Q1 2024 Tiptree Inc Earnings Call

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Operator: Greetings and welcome to the Tiptree Inc. first quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott McKinney, Chief Financial Officer of Tiptree. Thank you, Scott. You may begin.

Greetings and welcome to the Tiptree, Inc. First quarter 'twenty 'twenty four earnings conference call.

Operator: At this time all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation.

Operator: Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded.

Operator: Now my pleasure to introduce your host Scott Mckinney, Chief Financial Officer for Tiptree. Thank.

Scott T. McKinney: Thank you Sir you may begin.

Scott T. McKinney: Good morning, and welcome to our first quarter 2024 earnings call. Joining me today are Michael Barnes, our executive chairman, and Jonathan Alani, CEO.

Scott T. McKinney: Good morning, and welcome to our first quarter 'twenty 'twenty four earnings call. Joining me today are Michael Barnes, our executive Chairman and Jonathan Alani CEO.

Scott T. McKinney: 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. In today's call, we will discuss non-GAAP financial metrics, which are described in more detail in our presentation. Reconciliations of these metrics and additional disclosures can be found in our SEC filings, the appendix to our presentation, and on our website. With that, I will turn the call over to Michael.

Scott T. McKinney: 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.

Michael: In today's call, we will discuss non-GAAP financial metrics, which are described in more detail in our presentation.

Scott T. McKinney: Reconciliations of these metrics and additional disclosures can be found in our SEC filings the appendix to our presentation and on our website with that I will turn the call over to Michael.

Michael Gene Barnes: Thank you, Scott, and good morning to everyone. As you may have seen in our earnings release yesterday evening, Tiptree had a great quarter and is off to an excellent start to the year. Revenues increased by 31%, and our collective businesses produced a 19.5% annualized adjusted return on equity. Protegra continued to deliver with $663 million of gross written premiums and equivalents while growing adjusted net income by 49% versus the first quarter of 2023. The combined ratio improved to 90 percent.

Michael: You, Scott and good morning to everyone.

Michael Gene Barnes: As you may have seen through our earnings release yesterday evening Chip tree had a great quarter and is off to an excellent start to the year.

Michael Gene Barnes: Revenues increased by 31% and our collective businesses produced a 19, 5% annualized adjusted return on equity.

Michael Gene Barnes: <unk> continued to deliver with $663 million of gross written premiums and equivalent.

Michael Gene Barnes: While growing adjusted net income by 49% versus the first quarter of 2023.

Michael Gene Barnes: The combined ratio improved to 90% demonstrating.

Michael Gene Barnes: Demonstrating consistent underwriting performance and continued efficiencies as the business grows. At the end of the quarter, Tiptree and Warburg Pincus contributed just under $40 million of capital to Protegra to fund future growth. The pipeline of opportunities remains very attractive, and we plan to continue to support the business in executing its growth plan. Tiptree Capital finished the quarter with $123 million of capital deployed across our mortgage origination and servicing, our Liquid Investment Portfolio, and Cash. At Reliance, the team has been resilient in weathering the impact of higher mortgage rates.

Michael Gene Barnes: Demonstrating the consistent underwriting performance and continued efficiencies as the business grows.

Michael Gene Barnes: At the end of the quarter chip tree and Warburg Pincus contributed just under $40 million of capital to protect Gras to fund future growth.

Michael Gene Barnes: Pipeline of opportunities remains very attractive and we plan to continue to support the business and executing its growth plan.

Michael Gene Barnes: Tiptree capital finished the quarter with 123 million of capital deployed across our mortgage origination and servicing business.

Michael Gene Barnes: Our liquid investment portfolio and cash App.

Michael Gene Barnes: The team has been resilient and rather and weathering the impact of higher mortgage rates in the first quarter volumes increased modestly compared to 2023, and the income and sustained market value of our retained servicing book led the business to profitability.

Michael Gene Barnes: In the first quarter, volumes increased modestly compared to 2023, and the income and sustained market value of a retained servicing book led the business to profitability. We maintain a positive outlook for the business with greater potential for future profit as mortgage rates stabilize. At Tiptree, our focus remains on identifying opportunities that will generate long-term, absolute return. With a strong start to 2024, we are in a good position to sustain our growth and have a positive outlook on the future of the company. With that, I'll turn the call over to Scott to discuss our financial results.

Scott: We maintain a positive outlook for the business with greater potential for future profit as mortgage rates stabilize.

Michael Gene Barnes: At <unk>, our focus remains on identifying opportunities that will generate long term absolute returns with a strong start to 2024, we are in a good position to sustain our growth and have a positive outlook for the future of the company with that I'll turn the call over to Scott to discuss our financial results.

Scott T. McKinney: Thank you, Michael. As you highlighted, we're off to a great start this year. For the quarter, Tiptree's revenues were up 27%, excluding unrealized gains and losses, driven by growth in earned premiums, fee-based service revenues, and improvement in net investment income. Consolidated net income of $9.1 million was driven by growth in our insurance operations and gains on the company's investment holding. Impacting the first quarter of 2024 and 2023 was $4.5 million and $2.3 million, respectively, of deferred tax expense related to the deconsolidation of Fortegra for tax purposes. This deferred tax liability would only be realized upon a sale of Fortegra.

Scott: Thank you Michael.

Scott: As you highlighted we're off to a great start to the year for.

Scott T. McKinney: For the quarter Chip <unk> revenues were up 27%, excluding unrealized gains and losses driven by growth in earned premiums fee based service revenues and improvement in net investment income.

Scott T. McKinney: Consolidated net income of $9 1 million was driven by growth in our insurance operations and gains on the company's investment Holdings, Inc.

Scott T. McKinney: Impacting the first quarter of 2024, and 2023 was $4 5 million and $2 3 million, respectively of deferred tax expense related to the deconsolidation of for Tegra for tax purposes. This deferred tax liability would only be crystallized upon a sale of for Tegra.

Scott T. McKinney: Adjusted net income for the quarter was $20.5 million, representing an increase of 63% compared to the prior year period. Our balance sheet remains well-positioned. We ended the quarter with a highly-rated liquid investment portfolio, substantial cash balances, and we continue to maintain a conservative position with respect to our lost reserves at the insurance company. An aggregate $39 million of capital was contributed to Fortegra in the quarter to support growth, with just over $29 million coming from Tiptree.

Scott T. McKinney: Adjusted net income for the quarter was $20 5 million, representing an increase of 63% compared to prior year period.

Scott T. McKinney: Our balance sheet remains well positioned we ended the quarter with a highly rated liquid investment portfolio substantial cash balances and we continue to maintain a conservative position with respect to our loss reserves at the insurance company.

Scott T. McKinney: In aggregate $39 million of capital was contributed to for Tegra in the quarter to support growth with just over 29 million coming from chip tree.

Scott T. McKinney: Turning to our insurance results for the quarter, gross written premiums and equivalents increased 7% year-over-year to $663 million, driven by growth in specialty E&S insurance lines. Excess and surplus lines represented 34% or just below $230 million of total premiums and grew at a 15% rate in the quarter. Partially offsetting that growth was the cancellation of certain contractual liability and alternative risk programs.

Scott T. McKinney: Turning to our insurance results for the quarter gross written premiums and equivalents increased 7% year over year to $663 million driven by growth in specialty E&S insurance lines.

Scott T. McKinney: Excess and surplus lines represented 34% or just below $230 million of total premiums and grew at a 15% rate in the quarter.

Scott T. McKinney: Partially offsetting that growth was the cancellation of certain contractual liability and alternative risk programs.

Scott T. McKinney: Net written premiums were $318 million, an increase of 13% driven by E&S lines, along with increased retention on our whole account quota share agreement from 30% to 40%, which went into effect on April 1st, 2023. Record revenues grew by 30% to $479 million, and the combined ratio improved by 1.3% to 90.3%, driven by improvements in both the underwriting and expense ratios. Annualized adjusted return on equity for the quarter was 28 percent, driven by growth, profitable underwriting, and the scalability of our technology-enabled platform.

Scott T. McKinney: Net written premiums were $318 million, an increase of 13% driven by E&S lines, along with increased retention on our whole account quota share agreement from 30% to 40%, which went into effect on April one 2023.

Scott T. McKinney: Record revenues grew by 30% to $479 million and the combined ratio improved by one 3% to 93% driven by improvements in both the underwriting and expense ratios.

Scott T. McKinney: Annualized adjusted return on equity for the quarter was 28% driven by growth profitable underwriting and the scalability of our technology enabled platform.

Scott T. McKinney: We continue to see robust submission activity and a healthy pipeline of new underwriting opportunities across our specialty lines.

Scott T. McKinney: We continue to see robust submission activity and a healthy pipeline of new underwriting opportunities across our specialty lines. The pricing environment remains favorable, with rate increases in both property and casualty lines in excess of anticipated loss cost trends.

Scott T. McKinney: Pricing environment remains favorable with rate increases in both property and casualty lines in excess of anticipated loss cost trends.

Scott T. McKinney: Flipping to the investment portfolio results, for the quarter, net investment income, when combined with interest on cash and cash equivalents, yielded $11 million, or roughly a 45% increase over the prior year. The portfolio ended the quarter at $1.3 billion, with 89% invested in a combination of high credit quality, liquid securities, and cash with an average S&P rating of AA. Our embedded book yield was 3.7% at quarter end, up approximately 70 basis points from the prior year, driven by higher yields on short-duration fixed income securities and money market funds.

Scott T. McKinney: Flipping to the investment portfolio results for the quarter net investment income when combined with interest on cash and cash equivalents yielded $11 million or roughly a 45% increase over prior year.

Scott T. McKinney: The portfolio ended the quarter at $1 3 billion with 89% invested in the combination of high credit quality liquid securities and cash with an average S&P rating of double a.

Scott T. McKinney: Our embedded book yield was three 7% at quarter end up approximately 70 basis points from the prior year driven by improving yields on short duration fixed income securities and money market funds.

Scott T. McKinney: With a duration of 2.7 years and 33% of the total portfolio in cash and equivalents, we believe we are well positioned to continue to drive the overall portfolio yield higher over the course of 2024. In this section, we include the next set of charts to display Fortegra's results over time. Gross written premiums and equivalents have grown 25% annually since 2019, primarily driven by organic growth. The combined ratio remains consistent in the low 90s, improving 3.6% over the past five years.

Scott T. McKinney: With a duration of two seven years and 33% of the total portfolio and cash and equivalents. We believe we are well positioned to continue to drive the overall portfolio yield higher over the course of 2024.

Scott T. McKinney: Each quarter. We include the next set of charts to display for Tegra as results overtime gross written premiums and equivalents have grown 25% annually since 2019, primarily driven by organic growth.

Scott T. McKinney: The combined ratio remains consistent in the low nineties, improving three 6% over the past five years as the business mix increasingly trends towards specialty P&C lines, you'll notice a rise in the loss ratio, which is more than offset by decreases in our acquisition ratio and operating expense ratio.

Scott T. McKinney: As the business mix increasingly trends towards specialty P&C lines, you'll notice a rise in the loss ratio, which is more than offset by decreases in our acquisition ratio and operating expense ratio. Adjusted net income climbed to a record $34 million for the quarter, delivering nearly 50% growth year-over-year. Looking ahead, we anticipate the continued hard market environment, in tandem with adding new agents and distribution partners, will continue to extend Fortegra's growth profile.

Scott T. McKinney: Adjusted net income climbed to a record $34 million for the quarter, delivering nearly 50% growth year over year.

Scott T. McKinney: Looking ahead, we anticipate the continued hard market environment in tandem with adding new agents and distribution partners will continue to extend <unk> growth profile.

Scott T. McKinney: Turning to Tiptree Capital, pre-tax income for the quarter was $3.7 million, driven by positive contributions from our mortgage operations and gains on other investments, partially offset by losses on investments. Mortgage originations for the quarter were $210 million, up 4% from the prior year.

Scott T. McKinney: Turning to Tiptree capital pre tax income for the quarter was $3 7 million driven by positive contributions from our mortgage operations and gains on other investments, partially offset by losses on invest.

Scott T. McKinney: Mortgage originations for the quarter were $210 million up 4% from the prior year.

Scott T. McKinney: As Michael mentioned, the servicing side of the business and active cost management over the past year has kept the business profitable in the current interest rate environment.

Scott T. McKinney: As Michael mentioned, the servicing side of the business and active cost management over the past year have kept the business profitable in the current interest rate environment. In April 2024, we sold our Invest shares, crystallizing the capital loss for tax purposes, representing approximately $108 million that can be used to offset any future taxable gain. Finally, we have provided investors with the information to calculate Tiptree's sum of the parts value, which takes into account a range of values for Fortegra, based on the multiple implied by Warburg's investment, as well as earnings multiples of relevant peers.

Scott T. McKinney: In April 2024, we sold our invest shares crystallizing the capital loss for tax purposes, representing approximately $108 million that can be used to offset any future taxable gains.

Scott T. McKinney: Finally, we have provided investors the information to calculate tip treats some of the parts value, which takes into account a range of values for for Tegra based on the multiple implied by warburg's investment as well as earnings multiples of relevant peers.

Scott T. McKinney: We continue to believe there is significant value in Fortegra as evidenced by the $127 million of trailing 12-month adjusted net income, which increased 48% versus the first quarter of 2023. With that, I'll pass the call back to Michael to wrap up our prepared remarks.

Scott T. McKinney: We continue to believe there is significant value in for Tegra as evidenced by the $127 million of trailing 12 month, adjusted net income, which increased 48% versus the first quarter 2023.

Scott T. McKinney: With that I'll pass the call back to Michael to wrap up our prepared remarks.

Michael Gene Barnes: Thanks, Scott. Once again, our specialty insurance business for Tegra delivered exceptional growth in the first quarter. The pipeline of new opportunities continues to build, and specialty market conditions remain favorable. We begin 2024 well-positioned, and we could not be more excited about Tiptree's future. And, as always, we at Tiptree continue to look for opportunities to allocate capital for long-term value creation.

Michael: Scott once again, our specialty insurance business for Tegra delivered exceptional growth in the first quarter. The pipeline of new opportunities continues to build and specialty market conditions remain favorable we begin 2024, well positioned financially and we could not be more excited about <unk> future and.

Michael Gene Barnes: As always we at Tiptree continue to look for opportunities to allocate capital for long term value creation.

Operator: I'd now like to turn the call back over to the operator for Q&A. Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Michael Gene Barnes: Now I'd like to turn the call back over to the operator for Q&A operator.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Thank you we will now be conducting a question and answer session. If you'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.

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Operator: One moment, please, while we poll for questions. Thank you. There are no questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: One moment, please while we poll for question.

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Operator: Thank you there are no questions at this time.

Operator: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Operator: Okay.