intrinsic value of $0.8 million, a weighted-average exercise price of $2.86 per share, and a weighted-average remaining contractual term of 6.29 years. The total value of stock options exercised during the nine months ended September 30, 2022 and 2021, was $11.3 million and $36.4 million, respectively. Cash received from stock option exercises during the nine months ended September 30, 2022 and 2021, totaled $1.0 million and $5.5 million, respectively.
Pursuant to the terms of the applicable Plan and stock option award agreement, employees may exercise options at any time after grant while maintaining the original vesting period. The proceeds from exercise of unvested options are recorded as a liability until the option vests at which time the liability is reclassified to equity. If the employee terminates or otherwise forfeits an unvested option that has been exercised, the Company must redeem those shares at the original exercise price and remit payment of the forfeited portion of shares back to the employee.
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Restricted Stock Units
A summary of total RSU activity is presented below:
Number of RSUs Weighted-average grant date fair value per share
Outstanding, January 1, 2021
—  $ — 
Granted during 2021
21,035,614  14.77 
Released (131,766) — 
Forfeited (35,935) 8.52 
Outstanding, September 30, 2021
20,867,913  $ 14.78 
Outstanding, January 1, 2022
21,294,841  $ 14.60 
Granted during 2022
30,094,480  2.62 
Released (4,518,984) 14.31 
Forfeited (1,460,459) 5.31 
Outstanding, September 30, 2022
45,409,878  $ 6.99 
Performance Restricted Stock Units
The Company has granted certain PRSUs which become eligible to vest if prior to the vesting date the average closing price of one share of the Company's common stock for 90 consecutive days equals or exceeds a specified price (the "Market PRSUs"). Additionally, the Company has granted PRSUs that vest based on pre-established milestones including Company performance. The grant date fair value of the Market PRSUs is recognized as expense over the vesting period under the accelerated attribution method and is not adjusted in future periods for the success or failure to achieve the specified market condition. The Company has also determined the requisite service period for the PRSUs with multiple performance conditions to be the longest of the explicit, implicit, or derived service period for each tranche.

There were no Market PRSUs granted prior to 2021. The grant date fair value of Market PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the specified market condition and the following assumptions:
Nine months ended September 30, 2022
Expected volatility (1)
40.7  %
Risk-free interest rate (2)
0.5 
Dividend yield (3)
— 
(1) Expected volatility is based on a blend of peer group company historical data adjusted for the Company's leverage.
(2) Risk-free interest rate based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date.
(3) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends.
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A summary of PRSU activity is presented below:
Number of PRSUs Weighted-average grant date fair value per share
Non-vested, January 1, 2021
—  $ — 
Granted during 2021
27,699,171  9.65 
Non-vested at September 30, 2021
27,699,171  $ 9.65 
Non-vested, January 1, 2022
27,818,524  $ 9.58 
Granted during 2022
—  — 
Vested (13,264) 8.90