Tiptree Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022, compared mainly with 2021. This annual filing does not provide a standalone fourth-quarter income statement or other complete Q4 results.
Business context
Tiptree is a holding company with two reportable segments, Insurance and Mortgage, plus Tiptree Capital—Other and corporate activities. Its largest operating business is Fortegra, a specialty insurer and provider of service contracts. Other activities include residential mortgage origination and servicing, maritime transportation, and investments including Invesque.
Financial results and key metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,397.8 million | $1,200.5 million |
| Income before tax | $54.0 million | $65.3 million |
| Consolidated net income | $3.6 million | $44.1 million |
| Net income (loss) attributable to common stockholders | $(8.3) million | $38.1 million |
| Diluted EPS | $(0.23) | $1.09 |
| Adjusted net income (non-GAAP) | $63.4 million | $63.9 million |
| Adjusted EBITDA (non-GAAP) | $81.1 million | $100.8 million |
| Operating cash flow | $463.1 million | $204.3 million |
| Cash and cash equivalents, excluding restricted cash, at year-end | $538.1 million | $175.7 million |
| Total debt, net of financing costs | $259.4 million | $393.3 million |
| Total stockholders’ equity | $533.6 million | $400.2 million |
| Book value per share (non-GAAP) | $10.92 | $11.22 |
Revenue grew 16.4%. The common-stockholder loss, despite positive consolidated net income, reflects $11.8 million of income attributable to non-controlling interests and a $50.5 million tax provision. The 93.4% effective tax rate was unusually high, principally because Fortegra’s tax deconsolidation generated $33.1 million of tax expense in net income. Adjusted net income was nearly flat year over year; adjusted return on average equity declined to 13.6% from 16.5%.
Cash provided by investing activities was $9.5 million, versus $273.8 million used in 2021. Cash used in financing activities was $115.2 million, versus $73.7 million provided in 2021. The cash flow statement reports a $355.6 million increase in cash, cash equivalents and restricted cash; year-end total was $550.8 million, including restricted cash.
Segments and changes versus 2021
- Insurance: Revenue increased 26.9% to $1,248.8 million. Gross written premiums and premium equivalents rose 22.2% to $2.68 billion. The combined ratio was 90.7%, broadly stable from 90.6%; underwriting and fee growth was partly offset by investment losses. Segment pretax income declined 2.4% to $68.2 million, while adjusted net income rose 25.5% to $83.8 million.
- Mortgage: Revenue declined to $70.2 million from $111.3 million, and pretax income fell to $0.9 million from $28.4 million. Originations decreased 29.5% to $1.13 billion and gain-on-sale margin fell to 4.7% from 5.6%. A larger servicing portfolio and positive mortgage-servicing-rights (MSR) fair-value adjustments partly offset the downturn.
- Tiptree Capital—Other: Pretax income increased to $31.4 million from $17.2 million, mainly from vessel-sale gains and improved shipping rates, partly offset by Invesque valuation losses. Maritime pretax income was $49.8 million, including gains on vessel sales; Invesque’s reported loss was $16.0 million.
- Balance sheet and capital: Assets grew to $4.04 billion. Equity growth reflected the Fortegra investment and warrant exercises, while book value per share declined amid investment-related comprehensive losses, dividends and share issuance.
Transactions, outlook and risks
- In June 2022, Warburg invested $200 million in Fortegra for preferred stock, common stock and warrants. Tiptree retained approximately 79.5% ownership at year-end; Warburg held approximately 17.4%, before giving effect to warrant exercises and preferred-stock conversion. The transaction reduced Tiptree’s ownership below the threshold for Fortegra to remain in Tiptree’s consolidated tax group.
- Tiptree sold three dry bulk vessels and two product tankers for $116.7 million of proceeds and recorded a $34.8 million net gain. Fortegra acquired UK compliance-services provider ITC for approximately $15.0 million net cash plus an earn-out. In February 2023 it acquired Premia Solutions for approximately $20.8 million net cash.
- Management said cash, subsidiary distributions, financing access and investment sales were expected to support operations for at least the next 12 months and over the long term. The filing gives no specific earnings or revenue guidance. Management expected specialty insurance and service-contract growth, but warned elevated mortgage rates could continue to pressure origination volumes and profitability.
- Key exposures include rising interest rates and fixed-income unrealized losses, inflation-driven claims costs, reserve uncertainty, Invesque valuation and liquidity risk, reinsurance/counterparty and catastrophe risk, mortgage warehouse funding and margin calls, and regulatory, cybersecurity and foreign-currency risks. A 100-basis-point rate increase was estimated to reduce the fair value of interest-bearing investments by $24.8 million.
- The company is defending the Mullins class action involving credit life and disability coverage. In October 2022, the court ruled for plaintiffs on specified breach-of-contract and unjust-enrichment claims; the company appealed. A December 2023 trial was scheduled, and management said a reasonably possible loss range could not be estimated. Management did not expect the ultimate resolution to be materially adverse, but that outcome is uncertain.
- The filing reports an unqualified audit opinion and effective internal control over financial reporting. Unpaid claims and policy liabilities were the auditor’s critical audit matter because of the significant actuarial estimates involved.
Most important facts for investors to verify
- Reconcile the reported common-stockholder loss to consolidated net income, non-controlling interests, and the large one-time tax effect from Fortegra’s tax deconsolidation.
- Review the quality and sensitivity of insurance claim reserves, loss trends, combined ratio, and reinsurance recoverables as the business grows.
- Assess Fortegra’s capital, debt terms, Warburg’s consent rights and preferred-stock economics, and the ability to distribute cash to Tiptree under regulatory and contractual restrictions.
- Track mortgage originations, gain-on-sale margins, MSR valuation assumptions, warehouse renewals and exposure to higher rates or margin calls.
- Evaluate the liquidity and valuation of Invesque and other investments, the effects of fixed-income unrealized losses, and whether shipping gains recur after vessel disposals.
- Monitor the Mullins litigation and subsequent developments, including the appeal and any change in the company’s assessment of potential loss.