FG FINANCIAL GROUP, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our consolidated
financial statements and related notes and information included elsewhere in
this Quarterly Report on Form 10-Q and in our Annual Report for the year ended
("SEC") on
Unless context denotes otherwise, the terms "Company," "FGF," "we," "us," and
"our," refer to
Cautionary Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements are therefore entitled to the
protection of the safe harbor provisions of these laws. These statements may be
identified by the use of forward-looking terminology such as "anticipate,"
"believe," "budget," "can," "contemplate," "continue," "could," "envision,"
"estimate," "expect," "evaluate," "forecast," "goal," "guidance," "indicate,"
"intend," "likely," "may," "might," "outlook," "plan," "possibly," "potential,"
"predict," "probable," "probably," "pro-forma," "project," "seek," "should,"
"target," "view," "will," "would," "will be," "will continue," "will likely
result" or the negative thereof or other variations thereon or comparable
terminology. In particular, discussions and statements regarding the Company's
future business plans and initiatives are forward-looking in nature. We have
based these forward-looking statements on our current expectations, assumptions,
estimates, and projections. While we believe these to be reasonable, such
forward-looking statements are only predictions and involve a number of risks
and uncertainties, many of which are beyond our control. These and other
important factors may cause our actual results, performance, or achievements to
differ materially from any future results, performance or achievements expressed
or implied by these forward-looking statements, and may impact our ability to
implement and execute on our future business plans and initiatives.
Management cautions that the forward-looking statements in this Quarterly Report
on Form 10-Q are not guarantees of future performance, and we cannot assume that
such statements will be realized or the forward-looking events and circumstances
will occur. Factors that might cause such a difference include, without
limitation: general conditions in the global economy, including the impact of
health and safety concerns from the current COVID-19 pandemic; our lack of
operating history or established reputation in the reinsurance industry; our
inability to obtain or maintain the necessary approvals to operate reinsurance
subsidiaries; risks associated with operating in the reinsurance industry,
including inadequately priced insured risks, credit risk associated with brokers
we may do business with, and inadequate retrocessional coverage; our inability
to execute on our investment and asset management strategy, including our
strategy to invest in the risk capital of special purpose acquisition companies
(SPACs); potential loss of value of investments; risk of becoming an investment
company; fluctuations in our short-term results as we implement our new business
strategy; risks of being unable to attract and retain qualified management and
personnel to implement and execute on our business and growth strategy; failure
of our information technology systems, data breaches and cyber-attacks; our
ability to establish and maintain an effective system of internal controls; our
limited operating history as a public company; the requirements of being a
public company and losing our status as a smaller reporting company or becoming
an accelerated filer; any potential conflicts of interest between us and our
controlling stockholders and different interests of controlling stockholders;
potential conflicts of interest between us and our directors and executive
officers; volatility or decline in the value of the shares of FedNat Holding
Company common stock received by us as consideration in the sale of our
insurance business or limitations and restrictions with respect to our ownership
of such shares; risks of being a minority stockholder of FedNat Holding Company;
risks associated with our related party transactions and investments; and risks
associated with our investments in SPAC, including the failure of any such SPAC
to complete its initial business combination. Our expectations and future plans
and initiatives may not be realized. If one of these risks or uncertainties
materializes, or if our underlying assumptions prove incorrect, actual results
may vary materially from those expected, estimated or projected. You are
cautioned not to place undue reliance on forward-looking statements. The
forward-looking statements are made only as of the date hereof and do not
necessarily reflect our outlook at any other point in time. We do not undertake
and specifically decline any obligation to update any such statements or to
publicly announce the results of any revisions to any such statements to reflect
new information, future events or developments.
Overview
and asset management holding company. We focus on opportunistic collateralized
and loss-capped reinsurance, while allocating capital in partnership with
Fundamental Global®, and from time to time, other strategic investors, to SPAC
and SPAC sponsor-related businesses. The Company's principal business operations
are conducted through its subsidiaries and affiliates. The Company also provides
asset management services. From our inception in
2019
insurance throughout the states of
2019
current strategy focused on reinsurance and asset management.
As of
management company ("FG"), and its affiliated entities, including Ballantyne
Strong, Inc. ("BTN"), collectively beneficially owned approximately 58.8% of our
common stock.
Chief Executive Officer, Co-Founder and Partner of FG, and as Chairman of the
board of directors of BTN.
Sale of Insurance Business
On
FedNat Holding Company for a combination of cash and FedNat common stock. The
shares of FedNat common stock we received in the Asset Sale were issued to us
pursuant to a standstill agreement which provides certain limitations and
restrictions with respect to the voting and sale or transfer of the securities
until
FedNat common stock.
25
FG FINANCIAL GROUP, INC.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with
generally accepted accounting principles that involve a significant level of
estimation uncertainty and have had or are reasonably likely to have a material
impact on our financial condition or results of operations. Actual results may
differ materially from these estimates. The business and economic uncertainty
resulting from the coronavirus (COVID-19) pandemic has made such estimates and
assumptions difficult to calculate. Set forth below is qualitative and
quantitative information necessary to understand the estimation uncertainty and
the impact the critical accounting estimate has had or is reasonably likely to
have on financial condition or results of operations, to the extent the
information is material and reasonably available. Certain of these are described
in Note 2, Significant Accounting Policies, under the captions, "Investments in
Acquisition Costs," "Loss and Loss Adjustment Expense Reserves," and "Stock
Based Compensation."
Consolidation of Variable Interest Entities
The determination whether to consolidate a variable interest entity under GAAP
requires a significant amount of judgment concerning the degree of control over
an entity by its holders of variable interests. To make these judgments,
management has conducted an analysis, on a case-by-case basis, of whether we are
the primary beneficiary and are therefore required to consolidate the entity.
Upon the occurrence of certain events, such as modifications to organizational
documents and investment management agreements, management will reconsider its
conclusion regarding the status of an entity as a variable interest entity.
Valuation of Net Deferred Income Taxes
The provision for income taxes is calculated based on the expected tax treatment
of transactions recorded in the Company's consolidated financial statements. In
determining its provision for income taxes, the Company interprets tax
legislation in a variety of jurisdictions and makes assumptions about the
expected timing of the reversal of deferred income tax assets and liabilities
and the valuation of net deferred income taxes.
The ultimate realization of the deferred income tax asset balance is dependent
upon the generation of future taxable income during the periods in which the
Company's temporary differences reverse and become deductible. A valuation
allowance is established when it is more likely than not that all or a portion
of the deferred income tax asset balance will not be realized. In determining
whether a valuation allowance is needed, management considers all available
positive and negative evidence affecting specific deferred income tax asset
balances, including the Company's past and anticipated future performance, the
reversal of deferred income tax liabilities, and the availability of tax
planning strategies. To the extent a valuation allowance is established in a
period, an expense must be recorded within the income tax provision in the
consolidated statements of income and comprehensive income.
26
FG FINANCIAL GROUP, INC.
Recent Accounting Pronouncements
See Item 8, Note 3 - Recently Adopted and Issued Accounting Standards in the
Notes to the Consolidated Financial Statements for a discussion of recent
accounting pronouncements and their effect, if any, on the Company.
Analysis of Financial Condition
As of
Investments
See Note 4, Investments and Fair Value Disclosure, for information regarding the
Company's investments held at fair value as of
2021
Deconsolidation of Subsidiary
See Note 4, under the caption, "Deconsolidation of Subsidiary," for information
regarding deconsolidation of
Equity Method Investments
See Note 4, under the caption, "Equity Method Investments," for information
relating to the Company's investments accounted for under the equity method.
Investments without Readily Determinable Fair Value
See Note 4, under the caption, "Investments without Readily Determinable Fair
Value," for information relating to Company investments for which readily
determinable fair values do not exist.
Funds Deposited with Reinsured Companies
See Note 2, under the caption, "Funds Held by Cedents," for information relating
to FGRe's collateral deposits.
Reinsurance Balances Receivable
Reinsurance balances receivable were
to
Company under our quota-share agreements. As the Company estimates the ultimate
premiums, loss expenses and other costs associated with some of these contracts,
based on information received by us from the ceding companies, a significant
portion of this balance is based on estimates and, ultimately, may not be
collected by the Company.
Net Deferred Taxes
See Note 6, Income Taxes, for information relating to deferred income taxes.
27
FG FINANCIAL GROUP, INC.
Loss and Loss Adjustment Expense Reserves
See Note 5, Loss and Loss Adjustment Expense Reserves, for information relating
to loss and loss adjustment expense and judgments required for recording such
items.
Off Balance Sheet Arrangements
None. Shareholders' Equity
8.00% Cumulative Preferred Stock, Series A
On
194,580 shares of our preferred stock designated as 8.00% Cumulative Preferred
Stock, Series A, par value
for net proceeds of approximately
Preferred Stock shares outstanding as of
Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly on the 15th day of March, June,
September and December of each year, when, as and if declared by our Board of
Directors. Dividends are payable out of amounts legally available therefore at a
rate equal to 8.00% per annum per
share, or
Directors declared the second quarter 2022 dividend on the shares of Series A
Preferred Stock on
the
28
FG FINANCIAL GROUP, INC.
Common Stock
In the fourth quarter of 2021, we sold a total of 750,000 shares of our common
stock, at a price of
million
holders of its common stock. Pursuant to the rights offering, 691,735 shares
were subscribed for, for net proceeds of approximately
intends to use the net proceeds from the issuance of its common shares for
working capital and other general corporate purposes.
In
underwritten public offering, at a price of
approximately
respect to the public offering, partially exercised its overallotment option and
we sold an additional 71,770 shares of our common stock, at a price of 1.58 per
share, for net proceeds of
proceeds from the underwritten public offering for working capital and other
general corporate purposes.
Retirement of Treasury Stock
On
stock treasury shares owned by the Company. Accordingly, these shares have been
classified as authorized, but unissued shares on the Company's balance sheet, as
of
HIPPO HOLDINGS INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Home and Property Insurance Market May See Big Move : Allstate, Liberty Mutual, GEICO
Advisor News
- Goldman Sachs, others weigh in on what’s ahead for the market in 2025
- How is consumers’ investing confidence impacting the need for advisors?
- Can a balance of withdrawals and annuities outshine the 4% rule?
- Economy ‘in a sweet spot’ but some concerns ahead
- Trump, Capitol allies likely looking at quick cryptocurrency legislation
More Advisor NewsAnnuity News
Health/Employee Benefits News
- Medicaid coverage to end for millions if Trump cuts funding
- Health insurance enrollment deadlines approaching
- Studies from University of Wisconsin Describe New Findings in Insurance (Care Transition Management and Patient Outcomes In Hospitalized Medicare Beneficiaries): Insurance
- Shock poll: 41 percent of young voters find killing of UnitedHealthcare CEO acceptable
- Former Bright Health, once a Minnesota IPO darling, goes private in $1.3B deal
More Health/Employee Benefits NewsLife Insurance News