CLOVER HEALTH INVESTMENTS, CORP. /DE – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of our consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the unaudited condensed consolidated financial statements and
notes thereto for the three and nine months ended September 30, 2022, contained
in this Quarterly Report on Form 10-Q (the "Form 10-Q") and the consolidated
financial statements and notes thereto for the year ended December 31, 2021,
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the Securities and Exchange Commission (the "SEC")
on February 28, 2022 (the "2021 Form 10-K"). This discussion contains
forward-looking statements and involves numerous risks and uncertainties,
including, but not limited to, those described in the "Risk Factors" section of
the 2021 Form 10-K. Actual results may differ materially from those contained in
any forward-looking statements. See "Cautionary Note Regarding Forward-Looking
Statements" for additional information. Unless the context otherwise requires,
references in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" to "we," "us," "our," "Clover," "Clover Health," and
the "Company" mean the business and operations of Clover Health Investments,
Corp. and its consolidated subsidiaries.

Overview

At Clover Health, we are singularly focused on creating great, sustainable
healthcare to improve every life. We have centered our strategy on building and
deploying technology that we believe will enable us to solve a significant data
problem while avoiding the limitations of legacy approaches. By empowering
physicians with access to data-driven, personalized insights at the point of
care through our software platform, Clover Assistant, we believe we can improve
clinical decision making.

We operate Preferred Provider Organization ("PPO") and Health Maintenance
Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible
consumers. We aim to provide great, affordable healthcare for all. We offer most
members in our MA plans (the "members") among the lowest average out-of-pocket
costs for primary care provider co-pays, specialist co-pays, drug deductibles
and drug costs in their markets. We deeply believe in providing our members
provider choice, and we consider our PPO plan to be our flagship insurance plan.
An important feature of our MA product is wide network access. We believe the
use of Clover Assistant and related data insights allows us to improve clinical
decision-making through a highly scalable asset-light approach. As of
September 30, 2022, we operated our MA plans in nine states and 209 counties,
with 88,136 members.

On April 1, 2021, our subsidiary, Clover Health Partners, LLC ("Health
Partners"), 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"), which will transition to the Accountable
Care Organization Realizing Equity, Access, and Community Health Model ("ACO
Reach") in 2023. Our DCE assumes full risk (i.e., 100.0% shared savings and
shared losses) for the total cost of care of aligned Original Medicare
beneficiaries (the "Non-Insurance Beneficiaries" and, collectively with the
members, "Lives under Clover Management" or the "beneficiaries"). Through our
Direct Contracting operations, we focus on leveraging our technology platform,
Clover Assistant, to enhance healthcare delivery, reduce expenditures, and
improve care for our Non-Insurance Beneficiaries. As of September 30, 2022, we
had approximately 1,555 contracted participating providers who manage primary
care for our Non-Insurance Beneficiaries. Additionally, as of September 30,
2022, we had approximately 1,630 preferred providers and preferred facilities in
our DCE network. In connection with the 2023 performance year, we plan to
strategically reduce the number of ACO REACH participating physicians, which we
expect will result in a shift in our beneficiary alignment. Our participation in
the DC Model has enabled us to move beyond the MA market and target the Medicare
fee-for-service ("FFS") market, which is the largest segment of Medicare. We
believe that expanding into the FFS market is not only a strategic milestone for
Clover but also demonstrates the scalability of Clover Assistant.

As of September 30, 2022, we were partnering with providers to care for 254,568
Lives under Clover Management, which included 88,136 Insurance members and
166,432 aligned Non-Insurance Beneficiaries.

Recent Developments

Geographic Expansion

On July 14, 2022, we announced plans to make our MA plans available in 13 new
counties beginning in 2023. The expansion, which is subject to CMS approval,
would make our MA plans available in a total of 220 counties across eight
states.

Impact of COVID-19

The societal and economic impact of the Coronavirus Disease 2019 ("COVID-19")
pandemic and its variants continues to evolve, and the ultimate impact on our
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.

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We are continuing to monitor the ongoing financial impact of COVID-19 on our
business and operations and are making adjustments accordingly. A large portion
of our membership is elderly and generally in the high-risk category for
COVID-19, and we have worked closely with our network of providers to ensure
that members are receiving necessary care. During the first three quarters of
2022 and all of 2021, we incurred elevated costs as compared to prior to the
outbreak of the pandemic in 2020 to care for those members who have contracted
the virus, and indirect costs attributable to the COVID-19 pandemic were
elevated as well, as deferral of services and increased costs related to
conditions that were exacerbated by a lack of diagnoses and treatment in the
earlier periods of the pandemic contributed to increased utilization.
Additionally, CMS is currently increasing inpatient hospital fees by 20.0% for
any patient diagnosed with COVID-19 regardless of whether that patient was
admitted directly for COVID-19 or for a different condition or procedure. We
will continue to monitor the pandemic's emerging treatment-related trends as
well as the impact on our beneficiaries. Additionally, CMS risk adjustment
requires that a member's health issues be documented annually regardless of the
permanence of the underlying causes. Historically, this documentation was
required to be completed during an in-person visit with a patient. As part of
relief measures adopted pursuant to the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act"), CMS is allowing documentation prepared during
video visits with patients to serve as support for CMS risk adjustments. Due to
fewer visits in 2020, the providers' ability to document health conditions
accurately and formulate treatment plans was adversely impacted due to COVID-19.
However, we experienced improvements in documentation in 2021 with increased
utilization of health services, impacting our 2022 risk score. We believe that
this increase in documentation has supported our provider partners with better
diagnosis accuracy and improved care planning and that this will result in
increased revenue and a reduced medical care ratio ("MCR").

Key Performance Measures of Our Operating Segments

Operating Segments

We manage our operations based on two reportable operating segments: Insurance
and Non-Insurance. Through our Insurance segment, we provide PPO and HMO plans
to Medicare Advantage members in several states. Our Non-Insurance segment
consists of our operations in connection with our participation in the Direct
Contracting program, which will transition to the ACO Reach model in 2023. All
other clinical services and all corporate overhead not included in the
reportable segments are included within Corporate/Other.

These segment groupings are consistent with the information used by our Chief
Executive Officer, our chief operating decision maker, to assess performance and
allocate resources.

We review several key performance measures, discussed below, to evaluate our
business and results, measure performance, identify trends, formulate plans, and
make strategic decisions. We believe that the presentation of such metrics is
useful to management and counterparties to model the performance of healthcare
companies such as Clover.

Insurance segment

Through our Insurance segment, we provide PPO and HMO plans to members in
several states. We seek to improve care and lower costs for our Insurance
members by empowering providers with data-driven, personalized insights at the
point of care through our software platform, Clover Assistant.

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Nine Months Ended September 30,                                2022                                   2021
                                                     Total              PMPM (1)            Total             PMPM (1)
                                                     (Premium and expense amounts in thousands, except PMPM amounts)
Insurance members as of period end (#)               88,136                    N/A          67,281                   N/A
Premiums earned, gross                           $  814,920           $   1,050          $ 598,760          $   1,000
Premiums earned, net                                814,566               1,049            598,390                999
Insurance medical claim expense incurred,
gross                                               747,250                 962            641,300              1,071
Insurance net medical claims incurred               746,612                 962            640,624              1,069
Medical care ratio, gross (2)                          91.7   %                N/A           107.1  %                N/A
Medical care ratio, net                                91.7                    N/A           107.1                   N/A


(1) Calculated per member per month ("PMPM") figures are based on the applicable
amount divided by member months in the given period. Member months represents
the number of months members are enrolled in a Clover Health plan in the period.

(2) Defined as Insurance gross medical claims incurred divided by premiums
earned, gross.

Membership and associated premiums earned and medical claim expenses.

We define new and returning members on a calendar year basis. Any member who is
active on July 1 of a given year is considered a returning member in the
following year. Any member who joins a Clover plan after July 1 in a given year
is considered a new member for the entirety of the following calendar year. We
view our number of members and associated PMPM premiums earned and medical claim
expenses, in the aggregate and on a PMPM basis, as important metrics to assess
our financial performance because member growth aligns with our mission, drives
our total revenues, expands brand awareness, deepens our market penetration,
creates additional opportunities to inform our data-driven insights to improve
care and decrease medical claim expenses, and generates additional data to
continue to improve the functioning of Clover Assistant. Among other things, the
longer a member is enrolled in one of our Insurance plans, the more data we
collect and synthesize and the more actionable insights we generate. We believe
these data-driven insights lead to better care delivery as well as improved
identification and documentation of members' chronic conditions, helping to
lower PMPM medical claim expenses.

Premiums earned, gross.

Premiums earned, gross is the amount received, or to be received, for insurance
policies written by us during a specific period of time without reduction for
premiums ceded to reinsurance. We believe premiums earned, gross provides useful
insight into the gross economic benefit generated by our business operations and
allows us to evaluate our underwriting performance without regard to changes in
our underlying reinsurance structure. Premiums earned, gross excludes the
effects of premiums ceded to reinsurers, and therefore should not be used as a
substitute for premiums earned, net, total revenue or any other measure
presented in accordance with generally accepted accounting principles in the
United States ("GAAP").

Premiums earned, net.

Premiums earned, net represents the earned portion of our premiums earned,
gross, less the earned portion that is ceded to third-party reinsurers under our
reinsurance agreements. Premiums are earned in the period in which members are
entitled to receive services, and are net of estimated uncollectible amounts,
retroactive membership adjustments, and any adjustments to recognize rebates
under the minimum benefit ratios required under the Patient Protection and
Affordable Care Act.

Premiums earned, gross is the amount received, or to be received, for insurance
policies written by us during a specific period of time without reduction for
premiums ceded to reinsurance. We earn premiums through our plans offered under
contracts with CMS. We receive premiums from CMS on a monthly basis based on our
actuarial bid and the risk-adjustment model used by CMS. Premiums anticipated to
be received within twelve months based on the documented diagnostic criteria of
our members are estimated and included in revenue for the period including the
member months for which the payment is designated by CMS.

Premiums ceded is the amount of premiums earned, gross ceded to reinsurers. From
time to time, we enter into reinsurance contracts to limit our exposure to
potential losses as well as to provide additional capacity for growth. Under
these agreements, the "reinsurer," agrees to cover a portion of the claims of
another insurer, i.e., us, the "primary insurer," in return for a portion of
their premium. Ceded earned premiums are earned over the reinsurance contract
period in proportion to the period of risk covered. The volume of our ceded
earned premium is impacted by the level of our premiums earned, gross and any
decision we make to adjust our reinsurance agreements.
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Insurance gross medical claims incurred.

Insurance gross medical claims incurred reflects claims incurred excluding
amounts ceded to reinsurers and the costs associated with processing those
claims. We believe gross medical claims incurred provides useful insight into
the gross medical expense incurred by members and allows us to evaluate our
underwriting performance without regard to changes in our underlying reinsurance
structure.

Insurance gross medical claims incurred excludes the effects of medical claims
and associated costs ceded to reinsurers, and therefore should not be used as a
substitute for net claims incurred, total expenses or any other measure
presented in accordance with GAAP.

Insurance net medical claims incurred.

Insurance net medical claims incurred are our medical expenses and consists of
the costs of claims, including the costs incurred for claims net of amounts
ceded to reinsurers. We enter into reinsurance contracts to limit our exposure
to potential catastrophic losses. These expenses generally vary based on the
total number of members and their utilization rate of our services.

Medical care ratio, gross and net.

We calculate our MCR by dividing total Insurance medical claim expenses incurred
by premiums earned, in each case on a gross or net basis, as the case may be, in
a given period. We believe our MCR is an indicator of our gross margin for our
Insurance plans and the ability of our Clover Assistant platform to capture and
analyze data over time to generate actionable insights for returning members to
improve care and reduce medical expenses.

Non-Insurance segment

Our Non-Insurance segment consists of operations in connection with our
participation in the Direct Contracting program, which we began in April 2021
and which will transition to the ACO Reach model in 2023. As part of our
Non-Insurance operations, we empower providers with Clover Assistant and offer a
variety of programs aimed at reducing expenditures and preserving or enhancing
the quality of care for our Non-Insurance Beneficiaries.

Nine months ended September 30, 2022                              2022                                   2021
                                                        Total                PBPM              Total              PBPM
                                                       (Revenue and claims amounts in thousands, except PBPM amounts)
Non-Insurance Beneficiaries as of period end
(#)                                                     166,432                   N/A          61,818                  N/A
Non-Insurance revenue                              $  1,757,579           $  1,148          $ 439,020          $  1,175
Non-Insurance net medical claims incurred             1,815,771              1,186            469,972             1,258
Non-Insurance MCR (1)                                     103.3   %               N/A           107.1  %               N/A

(1) Defined as Non-Insurance net medical claims incurred divided by
Non-Insurance revenue.

Non-Insurance Beneficiaries.

A Non-Insurance Beneficiary is defined as an eligible Original Medicare covered
life that has been aligned to our DCE, Health Partners, via attribution to a
DCE-participating provider through alignment based on claims data or by
beneficiary election through voluntary alignment. A beneficiary alignment is
effective as of the first of the month, for the full calendar month, regardless
of whether eligibility is lost during the course of the month.

Non-Insurance revenue.

Non-Insurance revenue represents CMS' total expense incurred for medical
services provided on behalf of Non-Insurance Beneficiaries during months in
which they were alignment eligible during the performance year. Non-Insurance
revenue is calculated by taking the sum of the capitation payments made to us
for services within the scope of our capitation arrangement and FFS payments
made to providers directly from CMS. Non-Insurance revenue is also known in the
DC Model as performance year expenditures and is the primary component used to
calculate shared savings or shared loss versus the performance year benchmark.
Non-Insurance revenue includes a direct reduction or increase of shared savings
or loss, as applicable. Premiums and recoupments incurred in direct relation to
the DC Model are recognized as a reduction or increase in Non-Insurance revenue,
as applicable. We believe Non-Insurance revenue provides useful insight into the
gross economic benefit generated by our business operations and allows us to
evaluate our performance without regard to changes in our underlying reinsurance
structure.
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Non-Insurance net medical claims incurred.

Non-Insurance net medical claims incurred consists of the total incurred expense
that CMS and we will remit for medical services provided on behalf of
Non-Insurance Beneficiaries during the months in which they are alignment
eligible and aligned to the DCE. Additionally, Non-Insurance net medical claims
incurred is inclusive of fees paid to providers for Clover Assistant usage, care
coordination, and any shared savings or shared loss agreements with providers.

Non-Insurance MCR.

We calculate our MCR by dividing Non-Insurance net medical claims incurred by
Non-Insurance revenue in a given period. We believe our MCR is an indicator of
our gross profitability and the ability to capture and analyze data over time to
generate actionable insights for returning beneficiaries to improve care and
reduce medical expenses.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our condensed consolidated results of operations
for the three months ended September 30, 2022 and 2021. The period-to-period
comparison of results is not necessarily indicative of results for future
periods.

                                                      Three Months Ended                           Change between
                                                         September 30,                             2022 and 2021
                                                    2022               2021                  ($)                    (%)
                                                                    (in thousands)
Revenues
Premiums earned, net (Net of ceded premiums of
$116 and $120 for the three months ended
September 30, 2022 and 2021, respectively)      $ 267,892          $ 203,657          $       64,235                   31.5  %
Non-Insurance revenue                             585,311            222,647                 362,664                  162.9
Other income                                        3,614                859                   2,755                  320.7
Total revenues                                    856,817            427,163                 429,654                  100.6
Operating expenses
Net medical claims incurred                       839,799            436,325                 403,474                   92.5
Salaries and benefits                              70,142             73,364                  (3,222)                  (4.4)
General and administrative expenses                47,832             45,846                   1,986                    4.3
Premium deficiency reserve (benefit) expense      (27,657)            20,761                 (48,418)                 233.2
Depreciation and amortization                         616                120                     496                  413.3

Total operating expenses                          930,732            576,416                 354,316                   61.5
Loss from operations                              (73,915)          (149,253)                 75,338                  (50.5)

Change in fair value of warrants payable                -           (115,152)                115,152                         *
Interest expense                                      404                404                       -                      -
Amortization of notes and securities discount           9                 22                     (13)                 (59.1)

Loss on investment                                    980                  -                     980                         *
Net loss                                        $ (75,308)         $ (34,527)         $      (40,781)                 118.1  %


* Not presented because the current or prior period amount is zero or the amount
for the line item changed from a gain to a loss (or vice versa) and thus yields
a result that is not meaningful.

Premiums Earned, Net

Premiums earned, net increased $64.2 million, or 31.5%, to $267.9 million for
the three months ended September 30, 2022, compared to the three months ended
September 30, 2021. The increase was primarily due to a 31.0% increase in the
number of our Insurance members, from 67,281 at September 30, 2021, to 88,136 at
September 30, 2022. Risk adjustment revenue of $10.5 million was recognized
during the three months ended September 30, 2022.
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Non-Insurance Revenue

Our Non-Insurance revenue was $585.3 million for the three months ended
September 30, 2022, up $362.7 million compared to $222.6 million for the three
months ended September 30, 2021. This increase was largely driven by the
increase in the number of our aligned Non-Insurance Beneficiaries from 61,818 at
September 30, 2021, to 166,432 at September 30, 2022.

Other Income

Other income increased $2.8 million, or 320.7%, to $3.6 million for the three
months ended September 30, 2022, compared to the three months ended September
30, 2021. The increase was largely due to a $2.7 million increase in net
investment income.

Net Medical Claims Incurred

Net medical claims incurred increased $403.5 million, or 92.5%, to
$839.8 million for the three months ended September 30, 2022, compared to the
three months ended September 30, 2021. The increase was primarily driven by an
increase in net medical claims attributable to our Non-Insurance Beneficiaries
from $228.1 million for the three months ended September 30, 2021, to $609.7
million for three months ended September 30, 2022, which was driven by an
increase in the number of our aligned Non-Insurance Beneficiaries from 61,818 at
September 30, 2021, to 166,432 at September 30, 2022, and an increase of $22.6
million in net medical claims attributable to our Insurance members, which was
primarily driven by an increase in Insurance members from 67,281 at
September 30, 2021, to 88,136 at September 30, 2022.

Salaries and Benefits

Salaries and benefits decreased $3.2 million, or 4.4%, to $70.1 million for the
three months ended September 30, 2022, compared to the three months ended
September 30, 2021. The decrease was primarily driven by a $4.2 million decrease
in stock-based compensation expense, partially offset by increased headcount and
additional cash awards.

General and Administrative Expenses

General and administrative expenses increased $2.0 million, or 4.3%, to $47.8
million for the three months ended September 30, 2022, compared to the three
months ended September 30, 2021. The increase was driven in part by a $1.3
million increase in public company costs and legal and other professional fees
to support our growth, residual commissions, which are attributable to members
retained by the Company from the previous plan year, which increased by $1.1
million, and an increase in supplemental administrative costs of $0.7 million.
Additionally, for the three months ended September 30, 2022, we recognized $1.9
million of deferred acquisition costs related to the acquisition of new members,
compared to $1.1 million for the three months ended September 30, 2021.These
increases were partially offset by a $1.9 million decrease in software
application costs.

Premium Deficiency Reserve (Benefit) Expense

A $27.7 million premium deficiency reserve benefit was recorded for the three
months ended September 30, 2022, which includes amortization associated with a
previously recorded reserve. A $20.8 million premium deficiency reserve expense
was recorded for the three months ended September 30, 2021, which includes
amortization associated with a previously recorded reserve and a reserve deemed
necessary for the remainder of 2021.

Change in Fair Value of Warrants Payable

There was no change in fair value of warrants payable to report for the three
months ended September 30, 2022, as there were no warrants outstanding. The
change in fair value of warrants payable of $115.2 million for the three months
ended September 30, 2021 was due to the mark-to-market adjustment of the public
warrants (the "Public Warrants") and the private placement warrants (the
"Private Placement Warrants") assumed by the Company in connection with its
January 2021 business combination with an affiliate of Social Capital Hedosophia
Holdings Corp. III (the "Business Combination"). For additional information, see
Note 5 (Fair Value Measurements) and Note 13 (Warrants Payable) in our 2021 Form
10-K.

Interest Expense

There was no change in interest expense for the three months ended September 30,
2022 as compared to the three months ended September 30, 2021.

Amortization of Notes and Securities Discounts

Amortization of notes and securities discounts were less than $0.1 million in
both the three months ended September 30, 2022 and the three months ended
September 30, 2021 and remained relatively flat.

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Loss on Investment

We recorded a loss on investment of $1.0 million for the three months ended
September 30, 2022, on our minority equity investment in Character Biosciences,
Inc. (f/k/a Clover Therapeutics Company) ("Character Biosciences"), attributable
to our proportionate share of the loss on equity of that entity during the
period. Prior to the first quarter of 2022, this entity was consolidated on the
Company's financial statements, and therefore the Company did not recognize a
loss or gain on investment in this entity for the three months ended September
30, 2021.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our condensed consolidated results of operations
for the nine months ended September 30, 2022 and 2021. The period-to-period
comparison of results is not necessarily indicative of results for future
periods.

                                                               Nine Months Ended                  Change between
                                                                 September 30,                     2022 and 2021
                                                           2022                2021                            ($)                  (%)
                                                                      (in thousands)
Revenues
Premiums earned, net (Net of ceded premiums of $354
and $370 for the nine months ended September 30, 2022
and 2021, respectively)                                $  814,566          $  598,390                     $  216,176                  36.1  %
Non-Insurance revenue                                   1,757,579             439,020                      1,318,559                 300.3
Other income                                                5,751               2,550                          3,201                 125.5
Total revenues                                          2,577,896           1,039,960                      1,537,936                 147.9
Operating expenses
Net medical claims incurred                             2,560,307           1,109,248                      1,451,059                 130.8

Salaries and benefits                                     209,724             201,555                          8,169                   4.1
General and administrative expenses                       152,569             130,110                         22,459                  17.3
Premium deficiency reserve (benefit) expense              (82,971)             48,661                       (131,632)               (270.5)
Depreciation and amortization                               2,028                 398                          1,630                 409.5
Other expense                                                   -                 191                           (191)                       *
Total operating expenses                                2,841,657           1,490,163                      1,351,494                  90.7
Loss from operations                                     (263,761)           (450,203)                       186,442                 (41.4)

Change in fair value of warrants payable                        -             (66,146)                        66,146                        *
Interest expense                                            1,197               2,790                         (1,593)                (57.1)
Amortization of notes and securities discount                  27              13,708                        (13,681)                (99.8)

Gain on investment                                        (10,187)                  -                        (10,187)                       *
Net loss                                               $ (254,798)         $ (400,555)                    $  145,757                 (36.4) %

* Not presented because the current or prior period amount is zero or the
amount for the line item changed from a gain to a loss (or vice versa) and thus
yields a result that is not meaningful.

Premiums Earned, Net

Premiums earned, net increased $216.2 million, or 36.1%, to $814.6 million for
the nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021. The increase was primarily due to membership growth of 31.0%
from 67,281 Insurance members at September 30, 2021, to 88,136 Insurance members
at September 30, 2022. Risk adjustment revenue of $51.7 million was recognized
during the nine months ended September 30, 2022.

Non-Insurance Revenue

Our Non-Insurance revenue was $1,757.6 million for the nine months ended
September 30, 2022, compared to $439.0 million for the nine months ended
September 30, 2021. The increase was primarily driven by an increase in the
number of our aligned Non-Insurance Beneficiaries from 61,818 at September 30,
2021, to 166,432 at September 30, 2022, and the fact that our DCE did not begin
participation in Direct Contracting until the second quarter of 2021.
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Other Income

Other income increased $3.2 million, or 125.5%, to $5.8 million for the nine
months ended September 30, 2022, compared to the nine months ended September 30,
2021. The increase was largely due to a $3.4 million increase in net investment
income.

Net Medical Claims Incurred

Net medical claims incurred increased $1,451.1 million, or 130.8%, to $2,560.3
million for the nine months ended September 30, 2022, compared to the nine
months ended September 30, 2021. The increase was primarily driven by an
increase in net medical claims attributable to our Non-Insurance Beneficiaries
from $470.0 million for the nine months ended September 30, 2021, to $1,815.8
million for the nine months ended September 30, 2022, which was driven by an
increase in the number of our aligned Non-Insurance Beneficiaries from 61,818 at
September 30, 2021, to 166,432 at September 30, 2022 and the fact that our DCE
did not begin participation in Direct Contracting until the second quarter of
2021, and an increase of $106.0 million in net medical claims attributable to
our Insurance members, which was primarily driven by an increase in Insurance
members from 67,281 Insurance members at September 30, 2021, to 88,136 Insurance
members at September 30, 2022.

Salaries and Benefits

Salaries and benefits increased $8.2 million, or 4.1%, to $209.7 million for the
nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021. The increase was primarily driven by increased headcount and
additional cash awards, partially offset by a $7.3 million decrease in
stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased $22.5 million, or 17.3%, to $152.6
million for the nine months ended September 30, 2022, compared to the nine
months ended September 30, 2021. The increase was driven in part by increases in
legal and other professional fees to support our growth and public company
costs, including costs associated with obtaining and maintaining directors' and
officers' liability insurance. Legal and professional fees increased $9.0
million for the nine months ended September 30, 2022, compared to the nine
months ended September 30, 2021. Residual commissions, which are attributable to
members retained by the Company from the previous plan year, increased by $7.6
million. For the nine months ended September 30, 2022, we recognized $15.6
million of deferred acquisition costs related to the acquisition of new members,
compared to $9.6 million for the nine months ended September 30, 2021.

Premium Deficiency Reserve (Benefit) Expense

A $83.0 million premium deficiency reserve benefit was recorded for the nine
months ended September 30, 2022, which includes amortization associated with a
previously recorded reserve. A $48.7 million premium deficiency reserve expense
was recorded for the nine months ended September 30, 2021, which includes
amortization associated with a previously recorded reserve and a reserve deemed
necessary for the remainder of 2021.

Change in Fair Value of Warrants Payable

There was no change in fair value of warrants payable to report for the nine
months ended September 30, 2022, as there were no warrants outstanding. There
was a decrease of $66.1 million for the nine months ended September 30, 2021,
due to the mark-to-market adjustment of the Public Warrants and Private
Placement Warrants recognized for the nine months ended September 30, 2021. For
additional information, see Note 5 (Fair Value Measurements) and Note 13
(Warrants Payable) in our 2021 Form 10-K.

Interest Expense

Interest expense decreased $1.6 million, or 57.1%, to $1.2 million for the nine
months ended September 30, 2022, compared to the nine months ended September 30,
2021, primarily related to the voluntary prepayment and termination of the
remaining principal and interest associated with our Term Loan Notes.

Amortization of Notes and Securities Discounts

Amortization of notes and securities discounts decreased by 99.8% primarily due
to the completion of the Business Combination on January 7, 2021, whereby the
unamortized discount associated with the August 2019 tranche of the Convertible
Securities was accelerated, as well as the termination of our Term Loans during
the nine months ended September 30, 2021.

Gain on Investment

In February 2022, Character Biosciences completed a private capital transaction
in which it raised $17.9 million from the issuance of 16,210,602 shares of its
preferred stock. After evaluating our ownership interest in Character
Biosciences, we began applying the equity method of accounting during the nine
months ended September 30, 2022, and recorded a gain on investment of $10.2
million,
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which is attributable to our proportionate share of the gain on equity of that
entity during that period. Prior to the first quarter of 2022, this entity was
consolidated on the Company's financial statements, and therefore the Company
did not recognize a loss or gain on investment in this entity for the nine
months ended September 30, 2021.

Liquidity and Capital Resources

We manage our liquidity and financial position in the context of our overall
business strategy. We continually forecast and manage our cash, investments,
working capital balances, and capital structure to meet the short-term and
long-term obligations of our businesses while seeking to maintain liquidity and
financial flexibility.

As of September 30, 2022, we had cash, cash equivalents, and short-term
investments of $536.7 million. Additionally, as of September 30, 2022, we had
$246.1 million of available-for-sale and held-to-maturity investment securities,
and an outstanding balance of $23.2 million on convertible notes issued by Seek.
Our cash equivalents, short-term investments, and investment securities consist
primarily of money market funds and U.S. government debt securities.

Historically, we have financed our operations primarily from the proceeds we
received through public and private sales of equity securities, funds received
in connection with the Business Combination, issuances of convertible notes,
premiums earned under our MA plans, borrowings under our term loan facility and,
most recently, with our Non-Insurance revenues. We expect that our cash, cash
equivalents, short-term investments, and our current projections of cash flows,
taken together, will be sufficient to meet our projected operating and
regulatory requirements for the next 12 months based on our current plans. Our
future capital requirements will depend on many factors, including our needs to
support our business growth, to respond to business opportunities, challenges or
unforeseen circumstances, or for other reasons. We may be required to seek
additional equity or debt financing to provide the capital required to maintain
or expand our operations. Any future equity financing may be dilutive to our
existing investors, and any future debt financing may include debt service
requirements and financial and other restrictive covenants that may constrain
our operations and growth strategies. In the event that additional financing is
required from outside sources, we may not be able to raise it on terms
acceptable to us, or at all. If we are unable to raise additional capital when
desired, our business, results of operations, and financial condition would be
adversely affected.

We operate as a holding company in a highly regulated industry. As such, we may
receive dividends and administrative expense reimbursements from our
subsidiaries, two of which are subject to regulatory restrictions. We continue
to maintain significant levels of aggregate excess statutory capital and surplus
in our state-regulated insurance subsidiaries. Cash, cash equivalents, and
short-term investments at the parent company, Clover Health Investments, Corp.,
were $169.1 million and $350.9 million as of September 30, 2022, and
December 31, 2021, respectively. This decrease at the parent company primarily
reflects operating expenses and capital contributions made to our regulated
insurance subsidiaries. Additionally, our parent company held $113.9 million and
$79.3 million of available-for-sale and held-to-maturity investment securities
as of September 30, 2022, and December 31, 2021. Our unregulated subsidiaries
held $132.7 million and $52.2 million of cash, cash equivalents, and short-term
investments as of September 30, 2022, and December 31, 2021, respectively. Our
unregulated subsidiaries held no available-for-sale and held-to-maturity
securities as of both September 30, 2022 and December 31, 2021. Our regulated
insurance subsidiaries held $234.8 million and $190.7 million of cash, cash
equivalents, and short-term investments as of September 30, 2022, and
December 31, 2021, respectively. Additionally, our regulated insurance
subsidiaries held $132.1 million and $118.0 million of available-for-sale and
held-to-maturity investment securities as of September 30, 2022, and
December 31, 2021, respectively. Our use of operating cash derived from our
unregulated subsidiaries is generally not restricted by departments of insurance
(or comparable state regulatory agencies). Our regulated insurance subsidiaries
have not paid dividends to the parent, and applicable insurance laws restrict
the ability of our regulated insurance subsidiary to declare and pay dividends
to the parent. Insurance regulators have broad powers to prevent reduction of
statutory surplus to inadequate levels, and there is no assurance that dividends
of the maximum amounts calculated under any applicable formula would be
permitted. State insurance regulatory authorities that have jurisdiction over
the payment of dividends by our regulated insurance subsidiary may in the future
adopt statutory provisions more restrictive than those currently in effect.

For a detailed discussion of our regulatory requirements, including aggregate
statutory capital and surplus as well as dividends paid from the subsidiaries to
the parent, please refer to Notes 24, 25, and 26 in our 2021 Form 10-K.
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Cash Flows

The following table summarizes our condensed consolidated cash flows for the
nine months ended September 30, 2022 and 2021.

Nine Months Ended September 30,                             2022           

2021

                                                               (in 

thousands)

Cash Flows Data:
Net cash provided by (used in) operating activities      $  5,442      $ (202,150)
Net cash provided by (used in) investing activities        82,477        (328,956)
Net cash (used in) provided by financing activities        (5,018)        641,022
Increase in cash and cash equivalents                    $ 82,901      $  109,916



Cash Requirements

Our cash requirements within the next twelve months include medical claims
payable, accounts payable and accrued liabilities, current liabilities, purchase
commitments, and other obligations. We expect the cash required to meet these
obligations to be primarily generated through cash flows from current operations
and cash available for general corporate use.

Operating Activities

Our largest source of operating cash flows is capitated payments from CMS. Our
primary uses of cash from operating activities are payments for medical benefits
and payments of operating expenses.

For the nine months ended September 30, 2022, net cash provided by operating
activities was $5.4 million, which reflects a net loss of $254.8 million
Non-cash activities included a $125.2 million charge to stock-based compensation
expense, $83.0 million of amortization of the 2022 premium deficiency reserve,
and a $10.2 million gain on investment related to the change in the equity
structure of Character Biosciences. Payments due to CMS related to our
Non-Insurance operations increased by $109.4 million. A prepayment of $96.4
million was received during the period from CMS for October 2022. Change in our
working capital included an increase in unpaid claims of $1.0 million.

For the nine months ended September 30, 2021, net cash used in operating
activities was $202.2 million, which reflects a net loss of $400.6 million.
Non-cash activities included a $66.1 million gain as a result of the change in
fair value of warrants payable and a $132.5 million charge to stock-based
compensation expense. Changes to our working capital included a $48.7 million
charge to our premium deficiency reserve and an increase of $13.2 million in
surety bonds and deposits related to Direct Contracting.

Investing Activities

Net cash provided by investing activities for the nine months ended September
30, 2022, of $82.5 million was primarily due to $360.2 million provided from the
sale and maturity of investment securities, offset by $276.8 million used to
purchase investments.

Net cash used in investing activities for the nine months ended September 30,
2021, of $329.0 million was primarily due to $705.6 million used to purchase
investment securities, partially offset by $377.1 million provided from the sale
and maturity of investment securities.

For additional information regarding our investing activities, please refer to
Note 3 (Investment Securities) to our condensed consolidated financial
statements included in this Form 10-Q.

Financing Activities

Net cash used in financing activities for the nine months ended September 30,
2022, of $5.0 million was primarily the result of the acquisition of $6.3
million in treasury stock.

Net cash provided by financing activities for the nine months ended September
30, 2021, of $641.0 million was primarily the result of $666.2 million in
proceeds from the reverse capitalization in connection with the Business
Combination, net of transaction costs, and $5.5 million in proceeds from the
issuance of common stock, partially offset by $30.9 million in principal
payments on our outstanding Term Loan Notes.
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Financing Arrangements

There have been no material changes to our financing arrangements as of
September 30, 2022, as compared to those disclosed in our 2021 Form 10-K.

Contractual Obligations and Commitments

We believe that funds from future operating cash flows, cash, and investments
will be sufficient for future operations and commitments, and for capital
acquisitions and other strategic transactions, over at least the next 12 months.

Material cash requirements from known contractual obligations and commitments as
of September 30, 2022 include: (1) the recognition of a performance guarantee of
$655.8 million in connection with the Company's participation in the DC Model,
(2) operating lease obligations of $6.3 million, and (3) the outstanding
principal balance related to the convertible note entered into by Seek, our
indirect wholly-owned subsidiary, on September 25, 2020, for an aggregate
principal amount of $20.0 million. These commitments are associated with
contracts that were enforceable and legally binding as of September 30, 2022,
and that specified all significant terms, including fixed or minimum serves to
be used, fixed, minimum, or variable price provisions, and the approximate
timing of the actions under the contracts. There were no other material cash
requirements from known contractual obligations and commitments. For additional
information regarding our remaining estimated contractual obligations and
commitments, see Note 8 (Notes and Securities Payable), Note 15 (Commitments and
Contingencies), and Note 16 (Non-Insurance) to Financial Statements in this
report, and Note 16 (Leases) in the 2021 Form 10-K.

Indemnification Agreements

In the ordinary course of business, we enter into agreements, with various
parties (providers, vendors, consultants, etc.), of varying scope and terms
pursuant to which we may agree to defend, indemnify, and hold harmless the other
parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or
other liability, and all related expenses which may accrue there from (including
reasonable attorney's fees), arising from or in connection with third party
claims, including, but not limited to, negligence, recklessness, willful
misconduct, fraud, or otherwise wrongful act or omission with respect to our
obligations under the applicable Agreement.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable
regulations of the SEC, that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures, or capital resources.

Critical Accounting Policies and Estimate

We believe that the accounting policies and estimates involve a significant
degree of judgment and complexity. There have been no significant changes in our
critical accounting policies and estimates during the three months ended
September 30, 2022, as compared to the critical accounting policies and
estimates disclosed in the section titled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the 2021 Form
10-K.

Recently Issued and Adopted Accounting Pronouncements

See Note 2 (Summary of Significant Accounting Policies) to the Financial
Statements in this report for a discussion of accounting pronouncements recently
adopted and recently issued accounting pronouncements not yet adopted and their
potential impact to our financial statements.