Trean Insurance Group, Inc. (Nasdaq: TIG) (“Trean” or the
“Company”), a leading provider of products and services to the
specialty insurance market, today reported results for the third
quarter ended September 30, 2021.
“We had a very solid third quarter,” said Andrew
M. O’Brien, Chief Executive Officer of Trean. “We generated an
88.3% combined ratio for the third quarter compared to a 91.8%
combined ratio for the first half of 2021. We grew gross written
premiums 34% year-over-year, along with significant double-digit
increases in our net earned and net unearned premiums, and we did
not experience any new large losses during the third quarter. We
are pleased with another quarter of elevated growth while achieving
excellent underwriting results and have made great progress in
positioning Trean for continued growth and delivering long-term
stockholder value.”
Third Quarter 2021
Highlights
- Gross
written premiums increased 34.3% to $177.6 million, compared to
$132.3 million in the third quarter of 2020
- Net
earned premiums up 86.5% to $52.0 million, compared to $27.9
million in the third quarter of 2020
- Net
unearned premiums increased $34.6 million, or 69.2%, to $84.6
million from year end 2020
- Loss
ratio of 61.8%, compared to 55.9% in the third quarter of 2020
- Expense
ratio of 26.5%, compared to 25.1% in the third quarter of 2020
- Combined
ratio of 88.3%, compared to 81.0% in the prior-year period
- Net
income was $6.5 million and diluted earnings per share was
$0.13
- Adjusted
net income(1) was $7.7 million, and adjusted diluted earnings per
share was $0.15
-
Underwriting income(1) was $6.0 million, compared to $5.3 million
in the third quarter of 2020
- Return
on equity of 6.2%; Adjusted return on equity(1) of 7.3%; Adjusted
return on tangible equity was 15.0%(1)
(1) Adjusted net income, adjusted diluted
earnings per share, adjusted return on equity, adjusted return on
tangible equity and underwriting income are non-GAAP financial
measures. See discussion of “Key Metrics” below.
Underwriting Results
Gross written premiums increased 34.3% to $177.6
million for the third quarter of 2021, compared to $132.3 million
for the third quarter of 2020, attributable to growth in both
Trean’s existing program partner business and the addition of new
program partners over the past year. The growth came predominantly
from the Company’s other liability, accident & health,
commercial auto and homeowners lines of business as the Company
continues to balance its portfolio to minimize risk and emphasize
those lines of business that offer profitable growth.
Increase in gross unearned premiums was $28.5
million in the third quarter of 2021, compared to $23.0 million in
the prior-year period. As of September 30, 2021, the Company had
net unearned premiums reflected on its balance sheet of $84.6
million, an increase of $11.3 million, or 15.3%, compared to June
30, 2021 and an increase of $34.6 million, or 69.2%, compared to
December 31, 2020. This continued
growth in net unearned premiums represents significant deferred
premium revenue and, assuming stable loss ratios, future potential
profit to be recognized over subsequent quarters as these net
premiums are earned.
Net earned premiums of $52.0 million grew 86.5%
compared to the prior year’s third quarter, driven by the increase
in gross written and gross earned premiums, partially offset by an
increase in ceded earned premiums compared to the prior-year
period.
Net income was $6.5 million for the third
quarter of 2021, compared to net income of $69.4 million for the
same prior-year period. Diluted earnings per share for the third
quarter of 2021 was $0.13. The third quarter of 2021 included
intangible asset amortization related to acquisitions, noncash
stock compensation and the effect of unrealized funds held
investment losses on the fair value of embedded derivatives, while
the third quarter of 2020 also included $58.2 million of net
non-recurring gains related to the Company’s acquisition of
Compstar Holding Company, LLC and costs associated with its initial
public offering. Adjusted net income(1), which excludes these items
and their related tax impact, was $7.7 million for the third
quarter of 2021, compared to adjusted net income of $10.5 million
for the same prior-year period. Adjusted diluted earnings per share
for the third quarter of 2021 was $0.15.
Underwriting income was $6.0 million, and the
combined ratio was 88.3% for the third quarter of 2021, compared to
underwriting income of $5.3 million and a combined ratio of 81.0%
for the same prior-year period. Losses and loss adjustment expenses
for the third quarter of 2021 were $32.1 million, which resulted in
a 61.8% loss ratio, compared to 55.9% in the same prior-year
period. Prior-year losses continued to develop favorably during the
third quarter. The first half of 2021 was marked by a number of
large and unusual losses resulting in a higher 2021 accident year
loss ratio than experienced in 2020. The Company experienced no
such losses in the third quarter of 2021. The Company still
anticipates that the 2021 accident year loss ratio will be higher
compared to previous years, and thus does not expect the 2021
calendar year loss ratio to decrease through the end of the
year.
General and administrative expenses were $13.8
million for the third quarter of 2021, compared to $7.0 million for
the prior-year period. The increase was driven by an increase in
direct commissions and insurance-related expenses resulting
primarily from the growth in gross earned premiums, offset by
increased ceding commissions resulting from higher ceded earned
premiums. In addition, the Company incurred increased salaries and
benefits resulting primarily from an expanded
workforce. The Company’s expense ratio
was 26.5% for the third quarter of 2021, compared to 25.1% for the
prior-year period.
Investment Results
Net investment income was $2.2 million for the
third quarter of 2021, compared to $2.4 million in the prior-year
period. Cash and invested assets consist primarily of fixed
maturities, equity securities and cash and cash equivalents. The
majority of the Company’s investment portfolio at September 30,
2021 was comprised of $425.6 million of fixed maturity securities
that were classified as available-for-sale. Also included in
investments at September 30, 2021 was $1.0 million of equity
securities and $134.8 million of cash and cash equivalents. The
Company’s fixed maturities portfolio had an average rating of “AA”
at both September 30, 2021 and December 31, 2020.
Other
Other revenue was $2.8 million for the third
quarter of 2021, compared to $5.4 million for the same prior-year
period, largely driven by a reduction in brokerage revenue due to a
$2.2 million increase in estimated premiums and the timing of
effective dates for brokered reinsurance contracts recognized in
the third quarter of 2020. In addition, brokerage revenue was also
reduced in 2021 due to the Company’s higher retention of brokered
reinsurance contracts compared to the same prior-year period.
Stockholders’ Equity and
Returns
Total stockholders’ equity was $422.3 million at
September 30, 2021, compared to $410.1 million at December 31,
2020. Return on equity was 6.2% for the third quarter of 2021,
compared to 102.7% for the same prior-year period, and adjusted
return on equity(1) was 7.3% for the third quarter of 2021,
compared to 15.5% for the same prior-year period. Return on
tangible equity was 12.7% for the third quarter of 2021, compared
to 171.4% for the same prior-year period and adjusted return on
tangible equity was 15.0% for the third quarter of 2021, compared
to 25.9% for the same prior-year period.
Full Year 2021 Outlook
The Company is raising its outlook for gross
written premiums for the full year 2021 to be between $610 million
and $620 million. This represents year-over-year growth of 26% on
the lower end and 28% on the upper end.
In addition, the Company is providing the
following outlook for the full year 2021:
- Net
earned premium to be between $190 million and $195 million
- Total
revenue to be between $207 million and $212 million
- Expense
ratio to be between 29% and 31% of net earned premium
- The
Company does not expect the 2021 calendar year loss ratio to
decrease through the end of the year.
Webcast and Conference Call
A webcast and conference call to discuss the
Company’s results will be held today beginning at 5:00 p.m.
(Eastern Time). The audio webcast is accessible through the
investor relations section of the Company’s website at
https://investors.trean.com.
The dial-in number for the conference call is
(844) 825-9789 (toll-free) or (412) 317-5180 (international),
conference ID# 10161391. Any person interested in listening to the
call should dial in or access the website at least 10 minutes
before the call.
A replay of the call will be available at
https://investors.trean.com for one year following the call.
Key Metrics
The Company discusses certain key financial and
operating metrics, described below, which provide useful
information about its business and the operational factors
underlying its financial performance.
Underwriting income is a non-GAAP financial
measure defined as income before taxes excluding net investment
income, investment revaluation gains, net realized capital gains or
losses, IPO-related expenses, intangible asset amortization,
noncash stock compensation, gains and losses on embedded
derivatives, interest expense, other revenue and other income and
expenses. See “Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of underwriting income to income before taxes in
accordance with GAAP.
Adjusted net income is a non-GAAP financial
measure defined as net income excluding the impact of certain
items, including the consummation of the reorganization
transactions in connection with our IPO, noncash intangible asset
amortization and stock compensation, noncash unrealized gains and
losses on embedded derivatives, other expenses and gains or losses
that the Company does not believe reflect its core operating
performance, which items may have a disproportionate effect in a
given period, affecting comparability of the Company’s results
across periods. See “Reconciliation of Non-GAAP Financial Measures”
for a reconciliation of adjusted net income to net income in
accordance with GAAP.
Loss ratio, expressed as a percentage, is the
ratio of losses and loss adjustment expenses to net earned
premiums.
Expense ratio, expressed as a percentage, is the
ratio of general and administrative expenses to net earned
premiums.
Combined ratio is the sum of the loss ratio and
the expense ratio. A combined ratio under 100% generally indicates
an underwriting profit. A combined ratio over 100% generally
indicates an underwriting loss.
Return on equity is net income expressed on an
annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period.
Adjusted return on equity is a non-GAAP
financial measured defined as adjusted net income expressed on an
annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period. See “Reconciliation of
Non-GAAP Financial Measures” for a reconciliation of adjusted
return on equity to return on equity in accordance with GAAP.
Tangible stockholders’ equity is defined as
stockholders’ equity less goodwill and other intangible assets.
Return on tangible equity is a non-GAAP
financial measure defined as net income expressed on an annualized
basis as a percentage of average beginning and ending tangible
stockholders’ equity during the period.
Adjusted return on tangible equity is a non-GAAP
financial measure defined as adjusted net income expressed on an
annualized basis as a percentage of average beginning and ending
tangible stockholders’ equity during the period. See
“Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of adjusted return on tangible equity to return on
equity in accordance with GAAP.
Net unearned premium is defined as unearned
premiums less prepaid reinsurance premiums.
Forward-Looking Statements
This press release contains forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include
statements that are not historical or current facts. These
statements may discuss the Company’s net income, cash flow,
financial condition, impairments, expenditures, growth, strategies,
plans, achievements, capital structure, organizational structure,
market opportunities and general market and industry conditions.
Such forward-looking statements can be identified by words such as
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “predict,”
“project,” “believe,” “seek,” “outlook,” “future,” “will,” “would,”
“should,” “could,” “may,” “can have,” “likely” and similar terms.
Forward-looking statements are based on management’s current
expectations and assumptions about future events. These statements
are only predictions and are not guarantees of future performance.
Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements if the underlying assumptions prove to
be incorrect or as a result of risks, uncertainties, and other
factors, including the impact of the COVID-19 pandemic on the
business and operations of the Company, our program partners and
other business relations. Other factors that may cause such
differences include the risks described in the Company’s filings
with the U.S. Securities and Exchange Commission, including the
Company’s Annual Report on Form 10-K for the year ended December
31, 2020. These forward-looking statements speak only as of the
date on which they are made. Except as required by applicable
securities laws, the Company disclaims any obligation to update or
revise any forward-looking statement, whether as a result of new
information, future developments, changes in assumptions or
otherwise. Investors are cautioned not to place undue reliance on
the forward-looking statements contained in this press release or
in other filings and public statements of the Company.
About Trean Insurance Group,
Inc.
Trean Insurance Group, Inc. (Nasdaq: TIG)
provides products and services to the specialty insurance market.
Trean underwrites specialty casualty insurance products both
through its program partners and its own managing general agencies.
Trean also provides its program partners with a variety of services
including issuing carrier services, claims administration and
reinsurance brokerage. Trean is licensed to write business across
49 states and the District of Columbia. For more information,
please visit www.trean.com.
Contacts
Investor Relationsinvestor.relations@trean.com(952) 974-2260
Trean
Insurance Group, Inc. and Subsidiaries |
|
Condensed
Consolidated Statements of Operations |
|
(in thousands,
except share and per share data) |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
Percentage |
|
Nine Months Ended September 30, |
|
|
|
Percentage |
|
|
2021 |
|
2020 |
|
Change |
|
Change(1) |
|
2021 |
|
2020 |
|
Change |
|
Change(1) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
$ |
177,624 |
|
|
$ |
132,284 |
|
|
45,340 |
|
|
34.3 |
% |
|
$ |
480,905 |
|
|
$ |
349,755 |
|
|
131,150 |
|
|
37.5 |
% |
|
Increase in
gross unearned premiums |
|
(28,478 |
) |
|
|
(22,963 |
) |
|
(5,515 |
) |
|
24.0 |
% |
|
|
(64,836 |
) |
|
|
(39,601 |
) |
|
(25,235 |
) |
|
63.7 |
% |
|
Gross earned premiums |
|
149,146 |
|
|
|
109,321 |
|
|
39,825 |
|
|
36.4 |
% |
|
|
416,069 |
|
|
|
310,154 |
|
|
105,915 |
|
|
34.1 |
% |
|
Ceded earned
premiums |
|
(97,191 |
) |
|
|
(81,465 |
) |
|
(15,726 |
) |
|
19.3 |
% |
|
|
(275,037 |
) |
|
|
(238,460 |
) |
|
(36,577 |
) |
|
15.3 |
% |
|
Net earned premiums |
|
51,955 |
|
|
|
27,856 |
|
|
24,099 |
|
|
86.5 |
% |
|
|
141,032 |
|
|
|
71,694 |
|
|
69,338 |
|
|
96.7 |
% |
|
Net
investment income |
|
2,187 |
|
|
|
2,364 |
|
|
(177 |
) |
|
(7.5 |
)% |
|
|
6,562 |
|
|
|
9,134 |
|
|
(2,572 |
) |
|
(28.2 |
)% |
|
Gain on
revaluation of Compstar |
|
- |
|
|
|
69,846 |
|
|
(69,846 |
) |
|
(100.0 |
)% |
|
|
- |
|
|
|
69,846 |
|
|
(69,846 |
) |
|
(100.0 |
)% |
|
Net realized
capital gains |
|
49 |
|
|
|
115 |
|
|
(66 |
) |
|
(57.4 |
)% |
|
|
72 |
|
|
|
3,345 |
|
|
(3,273 |
) |
|
(97.8 |
)% |
|
Other
revenue |
|
2,799 |
|
|
|
5,401 |
|
|
(2,602 |
) |
|
(48.2 |
)% |
|
|
8,683 |
|
|
|
11,323 |
|
|
(2,640 |
) |
|
(23.3 |
)% |
|
Total revenue |
|
56,990 |
|
|
|
105,582 |
|
|
(48,592 |
) |
|
(46.0 |
)% |
|
|
156,349 |
|
|
|
165,342 |
|
|
(8,993 |
) |
|
(5.4 |
)% |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and
loss adjustment expenses |
|
32,129 |
|
|
|
15,564 |
|
|
16,565 |
|
|
106.4 |
% |
|
|
86,735 |
|
|
|
40,681 |
|
|
46,054 |
|
|
113.2 |
% |
|
General and
administrative expenses |
|
13,788 |
|
|
|
6,995 |
|
|
6,793 |
|
|
97.1 |
% |
|
|
40,946 |
|
|
|
23,437 |
|
|
17,509 |
|
|
74.7 |
% |
|
Other
expenses |
|
- |
|
|
|
11,054 |
|
|
(11,054 |
) |
|
(100.0 |
)% |
|
|
845 |
|
|
|
11,054 |
|
|
(10,209 |
) |
|
(92.4 |
)% |
|
Intangible
asset amortization |
|
1,499 |
|
|
|
1,120 |
|
|
379 |
|
|
33.8 |
% |
|
|
4,326 |
|
|
|
1,154 |
|
|
3,172 |
|
|
NM |
|
|
Noncash
stock compensation |
|
468 |
|
|
|
307 |
|
|
161 |
|
|
52.4 |
% |
|
|
1,098 |
|
|
|
307 |
|
|
791 |
|
|
NM |
|
|
Interest
expense |
|
419 |
|
|
|
520 |
|
|
(101 |
) |
|
(19.4 |
)% |
|
|
1,271 |
|
|
|
1,482 |
|
|
(211 |
) |
|
(14.2 |
)% |
|
Total expenses |
|
48,303 |
|
|
|
35,560 |
|
|
12,743 |
|
|
35.8 |
% |
|
|
135,221 |
|
|
|
78,115 |
|
|
57,106 |
|
|
73.1 |
% |
|
Gains
(losses) on embedded derivatives |
|
(121 |
) |
|
|
(367 |
) |
|
246 |
|
|
(67.0 |
)% |
|
|
1,869 |
|
|
|
(5,547 |
) |
|
7,416 |
|
|
(133.7 |
)% |
|
Other
income |
|
35 |
|
|
|
209 |
|
|
(174 |
) |
|
(83.3 |
)% |
|
|
191 |
|
|
|
263 |
|
|
(72 |
) |
|
(27.4 |
)% |
|
Income before taxes |
|
8,601 |
|
|
|
69,864 |
|
|
(61,263 |
) |
|
(87.7 |
)% |
|
|
23,188 |
|
|
|
81,943 |
|
|
(58,755 |
) |
|
(71.7 |
)% |
|
Income tax
expense |
|
2,083 |
|
|
|
817 |
|
|
1,266 |
|
|
155.0 |
% |
|
|
5,102 |
|
|
|
4,035 |
|
|
1,067 |
|
|
26.4 |
% |
|
Equity
earnings in affiliates, net of tax |
|
- |
|
|
|
401 |
|
|
(401 |
) |
|
(100.0 |
)% |
|
|
- |
|
|
|
2,333 |
|
|
(2,333 |
) |
|
(100.0 |
)% |
|
Net
income |
$ |
6,518 |
|
|
$ |
69,448 |
|
|
(62,930 |
) |
|
(90.6 |
)% |
|
$ |
18,086 |
|
|
$ |
80,241 |
|
|
(62,155 |
) |
|
(77.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.13 |
|
|
$ |
1.42 |
|
|
|
|
|
|
$ |
0.35 |
|
|
$ |
1.94 |
|
|
|
|
|
|
Diluted |
$ |
0.13 |
|
|
$ |
1.42 |
|
|
|
|
|
|
$ |
0.35 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
51,171,416 |
|
|
|
49,054,441 |
|
|
|
|
|
|
|
51,157,726 |
|
|
|
41,304,132 |
|
|
|
|
|
|
Diluted |
|
51,171,416 |
|
|
|
49,056,001 |
|
|
|
|
|
|
|
51,172,602 |
|
|
|
41,304,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The Company
defines increases or decreases greater than 200% as “NM” or not
meaningful. |
|
Key
Metrics |
|
|
|
(unaudited, in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Key
metrics: |
|
|
|
|
|
|
|
|
Underwriting income (1) |
$ |
6,038 |
|
|
$ |
5,297 |
|
|
$ |
13,351 |
|
|
$ |
7,576 |
|
|
Adjusted net
income (1) |
$ |
7,678 |
|
|
$ |
10,477 |
|
|
$ |
20,103 |
|
|
$ |
21,600 |
|
|
Loss
ratio |
|
61.8 |
% |
|
|
55.9 |
% |
|
|
61.5 |
% |
|
|
56.7 |
% |
|
Expense
ratio |
|
26.5 |
% |
|
|
25.1 |
% |
|
|
29.0 |
% |
|
|
32.7 |
% |
|
Combined
ratio |
|
88.3 |
% |
|
|
81.0 |
% |
|
|
90.5 |
% |
|
|
89.4 |
% |
|
Return on
equity |
|
6.2 |
% |
|
|
102.7 |
% |
|
|
5.8 |
% |
|
|
39.4 |
% |
|
Adjusted
return on equity (1) |
|
7.3 |
% |
|
|
15.5 |
% |
|
|
6.4 |
% |
|
|
10.6 |
% |
|
Return on
tangible equity (1) |
|
12.7 |
% |
|
|
171.4 |
% |
|
|
12.1 |
% |
|
|
65.4 |
% |
|
Adjusted
return on tangible equity (1) |
|
15.0 |
% |
|
|
25.9 |
% |
|
|
13.4 |
% |
|
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
|
(1) Adjusted net
income, adjusted return on equity, return on tangible equity,
adjusted return on tangible equity and underwriting income
are non-GAAP financial measures. See “Reconciliation of
Non-GAAP Financial Measures” below for a reconciliation to the
applicable GAAP measure. |
|
Trean
Insurance Group, Inc. and Subsidiaries |
|
Condensed
Consolidated Balance Sheets |
|
(in thousands) |
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
Assets |
(unaudited) |
|
|
|
Fixed maturities, available for sale |
$ |
425,596 |
|
$ |
405,604 |
|
Preferred
stock, at fair value |
|
231 |
|
|
240 |
|
Common
stock, at fair value |
|
741 |
|
|
3,534 |
|
Equity
method investments |
|
- |
|
|
232 |
|
Total investments |
|
426,568 |
|
|
409,610 |
|
|
|
|
|
|
Cash and
cash equivalents |
|
134,821 |
|
|
153,149 |
|
Restricted
cash |
|
3,567 |
|
|
4,085 |
|
Accrued
investment income |
|
2,378 |
|
|
2,458 |
|
Premiums and
other receivables |
|
135,354 |
|
|
109,217 |
|
Income taxes
receivable |
|
1,393 |
|
|
1,322 |
|
Reinsurance
recoverable |
|
361,673 |
|
|
343,213 |
|
Prepaid
reinsurance premiums |
|
138,223 |
|
|
107,971 |
|
Deferred
policy acquisition cost, net |
|
8,966 |
|
|
1,332 |
|
Property and
equipment, net |
|
7,588 |
|
|
8,254 |
|
Right of use
asset |
|
5,028 |
|
|
6,338 |
|
Goodwill |
|
142,141 |
|
|
140,640 |
|
Intangible
assets, net |
|
74,614 |
|
|
75,316 |
|
Other
assets |
|
10,124 |
|
|
6,878 |
|
Total assets |
$ |
1,452,438 |
|
$ |
1,369,783 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Unpaid loss
and loss adjustment expenses |
$ |
510,792 |
|
$ |
457,817 |
|
Unearned
premiums |
|
222,866 |
|
|
157,987 |
|
Funds held
under reinsurance agreements |
|
176,838 |
|
|
174,704 |
|
Reinsurance
premiums payable |
|
49,240 |
|
|
57,069 |
|
Accounts
payable and accrued expenses |
|
25,766 |
|
|
61,240 |
|
Lease
liability |
|
5,491 |
|
|
6,893 |
|
Deferred tax
liability |
|
8,233 |
|
|
12,329 |
|
Debt |
|
30,920 |
|
|
31,637 |
|
Total liabilities |
|
1,030,146 |
|
|
959,676 |
|
Commitments
and contingencies |
|
|
|
|
Stockholders' Equity |
|
|
|
|
Common
stock, $0.01 par value per share (600,000,000 authorized;
51,174,887 and 51,148,782 issued and outstanding as of
September 30, 2021 and December 31, 2020,
respectively) |
|
512 |
|
|
511 |
|
Additional
paid-in capital |
|
288,114 |
|
|
287,110 |
|
Retained
earnings |
|
127,146 |
|
|
109,060 |
|
Accumulated
other comprehensive income |
|
6,520 |
|
|
13,426 |
|
Total stockholders' equity |
|
422,292 |
|
|
410,107 |
|
Total liabilities and stockholders' equity |
$ |
1,452,438 |
|
$ |
1,369,783 |
|
|
|
|
|
|
Supplemental Table of Other Revenue
Components
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
(unaudited, in thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
Other Revenue |
|
|
|
|
|
|
|
|
|
Brokerage |
$ |
1,989 |
|
$ |
4,422 |
(1) |
$ |
6,214 |
|
$ |
8,870 |
(1) |
Managing general agent fees |
|
88 |
|
|
312 |
|
|
407 |
|
|
720 |
|
|
Third-party
administrator fees |
|
437 |
|
|
562 |
|
|
1,191 |
|
|
1,329 |
|
|
Consulting
and other fee-based revenue |
|
285 |
|
|
105 |
|
|
871 |
|
|
404 |
|
|
Total Other Revenue |
|
2,799 |
|
|
5,401 |
|
|
8,683 |
|
|
11,323 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes a $2.2
million brokerage revenue increase related to an increase in
estimated premiums and the timing of effective dates on brokered
reinsurance contracts recognized in the third quarter of 2020. |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Table of Net Investment Income
Components
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(unaudited, in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Fixed maturities |
|
$ |
1,597 |
|
|
$ |
1,804 |
|
|
$ |
4,734 |
|
|
$ |
4,684 |
|
Income on
funds held investments |
|
|
585 |
|
|
|
507 |
|
|
|
1,783 |
|
|
|
2,481 |
|
Preferred
stock |
|
|
5 |
|
|
|
19 |
|
|
|
41 |
|
|
|
39 |
|
Common
stock |
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
|
1,904 |
|
Interest on
cash and short-term investments |
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
|
|
26 |
|
Total net investment income |
|
$ |
2,187 |
|
|
$ |
2,364 |
|
|
$ |
6,562 |
|
|
$ |
9,134 |
|
|
|
|
|
|
|
|
|
|
Supplemental Table of Gain (Loss) on
Embedded Derivative Components
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(unaudited, in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Change in fair value of embedded derivatives |
|
$ |
573 |
|
|
$ |
140 |
|
|
$ |
3,761 |
|
|
$ |
(3,066 |
) |
Effect of
net investment income on funds held investments |
|
|
(585 |
) |
|
|
(507 |
) |
|
|
(1,783 |
) |
|
|
(2,481 |
) |
Effect of
realized gains on funds held investments |
|
|
(109 |
) |
|
|
- |
|
|
|
(109 |
) |
|
|
- |
|
Total gains (losses) on embedded derivatives |
|
$ |
(121 |
) |
|
$ |
(367 |
) |
|
$ |
1,869 |
|
|
$ |
(5,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Table of Net G&A
Components
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(unaudited, in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Direct commissions |
|
$ |
27,594 |
|
|
$ |
18,879 |
|
|
$ |
78,304 |
|
|
$ |
62,817 |
|
Ceding
commissions |
|
|
(31,655 |
) |
|
|
(26,314 |
) |
|
|
(89,547 |
) |
|
|
(79,075 |
) |
Net commissions |
|
|
(4,061 |
) |
|
|
(7,435 |
) |
|
|
(11,243 |
) |
|
|
(16,258 |
) |
Insurance -
related expense |
|
|
5,371 |
|
|
|
3,925 |
|
|
|
14,796 |
|
|
|
11,486 |
|
G&A
operating expenses |
|
|
12,478 |
|
|
|
10,505 |
|
|
|
37,393 |
|
|
|
28,209 |
|
Total G&A expense |
|
$ |
13,788 |
|
|
$ |
6,995 |
|
|
$ |
40,946 |
|
|
$ |
23,437 |
|
|
|
|
|
|
|
|
|
|
G&A operating expense - % of GWP |
|
7.0 |
% |
|
|
7.9 |
% |
|
|
7.8 |
% |
|
|
8.1 |
% |
Retention rate(1) |
|
|
34.8 |
% |
|
|
25.5 |
% |
|
|
33.9 |
% |
|
|
23.1 |
% |
Direct commission rate(2) |
|
|
18.5 |
% |
|
|
17.3 |
% |
|
|
18.8 |
% |
|
|
20.3 |
% |
Ceding commission rate(3) |
|
|
32.6 |
% |
|
|
32.3 |
% |
|
|
32.6 |
% |
|
|
33.2 |
% |
|
|
|
|
|
|
|
|
|
(1) Net earned
premiums as a percentage of gross earned premiums. |
(2) Direct commissions
as a percentage of gross earned premiums. |
(3) Ceding commissions
as a percentage of ceded earned premiums. |
Reconciliation of Non-GAAP Financial
Measures
Underwriting income
The Company defines underwriting income as
income before taxes excluding net investment income, investment
revaluation gains, net realized capital gains or losses,
IPO-related expenses, intangible asset amortization, noncash stock
compensation, interest expense, other revenue and other income and
expenses. Underwriting income represents the pre-tax profitability
of the Company’s underwriting operations and allows management to
evaluate the Company’s underwriting performance without regard to
investment income, IPO-related expenses, intangible asset
amortization, noncash stock compensation, interest expense, other
revenue and other income and expenses. The Company uses this metric
because the Company believes it gives management and other users of
the Company’s financial information useful insight into the
Company’s underwriting business performance by adjusting for these
expenses and sources of income. Underwriting income should not be
viewed as a substitute for net income calculated in accordance with
GAAP, and other companies may define underwriting income
differently.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Percentage |
|
Nine Months Ended September 30, |
|
Percentage |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
Change(1) |
|
2021 |
|
2020 |
|
Change(1) |
|
Net income |
$ |
6,518 |
|
|
$ |
69,448 |
|
|
(90.6 |
)% |
|
$ |
18,086 |
|
|
$ |
80,241 |
|
|
(77.5 |
)% |
|
Income tax
expense |
|
2,083 |
|
|
|
817 |
|
|
155.0 |
% |
|
|
5,102 |
|
|
|
4,035 |
|
|
26.4 |
% |
|
Equity
earnings in affiliates, net of tax |
|
- |
|
|
|
(401 |
) |
|
(100.0 |
)% |
|
|
- |
|
|
|
(2,333 |
) |
|
(100.0 |
)% |
|
Income
before taxes |
|
8,601 |
|
|
|
69,864 |
|
|
(87.7 |
)% |
|
|
23,188 |
|
|
|
81,943 |
|
|
(71.7 |
)% |
|
Other
revenue |
|
(2,799 |
) |
|
|
(5,401 |
) |
|
(48.2 |
)% |
|
|
(8,683 |
) |
|
|
(11,323 |
) |
|
(23.3 |
)% |
|
Gains
(losses) on embedded derivatives |
|
121 |
|
|
|
367 |
|
|
(67.0 |
)% |
|
|
(1,869 |
) |
|
|
5,547 |
|
|
(133.7 |
)% |
|
Net
investment income |
|
(2,187 |
) |
|
|
(2,364 |
) |
|
(7.5 |
)% |
|
|
(6,562 |
) |
|
|
(9,134 |
) |
|
(28.2 |
)% |
|
Gain on
revaluation of Compstar |
|
- |
|
|
|
(69,846 |
) |
|
(100.0 |
)% |
|
|
- |
|
|
|
(69,846 |
) |
|
(100.0 |
)% |
|
Net realized
capital gains (losses) |
|
(49 |
) |
|
|
(115 |
) |
|
(57.4 |
)% |
|
|
(72 |
) |
|
|
(3,345 |
) |
|
(97.8 |
)% |
|
Other
expenses |
|
- |
|
|
|
11,054 |
|
|
(100.0 |
)% |
|
|
845 |
|
|
|
11,054 |
|
|
(92.4 |
)% |
|
Interest
expense |
|
419 |
|
|
|
520 |
|
|
(19.4 |
)% |
|
|
1,271 |
|
|
|
1,482 |
|
|
(14.2 |
)% |
|
Intangible
asset amortization |
|
1,499 |
|
|
|
1,120 |
|
|
33.8 |
% |
|
|
4,326 |
|
|
|
1,154 |
|
|
NM |
|
|
Noncash
stock compensation |
|
468 |
|
|
|
307 |
|
|
52.4 |
% |
|
|
1,098 |
|
|
|
307 |
|
|
NM |
|
|
Other
income |
|
(35 |
) |
|
|
(209 |
) |
|
(83.3 |
)% |
|
|
(191 |
) |
|
|
(263 |
) |
|
(27.4 |
)% |
|
Underwriting income |
$ |
6,038 |
|
|
$ |
5,297 |
|
|
14.0 |
% |
|
$ |
13,351 |
|
|
$ |
7,576 |
|
|
76.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The Company
defines increases or decreases greater than 200% as “NM” or not
meaningful. |
|
Adjusted net income
The Company defines adjusted net income as net
income excluding the impact of certain items, including the
consummation of the reorganization transactions in connection with
the IPO, noncash intangible asset amortization and stock
compensation, other expenses and gains or losses that the Company
believes do not reflect its core operating performance, which items
may have a disproportionate effect in a given period, affecting
comparability the Company’s results across periods. The Company
calculates the tax impact only on adjustments that would be
included in calculating the Company’s income tax expense using the
effective tax rate at the end of each period. The Company uses
adjusted net income as an internal performance measure in the
management of its operations because the Company believes it gives
its management and other users of its financial information useful
insight into the Company’s results of operations and underlying
business performance by eliminating the effects of these items.
Adjusted net income should not be viewed as a substitute for net
income calculated in accordance with GAAP, and other companies may
define adjusted net income differently.
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Percentage |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
Change(1) |
|
Net income |
$ |
6,518 |
|
|
$ |
69,448 |
|
|
(90.6 |
)% |
|
Intangible
asset amortization |
|
1,499 |
|
|
|
1,120 |
|
|
33.8 |
% |
|
Noncash
stock compensation |
|
468 |
|
|
|
307 |
|
|
52.4 |
% |
|
Change in
fair value of embedded derivatives |
|
(573 |
) |
|
|
(140 |
) |
|
NM |
|
|
Other
expenses |
|
- |
|
|
|
11,054 |
|
|
(100.0 |
)% |
|
Expenses
associated with IPO and other one-time legal and consulting
expenses |
|
- |
|
|
|
645 |
|
|
(100.0 |
)% |
|
FMV
adjustment of remaining investment in subsidiary |
|
- |
|
|
|
(69,846 |
) |
|
(100.0 |
)% |
|
Net loss
(gain) on purchase & sale of investments |
|
112 |
|
|
|
- |
|
|
NM |
|
|
Total
adjustments |
|
1,506 |
|
|
|
(56,860 |
) |
|
(102.6 |
)% |
|
Tax impact
of adjustments |
|
(346 |
) |
|
|
(2,111 |
) |
|
(83.6 |
)% |
|
Adjusted net income |
$ |
7,678 |
|
|
$ |
10,477 |
|
|
(26.7 |
)% |
|
|
|
|
|
|
|
|
(1) The Company
defines increases or decreases greater than 200% as “NM” or not
meaningful. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
Percentage |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
Change(1) |
|
Net
income |
$ |
18,086 |
|
|
$ |
80,241 |
|
|
(77.5 |
)% |
|
Intangible
asset amortization |
|
4,326 |
|
|
|
1,154 |
|
|
NM |
|
|
Noncash
stock compensation |
|
1,098 |
|
|
|
307 |
|
|
NM |
|
|
Change in
fair value of embedded derivatives |
|
(3,761 |
) |
|
|
3,066 |
|
|
NM |
|
|
Other
expenses |
|
845 |
|
|
|
11,054 |
|
|
(92.4 |
)% |
|
Expenses
associated with Altaris management fee, including cash bonuses paid
to unitholders |
|
- |
|
|
|
883 |
|
|
(100.0 |
)% |
|
Expenses
associated with IPO and other one-time legal and consulting
expenses |
|
- |
|
|
|
1,845 |
|
|
(100.0 |
)% |
|
Expenses
related to debt issuance costs |
|
- |
|
|
|
135 |
|
|
(100.0 |
)% |
|
FMV
adjustment of remaining investment in subsidiary |
|
- |
|
|
|
(71,846 |
) |
|
(100.0 |
)% |
|
Net loss
(gain) on purchase & sale of investments |
|
112 |
|
|
|
(3,115 |
) |
|
(103.6 |
)% |
|
Total
adjustments |
|
2,620 |
|
|
|
(56,517 |
) |
|
(104.6 |
)% |
|
Tax impact
of adjustments |
|
(603 |
) |
|
|
(2,124 |
) |
|
(71.6 |
)% |
|
Adjusted net income |
$ |
20,103 |
|
|
$ |
21,600 |
|
|
(6.9 |
)% |
|
|
|
|
|
|
|
|
(1) The Company
defines increases or decreases greater than 200% as “NM” or not
meaningful. |
|
|
|
|
|
|
|
|
Adjusted return on equity
The Company defines adjusted return on equity as
adjusted net income expressed on an annualized basis as a
percentage of average beginning and ending stockholders’ equity
during the period. The Company uses adjusted return on equity as an
internal performance measure in the management of its operations
because the Company believes it gives management and other users of
the Company’s financial information useful insight into the
Company’s results of operations and underlying business performance
by adjusting for items that the Company believes do not reflect its
core operating performance and that may diminish comparability
across periods. Adjusted return on equity should not be viewed as a
substitute for return on equity calculated in accordance with GAAP,
and other companies may define adjusted return on equity
differently.
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Adjusted return on equity calculation: |
|
|
|
|
|
|
|
|
Numerator: adjusted net income |
$ |
7,678 |
|
|
$ |
10,477 |
|
|
$ |
20,103 |
|
|
$ |
21,600 |
|
|
Denominator:
average stockholders' equity |
|
419,818 |
|
|
|
270,519 |
|
|
|
416,200 |
|
|
|
271,684 |
|
|
Adjusted return on equity |
|
7.3 |
% |
|
|
15.5 |
% |
|
|
6.4 |
% |
|
|
10.6 |
% |
|
Return on
equity |
|
6.2 |
% |
|
|
102.7 |
% |
|
|
5.8 |
% |
|
|
39.4 |
% |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity and adjusted
return on tangible equity
The Company defines tangible stockholders’
equity as stockholders’ equity less goodwill and other intangible
assets. The Company defines return on tangible equity as net income
expressed on an annualized basis as a percentage of average
beginning and ending tangible stockholders’ equity during the
period. The Company defines adjusted return on tangible equity as
adjusted net income expressed on an annualized basis as a
percentage of average beginning and ending tangible stockholders’
equity during the period. The Company regularly evaluates
acquisition opportunities and have historically made acquisitions
that affect stockholders’ equity. The Company uses return on
tangible equity and adjusted return on tangible equity as internal
performance measures in the management of the Company’s operations
because the Company believes they give management and other users
of its financial information useful insight into the Company’s
results of operations and underlying business performance by
adjusting for the effects of acquisitions on the Company’s
stockholders’ equity and, in the case of adjusted return on
tangible equity, by adjusting for items that the Company believes
do not reflect its core operating performance and that may diminish
comparability across periods. Return on tangible equity
and adjusted return on tangible equity should not be viewed as
substitutes for return on equity calculated in accordance with
GAAP, and other companies may define return on tangible equity and
adjusted return on tangible equity differently.
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Return on tangible equity calculation: |
|
|
|
|
|
|
|
|
Numerator: net income |
$ |
6,518 |
|
|
$ |
69,448 |
|
|
$ |
18,086 |
|
|
$ |
80,241 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
Average stockholders' equity |
|
419,818 |
|
|
|
270,519 |
|
|
|
416,200 |
|
|
|
271,684 |
|
|
Less: Average goodwill and other intangible assets |
|
214,942 |
|
|
|
108,476 |
|
|
|
216,356 |
|
|
|
107,994 |
|
|
Average
tangible stockholders' equity |
|
204,876 |
|
|
|
162,043 |
|
|
|
199,844 |
|
|
|
163,690 |
|
|
Return on tangible equity |
|
12.7 |
% |
|
|
171.4 |
% |
|
|
12.1 |
% |
|
|
65.4 |
% |
|
Return on
equity |
|
6.2 |
% |
|
|
102.7 |
% |
|
|
5.8 |
% |
|
|
39.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
(unaudited,
in thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Adjusted return on tangible equity
calculation: |
|
|
|
|
|
|
|
|
Numerator:
adjusted net income |
$ |
7,678 |
|
|
$ |
10,477 |
|
|
$ |
20,103 |
|
|
$ |
21,600 |
|
|
Denominator:
average tangible stockholders' equity |
|
204,876 |
|
|
|
162,043 |
|
|
|
199,844 |
|
|
|
163,690 |
|
|
Adjusted return on tangible equity |
|
15.0 |
% |
|
|
25.9 |
% |
|
|
13.4 |
% |
|
|
17.6 |
% |
|
Return on
equity |
|
6.2 |
% |
|
|
102.7 |
% |
|
|
5.8 |
% |
|
|
39.4 |
% |
|
|
|
|
|
|
|
|
|
|
Trean Insurance (NASDAQ:TIG)
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