Tiptree Inc. Q1 2023 Earnings Call
During the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host got Mckinney Chief Financial Officer. Thank you. Mr. Mckinney you may begin.
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Good morning, and welcome to our first quarter 2023 earnings call joining us today are Michael Barnes, our executive Chairman and Jonathan Alani, our CEO .
A copy of our earnings release Investor presentation, and 10-Q are on our website <unk> dot com some of our comments today will contain forward looking statements and actual future results may differ materially.
Please see our most recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
During the call. This morning, we will discuss non-GAAP financial measures, which are described in more detail in our presentation.
Conciliations of these measures and other associated disclosures are contained in our SEC filings the appendix to our presentation and posted on our website with that I will turn the call over to Michael.
Thanks, Scott and good morning, everyone.
We were pleased with Tiptree start to 2023 with strong operating results, despite continuing uncertainty regarding interest rates and inflation.
Once again, our specialty insurance business for Tegra delivered exceptional growth in the first quarter and our balance sheet remains strong with substantial cash and no holding company debt.
Overall revenues for the quarter increased to $382 million up 17% from the prior year, while contributing adjusted net income of $17 million.
At <unk> the team continued to deliver with $750 million of gross written premiums up 25% from the prior year's first quarter, while producing an adjusted return on equity of 26%.
Growth was led by strength in specialty insurance lines and services business.
Okay.
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While excess and surplus lines continued to grow as a driver of the business with approximately $640 million of premiums over the last 12 months.
Greetings and welcome to the first quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
We have always placed a significant value on the consistency of <unk> performance and in the first quarter. We saw just that with a combined ratio of 91%, which was right in line with its five year average.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Scott Mckinney Chief Financial Officer. Thank you. Mr. Mckinney you may begin.
The prevailing environment of economic uncertainty market volatility and capital shortfalls and much of the insurance industry has.
Good morning, and welcome to our first quarter 2023 earnings call joining us today are Michael Barnes, our executive Chairman and Jonathan Alani, our CEO .
Has led to continued favorable market markets for specialty risks.
We anticipate this hard market environment to extend and view it as an opportunity for <unk> to grow as it has over the past several years.
Copy of our earnings release, Investor presentation, and 10-Q on our website to drink Dot com.
Some of our comments today will contain forward looking statements and actual future results may differ materially.
<unk> investment portfolio grew in line with premiums.
Please see our most recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
Ending the quarter with $1 $3 billion of investable assets.
With the front end of the yield curve, providing attractive current returns the portfolio book yield has increased while simultaneously maintaining a conservative risk profile.
During the call. This morning, we will discuss non-GAAP financial measures, which are described in more detail in our presentation.
Reconciliations of these measures and other associated disclosures are contained in our SEC filings the appendix to our presentation and posted on our website with that I will turn the call over to Michael.
Going forward, we believe the portfolio will be a more meaningful driver of profit.
In Tiptree capital, we now have approximately $220 million of capital deployed across our mortgage operations cash and publicly traded equities for which we take a long term view.
Thanks, Scott and good morning, everyone.
We were pleased with Tiptree start to 2023 with strong operating results, despite continuing uncertainty regarding interest rates and inflation.
Although our mortgage origination and servicing business experienced a modest loss for the first quarter management's proactive cost reduction and the appreciation of our servicing book have kept the business near breakeven over this past year, despite an unprecedented spike in interest rates.
Overall revenues for the quarter increased to $382 million up 17% from the prior year, while contributing to adjusted net income of $17 million.
As mortgage rates now appear to stabilize at these higher levels, we maintain a positive outlook for our mortgage business.
With significant cash balances on hand, we continue to look for opportunities to generate long term absolute returns.
Having no set holding period enable to take very long term views.
We believe we have a distinct competitive advantage to others seeking to allocate capital.
Starting out 2023 with a strong first quarter, we are well positioned to continue our growth and we maintain a positive outlook for the company.
With that I'll pass it to Scott for the financial update.
We have always placed a significant value on the consistency for Tegra is performance and in the first quarter. We saw just that with a combined ratio of 91%, which was right in line with its five year average.
Thank you Michael.
For the quarter, we continued to see strong revenue growth and a stable combined ratio it for Tegra <unk>.
The net loss of $1 1 million was a result of our insurance growth being more than offset by declines in mortgage volumes shipping revenues and the deferred tax expense posted on <unk> earnings at the Tiptree level.
The prevailing environment of economic uncertainty market volatility and capital shortfalls in much of the insurance industry as.
Has led to continued favorable market markets for specialty risks.
Excluding investment gains and losses revenues were up 16% driven by growth in insurance operations.
We anticipate this hard market environment to extend and view it as an opportunity for <unk> to grow as it has over the past several years.
Adjusted net income for the quarter was $17 million, representing a 13% annualized adjusted return on average equity.
<unk> investment portfolio grew in line with premiums ending the quarter with $1 3 billion of investable assets.
Book value per share of $10 91 increased by five 4% over prior year driven by the comprehensive income per share and the net increase to Tiptree stockholders' equity from the Warburg transaction in the second quarter of 2022.
With the front end of the yield curve, providing attractive current returns the portfolio book yield has increased while simultaneously maintaining a conservative risk profile.
We ended the quarter with over $400 million of cash and equivalents with roughly one quarter of that figure outside the insurance company.
Going forward, we believe the portfolio will be a more meaningful driver of profit.
In Tiptree capital, we now have approximately $220 million of capital deployed across our mortgage operation cash and publicly traded equities for which we take a long term view.
Turning to <unk> results for the quarter premiums and equivalents increased 25% year over year to $750 million driven by growth in excess and surplus lines and services offerings.
Although were mortgage origination and servicing business experienced a modest loss for the first quarter management's proactive cost reductions and the appreciation of our servicing book have kept the business near breakeven over this past year, despite an unprecedented spike in interest rates.
Revenues grew by 30% to $368 million and the combined ratio remained stable year over year at 91%.
Adjusted return on equity for the quarter was approximately 26% annualized.
We were pleased to see growth in all lines of business submission activity and the pipeline of new underwriting opportunities remained strong.
As mortgage rates now appear to stabilize at these higher levels, we maintain a positive outlook for our mortgage business.
We continue to invest in hiring hiring talented underwriters as well as our data science and artificial intelligence capabilities.
We believe pairing these two will produce better underwriting results and stickier relationships with our agents over the long term.
Having no set holding period and able to take very long term views.
We include the next set of charts each quarter. So you can see for Tegra is trends over time.
We believe we have a distinct competitive advantage to others seeking to allocate capital.
Gross written premiums and equivalents have increased 32% annually since 2019 with the vast majority coming from organic growth.
Starting out 2023 with a strong first quarter, we are well positioned to continue our growth and we maintain a positive outlook for the company with that I'll pass it to Scott for the financial update.
Many of <unk> products are multiyear policies, where premiums are earned over the life of the policy as written premiums increase earned premiums will likely lag and be recognized over future years.
Thank you Michael.
For the quarter, we continued to see strong revenue growth and a stable combined ratio it for tegra.
Unearned premiums and deferred revenue on the balance sheet ended the quarter at $2 1 billion up 18% year over year.
This unearned premium provides a solid base for <unk> future earnings.
Bolt on acquisitions have also contributed to roughly four percentage points of growth over the past several years all in the services side of the business.
Excluding investment gains and losses revenues were up 16% driven by growth in insurance operations.
We view these as excellent opportunities to deploy capital and build upon for Tegra specialty insurance platform.
In February of this year, we acquired a majority interest of Premier a leading auto warranty administrator in the U K for just under $23 million.
With Premier we have partnered with an experienced management team. We gained an extensive dealership network across the U K, our global administration capabilities are enhanced and we believe the growth profile of the business will contribute to <unk> expansion in Europe .
We ended the quarter with over $400 million of cash and equivalents with what roughly one quarter of that figure outside the insurance company.
The insurance investment portfolio ended the quarter at $1 3 billion up 42% year over year.
Turning to <unk> results for the quarter premiums and equivalents increased 25% year over year to $750 million driven by growth in excess and surplus lines and services offerings.
91% of the portfolio is invested in a combination of high credit quality liquid securities and cash with an average rating of double a.
The fixed income portfolio has a relatively short duration at two one years similar to our weighted average liability duration.
Revenues grew by 30% to $368 million and the combined ratio remained stable year over year at 91%.
Book yield stands at 3% at quarter end up from one 2% in the prior year driven by improving yields on money market funds and short duration fixed income securities.
In the quarter, we took advantage of the higher interest rate environment and deployed a greater portion of the portfolio into short dated U S treasuries.
We continue to invest in hiring hiring talented underwriters as well as our data science and artificial intelligence capabilities.
Without impacting credit quality, we believe there is an opportunity for a material improvement in investment income with the increase in interest rates and just over a quarter of the portfolio held in cash and equivalents.
We include the next set of charts each quarter. So you can see for Tegra is trends over time.
In summary over the last 12 months, where tegra posted record premiums of $2 8 billion and record adjusted net income of $85 6 million. It's differentiated platform has delivered excellent returns from insurance lines alone at an 18% return on equity and we continue to see significant.
Many of <unk> products are multi year policies, where premiums are earned over the life of the policy is written premiums increased earned premiums will likely lag and be recognized over future years.
Lift from warranty services, which contributed an additional eight points to the ROE.
Unearned premiums and deferred revenue on the balance sheet ended the quarter at $2 1 billion up 18% year over year.
Capital and liquidity remains robust for the company with a growing equity base strong cash flow from operations and the recent refinancing and extension of its $200 million revolving.
The revolving debt facility, we believe for Tegra is well positioned for future growth.
Flipping to Tiptree capital.
The pretax loss for the quarter was $1 1 million driven by a decline in mortgage origination volumes and the loss of income from the sale of five vessels in 2022.
In the first quarter mortgage volumes were down 43% as rising interest rates and declining affordability is impacted reliance as well as overall originations across the industry.
With Premier we have partnered with an experienced management team. We gained an extensive dealership network across the U K, our global administration capabilities are enhanced and we believe the growth profile of the business will contribute two for Tegra is expansion in Europe .
Our mortgage servicing portfolio and cost management measures provided stability in the quarter and we expect origination volumes and margins to normalize as we look ahead.
Each quarter, we highlight tiptree sum of the parts value, reflecting the impact of the investment in <unk>.
Based on the transaction multiple implicit in warburg's investment <unk> ownership before Tegra represents $20 88 per tiptree diluted share.
Included including our other holdings, we believe Tiptree is some of the parts value to be $26 70 per diluted share or more than $1 billion of value.
Now I will turn the call back to Michael to conclude our prepared remarks.
Thanks Scott.
As I previously stated we are pleased with Tiptree start to 2023.
<unk> growth and returns were excellent.
<unk> of new opportunities remains robust and specialty market conditions remain favorable as.
As we look forward, we see significant opportunities for future value creation for Tegra, resulting from a combination of a continuation of profitable underwriting and fees as well as increased investment income given a higher rate environment in.
In addition, we remain focused on deploying capital with the objective of creating long term shareholder value appreciation.
With that we will open the line for questions.
Thank you we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys one.
One moment, please while we poll for questions.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
There appear to be no questions at this time I would like to turn the floor back over to Scott for closing remarks.
Thank you Devin and thanks for everyone for joining US today. If you have any questions. Please feel free reach out to me directly and this concludes our conference call.
Based on the transaction multiple implicit in warburg's investment chip trees ownership before tegra represents $20.88 per tiptree diluted share.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Thank you we will now be conducting a question and answer session.