# EDGAR Filing Document

**Accession Number:** 0001801754
**File Stem:** 0001140361-23-010917
**Filing Date:** 2023-3
**Character Count:** 38378
**Document Hash:** 421d6b2a3b287459454d40d3930e228e
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001140361-23-010917.hdr.sgml**: 20230309

**ACCESSION NUMBER**: 0001140361-23-010917

**CONFORMED SUBMISSION TYPE**: 8-K

**PUBLIC DOCUMENT COUNT**: 14

**CONFORMED PERIOD OF REPORT**: 20230309

**ITEM INFORMATION**: Results of Operations and Financial Condition

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230309

**DATE AS OF CHANGE**: 20230309

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Trean Insurance Group, Inc.
- **CENTRAL INDEX KEY:** 0001801754
- **STANDARD INDUSTRIAL CLASSIFICATION:** FIRE, MARINE & CASUALTY INSURANCE [6331]
- **IRS NUMBER:** 844512647
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-39392
- **FILM NUMBER:** 23720293

**BUSINESS ADDRESS:**
- **STREET 1:** 150 LAKE STREET WEST
- **CITY:** WAYZATA
- **STATE:** MN
- **ZIP:** 55391
- **BUSINESS PHONE:** (952) 974-2222

**MAIL ADDRESS:**
- **STREET 1:** 150 LAKE STREET WEST
- **CITY:** WAYZATA
- **STATE:** MN
- **ZIP:** 55391

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### UNITED STATES

### SECURITIES AND EXCHANGE COMMISSION

#### WASHINGTON, D.C. 20549

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### FORM 8-K

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#### CURRENT REPORT

#### PURSUANT TO SECTION 13 OR 15(d)

#### OF THE SECURITIES EXCHANGE ACT OF 1934

#### Date of Report (Date of earliest event reported): March 9, 2023

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## TREAN INSURANCE GROUP, INC.

#### (Exact name of registrant as specified in its charter)

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| | | |
|:---|:---|:---|
| **Delaware**<br>| **001-39392**<br>| **84-4512647**<br>|
| **(State or Other Jurisdiction of Incorporation)** | **(Commission File Number)** | **(I.R.S. Employer Identification No.)** |

---

---

| | |
|:---|:---|
| **150 Lake Street West**<br>**Wayzata, Minnesota** | **55391**<br>|
| **(Address of principal executive offices)** | **(Zip Code)** |

---

(952) 974-2200

#### (Registrant's telephone number, including area code)

#### (Former name or former address, if changed since last report)

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Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c))

Securities registered pursuant to Section 12(b) of the Act:

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| | | |
|:---|:---|:---|
| <u>Title of each class</u> | <u>Trading symbol</u> | <u>Name of each exchange on which registered</u> |
| Common Stock, par value $0.01 per share<br>| TIG<br>| The Nasdaq Global Select Market<br>|

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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company. ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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| | |
|:---|:---|
| **ITEM 2.02.** | **RESULTS OF OPERATIONS AND FINANCIAL CONDITION.** |

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On March 9, 2023, Trean Insurance Group, Inc. (the "Company") issued a press release announcing the Company's financial results for the three and twelve months ended December 31, 2022. The full text of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"), the information furnished pursuant to Item 2.02 of this Current Report on Form 8-K (including Exhibit 99.1) is deemed to have been furnished and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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| | |
|:---|:---|
| **ITEM 9.01.** | **FINANCIAL STATEMENTS AND EXHIBITS.** |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*(d)* Exhibits.

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| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| [99.1](brhc10049500_ex99-1.htm) | Press Release issued by Trean Insurance Group, Inc., dated March 9, 2023 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

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#### SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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| | | |
|:---|:---|:---|
| Date: March 9, 2023 |  |  |
|  | **TREAN INSURANCE GROUP, INC.** | **TREAN INSURANCE GROUP, INC.** |
|  | By: | /s/ Nicholas J. Vassallo |
|  | Name: | Nicholas J. Vassallo |
|  | Title: | Chief Financial Officer |

---

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## Exhibit 99.1

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#### Exhibit 99.1

#### TREAN INSURANCE GROUP REPORTS FOURTH QUARTER AND FULL YEAR 2022 RESULTS
Wayzata, MN, March 9, 2023 – 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 fourth quarter and full year ended December 31, 2022.

#### Fourth Quarter and Full Year 2022 Highlights
• Announced definitive merger agreement with affiliates of Altaris, LLC (collectively with its affiliates, "Altaris"), which currently owns approximately 47% of Trean's outstanding common stock. The transaction is expected to close during the first half of 2023, subject to certain closing conditions, including obtaining approval of a majority of the outstanding shares of Trean common stock held by stockholders that are not affiliated with Altaris and receiving certain regulatory approvals.

• Gross written premiums were $173.5 million in the fourth quarter, a $20.3 million, or 13.2%, increase compared to the same prior-year period. Full Year 2022 gross written premiums were $651.3 million, a $17.1 million, or 2.7%, increase compared to the same prior-year period.

• Net earned premiums were $83.1 million in the fourth quarter, a $25.4 million, or 44.1%, increase compared to the same prior-year period. Full Year 2022 net earned premiums were $284.6 million, a $85.9 million, or 43.3%, increase compared to the same prior-year period.

• Net loss was $91.4 million, or $1.78 per diluted share, compared to net income of $1.2 million, or $0.02 per diluted share in the same prior-year period. Full Year 2022 net loss was $66.0 million, or $1.29 per diluted share, compared to net income of $19.3 million, or $0.38 per diluted share, in the same prior-year period. Net loss in the fourth quarter and Full Year 2022 was primarily driven by a $76.1 million noncash impairment to goodwill.

• Adjusted net loss <sup>(1)</sup> was $11.4 million in the fourth quarter, or $0.22 per diluted share, compared to adjusted net income of $2.0 million, or $0.04 per diluted share in the same prior-year period. Full Year 2022 adjusted net income was $7.9 million, or $0.15 per diluted share, compared to $22.1 million, or $0.43 per diluted share, in the same prior-year period.

• Underwriting loss was $18.1 million in the fourth quarter, compared to a loss of $0.1 million in the same prior-year period. Full Year 2022 underwriting loss was $5.5 million, compared to underwriting income of $13.2 million in the same prior-year period.

• The Company's fourth quarter loss and expense ratios were 94.1% and 27.7%, respectively, compared to 76.4% and 23.9%, respectively, in the same prior-year period. Full Year 2022 loss and expense ratios were 71.6% and 30.3%, respectively, compared to 65.8% and 27.5%, respectively, in the same prior-year period.

• Combined ratio was 121.8% for the fourth quarter, compared to 100.3% for the same prior-year period. Full Year 2022 combined ratio was 101.9%, compared to 93.3% for the same prior-year period.

• Fourth quarter return on equity of (101.8)%; adjusted return on equity <sup>(1)</sup> of (12.8)%; return on tangible equity of (195.6)%; and adjusted return on tangible equity<sup>(1)</sup> of (24.5)%. Full Year 2022 return on equity of (17.9)%; adjusted return on equity <sup>(1)</sup> of 2.1%; return on tangible equity of (34.0)%; and adjusted return on tangible equity of 4.1%.

<sup>(1)</sup> *Adjusted net income (loss), 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 were $173.5 million for the fourth quarter of 2022, a 13.2% increase compared to $153.3 million for the fourth quarter of 2021.

Gross unearned premiums increased $8.1 million in the fourth quarter of 2022, compared to a decrease of $2.9 million in the same prior-year period. As of December 31, 2022, the Company had net unearned premiums reflected on its balance sheet of $104.8 million, an increase of $3.3 million, or 3.3%, compared to September 30, 2022 and up $14.3 million, or 15.8%, from December 31, 2021.

Net earned premiums increased 44.1% to $83.1 million for the fourth quarter of 2022, compared to $57.6 million for the fourth quarter of 2021, primarily driven by an increase in both gross earned premiums and retention of gross written premiums.

General and administrative expenses were $23.0 million for the fourth quarter of 2022, compared to $13.8 million for the same prior-year period, primarily driven by an increase in net commissions resulting from increased retention and increased gross earned premiums. G&A operating expenses were $13.9 million in the fourth quarter of 2022, compared to $11.3 million in the prior-year period. The Company's expense ratio was 27.7% for the fourth quarter of 2022, compared to 23.9% for the same prior-year period.

Net loss was $91.4 million for the fourth quarter of 2022, compared to net income of $1.2 million for the same prior-year period; fourth quarter 2022 net loss was primarily driven by a $76.1 million noncash impairment to goodwill to align book value to the fair value of the Company. Diluted loss per share for the fourth quarter of 2022 was $1.78. Adjusted net loss<sup>(1)</sup>, which excludes intangible asset amortization, noncash stock compensation, the change in fair value of embedded derivatives and their related tax impact, unrealized gains or losses on equity securities and goodwill impairment, was $11.4 million for the fourth quarter of 2022, compared to adjusted net income of $2.0 million for the same prior-year period. Adjusted diluted loss per share for the fourth quarter of 2022 was $0.22.

Underwriting loss of $18.1 million resulted in a combined ratio of 121.8% for the fourth quarter of 2022, compared to underwriting loss of $0.1 million and a combined ratio of 100.3% for the same prior-year period. Losses and loss adjustment expenses for the fourth quarter of 2022 were $78.2 million, which resulted in a 94.1% loss ratio, compared to 76.4% in the same prior-year period primarily driven by development relating to the 2021 accident year and its effect on expected losses for 2022.

#### Investment Results
Net investment income was $5.0 million for the fourth quarter of 2022, compared to $2.2 million in the same prior-year period, primarily due to an increase in income from fixed maturities, income from funds held investments and equity securities.

Cash and invested assets consist primarily of fixed maturities, equity securities and cash equivalents. The Company's investment portfolio totaled $587.3 million as of December 31, 2022 and was primarily comprised of fixed maturity securities that were classified as available-for-sale. The Company also had $108.0 million of cash and cash equivalents on its balance sheet as of December 31, 2022. The Company's fixed maturities portfolio had an average rating of "AA" as of both December 31, 2022 and September 30, 2022.

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#### Other
Other revenue was $1.1 million for the fourth quarter of 2022, compared to $1.6 million for the same prior-year period, due primarily to a year-over-year decrease in brokerage revenue.

#### Stockholders' Equity and Returns
Total stockholders' equity was $315.0 million at December 31, 2022, compared to $421.9 million at December 31, 2021. Return on equity was (101.8)% for the fourth quarter of 2022, compared to 1.2% for the same prior-year period, and adjusted return on equity<sup>(1)</sup> was (12.8)% for the fourth quarter of 2022, compared to 1.9% for the same prior-year period. Return on tangible equity was (195.6)% for the fourth quarter of 2022, compared to 2.4% for the same prior-year period and adjusted return on tangible equity was (24.5)% for the fourth quarter of 2022, compared to 3.9% for the same prior-year period.

#### Conference Call and Guidance
Due to the pending transaction with Altaris announced on December 16, 2022, the Company will not host a conference call in conjunction with its fourth quarter 2022 earnings release. Please visit the Investor Relations section of the Company's website at https://investors.trean.com for the latest releases and information. In addition, the Company will not provide guidance on its financial outlook for the first quarter 2023 or the full year 2023 as a result of the pending transaction.

#### 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 (loss) is a non-GAAP financial measure defined as income (loss) before taxes excluding net investment income, investment revaluation gains, net realized capital gains or losses, noncash intangible asset amortization, stock compensation and goodwill impairment, 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 (loss) is a non-GAAP financial measure defined as net income excluding the impact of various specific events, noncash intangible asset amortization, stock compensation and goodwill impairment, 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.

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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.

#### 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, 2022. 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 Relations

investor.relations@trean.com

(952) 974-2260

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#### Trean Insurance Group, Inc. and Subsidiaries

#### Condensed Consolidated and Combined Statements of Operations
(in thousands, except for share and per share amounts)

(unaudited)

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
|  **Revenues** |  |  |  |  |
|  Gross written premiums | $173528 | $153259 | $651303 | $634164 |
| (Increase) decrease in gross unearned premiums | (8102) | 2925 | (9074) | (61911) |
| &nbsp;&nbsp;&nbsp; Gross earned premiums | 165426 | 156184 | 642229 | 572253 |
|  Ceded earned premiums | (82370) | (98536) | (357605) | (373573) |
| &nbsp;&nbsp;&nbsp; Net earned premiums | 83056 | 57648 | 284624 | 198680 |
|  Net investment income | 4951 | 2159 | 10087 | 8721 |
|  Net realized gains (losses) | (26) | (23) | 285 | 49 |
|  Other revenue | 1101 | 1557 | 8246 | 10240 |
| &nbsp;&nbsp;&nbsp; Total revenue | 89082 | 61341 | 303242 | 217690 |
|  **Expenses** |  |  |  |  |
|  Losses and loss adjustment expenses | 78150 | 44037 | 203877 | 130772 |
|  General and administrative expenses | 22975 | 13760 | 86210 | 54706 |
|  Other expenses | 3081 | - | 3349 | 845 |
|  Intangible asset amortization | 1500 | 1500 | 5998 | 5826 |
|  Noncash stock compensation | 477 | 424 | 1496 | 1522 |
|  Interest expense | 1464 | 414 | 3270 | 1685 |
|  Goodwill impairment | 76053 | - | 76053 | - |
| &nbsp;&nbsp;&nbsp; Total expenses | 183700 | 60135 | 380253 | 195356 |
|  Gains (losses) on embedded derivatives | (2439) | 357 | 12024 | 2226 |
|  Other income | 30 | 28 | 106 | 219 |
|  **Income (loss) before taxes** | (97027) | 1591 | (64881) | 24779 |
|  Income tax expense | (5667) | 347 | 1074 | 5449 |
|  **Net income (loss)** | $(91360) | $1244 | $(65955) | $19330 |
|  **Earnings (loss) per share:** |  |  |  |  |
|  Basic | $(1.78) | $0.02 | $(1.29) | $0.38 |
|  Diluted | $(1.78) | $0.02 | $(1.29) | $0.38 |
|  **Weighted average shares outstanding:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Basic | 51221594 | 51175996 | 51203370 | 51162293 |
| &nbsp;&nbsp;&nbsp; Diluted | 51221594 | 51175996 | 51203370 | 51173450 |

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#### Key Metrics
(in thousands, except for percentages)

(unaudited)

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
|  **Key metrics:** |  |  |  |  |
|  Underwriting income (loss) <sup>(1)</sup> | $(18069) | $(149) | $(5463) | $13202 |
|  Adjusted net income (loss) <sup>(1)</sup> | $(11446) | $2029 | $7860 | $22132 |
|  Loss ratio | 94.1% | 76.4% | 71.6% | 65.8% |
|  Expense ratio | 27.7% | 23.9% | 30.3% | 27.5% |
|  Combined ratio | 121.8% | 100.3% | 101.9% | 93.3% |
|  Return on equity | (101.8)% | 1.2% | (17.9)% | 4.6% |
|  Adjusted return on equity <sup>(1)</sup> | (12.8)% | 1.9% | 2.1% | 5.3% |
|  Return on tangible equity <sup>(1)</sup> | (195.6)% | 2.4% | (34.0)% | 9.7% |
|  Adjusted return on tangible equity <sup>(1)</sup> | (24.5)% | 3.9% | 4.1% | 11.0% |

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*<sup>(1)</sup> 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.*

** 

<br> ------

#### Trean Insurance Group, Inc. and Subsidiaries

#### Condensed Consolidated Balance Sheets
(in thousands)

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| | | |
|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2021** |
|  **Assets** | (unaudited) |  |
|  Fixed maturities, available for sale | $552243 | $471061 |
|  Equity securities, at fair value | 35041 | 969 |
| &nbsp;&nbsp;&nbsp; Total investments | 587284 | 472030 |
|  Cash and cash equivalents | 107991 | 129577 |
|  Restricted cash | 1083 | 407 |
|  Accrued investment income | 3726 | 2344 |
|  Premiums and other receivables | 160282 | 141920 |
|  Income taxes receivable | 5841 | 460 |
|  Reinsurance recoverable | 408522 | 377241 |
|  Prepaid reinsurance premiums | 124269 | 129411 |
|  Deferred policy acquisition cost, net | 18858 | 13344 |
|  Property and equipment, net | 7151 | 7632 |
|  Right of use asset | 2764 | 4530 |
|  Deferred tax asset | 5958 | - |
|  Goodwill | 66294 | 142347 |
|  Intangible assets, net | 67117 | 73114 |
|  Other assets | 14799 | 8658 |
| &nbsp;&nbsp;&nbsp; **Total assets** | $1581939 | $1503015 |
|  **Liabilities** |  |  |
|  Unpaid loss and loss adjustment expenses | $632910 | $544320 |
|  Unearned premiums | 229112 | 219940 |
|  Funds held under reinsurance agreements | 241291 | 199410 |
|  Reinsurance premiums payable | 50861 | 45130 |
|  Accounts payable, accrued expenses and other liabilities | 32609 | 29448 |
|  Lease liability | 3063 | 4976 |
|  Deferred tax liability | - | 7520 |
|  Debt | 77074 | 30362 |
| &nbsp;&nbsp;&nbsp; **Total liabilities** | 1266920 | 1081106 |
|  Commitments and contingencies |  |  |
|  **Stockholders' Equity** |  |  |
|  Preferred stock, $0.01 par value per share (100,000,000 authorized; zero issued and outstanding) | **-** | **-** |
|  Common stock, $0.01 par value per share (600,000,000 authorized; 51,222,485 and 51,176,887 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively) | 512 | 512 |
|  Additional paid-in capital | 290095 | 288623 |
|  Retained earnings | 62435 | 128390 |
|  Accumulated other comprehensive income (loss) | (38023) | 4384 |
| &nbsp;&nbsp;&nbsp; Total stockholders' equity | 315019 | 421909 |
| &nbsp;&nbsp;&nbsp; **Total liabilities and stockholders' equity** | $1581939 | $1503015 |

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#### Supplemental Table of Other Revenue Components

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Other Revenue** |  |  |  |  |
|  Brokerage | $309 | $822 | $5705 | $7036 |
|  Managing general agent fees | 75 | 196 | 326 | 603 |
|  Third-party administrator fees | 520 | 417 | 1358 | 1608 |
|  Consulting and other fee-based revenue | 197 | 122 | 857 | 993 |
|  **Total other revenue** | $1101 | $1557 | $8246 | $10240 |

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#### Supplemental Table of Net Investment Income Components

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  Fixed maturities | $3127 | $1597 | $9316 | $6331 |
|  Income on funds held investments | 1273 | 555 | 3668 | 2338 |
|  Equity securities | 677 | 7 | 1708 | 48 |
|  Unrealized losses on equity securities | (255) | - | (4797) | - |
|  Interest on cash and short-term investments | 129 | - | 192 | 4 |
| &nbsp;&nbsp;&nbsp; **Total net investment income** | $4951 | $2159 | $10087 | $8721 |

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#### Supplemental Table of Gains (Losses) on Embedded Derivative Components

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  Change in fair value of embedded derivatives | $(1166) | $905 | $15682 | $4666 |
|  Effect of net investment income on funds held investments | (1273) | (555) | (3668) | (2338) |
|  Effect of realized (gains) losses on funds held investments | - | 7 | 10 | (102) |
| &nbsp;&nbsp;&nbsp; **Total gains (losses) on embedded derivatives** | $(2439) | $357 | $12024 | $2226 |

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#### Supplemental Table of Net G&A Components

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  Direct commissions | $29175 | $27660 | $114866 | $105965 |
|  Ceding commissions | (25218) | (31140) | (102759) | (120688) |
| &nbsp;&nbsp;&nbsp; Net commissions | 3957 | (3480) | 12107 | (14723) |
|  Insurance-related expense | 5092 | 5936 | 22790 | 20732 |
|  G&A operating expenses | 13926 | 11304 | 51313 | 48697 |
| &nbsp;&nbsp;&nbsp; **Total G&A expense** | $22975 | $13760 | $86210 | $54706 |
|  **G&A operating expense - % of GWP** | 8.0% | 7.4% | 7.9% | 7.7% |
|  **Retention rate**<sup>(1)</sup> | 50.2% | 36.9% | 44.3% | 34.7% |
|  **Direct commission rate**<sup>(2)</sup> | 17.6% | 17.7% | 17.9% | 18.5% |
|  **Ceding commission rate**<sup>(3)</sup> | 30.6% | 31.6% | 28.7% | 32.3% |

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<sup>(1)</sup> *Net earned premiums as a percentage of gross earned premiums.*

<sup>(2)</sup> *Direct commissions as a percentage of gross earned premiums.*

<sup>(3)</sup> *Ceding commissions as a percentage of ceded earned premiums.*

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#### Reconciliation of Non-GAAP Financial Measures

#### Underwriting income (loss)

The Company defines underwriting income (loss) as income (loss) before taxes excluding net investment income, noncash changes in fair value of embedded derivatives, investment revaluation gains, net realized capital gains or losses, noncash intangible asset amortization, stock compensation and goodwill impairment, interest expense, other revenue and other income and expenses. Underwriting income (loss) 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, 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 (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define underwriting income differently.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Net income (loss)** | $**(91360)** | $**1244** | $**(65955)** | $**19330** |
|  Income tax expense | (5667) | 347 | 1074 | 5449 |
|  Income (loss) before taxes | (97027) | 1591 | (64881) | 24779 |
|  Other revenue | (1101) | (1557) | (8246) | (10240) |
|  Change in fair value of embedded derivatives | 2439 | (357) | (12024) | (2226) |
|  Net investment income | (4951) | (2159) | (10087) | (8721) |
|  Net realized losses (gains) | 26 | 23 | (285) | (49) |
|  Other expenses | 3081 | - | 3349 | 845 |
|  Goodwill impariment | 76053 | - | 76053 | - |
|  Interest expense | 1464 | 414 | 3270 | 1685 |
|  Intangible asset amortization | 1500 | 1500 | 5998 | 5826 |
|  Noncash stock compensation | 477 | 424 | 1496 | 1522 |
|  Other income | (30) | (28) | (106) | (219) |
|  **Underwriting income (loss)** | $**(18069)** | $**(149)** | $**(5463)** | $**13202** |

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#### Adjusted net income (loss)

The Company defines adjusted net income (loss) as net income (loss) excluding the impact of certain items, including noncash intangible asset amortization, stock compensation and goodwill impairment, noncash changes in fair value of embedded derivatives, 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 an expected effective tax rate for the applicable years. The Company uses adjusted net income (loss) 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 (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define adjusted net income (loss) differently.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Net income (loss)** | $**(91360)** | $**1244** | $**(65955)** | $**19330** |
|  Intangible asset amortization | 1500 | 1500 | 5998 | 5826 |
|  Noncash stock compensation | 477 | 424 | 1496 | 1522 |
|  Change in fair value of embedded derivatives | 1166 | (905) | (15682) | (4666) |
|  Unrealized losses on equity securities | 255 | - | 4797 | - |
|  Realized (gain) loss on sale of investment | (15) | - | (1415) | 112 |
|  Other expenses | 3081 | - | 3349 | 845 |
|  Goodwill impairment | 76053 | - | 76053 | - |
|  Total adjustments | 82517 | 1019 | 74596 | 3639 |
|  Tax impact of adjustments | $(2603) | (234) | $(781) | (837) |
|  **Adjusted net income (loss)** | $**(11446)** | $**2029** | $**7860** | $**22132** |

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#### Adjusted return on equity
The Company defines adjusted return on equity as adjusted net income (loss) 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.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Adjusted return on equity calculation:** |  |  |  |  |
|  Numerator: adjusted net income (loss) | $(11446) | $2029 | $7860 | $22132 |
|  Denominator: average stockholders' equity | 359038 | 422101 | 368464 | 416008 |
|  **Adjusted return on equity** | (12.8)% | 1.9% | 2.1% | 5.3% |
|  Return on equity | (101.8)% | 1.2% | (17.9)% | 4.6% |

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#### 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 (loss) 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 (loss) 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.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Return on tangible equity calculation:** |  |  |  |  |
|  Numerator: net income (loss) | $(91360) | $1244 | $(65955) | $19330 |
|  Denominator: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Average stockholders' equity | 359038 | 422101 | 368464 | 416008 |
| &nbsp;&nbsp;&nbsp; Less: Average goodwill and other intangible assets | 172187 | 216108 | 174436 | 215709 |
|  Average tangible stockholders' equity | 186851 | 205993 | 194028 | 200299 |
|  **Return on tangible equity** | (195.6)% | 2.4% | (34.0)% | 9.7% |
|  Return on equity | (101.8)% | 1.2% | (17.9)% | 4.6% |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|  *(unaudited, in thousands)* | **2022** | **2021** | **2022** | **2021** |
|  **Adjusted return on tangible equity calculation:** |  |  |  |  |
|  Numerator: adjusted net income (loss) | $(11446) | $2029 | $7860 | $22132 |
|  Denominator: average tangible stockholders' equity | 186851 | 205993 | 194028 | 200299 |
|  **Adjusted return on tangible equity** | (24.5)% | 3.9% | 4.1% | 11.0% |
|  Return on equity | (101.8)% | 1.2% | (17.9)% | 4.6% |

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![](image00001.jpg)

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