Q2 2020 Tiptree Inc Earnings Call
First half mortgage volumes were up 72% year over year with notable improvements in gain on sale margins driven by the low interest rate environment.
Our shipping operations held steady generating stable cash returns over the past year.
The reduction in second quarter demand impacted charter rates for dry bulk commodities. However, short term oversupply and oil markets led to demand for floating storage, increasing charter rates for product tankers.
While operations were quite positive profits within Tiptree capital were meaningfully impacted by unrealized mark to market losses on our investments on our investment in Invesco.
Like many companies operating in skilled nursing senior living and medical office sectors Invesco is taken steps to conserve liquidity, including suspending the dividend in April.
In the second quarter of 2020, Invesco is publicly reported underlying rental revenue collections of 90% of contractual amounts owed in April and 94% in may.
Overall to date, we have seen modest impact to our business operations from the economic Lockdown.
During these uncertain times, we believe our diverse set of businesses are well positioned to take advantage of opportunities in the second half of the year.
The balance of 2020 will no doubt continue to have many challenges.
But our commitment to our objectives of growing our insurance business enhancing our results in Tiptree capital and delivering superior long term risk adjusted returns for our shareholders remain will remain.
With that I'll pass it to Sandra who will take you through the financial results in more detail.
Thank you Michael.
On page four we present, the company's key metric for the second quarter 2020 compared to the prior year period.
Net income before non controlling interest for the quarter was 4.4 million.
Decrease as 7.8 million over the prior year, which was primarily driven by unrealized losses on our investment in in that.
Excluding investment gains and losses.
Revenues for the quarter were up 15%.
Driven by improvements in Tiptree insurance topline results, including revenues from our warranty acquisition.
Operating EBITDA for the quarter was 22.2 million up 75% from the prior year due to growth and Tiptree insurance operations.
Well as positive contributions from Tiptree capital, driven primarily by growth in volumes and margins in our mortgage business.
Operating EBITDA for the year to date period, with 38 million up 50% from the prior year period.
On the bottom of the page we show a loss from operating EBITDA to total pre tax income highlighting the key differences between the two metrics.
The value per share decreased to $9.97 year over year, driven primarily by unrealized mark to market losses, and dividends paid partially offset by share repurchases.
We are comfortable with our capital position and believe we have sufficient liquidity to support our businesses.
At quarter end cashing cash equivalents were 80.6 million.
70 million of which is held outside the statutory insurance entities.
In addition, subsequent to quarter end, we refinanced our revolving credit facility in our insurance business extending the maturity for three years and upsizing the amount to 200 million.
We expect to use seed added capacity to support continued organic growth as well as bolt on acquisition.
On page five we have additives slide highlighting certain caveat trends.
Operating EBITDA in the first half of 2020 was up 50% over the prior year.
Reflecting the stability of Tiptree insurance and growth in volumes and margins and our mortgage operations and Tiptree capital.
First half Twentytwenty premiums and premium equivalents, despite the second quarter softness in credit protection were up 23% led by the acquisition of Smart auto care and the growth in light commercial and other specialty programs.
And lastly, deferred revenues and unearned premiums, which represent future earnings potential topped 1 billion for the first time in Twentytwenty.
Turning to page six.
We highlight our capital allocated between Tiptree insurance and Tiptree capital along with their respective return to assist investors in understanding Tiptrees enterprise value.
When considering capital allocation decisions, we look at total capital, which includes corporate debt held at the holding company and at our insurance subsidiary.
We evaluate our return on capital using operating EBITDA, which for the latest 12 month period was 76.3 million.
35.5% from the latest 12 month period, ending Q2 2019.
Our total return of approximately 11% is driven by 12.9% return and Tiptree insurance.
In an 18.6% return and Tiptree capital.
The key drivers for the period, where growth in underwriting income and fee revenue in warranty service contracts and in light commercial specialty programs, including contributions from smart auto care for the first half of 2020.
Positive contributions from mortgage and shipping operations, and Tiptree capital and reduced corporate expenses expenses, driven primarily by lower incentive compensation.
The most recent 12 month period included approximately 9 million of dividends from our holdings on invest.
Our earnings from Tiptree capital will lose the benefit of approximately two and a half million per quarter, while invested dividend is suspended.
For the first half mortgage contribution more than offset the loss of the invest dividend highlighting some of the benefits that diverse business operations can bring to Tiptree capital.
With that let's turn to Tiptree insurances results for the second quarter.
On page eight we highlight our underwriting performance.
And then on the following page returns from the investment portfolio.
For the first half of 2020, we saw growth in sales volumes, driven by our warranty acquisition and growth in light commercial and other specialty programs.
For the first half of 2020 gross written premiums were 490 million up 6%.
Net written premiums decreased by 42 million, primarily driven by the softness in volumes and credit protection and the reinsurance transaction, we executed the end of 2019.
Credit protection premiums were down in the second quarter, driven by lower consumer credit growth, which also resulted in increased pay offs and cancellations.
Stimulus payments and enhance unemployment as part of the cares Act contributed to both factors.
Should growth in consumer credit continued to slow we would expect credit protection volumes to remain relatively soft through the balance of 2020.
For the six month underwriting margin was up 14.7 million or 21.7% and our combined ratio held steady at 92.6% demonstrating our ability to continue to grow profitably in our insurance business. Despite the economic.
Headwinds.
Unearned premiums and deferred revenue on the balance sheet stand at over 1 billion at the ended the quarter up 42.2% from this time last year, including 173 million from Smart Autocare.
As the economy's gradually reopen in the us in Europe, we'd expect to slowly returned to normalized growth rates.
Turning to the investment portfolio on page nine our net investments grew by 57 million year over year up 11.7%.
Holden liquid highly rated fixed income securities.
The average rating on that portion of the portfolios double play, which we believe should continue to provide sufficient support to our claims paying ability. Despite the current volatile markets.
Net portfolio loss was 16.9 million down approximately 35 million versus the prior year period, driven by unrealized and realized losses of 28 million on equities and other securities in the portfolio 12.2 million of which was related to invest.
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For the quarter net portfolio income was 12.8 million, representing a 2.4% return.
While we saw recoveries in certain of our portfolio securities in the second quarter.
We expect markets to continue to remain volatile.
On page 11, we present the results of Tiptree capital, which today consists of our invest shares shipping and mortgage operation.
For the first half of the year the pre tax loss was the result of unrealized losses on our invest shares.
Year to date operating EBITDA in Tiptree capital increased to 17.9 million, primarily driven by increased mortgage volumes and margins and a full quarter of operations from the vessels purchased in 2019 in our maritime shipping business.
We recognize the importance of liquidity and a strong balance sheet during periods of uncertainty like we are currently experiencing.
In the insurance investment portfolio, we continue to maintain a high proportion of the portfolio in liquid highly rated securities and cash for Justice reason.
Also we have continued improving.
Our overall liquidity profile.
By upsizing, extending the maturity of corporate facilities at the operating company in February and at Tiptree insurance in early August providing the assurance of operating liquidity and extending our earliest maturities our corporate debt facilities out to 2023.
Now, we will turn the call back to Michael to conclude our prepared remarks.
Thanks, Andrew.
As to Creek continues to navigate this challenging time I want to think are talented group of employees for their discipline focused on serving our customers and keeping our operations running smoothly.
While the economic disruption of the pandemic has impacted our financial performance in the first half of 2020.
We believe we are well positioned to whether the current challenges and continue our focus on the long term.
With that we will open the lines for questions.
Thank you ladies and gentlemen, we will now have our question answer session.
If you would like to ask your question. Please press star one on your telephone keypad.
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Any of those using speaker equipment that may be necessary for you to pick up your headset before pressing the star keys.
One moment, please while we now poll for questions.
As a reminder for audience if you would like to ask a question. Please.
Press Star one.
No no questions at this time I'd like to turn the floor back over to management for any closing remarks, you may now.
Thank you Mr.
Thank you everyone for joining us today.
Obviously, if you have any question. Please feel free to reach out to me directly. This include our conference call for the second quarter 2020.
Okay.
Okay great.
Yes.
Okay.