Third Quarter 2022
Third Quarter 2022
This presentation contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, should, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and uncertainties, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; downgrades in the financial strength rating of our regulated insurance subsidiaries impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition; the potential loss of key members of our management team or key employees and our ability to attract and retain personnel; adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both; the impact of a persistent high inflationary environment on our reserves, the values of our investments and investment returns, and on our compensation expenses; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform their reimbursement obligations, and our potential inability to demand or maintain adequate collateral to mitigate such risks; inadequacy of premiums we charge to compensate us for our losses incurred; changes in laws or government regulation, including tax or insurance law and regulations; the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company ("PFIC") rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to
Non-GAAP Financial Measures
This presentation contains non-GAAP financial measures as defined by Regulation G of the rules of the
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Market and Industry Data
This presentation includes market and industry data, forecasts and projections. We have obtained certain market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on historical market data, and there is no assurance that any of the forecasts or projected amounts will be achieved.
We seek to deliver a consistent, top tier retuon tangible
common equity and generate sector leading value creation for shareholders
- Unique franchise predominantly focused on the Excess and Surplus lines market and fronting and program business
- Target low volatility casualty risk with low retentions and little property exposure
- Focused on the small and middle market, where we have meaningful expertise and have earned superior returns over our 20 year history
- Highly efficient operator with leading expense ratio
- Disciplined underwriting culture that is focused on margins, while taking advantage of the current attractive market conditions to grow highly profitable business
- Enhanced enterprise risk management (ERM) profile, with a refined ERM framework and additional expertise brought to the organization
- Significantly de-risked balance sheet following reserve adjustments and loss portfolio transfer transactions, as well as additional capital raised
- We anticipate a low double digit retuon tangible common equity for 2022
- We are a specialty, low volatility underwriting company with an attractive, sizeable Excess & Surplus ("E&S") franchise and scaling "capital light" fronting business experiencing an extremely robust market for property and casualty risk.
- Little catastrophe or cyber underwriting exposure, and effective use of reinsurance to limit volatility.
- Our focus is small and medium sized commercial account E&S casualty business which we look to continue to complement with a growing fee business within our Specialty Admitted segment.
- Our balance sheet has been significantly de-risked by two loss portfolio transfer ("LPT") transactions on distinct books of business, as well as significant reserve strengthening, and capital raised, over the last 18 months.
Our Key Growth Opportunities
Specialty Admitted Segment
- Focus is on small and medium sized commercial account E&S casualty business; generally
$1.0MM per occurrence limits; ~$23,000average premium per policy
- Significant strength in current market environment
- The E&S segment has experienced 23 consecutive quarters of renewal rate increases; 61% CAGR over that time period
- Underwritten by specialists in 13 divisions and distributed through ~110 broker groups
PROFITABLE SPECIALTY UNDERWRITING
59% of 3Q 2022 LTM
- Segment includes (i) a growing, deal-driven,
"capital light" fee business that fronts admitted and non-admitted business and (ii) a targeted book of workers' compensation risks
- Business is scaling, as fee income grows and new programs are added, with a stable expense and capital base
- Experienced management team with a robust pipeline of new programs
- Gross fee income of
$24MM for 3Q 2022 LTM increased 12% compared to 3Q 2021 LTM
A FOCUS ON FEE INCOME
32% of 3Q 2022 LTM
- Segment being meaningfully downsized during 2022; expected to be less than 5% of Company GWP. Majority of legacy reserves significantly de-risked via LPT closed in
- Third-partyproportional and working-layer casualty business focused on small and medium
- Experiencing significant positive renewal rate increases similar to the E&S segment
- Loss mitigation features are widely utilized across the book
CONTINUED OPTIMIZATION IN 2022
9% of 3Q 2022 LTM
Note: Last twelve months ("LTM") for 3Q 2022 is the sum of 4Q 2021 through 3Q 2022, and for 3Q 2021 is the sum of 4Q 2020 through 3Q 2021.
(1) Underwriting profit is shown for Core E&S and excludes the commercial auto business.
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