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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-39392

TREAN INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware						84-4512647
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

150 Lake Street West

Wayzata, MN 55391

(Address of principal executive offices and zip code)

(952) 974-2200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

TIG

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value, as of June 30, ~~2021~~2022, of voting shares held by non-affiliates of the registrant was approximately $~~338~~139,~~889~~680,~~839~~681.

As of March 913, ~~2022~~2023, there were 51,~~176~~238,~~887~~218 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

~~Portions~~Items of10, ~~the~~11, ~~registrant's~~12, ~~definitive~~13 ~~Proxy~~and ~~Statement~~14 ~~for~~of ~~its~~Part ~~2022~~III of this Annual ~~Meeting~~Report ofon ~~Stockholders~~Form 10-K are incorporated by reference infrom ~~Items~~the registrant’s amendment to this Form 10,-K ~~11,~~to ~~12,~~be 13filed on Form 10-K/A with the Securities and 14Exchange ofCommission ~~Part~~no ~~III~~later than 120 days after the end of ~~this~~the ~~Annual~~registrant’s ~~Report~~fiscal onyear ~~Form~~covered ~~10-K~~by this report.

Table of Contents

TREAN INSURANCE GROUP, INC.

TABLE OF CONTENTS

		Page
Forward-Looking Statements		3
Summary Risk Factors		4
PART I
Item 1	Business	6
Item 1A	Risk Factors	28
Item 1B	Unresolved Staff Comments	4849
Item 2	Properties	4849
Item 3	Legal Proceedings	4950
Item 4	Mine Safety Disclosures	4950
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	5051
Item 6	Reserved	5152
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	5253
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	7473
Item 8	Financial Statements and Supplementary Data	7675
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~127~~124
Item 9A	Controls and Procedures	~~127~~124
Item 9B	Other Information	~~127~~124
Item 9C	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	~~127~~124
Part III
Item 10	Directors, Executive Officers and Corporate Governance	~~128~~125
Item 11	Executive Compensation	~~128~~125
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~128~~125
Item 13	Certain Relationships and Related Transactions and Director Independence	~~128~~125
Item 14	Principal Accountant Fees and Services	~~128~~125
PART IV
Item 15	Exhibits and Financial Statement Schedules	~~129~~126
Item 16	Form 10-K Summary	~~130~~128
Signatures		~~131~~129

Table of Contents

Forward-Looking Statements

This Annual Report on Form 10-K contains forward‑looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward‑looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward‑looking statements because they contain words such as "may"," "will"," "should"," "expects"," "plans"," "anticipates"," "could"," "intends"," "target"," "projects"," "contemplates"," "believes"," "estimates"," "predicts"," "would"," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These forward‑looking statements include, among others, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs and other similar matters. These forward‑looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

~~The~~Because ~~outcome~~such ofstatements ~~the~~are ~~events~~based ~~described~~on inexpectations ~~these~~as ~~forward‑looking~~to future financial and operating results and are not statements isof fact, actual results may differ materially from those projected and are subject to a number of known and unknown risks, and uncertainties, ~~assumptions~~including: ~~and~~(i) ~~other~~the ~~factors~~risk that the proposed Merger may not be completed in a timely manner or at all, which inmay ~~many~~adversely ~~cases~~affect ~~are~~our ~~beyond~~business and the price of our ~~control~~common stock, aspar ~~described~~value in$0.01 per share ("~~Item~~Common 1AStock"); —(ii) ~~Risk~~the ~~Factors"~~failure to satisfy any of the conditions to the consummation of the proposed transaction, including the adoption of the Merger Agreement by our stockholders and ~~elsewhere~~the receipt of certain regulatory approvals; (iii) the occurrence of any event, change, or other circumstance or condition that could give rise to the termination of the Merger Agreement, including in ~~this~~circumstances ~~Annual~~requiring ~~Report~~us onto ~~Form~~pay ~~10-K.~~a ~~Our~~termination ~~statements~~fee; ~~reflecting~~(iv) ~~these~~the ~~risks~~effect ~~and~~of ~~uncertainties~~the ~~are~~announcement ~~not~~or ~~exhaustive~~pendency of the proposed transaction on our business relationships, operating results, and ~~other~~business generally; (v) risks that the proposed transaction disrupts our current plans and ~~uncertainties~~operations; ~~may~~(vi) ~~currently~~Our ~~exist~~ability orto ~~may~~retain ~~arise~~and hire key personnel in light of the ~~future~~proposed ~~that~~transaction; ~~could~~(vii) ~~have~~risks ~~material~~related ~~effects~~to ondiverting management’s attention from our ongoing business, operations; ~~and~~(viii) ~~financial~~unexpected ~~condition.~~costs, Wecharges, ~~cannot~~or ~~assure~~expenses ~~you~~resulting ~~that~~from the ~~results~~proposed transaction; (ix) potential litigation relating to the Merger that could be instituted against us, ~~events~~Altaris, ~~and~~or ~~circumstances~~respective ~~reflected~~directors, inmanagers, or officers, including the ~~forward‑looking~~effects ~~statements~~of ~~reflected~~any inoutcomes ~~this~~related ~~Annual~~thereto; ~~Report~~(x) oncertain ~~Form~~restrictions ~~10-K~~during ~~and~~the pendency of the Merger that may impact our ~~other~~ability ~~public~~to ~~statements~~pursue certain business opportunities or strategic transactions; and ~~securities~~(xi) ~~filings~~unpredictability ~~will~~and beseverity ~~achieved~~of orcatastrophic ~~occur~~events, ~~and~~including ~~actual~~but ~~results~~not limited to acts of terrorism, ~~events~~war or ~~circumstances~~hostilities, ~~could~~or ~~differ~~pandemics, ~~materially~~including ~~from~~the ~~those~~COVID-19 ~~described~~pandemic, inas well as management’s response to any of the ~~forward‑looking~~aforementioned ~~statements~~factors.

The outcome of the events described in these forward‑looking statements is subject to risks, uncertainties, assumptions and other factors, which in many cases are beyond our control, as described in "Item 1A — Risk Factors," and elsewhere in this Annual Report on Form 10-K. Our statements reflecting these risks and uncertainties are not exhaustive, and other risks and uncertainties may currently exist or may arise in the future that could have material effects on our business, operations and financial condition. We cannot assure you that the results, events and circumstances reflected in the forward‑looking statements reflected in this Annual Report on Form 10-K and our other public statements and securities filings will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward‑looking statements.

You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed as exhibits to this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we currently expect. We qualify all of our forward‑looking statements by these cautionary statements.

The forward‑looking statements made in this Annual Report on Form 10-K speak only as of the date on which such statements are made. We undertake no obligation, and do not intend, to update any forward‑looking statements after the date of this Annual Report on Form 10-K or to conform such statements to actual results or revised expectations, except as required by applicable securities laws or other rules and regulations of the SEC.

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Summary Risk Factors

Our actual results may differ materially from those expressed in, or implied by, the forward‑looking statements included in this Annual Report on Form 10-K as a result of various factors. Our business is subject to numerous risks and uncertainties, including those highlighted in "Item 1A — Risk Factors"." These risks include the following:

Risks related to ~~COVID-19:~~the Proposed Merger

•WeThe proposed Merger may ~~experience~~not ~~disruptions~~be ~~related~~completed toin ~~COVID-19~~a timely manner or at all, ~~including~~which ~~economic~~may ~~impacts~~adversely ofaffect our business and the ~~COVID-19-related~~price ~~governmental~~of ~~actions~~our Common Stock;

•The failure to satisfy any of the conditions to the consummation of the proposed Merger, including the adoption of the Merger Agreement by our stockholders and the receipt of certain regulatory approvals;

•The occurrence of any event, change, or other circumstance or condition that could give rise to the termination of the Merger Agreement, including in circumstances requiring us to pay a termination fee;

•The effect of the announcement or pendency of the proposed Merger on our business relationships, operating results, and business generally;

•The proposed Merger may disrupt our current plans and operations;

•Our ability to retain and hire key personnel in light of the proposed Merger;

•Risks related to diverting management’s attention from our ongoing business operations;

•Unexpected costs, charges, or expenses resulting from the proposed Merger;

•Potential litigation relating to the proposed Merger that could be instituted against us, Altaris, or respective directors, managers, or officers, including the effects of any outcomes related thereto;

•Certain restrictions during the pendency of the proposed Merger that may impact our ability to pursue certain business opportunities or strategic transactions;

Risks related to our business and industry:

•Our Program Partners or our Owned MGAs may fail to properly market, underwrite or administer policies;

•We depend on a limited number of Program Partners for a substantial portion of our gross written premiums;

•Our business is subject to significant geographic concentration;

•We may suffer a downgrade in the A.M. Best financial strength ratings of our insurance company subsidiaries;

•We may be unable to accurately underwrite risks and charge competitive yet profitable rates to our clients and policyholders;

•Renewals of our existing contracts may not meet expectations;

•We may change our underwriting guidelines or our strategy without stockholder approval;

•We may act based on inaccurate or incomplete information regarding the accounts we underwrite;

•Our employees could take excessive risks;

•We may be unable to access the capital markets when needed;

•Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium;

•Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations;

•Negative developments in the workers’ compensation insurance industry could adversely affect our results;

•The insurance industry is cyclical in nature;

•Our failure to accurately and timely pay claims could harm our business;

•The effects of emerging claim and coverage issues on our business are uncertain;

•Our risk management policies and procedures may prove to be ineffective;

•If we are unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us, we may be required to bear increased risks or reduce the level of our underwriting commitments;

•We are subject to reinsurance counterparty credit risk. Our reinsurers may not pay on losses in a timely fashion, or at all;

•Some of our issuing carrier arrangements contain limits on the reinsurer's obligations to us;

•Retention of business written by our Program Partners could expose us to potential losses;

•Our loss reserves may be inadequate to cover our actual losses;

•We may not be able to manage our growth effectively;

•Our ability to grow our business will depend in part on the addition of new Program Partners, which may be unavailable;

•We could be harmed by the loss of one or more key executives or by an inability to attract and retain qualified personnel;

•Performance of our investment portfolio is subject to a variety of investment risks;

•Any shift in our investment strategy could increase the risk exposure of our investment portfolio;

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•We could be forced to sell investments to meet our liquidity requirements;

•We may face increased competition in our programs market;

•We compete with a large number of companies in the insurance industry for underwriting premium;

•Our results of operations, liquidity, financial condition and FSRs are subject to the effects of natural and man-made catastrophic events;

•Global climate change may in the future increase the frequency and severity of weather events and resulting losses;

•Because our business depends on insurance brokers, we are exposed to certain risks arising out of our reliance on these distribution channels;

•Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects;

•Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights;

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Technology risks:

•Technology breaches, failures or service interruptions of our or our business partners’ systems could harm our business and/or reputation;

•We may be unable to maintain third-party software licenses or errors in their software;

Legal and regulatory risks:

•We are subject to extensive regulation;

•Regulators may challenge our use of fronting arrangements in states in which our Program Partners are not licensed.

•Regulation may become more extensive in the future;

•Increasing regulatory focus on privacy issues and expanding laws may impair our operations;

•Our ability to receive dividends and permitted payments from our subsidiaries is subject to regulatory constraints;

•We may have exposure to losses from acts of terrorism;

•Assessments and premium surcharges may reduce our profitability;

•Changes in federal, state or foreign tax laws could adversely affect our financial results or market conditions;

•The discontinuance of LIBOR may adversely affect the value of certain investments we hold, assets and liabilities;

Risks related to our ~~common~~Common ~~stock~~Stock:

•Our stock price may be volatile or may decline regardless of our operating performance;

•Our principal stockholders are able to exert significant influence over us and our corporate decisions;

•~~Our~~Sales ~~principal~~or ~~stockholders~~issuances ~~could~~of ~~sell~~a ~~their~~substantial ~~interests~~amount inof usshares of our Common Stock may cause the market price of our Common Stock to adecline ~~third-party~~and inmake ait ~~private~~more ~~transaction~~difficult for investors to sell;

•Sales or issuances of a substantial amount of shares of our common stock may cause the market price of our common stock to decline and make it more difficult for investors to sell;

•We will incur significant increased costs as a result of operating as a public company;

•We currently do not anticipate declaring or paying regular dividends on our ~~common~~Common ~~stock~~Stock;

•Provisions in our organizational documents, Delaware corporate law, state insurance laws and certain of our contractual agreements and compensation arrangements may prevent or delay an acquisition of us;

•Our principal stockholders have no obligation to offer us corporate opportunities;

Risks related to our status as an emerging growth company:

•We have elected to take advantage of reduced disclosure requirements and other exemptions;

•We have elected to use the extended transition period for complying with new or revised accounting standards;

General risk factors:

•~~Changes~~We are subject to certain general risks, including, but not limited to risks related to changes in our accounting practices and future pronouncements, ~~may~~our ~~materially~~inability ~~affect~~to maintain effective internal controls, the effects of litigation on our ~~reported~~business, ~~financial~~and ~~results;~~the Court of Chancery of the State of Delaware serving as the exclusive forum for certain disputes, that could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

•If we are unable to maintain effective internal controls, our financial reporting could suffer;

•The effects of litigation on our business are uncertain;

•The Court of Chancery of the State of Delaware is the exclusive forum for certain disputes which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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PART I

Item 1. Business

Trean Insurance Group, Inc. ("we" or the "Company") is an established, growth-oriented company providing products and services to the specialty insurance market. Historically, we have focused on specialty casualty markets that we believe are underserved and where our expertise allows us to achieve higher rates, such as niche workers’ compensation markets and small- to mid-sized specialty casualty insurance programs. We underwrite specialty casualty insurance products both through our program partners ("Program Partners") and Owned Managing General Agents ("Owned MGAs"). We also provide our Program Partners with a variety of services including issuing carrier services, claims administration and reinsurance brokerage, from which we generate recurring fee-based revenues. We believe the business that we target is generally subject to less competition and has better pricing, which we believe allows us to generate higher risk-adjusted returns. We believe many of our target markets are experiencing strong secular tailwinds and consequently are growing more quickly than the broader market.

We believe that a number of differentiating factors have contributed to our ability to achieve results and growth that historically have outperformed the broader insurance industry. We believe our multi-service value proposition represents a competitive advantage in our target markets, drives deep integration with our Program Partners and allows us to generate more diversified revenue streams. We seek to carefully identify and select our Program Partners, ensure we have closely aligned interests, and grow and expand these relationships over time. We believe we have a competitive advantage in claims management for longer-tailed lines, specifically workers’ compensation, where our in-house capabilities and differentiated philosophy enable us to have lower claims costs and to settle claims more quickly than many of our competitors. Our business strategy is supported by robust controls surrounding program design and underwriting, ongoing monitoring and reinsurance and collateral management as evidenced by our "A" (Excellent) financial strength rating, with a stable outlook, by A.M. Best Company ("A.M. Best"), a leading rating agency for the insurance industry. This rating is based on matters of concern to policyholders and is not designed or intended for use by investors in evaluating our securities. Our management team has decades of insurance industry experience across underwriting as well as program administration, reinsurance, claims and distribution.

The Company and its subsidiaries are licensed to write business across 49 states and the District of Columbia. We seek to write business in states through select distribution outlets with the potential for attractive underwriting margins, and focus on markets with higher than average premium growth trends. California, Texas and Michigan are our largest markets, representing approximately 2825%, 1314% and 7%, respectively, of our gross written premiums for the year ended December 31, ~~2021~~2022.

Pending Merger

As previously disclosed, on December 15, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Treadstone Parent Inc., a Delaware corporation (“Parent”), and Treadstone Merger Sub Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of the Company by affiliates of Altaris Capital Partners, LLC, a Delaware limited liability company (“Altaris”), subject to the terms and conditions set forth in the Merger Agreement. Certain investment funds managed by Altaris control Parent and Merger Sub and affiliates of Altaris owned approximately 47% of our outstanding Common Stock as of December 31, 2022. Accordingly, the Merger is considered a “going-private” transaction under the SEC’s rules.

Pursuant to the terms of the Merger Agreement and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”) effective as of the effective time of the Merger (the “Effective Time”). As a result of the Merger, Merger Sub will cease to exist, and the Company will survive as a wholly-owned subsidiary of Parent. Further, following the Merger, our Common Stock will no longer be publicly traded. In addition, our Common Stock will be delisted from Nasdaq and deregistered under the Exchange Act, in each case, in accordance with applicable laws, rules and regulations, and we will no longer file periodic reports with the SEC on account of our Common Stock.

As a result of the Merger, at the Effective Time, subject to any applicable withholding taxes, each share of our Common Stock, issued and outstanding immediately prior to the Effective Time, other than Cancelled Shares (as defined in the Merger Agreement) and Dissenting Shares (as defined in the Merger Agreement), will be converted into the right to receive $6.15 in cash, without interest.

The consummation of the Merger is subject to the satisfaction or waiver of various customary conditions set forth in the Merger Agreement, including, but not limited to: (i) the adoption of the Merger Agreement and approval of the Merger and

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the other transactions by (x) the holders representing a majority of the aggregate voting power of the outstanding shares of Company Common Stock beneficially owned by the Unaffiliated Stockholders (as defined in the Merger Agreement) entitled to vote thereon as well as (y) the holders representing a majority of the aggregate voting power of the outstanding shares of Company Common Stock entitled to vote thereon; (ii) all required insurance regulatory approvals (or the applicable regulatory authorities’ non-objection to requests for exemptions in respect thereof) shall have been obtained; (iii) the expiration or termination of any applicable waiting period (or any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (iv) the absence of any restraint or law preventing or prohibiting the consummation of the Merger; (v) the accuracy of Parent’s, Merger Sub’s, and the Company’s representations and warranties (subject to certain materiality qualifiers); (vi) Parent’s, Merger Sub’s, and the Company’s compliance in all material respects with their respective obligations under the Merger Agreement; and (vii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement.

Merger-related expenses recognized during the year ended December 31, 2022 were approximately $3,081 and are included in other expenses in the consolidated statements of operations.

See “Part I—Item 1A Risk Factors—Risks Related to the Proposed Merger” for a discussion of certain risks related to the Merger.

History

We were founded in 1996 as a reinsurance broker and MGA that targeted smaller, underserved insurance providers writing niche classes of business, predominantly workers’ compensation, accident and health, and medical professional liability.

In 2003, we purchased Benchmark Insurance Company ("Benchmark"), which was licensed in 41 states and the District of Columbia and provided us with an insurance carrier with a financial strength rating of "A-" from A.M. Best. Beginning in 2007, we successfully repositioned Benchmark as a specialty insurance carrier for select, high-performing small- to mid-sized Program Partners. Benchmark is now licensed in 49 states and has an "A" rating from A.M. Best.

In July 2015, we sold an equity stake of 36.4% to certain entities affiliated with Altaris Capital Partners, LLC, a private equity firm (collectively, the "Altaris Funds"). The Altaris Funds subsequently made additional equity investments and owned approximately 47% of our ~~Company's~~Common ~~outstanding~~Stock ~~common stock~~ as of December 31, ~~2021~~2022.

We have historically made equity investments in or acquired long-term partners where we believe they can add substantial value to our business. In 2013, we acquired S&C Claims Services, which, prior to the acquisition, had been handling our workers’ compensation claims for over 10 years. In 2017, we acquired American Liberty Insurance Company, Inc. ("ALIC"), a Utah-domiciled insurance company that was a former Program Partner and writes workers’ compensation insurance. ALIC is licensed or eligible to conduct insurance business, and therefore subject to regulation and supervision by insurance regulators, in 38 states and the District of Columbia. In 2018, we acquired ownership interests in two additional Program Partners: (i) a 45% common equity ownership in Compstar Holding Company LLC, the parent company of Compstar Insurance Services, LLC, an MGA underwriting workers’ compensation insurance coverage for California contractors; and (ii) a 100% ownership of Westcap, an MGA underwriting general liability insurance coverages for California contractors. In 2020, we acquired: (i) the remaining equity interest in Compstar Holding Company LLC; and (ii) a 100% ownership interest in 7710 Insurance Company ("7710"), a South Carolina-domiciled insurance company that was a former Program Partner and writes workers' compensation insurance, along with its associated program manager and agency. 7710 is licensed or eligible to conduct insurance business, and therefore subject to regulation and supervision by insurance regulators, in 9 states. In 2021, we acquired Western Integrated Care, LLC ("WIC"), a managed care organization that offers services to workers' compensation insurers to enable employees who are injured on the job to access qualified medical treatment.

6On July 20, 2020, we closed the sale of 10,714,286 shares of our Common Stock in our Initial Public Offering ("IPO"), comprised of 7,142,857 shares issued and sold by us and 3,571,429 shares sold by selling stockholders pursuant to a registration statement on Form S-1 (File No. 333-239291), which was declared effective by the SEC on July 15, 2020. On July 22, 2020, we closed the sale of an additional 1,207,142 shares by certain selling stockholders in the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares to cover over-allotments. The IPO terminated upon completion of the sale of the above-referenced shares.

On May 19, 2021, we closed the sale of 5,000,000 shares of our Common Stock, comprised entirely of shares sold by selling stockholders. We did not receive any proceeds from the sale of shares of our Common Stock by the selling stockholders in

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ofthis ~~Westcap,~~offering. anAs ~~MGA~~a ~~underwriting~~result ~~general~~of ~~liability~~this ~~insurance coverages for California contractors. In 2020~~offering, ~~we acquired: (i)~~ the ~~remaining~~Altaris ~~equity~~Funds ~~interest~~no inlonger ~~Compstar~~beneficially ~~Holding~~own ~~Company~~more ~~LLC;~~than ~~and (ii) a 100~~50% ~~ownership~~of ~~interest~~our inCommon ~~7710 Insurance Company ("7710")~~Stock, ~~a South Carolina-domiciled insurance company that was a former Program Partner~~ and writes workers' compensation insurance, along with its associated program manager and agency. 7710 is licensed or eligible to conduct insurance business, and therefore subject to regulation and supervision by insurance regulators, in 9 states. In 2021, we ~~acquired~~are ~~Western~~no ~~Integrated~~longer ~~Care,~~a ~~LLC~~"controlled (company"~~WIC"),~~ awithin ~~managed~~the ~~care~~meaning ~~organization~~of ~~that offers services to workers' compensation insurers to enable employees who are injured on~~ the ~~job~~Nasdaq tolisting ~~access qualified medical treatment~~rules.

On July 20, 2020, we closed the sale of 10,714,286 shares of our common stock in our Initial Public Offering ("IPO"), comprised of 7,142,857 shares issued and sold by us and 3,571,429 shares sold by selling stockholders pursuant to a registration statement on Form S-1 (File No. 333-239291), which was declared effective by the SEC on July 15, 2020. On July 22, 2020, we closed the sale of an additional 1,207,142 shares by certain selling stockholders in the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares to cover over-allotments. The IPO terminated upon completion of the sale of the above-referenced shares.

On May 19, 2021, we closed the sale of 5,000,000 shares of its common stock, comprised entirely of shares sold by selling stockholders. We did not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering. As a result of this offering, the Altaris Funds no longer beneficially own more than 50% of the outstanding common stock of the Company, and we are no longer a "controlled company" within the meaning of the Nasdaq listing rules.

Our structure

The chart below displays our corporate structure:

Trean Insurance Group, Inc.

Trean Compstar Holdings LLC

Trean Corporation

Benchmark Holding Company

Compstar Insurance Services LLC

Trean Corporation

Benchmark Holding Company

Compstar Holding Company LLC

Trean Reinsurance Services LLC

Benchmark Administrators LLC

Western Integrated Care LLC

Westcap Insurance Services LLC

Benchmark Insurance Company

American Liberty Insurance Company

Trean Reinsurance Services LLC

Benchmark Administrators LLC

Western Integrated Care LLC

Westcap Insurance Services LLC

Benchmark Insurance Company

American Liberty Insurance Company, Inc.

Benchmark Specialty Insurance Company

7710 Insurance Company

Compstar Insurance Services LLC

Our competitive strengths

We believe that our competitive strengths include:

Expertise and focus in underserved specialty casualty insurance markets. We focus on select markets that we believe are underserved and where we can achieve higher rates, including niche workers’ compensation markets and small- to mid-sized specialty casualty insurance programs. WeHistorically, ~~believe~~ we have had few competitors in our target markets due to the specialized knowledge, broad licensing and filing authority requirements and complex operational systems necessary to profitably manage these traditionally longer-tailed lines of business. We believe that most other companies of our size and smaller do not possess these capabilities to the degree needed to be competitive with us, while most larger companies that do have the required expertise and capabilities in these areas tend not to participate in our target markets because their business models eschew the type of customized solutions that are needed when working with smaller, more entrepreneurial partners.

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Multi-service value proposition for our partners. We believe that our focus on the needs of smaller accounts and the breadth of products and services we offer allow us to better serve the needs of our Program Partners and provide us with greater revenue and profit opportunities. We offer our Program Partners reinsurance brokerage, claims administration, underwriting capacity and, in particular, access to our A.M. Best "A" financial strength rating through issuing carrier services. Our ability to leverage our licenses across multiple products in 49 states and the District of Columbia allows us to provide a national multi-service solution for our Program Partners. Our multi-service offering enables us to develop deep relationships with our Program Partners.

Long-term, carefully selected and aligned relationships with Program Partners. We carefully select the Program Partners we choose to do business with, and design our programs to align risks between parties. We select programs with the intention of building long-term relationships, where our business philosophies align and our Program Partners can grow alongside us. Our management team carefully evaluates potential new programs in conjunction with our underwriting and actuarial departments. We only accept programs that meet our stringent underwriting and actuarial requirements. For the year ended December 31, ~~2021~~2022, we declined approximately 9694% of the new opportunities that we evaluated. For every Program Partner we select, we work with them to appropriately align interests and to establish rigorous ongoing reporting and auditing requirements upfront.

Differentiated in-house claims management. We believe that proactively managing our claims, while also accurately setting reserves, is a key aspect of keeping our losses low. In our workers’ compensation business, our claims philosophy is to provide an injured employee high-quality medical care as quickly as possible in order to reduce pain, accelerate healing and lead to a faster and more complete recovery.

Once an injured employee has healed, we aim to settle the claim and obtain a full and complete release of the claim at the earliest opportunity. In California, for the claim year ended December 31, 2020, valued as of December 31, 2021, our average medical cost for the workers' compensation market was $9,030 per claim compared to the California workers' compensation industry average of $27,940, as reported by the Workers' Compensation Insurance Rating Bureau ("WCIRB") at September 30, 2021. For the claim year ended December 31, 2020, we also closed 65% of our workers' compensation claims in California within the calendar year following the accident year, compared with the industry average of 34%, as reported by the WCIRB at September 30, 2021. To provide our policyholders these processing results, we currently average 93 open claims per claims adjuster. In comparison, the 2020 Workers’ Compensation Benchmarking Study by Rising Medical Solutions found that 61% of third-party administrators ("TPAs") had over 100 open claims per claims adjuster.

Significant fee-based income. Our business model generates significant fee-based income from multiple sources including issuing carrier services, claims administration and reinsurance brokerage. For the years ended December 31, 2021, 2020 and 2019, our fee-based income accounted for approximately 4.7%, 5.9% and 8.6% of total revenue, respectively. All of our fee-based income accrues outside of our regulated insurance companies, which we believe enhances our organization’s financial flexibility and increases the visibility of our earnings. Within our insurance companies, we cede a significant portion of the risk we originate to our reinsurance partners. These agreements enable us to maintain broader relationships with our Program Partners than our current capital base would otherwise enable. We believe that our strategy has allowed us to scale our business and provides a consistent fee-based income stream to complement our profitable underwriting business, thus providing us with greater revenue opportunities from our Program Partners than we would be able to access in a traditional insurance underwriter model.

Disciplined risk management across our organization. Our disciplined approach to risk management begins with the extensive due diligence performed during our Program Partner selection process and continues throughout the relationship. We have rigorous ongoing controls and reporting requirements, including with respect to underwriting and ongoing Program Partner diligence. Similarly, we maintain rigorous controls over our reinsurance exposures by maintaining stringent collateral requirements to limit our credit exposure. As a result of providing multiple services to our Program Partners, we have numerous touch points and are in regular communication regarding underwriting, claims handling, reinsurance placement and collateral management, which we believe enhances our ability to manage risks to our organization.

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Once an injured employee has healed, we aim to settle the claim and obtain a full and complete release of the claim at the earliest opportunity. In California, for the claim year ended December 31, 2021, valued as of December 31, 2022, our average medical cost for the workers' compensation market was $10,110 per claim compared to the California workers' compensation industry average of $30,691, as reported by the Workers' Compensation Insurance Rating Bureau ("WCIRB") at September 30, 2022. For the claim year ended December 31, 2022, we closed 41% of our workers' compensation claims in California within twelve months, compared with the industry average of 33%, as reported by the WCIRB for the year ended December 31, 2021. To provide our policyholders these processing results, we currently average 84 open claims per claims adjuster. In comparison, the 2020 Workers’ Compensation Benchmarking Study by Rising Medical Solutions found that 61% of third-party administrators ("TPAs") had over 100 open claims per claims adjuster.

Significant fee-based income. Our business model generates significant fee-based income from multiple sources including issuing carrier services, claims administration and reinsurance brokerage. For the years ended December 31, 2022, 2021 and 2020, our fee-based income accounted for approximately 2.7%, 4.7% and 5.9% of total revenue, respectively. All of our fee-based income accrues outside of our regulated insurance companies, which we believe enhances our organization’s financial flexibility and increases the visibility of our earnings. Within our insurance companies, we cede a significant portion of the risk we originate to our reinsurance partners. These agreements enable us to maintain broader relationships with our Program Partners than our current capital base would otherwise enable. We believe that our strategy has allowed us to scale our business and provides a consistent fee-based income stream to complement our underwriting business, thus providing us with greater revenue opportunities from our Program Partners than we would be able to access in a traditional insurance underwriter model.

Entrepreneurial and highly experienced management team. Our management team is highly experienced with decades of experience in specialty insurance markets. In addition to this significant industry experience, our team has a long history of continuity in our business. Our business has been led by our Executive Chairman of the Board and founder Andrew M. O’Brien, who previously served as our Chief Executive Officer from our inception in 1996 through July 2022. Effective in July 2022, the role of Chief Executive Officer was assumed by Julie A. Baron, who served in previous roles as President and Chief Operating Officer, Treasurer and Chief Financial Officer, and Controller of Benchmark since joining the Company in 2007.

Our strategy

We believe that our approach will allow us to continue to achieve our goals of both growing our business and generating attractive returns. Our strategy involves:

Growing within our existing markets. We focus on lines of business that have large markets, including workers' compensation with $51 billion of premiums and all of our other lines of business written with $~~345~~338 billion in premiums in the United States in ~~2020~~2021 according to S&P Global. By comparison, we generated $~~634~~651.23 million, $~~484~~634.2 million and $~~411~~484.42 million of gross written premiums for the years ended December 31, ~~2021~~2022, ~~2020~~2021 and ~~2019~~2020, respectively. We select Program Partners operating in our target markets with whom we believe we can partner to grow within these significant markets. In addition, Benchmark Specialty Insurance Company ("BSIC"), which was created in 2021, ~~will~~writes ~~write~~ specialty/niche products through separate program partners, which will provide the group with expanded geographic diversification, rate flexibility and new product offerings on a non-admitted basis opening the excess and surplus lines ~~$66.1 billion~~ market.

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Given the size of our markets, we believe that we have ample room to continue to grow our business organically for the foreseeable future. Additionally, as we grow our premiums and capital, we expect to continue to optimize our reinsurance program to drive our risk-adjusted returns.

Selectively adding new Program Partners. We have been selective in choosing our current Program Partners, and will continue to ensure that new Program Partners share our business philosophy and meet our underwriting and returns criteria. We focus on specialty lines and will continue to add programs in these markets. However, we also continue to evaluate potential partnerships in additional lines of business that will leverage our core competencies and provide us with new revenue opportunities.

Opportunistically grow and maintain our Owned MGA business through acquisitions. From time to time, we may have the opportunity to deepen our relationships with our existing Program Partners by acquiring equity interests from their management teams. Since 2013, we have successfully completed nine acquisitions of companies with which we have had prior relationships. Seven of these companies write premiums which represented more than 4036% of our gross written premiums for the year ended December 31, ~~2021~~2022.

Strengthen and harness our strong and growing capital base. Despite our relatively modest historical balance sheet, we have grown our premiums through the significant use of reinsurance. As our capital base has grown, new opportunities have emerged for us. Of particular note, in 2019, A.M. Best upgraded our insurance companies from an "A-" to an "A" (Excellent) (Outlook Stable) financial strength rating, which we believe differentiates us in the markets in which we operate. As we continue to grow, we believe that we will have the opportunity to access additional business and to retain more profitable business that we have historically ceded to the reinsurance markets.

Maintaining our focus on long-term profitability and growth. Our competitive advantages, including our focus on underserved markets, have enabled us to grow our gross written premiums to $~~634~~651.23 million for ~~2021~~2022 at a ~~CAGR~~compound annual growth rate of 2724.90% since 2015, while maintaining an average return on equity of approximately 1914% and an average adjusted return on equity of approximately 1715% for the same time period. As we seek to grow our business, we remain disciplined in targeting classes of business and markets where we believe we can generate attractive returns. Rather than make decisions based on where we are in the market cycle, we focus on selecting high-quality programs, only pursuing opportunities that we expect to meet our pricing and risk requirements over the long-term. We will not participate in markets where we do not believe our business model can add incremental risk-adjusted value.

Maintain disciplined controls over our key business risks. In order to maintain our underwriting profitability, we have systematic underwriting and risk monitoring processes across our business. We believe our risk management is enhanced by the fact that we provide multiple services to many of our Program Partners and thus are in regular communication with them regarding underwriting, claims handling, reinsurance placement and collateral management. We seek to swiftly identify, correct and, if necessary, terminate relationships with Program Partners that are not producing targeted underwriting results, writing exposures outside of agreed upon risk tolerances or not meeting their collateral or other commitments to us.

Products and services

We have historically provided products and services to our target markets in the specialty casualty insurance market. We underwrite specialty casualty insurance products both through our Program Partners, programs where we partner with other organizations, and our Owned MGAs. Our insurance product offerings include workers’ compensation, other liability, accident and health, and other lines of business. We also provide our Program Partners with a variety of services from which we generate recurring fee-based revenues, including reinsurance brokerage and, in particular, issuing carrier or "fronting" services.

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organizations, and our Owned MGAs. Our insurance product offerings include workers’ compensation, other liability, accident and health, and other lines of business. We also provide our Program Partners with a variety of services from which we generate recurring fee-based revenues, including reinsurance brokerage and, in particular, issuing carrier or "fronting" services.

Owned MGA's and Program Partner Premiums:

The following table shows the total premiums earned on a gross and net basis for Owned MGAs and Program Partners:

	The Year Ended December 31, 2021
	Owned MGAs			Program Partner			Total
Gross written premiums	$	268,943		$	365,221		$	634,164
Increase in gross unearned premiums	(25)			(61,886)			(61,911)
Gross earned premiums	268,918			303,335			572,253
Ceded earned premiums	(144,375)			(229,198)			(373,573)
Net earned premiums	$	124,543		$	74,137		$	198,680
Direct commissions	32,351			73,614			105,965
Ceding commission	(44,168)			(76,520)			(120,688)
Net commissions	$	(11,817)		$	(2,906)		$	(14,723)
Direct commissions rate(1)	12.0		%	24.3		%	18.5		%
Ceding commissions rate(2)	30.6		%	33.4		%	32.3		%
(1) Direct commissions as a percentage of gross earned premiums.
(2) Ceding commissions as a percentage of ceded earned premiums.

We utilize both quota share and catastrophe XOL contracts in our reinsurance strategy for our Owned MGAs and Program Partners. Direct commissions for Program Partners include third-party agent commissions and MGA service fees, while Owned MGAs direct commissions includes only third-party agent commissions, while the expenses associated with MGA services are included in general and administrative operating expenses. The ceding commission rates vary based on a number of factors including: the line of business, negotiated reinsurance terms, and program cost structures. For the year ended December 31, 2021, the Company retained 46.3% and 24.4% of gross earned premiums for Owned MGAs and Program Partners, respectively. The loss ratios for Owned MGAs and Program Partners for the year ended December 31, 2021 were 67.6% and 62.9%, respectively, resulting in a consolidated loss ratio of 65.8%.

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The following table shows our gross written premiums by insurance product for the years ended December 31, 2021, 2020 and 2019, in thousands.


	The Year Ended December 31, 2022									The Year Ended December 31, 2021
	Owned MGAs			Program Partner			Total			Owned MGAs			Program Partner			Total
Gross written premiums	$	239,319		$	411,984		$	651,303		$	268,943		$	365,221		$	634,164
Decrease (Increase) in gross unearned premiums	9,881			(18,955)			(9,074)			(25)			(61,886)			(61,911)
Gross earned premiums	249,200			393,029			642,229			268,918			303,335			572,253
Ceded earned premiums	(79,974)			(277,631)			(357,605)			(144,375)			(229,198)			(373,573)
Net earned premiums	$	169,226		$	115,398		$	284,624		$	124,543		$	74,137		$	198,680

Direct commissions	25,002			89,864			114,866			32,351			73,614			105,965
Ceding commission	(24,265)			(78,494)			(102,759)			(44,168)			(76,520)			(120,688)
Net commissions	$	737		$	11,370		$	12,107		$	(11,817)		$	(2,906)		$	(14,723)

Direct commissions rate(1)	10.0		%	22.9		%	17.9		%	12.0		%	24.3		%	18.5		%
Ceding commissions rate(2)	30.3		%	28.3		%	28.7		%	30.6		%	33.4		%	32.3		%

(1) Direct commissions as a percentage of gross earned premiums.
(2) Ceding commissions as a percentage of ceded earned premiums.

	Year Ended December 31,
	2021		2020		2019
Workers' compensation	$	376,819	$	368,949	$	340,444
Other liability - occurrence	72,306		25,531		20,129
Commercial auto liability	53,959		25,301		9,935
Homeowners multiple peril	38,023		17,356		—
Commercial multiple peril	37,496		24,930		17,662
Group accident and health	32,565		2,375		7,678
Auto physical damage	13,746		7,340		4,843
Excess workers' compensation	5,587		3,986		2,539
Boiler and machinery	1,782		1,253		783
Inland marine	1,157		25		4
Products liability - occurrence	487		7,033		7,368
Fire	201		129		64
Surety	36		41		52
Private passenger auto liability	—		—		(100)
Total	$	634,164	$	484,249	$	411,401

We utilize both quota share and catastrophe XOL contracts in our reinsurance strategy for our Owned MGAs and Program Partners. Direct commissions for Program Partners include third-party agent commissions and MGA service fees, while Owned MGAs direct commissions includes only third-party agent commissions and the expenses associated with MGA services are included in general and administrative operating expenses. The ceding commission rates vary based on a number of factors including: the line of business, negotiated reinsurance terms, and program cost structures. For the year ended December 31, 2022, the Company retained 67.9% and 29.4% of gross earned premiums for Owned MGAs and Program Partners, respectively. The loss ratios for Owned MGAs and Program Partners for the year ended December 31, 2022 were 79.2% and 60.5%, respectively, resulting in a consolidated loss ratio of 71.6%. For the year ended December 31, 2021, the Company retained 46.3% and 24.4% of gross earned premiums for Owned MGAs and Program Partners, respectively. The loss ratios for Owned MGAs and Program Partners for the year ended December 31, 2021 were 67.6% and 62.9%, respectively, resulting in a consolidated loss ratio of 65.8%.

~~In total, we are licensed in 49 states and the District of Columbia.~~ The following table shows our gross written premiums by ~~state~~insurance product for the years ended December 31, ~~2021~~2022, ~~2020~~2021 and ~~2019~~2020, in thousands.

	Year Ended December 31,
	2021		2020		2019
	2022		2021		2020
California	$	179,426	$	203,421	$	202,446
Workers' compensation	$	368,408	$	376,819	$	368,949
Texas	85,154		28,909		*
Commercial auto liability	62,849		53,959		25,301
Michigan	46,271		41,830		38,174
Group accident and health	54,184		32,565		2,375
Florida	27,982		*		*
Other liability - occurrence	51,334		72,306		25,531
Arizona	26,272		27,950		34,215
Commercial multiple peril	49,987		37,496		24,930
Georgia	25,619		12,869		*
Homeowners multiple peril	32,424		38,023		17,356
Alabama	20,991		17,549		12,946
Auto physical damage	19,268		13,746		7,340
Pennsylvania	20,375		10,498		*
Excess workers' compensation	7,654		5,587		3,986
Tennessee	15,966		12,347		8,065
Inland marine	3,132		1,157		25
Louisiana	14,124		*		*
Boiler and machinery	1,816		1,782		1,253
Other geographical areas	171,984		128,876		115,555
Fire	212		201		129
Total	$	634,164	$	484,249	$	411,401
Surety	35		36		41
Products liability - occurrence	—		487		7,033
Total	$	651,303	$	634,164	$	484,249

* Amount was included in other geographical areas for the years ended December 31, 2020 and 2019 and therefore, is not presented.

Workers’ compensation

We offer workers’ compensation insurance through both our Owned MGAs and our Program Partners. California, Arizona and Florida represented 41.5%, 6.3% and 5.3%, respectively, of our workers’ compensation gross written premiums for the year ended December 31, 2021. We write business across a variety of industries and hazard classes. The construction industry is our largest industry exposure, representing 25% of premiums written for the year ended December 31, 2021. The workers’ compensation insurance industry classifies risks into hazard groups defined by the National Council on Compensation

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~~Insurance,~~In ~~or NCCI~~total, ~~and~~we ~~based~~are onlicensed ~~severity, with employers~~ in ~~lower~~49 ~~groups~~states ~~having~~and ~~lower~~the ~~cost~~District ~~claims.~~of ~~Our premiums are spread across hazard classes~~Columbia. WeThe ~~target~~following ~~accounts~~table ~~that~~shows ~~we believe offer greater risk-adjusted returns, such as small accounts that are less subject to competition, or accounts with high experience modification factors that~~ our ~~underwriters~~gross ~~assess~~written topremiums beby ~~attractively~~state ~~priced~~ for the ~~potential~~years ~~risk.~~ended ~~Experience~~December 31, ~~modification~~2022, ~~factors~~2021 ~~are~~and ~~determined~~2020, byin ~~state insurance regulators based on the insured’s historical loss experience~~thousands.

We do not write accounts that we believe present exposure to catastrophic risk. The average workers’ compensation premium per policy written by us was $14,779 and $16,187 for the years ended December 31, 2021 and 2020, respectively.


	Year Ended December 31,
	2022		2021		2020
California	$	162,639	$	179,426	$	203,421
Texas	93,165		85,154		28,909
Michigan	45,821		46,271		41,830
Tennessee	16,006		15,966		12,347
Florida	36,559		27,982		8,359
Georgia	30,996		25,619		12,869
Arizona	28,685		26,272		27,950
Alabama	23,198		20,991		17,549
Pennsylvania	17,167		20,375		10,498
Indiana	13,943		13,422		8,508
Other geographical areas	183,124		172,686		112,009
Total	$	651,303	$	634,164	$	484,249

~~We manage workers~~Workers’ compensation claims administration for all of our Owned MGAs and for several of our Program Partners. We believe that our claims philosophy has been a key differentiating factor allowing us to maintain lower loss ratios and settle claims quickly. Our workers’ compensation programs are supported by various quota share and excess of loss reinsurance facilities, which we utilize to align risk with our Program Partners and optimize our net retention relative to our financial objectives, balance sheet size and ratings requirements. We ceded 57.6% and 73.0% of gross workers’ compensation premiums earned to third-party insurers for the year ended December 31, 2021 and 2020, respectively.

~~The~~We ~~following~~offer ~~exhibits~~workers’ ~~illustrate~~compensation insurance through both our ~~business~~Owned ~~mix~~MGAs and our Program Partners. California, Florida and Arizona represented 35.5%, 7.5% and 7.0%, respectively, of our workers’ compensation gross written premiums byfor ~~industry~~the year ended December 31, 2022 and ~~hazard~~41.5%, ~~class~~5.3% and 6.3%, respectively, for the year ended December 31, 2021. We write business across a variety of industries and hazard classes. The construction industry is our largest industry exposure, representing 23% of premiums written for the year ended December 31, 2022. The workers’ compensation insurance industry classifies risks into hazard groups defined by the National Council on Compensation Insurance, or NCCI, and based on severity, with employers in lower groups having lower cost claims. Our premiums are spread across hazard classes. We target accounts that we believe offer greater risk-adjusted returns, such as small accounts that are less subject to competition, or accounts with high experience modification factors that our underwriters assess to be attractively priced for the potential risk. Experience modification factors are determined by state insurance regulators based on the insured’s historical loss experience.

~~Other~~We ~~liability~~do not write accounts that we believe present exposure to catastrophic risk. The average workers’ compensation premium per policy written by us was $15,539 and $14,779 for the years ended December 31, 2022 and 2021, respectively.

We ~~offer~~manage ~~other~~workers’ ~~liability~~compensation ~~insurance~~claims ~~products~~administration ~~through~~for ~~both~~all of our Owned MGAs and for several of our Program Partners. We ~~target~~believe ~~segments~~that ofour ~~the~~claims ~~market~~philosophy ~~that~~has webeen ~~believe~~a key differentiating factor allowing us to maintain lower loss ratios and settle claims quickly. Our workers’ compensation programs are ~~underserved~~supported orby ~~mispriced~~various quota share and excess of loss reinsurance facilities, ~~such~~which aswe ~~California~~utilize ~~contractors~~to align risk with anour ~~average~~Program Partners and optimize our net retention relative to our financial objectives, balance sheet size and ratings requirements. We ceded 39.8% and 57.6% of ~~five~~gross ~~employees~~workers’ compensation premiums earned to third-party insurers for the year ended December 31, 2022 and 2021, respectively.

The ~~other~~following ~~liability~~exhibits ~~products~~illustrate ~~that we offer through~~ our ~~Owned~~business ~~MGAs~~mix include admitted general liability and construction defect products offered to small contractors that protect them against claims from third parties. We distribute these products through select wholesale brokers in California. Additionally, through several of ~~our~~workers’ ~~Program~~compensation ~~Partners,~~gross wewritten ~~write~~premiums 12by ~~other~~industry ~~liability insurance products in 49 states~~ and ~~the~~hazard ~~District~~class ~~of Columbia. Our claims personnel administer claims~~ for ~~our Owned MGA other liability products. We ceded approximately 79.1% and 82.9% of our gross other liability premiums earned to third-party insurers for~~ the ~~years~~year ended December 31, ~~2021 and 2020, respectively~~2022.

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Other liability

We offer other liability insurance products through both our Owned MGAs and our Program Partners. We target segments of the market that we believe are underserved or mispriced, such as California contractors with an average of five employees.

The other liability products that we offer through our Owned MGAs include admitted general liability and construction defect products offered to small contractors that protect them against claims from third parties. We distribute these products through select wholesale brokers in California. Additionally, through several of our Program Partners, we write 11 other liability insurance products in 49 states and the District of Columbia. Our claims personnel administer claims for our Owned MGA other liability products. We ceded approximately 76.9% and 79.1% of our gross other liability premiums earned to third-party insurers for the years ended December 31, 2022 and 2021, respectively.

Issuing carrier services

We provide issuing carrier services to several of our Program Partners who offer workers' compensation, commercial multi-peril, personal auto and commercial auto and other liability insurance. In these relationships, we act as the policy-issuing insurance carrier for our Program Partner and transfer all or a substantial portion of the underwriting risk to third-party reinsurers. When we enter into issuing carrier relationships, we typically receive reinsurance ceding commissions at rates that include our fronting service from our reinsurers who are both Program Partners and/or third-party reinsurers. Reinsurance ceding commissions vary based on the line of business and premium volume. We provide issuing carrier services across each of our insurance products. For the year ended December 31, ~~2021~~2022, ~~2020~~2021 and ~~2019~~2020, reinsurance ceding commissions from issuing carrier services were $8677.96 million, $7186.89 million and $8771.78 million, respectively, and are recognized as a reduction of direct insurance commission expense within 'General and administrative expenses' in the consolidated statement of operations.

Reinsurance brokerage services

Our reinsurance brokerage services division provides reinsurance placement, servicing and renewal services to small- to mid-sized insurance organizations, including most of our Program Partners and additional third-party insurance organizations. We earn commissions for structuring and placing reinsurance coverage on behalf of our clients. Commissions are based on a percentage of premiums ceded to reinsurers and vary by type or complexity of reinsurance coverage. Our reinsurance brokerage services are a valuable risk management tool in our relationships with our Program Partners, as we typically require the use of our reinsurance brokerage services to place and structure reinsurance prior to the inception of a new program. For the years ended December 31, ~~2021~~2022, ~~2020~~2021 and ~~2019~~2020, reinsurance brokerage generated $75.07 million, $97.0 million and 5$9.80 million in revenue, which is included in Other revenue.

Other services

We provide a variety of other services to insurance organizations, including claims administration and insurance management services. We provide workers’ compensation insurance claims administration services to some of our Program Partners as well as to third-party insurance organizations with which we do not have additional relationships.

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Inland marine

Inland marine underwrites coverage for property that may be held in transit or instrumentalities of transportation and communication, such as builders risk, contractors equipment, transportation risk and mobile equipment.

Marketing and distribution

We market and distribute our products through several channels. Our Owned MGAs market through both retail agents and wholesale brokers, and our reinsurance brokerage services division actively markets our services directly to prospective clients. Additionally, we distribute products and services to our Program Partners, which comprise program administrators and insurance carriers. Since we focus on smaller accounts, we do not market our products and services through large insurance brokers. For the year ended December 31, ~~2021~~2022, our Owned MGAs represented 4237% of our gross written premiums, Program Partners represented 5762% of gross written premiums and national insurance pools represented 1% of gross written premiums. For the year ended December 31, ~~2020~~2021, our Owned MGAs represented 5942% of our gross written premiums, Program Partners represented 4057% of gross written premiums and national insurance pools represented 1% of gross written premiums. For the year ended December 31, ~~2019~~2020, our Owned MGA's represented 6459% of our gross written premiums, Program Partners represented 3540% of gross written premiums and national insurance pools represented 1% of gross written premiums.

Retail agents

We distribute our Owned MGA workers’ compensation products through approximately ~~1,122~~300 retail agents. We target retail agents with experience and distribution capabilities in our target markets. Retail agents must demonstrate an ability to produce both our desired quality and quantity of business. To assist with this goal, our underwriters regularly visit our retail brokers to market and discuss the products we offer. We terminate retail agents who are unable to produce consistently profitable business or who produce unacceptably low volumes of business.

Wholesale brokers

We distribute our other liability products underwritten by our Owned MGAs through wholesale brokers that have expertise and strong track records in our niche target markets. For these products, we target small contractors in California. We use wholesale brokers to distribute these products because wholesale brokers are an important channel for commercial insurance products where they control much of the premium in these segments. We select our wholesale brokers based on our management’s review of their experience, knowledge, business plan, and track record of delivering us profitable business.

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products where they control much of the premium in these segments. We select our wholesale brokers based on our management’s review of their experience, knowledge, business plan, and track record of delivering us profitable business.

Reinsurance brokerage services

Our reinsurance brokerage services division actively markets our reinsurance services to small- and mid- sized program administrators and other insurance organizations. The primary focus of our reinsurance brokerage services division is to place reinsurance for our program partners, direct business and third parties. We are also able to leverage our reinsurance brokerage relationships to cultivate new Program Partner relationships and market our other services. The majority of our current Program Partner relationships originated as an introduction from our reinsurance brokerage services division.

Program administrators

We partner with select program administrators across each of our target markets to harness the efficiency and scale of these organizations’ marketing and distribution infrastructures. Through these relationships, we are able to access national distribution channels or write specialized risks in our target markets efficiently. Generally, policies bound by our program administrators are underwritten according to strict underwriting guidelines that we establish with each program administrator. We have long relationships with many of our program administrators and, in most cases, we have had an existing relationship with a program administrator before adding it as a new Program Partner. For example, we may have previously provided the program with reinsurance placement or consulting services, or worked with the key principals of the prospective Program Partner at their prior organization. We believe program administrators value our multi-service offering and capabilities and the flexibility with which we can offer these services. In addition to underwriting insurance products through program administrators, we provide these organizations with issuing carrier services and reinsurance brokerage services.

Carrier and other partnerships

Given our unique focus on flexible multi-service ~~offering~~offerings, we are a partner of choice for small- to mid-sized insurance carriers seeking a specialty casualty insurance partner to satisfy insurance department requirements, provide comprehensive management solutions or transfer certain classes of risk. We have partnerships with insurance companies, risk retention groups, trusts and state insurance pools.

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Program selection, underwriting and controls

Program selection

Given our position and reputation in the market, we are presented with more new program opportunities than we choose to write, allowing us to be highly selective with respect to the Program Partners with whom we choose to partner. We decline approximately 9694% of the new opportunities we are presented with prior to or through our pre-screening process. We typically source new opportunities through our reinsurance brokerage services business or through referrals from existing Program Partners. For each new opportunity that we choose to evaluate, we conduct a comprehensive pre-screening of the company, including an evaluation of its philosophy, size, past performance, future performance targets and above all, compatibility with our operating model, risk appetite and existing book of business. Our target Program Partners tend to have several, if not all, of the following traits:

•small- to mid-sized books of business (less than $30 million of annual gross premiums at the inception of the relationship);

•presence in markets where we believe we can leverage our distinctive expertise, multi-service offering and market relationships to create a competitive advantage;

•track record of underwriting success supported with credible data;

•proven ability to administer the program pursuant to agreed-upon underwriting and claims guidelines;

•ability and willingness to assume a meaningful quota share risk participation in the program, typically through ownership of an insurance company or captive;

•collaborative, entrepreneurial management team; and

•willingness and ability for us to control the structuring and placement of reinsurance.

Underwriting and program design

For opportunities that are acceptable to us through the pre-screening process, we conduct rigorous underwriting due diligence prior to entering into a partnership. As part of this process, our due diligence team collects and analyzes data relating to the organization’s operating, underwriting, financial and biographical information to prepare an initial due diligence file for our Underwriting Committee. Our Underwriting Committee is led by our CEO and consists of members with expertise in underwriting and finance. In 2022, 7 out of 118 submissions were approved by the Underwriting Committee. If the Underwriting Committee approves the submission on a provisional basis, we then conduct comprehensive underwriting, claims and financial diligence on the potential Program Partner. This includes inviting the potential Program Partner’s management for an on-site meeting at our Wayzata headquarters and on-site diligence of the potential Program Partner.

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organization’s operating, underwriting, financial and biographical information to prepare an initial due diligence file for our Underwriting Committee. Our Underwriting Committee is led by our CEO and consists of members with expertise in underwriting and finance. In 2021, 4 out of 90 submissions were approved by the Underwriting Committee. If the Underwriting Committee approves the submission on a provisional basis, we then conduct comprehensive underwriting, claims and financial diligence on the potential Program Partner. This includes inviting the potential Program Partner’s management for an on-site meeting at our Wayzata headquarters and on-site diligence of the potential Program Partner.

If we look to enter into a contractual relationship with a potential Program Partner, we work with them to design a program that appropriately aligns interests and establish rigorous underwriting guidelines and ongoing reporting and auditing requirements. At the inception of a new program, we typically act as an issuing carrier where we reinsure a substantial amount of risk to third parties. We also typically require the Program Partner to maintain significant underwriting risk or otherwise align incentives with the Program Partner’s underwriting performance. The amount of risk and premiums ceded to Program Partners is contractually stipulated with each Program Partner. Over time we look to optimize our net retention positions with our Program Partners once we have become comfortable with their performance through our ongoing interactions.

Ongoing monitoring and controls

Throughout the lifetime of a relationship with a Program Partner, we maintain systematic monitoring and control mechanisms to ensure each relationship meets our financial objectives. We closely monitor each Program Partner’s adherence to the agreed upon underwriting and claims guidelines and conduct regular reviews of loss experience, rate levels, reserves and the overall financial health of the Program Partner. We receive underwriting and claims data feeds from each Program Partner at least monthly. We typically conduct two underwriting, claims and accounting audits per program per year. Because we typically provide multiple services to our Program Partners, we are in regular communication with them regarding underwriting, claims handling, reinsurance placement and collateral management. As a result, we have near continuous opportunities to interact with our Program Partners and evaluate their performance.

We maintain the right to terminate relationships with our Program Partners. Reasons for us to terminate a relationship include an inability to produce targeted underwriting results, writing exposures outside of agreed upon risk tolerances, delinquency in meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to us. Our stringent and extensive due diligence and selection process allows us the flexibility to partner with organizations with which we believe we will have successful relationships.

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meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to us. Our stringent and extensive due diligence and selection process allows us the flexibility to partner with organizations with which we believe we will have successful relationships.

Claims

We actively manage claims for our Owned MGA businesses, as well as for select Program Partners that underwrite workers’ compensation insurance. Other lines of business are typically managed directly by our Program Partners, or in some cases by TPAs. When our Program Partners or TPAs administer claims, our claims personnel are responsible for overseeing the Program Partner or TPA, including the management of loss reserves, settlement, arbitration and mediation. Claims are reported directly to the applicable Program Partner or TPA, which adheres to agreed-upon service level standards.

For business where we manage the claims, our experienced claims team actively manages the claims. In our largest line of business, workers’ compensation, our philosophy is to provide an injured employee with ~~the~~ high-quality medical care as quickly as possible to reduce pain, expedite healing and lead to a faster and more complete recovery. Once an injured employee has healed, we aim to fully settle and achieve a full and complete release of the claim at the earliest opportunity. This approach to claims management enables us to lower our claim costs and settle the ultimate claim reserves more quickly. In order to achieve these outcomes, we manage our claims organization to ensure that each of our claims personnel is responsible for lower than industry average claims files per claims adjuster.

Our claims adjusters have settlement authority that varies by the line of business and the experience of each adjuster. In the case of a catastrophic claim, we may use a third-party administrator that specializes in these types of claims to ease the burden of catastrophic claims on our organization. In addition, our claims examiners work closely with our underwriting staff to keep apprised of claims trends. Vendor management is also an important component of effective claims management and our claims examiners work closely with our vendors to manage expenses and costs.

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Reinsurance

We cede a portion of the risk we accept on our balance sheet to third-party reinsurers through a variety of reinsurance arrangements. We manage these arrangements to align risks with our Program Partners, optimize our net retention relative to our financial objectives, balance sheet size and ratings requirements, as well as to limit our maximum loss resulting from a single program or a single event. We utilize both quota share and excess of loss ("XOL") reinsurance as tools in our overall risk management strategy to achieve these goals, usually in conjunction with each other. Quota share reinsurance involves the proportional sharing of premiums and losses of each defined program. We utilize quota share reinsurance for several purposes, including (i) to cede risk to Program Partners, which allows us to share economics and align incentives and (ii) to cede risk to third-party reinsurers in order to manage our net written premiums appropriately based on our financial objectives, capital base, A.M. Best financial strength rating and risk appetite. It is a core pillar of our underwriting philosophy that Program Partners retain a portion of the underwriting risk of their program. We believe this best aligns interests, attracts higher quality programs and leads to better underwriting results. Under XOL reinsurance, losses in excess of a retention level are paid by the reinsurer, subject to a limit, and are customized per program or across multiple programs. We utilize XOL reinsurance to protect against catastrophic or other unforeseen extreme loss activity that could otherwise negatively impact our profitability and capital base. The majority of our exposure to catastrophic risk stems from the workers' compensation premium we retain. Potential catastrophic events include an earthquake, terrorism or another event. We believe we mitigate risk by our focus on small-to mid-sized accounts, which means that we generally do not have concentrated employee counts at a single location that could be exposed to a catastrophic loss. The cost and limits of the reinsurance coverage we purchase vary from year to year based on the availability of quality reinsurance at an acceptable price and our desired level of retention.

Our workers' compensation XOL reinsurance structure consolidates multiple programs under a single XOL reinsurance program comprised of two excess of loss reinsurance agreements with five professional reinsurers. We believe this structure significantly decreases our cost of reinsurance compared with each program maintaining its own XOL reinsurance program. As of December 31, 2022, we had $2 million retention of which is reinsured under various quota share reinsurance agreements at a weighted average rate of 21%, based on 2022 premiums for the applicable programs. These agreements apply to programs that accounted for 87% of workers' compensation premiums for the year ended December 31, 2022. We have the following XOL coverage:

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~~Our~~•0% ~~XOL reinsurance structure consolidates multiple programs under a single XOL reinsurance program comprised~~ of ~~two~~$8 ~~excess~~million of ~~loss~~losses ~~reinsurance~~in ~~agreements~~excess ~~with four professional reinsurers. We believe this structure significantly decreases our cost~~ of ~~reinsurance compared with each program maintaining its own XOL reinsurance program. As of December 31, 2021, we had~~ $2 million ~~retention~~as of ~~which is reinsured under various quota share reinsurance agreements at a weighted average rate of 37%~~December 31, ~~based~~2022. onGross ~~2021~~written premiums for the applicable programs. ~~These~~for ~~agreements~~this ~~apply~~layer ~~to programs that~~ accounted for 8774% of workers' compensation premiums for the year ended December 31, ~~2021~~2022. ~~We have the following XOL coverage:~~

▪0•100% of $35 million of losses in excess of $210 million ~~as of December 31, 2021~~. Gross written premiums for the applicable programs for this layer accounted for 7574% of workers' compensation premiums for the year ended December 31, ~~2021~~2022.

~~▪57.5~~•100% of $1035 million of losses in excess of $515 million. Gross written premiums for the applicable programs for this layer accounted for 7987% of workers' compensation premiums for the year ended December 31, ~~2021~~2022.

▪100% of $35 million of losses in excess of $15 million. Gross written premiums for the applicable programs for this layer accounted for 90% of workers' compensation premiums for the year ended December 31, 2021.

Summary workers' compensation reinsurance program

$50,000,000

7/1/2021Excess of Loss Reinsurance$35M xs $15M Per OccurrenceRisks Attaching

7/1/2022Excess of Loss Reinsurance$35M xs $15M Per OccurrenceRisks Attaching

$15,000,000

7/1/2021Excess of Loss Reinsurance$10M xs $5MPer OccurrenceRisks Attaching

7/1/2021Excess of Loss Reinsurance$10M xs $5MPer OccurrenceRisks AttachingRetention: 42.5%

7/1/2022Excess of Loss Reinsurance$5M xs $10MPer OccurrenceRisks Attaching

$5,000,000

$10,000,000

$3M xs $2M Retention: 100%

$8M xs $2M Retention: 100%

$2,000,000

Quota Share ReinsuranceFirst $2M Per OccurrenceRisks Attaching

Quota Share ReinsuranceFirst $2M Per OccurrenceRisks Attaching - Retention: 79%1

~~Quota Share ReinsuranceFirst $2M Per OccurrenceRisks Attaching - Retention: 63%1~~

1 Quota share retention rate reflects a weighted rate based on ~~2021~~2022 gross written premiums for multiple contracts across multiple programs.

Collateral management

As a result of our extensive use of reinsurance in our business model, we effectively convert underwriting risk to credit risk of our Program Partners and other professional reinsurers. Accordingly, it is critical for the success of our business that we actively manage our credit exposures. We achieve this through active collateral management, including: (i) requiring our reinsurance partners who do not have an A.M. Best financial strength rating of "A-" or higher or who are not authorized

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~~Collateral~~reinsurers ~~management~~to post collateral equal to at least 100% of reserves for unearned premiums and losses and loss adjustment expense, including incurred but not yet reported ("IBNR") reserves, based on our assessment of expected losses; (ii) securing collateral by trust funds, letters of credit or, more frequently, funds withheld accounts; and (iii) reviewing collateral accounts on a monthly basis and secured with quarterly and annual "true-ups."

As ~~a result~~ of ~~our~~December 31, ~~extensive use of reinsurance in our business model~~2022, we ~~effectively~~had ~~convert~~reinsurance ~~underwriting~~recoverables ~~risk~~on topaid ~~credit~~and ~~risk~~unpaid losses of ~~our~~$408.5 ~~Program~~million. ~~Partners~~Against ~~and~~these ~~other professional reinsurers. Accordingly~~recoverables, itwe ismaintained ~~critical~~$241.3 ~~for~~million ~~the success~~ of ~~our~~funds ~~business~~withheld ~~that~~and ~~we actively manage our credit exposures~~$155.4 Wemillion ~~achieve~~of ~~this~~other ~~through~~forms ~~active~~of collateral ~~management~~, ~~including:~~for ~~(i)~~a ~~requiring~~total ~~our~~of ~~reinsurance~~approximately ~~partners who do not have an A~~$396.M.7 ~~Best~~million ~~financial~~in ~~strength~~credit ~~rating~~protection offrom ~~"A-"~~our ~~or higher or who are not authorized~~ reinsurers. toAs ~~post collateral equal to at least 100%~~ of ~~reserves~~December 31, ~~for unearned premiums and losses and loss adjustment expense~~2022, ~~including~~we ~~incurred~~did ~~but~~ not ~~yet~~have ~~reported~~any ~~("IBNR")~~balance ~~reserves,~~from ~~based~~reinsurers onthat ~~our~~was ~~assessment~~over of90 ~~expected~~days ~~losses;~~old ~~(ii) securing collateral by trust funds, letters of credit~~ or, ~~more~~in ~~frequently~~dispute, ~~funds~~and ~~withheld~~we ~~accounts;~~held ~~and~~appropriate ~~(iii)~~funding ~~reviewing~~or collateral ~~accounts~~from onall aunauthorized ~~monthly basis and secured with quarterly and annual "true-ups~~reinsurers."

AsThe offollowing ~~December 31,~~table ~~2021,~~sets weforth ~~had~~our ~~reinsurance~~ten ~~recoverables~~largest onreinsurance ~~paid and unpaid losses of $377.2 million. Against these~~ recoverables, weby ~~maintained~~reinsurer ~~$199.4~~as ~~million~~ of ~~funds withheld and $151.4 million of other forms of collateral, for a total of approximately $350.8 million in credit protection from our reinsurers. As of~~ December 31, ~~2021~~2022, ~~we did not have any balance from reinsurers that was over 90 days old or~~ in ~~dispute and we held appropriate funding or collateral from all unauthorized reinsurers.~~ thousands:

The following table sets forth our ten largest reinsurance recoverables by reinsurer as of December 31, 2021, in thousands:


Reinsurers:	A.M. Best Rating	Reinsurance Recoverables		Collateral		Net Recoverables
Markel Global	A	$	68,619	$	10,220	$	58,399
Greenlight	A-	49,666		85,161		(35,495)
Employers National Insurance Company	NR	37,471		40,811		(3,340)
First Insurance Company of OK (FICO)	NR	22,828		22,855		(27)
Bluefin Risk Partners, Inc.	NR	20,317		38,724		(18,407)
VGM Insurance Companies of America Limited	NR	17,872		31,749		(13,877)
Arch Reinsurance Company (U.S.)	A+	17,434		3,138		14,296
Munich Reinsurance America, Inc	A+	17,255		—		17,255
Swiss Reinsurance America Corp	A+	17,199		—		17,199
Provistar Insurance Company, Limited	NR	16,730		25,721		(8,991)
Total		285,391		258,379		27,012
All other reinsurers		123,131		138,294		(15,163)
Total recoverables		$	408,522	$	396,673	$	11,849

Reinsurers:	A.M. Best Rating	Reinsurance Recoverables		Collateral		Net Recoverables
Markel Global	A	$	74,584	$	7,651	$	66,933
Greenlight	A-	68,741		96,296		(27,555)
Provistar Insurance Company, Limited	NR	26,310		30,600		(4,290)
Employers National Insurance Company	NR	26,167		35,155		(8,988)
Arch Reinsurance Company (U.S.)	A+	25,541		3,491		22,050
Munich Reins America Incorporation	A+	20,185		—		20,185
First Insurance Company of OK (FICO)	NR	19,755		25,818		(6,062)
VGM Insurance Companies of America Limited	NR	15,705		26,976		(11,271)
Synergy Comp. Insurance Company	A-	11,720		14,622		(2,901)
Swiss Reinsurance America Corp	A+	8,772		1,718		7,054
Total		297,479		242,327		55,152
All other reinsurers		79,762		111,195		(31,433)
Total recoverables		$	377,241	$	353,522	$	23,719

Technology

We operate on a digital platform with a data warehouse that collects and builds a robust repository of statistical data for our workers’ compensation business and a substantial amount of our other liability business. All of our workers’ compensation business data is automated through the data warehouse. Our platform provides a high degree of efficiency, accuracy and speed across all of our processes. We are able to use the data that we collect through Application Programming Interfaces ("APIs") to quickly analyze trends across all functions in our business. The data warehouse is easily searchable and contains most of the underwriting and claims information we collect at every level. We are able to track rates, monitor historical loss experience and reserve development and measure other relevant metrics at a granular level of detail. Our technology team is continuously enhancing this system to improve its capability and expand its use across our business. We believe our systems and technology allow us to quickly collect and analyze data, thereby improving our ability to manage our business. We have scalable, standardized infrastructure technology systems built for automation, efficiency and security, and are not burdened by legacy technology systems.

Reserves

We record reserves for estimated losses of the policies that we underwrite and for loss adjustment expenses ("LAE") related to the investigation and settlement of policy claims. Our reserves for losses and LAE represent the estimated cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid as of a given point in time. We evaluate the overall adequacy of gross, ceded and net losses and LAE reserves in accordance with established actuarial standards to set our reserves. We establish reserves on a line of business basis at the individual program level. Consistent with our gross and net premium breakdown, reserves for workers’ compensation losses comprise the majority of our carried reserve position.

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~~Reserves~~Due to our shorter claims process and ability to close claims faster than competitors, we believe we are able to settle our ultimate reserves more quickly as well.

When a claim is first reported, we establish an initial case reserve for the estimated amount of our loss based on our estimate of the most likely outcome of the claim at that time. Generally, a case reserve is established within 30 days after the claim is reported and consists of anticipated medical costs, indemnity costs and specific adjustment expenses. This case reserve is set to cover the life of the claim based on information available at that point in time. At any point in time, the amount paid on a claim, as well as the reserve for future amounts to be paid, represents the estimated total cost of the claim or the case incurred amount. The estimated amount of loss for a reported claim is based on various factors, including:

•type of loss;

•severity of the injury or damage;

•age and occupation of the injured employee;

•estimated length of temporary disability;

•anticipated permanent disability;

•expected medical procedures, costs and duration;

•our knowledge of the circumstances surrounding the claim;

•insurance policy provisions, including coverage, related to the claim;

•jurisdiction of the occurrence; and

•other benefits defined by applicable statute.

Reserves are estimates involving actuarial projections of the expected ultimate cost to settle and administer claims at a given time but are not expected to precisely represent the ultimate liability. Estimates are based on past loss experience modified for current trends as well as prevailing economic, legal and social conditions. Such estimates are also based on facts and circumstances then known but are subject to significant uncertainty based on the outcome of various factors, such as future events, future trends in claim severity, inflation and changes in the judicial interpretation of policy provisions relating to the determination of coverage.

Reserves are set by our Reserve Committee in consultation with an independent third-party actuarial firm. Our Reserve Committee includes our Chief Executive Officer, ~~President~~ and President, Chief ~~Operating~~Financial Officer, Chief ~~Financial~~Actuary Officer, Senior Vice President of Underwriting, Corporate Controller and Insurance Divisional Controller. The Reserve Committee meets ~~semi-annually~~quarterly to review the actuarial reserving recommendations made by the independent actuary. Our independent third-party actuarial firm reviews our net reserves at March 31, June 30 and September 30 of each year and performs a comprehensive review of all programs at each year-end.

As of December 31, ~~2021~~2022 we have had aggregate favorable development of $4337.86 million on our reserve estimates since ~~2014~~2015, respectively.

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Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																					As of December 31, ~~2021~~2022
Years Ended December 31,																					Total of IBNR Liabilities Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	~~2012~~2013		~~2013~~2014		~~2014~~2015		~~2015~~2016		~~2016~~2017		~~2017~~2018		~~2018~~2019		~~2019~~2020		~~2020~~2021		~~2021~~2022
2012	$	21,857	$	21,831	$	20,697	$	21,053	$	20,331	$	20,058	$	20,646	$	20,690	$	20,651	$	20,548	$	989	4,154
2013	$	24,661	$	24,755	$	24,280	$	21,361	$	21,342	$	21,506	$	21,465	$	21,631	$	21,671	$	21,842	$	1,374	4,444
2013			24,661		24,755		24,280		21,361		21,342		21,506		21,465		21,631		21,671		1,674		4,491
2014			24,580		22,777		21,726		21,571		21,095		21,054		20,897		20,183		20,154		1,913		5,021
2014					24,580		22,777		21,726		21,571		21,095		21,054		20,897		20,183		1,939		5,075
2015					25,757		26,614		26,414		25,450		25,650		22,518		22,516		22,130		2,372		6,398
2015							25,757		26,614		26,414		25,450		25,650		22,518		22,516		2,671		6,474
2016							35,281		33,672		32,554		30,165		27,340		26,550		25,858		2,880		11,427
2016									35,281		33,672		32,554		30,165		27,340		26,550		3,044		11,499
2017									43,499		35,113		32,685		30,847		29,783		29,766		2,940		16,963
2017											43,499		35,113		32,685		30,847		29,783		4,406		17,062
2018											47,263		41,630		39,880		38,108		37,923		4,528		14,704
2018													47,263		41,630		39,880		38,108		6,195		14,810
2019													57,778		51,598		51,824		51,211		6,724		13,008
2019															57,778		51,598		51,824		10,840		13,086
2020															63,734		64,362		66,963		10,991		13,498
2020																	63,734		64,362		15,773		13,343
2021																	127,981		132,816		27,493		14,829
2021																			127,981		41,149		18,290
2022																			181,164		66,546		12,597
																			$	~~423~~589,~~526~~827
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years Ended December 31,
Accident Year	~~2012~~2013		~~2013~~2014		~~2014~~2015		~~2015~~2016		~~2016~~2017		~~2017~~2018		~~2018~~2019		~~2019~~2020		~~2020~~2021		~~2021~~2022
2012	$	6,143	$	11,996	$	14,480	$	16,249	$	17,196	$	18,188	$	19,098	$	19,399	$	19,704	$	19,824
2013	$	6,799	$	12,602	$	15,984	$	17,708	$	19,246	$	19,712	$	20,129	$	20,121	$	20,617	$	20,835
2013			6,799		12,602		15,984		17,708		19,246		19,712		20,129		20,121		20,617
2014			6,011		12,005		14,814		16,666		17,260		18,238		18,507		18,702		18,801
2014					6,011		12,005		14,814		16,666		17,260		18,238		18,507		18,702
2015					6,275		13,785		16,512		18,046		18,923		19,340		19,685		19,982
2015							6,275		13,785		16,512		18,046		18,923		19,340		19,685
2016							8,110		16,791		19,677		20,780		22,138		22,648		23,140
2016									8,110		16,791		19,677		20,780		22,138		22,648
2017									8,903		17,555		20,809		22,673		23,727		24,884
2017											8,903		17,555		20,809		22,673		23,727
2018											10,339		22,279		26,852		29,479		31,735
2018													10,339		22,279		26,852		29,479
2019													13,215		27,174		33,678		37,766
2019															13,215		27,174		33,678
2020															14,487		34,437		46,864
2020																	14,487		34,437
2021																	38,435		78,113
2021																			38,435
2022																			49,708
																			261,232
																			351,828
	All outstanding liabilities before 2012, net of reinsurance																		5,157
	All outstanding liabilities before 2013, net of reinsurance																		5,503
	Liabilities for claims and claim adjustment expenses, net of reinsurance																		$	~~167~~243,~~451~~502

Investments

Investment income is a significant component of our earnings. We invest our reserves and maintain a conservative investment portfolio primarily comprised of highly rated fixed income securities. Our investment strategy is to preserve capital and limit our exposure to investment risk. Our portfolio is managed by New England Asset Management, Inc. ("NEAM"), an investment management firm with a focus on insurance portfolios. Under our current agreement with NEAM, which we can terminate at any time upon 30 days’ notice, we pay NEAM a quarterly fee of a percentage of our assets under management. There are no minimum amounts of assets required under our agreement with NEAM. Our Investment Committee meets periodically and reports to our board of directors.

As of December 31, ~~2021~~2022, we had approximately $~~402~~454.20 million of total cash and invested assets, net of all collateral held on behalf of our Program Partners under reinsurance treaties. The weighted average rating of the fixed income portfolio is "AA" and the weighted average duration is approximately 4.02 years. The fixed income portfolio pre-tax book yield was 13.9907%.

We hold funds withheld balances in separate accounts for the benefit of our Program Partners. The funds withheld assets and associated investment income belong to our various Program Partners. However, we require that the assets in these accounts be managed in accordance with our investment guidelines. As of December 31, ~~2021~~2022, we had $~~199~~241.43 million of funds held under reinsurance treaties.

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	December 31,
	2021						2020
	2022						2021
	Cost or Amortized Cost		Fair Value		% of Total Fair Value		Cost or Amortized Cost		Fair Value		% of Total Fair Value
	(in thousands, except percentages)
Fixed maturities:
U.S. government and government securities	$	4165,~~490~~405	$	4162,~~434~~552	810.86	%	$	1741,~~135~~490	$	1741,~~471~~434	48.38	%
Foreign governments	~~2,500~~400		~~2,490~~395		0.51	%	~~300~~2,500		~~302~~2,490		0.15	%
States, territories and possessions	1017,~~593~~310		1015,~~766~~854		2.37	%	710,~~500~~593		710,~~774~~766		12.93	%
Political subdivisions of states territories and possessions	3938,~~170~~167		4033,~~002~~904		8.5.8	%	3139,~~759~~170		3340,~~212~~002		8.15	%
Special revenue and special assessment obligations	93115,~~664~~696		95103,~~991~~639		2017.36	%	7793,~~329~~664		8195,~~714~~991		20.03	%
Industrial and public utilities	~~100~~131,~~774~~769		~~103~~125,~~257~~540		21.94	%	~~107~~100,~~017~~774		~~113~~103,~~741~~257		2721.89	%
Commercial mortgage-backed securities	~~119~~145,~~378~~471		~~118~~128,~~218~~105		2521.08	%	16119,~~242~~378		18118,~~066~~218		425.40	%
Residential mortgage-backed securities	1626,~~549~~716		1725,~~368~~112		34.73	%	9116,~~478~~549		9317,~~017~~368		223.7	%
Other loan-backed securities	4153,~~236~~231		4151,~~425~~613		8.8	%	3941,~~293~~236		3941,~~945~~425		98.78	%
Hybrid securities	~~105~~6,233		~~110~~5,529		—0.9	%	~~356~~105		~~362~~110		~~0.1~~—	%
Total fixed maturities	~~465~~600,~~459~~398		~~471~~552,~~061~~243		9994.80	%	~~388~~465,~~409~~459		~~405~~471,~~604~~061		99.18	%
Equity securities:
Equity securities	39,882		35,041		6.0	%	984		969		0.2	%
Preferred stock	243		228		—	%	243		240		0.1	%
Total investments	$	640,280	$	587,284	100.0	%	$	466,443	$	472,030	100.0	%
Common stock	741		741		0.2	%	1,554		3,534		0.8	%
Total equity securities	984		969		0.2	%	1,797		3,774		0.9	%
Total investments	$	466,443	$	472,030	100.0	%	$	390,206	$	409,378	100.0	%

	December 31,
	2021						2020
	2022						2021
	Cost or Amortized Cost		Fair Value		% of Total Fair Value		Cost or Amortized Cost		Fair Value		% of Total Fair Value
	(in thousands, except percentages)
Due in one year or less	$	29,108	$	29,329	6.2	%	$	25,844	$	26,107	6.4	%
Fixed maturities:
Due after one year but before five years	117,366		119,275		25.3	%	102,491		107,516		26.5	%
Due in one year or less	$	35,468	$	35,125	6.4	%	$	29,108	$	29,329	6.2	%
Due after five years but before ten years	78,967		81,217		17.2	%	61,952		67,091		16.5	%
Due after one year but before five years	176,083		167,986		30.4	%	117,366		119,275		25.3	%
Due after ten years	62,855		64,229		13.6	%	51,109		53,862		13.3	%
Due after five years but before ten years	93,107		83,769		15.2	%	78,967		81,217		17.2	%
Commercial mortgage-backed securities	119,378		118,218		25.2	%	16,242		18,066		4.5	%
Due after ten years	70,322		60,533		11.0	%	62,855		64,229		13.6	%
Residential mortgage-backed securities	16,549		17,368		3.7	%	91,478		93,017		22.9	%
Commercial mortgage-backed securities	145,471		128,105		23.2	%	119,378		118,218		25.2	%
Other loan-backed securities	41,236		41,425		8.8	%	39,293		39,945		9.9	%
Residential mortgage-backed securities	26,716		25,112		4.5	%	16,549		17,368		3.7	%
Total	$	465,459	$	471,061	100.0	%	$	388,409	$	405,604	100.0	%
Other loan-backed securities	53,231		51,613		9.3	%	41,236		41,425		8.8	%
Total	$	600,398	$	552,243	100.0	%	$	465,459	$	471,061	100.0	%

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	December 31,
	2021				2020
	2022				2021
	Fair Value		% of Total Fair Value		Fair Value		% of Total Fair Value
	(in thousands, except percentages)
Rating
AAA	$	80106,~~455~~254	1719.12	%	$	5980,~~887~~455	1417.81	%
AA	~~278~~312,~~557~~903		5956.17	%	~~224~~278,~~371~~557		5559.31	%
A	7798,~~097~~963		1617.49	%	8977,~~975~~097		2216.24	%
BBB	3330,~~959~~122		75.25	%	2933,~~404~~959		7.2	%
BB	~~947~~3,965		0.27	%	~~1,921~~947		0.52	%
Below investment grade	4636		—	%	46		—	%
Total	$	~~471~~552,~~061~~243	100.0	%	$	~~405~~471,~~604~~061	100.0	%

Enterprise risk management

We designed and implemented an enterprise risk management ("ERM") program to identify, manage and mitigate the risks the company is exposed to. The board of directors and its committees are supported in their oversight of our ERM process by an ERM Committee consisting of seven senior executives who each represent a critical operating unit of ours.

Our board of directors, ERM committee and senior management have identified five key risk areas for oversight within the ERM framework. The five key risk areas are credit risk, market risk, underwriting risk, strategic risk and operational risk. Within each key risk, we have identified specific risk sub-categories leading to the identification and analysis of more granular risks. Through a documented analytical process, the ERM committee continually reviews and evaluates these risks to monitor their potential impact on our businesses and periodically reports its findings to the board of directors and its committees. Our board of directors believes this overall structure and analytical process creates effective risk identification, appetite determination, controls, oversight and management for our Company.

Competition

In general, the property and casualty ("P&C") insurance market is highly competitive. Some of our competitors have greater financial, marketing and management resources and experience than we do. We may also compete with new market entrants in the future. In the workers’ compensation insurance market, our competitors include insurance companies, state insurance pools and self-insurance funds. According to the most recent market data from S&P Global, approximately 250 insurance companies participated in the workers’ compensation market in ~~2020~~2021. We compete against State National Companies, Inc. and AF Group in the provision of issuing carrier services to program administrators.

Competition is based on many factors, including the reputation and experience of the insurer, coverages and services offered, pricing and other terms and conditions, speed of claims payment, customer service, relationships with brokers and agents (including ease of doing business, service provided and commission rates paid), size and financial strength ratings, among other considerations.

Ratings

As of March ~~2022~~2023, we have an "A" (Excellent) (Outlook Stable) financial strength rating ("FSR") from A.M. Best, which rates insurance companies based on factors of concern to policyholders. A.M. Best’s FSRs reflect its opinion of an insurance company’s financial strength, operating performance and ability to meet its obligations to policyholders.

A.M. Best currently assigns 16 FSRs to insurance companies, which currently range from "A++" (Superior) to "S" (Rating Suspended). "A" (Excellent) is the third highest FSR in the A.M. Best system. In evaluating a company’s financial and operating performance, A.M. Best reviews the company’s profitability, leverage and liquidity, as well as its book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its losses

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and loss expense reserves, the adequacy of its surplus, its capital structure, the experience and competence of its management and its market presence.

Human capital

Overview

As of December 31, ~~2021~~2022, we had ~~355~~344 employees. Our employees are not subject to any collective bargaining agreements, and we are not aware of any current efforts to implement such an agreement. We believe that our employee relationships are good.

Compensation and benefits

We believe that our employees are one of our most valuable assets. In order to attract and retain talent, we offer fair, competitive compensation and benefits to support our team members’ overall well-being. Employee compensation includes base pay, annual incentive compensation and, in some cases, stock compensation.

Diversity and inclusion

We are committed to fostering a diverse and inclusive work environment free from discrimination of any kind and that supports the communities we serve. We seek to recruit the best qualified employees regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace.

Regulation

Our business is subject to extensive regulation in the United States at both the state and federal level, including regulation under state insurance and federal laws. We cannot predict the impact of future state or federal laws or regulations on our business. Future laws and regulations, or the interpretation thereof, may materially adversely affect our financial condition and results of operations.

Insurance regulation - General

Our insurance subsidiaries are subject to extensive regulation and supervision by the states in which they are domiciled, particularly with respect to their financial condition. Benchmark is domiciled in Kansas where it is regulated and supervised by the Kansas Insurance Department. Additionally, Benchmark is commercially domiciled in California, where it is regulated and supervised by the California Department of Insurance. ALIC is domiciled in Utah where it is regulated and supervised by the Utah Insurance Department. 7710 is domiciled in South Carolina where it is regulated and supervised by the South Carolina Department of Insurance. BSIC is domiciled in Arkansas where it is regulated and supervised by the Arkansas Department of Insurance. Our insurance subsidiaries are also subject to regulation by all states in which they transact business, which oversight in practice often focuses on review of their market conduct. Benchmark is licensed to conduct insurance business, and ~~therefore, Benchmark is~~ subject to regulation and supervision ~~by insurance regulators,~~ in 49 states and the District of Columbia. ALIC is licensed or eligible to conduct insurance business, and therefore, ~~ALIC~~ is subject to regulation and supervision by insurance regulators, in 38 states and the District of Columbia. 7710 is licensed or eligible to conduct insurance business, and ~~therefore, 7710~~ is subject to regulation and supervision by insurance regulators, in 9nine states. BSIC is licensed to conduct business in 1one state and is authorized to issue policies in 149 ~~state~~states and the District of Columbia. The extent and scope of insurance regulation varies ~~between~~among jurisdictions, but most jurisdictions have laws and regulations governing the financial security of insurers, including admittance of assets for purposes of calculating statutory surplus, standards of solvency, reserves, reinsurance, capital adequacy and the business conduct of insurers.

In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of policy forms and related materials and, for certain lines of insurance, the approval of rates. State statutes and regulations also prescribe the permitted types and concentrations of investments by insurers. The primary purpose of this insurance industry regulation is to protect policyholders. P&C insurance companies are required to file detailed quarterly and annual statements with insurance regulatory authorities in each of the jurisdictions in which they are licensed or eligible to do business, and their operations and accounts are subject to periodic examination by such authorities. In connection with the continued licensing of insurance companies, regulators have discretionary authority to limit or prohibit the ability to issue new policies if, in their judgment, the regulators determine that an insurer is not maintaining minimum statutory surplus or capital or if the further transaction of business will be detrimental to its policyholders.

The amount of dividends that our insurance subsidiaries may pay in any twelve-month period, without prior approval by their respective domestic insurance regulators, is restricted under the laws of Kansas, Utah, Arkansas and South Carolina.

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~~The~~Under ~~amount~~Kansas ofand California law, dividends ~~that~~payable ~~our~~from Benchmark without the prior approval of the applicable insurance ~~subsidiaries~~commissioner ~~may~~must ~~pay~~not inexceed ~~any~~the ~~twelve-month~~greater ~~period,~~of ~~without~~(i) ~~prior~~10% ~~approval~~of byBenchmark’s ~~their~~surplus ~~respective~~as ~~domestic~~shown ~~insurance~~on ~~regulators,~~the islast ~~restricted~~statutory ~~under~~financial statement on file with the ~~laws~~Kansas Insurance Department; or (ii) 100% of ~~Kansas,~~net ~~California,~~income ~~Utah,~~during ~~Arkansas~~the ~~and~~applicable ~~South~~twelve-month ~~Carolina~~period (not including realized gains). Dividends shall not include pro rata distributions of any class of Benchmark's own securities.

Under Kansas and California law, dividends payable from Benchmark without the prior approval of the applicable insurance commissioner must not exceed the greater of (i) 10% of Benchmark’s surplus as shown on the last statutory financial statement on file with the Kansas Insurance Department and the California Department of Insurance, respectively; or (ii) 100% of net income during the applicable twelve-month period (not including realized gains). Dividends shall not include pro rata distributions of any class of Benchmark's own securities.

Under Utah law, dividends payable from ALIC without the prior approval of the applicable insurance commissioner must not exceed the lesser of (i) 10% of ALIC’s surplus as shown on the last statutory financial statement on file with the Utah Insurance Department; or (ii) 100% of net income during the applicable twelve- month period (not including realized gains). Dividends shall not include pro rata distributions of any class of ALIC's own securities.

Under South Carolina law, dividends payable from 7710 without the prior approval of the applicable insurance commissioner are limited to the following during the preceding twelve months: (a) when paid from other than earned surplus must not exceed the lesser of: (i) 10% of 7710's surplus as regards policyholders as shown in 7710’s most recent annual statement; or (ii) the net income, not including net realized gains or losses as shown in the 7710's most recent annual statement; or (b) when paid from earned surplus must not exceed the greater of: (i) 10% of the 7710's surplus as regards policyholders as shown in 7710’s most recent annual statement; or (ii) the net income, not including net realized gains or losses as shown in the 7710's most recent annual statement. Dividends shall not include pro rata distributions of any class of 7710’s own securities.

Under Arkansas law, dividends payable from BSIC without the prior approval of the applicable insurance commissioner must not exceed the lesser of (i) 10% of BSIC’s surplus as shown on the last statutory financial statement on file with the Arkansas Insurance Department; or (ii) 100% of net income during the applicable twelve- month period (not including realized gains). Dividends shall not include pro rata distributions of any class of BSIC's own securities.

In addition, payments of dividends and advances or repayment of funds to us by our insurance subsidiaries are restricted by the applicable laws of our insurance subsidiaries’ respective jurisdictions requiring that each insurance subsidiary hold a specified amount of minimum reserves in order to meet future obligations on its outstanding policies. These regulations specify that the minimum reserves shall be calculated to be sufficient to meet future obligations, giving consideration for required future premiums to be received, which are based on certain specified interest rates and methods of valuation, which are subject to change.

Insurance holding company regulation

We are an insurance holding company and, together with our insurance subsidiaries and our other subsidiaries and affiliates, are subject to the insurance holding company system laws of Kansas, California, Utah, Arkansas and South Carolina. These laws vary across jurisdictions, but generally require an insurance holding company and insurers that are members of such insurance holding company’s system to register with the jurisdiction’s insurance regulatory authorities, to file reports disclosing certain information, including their capital structure, ownership, management, financial condition, enterprise risk and own risk and solvency assessment.

These laws also require disclosure of certain qualifying transactions between or among our insurance subsidiaries and us or any of our other subsidiaries or affiliates to which one or more of our insurance subsidiaries is a party. Such transactions could include loans, investments, sales, service agreements and reinsurance agreements among other similar inter-affiliate transactions. These laws also require that inter-company transactions be fair and reasonable. In certain circumstances, the insurance company must give prior notice of the transaction to the insurance department in its state of domicile, and the insurance department must either approve or disapprove the subject inter-company transaction within defined periods. Further, these laws require that an insurer’s contract holders’ surplus following any dividends or distributions to shareholder affiliates be reasonable in relation to the insurer’s outstanding liabilities and its financial needs.

The insurance holding company laws in some states, including Kansas, California, Utah, Arkansas and South Carolina, require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s parent company. Generally, to obtain approval from the insurance commissioner for any acquisition of control of an insurance company or its parent company, the proposed acquirer must file with the applicable commissioner an application containing certain information including with respect to the participant companies in and terms of the transaction. Different jurisdictions may have requirements for prior approval of any acquisition of control of any insurance or reinsurance company licensed or authorized

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~~including with respect~~ to the participant companies in and terms of the transaction. Different jurisdictions may have requirements for prior approval of any acquisition of control of any insurance or reinsurance company licensed or authorized to transact business in those jurisdictions. Additional requirements may include re-licensing or subsequent approval for renewal of existing licenses upon an acquisition of control.

Credit for reinsurance

State insurance laws permit U.S. insurance companies, as ceding insurers, to take financial statement credit for reinsurance that is ceded, so long as the assuming reinsurer satisfies the state’s credit for reinsurance laws. The Nonadmitted Reinsurance Reform Act contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") provides that if the state of domicile of a ceding insurer is a National Association of Insurance Commissioners ("NAIC") accredited state, or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, and recognizes credit for reinsurance for the insurer’s ceded risk, then no other state may deny such credit for reinsurance. Because all states are currently accredited by the NAIC, the Dodd-Frank Act prohibits a state in which a U.S. ceding insurer is licensed but not domiciled from denying credit for reinsurance for the insurer’s ceded risk if the cedant’s domestic state regulator recognizes credit for reinsurance. The ceding company in this instance is permitted to reflect in its statutory financial statements a credit in an aggregate amount equal to the ceding company’s liability for unearned premium (which are that portion of written premiums which applies to the unexpired portion of the policy period), loss reserves and loss expense reserves to the extent ceded to the reinsurer.

Statutory examinations

We are required to file detailed quarterly and annual financial statements, in accordance with prescribed statutory accounting rules with regulatory officials in each of the jurisdictions in which we do business. As part of their routine regulatory oversight process, the Kansas Insurance Department, the California Department of Insurance, the Utah Insurance Department, the Arkansas Department of Insurance, and the South Carolina Department of Insurance conduct periodic detailed examinations, generally once every three to five years, of the books, records, accounts and operations of our insurance subsidiaries domiciled in their states.

Financial tests

The NAIC has developed a set of financial relationships or "tests," known as the Insurance Regulatory Information System or IRIS, which is designed for early identification of companies that may require special attention or action by insurance regulatory authorities. Insurance companies submit data annually to the NAIC, which in turn analyzes the data by utilizing ratios. State insurance regulators review this statistical report, which is available to the public, together with an analytical report, prepared by and available only to state insurance regulators, to identify insurance companies that appear to require immediate regulatory attention. A "usual range" of results for each ratio is used as a benchmark.

Risk-based capital requirements

In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement risk-based capital ("RBC") requirements for P&C insurers. All states have adopted the NAIC’s model law or a substantively similar law. The NAIC Risk-Based Capital Model Act requires insurance companies to submit an annual RBC Report, which compares an insurer’s Total Adjusted Capital with its Authorized Control Level RBC. A company’s RBC is calculated by using a specified formula that applies factors to various specified asset, premium, claim, expense and reserve items. The factors are higher for those items with greater underlying risk and lower for items with less underlying risk.

Total Adjusted Capital is defined as the sum of an insurer’s statutory capital and surplus and asset valuation reserve and the estimated amount of all dividends declared by the insurer’s board of directors prior to the end of the statement year that are not yet paid or due at the end of the year. The RBC Report is used by regulators to initiate appropriate regulatory actions relating to insurers that show indications of weak or deteriorating conditions. RBC is an additional standard for minimum capital requirements that insurers must meet to avoid being placed in rehabilitation or liquidation by regulators. The annual RBC Report, and the information contained therein, are not intended by the NAIC as a means to rank insurers.

RBC is a method of measuring the minimum amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. It provides a means of setting the capital requirement in which the degree of risk taken by the insurer is the primary determinant. The value of an insurer’s Total Adjusted Capital in relation to its RBC, together with its trend in its Total Adjusted Capital, is used as a basis for determining regulatory action that a state insurance regulator may be authorized or required to take with respect to an insurer. The four determinations, potentially applicable under each jurisdiction’s laws, are ~~essentially~~ as follows:

•Company Action Level Event. Total Adjusted Capital is greater than or equal to 150% but less than 200% of RBC, or Total Adjusted Capital is greater than or equal to 200% but less than 250% of RBC and has a negative trend. If there

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~~•Company Action Level Event. Total Adjusted Capital~~ is ~~greater than or equal to 150% but less than 200% of RBC or Total Adjusted Capital greater than or equal to 200% but less than 250% of RBC, and has~~ a ~~negative trend. If there is a~~ Company Action Level Event, the insurer must submit a plan (an "RBC Plan") outlining, among other things, the corrective actions it intends to take in order to remedy its capital deficiency.

•Regulatory Action Level Event. Total Adjusted Capital is greater than or equal to 100% but less than 150% of RBC or the insurer has failed to comply with filing deadlines for its RBC Report or RBC Plan. If there is a Regulatory Action Level Event, the insurer is also required to submit an RBC Plan. In addition, the insurance regulator must undertake a comprehensive examination of the insurer’s financial condition and must issue any appropriate corrective orders.

•Authorized Control Level Event. Total Adjusted Capital is below RBC but greater than or equal to 70% of RBC or the insurer has failed to respond to a corrective order. As noted above, if there is an Authorized Control Level Event, the insurance regulator may seek rehabilitation or liquidation of the insurer if it deems it to be in the best interests of the policyholders and creditors of the insurer and the public.

•Mandatory Control Level Event. Total Adjusted Capital is below 70% of RBC. If there is a Mandatory Control Level Event, the insurance regulator must seek rehabilitation or liquidation of the insurer.

Market conduct

Our insurance subsidiaries are subject to periodic market conduct exams ("MCE") in any jurisdiction where they do business. An MCE typically entails review of business activities, such as operations and management, complaint handling, marketing and sales, producer licensing, policyholder service, underwriting and rating and claims handling. Regulators may impose fines and penalties upon finding violations of regulations governing such business activities.

Rate and form approvals

Our insurance subsidiaries may be subject to each state’s laws and regulations regarding rate and form approvals. The applicable laws and regulations are used by states to establish standards to ensure that rates are not excessive, inadequate, or unfairly discriminatory or used to engage in unfair price competition. An insurer’s ability to increase rates and the relative timing of the process can be dependent upon each state’s respective requirements.

Claims adjusting

Generally, insurance companies, adjusting companies and individual claims adjusters are prohibited by state statutes from engaging in unfair claims practices. Unfair claims practices include, but are not limited to, misrepresenting pertinent facts or insurance policy provisions; failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies; and attempting to settle a claim for less than the amount to which a reasonable person would have believed such person was entitled.

Assessments against insurers

Under the insurance guaranty fund laws existing in each state and the District of Columbia., licensed insurers can be assessed by insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Most of these laws provide for annual limits on the assessments and for an offset against state premium taxes. These premium tax offsets must be spread over future periods ranging from five to 20 years. Since these assessments typically are not made for several years after an insurer fails and depend upon the final outcome of liquidation or rehabilitation proceedings, we cannot accurately determine the amount or timing of any future assessments.

Regulation of investments

We are subject to state laws and regulations that require diversification of our investment portfolios and limit the amounts of investments in certain asset categories, such as below-investment grade fixed income securities, equity real estate, other equity investments and derivatives. Failure to comply with these requirements and limitations could cause affected investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, could require the divestiture of such non-qualifying investments.

Statutory accounting principles

Statutory accounting principles ("SAP") are a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily concerned with measuring an insurer’s solvency. Statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.

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accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.

GAAP is concerned with a company’s solvency, but is also concerned with other financial measurements, principally income and cash flows. Accordingly, GAAP gives more consideration to appropriately matching revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as compared to SAP.

Potential issuing carrier restrictions

In certain states, including Florida and Kentucky, the Insurance Commissioner has the authority to prohibit an authorized insurer from acting as an issuing carrier for an unauthorized insurer. In addition, insurance departments in states that have no statutory or regulatory prohibition against an authorized insurer acting as an issuing carrier for an unauthorized insurer could deem the assuming insurer to be transacting insurance business without a license and the issuing carrier to be aiding and abetting the unauthorized sale of insurance.

Enterprise risk and other developments

The NAIC, as part of its solvency modernization initiative, has engaged in a concerted effort to strengthen the ability of U.S. state insurance regulators to monitor U.S. insurance holding company groups. The NAIC’s solvency modernization initiative, among other things, aims to expand the authority and focus of state insurance regulators to encompass U.S. insurance holding company systems at the group level.

The holding company reform efforts at the NAIC culminated in December 2010 in the adoption of significant amendments to the NAIC’s Insurance Holding Company System Regulatory Act (the "Model Holding Company Act") and its Insurance Holding Company System Model Regulation (the "Model Holding Company Regulation"). Among other things, the revised Model Holding Company Act and Model Holding Company Regulation explicitly address "enterprise" risk – the risk that an activity, circumstance, event or series of events involving one or more affiliates of an insurer will, if not remedied promptly, be likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole – and require annual reporting of potential enterprise risk as well as access to information to allow the state insurance regulator to assess such risk. In addition, the Model Holding Company Act amendments include a requirement to the effect that any person divesting control over an insurer must provide 30 days’ notice to the regulator and the insurer (with an exception for cases where a Form A is being filed). The amendments direct the domestic state insurance regulator to determine those instances in which a divesting person will be required to file for and obtain approval of the transaction. Some form of the 2010 amendments to the Model Holding Company Act has been adopted in all states.

In December 2014, the NAIC adopted additional revisions to the Model Holding Company Act, updating the model to clarify the group-wide supervisor for a defined class of internationally active insurance groups. The revisions also outline the process for determining the lead state for domestic insurance groups, outline the activities the commissioner may engage in as group-wide supervisor and extend confidentiality protections to cover information received in the course of group-wide supervision. The 2014 revisions to the Model Holding Company Act have been adopted in all accredited U.S. jurisdictions.

In 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment ("ORSA") Model Act, which requires domestic insurers to maintain a risk management framework and establishes a legal requirement for domestic insurers to conduct an ORSA in accordance with the NAIC’s ORSA Guidance Manual. The ORSA Model Act provides that domestic insurers, or their insurance group, must regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual process. The ORSA Model Act also provides that, no more than once a year, an insurer’s domiciliary regulator may request that an insurer submit an ORSA summary report, or any combination of reports that together contain the information described in the ORSA Guidance Manual, with respect to the insurer and the insurance group of which it is a member. If and when the ORSA Model Act is adopted by a particular state, the ORSA Model Act would impose more extensive filing requirements on parents and other affiliates of domestic insurers. Each of Kansas, California and Utah have adopted their version of the ORSA Model Act. Our insurance company subsidiaries, Benchmark, ALIC and 7710, will be subject to the requirements of the ORSA Model Act adopted in Kansas, California, Utah and South Carolina, respectively, when their direct written premiums and unaffiliated assumed premiums, if any, exceed $500 million (Benchmark, ALIC and 7710 are currently exempt from such requirements based on the amount of their direct written premiums and unaffiliated assumed premiums).

Privacy regulation

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~~Privacy~~practices relating to protecting the security and confidentiality of that information. State laws regulate the use and disclosure of social security numbers and federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including social security numbers. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal and state lawmakers and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information.

Federal and state law and regulation require financial institutions to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health- related and customer information and their practices relating to protecting the security and confidentiality of that information. State laws regulate the use and disclosure of social security numbers and federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including social security numbers. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal and state lawmakers and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information.

Cybersecurity regulation

The NAIC adopted the Insurance Data Security Model Law in October 2017. As of the date of this Annual Report, 18 states, including South Carolina but not including Kansas, California, Arkansas or Utah, have adopted the model law or a variation of it. We expect that additional regulations could be enacted in other jurisdictions that could impact our cybersecurity program. Depending on these and other potential implementation requirements, we will likely incur additional costs of compliance.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the SEC. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding issuers, including us, that file electronically with the SEC. The address of that site is http://www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information filed by us with the SEC are available, without charge, on our web site, http://www.trean.com, as soon as reasonably practicable after they are filed electronically with the SEC. The information on our website is not a part of this Annual Report.

Item 1A. Risk Factors

The execution of our business strategy, our results of operations and our financial condition are subject to inherent risks and uncertainties. A summary of certain material risks is provided below, and you should carefully consider these risks and uncertainties, as well as the financial and other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, in evaluating any investment decision involving the Company. This section does not describe all risks and uncertainties applicable to us and is intended only as a summary of certain factors that could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects and the industry in which we operate. Other sections of this Annual Report on Form 10-K contain additional information about these and other risks and uncertainties. The occurrence of any of these risks and uncertainties could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects and cause the value of our stock to decline, which could cause you to lose all or part of your investment.

Risks ~~related~~Related to ~~COVID-19~~the Proposed Merger

~~Disruptions~~The ~~related~~proposed toMerger ~~COVID-19,~~may ~~including~~not ~~economic~~be ~~impacts~~completed ofin ~~the~~a ~~COVID-19-related~~timely ~~governmental~~manner ~~actions,~~or ~~could~~at ~~materially~~all, ~~and~~which may adversely affect our business, ~~financial condition~~ and ~~results~~the price of ~~operations~~our Common Stock.

~~The~~If ~~global~~the ~~outbreak~~Merger ofis ~~COVID-19~~not ~~continues~~completed tofor ~~rapidly~~any ~~evolve~~reason, ~~and~~we ~~has~~will ~~resulted~~be insubject ~~quarantines,~~to ~~reductions~~a innumber ~~business~~of ~~activity~~material risks, ~~widespread~~including ~~unemployment~~the ~~and~~disruption ~~overall~~to ~~economic~~our ~~and~~business ~~financial~~resulting ~~market~~from ~~instability.~~the Inannouncement ~~addition,~~of the ~~continuation~~signing of the ~~COVID-19~~Merger ~~pandemic~~Agreement, ~~and~~ the ~~economic~~diversion ~~impacts~~ of ~~COVID~~management’s attention from our day-19to-~~related~~day ~~governmental~~business, ~~actions~~expenses ~~may~~incurred ~~eventually~~in ~~have~~connection anwith ~~impact~~the proposed Merger and the restrictions imposed by the Merger Agreement on ~~our~~the ~~premium~~operation ~~revenue,~~of our ~~loss~~business ~~experience~~during ~~and~~the ~~loss~~period ~~expense,~~before ~~liquidity~~the completion of the Merger, ~~regulatory~~any ~~capital~~or ~~and~~all ~~surplus~~of ~~and~~which ~~operations~~may make it difficult for us to achieve our business goals if the Merger does not occur.

ItIn isaddition, ~~still~~in ~~difficult~~such toa ~~determine~~scenario where the ~~ultimate~~Merger ~~effect~~is ofnot ~~the~~consummated, ~~significantly~~our ~~impacted~~stockholders ~~financial~~will ~~markets,~~not ~~businesses,~~receive ~~households~~any ~~and~~payment ~~communities~~for ~~resulting~~their ~~from~~shares in connection with the ~~COVID-19~~Merger. ~~pandemic~~Instead, we will ~~have~~remain onan independent public company, and our ~~future~~shares ~~revenues~~of orCommon ~~expected~~Stock ~~claims~~will ~~and~~continue ~~losses~~to be listed on Nasdaq. ~~Legislative~~However, ~~and~~if ~~regulatory~~the ~~initiatives~~Merger ~~taken~~is not consummated, orand ~~which~~depending ~~may~~on the circumstances that would have caused the Merger not to be ~~taken~~consummated, inthe price of the ~~future~~shares inof ~~response~~our Common Stock may decline significantly. If that were to ~~COVID-19~~occur, ~~may~~it ~~adversely~~is ~~affect~~uncertain ~~our~~when, ~~operations~~if ever, ~~particularly~~the ~~with~~price ~~respect~~of our Common Stock would return to ~~our~~the ~~workers’~~prices ~~compensation~~at ~~businesses~~which the shares of Common Stock currently trade. ~~Adverse~~Accordingly, ~~effects~~if ~~could~~the ~~include:~~Merger is not consummated, there can be no assurance as to the effect of these risks on the future value of shares held by our stockholders.

~~•legislative~~The orclosing ~~regulatory~~of ~~action~~the ~~seeking~~proposed toMerger ~~retroactively~~is ~~mandate~~subject ~~coverage~~to ~~for~~certain ~~losses~~conditions, some of which we cannot control, including the adoption of the Merger Agreement by our ~~policies~~stockholders ~~would~~and the receipt of certain regulatory approvals, and, if any of these conditions is not ~~otherwise~~satisfied, ~~cover~~the orMerger ~~have~~may ~~been~~not ~~priced~~be toconsummated. ~~cover;~~

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•The Merger is subject to the satisfaction or waiver of certain conditions to closing, including, but not limited to, (i) the Requisite Stockholder Approvals (as defined in the Merger Agreement); (ii) all required insurance regulatory ~~actions~~approvals ~~relaxing~~(or ~~reporting~~the ~~requirements~~applicable regulatory authorities’ non-objection to requests for ~~claims,~~exemptions ~~which~~in ~~may~~respect ~~affect~~thereof) ~~coverage~~shall have been obtained; (iii) the expiration or termination of any waiting period (and extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the absence of any restraint or law preventing or prohibiting the consummation of the Merger; (v) the accuracy of Parent’s, Merger Sub’s, and the our ~~claims~~representations ~~made~~and warranties (subject to certain materiality qualifiers); (vi) Parent’s, Merger Sub’s, and ~~reported~~the ~~policies~~our compliance in all material respects with their respective obligations under the Merger Agreement; and (vii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement. Certain conditions to the Merger may not be satisfied or, if they are, the timing of such satisfaction is uncertain. If any conditions to the Merger are not satisfied or, where waiver is permitted by applicable law, not waived, the Merger will not be consummated.

~~•legislative~~If ~~actions~~for ~~prohibiting~~any usreason ~~from~~the ~~canceling~~Merger ~~policies~~is innot ~~accordance~~completed, ~~with~~or the closing of the Merger is significantly delayed, our ~~policy~~share ~~terms~~price, business and results of operations may be adversely affected. In addition, failure to consummate the Merger would prevent our shareholders from realizing the anticipated benefits of the Merger. We have incurred, and expect to continue to incur, significant transaction fees, professional service fees, taxes, and other costs related to the Merger, for most or ~~non-renewing~~all ~~policies~~of atwhich ~~their~~we ~~expiration~~will ~~date;~~remain obligated even if the Merger is not completed.

~~•legislative~~The ~~orders~~occurrence toof ~~provide~~any ~~premium~~event, ~~refunds~~change, ~~extend~~or ~~premium~~other ~~payment~~circumstance ~~grace~~or ~~periods~~condition ~~and~~that ~~allow~~could ~~time~~give ~~extensions~~rise ~~for~~to ~~past~~the ~~due~~termination ~~premium~~of ~~payments;~~the Merger Agreement, including in circumstances requiring us to pay a termination fee.

~~•legislative~~The ~~action~~Merger ~~creating~~Agreement contains certain termination rights, including our right to terminate the Merger Agreement to accept a ~~presumption~~Company ~~that~~Superior ~~COVID-19~~Proposal ~~was~~(as ~~contracted~~defined in the ~~course~~Merger Agreement), subject to specified limitations, and ~~scope~~provides that, if the Board (acting upon the recommendation of ~~employment~~the ~~for~~Special ~~certain~~Committee) ~~workers;~~or the Special Committee authorizes us to terminate the Merger Agreement in order to accept a superior proposal, we will be required to pay the Parent a termination fee of $9,450,000.

~~•we~~The ~~may~~announcement ~~have~~or ~~increased~~pendency ~~workers’~~of ~~compensation~~the ~~loss~~proposed ~~expense~~Merger ~~and~~may ~~claims~~adversely ~~frequency~~affect ifour ~~policyholder~~business ~~employees~~relationships, inoperating ~~high~~results, ~~risk~~and ~~roles~~business ~~with~~generally, ~~essential~~and ~~businesses~~the ~~contract~~proposed ~~COVID-19~~transaction inmay ~~the~~disrupt ~~workplace;~~our current plans and operations.

~~•we~~Our business relationships, operating results and business generally may ~~have~~be ~~increased~~subject ~~workers’~~to ~~compensation~~material ~~loss~~risks ~~expense~~of disruption resulting from the announcement and ~~claims~~pendency ~~frequency~~of ifthe ~~policyholder~~Merger. ~~employees~~Our Program Partners or other parties with whom we maintain business relationships may experience anuncertainty ~~adverse~~about ~~reaction~~our future and seek alternative relationships with third parties or seek to ~~COVID~~alter their business relationships with us. Our employees may experience uncertainty about their future roles with us following the Merger. The attention of our management may be directed toward completion of the Merger, integration planning and transaction-19related ~~vaccines~~considerations ~~due~~and tomay be diverted from the ~~employer~~company’s ~~requiring~~day-to-day orbusiness ~~strongly~~operations ~~encouraging~~and, ~~vaccination~~following ~~for~~the ~~employees—a~~completion ~~majority~~of the Merger, the attention of ~~case~~our ~~law~~management ~~thus~~may ~~far~~also ~~has~~be ~~determined~~diverted ~~adverse~~to such matters. We may experience negative reactions from our stockholders. Further, as a result of disruptions in ~~these~~our ~~situations~~current ~~are~~business ~~compensable~~operations ~~under~~in ~~workers’~~connection ~~compensation~~with ~~laws;~~the Merger and the uncertainty surrounding the conduct of our business following the completion of the Merger, we may not be able to fully implement our business plan and/or may lose key Program Partners.

~~•high~~These ~~unemployment~~disruptions could be exacerbated by a delay in the completion of the Merger or termination of the Merger Agreement. Additionally, if the Merger is not consummated, we will have incurred significant costs and ~~low~~diverted ~~interest~~the ~~rates~~time ~~could~~and ~~adversely~~attention ~~affect~~of management. A failure to consummate the Merger may also result in negative publicity, reputational harm, litigation against us or our ~~profitability~~directors and ~~declining~~officers, ~~payrolls~~and a negative impression of us in the financial markets. The occurrence of any of these events individually or in combination could ~~adversely~~have ~~affect~~a material adverse effect on our ~~workers'~~business ~~compensation~~relationships, ~~written~~operating ~~premiums;~~results, stock price and business generally.

~~•travel~~Our ~~restrictions~~ability ~~and~~to ~~quarantines~~retain ~~leading~~and tohire akey ~~lack~~personnel of in~~-person~~ ~~meetings,~~light ~~which~~of ~~would~~the ~~hinder~~proposed ~~our ability to establish relationships or originate new business;~~Merger.

~~•alternative~~Our ~~working~~employees ~~arrangements~~may be uncertain about their future roles and relationships with us following the completion of the Merger, ~~including~~which may adversely affect our ability to retain them or to hire new employees. ~~working~~While ~~remotely~~the Merger is pending, ~~could~~we ~~negatively~~may ~~impact~~not be able to hire qualified personnel to replace any key employees that may depart to the same extent that we have been able to in the past. In addition, if the Merger is not completed, we may also encounter challenges in hiring qualified personnel to replace key employees that may depart subsequent to the Merger announcement. Because we depend on the experience and industry knowledge of our executives and other key personnel to execute our business ~~should~~plans, ~~such~~we ~~arrangements~~may ~~remain~~therefore ~~for~~experience andifficulty ~~extended~~in ~~period~~meeting ofour ~~time;~~strategic objectives while the Merger is pending or after it is consummated.

•we may experience elevated frequency and severity in our workers’ compensation lines as a result of legislative or regulatory action to effectively expand workers’ compensation coverage for certain types of workers; and29

~~•we~~Table ~~may experience delayed reporting~~ of ~~losses, settlement negotiations and disputed claims resolution above our normal claims resolution trends.~~Contents

~~The~~Efforts ~~occurrence~~to ofconsummate ~~any~~the ofproposed ~~these~~Merger ~~events~~may ordivert ~~experiences,~~management’s ~~individually~~attention orfrom ~~collectively, could materially and adversely affect~~ our ongoing business, ~~financial condition and results of~~ operations.

We have expended, and expect to continue to expend, significant management resources to consummate the Merger. While acting to consummate the Merger, the attention of our management may be diverted away from the day-to-day operations of our business, including implementing initiatives to improve performance, execution of existing business plans and pursuing other beneficial opportunities. This diversion of management resources could disrupt our operations and may have an adverse effect on the respective businesses, financial conditions, results of operations and cash flows of us or the merged entity after the effective time of the Merger.

Potential litigation relating to the proposed Merger that could be instituted against Altaris, us, or our directors, managers, or officers.

Regardless of the outcome of any litigation related to the Merger Agreement and the transactions it contemplates, such litigation may be time-consuming and expensive and may distract our management from running the day-to-day operations of our business. The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the Merger Agreement and the transactions it contemplates may materially adversely affect our business, financial condition and/or operating results. Furthermore, if the Merger is not consummated, for any reason, litigation could be filed in connection with the failure to consummate the Merger. Any litigation related to the Merger may result in negative publicity or an unfavorable impression of us, which could negatively impact the trading price of our Common Stock, impair our ability to recruit or retain employees, damage our relationships with Program Partners, or otherwise materially harm our operations and financial performance.

Certain restrictions during the pendency of the proposed Merger that may impact our ability to pursue certain business opportunities or strategic transactions.

Upon our entry into the Merger Agreement, we became subject to customary exclusivity and “no shop” restrictions that restrict our ability to solicit proposals from, provide information to, and engage in discussions with, any third parties with respect to a proposed acquisition. Subject to certain customary “fiduciary out” exceptions, the Special Committee and the Board are required to recommend that our stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger and the other transactions contemplated thereby. However, the Board (acting on the recommendation of the Special Committee) or the Special Committee may, prior to the receipt of the requisite stockholder approvals, make an adverse recommendation change in connection with a certain Company Superior Proposals (as defined in the Merger Agreement) or Intervening Event (as defined in the Merger Agreement) if we comply with certain notice and other requirements set forth in the Merger Agreement, including the payment of a termination fee.

Risks related to our business and industry

Failure of our Program Partners or our Owned MGAs to properly market, underwrite or administer policies could adversely affect us.

The marketing, underwriting, claims administration and other administration of policies in connection with our issuing carrier services and for business written directly by our Owned MGAs are the responsibility of our Program Partners and our Owned MGAs. Any failure by them to properly handle these functions could result in liability to us. Even though our Program Partners may be required to compensate us for any such liability, there are risks that such compensation may be insufficient or entirely unavailable—for example, if the relevant Program Partner becomes insolvent or is otherwise unable to pay us. Any such failures could result in monetary losses, create regulatory issues or harm our reputation, which could materially and adversely affect our business, financial condition and results of operations.

We depend on a limited number of Program Partners for a substantial portion of our gross written premiums.

We source a significant amount of our premiums from our Program Partners, which are generally MGAs and insurance companies. Historically, we have focused our business on a limited group of core Program Partners and have sought to grow the business by expanding existing Program Partner relationships and selectively adding new Program Partners. For the years ended December 31, ~~2021~~2022 and ~~2020~~2021, approximately 4650% and 3546% of our gross written premiums were derived from our top ten Program Partners, respectively.

A significant decrease in business from, or the entire loss of, any of our largest Program Partners or several of our other Program Partners may materially adversely affect our business, financial condition and results of operations. ~~Approximately half of our gross written premiums are written in three key states.~~

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Our business is subject to significant geographic concentration, as ~~more~~nearly ~~than~~ half of our gross written premiums are written in three key states.

For the year ended December 31, ~~2021~~2022, we derived approximately 2825%, 1314% and 7%, respectively, of our gross written premiums in the states of California, Texas and Michigan. As a result, our financial results are subject to prevailing regulatory, legal, economic, demographic, competitive and other conditions including any single, major catastrophic event, series of events or other condition causing significant losses in California, Texas and Michigan, could materially adversely affect our business, financial condition and results of operations.

A downgrade in the A.M. Best financial strength ratings of our insurance company subsidiaries may negatively affect our business.

Our insurance company subsidiaries are evaluated for overall financial strength by A.M. Best to receive financial strength ratings ("FSRs"), which are an important factor in establishing the competitive position of insurance companies. These FSRs reflect A.M. Best’s opinion of our insurance company subsidiaries’ financial strength, operating performance, strategic position and ability to meet obligations to policyholders, and are not evaluations directed to investors. Our insurance company subsidiaries’ FSRs are subject to periodic review, and the criteria used in the rating methodologies are subject to change. While all of our insurance company subsidiaries that are rated are currently rated "A" (Excellent), their FSRs are subject to change. In addition, a significant portion of our business is conducted through small- and mid-sized insurance carriers, program managers and other insurance organizations that do not have an A.M. Best FSR themselves or otherwise require a highly rated carrier, such as ourselves, to meet their business objectives. A downgrade in our insurance company subsidiaries’ FSRs could lead to our Program Partners doing business preferentially with other insurance companies and materially adversely affect our business, financial condition and results of operations.

If we are unable to accurately underwrite risks and charge competitive yet profitable rates to our clients and policyholders, our business, financial condition and results of operations may be materially and adversely affected.

In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known. Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses and LAE and other general and administrative expenses in order to earn a profit. If we do not accurately assess the risks that we assume, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower policyholder retention, resulting in lower revenues. Pricing is a highly complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets. To accurately price our policies, we must:

•collect and properly analyze a substantial volume of data from our insureds;

•develop, test and apply appropriate actuarial projections and ratings formulas;

•closely monitor and timely recognize changes in trends; and

•project both frequency and severity of our insureds’ losses with reasonable accuracy.

We seek to implement our pricing accurately in accordance with our assumptions. Our ability to undertake these efforts successfully and, as a result, accurately price our policies, is subject to a number of risks and uncertainties, including:

•insufficient or unreliable data;

•incorrect or incomplete analysis of available data;

•uncertainties generally inherent in estimates and assumptions;

•our failure to implement appropriate actuarial projections and ratings formulas or other pricing methodologies;

•regulatory constraints on rate increases;

•our failure to accurately estimate investment yields and the duration of our liability for losses and LAE; and

•unanticipated court decisions, legislation or regulatory action.

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If actual renewals of our existing contracts do not meet expectations, our written premiums in future years and our future results of operations could be materially adversely affected.

Many of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts. The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on and highly sensitive to price. If actual renewals do not substantially meet expectations or if we choose not to write a renewal because of pricing conditions, our written premiums in future years and our future operations could be materially adversely affected.

We may change our underwriting guidelines or our strategy without stockholder approval.

Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval. As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section titled "Business" or elsewhere in this Annual Report on Form 10-K.

We may act based on inaccurate or incomplete information regarding the accounts we underwrite.

We rely on information provided by insureds or their representatives when underwriting insurance policies, and this information may be incorrect or incomplete. While we may make inquiries to validate or supplement the information provided, such inquiries cannot eliminate all risk that the information provided will be correct and complete and will include all factors and context relevant to our underwriting decisions and process. It is possible that we will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that we insure because of our reliance on inadequate or inaccurate information.

Our employees could take excessive risks, which could negatively affect our financial condition and business.

As an insurance enterprise, we are in the business of evaluating and binding certain risks. The employees who conduct our business, including executive officers and other members of management, underwriters, product managers and other employees, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining which business opportunities to pursue and other decisions. We endeavor, in both the setting and execution of our business strategy and the design and implementation of our compensation programs and practices, to avoid giving our employees incentives to take excessive risks. Employees may, however, take such risks regardless of strategic directives or the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective. If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.

We may be unable to access the capital markets when needed, which may adversely affect our ability to take advantage of business opportunities as they arise and to fund our operations in a cost-effective manner.

Our ability to grow our business, either organically or through acquisitions, depends, in part, on our ability to access capital when needed. Capital markets may become illiquid from time to time, and we cannot predict the extent and duration of future economic and market disruptions or the impact of any government interventions. We may not be able to obtain financing on terms acceptable to us, or at all. If we need capital but cannot raise it or cannot obtain financing on terms acceptable to us, our business, financial condition and results of operations may be materially adversely affected and we may be unable to execute our long-term growth strategy.

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.

Factors, such as business revenue, economic conditions, the volatility and strength of the capital markets, the ongoing impacts related to economic disruptions from COVID-19 and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability. Prolonged and high unemployment that reduces the payrolls of our insureds ~~would~~could reduce the premiums that we are able to collect. Negative economic factors may also affect our

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~~collect. Negative economic factors may also affect our~~ ability to receive the appropriate rate for the risk we insure and may adversely affect our opportunities to underwrite profitable business.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. Although SVB held less than 2% of the Company’s cash and cash equivalents when placed into receivership, causing the Company to conclude that these events are not material to the Company, we may be unable to access the portion of these funds in excess of levels insured by the FDIC in a timely manner, if at all. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be impaired and could have a material adverse effect on our business and financial condition. In addition, if any of our Program Partners or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.

Negative developments in the workers’ compensation insurance industry could adversely affect our business, financial condition and results of operations.

Although we engage in other businesses, 5956.46% of our gross written premiums for the year ended December 31, ~~2021~~2022, were attributable to workers’ compensation insurance policies providing both primary and excess coverage. As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry could have a material adverse effect on our business, financial condition and results of operations. For example, if one of our larger markets were to enact legislation to increase the scope or amount of benefits for employees under workers’ compensation insurance policies without related premium increases or loss control measures, this could materially and adversely affect our business, financial condition and results of operations.

The insurance industry is cyclical in nature.

The financial performance of the insurance industry has historically fluctuated with periods of lower premium rates and excess underwriting capacity resulting from increased competition followed by periods of higher premium rates and reduced underwriting capacity resulting from decreased competition. Although the financial performance of an individual insurance company depends on its own specific business characteristics, the profitability of many insurance companies tends to follow this cyclical market pattern. Because this market cyclicality is due in large part to the actions of our competitors and general economic factors all of which are outside of our control, we cannot predict the timing, duration or magnitude of changes in the market cycle. We expect these cyclical patterns will cause our revenues and net income to fluctuate, which may cause the market price of our ~~common~~Common ~~stock~~Stock to be more volatile.

Our failure to accurately and timely pay claims could harm our business.

We must accurately and timely evaluate and pay claims to manage costs and close claims expeditiously. Many factors affect our ability to evaluate and pay claims accurately and timely, including the training and experience of our claims staff, our claims department’s culture and the effectiveness of our management, our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors. Our failure to accurately and timely pay claims could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially and adversely affect our business, financial condition and results of operations.

If we do not hire and train new claims staff effectively or if we lose a significant number of experienced claims staff, our claims department may be required to handle an increasing workload, which could adversely affect the quality of our claims administration, and our business could be materially and adversely affected.

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The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and economic, legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. Examples of emerging claims and coverage issues include, but are not limited to:

•judicial expansion of policy coverage and the impact of new theories of liability;

•plaintiffs targeting P&C insurers in purported class action litigation relating to claims-handling and other practices;

•medical developments that link health issues to particular causes, resulting in liability claims; and

•claims relating to unanticipated consequences of current or new technologies, including cyber-security related risks and claims relating to potentially changing climate conditions.

In some instances, these emerging issues may not become apparent for some time after we have issued the affected insurance policies. As a result, the full extent of liability under our insurance policies may not be known until many years after the policies are issued.

In addition, the potential passage of new legislation or effects of court decisions that expand the right to sue, remove limitations on recovery, extend applicable statutes of limitations or otherwise repeal or weaken tort reforms could have an adverse impact on our business.

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The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could harm our business and materially adversely affect our results of operations.

Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk.

We have developed and continue to develop enterprise-wide risk management policies and procedures to mitigate risk and loss to which we are exposed. There are inherent limitations to risk management strategies because there may exist, or develop in the future, risks that we have not anticipated, identified or accurately assessed. If our risk management policies and procedures are ineffective, we may suffer unexpected losses and could be materially adversely affected. As our business changes and the markets in which we operate evolve, our risk management framework may not adapt at the same pace as those changes. As a result, there is a risk that new products or new business strategies may present risks that are not adequately identified, monitored or managed. In times of market stress, unanticipated market movements or unanticipated claims experience, the effectiveness of our risk management strategies may be insufficient, resulting in losses to us. In addition, we may be unable to effectively review and monitor all risks and our employees may not follow our risk management policies and procedures.

In addition, the NAIC and state legislatures and regulators have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to insurers. Our insurance company subsidiaries are subject to regulation in Kansas, ~~the state of domicile of Benchmark,~~ California, ~~where Benchmark is commercially domiciled,~~ Utah, ~~the state of domicile of ALIC,~~ Arkansas, ~~the state of domicile of BSIC,~~ and South Carolina~~, the state of domicile of 7710 Insurance Company~~. The Kansas Insurance Department, the California Department of Insurance, the Utah Insurance Department, the Arkansas Department of Insurance and the South Carolina Department of Insurance, the primary regulators of our insurance company subsidiaries, have adopted regulations implementing a requirement under the Kansas, California, Utah, Arkansas and South Carolina insurance laws, respectively, for insurance holding companies to adopt a formal enterprise risk management ("ERM") function and to file an annual enterprise risk report. The regulations also require domestic insurers to conduct an Own Risk and Solvency Assessment ("ORSA") and to submit an ORSA summary report prepared in accordance with the NAIC’s ORSA Guidance Manual. While we operate within an ERM framework designed to assess and monitor our risks, we may not be able to effectively review and monitor all risks, our employees may not all operate within the ERM framework and our ERM framework may not result in our accurately identifying all risks and limiting our exposures based on our assessments.

If we are unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us, we may be required to bear increased risks or reduce the level of our underwriting commitments.

Our insurance company subsidiaries purchase reinsurance as part of our overall risk management strategy. While reinsurance does not discharge our insurance company subsidiaries from their obligation to pay claims for losses insured under their insurance policies, it does make the reinsurer liable to them for the reinsured portion of the risk. As part of our strategy for our issuing carrier business, we reinsure underwriting risk to third-party reinsurers. At the inception of a new program, we typically act as an issuing carrier where we reinsure a substantial amount of such risk to third parties. For these reasons, reinsurance is an important tool to manage transaction and insurance risk retention and to mitigate losses. We may be unable to maintain our current reinsurance arrangements or to obtain other reinsurance in adequate amounts and at favorable rates, particularly if reinsurers become unwilling or unable to support our specialized issuing carrier model in the future. Additionally, market conditions beyond our control may impact the availability and cost of reinsurance and could have a material adverse effect on our business, financial condition and results of operations. In recent years, our Program Partners have benefited from favorable market conditions, including growth in the role of MGAs and of offshore and other alternative sources of reinsurance. A decline in the availability of reinsurance, increases in the cost of reinsurance or a decreased level of activity by MGAs could limit the amount of issuing carrier business we could write and materially and adversely affect our business, financial condition, results of operations and prospects. We may, at certain times, be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on terms acceptable to us. In the latter case, we would have to accept an increase in exposure to risk, reduce the amount of business written by our insurance company subsidiaries or seek alternatives in line with our risk limits, all of which could materially adversely affect our business, financial condition and results of operations.

~~We are subject to reinsurance counterparty credit risk. Our reinsurers may not pay on losses in a timely fashion, or at all.~~34

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usreinsurance is an important tool to ~~the~~manage ~~extent~~transaction ~~the~~and insurance risk isretention ~~transferred~~and to mitigate losses. We may be unable to maintain our current reinsurance arrangements or ~~ceded~~to obtain other reinsurance in adequate amounts and at favorable rates, particularly if reinsurers become unwilling or unable to support our specialized issuing carrier model in the ~~reinsurer~~future. Additionally, itmarket ~~does~~conditions ~~not~~beyond ~~relieve~~our uscontrol (may impact the ~~reinsured)~~availability and cost of reinsurance and could have a material adverse effect on our ~~liability~~business, tofinancial ~~policyholders~~condition and results of operations. ~~Accordingly~~In recent years, weour ~~are~~Program ~~exposed~~Partners tohave ~~credit~~benefited ~~risk~~from ~~with~~favorable ~~respect~~market toconditions, ~~our~~including ~~reinsurers~~growth toin the ~~extent~~role of MGAs and of offshore and other alternative sources of reinsurance. A decline in the availability of reinsurance, ~~receivable~~increases isin ~~not~~the ~~sufficiently~~cost ~~secured~~of reinsurance or a decreased level of activity by ~~collateral~~MGAs orcould ~~does~~limit ~~not~~the ~~benefit~~amount ~~from~~of ~~other~~issuing ~~credit~~carrier ~~enhancements~~business we could write and materially and adversely affect our business, financial condition, results of operations and prospects. We ~~also~~may, ~~bear~~at ~~the~~certain ~~risk~~times, ~~that~~be aforced ~~reinsurer~~to incur additional costs for reinsurance or may be ~~unwilling~~unable to ~~pay~~obtain ~~amounts~~sufficient reinsurance on terms acceptable to us. In the latter case, we would have ~~recorded~~to asaccept ~~reinsurance~~an ~~recoverable~~increase ~~for~~in ~~any~~exposure ~~reason~~to risk, ~~including~~reduce ~~that:~~the amount of business written by our insurance company subsidiaries or seek alternatives in line with our risk limits, all of which could materially adversely affect our business, financial condition and results of operations.

We are subject to reinsurance counterparty credit risk. Our reinsurers may not pay on losses in a timely fashion, or at all.

We purchase reinsurance to transfer part of the risk we have assumed (known as ceding) to a reinsurance company in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the reinsured) of our liability to policyholders. Accordingly, we are exposed to credit risk with respect to our reinsurers to the extent the reinsurance receivable is not sufficiently secured by collateral or does not benefit from other credit enhancements. We also bear the risk that a reinsurer may be unwilling to pay amounts we have recorded as reinsurance recoverable for any reason, including that:

•the terms of the reinsurance contract do not reflect the intent of the parties of the contract or there is a disagreement between the parties as to their intent;

•the terms of the contract cannot be legally enforced;

•the terms of the contract are interpreted by a court or arbitration panel differently than intended;

•the reinsurance transaction performs differently than we anticipated due to a flawed design of the reinsurance structure, terms or conditions; or

•a change in laws and regulations, or in the interpretation of the laws and regulations, materially affects a reinsurance transaction.

The insolvency of one or more of our reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of our contracts, could materially adversely affect our business, financial condition and results of operations.

Some of our issuing carrier arrangements contain limits on the reinsurer’s obligations to us.

While we reinsure underwriting risk in our issuing carrier business, including a substantial amount of such risk at the inception of a new program, we have in certain cases entered into programs that contain limits on our reinsurers’ obligations to us, including loss ratio caps or aggregate reinsurance limits. To the extent losses under these programs exceed the prescribed limits, we will be liable to pay the losses in excess of such limits, which could materially and adversely affect our business, financial condition and results of operations.

Retention of business written by us or our Program Partners could expose us to potential losses.

We retain risk for our own account on business underwritten by both our insurance company subsidiaries and our Program Partners. The determination to retain risk by reducing the amount of reinsurance we purchase, or by not purchasing reinsurance for a particular risk, customer segment or niche, is based on a complex variety of factors, including market conditions, pricing, availability of reinsurance, our capital levels, loss experience and tolerance. A determination by us to retain greater risk increases our financial exposure to losses and significant losses could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Our loss reserves may be inadequate to cover our actual losses.

Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss to us and our payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the related LAE. Loss reserves are estimates of the ultimate cost of claims and do not represent a precise calculation of any ultimate liability. These estimates are based on historical information and on estimates of future trends that may affect the frequency and severity of claims that may be reported in the future. Estimating loss reserves is a difficult, complex and inherently uncertain process involving many variables and subjective judgments. As part of the reserving process, we review historical data and consider the impact of various factors such as:

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ultimate cost of claims and do not represent a precise calculation of any ultimate liability. These estimates are based on historical information and on estimates of future trends that may affect the frequency and severity of claims that may be reported in the future. Estimating loss reserves is a difficult, complex and inherently uncertain process involving many variables and subjective judgments. As part of the reserving process, we review historical data and consider the impact of various factors such as:

•loss emergence and cedant reporting patterns;

•underlying policy terms and conditions;

•business and exposure mix;

•trends in claim frequency and severity;

•changes in operations;

•emerging economic and social trends;

•inflation; and

•changes in the regulatory and litigation environments.

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This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. It also assumes that adequate historical or other data exists upon which to make these judgments. For more information on the estimates used in the establishment of loss reserves, see "Management’s discussion and analysis of financial condition and results of operations - Critical accounting estimates - Reserves for unpaid losses and loss adjustment expenses" in this Annual Report on Form 10-K. There is, however, no precise method for evaluating the impact of any specific factor on the adequacy of reserves and actual results are likely to differ from original estimates, perhaps materially. If the actual amount of insured losses is greater than the amount we have reserved for these losses, our profitability could suffer.

We may not be able to manage our growth effectively.

We intend to grow our business in the future, which could require additional capital, systems development and skilled personnel. To affect our growth strategy, however, we must be able to meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees or effectively incorporate any acquisitions we make in our effort to achieve growth. The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.

Our ability to grow our business will depend in part on the addition of new Program Partners, and our inability to effectively onboard such new Program Partners could have a material adverse effect on our business, financial condition and results of operations.

Our ability to grow our business will depend in part on the addition of new Program Partners. If we do not effectively onboard our new Program Partners, including assisting such Program Partners to quickly resolve any post-onboarding issues and provide effective ongoing support, our ability to add new Program Partners and our relationships with our existing Program Partners could be adversely affected. Additionally, our reputation with potential new customers could be damaged if we fail to meet the requirements of our customers as a result of any of our failure to effectively onboard new Program Partners. Such reputational damage could make it more difficult for us to attract new and retain existing Program Partners, which could have a material adverse effect on our business, financial condition and results of operations.

We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.

We depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about our business and industry. The pool of talent from which we actively recruit may fluctuate based on market dynamics specific to our industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to retain and recruit key personnel and maintain labor costs at desired levels. Should any of our executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our business and results of operations.

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Performance of our investment portfolio is subject to a variety of investment risks.

Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a high-quality portfolio of investments that is managed by a professional investment advisory management firm in accordance with our investment policy and routinely reviewed by our Investment Committee. Our investments, however, are subject to general economic conditions and market risks as well as risks inherent to particular securities.

Our primary market risk exposures are to changes in interest rates. See "Item 7A — Quantitative and Qualitative Disclosures About Market Risk." ~~In recent years, interest rates have been at or near historic lows.~~ A protracted low interest rate environment would ~~continue to~~ place pressure on our net investment income, which, in turn, may adversely affect our profitability. Future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase. Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.

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The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.

Such factors could reduce our net investment income and result in realized investment losses. Our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.

Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the NAIC, the Kansas Insurance Department, the California Department of Insurance, the Utah Insurance Department, the Arkansas Department of Insurance, and the South Carolina Department of Insurance. Our investment objectives may not be achieved in whole or in part, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses.

Any shift in our investment strategy could increase the risk exposure of our investment portfolio and the volatility of our results, which, in turn, may adversely affect our profitability.

Our investment strategy has historically been focused on fixed income securities which have historically been subject to less volatility but also lower returns as compared to certain other asset classes. In the future, our investment strategy may include a greater focus on investments in equity securities, which are subject, among other things, to changes in value that may be attributable to market perception of a particular issuer or industry or to general stock market fluctuations that affect all issuers. Common stocks also generally subject their holders to greater risk of loss than preferred stocks and debt securities because common stockholders’ claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of the issuer. For these reasons, among others, investments in equity securities have historically been more volatile than investments in other asset classes such as fixed income securities. An increase in the overall risk exposure of our investment portfolio could increase the volatility of our results, which, in turn, may adversely affect our profitability.

We could be forced to sell investments to meet our liquidity requirements.

We invest the premiums we receive from our insureds until they are needed to pay policyholder claims. Consequently, we seek to manage the duration of our investment portfolio based on the expected duration of our losses and loss adjustment expenses reserves to ensure sufficient liquidity and avoid having to liquidate investments to fund claims. Risks such as inadequate losses and loss adjustment expenses reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. We may not be able to sell our investments at favorable prices or at all and sales of our investments could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities.

We may face increased competition in our programs market.

While we believe there are relatively few competitors in the small- and mid-sized programs market that have the broad in-house expertise and wide array of services that we offer to our Program Partners, we may face increased competition if other companies decide to compete with us in our programs market or competitors begin to offer policy administration or other services. Any increase in competition in this market, especially by one or more companies that have greater resources than we have, could materially adversely affect our business, financial condition and results of operations.

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companies decide to compete with us in our programs market or competitors begin to offer policy administration or other services. Any increase in competition in this market, especially by one or more companies that have greater resources than we have, could materially adversely affect our business, financial condition and results of operations.

We compete with a large number of companies in the insurance industry for underwriting premium.

We compete with a large number of other companies in the insurance industry for underwriting premium. During periods of intense competition for premium, in particular, our business may be challenged to maintain competitiveness with other companies that may seek to write policies without the same regard for risk and profitability as we have exhibited historically. During these times, it may be difficult for us to grow or maintain premium volume without lowering underwriting standards, sacrificing income, or both.

In addition, we face competition from a wide range of specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies that are significantly larger than we are and that have significantly greater financial, marketing, management and other resources. Some of these competitors also have greater market recognition than we do. The greater resources or market presence that these competitors possess may enable them to avoid or defray particular costs, employ greater pricing flexibility, have a higher tolerance for risk or loss, or exploit other advantages that may make it more difficult for us to compete. We may incur increased costs in competing for underwriting revenues in this environment. If we are unable to compete effectively in the markets in which we operate or expand our operations into new markets, our underwriting revenues may decline, as well as overall business results.

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significantly greater financial, marketing, management and other resources. Some of these competitors also have greater market recognition than we do. The greater resources or market presence that these competitors possess may enable them to avoid or defray particular costs, employ greater pricing flexibility, have a higher tolerance for risk or loss, or exploit other advantages that may make it more difficult for us to compete. We may incur increased costs in competing for underwriting revenues in this environment. If we are unable to compete effectively in the markets in which we operate or expand our operations into new markets, our underwriting revenues may decline, as well as overall business results.

Our results of operations, liquidity, financial condition and FSRs are subject to the effects of natural and man-made catastrophic events.

Events such as hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, other natural disasters, acts of terrorism, explosions and fires, cyber-crimes, public health crises, illness, epidemics or pandemic health events, product defects, mass torts and other catastrophes may adversely affect our business in the future. Such catastrophic events, and any relevant regulations, could expose us to:

•widespread claim costs associated with P&C and workers’ compensation claims;

•losses resulting from a decline in the value of our invested assets;

•losses resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;

•declines in value and/or losses with respect to companies and other entities whose securities we hold and counterparties with whom we transact business to whom we have credit exposure, including reinsurers, and declines in the value of investments; and

•significant interruptions to our systems and operations.

Our business is exposed to the risk of pandemics, outbreaks, public health crises, and geopolitical and social events, and their related effects. We are closely monitoring the impact of the COVID-19 pandemic and the related economic impact on all aspects of our business. If pandemics, outbreaks and other events occur or re-occur for a significant length of time, and measures that are put into place by various governmental authorities to stabilize the economy are not effective, our business, financial condition, and results of operations may be materially adversely affected.

Natural and man-made catastrophic events are generally unpredictable. While we have structured our business and selected our niches in part to avoid catastrophic losses, our exposure to such losses depends on various factors, including the frequency and severity of the catastrophes, the rate of inflation and the value and geographic or other concentrations of insured companies and individuals. Vendor models and proprietary assumptions and processes that we use to manage catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.

In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require us to pay the insured beyond the provisions of the original insurance policy and may prohibit the application of a deductible, resulting in inflated catastrophe claims.

These and other disruptions could materially and adversely affect our business, financial condition and results of operations.

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Global climate change may in the future increase the frequency and severity of weather events and resulting losses, particularly to the extent our policies are concentrated in geographic areas where such events occur, may have an adverse effect on our business, financial condition and results of operations.

Scientific evidence indicates that man-made production of greenhouse gas has had, and will continue to have, an adverse effect on the global climate. There is a growing consensus today that climate change increases the frequency and severity of extreme weather events and, in recent years, the frequency of extreme weather events appears to have increased. We cannot predict whether or to what extent damage that may be caused by natural events, such as wild fires, severe tropical storms and hurricanes, will affect our ability to write new insurance policies and reinsurance contracts, but, to the extent our policies are concentrated in the specific geographic areas in which these events occur, the increased frequency and severity of such events and the total amount of our loss exposure in the impacted areas of such events may adversely affect our business, financial condition and results of operations. In addition, although we have historically had limited exposure to catastrophic risk, claims from catastrophic events could reduce our earnings and cause substantial volatility in our business, financial condition and results of operations for any period. However, assessing the risk of loss and damage associated with the adverse effects of climate change and the range of approaches to address loss and damage associated with the adverse effects of climate change, including impacts related to extreme weather events and slow onset events, remains a challenge and might adversely affect our business, financial condition and results of operations.

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Because our business depends on insurance brokers, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results.

Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our insurance subsidiaries. In certain jurisdictions, when the insured pays its policy premium to its broker for payment on behalf of our insurance subsidiaries, the premium may be considered to have been paid under applicable insurance laws and regulations. Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premium from that broker. Consequently, we assume a degree of credit risk associated with the brokers with whom we work. Where necessary, we review the financial condition of potential new brokers before we agree to transact business with them. Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the absence of related premiums being paid to us.

Because the possibility of these events occurring depends in large part on the financial condition and internal operations of our brokers, we monitor broker behavior and review financial information on an as-needed basis. If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected.

Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects.

Our operating results are subject to fluctuation and have historically varied from quarter to quarter. We expect our quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where we operate, the frequency of occurrence or severity of catastrophic or other insured events, fluctuating interest rates, claims exceeding our loss reserves, competition in our industry, deviations from expected renewal rates of our existing policies and contracts, adverse investment performance and the cost of reinsurance coverage.

In particular, we seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long term. In addition, our opportunistic nature and focus on long-term growth in tangible equity may result in fluctuations in gross written premiums from period to period as we concentrate on underwriting contracts that we believe will generate better long-term, rather than short-term, results. Accordingly, our short-term results of operations may not be indicative of our long-term prospects.

Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights.

Our success and ability to compete depend in part on our intellectual property, which includes our rights in our proprietary technology platform and our brand. We primarily rely on copyright, trade secret and trademark laws and confidentiality agreements with our employees, customers, service providers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property may be inadequate. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity, enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

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impairment or loss of portions of our intellectual property. Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity, enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

Our success depends also in part on our not infringing on the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. In the future, third parties may claim that we are infringing on their intellectual property rights, and we may be found to be infringing on such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. Even if we were to prevail in such a dispute, any litigation could be costly and time consuming and divert the attention of our management and key personnel from our business operations.

Technology risks

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Technology breaches or failures of our or our business partners’ systems could adversely affect our business.

Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems and those of our business partners or service providers to sophisticated and targeted measures known as advanced persistent threats. While we and our business partners and service providers employ measures designed to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of information technology networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data (personal or otherwise) and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. In 2020, we discovered that we were subject to two cybersecurity incidents that involved a third-party obtaining unauthorized access to an employee’s electronic mailbox. In conjunction with our cybersecurity insurance carrier, we engaged outside counsel and a consulting firm specializing in digital forensics. The incident did not have a significant effect on our business, financial performance or reputation. In conjunction with our internal evaluation and through consultation with outside counsel, we performed a targeted notification of the data breach to those affected individuals for which we had accurate contact information and this matter is considered closed.

In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of our technology systems (or the data held by such systems) could affect our operations. We may not have the resources or technical sophistication to anticipate or prevent every type of cyber-attack. A significant cybersecurity incident, including system failure, security breach, disruption by malware or other damage could interrupt or delay our operations, result in a violation of applicable privacy and other laws, expose us to litigation and potential liability, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, any or all of which could be material. It is possible that insurance coverage we have in place would not entirely protect us in the event that we experienced a cybersecurity incident, interruption or widespread failure of our information technology systems.

Any significant interruption in the operation of our computer systems could adversely affect our business, financial condition and results of operations.

We rely on multiple computer systems to interact with customers, issue policies, pay claims, run modeling functions, assess insurance risks and complete various important internal processes including accounting and bookkeeping. Our business depends on our ability to access these systems to perform necessary business functions. Additionally, some of these systems may include or rely upon third-party systems not located on our premises. Any of these systems may be exposed to unplanned interruption, unreliability or intrusion from a variety of causes, including among others, storms and other natural disasters, terrorist attacks, utility outages, security breaches or complications encountered as existing systems are replaced or upgraded.

Any such issues could materially affect us including the impairment of information availability, compromise of system integrity or accuracy, misappropriation of confidential information, reduction of our volume of transactions and interruption of our general business. Although we believe our computer systems are securely protected and continue to take steps to ensure they are protected against such risks, such problems may occur. If they do, interruption to our business and damage to our reputation, and related costs, could be significant, which could have a material adverse effect on our business, financial condition and results of operations.

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We employ third-party licensed software for use in our business and the inability to maintain these licenses or errors in the software we license, could result in increased costs, or reduced service levels, which would adversely affect our business.

Our business relies on certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all. Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could negatively affect our business.

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Legal and regulatory risks

We are subject to extensive regulation and such regulation may become more extensive in the future.

Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and other investors. These regulations, generally administered by a department of insurance in each state and territory in which we do business, relate to, among other things:

•approval of policy forms and premium rates;

•standards of solvency, including risk-based capital measurements;

•licensing of insurers;

•challenging our use of fronting arrangements;

•imposing minimum capital and surplus requirements for insurance company subsidiaries;

•restrictions on agreements with our large revenue-producing agents;

•cancellation and non-renewal of policies;

•restrictions on the nature, quality and concentration of investments;

•restrictions on the ability of our insurance company subsidiaries to pay dividends to us;

•restrictions on transactions between our insurance company subsidiaries and their affiliates;

•restrictions on the size of risks insurable under a single policy;

•requiring deposits for the benefit of policyholders;

•requiring certain methods of accounting;

•periodic examinations of our operations and finances;

•prescribing the form and content of records of financial condition required to be filed; and

•requiring reserves for unearned premium, losses and other purposes.

State insurance departments also conduct periodic examinations of the conduct and affairs of insurance companies and require the filing of annual, quarterly and other reports relating to financial condition, holding company issues, ERM and ORSA and other matters. These regulatory requirements could adversely affect or inhibit our ability to achieve some or all of our business objectives, including profitable operations in our various customer segments.

In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could fine us, preclude or temporarily suspend us from carrying on some or all of our activities in certain jurisdictions or otherwise penalize us. This could adversely affect our ability to operate our business. Further, changes in the laws and regulations applicable to the insurance industry or interpretations by regulatory authorities could adversely affect our ability to operate our business as currently conducted and in accordance with our business objectives.

In addition to regulations specific to the insurance industry, including the insurance laws of our principal state regulators (the Kansas Insurance Department, the California Department of Insurance, the Utah Insurance Department, the Arkansas Department of Insurance and the South Carolina Department of Insurance), as a public company we will also be subject to the rules and regulations of the SEC and the securities exchange on which our common stock is listed, each of which regulate many areas such as financial and business disclosures, corporate governance and stockholder matters. We are also subject to laws relating to federal trade restrictions, privacy/data security and terrorism risk insurance laws.41

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~~proposals~~In addition to regulations specific to the insurance industry, including the insurance laws of our principal state regulators (the Kansas Insurance Department, the California Department of Insurance, the Utah Insurance Department, the Arkansas Department of Insurance and ~~assess~~the ~~how~~South ~~they~~Carolina ~~may~~Department ~~apply~~of Insurance), as a public company we will also be subject to usthe orrules ~~our~~and ~~competitors~~regulations orof ~~how~~the ~~they~~SEC ~~could~~and ~~impact~~the securities exchange on which our ~~business,~~Common ~~financial~~Stock ~~condition~~is listed, ~~results~~each of ~~operations~~which regulate many areas such as financial and ~~ability~~business disclosures, corporate governance and stockholder matters. We are also subject to ~~compete~~laws ~~effectively~~relating to federal trade restrictions, privacy/data security and terrorism risk insurance laws.

Legislators and regulators may periodically consider various proposals that may affect our business practices and product designs, how we sell or service certain products we offer or the profitability of our business. We continually monitor such proposals and assess how they may apply to us or our competitors or how they could impact our business, financial condition, results of operations and ability to compete effectively.

We monitor these laws, regulations and rules on an ongoing basis to ensure compliance and make appropriate changes as necessary. Implementing such changes may require adjustments to our business methods, increases to our costs and other changes that could cause us to be less competitive in our industry. For further information on the regulation of our business, see the "Item 1 — Business."

Regulators may challenge our use of fronting arrangements in states in which our Program Partners are not licensed.

We enter into fronting, or issuing carrier, arrangements with our Program Partners that require a broadly licensed, highly rated admitted carrier to conduct their business in states in which such Program Partner is not licensed or is not authorized to write particular lines of insurance. We typically act as the reinsurance broker to the program as well as the issuing carrier, which enables us to charge fees for the placement of reinsurance in addition to the fronting fees. We also receive ceding commissions from third-party reinsurers to which we transfer all or a portion of the underwriting risk. Some state insurance regulators may object to our issuing carrier arrangements. In certain states, including Florida and Kentucky, the insurance commissioner has the authority to prohibit an authorized insurer from acting as an issuing carrier for an unauthorized insurer. In addition, insurance departments in states in which there is no statutory or regulatory prohibition against an authorized insurer acting as an issuing carrier for an unauthorized insurer could deem the assuming insurer to be transacting insurance business without a license and the issuing carrier to be aiding and abetting the unauthorized sale of insurance.

If regulators in any of the states where we conduct our issuing carrier business were to prohibit or limit the arrangement, we would be prevented or limited from conducting that business for which a capacity provider is not authorized in those states, unless and until the capacity provider is able to obtain the necessary licenses. This could have a material and adverse effect on our business, financial condition and results of operations. See "We depend on a limited number of Program Partners for a substantial portion of our gross written premiums."

Increasing regulatory focus on privacy issues and expanding laws could affect our business model and expose us to increased liability.

The regulatory environment surrounding information security and privacy is increasingly demanding.

We are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personal and confidential information of our customers or employees. On October 24, 2017, the NAIC adopted an Insurance Data Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The NAIC model law has been adopted by certain states and is under consideration by others. It is not yet known whether or not, and to what extent, states legislatures or insurance regulators where we operate will enact the Insurance Data Security Model Law, in whole, in part, or in a modified form. Such enactments, especially if inconsistent between states or with existing laws and regulations, could raise compliance costs or increase the risk of noncompliance, with the attendant risk of being subject to regulatory enforcement actions and penalties, as well as reputational harm. Any such events could potentially have an adverse impact on our business, financial condition or results of operations.

As a holding company, we rely on dividends and payments from our insurance company subsidiaries to operate our business. Our ability to receive dividends and permitted payments from our subsidiaries is subject to regulatory constraints.

We are a holding company and, as such, have no direct operations of our own. We do not expect to have any significant assets other than our ownership of equity interests in our operating subsidiaries. We accordingly depend on the payment of funds from our subsidiaries in the form of dividends, distributions or otherwise to meet our obligations and to pay our expenses. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities, and legal restrictions.

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In addition, dividends payable from our insurance company subsidiaries without the prior approval of the applicable insurance commissioner are limited to the greater of 10% of (a) Benchmark’s surplus as shown on the last statutory financial statement on file with the Kansas Insurance Department and the California Department of Insurance, respectively, or (b) 100% of net income during the applicable twelve-month period (not including realized gains); in Utah, the lesser of 10% of (x) ALIC’s surplus as shown on the last statutory financial statement on file with the Utah Insurance Department, or (y) 100% of net income during the applicable twelve-month period (not including realized gains); in Arkansas, the lesser of (aa) 10% of BSIC's surplus as shown on the last statutory financial statement on file with the Arkansas Insurance Department, or (bb) 100% of net income during the applicable twelve-month period (not including realized capital gains); and in South Carolina, the greater of 10% of earned surplus or 100% of net income from operations. As of December 31, ~~2021~~2022, the maximum amount of unrestricted dividends that our insurance company subsidiaries could pay to us without approval was approximately $~~21.0~~17 million. Our insurance company subsidiaries may be unable to pay dividends in the future, and the limitations of such dividends could adversely affect our business, liquidity or financial condition.

We may have exposure to losses from acts of terrorism as we are required by law to provide certain coverage for such losses.

U.S. insurers are required by state and federal law to offer coverage for acts of terrorism in certain commercial lines, including workers’ compensation. The Terrorism Risk Insurance Act, as extended by the Terrorism Risk Insurance Program Reauthorization Act of 2015 ("TRIPRA") requires commercial P&C insurance companies to offer coverage for acts of terrorism, whether foreign or domestic~~, and established a federal assistance program through the end of 2020 to help cover claims related to future terrorism-related losses~~. On December 20, 2019, the Terrorism Risk Insurance Program Reauthorization Act of 2019 was signed into law, extending TRIPRA for seven years through December 31, 2027. The likelihood and impact of any terrorist act is unpredictable, and the ultimate impact on us would depend upon the nature, extent, location and timing of such an act. Although we reinsure a portion of the terrorism risk we retain under TRIPRA, our terrorism reinsurance does not provide full coverage for an act stemming from nuclear, biological or chemical terrorism. To the extent an act of terrorism, whether a domestic or foreign act, is certified by the Secretary of Treasury, we may be covered under TRIPRA of our losses for certain P&C lines of insurance. However, any such coverage would be subject to a mandatory deductible based on 20% of earned premium for the prior year for the covered lines of commercial P&C insurance. Based on our ~~2021~~2022 earned premiums, our aggregate deductible under TRIPRA during ~~2022~~2023 is approximately $~~110~~95 million. The federal government will then reimburse us for losses in excess of our deductible, which will be 80% of losses in ~~2021~~2022.

Assessments and premium surcharges for state guaranty funds, secondary-injury funds, residual market programs and other mandatory pooling arrangements may reduce our profitability.

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. Accordingly, the assessments levied on us may increase as we increase our written premiums. Some states also have laws that establish secondary-injury funds to reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. These funds are supported by either assessments or premium surcharges based on incurred losses.

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although we price our insurance to account for our potential obligations under these pooling arrangements, we may not be able to accurately estimate our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool. The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our profitability in any given period or limit our ability to grow our business.

Changes in federal, state or foreign tax laws could adversely affect our business, financial condition, results of operations and liquidity.

Changes in federal, state or foreign tax laws and tax rates or regulations could have a material adverse effect on our profitability and financial condition. The Company’s federal and state tax returns reflect certain items such as tax-exempt bond interest, tax credits and insurance reserve deductions. There is an increasing risk that, in the context of deficit reduction or overall tax reform in the U.S., federal and/or state tax legislation could modify or eliminate these items, impacting the Company, its investments, investment strategies and/or its policyholders. In addition, the Organization for Economic Co-operation and Development’s efforts around Global Pillars I and II dealing with possible new digital taxes and global

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or overall tax reform in the U.S., federal and/or state tax legislation could modify or eliminate these items, impacting the Company, its investments, investment strategies and/or its policyholders. In addition, the Organization for Economic Co-operation and Development’s efforts around Global Pillars I and II dealing with possible new digital taxes and global minimum taxes, if enacted, could increase the Company’s overall tax burden, adversely affecting the Company’s business, financial condition and results of operation.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the "Tax Cuts and Jobs Act" ("Tax Reform"). There is a risk that Congress could enact future legislation that may change or eliminate the provisions of that Tax Reform or affect how the provisions apply to the Company, including a federal corporate tax rate increase or other changes that may affect the manner in which insurance companies are taxed. Moreover, individual states could enact changes in state tax laws, either in response to the Tax Reform or to any changes to it that Congress may enact that, in turn, could adversely affect the Company's business and financial results.

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. The IRA contains several revisions to the Internal Revenue Code, including a 15% corporate minimum income tax for corporations with average annual adjusted financial statement income over a three-tax-year period in excess of $1 billion and is effective for the tax years beginning after December 31, 2022, a 1% excise tax on stock repurchases made by publicly traded U.S. corporations after December 31, 2022 and business tax credits and incentives for the development of clean energy projects and the production of clean energy. At this time, we do not expect the IRA will have a material impact on our consolidated financial statements. We continue to evaluate its impacts as new information and guidance becomes available.

The discontinuance of LIBOR may adversely affect the value of certain investments we hold and any other assets or liabilities whose value may be tied to LIBOR.

LIBOR is an indicative measure of the average interest rate at which major global banks could borrow from one another. LIBOR is used as a benchmark or reference rate in floating rate fixed maturities that are part of our investment portfolio, as well as our secured credit facility.

InFollowing the July 2017, announcement by the U.K. Financial Conduct Authority ~~announced~~ that ~~by the end of 2021,~~ it ~~intends~~would to stop persuading or compelling banks to report information used to set LIBOR by the end of 2021, the U.S. dollar LIBOR publication is scheduled to end by June 30, 2023. Since 2017, actions by regulators have resulted in efforts to establish alternative reference rates to LIBOR in several major currencies. The Alternative Reference Rate Committee, a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Funding Rate ("SOFR") as its preferred alternative rate for U.S. dollar LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. The Federal Reserve Bank of New York began publishing daily SOFR in April 2018. Development of broadly accepted methodologies for transitioning from LIBOR, an unsecured forward-looking rate, to SOFR, a secured rate based on historical transactions, is ongoing.

The Company continues to monitor and assess the potential impacts of the discontinuation of LIBOR, which will vary depending on (1) existing contract language to determine a LIBOR replacement rate, referred to as "fallback provisions"," in individual contracts and (2) whether, how, and when industry participants develop and widely adopt new reference rates and fallback provisions for both existing and new products or instruments. At this time, it is not possible to predict how markets will respond to these new rates and the effect that the discontinuation of LIBOR might have on new or existing financial instruments. If LIBOR ceases to exist or is found by regulators to no longer be representative, outstanding contracts with interest rates tied to LIBOR may be adversely affected. This may impact our results of operations through a reduction in value of some of our LIBOR referenced floating rate investments and an increase in the interest we pay on our secured credit facility. Additionally, any discontinuation of or transition from LIBOR may impact pricing, valuation and risk analytic processes.

Risks related to our ~~common~~Common ~~stock~~Stock

Our stock price may be volatile or may decline regardless of our operating performance.

In addition to the other risks mentioned in this section of the Annual Report, some factors that may cause the market price of our ~~common~~Common ~~stock~~Stock to fluctuate are:

•our operating and financial performance and prospects;

•our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;

~~•changes in earnings estimates or recommendations by securities analysts who cover our common stock;~~44

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•changes in earnings estimates or recommendations by securities analysts who cover our Common Stock;

•fluctuations in our quarterly financial results or earnings guidance or the quarterly financial results or earnings guidance of companies perceived to be similar to us;

•changes in our capital structure, such as future issuances of securities, sales of large blocks of ~~common~~Common ~~stock~~Stock by our stockholders, including our principal stockholders, or the incurrence of additional debt;

•departure of key personnel;

•reputational issues;

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•changes in general economic and market conditions;

•changes in industry conditions or perceptions or changes in the market outlook for the insurance industry;

•changes in applicable laws, rules or regulations; and

•regulatory actions affecting us and other dynamics.

The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general market, economic and political conditions, such as recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our ~~common~~Common ~~stock~~Stock. In addition, price volatility may be greater if the public float and trading volume of shares of our ~~common~~Common ~~stock~~Stock are low.

If securities analysts do not publish research or reports about our business or our industry or if they issue unfavorable commentary or negative recommendations with respect to our ~~common~~Common ~~stock~~Stock, the price of our ~~common~~Common ~~stock~~Stock could decline.

The trading market for our ~~common~~Common ~~stock~~Stock will be influenced by the research and reports that equity research and other securities analysts publish about us, our business and our industry. We do not have control over these analysts, and we may be unable or slow to attract research coverage. One or more analysts could issue negative recommendations with respect to our ~~common~~Common ~~stock~~Stock or publish other unfavorable commentary or cease publishing reports about us, our business or our industry. If one or more of these analysts cease coverage of us, we could lose visibility in the market. As a result of one or more of these factors, the market price of our ~~common~~Common ~~stock~~Stock price could decline rapidly and our ~~common~~Common ~~stock~~Stock trading volume could be adversely affected.

Our principal stockholders will be able to exert significant influence over us and our corporate decisions.

Our principal stockholders, the Altaris Funds, hold approximately 47% of our ~~common~~Common ~~stock~~Stock as of December 31, ~~2021~~2022. As a result, our principal stockholders are able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. Our principal stockholders may also have interests that differ from other stockholders and may vote in a way with which other stockholders disagree and which may be adverse to other stockholders' interests. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and may ultimately affect the market price of our common stock.

In connection with our IPO, we entered into a director nomination agreement (the "Director Nomination Agreement") with the Altaris Funds. Generally, this Director Nomination Agreement provides that: (i) so long as the Altaris Funds own 35% or more of our outstanding ~~common~~Common ~~stock~~Stock, the Altaris Funds will have the right (but not the obligation) to nominate three individuals to our board of directors; (ii) so long as the Altaris Funds own 20% or more but less than 35% of our outstanding ~~common~~Common ~~stock~~Stock, the Altaris Funds will have the right (but not the obligation) to nominate two individuals to our board of directors; (iii) and so long as the Altaris Funds own 10% or more but less than 20% of our outstanding ~~common~~Common ~~stock~~Stock, the Altaris Funds will have the right (but not the obligation) to nominate one individual to our board of directors. Subject to limited exceptions, we will include these nominees in the slate of nominees recommended to our stockholders for election as directors.

Sales or issuances of a substantial amount of shares of our ~~common~~Common ~~stock~~Stock in the public market, particularly sales by directors, executive officers or our principal stockholders, or the perception that such sales of issuances may occur, of our ~~common~~Common ~~stock~~Stock may cause the market price of our common stock to decline and make it more difficult for investors to sell their ~~common~~Common ~~stock~~Stock at a time and price that they may deem appropriate.

If our stockholders sell a substantial number of shares of our ~~common~~Common ~~stock~~Stock, or if we issue a substantial number of shares of our ~~common~~Common ~~stock~~Stock in connection with future acquisitions, financings or other circumstances, the market price of shares of our common stock could decline significantly. Moreover, the perception in the public market that our stockholders—in particular, our directors, executive officers or principal stockholders—may sell shares of our common stock could depress the market price of our shares. Future sales or issuances of our common stock could also be dilutive to our stockholders and could adversely affect their voting and other rights and economic interests. These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other equity-related securities.

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our Common Stock could decline significantly. Moreover, the perception in the public market that our stockholders—in particular, our directors, executive officers or principal stockholders—may sell shares of our Common Stock could depress the market price of our shares. Future sales or issuances of our Common Stock could also be dilutive to our stockholders and could adversely affect their voting and other rights and economic interests. These factors could also make it more difficult for us to raise additional funds through future offerings of our Common Stock or other equity-related securities.

We will incur significant increased costs as a result of operating as a public company, and operating as a public company will place additional demands on our management.

As a public company, and particularly after we are no longer an emerging growth company, we are obliged to incur significant legal, accounting and other expenses that we did not incur as a private company prior to the IPO. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and the Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Compliance with these requirements will place significant additional demands on our management and have required, and will continue to require, us to enhance certain internal functions, such as investor relations, legal, financial reporting and corporate communications. Accordingly, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We currently do not anticipate declaring or paying regular dividends on our ~~common~~Common ~~stock~~Stock.

We do not currently anticipate declaring or paying regular cash dividends on our ~~common~~Common ~~stock~~Stock in the near term. We currently intend to use our future earnings, if any, to fund our growth and develop our business and for general corporate purposes (which may include capital contributions to our insurance company subsidiaries). Therefore, other stockholders are not likely to receive any dividends on their ~~common~~Common ~~stock~~Stock in the near term, and the success of an investment in shares of our ~~common~~Common ~~stock~~Stock will depend upon any future appreciation in their value. There is no guarantee that shares of our ~~common~~Common ~~stock~~Stock will appreciate in value or even maintain the price at which they are initially offered. Any future declaration and payment of dividends or other distributions of capital will be at the discretion of our board of directors and the payment of any future dividends or other distributions of capital will depend on many factors, including our financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of our subsidiaries) and any other factors that our board of directors deems relevant in making such a determination. In addition, the terms of the agreements governing the debt we incurred, or debt that we may incur, may limit or prohibit the payment of dividends. We may not establish a dividend policy or pay dividends in the future or continue to pay any dividend if we do commence paying dividends pursuant to a dividend policy or otherwise.

Provisions in our organizational documents, Delaware corporate law, state insurance laws and certain of our contractual agreements and compensation arrangements may prevent or delay an acquisition of us.

Provisions of our amended and restated certificate of incorporation and amended and restated by-laws and of state law may delay, deter, prevent or render more difficult a takeover attempt that our stockholders may consider in their best interests. For example, such provisions or laws may prevent our stockholders from receiving the benefit from any premium to the market price of our ~~common~~Common ~~stock~~Stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our ~~common~~Common ~~stock~~Stock if they are viewed as discouraging takeover attempts in the future.

Certain provisions of our amended and restated certificate of incorporation and amended and restated by-laws may have anti-takeover effects and may delay, deter or prevent a takeover attempt that our stockholders may consider in their best interests. The provisions provide for, among others:

•the ability of our board of directors to issue one or more series of preferred stock;

•the filling of any vacancies on our board of directors by the affirmative vote of a majority of the remaining directors, even if less than a quorum, or by a sole remaining director or by the stockholders; provided, however, that after the first time when the principal stockholders cease to beneficially own, in the aggregate, at least 50% of our outstanding ~~common~~Common ~~stock~~Stock, any vacancy occurring in our board of directors may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director (and not by the stockholders);

•certain limitations on convening special stockholder meetings;

•advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; and

~~•stockholder action by written consent only until the first time when our principal stockholders cease to beneficially own, in the aggregate, 50% or greater of our outstanding common stock.~~46

Section 203 of the DGCL may affect the ability of an "interested stockholder" to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the

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•stockholder ~~becomes~~action anby ~~"interested~~written ~~stockholder."~~consent Anonly ~~"interested~~until ~~stockholder"~~the isfirst ~~defined~~time towhen ~~include~~our ~~persons~~principal ~~owning~~stockholders ~~directly~~cease orto ~~indirectly~~beneficially 15own, in the aggregate, 50% or ~~more~~greater of ~~the~~our outstanding ~~voting~~Common ~~stock of a corporation~~Stock.

~~Under~~Section ~~applicable~~203 ~~Kansas, California, Arkansas, South Carolina and Utah insurance laws and regulations, no person may acquire control~~ of ~~a domestic insurer until written approval is first obtained from~~ the ~~state~~DGCL ~~insurance~~may ~~commissioner~~affect ~~following a public hearing on~~ the ~~proposed~~ability ~~acquisition.~~of ~~Such~~an ~~approval~~"interested ~~would~~stockholder" beto ~~contingent~~engage ~~upon~~in ~~the~~certain ~~state~~business ~~insurance~~combinations, ~~commissioner’s consideration of a number of factors~~ including, ~~among others~~mergers, ~~the~~consolidations ~~financial~~or ~~strength~~acquisitions of ~~the~~additional ~~proposed acquirer~~shares, ~~the acquirer’s plans~~ for ~~the~~a ~~future~~period ~~operations~~ of ~~the~~three ~~domestic~~years ~~insurer~~following ~~and~~the ~~any~~time ~~anti-competitive results~~ that ~~may arise from~~ the ~~consummation~~stockholder ofbecomes ~~the~~an ~~acquisition~~"interested ~~of control~~stockholder." ~~Kansas,~~An ~~California,~~"interested ~~Arkansas,~~stockholder" ~~South~~is ~~Carolina~~defined ~~and Utah insurance laws and regulations pertaining~~ to ~~changes~~include ofpersons ~~control~~owning ~~apply~~directly toor ~~both~~indirectly ~~the~~15% ~~direct and indirect acquisition of ten percent~~ or more of the outstanding voting stock of that state’s domiciled insurer. Accordingly, the acquisition of ten percent or more of our common stock would be considered an indirect change of control of the Company. and would trigger the applicable change of control filing requirements under Kansas, California, Arkansas South Carolina and Utah insurance laws and regulations, absent a ~~disclaimer of control filing and its acceptance by the Kansas Insurance Department, the California Department of Insurance and the Utah Insurance Department~~corporation. These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of the Company., including through transactions that some or all of the stockholders of the Company may consider to be desirable. See "Regulation."

Under applicable Kansas, California, Arkansas, South Carolina and Utah insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is first obtained from the state insurance commissioner following a public hearing on the proposed acquisition. Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquirer, the acquirer’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. Kansas, California, Arkansas, South Carolina and Utah insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of that state’s domiciled insurer. Accordingly, the acquisition of ten percent or more of our Common Stock would be considered an indirect change of control of the Company, and would trigger the applicable change of control filing requirements under Kansas, California, Arkansas South Carolina and Utah insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Kansas Insurance Department, the California Department of Insurance and the Utah Insurance Department. These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of the Company., including through transactions that some or all of the stockholders of the Company may consider to be desirable. See "Item 1. Business—Regulation."

These anti-takeover provisions and prior regulatory approval requirements for a change of control under applicable state insurance laws may delay, deter or prevent a takeover attempt that our stockholders may consider in their best interests. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. See "Description of capital stock — Certain anti-takeover provisions of our amended and restated certificate of incorporation, our amended and restated by-laws and applicable law."

Our amended and restated certificate of incorporation provides that our principal stockholders have no obligation to offer us corporate opportunities.

The Altaris Funds and any members of our board of directors who are affiliated with the Altaris Funds, by the terms of our amended and restated certificate of incorporation, are not required to offer us any corporate opportunity of which they become aware and can take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors. The Company, by the terms of our amended and restated certificate of incorporation, expressly renounces any interest in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so. Our amended and restated certificate of incorporation cannot be amended to eliminate our renunciation of any such corporate opportunity arising prior to the date of any such amendment.

The Altaris Funds are in the business of making investments in portfolio companies and may from time to time acquire and hold interests in businesses that compete with us, and the Altaris Funds ~~does~~do not have an obligation to refrain from acquiring competing businesses. Any competition could intensify if an affiliate or subsidiary of the Altaris Funds were to enter into or acquire a business similar to ours. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by the Altaris Funds to themselves, their portfolio companies or their other affiliates instead of to us.

Risks related to our status as an emerging growth company

We are an "emerging growth company" within the meaning of the Securities Act and have elected to take advantage of reduced disclosure requirements and other exemptions applicable to emerging growth companies.

For as long as we remain an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, as amended, we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements, not being required to comply with the auditor attestation requirements of Section 404 being permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the Financial Accounting Standards Board ("FASB") ~~or the SEC, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.~~

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~~We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion~~ or ~~more; (ii)~~ the ~~date on which we have~~SEC, ~~during~~and ~~the~~exemptions ~~previous~~from ~~three-year period, issued more than $1.0 billion in non-convertible debt; (iii)~~ the ~~date~~requirements ~~we qualify as a "large accelerated filer", which requires that (A) the market value~~ of ~~our~~holding ~~equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year, (B) we have been~~ a ~~public~~nonbinding ~~reporting~~advisory ~~company~~vote ~~under the Securities Exchange Act of 1934, as amended ("Exchange Act") for at least twelve calendar months and (C) we have filed at least one annual report~~ on ~~Annual~~executive ~~Report~~compensation ~~on Form 10-K;~~ and ~~(iv)~~stockholder ~~the~~approval ~~end~~ of ~~the~~any ~~fiscal~~golden ~~year~~parachute ~~following~~payments ~~the~~not ~~fifth~~previously ~~anniversary of the completion of our initial public offering~~approved.

We ~~expect~~will toremain ~~continue~~an toemerging ~~avail~~growth ~~ourselves~~company ofuntil the ~~emerging~~earliest ~~growth~~of (i) ~~company~~the ~~exemptions~~end ~~described~~of ~~above.~~the Infiscal ~~addition,~~year during which we ~~may~~have ~~but~~total doannual ~~not~~gross ~~expect~~revenues toof $1.07 ~~avail~~billion ~~ourselves~~or ofmore; (ii) the ~~extended~~date ~~transition~~on ~~period~~which ~~for~~we ~~complying~~have, ~~with~~during ~~new~~the orprevious ~~revised~~three-year ~~accounting~~period, ~~standards~~issued more than $1.0 Asbillion in non-convertible debt; (iii) the date we qualify as a ~~result~~"large accelerated filer," which requires that (A) the ~~information~~market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year, (B) we ~~provide~~have tobeen ~~stockholders~~a ~~will~~public bereporting ~~less~~company ~~comprehensive~~under ~~than~~the ~~what~~Securities ~~you~~Exchange ~~might~~Act ~~receive~~of ~~from~~1934, ~~other~~as amended ("Exchange Act") for at least twelve calendar months and (C) we have filed at least one annual report on Annual Report on Form 10-K; and (iv) the end of the fiscal year following the fifth anniversary of the completion of our initial public ~~companies~~offering.

~~Because~~We weexpect ~~have~~to ~~elected~~continue to ~~use~~avail ~~the~~ourselves ~~extended~~of ~~transition~~the ~~period~~emerging ~~for~~growth ~~complying~~company ~~with~~exemptions ~~new~~described orabove. ~~revised~~As ~~accounting~~a ~~standards for an "emerging growth company~~result," ~~our~~the ~~consolidated~~information ~~and~~that ~~combined~~we ~~financial~~provide ~~statements~~to ~~may~~stockholders ~~not~~will be ~~comparable~~less tocomprehensive ~~companies~~than ~~that~~what ~~currently~~you ~~comply~~might ~~with~~receive ~~these~~from ~~accounting~~other ~~standards~~public companies.

WeBecause we have elected to use the extended transition period for complying with new or revised accounting standards ~~under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates~~ for ~~public~~an ~~and~~"emerging ~~private~~growth ~~companies until those standards apply to private companies. As a result of this election~~company," our consolidated ~~and combined~~ financial statements may not be comparable to companies that currently comply with these accounting standards ~~as of the public company effective dates~~. Consequently, our consolidated and combined financial statements may not be comparable to companies that comply with public company effective dates. Because our consolidated and combined financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock. We cannot predict if investors will find our common stock less attractive because we plan to rely on this exemption. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our consolidated financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates. Consequently, our consolidated financial statements may not be comparable to companies that comply with public company effective dates. Because our consolidated financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our Common Stock. We cannot predict if investors will find our Common Stock less attractive because we plan to rely on this exemption. If some investors find our common stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

General Risk Factors

Changes in accounting practices and future pronouncements may materially affect our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, stockholders’ equity and other relevant financial statement line items.

Our insurance subsidiaries are required to comply with statutory accounting principles ("SAP"). SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if adopted by the NAIC and enacted in the states in which we operate, could have negative effects on us and other insurance industry participants. The NAIC continuously examines and from time to time proposes reforms to existing insurance laws and regulations. We cannot predict whether or in what form such reforms will be adopted by the NAIC and enacted in the states in which we operate and, if so, whether the enacted reforms will positively or negatively affect us.

We are required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal control over financial reporting. If we are unable to achieve and maintain effective internal controls, our business, operating results and financial condition could be harmed.

As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting beginning ~~with the annual report for our fiscal year ended December 31, 2021~~. We are an emerging growth company, and thus we are exempt from the auditor attestation requirement of Section 404(b) of Sarbanes-Oxley until such time as we no longer qualify as an emerging growth company. See also "We are an 'emerging growth company' within the meaning of the Securities Act and have elected to take advantage of reduced disclosure requirements and other exemptions applicable to emerging growth companies." Regardless of whether we qualify as an emerging growth company, we will still need to

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~~disclosure requirements and other exemptions applicable to emerging growth companies." Regardless of whether we qualify as an emerging growth company, we will still need to~~ implement substantial internal control systems and procedures in order to satisfy the reporting requirements under the Exchange Act ~~and applicable requirements~~. During the course of our assessment, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes-Oxley. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations. Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information or our ~~common~~Common ~~stock~~Stock listing on the Nasdaq to be suspended or terminated, which could have a negative effect on the market price of our ~~common~~Common ~~stock~~Stock.

The effects of litigation on our business are uncertain and could have an adverse effect on our business.

As is typical in our industry, we continually face risks associated with litigation of various types, including general commercial and corporate litigation and disputes relating to bad faith allegations which could result in us incurring losses in excess of policy limits. We are party to certain litigation matters throughout the year, mostly with respect to claims. Litigation is subject to inherent uncertainties, and if there were an outcome unfavorable to us, there exists the possibility of a material adverse impact on our results of operations and financial position in the period in which the outcome occurs. Even if an unfavorable outcome does not materialize, we still may face substantial expense and disruption associated with the litigation.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the "DGCL"); or (iv) any action asserting a claim governed by the internal affairs doctrine. Unless we consent in writing to the selection of an alternative forum, the exclusive forum for any action under the Securities Act or the Exchange Act shall be either the Court of Chancery of the State of Delaware or the federal district court for the District of Delaware. This exclusive forum provision will not apply to claims which are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction or, in the case of an action under the Securities Act or the Exchange Act, for which neither the Court of Chancery of the State of Delaware nor the federal district court for the District of Delaware has subject matter jurisdiction. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. In addition, stockholders who do bring a claim in the Court of Chancery of the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Furthermore, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations. For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. This decision may be reviewed and ultimately overturned by the Delaware Supreme Court.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own our corporate headquarters building and land in Wayzata, Minnesota which has approximately 25,229 square feet of office space. As of December 31, ~~2021~~2022, we leased office space in 12 states. We believe that our existing office space is adequate for our current needs.

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Item 3. Legal Proceedings

From time to time, the Company may be involved in legal proceedings which arise in the ordinary course of business. We are not presently involved in any legal or administrative proceedings that we believe are likely to have a materially adverse effect on our business, financial condition or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information, Holders and Stockholder Dividends

Our ~~common~~Common ~~stock~~Stock is traded on the Nasdaq Global Select Market under the symbol "TIG." As of March 913, ~~2022~~2023, there were 2636 holders of record of our ~~common~~Common ~~stock~~Stock.

We do not intend to declare and pay cash dividends on shares of our ~~common~~Common ~~stock~~Stock in the foreseeable future. Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders is largely dependent upon dividends and other distributions from our insurance subsidiaries. State laws, including the laws of California, Kansas, South Carolina and Utah restrict the ability of certain insurance companies, including the Company and its subsidiaries, to declare stockholder dividends.

Issuer Purchases of Equity Securities

None.

Unregistered Sales of Equity Securities

There were no equity securities sold by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act of 1933, as amended.

Performance Graph

The following performance graph compares the cumulative total stockholder return of an investment in (1) our ~~common~~Common ~~stock~~Stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period from July 16, 2020 in our stock (the date our ~~common~~Common ~~stock~~Stock began trading on Nasdaq) or June 30, 2020 for the indices through December 31, ~~2021~~2022.

The graph assumes an initial investment of $100. Such returns are based on historical results and are not indicative of future performance.

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	July 16, 2020		December 31, 2020		December 31, 2021		December 31, 2022
Trean Insurance Group, Inc	$	100.00	$	84.46	$	57.45	$	38.68
Nasdaq Composite Index	100.00		128.62		157.14		106.02
Nasdaq Insurance Index	100.00		~~120~~98.8172		~~139~~79.3262		74.26

Item 6. Reserved

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The objective of management's discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of the Company including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This discussion and analysis focuses specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations. This discussion and analysis covers the financial statements and other statistical data that the Company believes will enhance the understanding of the Company’s financial condition, cash flows and other changes in financial condition and results of operations. This discussion and analysis will provide a view of the Company from management’s perspective.

The following discussion and analysis of financial condition and results of operations for the year ended December 31, ~~2021~~2022 is qualified by reference to and should be read in conjunction with the accompanying consolidated ~~and combined~~ financial statements and the related notes included herein. The discussion and analysis below are based on comparisons between our historical financial data for different periods and include certain forward-looking statements about our business, operations and financial performance. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors described in the section "Item 1A — Risk Factors." Our actual results may differ materially from those expressed in, or implied by, those forward-looking statements. See "Forward-Looking Statements."

All references to "we"," "us"," "our"," "the Company"," "Trean"," or similar terms refer to ~~(i)~~ Trean, ~~BIC and their subsidiaries before the consummation of the reorganization transactions;, and (ii) to Trean~~ Insurance Group, Inc. and its subsidiaries ~~after such reorganization transactions~~, unless the context otherwise requires.

The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

Overview

We are a provider of products and services to the specialty insurance market. We underwrite specialty casualty insurance products both through our Program Partners and also through our Owned MGAs. We also provide our Program Partners with a variety of services, including issuing carrier services, claims administration and reinsurance brokerage, from which we generate recurring fee-based revenues.

We have one reportable segment. We provide our insurance products and services to our Program Partners and Owned MGAs focused on specialty lines. We target a diversified portfolio of small to medium programs, typically with less than $30 million of premiums, that focus on niche segments of the specialty casualty insurance market and that we believe have strong underwriting track records.

~~Initial~~Pending ~~Public Offering and Reorganization~~Merger

OnAs ~~July~~previously 20disclosed, ~~2020,~~on ~~Trean~~December ~~Insurance Group~~15, ~~Inc. closed the sale of 10~~2022,~~714,286~~ ~~shares~~we ofentered ~~its~~into ~~common~~the ~~stock~~Merger ~~in its IPO~~Agreement, ~~comprised~~by ~~of 7,142,857 shares issued~~ and ~~sold~~among bythe ~~Trean Insurance Group~~Company, ~~Inc.~~Parent and ~~3,571,429~~Merger ~~shares~~Sub ~~sold~~providing byfor ~~selling~~the ~~stockholders.~~acquisition Onof ~~July~~the ~~22,~~Company ~~2020,~~by ~~Trean~~affiliates ~~Insurance~~of ~~Group~~Altaris, ~~Inc.~~subject ~~closed~~to the ~~sale~~terms ofand anconditions ~~additional~~set ~~1,207,142~~forth ~~shares by certain selling stockholders~~ in the ~~IPO~~Merger ~~pursuant~~Agreement. Pursuant to the ~~exercise~~terms of the ~~underwriters’~~Merger ~~option~~Agreement toand ~~purchase~~subject ~~additional shares~~ to ~~cover~~the ~~over-allotments.~~satisfaction ~~The~~or ~~aggregate~~waiver ~~proceeds~~of tocertain ~~the~~conditions ~~Company~~set ~~from~~forth ~~all~~in ~~shares sold by~~ the ~~Company~~Merger inAgreement, ~~the~~Merger ~~IPO~~Sub ~~were~~will ~~approximately~~be ~~$107,142~~merged with and into the ~~aggregate~~Company ~~IPO~~effective ~~proceeds~~as ~~from~~of ~~all~~the ~~shares~~effective ~~sold~~time byof the ~~selling~~Merger. ~~stockholders~~As ina ~~the~~result ~~IPO~~of ~~were~~the ~~approximately $71~~Merger,~~678.~~ ~~The~~Merger ~~shares~~Sub ~~began~~will ~~trading~~cease onto ~~the~~exist, ~~Nasdaq~~and ~~Global~~the ~~Select~~Company ~~Market~~will onsurvive ~~July~~as ~~16,~~a ~~2020~~wholly-owned ~~under~~subsidiary ~~the~~of ~~symbol "TIG"~~Parent.

~~Prior~~As toa ~~the~~result ~~completion~~ of the ~~above IPO~~Merger, ~~the~~at ~~Company effected~~ the ~~following~~Effective ~~reorganization~~Time, ~~transactions:~~subject ~~(i)~~to ~~each~~any ofapplicable ~~Trean~~withholding ~~and~~taxes, ~~BIC~~each ~~contributed~~share ~~all~~ of ~~their~~our ~~respective~~Common ~~assets and liabilities to Trean Insurance Group~~Stock, ~~Inc.,~~issued aand ~~newly~~outstanding ~~formed~~immediately ~~direct~~prior ~~subsidiary~~to ofthe ~~BIC~~Effective Time, inother ~~exchange~~than ~~for~~Cancelled ~~shares~~Shares of(as ~~common~~defined ~~stock~~ in ~~Trean~~the ~~Insurance~~Merger ~~Group,~~Agreement) ~~Inc.~~ and ~~(ii)~~Dissenting ~~upon~~Shares ~~the~~(as ~~completion~~defined ofin the ~~transfers~~Merger byAgreement), ~~Trean~~will ~~and~~be ~~BIC,~~converted ~~Trean~~into ~~and~~the ~~BIC~~right ~~were~~to ~~dissolved~~receive ~~and~~$6.15 ~~distributed~~ in~~-kind~~ ~~common~~cash, ~~shares~~without ~~to the pre-IPO unitholders~~interest.

52The consummation of the Merger is subject to the satisfaction or waiver of various customary conditions set forth in the Merger Agreement, including, but not limited to: (i) the adoption of the Merger Agreement and approval of the Merger and the other transactions by (x) the holders representing a majority of the aggregate voting power of the outstanding shares of our Common Stock beneficially owned by the Unaffiliated Stockholders (as defined in the Merger Agreement) entitled to vote thereon as well as (y) the holders representing a majority of the aggregate voting power of the outstanding shares of

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Common Stock entitled to vote thereon; (ii) all required insurance regulatory approvals (or the applicable regulatory authorities’ non-objection to requests for exemptions in respect thereof) shall have been obtained; (iii) the expiration or termination of any applicable waiting period (or any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (iv) the absence of any restraint or law preventing or prohibiting the consummation of the Merger; (v) the accuracy of Parent’s, Merger Sub’s, and the Company’s representations and warranties (subject to certain materiality qualifiers); (vi) Parent’s, Merger Sub’s, and the Company’s compliance in all material respects with their respective obligations under the Merger Agreement; and (vii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement.

Merger-related expenses recognized during the year ended December 31, 2022 were approximately $3,081 and are included in other expenses in the consolidated statements of operations.

See "Part I—Item 1A Risk Factors—Risks Related to the Proposed Merger" for a discussion of certain risks related to the Merger.

Initial Public Offering and Reorganization

On July 20, 2020, Trean Insurance Group, Inc. closed the sale of 10,714,286 shares of Common Stock in the IPO, comprised of 7,142,857 shares issued and sold by Trean Insurance Group, Inc. and 3,571,429 shares sold by selling stockholders. On July 22, 2020, Trean Insurance Group, Inc. closed the sale of an additional 1,207,142 shares by certain selling stockholders in the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares to cover over-allotments. The aggregate proceeds to the Company from all shares sold by the Company in the IPO were approximately $107,142 and the aggregate IPO proceeds from all shares sold by the selling stockholders in the IPO were approximately $71,678. The shares began trading on the Nasdaq Global Select Market on July 16, 2020 under the symbol "TIG."

Prior to the completion of the above IPO, the Company effected the following reorganization transactions: (i) each of Trean and BIC contributed all of their respective assets and liabilities to Trean Insurance Group, Inc., a newly formed direct subsidiary of BIC, in exchange for shares of Common Stock in Trean Insurance Group, Inc. and (ii) upon the completion of the transfers by Trean and BIC, Trean and BIC were dissolved and distributed in-kind common shares to the pre-IPO unitholders.

In conjunction with the IPO and corporate restructuring, the Company made a payment to Altaris Capital Partners, LLC in connection with the termination of the Company's consulting and advisory agreements as well as paid bonuses to employees and pre-IPO unitholders for the successful completion of the IPO. The aggregate amount of these payments totaled $11,054 and is included in other expenses on the consolidated statement of operations.

Secondary Offering of Common Stock

On May 19, 2021, we closed the sale of 5,000,000 shares of its common stock, comprised entirely of shares sold by selling stockholders. We did not receive any proceeds from the sale of shares of our ~~common~~Common ~~stock~~Stock by the selling stockholders in this offering. As a result of this offering, the Altaris Funds no longer beneficially own more than 50% of ~~the~~our outstanding ~~common~~Common ~~stock of the Company~~Stock, and we are no longer a "controlled company" within the meaning of the Nasdaq listing rules.

Embedded Derivatives

During the second quarter of 2021, the Company determined that its funds held agreements with reinsurers contain embedded derivatives relating to a total return swap on the underlying investments. As a result, the Company has revised the presentation of its financial results to report the change in fair value of the embedded derivatives in gains (losses) on embedded derivatives in the consolidated statements of operations. In addition, the effect of investment earnings and realized gains (losses) related to funds held accounts will also be reported in gains (losses) on embedded derivatives in the consolidated statements of operations, whereas previously these were reported as an offset to net investment income and net realized gains (losses), respectively. While the prior period amounts have been corrected for comparability, the correction was not material to the previously reported consolidated and combined financial statements.

Acquisition of Western Integrated Care

Effective July 6, 2021, Trean Corp acquired 100% ownership of WIC for a total purchase price of $5,500. WIC is a managed care organization that offers services to workers' compensation insurers to enable employees who are injured on the job to access qualified medical treatment.

Acquisition of Compstar

Effective July 15, 2020, Trean Compstar Holdings LLC purchased the remaining 55% ownership interest in Compstar, a holding company, along with its wholly owned subsidiary Compstar Insurance Services, a managing general agent, by issuing 6,613,606 shares of ~~the~~our ~~Company’s~~Common ~~common~~Stock ~~stock~~ with a market price of $15 per share on the date of acquisition. Prior to the acquisition date, the Company held a 45% ownership interest in Compstar and accounted for its investment under the equity method. As of the acquisition date, the fair value attributable to the Company’s previous equity interest was $81,167 and the carrying value was $11,321. As a result, the Company recorded a gain of $69,846 from the remeasurement of its previous equity interest, which is included in gain on revaluation of Compstar investment on the consolidated statement of operations. The fair value of the Company’s previous equity interest was revalued on the acquisition date using the market price of the shares issued as consideration for the acquisition.

Acquisition of 7710

Effective October 1, 2020, Benchmark Holding Company acquired 100% ownership of 7710 Insurance Company as well as its associated program manager and agency, 7710 Service Company, LLC and Creekwood Insurance Agency, LLC for a purchase price of $12,140. 7710 Insurance Company underwrites workers' compensation primarily for emergency services, including firefighters and emergency medical services (EMS). 7710 Insurance Company focuses on reducing costs and claims through the implementation of a propriety safety preparedness and loss control program, created and staffed by experienced firefighters and EMS professionals.

Coronavirus (COVID-19) Impact

We continue to monitor the impact of the ongoing COVID-19 pandemic on our business and operations, including how it may impact our premium revenue, loss experience and loss expense, liquidity, and our regulatory capital and surplus.

Workforce Operations

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Following the emergence of the COVID-19 pandemic in early 2020, we took a number of actions to protect the health of the public and our employees and to comply with directives and advice of governmental authorities and public health experts. We responded by developing a Preparedness Plan that outlined both corporate-wide and location-specific modifications to working conditions and operations in our offices. This multi-faceted plan included elements such as restricting business travel and transitioning from an office-based company to primarily a remote working culture. As most of our employees already had secure remote working connections, we took additional measures to ensure all employees who wanted or needed to work remotely were able to do so securely with limited connectivity disruption. We also provided our employees education and training with respect to cybersecurity issues that may arise relating to COVID-19 and working remotely in conjunction with the goal of serving the operational needs of a remote workforce and continuing to serve our customers. We implemented safeguards for employees who play critical roles to ensure operational reliability and established protocols for employees who interact directly with the public. As state, city, and county guidelines progress, we have implemented new health and safety in-office procedures where necessary while continuing to monitor the progression of new COVID-19 variants and related developments that could impact us in the future.

Premium Revenue, Claims and Losses

We have not experienced a material impact to our premium revenue in the years ended December 31, 2021 and 2020 as a result of the COVID-19 pandemic. Gross written premiums increased by 31.0% and 17.7% during the years ended December 31, 2021 and 2020, respectively, and gross earned premiums have increased by 32.5% and 8.6%, respectively, compared to the previous years. This was primarily driven by both significant growth in our existing Program Partner business as well as the addition of new Program Partners. Because a majority of our gross written premiums are related to workers’ compensation insurance, revenue trends could be impacted in future periods if the COVID-19 pandemic were to continue or significantly get worse. However, a significant portion of our workers’ compensation premiums are pay-as-you-go programs, which reduces our downside risk from future premium audits or refunds.

We also have not experienced a material impact in our reported claims or incurred losses for the year ended December 31, 2021 as a specific result of the COVID-19 pandemic. Our loss ratio increased to 65.8% during the year ended December 31, 2021 from 46.8% for the year ended December 31, 2020. The increase in our loss ratio is primarily attributable to a number of unusually large losses experienced during the first half of 2021 and December 2021 which came primarily from three of our well established programs that have consistently produced positive results prior to 2021.

Investment Portfolio

With respect to our investment portfolio, we seek to hold a high-quality, diversified portfolio of investments, which are primarily in fixed maturity and available-for-sale investments and as such, our investment portfolio has limited exposure to equity market volatility. For the year ended December 31, 2021, we experienced a net decrease of $11,386 in the fair value of our investment portfolio due to a reduction in unrealized gains on the value of our fixed maturity investments. The decline in the fair value of our fixed maturity investments is primarily attributable to rising interest rates following 2020 COVID-19 driven lower rates as opposed to underlying credit risk within our investment portfolio. If there were to be continued equity and debt financial market volatility, which in turn could create mark-to-market investment valuation decreases, we expect there could be additional or increased unrealized losses recorded or realized losses, if sold, in future reporting periods. However, given the conservative nature of our investment portfolio, we expect that any adverse impact on the value of our investment portfolio, as it relates to COVID-19, will be temporary, and we do not expect a long-term negative impact on our financial condition, results of operations or cash flows.

Other Concerns

Adverse events such as changes in the overall public health environment, changing infection patterns and new variants of COVID-19, health-related concerns about working in our offices, restrictions on travel, the potential impact on our business partners and customers, and other matters affecting our general work and business environment could harm our business and delay the implementation of our business strategy. We cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in the future.

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equity interest, which is included in gain on revaluation of Compstar investment on the consolidated statement of operations. The fair value of the Company’s previous equity interest was revalued on the acquisition date using the market price of the shares issued as consideration for the acquisition.

Acquisition of 7710

Significant Components of Results of Operations

Gross written premiums: Gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for general and administrative expenses (including policy acquisition costs), reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by:

•addition and retention of Program Partners;

•new business submissions to our Program Partners;

•binding of new business submissions into policies;

•renewals of existing policies; and

•average size and premium rate of bound policies.

Gross earned premiums: Gross earned premiums are the earned portion of gross written premiums. We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year.

Ceded earned premiums: Ceded earned premiums are the amount of gross earned premiums ceded to reinsurers. We enter into reinsurance contracts to limit our maximum losses and diversify our exposure and provide statutory surplus relief. The volume of our ceded earned premiums is affected by the level of our gross earned premiums and any decision we make to increase or decrease limits, retention levels, and co-participations.

Net earned premiums: Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is earned and ceded to third-party reinsurers, including our Program Partners and professional reinsurers, under our reinsurance agreements.

Net investment income: We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of fixed maturities, including other equity investments and short-term investments. Our net investment income includes interest income on our invested assets, income on funds held investments as well as unrealized gains and losses on our equity portfolio.

Net realized gains/losses: Net realized gains/losses are a function of the difference between the amount received by us on the sale of a security and the security’s recorded value as well as any "other-than-temporary impairments" relating to fixed maturity investments recognized in earnings.

Other revenue: Other revenue includes brokerage, third-party administrative, management and consulting and other fee-based revenues, which are commonly based on written premiums.

Loss and loss adjustment expenses (LAE): Losses and LAE are net of reinsurance and include claims paid, estimates of future claim payments, changes in those estimates from prior reporting periods and costs associated with investigating, defending, and servicing claims. In general, our losses and LAE are affected by:

•frequency of claims associated with the particular types of insurance contacts that we write;

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•trends in the average size of losses incurred on a particular type of business;

•mix of business written by us;

•changes in the legal or regulatory environment related to the business we write;

•trends in legal defense costs;

•wage inflation; and

•inflation in medical costs.

Losses and LAE are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Losses and LAE may be paid out over a period of years.

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General and administrative expenses: General and administrative expenses include net commissions, insurance-related expenses and general and administrative operating expenses. Net commissions consist of policy acquisition costs and other underwriting expenses, net of ceding commissions. Policy acquisition costs are principally comprised of the commissions we pay our brokers and program managers. Policy acquisition costs that are directly related to the successful acquisition or reinsurance of those policies are deferred. All policy acquisition costs are charged to expense in proportion to premium earned over the policy life. We receive ceding commissions on business ceded under our reinsurance contracts. Insurance-related expenses largely consist of state premium taxes. General and administrative operating expenses include employee salaries and benefits, corporate business insurance costs, technology costs, office rent and professional services fees such as legal, accounting, audit, tax and actuarial services.

Intangible asset amortization: Intangible asset amortization consists of expenses incurred related to the amortization of intangible assets recorded as a result of business acquisitions and consists of trade names, customer lists and relationships and non-compete agreements.

Noncash stock compensation: Noncash stock compensation includes expenses related to the fair value and issuance of restricted stock units (time, market and performance-based) and stock options.

Gains (losses) on embedded derivatives: Gains (losses) on embedded derivatives consist of the change in fair value of derivatives, the effect of net investment income on funds held investments, and the effect of realized gains and loss on funds held investments.

Interest expense: Interest expense consists primarily of interest paid on (i) our term loan facility and (ii) ~~the~~our ~~preferred~~surplus ~~capital~~notes ~~securities issued by Trean Capital Trust I~~ (~~the "Trust") (~~See "Financial Condition, Liquidity and capital resources — Debt and Credit Agreements").

Goodwill impairment: The goodwill impairment charge relates to the excess carrying amount of the Company's net assets compared to their estimated fair value. Goodwill is not amortized but is reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred.

Other income: Other income consists primarily of sublease revenue and other miscellaneous income items.

Equity earnings in affiliates, net of tax: Equity earnings in affiliates, net of tax includes the Company's share of earnings from equity method investments.

Key Metrics

We discuss certain key financial and operating metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.

Underwriting income is a non-GAAP financial measure defined as income before taxes excluding net investment income, investment revaluation gains, net realized gains or losses, intangible asset amortization, goodwill impairment, noncash stock compensation, ~~gains~~noncash ~~and~~changes ~~losses~~in onfair value of embedded derivatives, interest expense, other revenue and other income and expenses. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of underwriting income to income before taxes in accordance with GAAP.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items, including ~~the consummation of the reorganization transactions in connection with our IPO,~~ noncash intangible asset amortization and stock compensation, goodwill impairment, noncash ~~unrealized~~changes ~~gains~~in ~~and~~fair ~~losses~~value onof embedded derivatives, other expenses and gains or losses that we believe do not reflect our core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of our results across periods. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted net income to net income in accordance with GAAP.

Loss ratio, expressed as a percentage, is the ratio of losses and LAE to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of general and administrative expenses to net earned premiums.

Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

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which items may have a disproportionate effect in a given period, affecting comparability of our results across periods. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted net income to net income in accordance with GAAP.

Loss ratio, expressed as a percentage, is the ratio of losses and LAE to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of total general and administrative expenses to net earned premiums.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

Adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted return on equity to return on equity in accordance with GAAP.

Tangible stockholders' equity is defined as stockholders' equity less goodwill and other intangible assets.

Return on tangible equity is a non-GAAP financial measure defined as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of return on tangible equity to return on equity in accordance with GAAP.

Adjusted return on tangible equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted return on tangible equity to return on tangible equity in accordance with GAAP.

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Results of Operations

This section of Form 10-K generally discusses fiscal year ~~2021~~2022 and ~~2020~~2021 items and year-to-year comparisons between ~~2021~~2022 and ~~2020~~2021. Discussions of fiscal year ~~2019~~2020 items and year-to-year comparisons between ~~2020~~2021 and ~~2019~~2020 that are not included in this Form 10-K can be found in Item 7 of Part II of our 2020 Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, which was filed with the U.S. Securities and Exchange Commission on March 2616, ~~2021~~2022 and which is available free of charge on the SEC's website at https://www.~~sed~~sec.gov and our website at https://www.trean.com, on the Investor Relations’ page under “Financial Info—Annual Reports.”

Consolidated Results of Operations for the Year Ended December 31, ~~2021~~2022 Compared to December 31, ~~2020~~2021

The following table summarizes our results of operations for the year ended December 31, ~~2021~~2022 and ~~2020~~2021:

	Year Ended December 31,				Change		Percentage Change (1)
(in thousands, except for percentages)	~~2021~~2022		~~2020~~2021
Revenues
Gross written premiums	$	~~634~~651,~~164~~303	$	~~484~~634,~~249~~164	$	~~149~~17,~~915~~139	312.07	%
Increase in gross unearned premiums	(619,~~911~~074)		(5261,~~215~~911)		(952,~~696)~~837		18(85.63)	%
Gross earned premiums	~~572~~642,~~253~~229		~~432~~572,~~034~~253		~~140~~69,~~219~~976		3212.52	%
Ceded earned premiums	(~~373~~357,~~573~~605)		(~~323~~373,~~567~~573)		~~(50~~15,~~006)~~968		15(4.53)	%
Net earned premiums	~~198~~284,~~680~~624		~~108~~198,~~467~~680		9085,~~213~~944		8343.23	%
Net investment income	810,~~721~~087		118,~~669~~721		(21,~~948)~~366		~~(25~~15.3)7	%
Gain on revaluation of Compstar investment	—		69,846		(69,846)		(100.0)	%
Net realized gains	285		49		236		NM
Net realized gains	49		3,365		(3,316)		(98.5)	%
Other revenue	8,246		10,240		(1,994)		(19.5)	%
Other revenue	10,240		12,104		(1,864)		(15.4)	%
Total revenue	303,242		217,690		85,552		39.3	%
Total revenue	217,690		205,451		12,239		6.0	%
Expenses
Losses and loss adjustment expenses	~~130~~203,~~772~~877		50130,~~774~~772		7973,~~998~~105		~~157~~55.69	%
General and administrative expenses	5486,~~706~~210		3854,~~668~~706		1631,~~038~~504		4157.56	%
Other expenses	~~845~~3,349		~~13,427~~845		~~(12~~2,~~582)~~504		~~(93.7)~~NM	%
Intangible asset amortization	5,~~826~~998		25,~~573~~826		~~3,253~~172		~~126~~3.40	%
Noncash stock compensation	1,~~522~~496		~~506~~1,522		~~1,016~~(26)		NM(1.7)	%
Interest expense	13,~~685~~270		1,~~922~~685		~~(237)~~1,585		~~(12~~94.3)1	%
Total expenses	195,356		107,870		87,486		81.1	%
Goodwill impairment (2)	76,053		—		76,053		NM
Gains (losses) on embedded derivatives	2,226		(6,155)		8,381		(136.2)	%
Total expenses	380,253		195,356		184,897		94.6	%
Other income	219		1,025		(806)		(78.6)	%
Gains (losses) on embedded derivatives	12,024		2,226		9,798		NM
Income before taxes	24,779		92,451		(67,672)		(73.2)	%
Other income	106		219		(113)		(51.6)	%
Income tax expense	5,449		6,235		(786)		(12.6)	%
Income (loss) before taxes	(64,881)		24,779		(89,660)		NM
Equity earnings in affiliates, net of tax	—		2,333		(2,333)		(100.0)	%
Income tax expense	1,074		5,449		(4,375)		(80.3)	%
Net income	$	19,330	$	88,549	$	(69,219)	(78.2)	%
Net income (loss)	$	(65,955)	$	19,330	$	(85,285)	NM

(1) ~~the~~The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

(2) See "Financial Condition, Liquidity and Capital Resources—Financial Condition—Goodwill and intangible asset valuation" below for additional information.

Table of Contents

	Year Ended December 31,
(in thousands, except for percentages)	~~2021~~2022			~~2020~~2021
Key metrics:
Underwriting income(1)	$	13,202		$	19,025
Underwriting income (loss) (1)	$	(5,463)		$	13,202
Adjusted net income(1)	$	22,132		$	32,778
Adjusted net income (1)	$	7,860		$	22,132
Loss ratio	6571.86		%	4665.8		%
Expense ratio	2730.53		%	3527.65		%
Combined ratio	93101.39		%	8293.43		%
Return on equity	4(17.69)		%	324.16		%
Adjusted return on equity(1)	5.3		%	11.9		%
Adjusted return on equity (1)	2.1		%	5.3		%
Return on tangible equity(1)	9.7		%	53.2		%
Return on tangible equity (1)	(34.0)		%	9.7		%
Adjusted return on tangible equity(1)	11.0		%	19.7		%
Adjusted return on tangible equity (1)	4.1		%	11.0		%

(1) Adjusted net income, adjusted return on equity, return on tangible equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation to the applicable GAAP measure..

The table below shows the total premiums earned on a gross and net basis for the respective annual periods:

Year Ended December 31,

Percentage Change (1)

(in thousands, except percentages)

~~2021~~2022

~~2020~~2021

Change

Revenues:

Gross written premiums

~~634~~651,~~164~~303

~~484~~634,~~249~~164

~~149~~17,~~915~~139

312.07

Increase in gross unearned premiums

(619,~~911~~074)

(5261,~~215~~911)

(952,~~696)~~837

18(85.63)

Gross earned premiums

~~572~~642,~~253~~229

~~432~~572,~~034~~253

~~140~~69,~~219~~976

3212.52

Ceded earned premiums

(~~373~~357,~~573~~605)

(~~323~~373,~~567~~573)

~~(50~~15,~~006)~~968

15(4.53)

Net earned premiums

~~198~~284,~~680~~624

~~108~~198,~~467~~680

9085,~~213~~944

8343.23

(1) ~~the~~The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

Gross written premiums: Gross written premiums increased $~~149~~17,~~915~~139, or 312.07%, to $~~634~~651,~~164~~303 for the year ended December 31, ~~2021~~2022, compared to $~~484~~634,~~249~~164 for the year ended December 31, ~~2020~~2021. The increase ~~was~~reflects ~~largely driven by~~ the ~~full~~growth ~~year effect of nine new program partners added~~ in ~~the~~our ~~prior~~Program ~~year~~Partner ~~and growth from existing program partners~~business. Gross written premium included the following:

Workers' compensation ~~gross written premiums increased $7,870, or 2.1%, to $376,819 compared with $368,949 for the year ended December 31, 2020. Worker's compensation~~ represented 5956.46% of total gross written premiums for the year ended December 31, ~~2021~~2022, compared to 7659.24% for the year ended December 31, ~~2020~~2021. ~~The~~Workers' ~~moderation~~compensation ingross ~~growth~~written ~~and~~premiums ~~shift~~decreased in$8,411, ~~mix~~or ~~reflects~~2.2%, ~~our~~to ~~ongoing~~$368,408 ~~strategic~~compared ~~effort~~with to$376,819 ~~diversify~~for ~~our~~the ~~lines~~year ofended ~~business~~December 31, ~~and~~2021, areflecting the intentional decrease in ~~the~~ California ~~workers' compensation~~ business that resulted from the Company's measures undertaken to ~~exit~~reduce certain unfavorable ~~workers'~~risks ~~compensation~~in ~~risks~~2021 in keeping with our overall strategy to prioritize underwriting discipline.

All other non-workers' compensation liability ~~gross~~represented ~~written~~43.4% ~~premiums~~of ~~increased~~our ~~$142,045,~~gross orwritten ~~123.2%,~~premiums ~~to $257,345~~ for the year ended December 31, ~~2021~~2022, compared ~~with~~to ~~$115,300~~40.6% for the year ended December 31, ~~2020~~2021. All other non-workers' compensation liability ~~represented~~gross ~~40.6%~~written ofpremiums ~~our~~increased ~~gross~~$25,550, ~~written~~or ~~premiums~~9.9%, to $282,895 for the year ended December 31, ~~2021,~~2022 compared towith ~~23.8%~~$257,345 for the year ended December 31, ~~2020~~2021. The increase ~~was~~is due primarily to growth in our ~~other liability,~~ accident & health, commercial, and commercial auto lines, ~~commercial~~partially offset by decreases in our other liability and homeowners lines ~~of business~~, which isare ina result of continued line ~~with~~of ~~our~~business diversification ~~strategy~~.

Gross earned premiums: Gross earned premiums increased $~~140~~69,~~219~~976, or 3212.52%, to $~~572~~642,~~253~~229 for the year ended December 31, ~~2021~~2022, compared to $~~432~~572,~~034~~253 for the year ended December 31, ~~2020~~2021. The increase reflects the increase in gross written premiums of $~~149~~17,~~915~~139 ~~net~~and ofthe anchange in the increase in gross unearned premiums of $952,~~696~~837. Gross earned premiums as a percentage of gross written premiums was 98.6% for the year ended December 31, 2022, compared to 90.2%, for the year ended December 31, 2021.

Table of Contents

Ceded earned premiums: Ceded earned premiums decreased $15,968, or 4.3%, to $357,605 for the year ended December 31, 2022, compared to $373,573 for the year ended December 31, 2021, reflecting the Company's strategic decision to retain more gross written premiums. This resulted in total ceded earned premiums as a percentage of gross ~~written~~earned premiums ~~was~~of 9055.27% for the year ended December 31, ~~2021~~2022, compared to 8965.23%, for the year ended December 31, ~~2020~~2021.

~~Ceded~~Net earned premiums: ~~Ceded~~Net earned premiums increased $5085,~~006~~944, or 1543.53%, to $~~373~~284,~~573~~624 for the year ended December 31, ~~2021~~2022, compared to $~~323~~198,~~567~~680 for the year ended December 31, ~~2020~~2021. The increase ~~in ceded earned premiums~~ is primarily ~~driven~~due byto the ~~full year effect of nine new programs added in the prior year which are largely ceded, partially offset by an increase in retention of existing business as part of our commitment to profitable~~ growth. ~~This resulted~~ in ~~total~~gross ~~ceded~~ earned premiums as adescribed ~~percentage~~above ofand ~~gross earned premiums of 65.3% for~~ the ~~year~~Company's ~~ended~~strategic ~~December 31,~~decision ~~2021, compared~~ to ~~74.9%~~retain ~~for~~more ~~the~~gross ~~year~~written ~~ended December 31, 2020~~premiums.

Net ~~earned~~investment ~~premiums~~income: Net ~~earned~~investment ~~premiums~~income increased $901,~~213~~366, or 8315.27%, to $~~198~~10,~~680~~087 for the year ended December 31, ~~2021~~2022, compared to $~~108~~8,~~467~~721 for the year ended December 31, ~~2020~~2021. The increase isreflects ~~due~~the ~~primarily~~reinvestment ~~due~~of cash flows from lower to ~~the~~higher ~~increase~~yielding investments in ~~gross~~a ~~written~~rising interest rate environment and ~~earned~~having ~~premiums~~a ~~described~~larger ~~above,~~average ~~partially~~investment ~~offset~~balance bywhich included the ~~increase~~investment inof ~~ceded~~the ~~earned~~surplus ~~premiums~~notes ~~for~~proceeds. ~~the~~The ~~year~~increase ~~ended~~was ~~December 31~~partially offset by unrealized losses of $4,797 ~~2021~~on equity securities.

Net ~~investment~~realized ~~income~~gains: Net ~~investment~~realized ~~income~~gains ~~decreased~~were $~~2,948,~~285 ~~or 25.3%, to $8,721~~ for the year ended December 31, ~~2021~~2022, compared to $~~11,669~~49 for the year ended December 31, ~~2020~~2021. ~~The~~Net ~~decrease~~realized isgains ~~primarily~~for ~~attributable~~the toyear ~~the~~ended ~~fair~~December 31, ~~value~~2022 reincludes earn-~~measurement~~out ~~and~~proceeds ~~common~~received ~~stock~~of ~~investment~~$1,415 ~~reclassification~~related ofto the Company's ~~investment~~sale inof TRI, ~~which~~in ~~was~~2021. ~~previously~~The ~~classified~~net asrealized ~~an equity method investment, which resulted in an unrealized~~ gain ofwas ~~$2,000~~offset ~~for~~by ~~the~~a ~~year~~repositioning ~~ended~~strategy ~~December 31,~~to ~~2020.~~sell ~~The~~lower-yielding ~~decrease~~assets ~~also~~and ~~reflects~~purchase ~~the reinvestment of funds from~~ higher -yielding ~~maturities~~investments ~~into~~resulting ~~lower~~in ~~yielding~~a ~~investments~~realized ~~due~~loss toof ~~lower interest rates~~$1,022 ~~partially~~during ~~offset~~the byfirst anquarter ~~increase~~of ~~in our invested balance~~2022.

~~Net~~Other ~~realized gains~~revenue: ~~Net~~Other ~~realized~~revenue ~~gains~~decreased ~~were~~$1,994, or 19.5%, to $498,246 for the year ended December 31, ~~2021~~2022, compared to $310,~~365~~240 for the year ended December 31, ~~2020~~2021. The decrease is primarily ~~due~~driven toby a ~~$3,115~~decrease ~~realized~~in ~~gain~~brokerage onrevenue ~~the~~of ~~sale~~$1,331, ofdue ato ~~portion~~lower ofplacement fees reflecting the Company's ~~investment~~increase in ~~TRI~~retention during the ~~first~~year. ~~quarter~~In ~~of 2020~~addition, ~~partially~~managing ~~offset~~general byagent afees, ~~loss of $112 realized in the~~ third-party ~~quarter~~administrator offees, ~~2021~~consulting onand ~~the~~other ~~Company's~~fee-based ~~sale~~revenue ofwere ~~its~~all ~~remaining~~lower ~~investment~~during inthe ~~TRI~~year.

~~Other~~Losses ~~revenue~~and loss adjustment expenses: ~~Other~~Losses ~~revenue~~and ~~decreased~~LAE increased $173,~~864~~105, or 1555.49%, to $10203,~~240~~877 for the year ended December 31, ~~2021~~2022, compared to $12130,~~104~~772 for the year ended December 31, ~~2020~~2021. The ~~decrease~~increase is primarily ~~driven~~attributable byto athe ~~decrease~~growth in ~~brokerage~~earned ~~revenue~~premiums ofand ~~$1,958,~~the ~~due~~increased retention experienced during 2022. The Company's retention rate increased to ~~lower~~44.3% ~~placement~~in ~~rates~~2022 ~~reflecting~~compared ~~the~~to 34.7% in 2021. The Company's loss ratio was 71.6% for the year ended December 31, 2022 compared to 65.8% for the year ended December 31, 2021. The loss ratio increase inreflects ~~retention~~elevated ~~during~~losses on our owned businesses and also reflects the impact of unfavorable development relating primarily to the 2021 accident year and its effect on expected losses for 2022.

~~Losses~~General and ~~loss~~administrative ~~adjustment~~ expenses: ~~Losses~~General and ~~LAE~~administrative expenses increased $7931,~~998~~504, or ~~157~~57.6%, to $~~130~~86,~~772~~210 for the year ended December 31, ~~2021~~2022, compared to $5054,~~774~~706 for the year ended December 31, ~~2020. The increase is primarily attributable to the growth in earned premiums and the increased retention experienced during~~ 2021. ~~The~~ ~~Company's~~This ~~retention~~resulted ~~rate increased to 34.7%~~ in ~~2021~~an ~~compared~~expense ~~to 25.1% in 2020. The Company's loss~~ ratio ~~was~~of 6530.83% for the year ended December 31, ~~2021~~2022, compared to 4627.85% for the year ended December 31, ~~2020. The increase is attributable to an unusual number of large losses experienced during the first half and fourth quarter of~~ 2021~~, resulting in a much higher overall loss ratio pick related to the 2021 accident year as compared to 2020~~. The 2021 large losses came primarily from three of our well established programs that have consistently produced positive results prior to 2021. The Company reviewed the operations of each of these programs to assess if any significant changes in rate levels, the claims environment, or underwriting practices were the root cause for the elevated losses experienced in 2021. Based on that review, the Company concluded that these programs are good programs and the Company expects these programs to contribute profitably in the future, despite the losses these programs experienced in 2021.

General and administrative expenses: General and administrative expenses increased $16,038, or 41.5%, to $54,706 for the year ended December 31, 2021, compared to $38,668 for the year ended December 31, 2020. This resulted in an expense ratio of 27.5% for the year ended December 31, 2021, compared to 35.6% for the year ended December 31, 2020.

The table below shows the components of general and administrative expenses for:

Table of Contents

	The year ended December 31,
	2021			2020			Change
	2022			2021			Change
Direct commissions	$	~~105~~114,~~965~~866		$	90105,~~256~~965		$	158,~~709~~901
Ceding commissions	(~~120~~102,~~688~~759)			(~~105~~120,~~500~~688)			~~(15~~17,~~188)~~929
Net commissions	~~(14~~12,~~723)~~107			(1514,~~244~~723)			~~521~~26,830
Insurance-related expenses	2022,~~732~~790			1620,~~075~~732			42,~~657~~058
General and administrative operating expenses	4851,~~697~~313			3748,~~837~~697			162,~~038~~616
Total general and administrative expenses	$	5486,~~706~~210		$	3854,~~668~~706		$	2131,~~216~~504
General and administrative expenses — % of gross written premiums	7.79		%	7.87		%	(0.1)2		%
Retention rate (1)	3444.73		%	2534.17		%	9.6		%
Direct commission rate (2)	1817.59		%	2018.95		%	(20.46)		%
Ceding commission rate (3)	3228.37		%	32.63		%	(0.3.6)		%
(1) Net earned premium as a percentage of gross earned premiums.
(2) Direct commissions as a percentage of gross earned premiums.
(3) Ceding commissions as a percentage of ceded earned premiums.

Direct commissions increased $158,~~709~~901 primarily due to an increase in gross earned premiums. Ceding commissions ~~increased~~decreased $1517,~~188~~929 due to an increase in ~~ceded earned premiums which reflected the increase in gross earned premiums, partially offset by an increase in~~ retention. Insurance-related expenses increased $42,~~657~~058 primarily as a result of the increase in gross earned premiums. General and administrative operating expenses increased $162,~~038~~616, ~~primarily~~reflecting ~~as a result of~~ (i) an increase in salaries and benefits of $72,~~857~~945, of which ~~$3,423~~related ~~directly~~primarily ~~resulted~~to ~~from~~a ~~acquisitions~~general ~~made~~increase in ~~the~~salaries ~~second half of 2020~~ and ahigher ~~general~~health ~~increase~~insurance ~~in workforce~~costs; (ii) ~~additional rent and office-related expenses totaling 2,268 due to~~ an increase in ~~business~~travel ~~insurance~~ expense ~~as well as the addition~~ of ~~new office locations~~$429; and (iii) ~~additional IT software and systems costs totaling $1,288 related to new software implementation and automation initiatives; partially offset by~~ a decrease in professional fees of $~~1,365 as a result of the Company's IPO readiness effort in 2020~~332.

Other expenses: Other expenses were $~~845~~3,349 for the year ended December 31, ~~2021~~2022 which primarily relates to ~~secondary~~merger-related ~~offering~~expenses ~~costs~~ of approximately $~~555~~3,081 and ~~executive~~management transition costs ~~totaling~~of $~~290~~268. Other expenses for the year ended December 31, ~~2020~~2021 were $~~13,427,~~845 which ~~includes~~primarily ~~(i)~~relates ~~a payment~~ to ~~Altaris~~secondary ~~Capital~~offering ~~Partners,~~costs ~~LLC in connection with the termination~~ of ~~the Company's consulting and advisory agreement totaling~~ $~~7,639;~~555 ~~(ii) IPO bonuses paid to employees~~ and ~~pre-IPO~~executive ~~unitholders~~transition ofcosts ~~$3,415; (iii) an arbitration settlement, including associated legal fees,~~ totaling $~~1,572; and (iv) an executive severance accrual of $801~~290.

Intangible asset amortization: Intangible asset amortization increased $~~3,253~~172 to $5,~~826~~998 for the year ended December 31, ~~2021~~2022, compared to $25,~~573~~826 for the year ended December 31, ~~2020~~2021. The increase is primarily driven by the addition of intangible assets acquired ~~as a result of the purchase of the remaining equity interest of Compstar~~ in the ~~third quarter of 2020, the~~ acquisition of ~~7710 Insurance Company in the fourth quarter of 2020 and the acquisition of~~ WIC in the third quarter of 2021.

Noncash stock compensation: Noncash stock compensation was $1,~~522~~496 and $~~506~~1,522 for the years ended December 31, ~~2021~~2022 and ~~2020~~2021. Expenses incurred during both periods relates to the fair value of restricted stock units and stock options granted under the Company's 2020 Omnibus Plan amortized over appropriate and applicable vesting periods. ~~The increase of $1,016 in noncash stock compensation was driven by our 2021 annual grant and a full year of expense for our 2020 grant at the time of our July 2020 IPO grant.~~

Interest expense: Interest expense increased $1,585, or 94.1%, to $3,270 for the year ended December 31, 2022, compared to $1,685 for the year ended December 31, 2021. The increase includes additional interest expense of $1,222 related to the Surplus Notes issued during the third quarter of 2022. The remainder of the increase was due to higher interest rates on our variable rate Secured Credit Facility during the year ended December 31, 2022.

Goodwill impairment: A goodwill impairment charge of $76,053 was recognized during the year ended December 31, 2022. As a result of the Merger Agreement, the estimation of the nonrecurring fair value measurement of the Company based on the implied equity value of the Company at the negotiated purchase price of $6.15 per common share.

Table of Contents

Gains (losses) on embedded derivatives:

~~Gains~~The table below shows the components of gains (losses) on embedded derivatives ~~consists of the following~~ for the ~~year~~years ended December 31, ~~2021~~2022 and ~~2020~~2021.

	The Year Ended December 31,
	2021		2020		Change
	2022		2021		Change
Change in fair value of embedded derivatives	$	415,~~666~~682	$	(24,~~810)~~666	$	711,~~476~~016
Effect of net investment income on funds held investments	(23,~~338~~668)		(32,~~345~~338)		(1,~~007~~330)
Effect of realized gains on funds held investments	(102)		—		(102)
Effect of realized losses (gains) on funds held investments	10		(102)		112
Gains (losses) on embedded derivatives	$	2,226	$	(6,155)	$	8,381
Gains on embedded derivatives	$	12,024	$	2,226	$	9,798

Gains on embedded derivatives were $212,~~226~~024 for the year ended December 31, ~~2021~~2022, compared to ~~losses of~~ $62,~~155~~226 for the year ended December 31, ~~2020~~2021. The increased gain of $89,~~381~~798 reflected the change in the fair value of the embedded derivatives of $711,~~476~~016 and the effect of ~~investment~~realized ~~income~~losses on funds held investments of $1112,~~007,~~ partially offset by the effect of ~~realized~~investment ~~gains~~income on funds held investments of $~~102~~1,330.

Income tax expense: Income tax expense was $51,~~449~~074 for the year ended December 31, ~~2021~~2022, which resulted in an effective tax rate of 22(1.07)%, compared to $65,~~235~~449 for the year ended December 31, ~~2020~~2021, which resulted in an effective tax rate of 622.70%. The ~~increase in the~~ effective tax rate differed from the statutory rate of 21% for the year ended December 31, ~~2021~~2022 is primarily due to the ~~impact~~non-deductible ofcosts ~~recording~~incurred ~~our~~in ~~2020~~connection ~~tax~~with ~~return~~the ~~accrual~~Merger toAgreement ~~return~~and ~~true~~the upnon-deductible inportion of the ~~third~~goodwill ~~quarter~~impairment charge. The ~~decrease~~increase in the effective tax rate from the statutory rate of 21% for the year ended December 31, ~~2020~~2021 ~~was~~is ~~due~~ primarily due to the ~~non-tax~~ impact of ~~the~~recording ~~gain~~our ~~recorded~~2020 ontax ~~the~~return ~~revaluation~~accrual ofto ~~the~~return ~~Company's~~true ~~original~~up ~~45% investment~~ in ~~Compstar, offset by certain IPO-related expenses not deductible for tax purposes and~~ the ~~impact~~third ~~of state taxes~~quarter.

Equity earnings in affiliates, net of tax: Equity earnings in affiliates, net of tax decreased $2,333 to zero for the year ended December 31, 2021, compared to $2,333 for the year ended December 31, 2020. This decrease is due to the reduction in the Company's share of earnings in Compstar of $2,333 as a result of the acquisition of the remaining ownership interest during the third quarter of 2020.

Reconciliation of Non-GAAP Financial Measures

Underwriting income (loss)

We define underwriting income (loss) as income (loss) before taxes excluding net investment income, noncash changes in fair value of embedded derivatives, investment revaluation gains, net realized capital gains or losses, ~~IPO-related~~noncash ~~expenses,~~ intangible asset amortization, ~~noncash~~goodwill ~~stock compensation~~impairment, noncash ~~unrealized~~stock ~~gains and losses on embedded derivatives~~compensation, interest expense, other revenue and other income and expenses. Underwriting income (loss) represents the pre-tax profitability of our underwriting operations and allows us to evaluate our underwriting performance without regard to the above listed items. We use this metric because we believe it gives our management and other users of our financial information useful insight into our underwriting business performance by adjusting for these expenses and sources of income. Underwriting income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define underwriting income differently.

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	Year Ended December 31,				Percentage Change (1)
(in thousands, except percentages)	~~2021~~2022		~~2020~~2021
Net income	$	19,330	$	88,549	(78.2)	%
Net income (loss)	$	(65,955)	$	19,330	NM
Income tax expense	51,~~449~~074		65,~~235~~449		(1280.63)	%
Equity earnings in affiliates, net of tax	—		(2,333)		(100.0)	%
Income (loss) before taxes	(64,881)		24,779		NM
Income before taxes	24,779		92,451		(73.2)	%
Other revenue	(8,246)		(10,240)		(19.5)	%
Other revenue	(10,240)		(12,104)		(15.4)	%
Change in fair value of embedded derivatives	(12,024)		(2,226)		NM
Gains (losses) on embedded derivatives	(2,226)		6,155		(136.2)	%
Net investment income	(10,087)		(8,721)		15.7	%
Net investment income	(8,721)		(11,669)		(25.3)	%
Realized gain on sale of investments	(285)		(49)		NM
Gain on revaluation of Compstar investment	—		(69,846)		(100.0)	%
Interest expense	3,270		1,685		94.1	%
Net realized gains	(49)		(3,365)		(98.5)	%
Other expenses	3,349		845		NM
Interest expense	1,685		1,922		(12.3)	%
Goodwill impairment (2)	76,053		—		NM
Other expenses	845		13,427		(93.7)	%
Intangible asset amortization	5,998		5,826		3.0	%
Intangible asset amortization	5,826		2,573		126.4	%
Noncash stock compensation	1,496		1,522		(1.7)	%
Noncash stock compensation	1,522		506		NM
Other income	(106)		(219)		(51.6)	%
Other income	(219)		(1,025)		(78.6)	%
Underwriting income (loss)	$	(5,463)	$	13,202	(141.4)	%
Underwriting income	$	13,202	$	19,025	(30.6)	%

(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

(2) See "Financial Condition, Liquidity and Capital Resources—Financial Condition—Goodwill and intangible asset valuation" below for additional information.

Adjusted net income (loss)

We define adjusted net income (loss) as net income (loss) excluding the impact of certain items, including noncash intangible asset amortization, stock compensation, goodwill impairment, noncash changes in fair value of embedded derivatives, other expenses and gains or losses that we believe do not reflect our core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of our results across periods. We calculate the tax impact only on adjustments that would be included in calculating our income tax expense using an expected effective tax rate for the applicable years. We use adjusted net income (loss) as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance by eliminating the effects of these items. Adjusted net income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define adjusted net income (loss) differently.


	Year Ended December 31,				Percentage Change (1)
(in thousands, except percentages)	2022		2021
Net income (loss)	$	(65,955)	$	19,330	NM
Intangible asset amortization	5,998		5,826		3.0	%
Noncash stock compensation	1,496		1,522		(1.7)	%
Change in fair value of embedded derivatives	(15,682)		(4,666)		NM
Unrealized losses on equity securities	4,797		—		NM



Realized loss (gain) on sale of investment	(1,415)		112		NM
Other expenses	3,349		845		NM
Goodwill impairment (2)	76,053		—		NM
Total adjustments	74,596		3,639		NM
Tax impact of adjustments	(781)		(837)		(6.7)	%
Adjusted net income	$	7,860	$	22,132	(64.5)	%

(1) the Company defines increases or decreases greater than 200% as "NM" or not meaningful.

Adjusted net income

We define adjusted net income as net income excluding the impact of certain items, including the consummation of the reorganization transactions in connection with our IPO, noncash intangible asset amortization and stock compensation, noncash unrealized gains and losses on embedded derivatives, other expenses and gains or losses that we believe do not reflect our core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of our results across periods. We calculate the tax impact only on adjustments that would be included in calculating our income tax expense using the effective tax rate at the end of each period. We use adjusted net income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance by eliminating the effects of these items. Adjusted net income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define adjusted net income differently.

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	Year Ended December 31,				Percentage Change (1)
(in thousands, except percentages)	2021		2020
Net income	$	19,330	$	88,549	(78.2)	%
Intangible asset amortization	5,826		2,573		126.4	%
Noncash stock compensation	1,522		506		NM
Change in fair value of embedded derivatives	(4,666)		2,810		NM
Expenses associated with Altaris management fee, including cash bonuses paid to unit holders	—		883		(100.0)	%
Expenses associated with IPO and other related legal and consulting expenses	—		1,845		(100.0)	%
Expenses related to debt issuance costs	—		135		(100.0)	%
FMV adjustment of remaining investment in affiliate	—		(71,846)		(100.0)	%
Net loss (gain) on purchase & disposal of affiliates	112		(3,115)		(103.6)	%
Other expenses	845		13,427		(93.7)	%
Total adjustments	3,639		(52,782)		(106.9)	%
Tax impact of adjustments	(837)		(2,989)		(72.0)	%
Adjusted net income	$	22,132	$	32,778	(32.5)	%

(2) See "Financial Condition, Liquidity and Capital Resources—Financial Condition—Goodwill and intangible asset valuation" below for additional information.

(1) the Company defines increases or decreases greater than 200% as "NM" or not meaningful.

Adjusted return on equity

We define adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period. We use adjusted return on equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance by adjusting for items that we believe do not reflect our core operating performance and that may diminish comparability across periods. Adjusted return on equity should not be viewed as a substitute for return on equity calculated in accordance with GAAP, and other companies may define adjusted return on equity differently.

	Year Ended December 31,
	2021			2020
	2022			2021
Adjusted return on equity calculation:
Numerator: adjusted net income	$	227,~~132~~860		$	3222,~~778~~132
Denominator: average equity	~~416~~368,~~008~~464			~~275~~416,~~861~~008
Adjusted return on equity	52.31		%	115.93		%
Return on equity	4(17.69)		%	324.16		%

Return on tangible equity and adjusted return on tangible equity

We define tangible stockholders' equity as stockholders' equity less goodwill and other intangible assets. We define return on tangible equity as net income (loss) expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. We define adjusted return on tangible equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. We regularly evaluate acquisition opportunities and have historically made acquisitions that affect stockholders' equity. We use return on tangible equity and adjusted return on tangible equity as internal performance measures in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance by adjusting for the effects of acquisitions on our stockholders' equity and, in the case of adjusted return on tangible equity, by adjusting for the items that we believe do not reflect our core operating performance and that may diminish comparability across periods. Return on tangible equity and adjusted return on tangible equity should not be viewed as a substitute for return on equity or return on tangible equity, respectively, calculated in accordance with GAAP, and other companies may define return on tangible equity and adjusted return on tangible equity differently.


	Year Ended December 31,
	2022			2021
Return on tangible equity calculation:
Numerator: net income (loss)	$	(65,955)		$	19,330
Denominator:
Average stockholders' equity	368,464			416,008
Less: average goodwill and other intangible assets	174,436			215,709
Average tangible stockholders' equity	194,028			200,299
Return on tangible equity	(34.0)		%	9.7		%
Return on equity	(17.9)		%	4.6		%

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Return on tangible equity and adjusted return on tangible equity


	Year Ended December 31,
	2022			2021
Adjusted return on tangible equity calculation:
Numerator: adjusted net income	$	7,860		$	22,132
Denominator: average tangible equity	194,028			200,299
Adjusted return on tangible equity	4.1		%	11.0		%
Return on equity	(17.9)		%	4.6		%

We define tangible stockholders' equity as stockholders' equity less goodwill and other intangible assets. We define return on tangible equity as net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. We define adjusted return on tangible equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending tangible stockholders' equity during the period. We regularly evaluate acquisition opportunities and have historically made acquisitions that affect stockholders' equity. We use return on tangible equity and adjusted return on tangible equity as internal performance measures in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance by adjusting for the effects of acquisitions on our stockholders' equity and, in the case of adjusted return on tangible equity, by adjusting for the items that we believe do not reflect our core operating performance and that may diminish comparability across periods. Return on tangible equity and adjusted return on tangible equity should not be viewed as a substitute for return on equity or return on tangible equity, respectively, calculated in accordance with GAAP, and other companies may define return on tangible equity and adjusted return on tangible equity differently.

	Year Ended December 31,
	2021			2020
Return on tangible equity calculation:
Numerator: net income	$	19,330		$	88,549
Denominator:
Average stockholders' equity	416,008			275,861
Less: average goodwill and other intangible assets	215,709			109,466
Average tangible stockholders' equity	200,299			166,395
Return on tangible equity	9.7		%	53.2		%
Return on equity	4.6		%	32.1		%

	Year Ended December 31,
	2021			2020
Adjusted return on tangible equity calculation:
Numerator: adjusted net income	$	22,132		$	32,778
Denominator: average tangible equity	200,299			166,395
Adjusted return on tangible equity	11.0		%	19.7		%
Return on equity	4.6		%	32.1		%

Financial Condition, Liquidity and Capital Resources

Sources and Uses of Funds

We are organized as a holding company with our operations conducted through our subsidiaries, including our wholly owned insurance subsidiaries: Benchmark, which is domiciled in Kansas and commercially domiciled in California; ALIC, which is domiciled in Utah; 7710, which is domiciled in South Carolina; and BSIC, which is domiciled in Arkansas. Accordingly, the holding company may receive cash through (i) loans from banks; (ii) draws on a revolving loan agreement; (iii) issuance of equity and debt securities, (iv) corporate service fees from our operating subsidiaries; (v) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions; and (vi) dividends from our non-insurance subsidiaries and, subject to certain limitations discussed below, dividends from our insurance subsidiaries. We also may use the proceeds from these sources to contribute funds to the insurance subsidiaries in order to support premium growth, reduce our reliance on reinsurance, pay taxes and for other general business purposes.

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State insurance laws restrict the ability of insurance companies to declare stockholder dividends without prior regulatory approval. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus.

Under Kansas and California law, dividends payable from Benchmark without the prior approval of the applicable insurance commissioner must not exceed the greater of: (i) 10% of Benchmark’s surplus as shown on the last statutory financial statement on file with the Kansas Insurance Department and the California Department of Insurance, respectively; or (ii) 100% of net income during the applicable twelve-month period (not including realized gains). Dividends shall not include pro rata distributions of any class of Benchmark's own securities.

Under South Carolina law, dividends payable from 7710 without the prior approval of the applicable insurance commissioner are limited to the following during the preceding twelve months: (a) when paid from other than earned surplus must not exceed the lesser of: (i) 10% of 7710's surplus as regards policyholders as shown in 7710’s most recent annual statement; or (ii) the net income, not including net realized gains or losses as shown in the 7710's most recent annual statement; or (b) when paid from earned surplus must not exceed the greater of: (i) 10% of 7710's surplus as regards policyholders as shown in 7710’s most recent annual statement; or (ii) the net income, not including net realized gains or losses as shown in the 7710's most recent annual statement. Dividends shall not include pro rata distributions of any class of 7710's own securities.

The maximum amount of dividends the insurance subsidiaries ~~can~~were able to pay us during ~~2021~~2022 without regulatory approval is approximately $~~21.0~~17 million. Insurance regulators have broad powers to ensure that statutory surplus remains at adequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted. In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by the insurance subsidiaries may adopt statutory provisions more restrictive than those currently in effect.

Our insurance subsidiaries are also required by state law to maintain a minimum level of policyholder's surplus. Kansas, Utah, Arkansas and South Carolina utilize a risk-based capital requirement as promulgated by the National Association of Insurance Commissioners. Such requirements are designed to identify the various business risks (e.g., investment risk, underwriting profitability risk, etc.) of insurance companies and their subsidiaries. As of December 31, 2021 and December 31, 2020, the total adjusted capital of our insurance subsidiaries was in excess of their respective prescribed risk-based capital requirements.65

As of December 31, 2021, we had $129,577 in cash and cash equivalents, compared to $153,149 as of December 31, 2020.

Management believes that we have sufficient liquidity available to meet our operating cash needs and obligations and committed capital expenditures for the next 12 months.

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Our insurance subsidiaries are also required by state law to maintain a minimum level of policyholder's surplus. Kansas, Utah, Arkansas and South Carolina utilize a risk-based capital requirement as promulgated by the National Association of Insurance Commissioners. Such requirements are designed to identify the various business risks (e.g., investment risk, underwriting profitability risk, etc.) of insurance companies and their subsidiaries. As of December 31, 2022 and December 31, 2021, the total adjusted capital of our insurance subsidiaries was in excess of their respective prescribed risk-based capital requirements.

As of December 31, 2022, we had $107,991 in cash and cash equivalents, compared to $129,577 as of December 31, 2021.

Management believes that we have sufficient liquidity available to meet our operating cash needs and obligations and committed capital expenditures for the next 12 months.

Cash Flows

Our most significant source of cash is from premiums received from insureds, net of the related commission amount for the policies. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that generally earn interest and dividends. The table below summarizes our net cash flows.

	Year Ended December 31,
	2021		2020
	2022		2021
Cash, cash equivalents and restricted cash provided by (used in):
Operating activities	$	94108,~~359~~947	$	5094,~~012~~359
Investing activities	(~~120~~175,~~156~~440)		(20120,~~246~~156)
Financing activities	(145,~~453)~~583		51(1,~~400~~453)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(2720,~~250~~910)	$	81(27,~~166~~250)

Operating Activities: Net cash provided by operating activities for the year ended December 31, ~~2021~~2022 was $94108,~~359~~947 compared to $5094,~~012~~359 for the same period in ~~2020~~2021. Net cash provided by operating activities includes net income (loss) as adjusted for depreciation and amortization, stock compensation, unrealized and realized gains and losses, bond amortization and accretion, the change in deferred income taxes, ~~gain on revaluation of Compstar investment, issuance of member units as compensation, equity earnings in affiliates, distributions from equity method investments, and~~ amortization of deferred financing costs and goodwill impairment. Net cash provided by operating activities during the year ended December 31, ~~2021~~2022 reflects increases in unpaid loss and loss adjustment expenses of $8688,~~503~~590, funds held under reinsurance agreements of $58,191, unearned premiums of $619,~~953,~~172 and ~~funds~~reinsurance ~~held~~premiums ~~under~~payable of $5,731; and decreased prepaid reinsurance ~~agreements~~premiums of $435,~~062~~142; partially offset by increases in ~~premiums and other receivable of $31,921,~~ reinsurance recoverables of $3431,~~028~~281, ~~prepaid~~premiums ~~reinsurance~~and ~~premiums~~other receivable of $2118,~~441~~362, other assets of $1311,~~776~~553, ~~and~~income ~~decreases~~taxes inreceivable ~~reinsurance premiums payable~~ of $115,~~939,~~381 and ~~accounts payable and~~ accrued ~~expenses~~investment income of $71,~~951~~382. ~~The~~Unpaid ~~increases~~loss ~~in premiums~~ and ~~other~~loss ~~receivables~~adjustment ~~and~~expenses ~~reinsurance~~increased ~~recoverables were~~ primarily adue ~~result~~to ofgrowth ~~an increase~~ in gross ~~written~~earned premiums, ~~during~~an ~~the~~increase ~~period. Other assets increased as a result of increases~~ in our ~~deferred~~2022 ~~acquisition~~loss ~~costs~~ratio, and ~~contract~~an ~~asset~~increase ~~balances. The decrease~~ in ~~accounts~~our ~~payable~~retention. ~~and~~Funds ~~accrued~~held ~~expenses~~under asreinsurance ofagreements ~~December 31,~~increased ~~2021~~due ~~compared~~ to ~~December 31, 2020 was the result of~~ a ~~non-cash~~reduction ~~transfer of funds that were being held while control of the funds were being arbitrated. Upon the conclusion of arbitration with a counterparty~~ in ~~2021,~~ the ~~funds~~derivatives ~~were~~and ~~remitted~~an ~~back~~increase ~~to the counterparty, resulting~~ in agross ~~non-cash~~written ~~reduction~~premiums. inThe ~~investments~~increases ~~held as collateral and corresponding decreases~~ in ~~accounts~~premiums ~~payable~~ and ~~accrued~~other ~~expenses~~receivables ~~of $26,211~~ and ~~funds held under~~ reinsurance ~~agreements~~recoverables ofwere ~~$13,562.~~primarily ~~Excluding non-cash transfers, funds held under reinsurance agreement increased as~~ a result of an increase in gross written premiums. ~~Net~~during ~~cash provided by operating activities for~~ the ~~year~~period. ~~ended~~Other ~~December 31,~~assets ~~2020~~increased ~~reflects~~as ~~distributions~~a ~~received~~result ~~from~~of ~~equity~~increases ~~method~~in ~~investments~~our ~~and~~deferred ~~incremental~~acquisition ~~cash~~costs ~~received for operating assets~~ and ~~liabilities.~~prepaid software.

Investing Activities: Net cash used in investing activities for the year ended December 31, ~~2021~~2022 was $~~120~~175,~~156~~440 compared to $20120,~~246~~156 for the same period in ~~2020~~2021. Net cash used in investing activities for the year ended December 31, ~~2021~~2022 includes $~~116~~175,~~247~~101 net cash used in the purchase and sale of investments, ~~$3,795 in cash used in the acquisition of a subsidiary, net of cash received,~~ and $~~346~~339 in capital expenditures~~, partially offset by $232 received for the return of capital on equity method investments~~. Net cash used in investing activities for the year ended December 31, ~~2020~~2021 includes $23116,~~911~~247 net cash used in the purchase and sale of investments, $10,534 in cash used in the acquisition of a subsidiary, net of cash received, and $807 in capital expenditures, partially offset by $11,891 cash received in the acquisition of Compstar, $3,000 in cash received for the sale of equity method investments, and $115 received for the return of capital on equity method investments.

~~Financing~~$3,795 ~~Activities:~~in ~~Net~~ cash used in ~~financing activities for~~ the ~~year~~acquisition ~~ended~~of ~~December 31,~~a ~~2021 was $1~~subsidiary,~~453~~ ~~compared to~~ net ~~cash provided by~~ of ~~$51,400 for the same period in 2020. The~~ cash ~~used~~received, inand ~~financing activities in the current year was primarily driven by principal payment on debt of~~ $~~1,444.~~346 ~~Cash provided by financing activities~~ in ~~the~~capital ~~prior year was primarily driven by proceeds from our initial public offering of $99~~expenditures,~~643~~ ~~and proceeds from our credit agreement of $32,453. This was~~ partially offset by ~~principal payment on our debt of~~ $~~49,728,~~232 ~~distribution~~received tofor ~~members prior to~~ the ~~our~~return ~~initial public offering~~ of ~~$19,819,~~capital ~~buy~~on ~~back~~equity ofmethod ~~preferred shares of $5,100 and deferred offering costs of $5,839~~investments.

67Financing Activities: Net cash provided by financing activities for the year ended December 31, 2022 was $45,583 compared to net cash used in financing activities of $1,453 for the year ended December 31, 2021. The cash provided by financing activities in 2022 primarily includes $48,455 of net cash proceeds received from the issuance of surplus notes, partially offset by principal payment made on the Company's debt of $1,650, an earn-out payment of $750 related to our 2021 acquisition of WIC, payments for deferred financing costs of $276 and a payment for our interest rate cap of $173. Cash used in financing activities in the prior year primarily included principal payment made on the Company's debt of $1,444.

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Debt and Credit Agreements

First Horizon Credit Agreement

In April 2018, the Company entered into a credit agreement with First Horizon Bank ~~(formerly, First Tennessee Bank National Association)~~ that includes a term loan facility totaling $27.5 million and a revolving credit facility of $3.0 million. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries.

On July 16, 2020, the Company entered into a new Second Amended and Restated Credit Agreement with First Horizon Bank that, among other things, extended the Company's credit facility for a period of five years through May 26, 2025 and increased its term loan facility by $11,707 resulting in a total term loan debt amount of $33,000 and a revolving credit facility of $2,000. ~~The~~On ~~loan~~May ~~has~~6, 2022, we entered into a ~~variable~~First ~~interest~~Amendment ~~rate~~to the Credit Agreement to, among other things, facilitate the approval of certain internal distributions among the Company and certain of its subsidiaries as part of the Company’s overall capital management strategy. On September 28, 2022, we entered into a Second Amendment to the Credit Agreement that, among other things, replaced LIBOR ~~plus~~as the benchmark rate with Term SOFR (as defined in the Credit Agreement), reduced the applicable margin under the Credit Agreement on Eurodollar loans from 4.50%, 4to 3.50% and on ABR loans from 3.0050% to 2.50%, and converted all extant Eurodollar loans under the Credit Agreement to Term SOFR loans. The loan has a variable interest rate plus applicable margin, which was 47.6459%, 4.7264% and 64.3372% as of December 31, ~~2021~~2022, ~~2020~~2021 and ~~2019~~2020, respectively. The outstanding principal balance of the loan is to be repaid in quarterly installments that escalate from approximately $206 to $825 until March 2025. All equity securities of the Company's subsidiaries (other than Benchmark Holding Company and its subsidiaries) have been pledged as collateral.

In addition, and in conjunction with, the execution of the Second Amended and Restated Credit Agreement, the Company made dividend distribution payments to Trean members totaling $18,154 in May 2020.

Hedging Arrangement

In September 2022, we entered into the Interest Rate Cap Agreement that became effective September 30, 2022, to hedge cash flows associated with interest rate fluctuations on our secured credit facility, with a termination date of May 31, 2024. The Interest Rate Cap Agreement has a notional amount of $29,700 that effectively converted the outstanding balance of the secured credit facility from variable rate debt to capped variable rate debt, resulting in a change in the applicable interest rate from an interest rate of one-month SOFR plus the applicable margin (as provided by the secured credit facility) to one-month SOFR interest rate, capped at 5.00%, plus the applicable margin. The notional amount of the Interest Rate Cap Agreement decreases quarterly in proportion to the quarterly principal payments on the secured credit facility. The Interest Rate Cap Agreement is designated as a cash flow hedge and the change in fair value is recorded in accumulated other comprehensive income and is subsequently reclassified to interest expense in the period when the hedged forecasted interest payments affect earnings. The Company paid a fixed amount of $173 for the Interest Rate Cap Agreement.

Surplus Notes

On August 24, 2022, Benchmark issued Surplus Notes which consisted of $50,000 in aggregate principal amount of 6.75% surplus notes due 2042 in a private placement exempt from registration under the Securities Act. In connection with the issuance of the Surplus Notes, Benchmark entered into the Fiscal Agency Agreement with The Bank of New York Mellon, as fiscal agent, paying agent, registrar and transfer agent, providing for the terms of the Surplus Notes.

The Surplus Notes are unsecured, subordinated debt obligations of the Company and are reflected as debt on our consolidated balance sheets. All payments of principal and interest, which accrues at the rate of 6.75% per year and is payable quarterly, on the Surplus Notes are subject to prior approval by the Commissioner of the Kansas Insurance Department.

Junior Subordinated Debt

In June 2006, the Trust issued 7,500 shares of preferred capital securities to Bear Stearns Securities Corp. and 232 common securities to Trean Corporation. The proceeds of such issuances were invested by the Trust in $7,732 aggregate principal amount of the Subordinated Notes. The Subordinated Notes ~~represents~~compromise the sole assets of the Trust. On October 7, 2020, Trean Corp redeemed all of the Subordinated Notes for a total payoff ~~amounts~~amount of $7,807. The interest rate was a fixed rate of 9.167% until July 7, 2011, at which time a variable interest rate of 3-month LIBOR (1.99% as of December 31, 2020, respectively) plus 3.50% is in effect. The interest rate totaled 5.49% as of December 31, 2020, respectively.

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Oak Street Loan

In conjunction with the acquisition of Compstar, the Company acquired a loan from Oak Street Funding with a total principle of $19,740. In July 2020, upon completion of the acquisition, the Company paid this loan off in full.

PPP Loans

In conjunction with the acquisition of WIC, the Company acquired two Federal Paycheck Protection Program ("PPP Loans") with a principal balance of $243. As of December 31, 2021, both loans had been fully forgiven.

Reinsurance

We cede a portion of the risk we accept on our balance sheet to third-party reinsurers through a variety of reinsurance arrangements. We manage these arrangements to align risks with our Program Partners, optimize our net retention relative to our financial objectives, balance sheet size and ratings requirements, as well as to limit our maximum loss resulting from a single program or a single event. We utilize both quota share and excess of loss ("XOL") reinsurance as tools in our overall risk management strategy to achieve these goals, usually in conjunction with each other. Quota share reinsurance involves the proportional sharing of premiums and losses of each defined program. We utilize quota share reinsurance for several purposes, including (i) to cede risk to Program Partners, which allows us to share economics and align incentives and (ii) to cede risk to third-party reinsurers in order to manage our net written premiums appropriately based on our financial objectives, capital base, A.M. Best financial strength rating and risk appetite. It is a core pillar of our underwriting philosophy that Program Partners retain a portion of the underwriting risk of their program. We believe this best aligns interests, attracts higher quality programs, and leads to better underwriting results. Under XOL reinsurance, losses in excess of a retention level are paid by the reinsurer, subject to a limit, and are customized per program or across multiple programs. We utilize XOL reinsurance to protect against catastrophic or other unforeseen extreme loss activity that could otherwise negatively impact our profitability and capital base. The majority of our exposure to catastrophe risk stems from the workers’ compensation premium we retain. Potential catastrophic events include an earthquake, terrorism, or another event that could cause more than one covered employee working at the same location to be injured in the event. We believe we mitigate this risk by our focus on small- to mid-sized accounts, which means that we generally do not have concentrated employee counts at single locations that could be exposed to a catastrophic loss. The cost and limits of the reinsurance coverage we purchase vary from year to year based on the availability of quality reinsurance at an acceptable price and our desired level of retention.

Ratings

We have a financial strength rating of "A" (Excellent) from A.M. Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from "A++" (Superior) to "S" (Rating Suspended). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best’s opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer’s ability to meet its obligation to policyholders and is not an evaluation directed at investors. See also "Risk factors — Risks related to our business and industry — A downgrade in the A.M. Best financial strength ratings of our insurance company subsidiaries may negatively affect our business."

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A" (Excellent) rating obtained by us is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.

Contractual ~~obligations~~Obligations and ~~commitments~~Commitments

Reserves for losses and loss adjustment expenses

The Company estimates the liability for the expected ultimate cost of unpaid loss and LAE as of the balance sheet date. Our reserves for unpaid loss and LAE represent the cost of all reported loss and LAE expenses as well as those that have been incurred but not yet reported. The estimated losses and LAE are regularly reviewed and adjusted as necessary based on historical experience and as the Company obtains new information. Actual losses and settlement expenses paid may deviate from the reserve estimates. Similarly, the timing for payment of our estimated losses is not fixed and is not determinable on an individual or aggregate basis due to the uncertainty inherent in the process of estimating such payments.

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~~See~~from ~~Note~~the 15reserve estimates. Similarly, the timing for payment of ~~notes~~our toestimated ~~the~~losses ~~consolidated~~is ~~financial~~not ~~statements~~fixed and ~~"Critical~~is ~~Accounting~~not ~~Estimates"~~determinable ~~for~~on aan ~~discussion~~individual ofor ~~estimates~~aggregate ~~and~~basis ~~assumptions~~due ~~related~~ to the ~~reserves~~uncertainty ~~for~~inherent ~~unpaid~~in ~~losses~~the ~~and~~process ~~loss~~of ~~adjustment~~estimating ~~expenses~~such payments.

See Note 15 of Notes to the Consolidated Financial Statements and "Critical Accounting Estimates" below for a discussion of estimates and assumptions related to the reserves for unpaid losses and loss adjustment expenses.

Credit facility

As of December 31, ~~2021~~2022, we had $3029,~~938~~288 principal outstanding on our term loan under the Second Amended and Restated Credit Agreement with First Horizon Bank. The loan has a variable interest rate of ~~LIBOR~~SOFR plus 43.50%, ~~4.50% and 3.00%,~~ which was 47.6459%, ~~4.72% and 6.33%~~ as of December 31, ~~2021, 2020 and 2019, respectively~~2022. The outstanding principal balance of the loan is to be repaid in quarterly installments that escalate from approximately $206 to $825 until March 2025. See Note 12 of ~~notes~~ the Notes to the ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements for further details regarding our credit facility.

Surplus Notes

As of December 31, 2022, we had $50,000 principal outstanding on our Surplus Notes due 2042. Interest on the Surplus Notes accrues at the rate of 6.75% per year, and is payable quarterly. See Note 12 of the Notes to the Consolidated Financial statements for further details regarding our Surplus Notes.

Operating lease obligations

As of December 31, ~~2021~~2022, we leased office space and equipment in 12 states. Our leases have remaining terms ranging from one month to 4254 months and some of our leases include options to extend the lease for up to 5 years. Future expected cash obligations include $21,~~428~~940, $1,~~846~~064, $~~971~~164, $~~102~~44 and $72 during the years ended December 31, ~~2022,~~ 2023, 2024, 2025, 2026 and ~~2026~~2027, respectively. See Note 17 of ~~notes~~the Notes to the ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements for further details regarding our leases.

Financial condition

Stockholders' Equity

As of December 31, ~~2021~~2022, total stockholders' equity was $~~421~~315,~~909~~019, compared to $~~410~~421,~~107~~909 as of December 31, ~~2020~~2021, ana ~~increase~~decrease of $11106,~~802~~890. The ~~increase~~decrease in stockholders' equity over the period was driven primarily by $10108,~~288~~362 of comprehensive ~~income~~loss. We had $32,~~563~~279 of unrecognized stock compensation as of December 31, ~~2021~~2022 related to non-vested stock compensation granted. The Company recognized $1,~~522~~496 of stock compensation during the year ended December 31, ~~2021~~2022.

Investment Portfolio

Our invested asset portfolio consists of fixed maturities, equity securities, other investments and short-term investments. The majority of the investment portfolio was comprised of fixed maturity securities of $~~471~~552,~~061~~243 at December 31, ~~2021~~2022, that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.

Our investment portfolio objectives are to maintain liquidity, facilitating financial strength and stability and ensuring regulatory and legal compliance. Our investment portfolio consists of available-for-sale fixed maturities and other equity investments, all of which are carried at fair value. We seek to hold a high-quality portfolio of investments that is managed by a professional investment advisory management firm in accordance with the Company's investment policy and routinely reviewed by our management team. Our investments, however, are subject to general economic conditions and market risks as well as risks inherent to particular securities. The Company's investment portfolio has the following objectives:

•meet insurance regulatory requirements with respect to investments under the applicable insurance laws;

•maintain an appropriate level of liquidity to satisfy the cash requirements of current operations and long-term obligations;

•adjust investment risk to offset or complement insurance risk based on our total corporate risk tolerance; and

•realize the highest possible levels of investment income and after-tax total rates of return.

~~The composition of our investment portfolio is shown in the following table as of December 31, 2021 and December 31, 2020.~~69

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The composition of our investment portfolio is shown in the following table as of December 31, 2022 and December 31, 2021.


	December 31, 2022
	Cost or Amortized Cost		Fair Value
Fixed maturities:
U.S. government and government securities	$	65,405	$	62,552
Foreign governments	400		395
States, territories and possessions	17,310		15,854
Political subdivisions of states, territories and possessions	38,167		33,904
Special revenue and special assessment obligations	115,696		103,639
Industrial and public utilities	131,769		125,540
Commercial mortgage-backed securities	145,471		128,105
Residential mortgage-backed securities	26,716		25,112
Other loan-backed securities	53,231		51,613
Hybrid securities	6,233		5,529
Total fixed maturities	600,398		552,243
Equity securities	39,882		35,041



Total investments	$	640,280	$	587,284


	December 31, 2021
	Cost or Amortized Cost		Fair Value
Fixed maturities:
U.S. government and government securities	$	41,490	$	41,434
Foreign governments	2,500		2,490
States, territories and possessions	10,593		10,766
Political subdivisions of states, territories and possessions	39,170		40,002
Special revenue and special assessment obligations	93,664		95,991
Industrial and public utilities	100,774		103,257
Commercial mortgage-backed securities	119,378		118,218
Residential mortgage-backed securities	16,549		17,368
Other loan-backed securities	41,236		41,425
Hybrid securities	105		110
Total fixed maturities	465,459		471,061
Equity securities	984		969



Total investments	$	466,443	$	472,030

The following table shows the percentage of the total estimated fair value of our fixed maturity securities as of December 31, 2022 and December 31, 2021 by credit rating category, using the lower of ratings assigned by Moody's Investor Service or S&P.

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	December 31, 2021
	December 31, 2022
	Cost orAmortized Cost		Fair Value
(in thousands, except percentages)	Fair Value		% of Total
Fixed maturities:
AAA	$	106,254	19.2		%
U.S. government and government securities	$	41,490	$	41,434
AA	312,903		56.7		%
Foreign governments	2,500		2,490
A	98,963		17.9		%
States, territories and possessions	10,593		10,766
BBB	30,122		5.5		%
Political subdivisions of states, territories and possessions	39,170		40,002
BB	3,965		0.7		%
Special revenue and special assessment obligations	93,664		95,991
Below investment grade	36		—		%
Industrial and public utilities	100,774		103,257
Total fixed maturities	$	552,243	100.0		%
Commercial mortgage-backed securities	119,378		118,218
Residential mortgage-backed securities	16,549		17,368
Other loan-backed securities	41,236		41,425
Hybrid securities	105		110
Total fixed maturities	465,459		471,061
Equity securities:
Preferred stock	243		228
Common stock	741		741
Total equity securities	984		969
Total investments	$	466,443	$	472,030

	December 31, 2020
	Cost orAmortized Cost		Fair Value
Fixed maturities:
U.S. government and government securities	$	17,135	$	17,471
Foreign governments	300		302
States, territories and possessions	7,500		7,774
Political subdivisions of states, territories and possessions	31,759		33,212
Special revenue and special assessment obligations	77,329		81,714
Industrial and public utilities	107,017		113,741
Commercial mortgage-backed securities	16,242		18,066
Residential mortgage-backed securities	91,478		93,017
Other loan-backed securities	39,293		39,945
Hybrid securities	356		362
Total fixed maturities	388,409		405,604
Equity securities:
Preferred stock	243		240
Common stock	1,554		3,534
Total equity securities	1,797		3,774
Total investments	$	390,206	$	409,378

The following table shows the percentage of the total estimated fair value of our fixed maturity securities as of December 31, 2021 and December 31, 2020 by credit rating category, using the lower of ratings assigned by Moody's Investor Service or S&P.

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	December 31, 2021
(in thousands, except percentages)	Fair Value		% of Total
AAA	$	80,455	17.1	%
AA	278,557		59.1	%
A	77,097		16.4	%
BBB	33,959		7.2	%
BB	947		0.2	%
Below investment grade	46		—	%
Total fixed maturities	$	471,061	100.0	%

	December 31, 2020
(in thousands, except percentages)	Fair Value		% of Total
AAA	$	59,887	14.8	%
AA	224,371		55.3	%
A	89,975		22.2	%
BBB	29,404		7.2	%
BB	1,921		0.5	%
Below investment grade	46		—	%
Total fixed maturities	$	405,604	100.0	%

Critical Accounting Estimates

The consolidated financial statements included in this ~~annual~~Annual ~~report~~Report include amounts based on the use of estimates and judgments of management. The Company's accounting policies are described in the Notes to the Consolidated ~~and Combined~~ Financial Statements. We identified the accounting estimates that are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates made in accordance with GAAP that are both reasonably likely to have or have had a material impact on our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant.

Unpaid loss and loss adjustment expenses

We categorize our reserves for unpaid loss and LAE into two types: case reserves and incurred but not yet reported (IBNR). We establish our case reserves based on claims information reported to us through our claims administrator. Our case reserves include an estimate of the ultimate losses from the claims including administrative costs associated with the settlement of the claim. Our claims department uses their knowledge of the specific claim along with internal and external experts, including underwriters and independent actuaries, to estimate the expected ultimate losses.

In addition to case reserves, we establish a reserve for IBNR. With the assistance of an independent actuarial firm, we estimate the total loss and LAE related to IBNR which is comprised of: (a) future payments on claims that existed as of the balance sheet date but had not yet been reported to us; (b) a reserve for the additional development on claims that have been reported to us; and (c) a provision for additional payments on closed claims that may reopen. These estimates are based on

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~~reported to us; and (c) a provision for additional payments on closed claims that may reopen. These estimates are based on~~ historical information, industry information and estimates of trends that may impact the ultimate frequency and severity of IBNR claims.

In order to limit the Company's maximum losses and diversify its exposure, we cede a portion of our obligations for losses and LAE through reinsurance treaties with third party reinsurers. The amount of reinsurance that will be recoverable on our losses and LAE includes both the reinsurance recoverables on our excess of loss reinsurance contracts as well as reinsurance recoverables under our quota share contracts.

Our loss reserves, including the main components of such reserves, were as follows:

	December 31,
	2021		2020
	2022		2021
Case reserves	$	~~256~~288,~~383~~203	$	~~164~~256,~~993~~383
IBNR reserves	~~287~~344,~~937~~707		~~292~~287,~~824~~937
Gross unpaid loss and loss adjustment expenses	~~544~~632,~~320~~910		~~457~~544,~~817~~320
Less: reinsurance recoverables on unpaid loss and loss adjustment expenses	(~~369~~378,~~008~~455)		(~~335~~369,~~655~~008)
Net unpaid loss and loss adjustment expenses	$	~~175~~254,~~312~~455	$	~~122~~175,~~162~~312

The process of estimating the reserves for unpaid loss and LAE expenses requires a high degree of judgment. Estimates are prepared using several generally accepted actuarial methodologies for estimating loss reserves including, but not limited to, the incurred development method, paid development method, incurred Bornhuetter-Ferguson method, hindsight IBNR/case reserve ratios, and loss ratio method. The methods used vary based on the line of business and the Partner Program or general agency that generated the business. Considering each of the alternative ultimate estimates, we determine the appropriate estimate of ultimate loss for each line of business and Program Partner.

Reinsurance recoverables

Reinsurance recoverables represent the portion of our unpaid loss and LAE that are ceded to third party reinsurers. The ceding of insurance does not relieve the Company of its primary liability to policyholders. We are required to pay claims even if a reinsurer fails to pay the Company under the terms of a reinsurance contract. We calculate the amounts recoverable from reinsurers based on our estimates of the underlying loss and LAE expenses as well as the terms and conditions of the reinsurance contracts.

Investment fair value measurements

Our investments in fixed maturity securities are classified as available-for-sale and are reported at fair value with unrealized gains and losses reported as a component of other comprehensive income, net of deferred taxes. Our investments in equity securities are reported at fair value with unrealized gains and losses reported as net investment income in the Consolidated ~~and Combined~~ Statement of Operations. In determining the fair value of investments, we utilize a hierarchy based on the quality of inputs used to measure the fair value. The three levels of the fair value hierarchy are as follows:

Level 1: Fair values primarily based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2: Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.

Level 3: Fair values primarily based on valuations derived when one or more of the significant inputs are unobservable. With little or no observable market, the determination of fair value uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

We utilize a third-party pricing service to assist us with the valuation of our investments. The fair value of our available-for-sale fixed maturity and equity securities are based on quoted market prices, where available. These fair values are obtained primarily from our third-party pricing service, which generally include Level 1 or Level 2 inputs. Inputs often used in the valuation methodologies include, but are not limited to, transaction data, yield, quality, coupon rate, maturity, issue type, trading characteristics and market activity.

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valuation methodologies include, but are not limited to, transaction data, yield, quality, coupon rate, maturity, issue type, trading characteristics and market activity.

The Company regularly reviews its investment portfolio to determine if other-than-temporary impairment exists for any fixed maturity securities. An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized cost of that investment. If a security is impaired, the Company bifurcates the impairment into (a) the amount of impairment related to credit loss and (b) the amount of impairment related to other factors. The amount of impairment related to credit loss is recorded as an impairment loss and is included in net income. The impairment related to all other factors is recorded as a reduction in the fair value of the security and is included in accumulated other comprehensive income.

Goodwill and intangible asset valuation

We prepare an impairment analysis for goodwill and other intangible assets. In evaluating for impairment, we identify whether events or circumstances have occurred that may impact the carrying value of these assets and make assumptions regarding future events such as cash flows and profitability. If the carrying amount of the assets are deemed to be not recoverable, the Company records an impairment loss. Differences in the assumptions of recoverability and actual results could materially impact the carrying amount of these assets and our operating results.

As a result of the Merger Agreement entered into on December 15, 2022, the calculated fair value of the Company exceeded the book value and resulted in an impairment charge of $76,053 recognized during the year ended December 31, 2022. The fair value measurement was based on the implied equity value of the Company at the purchase price of $6.15 per common share.

Business combinations

The Company strategically identifies opportunities to grow through acquisition. Such business combinations include the identification and valuation of certain assets acquired and liabilities assumed including the valuation of goodwill and intangible assets. Valuations are determined using a market participant assumption and generally include the following valuation approaches:

The Cost Approach is based on replacement value using the acquired company's balance sheet as the basis for valuing the business or individual assets. Under this approach, the appraiser must determine the potential value that is attainable from the sale of all assets or individual assets less the repayment of any associated debt. Separate valuations are performed for each item on the balance sheet and all tangible and intangible assets and liabilities are adjusted to their respective values.

The Income Approach measures the value of an ownership interest in a company or asset as the present value of the future economic benefits of ownership. The future ownership benefits may be represented by the expected earnings or cash flow of a company or asset over an investment period. The expected earnings or cash flow are then converted to their net present value using a rate of return suitable for the risks associated with realizing those future benefits.

The Market Approach asserts that the value of property of any kind is equal to the cost of obtaining an equally desired substitute. Under this approach, the appraisal is based on transactions of assets similar to the subject asset. Value multiples from these transactions are applied to the subject asset's data to arrive at the asset's value.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. The primary components of market risk affecting us are credit risk, ~~interest rate risk,~~ and ~~equity~~interest rate risk. We do not have exposure to foreign currency exchange rate risk or commodity risk.

Credit risk

Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations. We have exposure to credit risk as a holder of fixed maturity investments. Our risk management strategy and investment policy are to primarily invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. At December 31, ~~2021~~2022, our fixed maturity portfolio had an average rating of "AA," with approximately 9293.68% of securities in that portfolio rated "A" or better by at least one nationally recognized rating organization. We monitor the financial condition of all issuers of fixed maturity securities in our portfolio. Our policy is to manage investment risk while realizing the highest possible levels of investment income and after-tax total rates of return. As ~~such, we may adjust our allocation in higher credit risk assets so long as the investments meet all applicable insurance laws, regulatory requirements and our approved investment guideline policies.~~

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~~In addition~~such, we ~~are~~may ~~subject~~adjust ~~to credit risk with respect to~~ our ~~third-party~~allocation ~~reinsurers.~~in ~~Although~~higher ~~our~~credit ~~third-party~~risk ~~reinsurers~~assets ~~are~~so ~~obligated~~long toas ~~reimburse us to~~ the ~~extent~~investments wemeet ~~cede risk to them, we are ultimately liable to our policyholders on~~ all ~~risks~~applicable weinsurance ~~have ceded. As a result~~laws, ~~reinsurance~~regulatory ~~contracts~~requirements doand ~~not limit~~ our ~~ultimate~~approved ~~obligations~~investment toguideline ~~pay claims covered under the insurance~~ policies ~~we issue and we might not collect amounts recoverable from our reinsurers~~. To address this risk, we require our reinsurance counterparties who do not have an A.M. Best Financial Strength Rating of "A-" or higher to post collateral. Additionally, we place the third-party reinsurance for the majority of our Program Partners. Controlling the reinsurance placement gives us greater influence over the structure and terms of the reinsurance

In addition, we are subject to credit risk with respect to our third-party reinsurers. Although our third-party reinsurers are obligated to reimburse us to the extent we cede risk to them, we are ultimately liable to our policyholders on all risks we have ceded. As a result, reinsurance contracts do not limit our ultimate obligations to pay claims covered under the insurance policies we issue and we might not collect amounts recoverable from our reinsurers. To address this risk, we require our reinsurance counterparties who do not have an A.M. Best Financial Strength Rating of "A-" or higher to post collateral. Additionally, we place the third-party reinsurance for the majority of our Program Partners. Controlling the reinsurance placement gives us greater influence over the structure and terms of the reinsurance.

Interest rate risk

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed maturity securities. Fluctuations in interest rates have a direct effect on the market valuation of these securities. When market interest rates rise, the fair value of our fixed maturity securities decreases. Conversely, as interest rates fall, the fair value of our fixed maturity securities increases. We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio to the duration of our reserves. Expressed in years, duration is the weighted average payment period of cash flows, where the weighting is based on the present value of the cash flows. We set duration targets for our fixed income investment portfolios after consideration of the estimated duration of our liabilities and other factors. The effective weighted average duration of the portfolio as of December 31, ~~2021~~2022 was 4.02 years. We had fixed maturity securities with a fair value of $~~471~~552 million at December 31, ~~2021~~2022 that were subject to interest rate risk. We estimate that a 100-basis point increase in interest rates would cause a 43.19% decline in the estimated fair value of our fixed maturities portfolio, while a 100-basis point decrease in interest rates would cause a 34.21% increase in the estimated fair value of that portfolio. The selected scenarios are not predictions of future events, but rather illustrate the effect that such events may have on the fair value of our fixed maturities portfolio.

Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income. Actual results may differ from the hypothetical change in market rates assumed in this disclosure. This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value.

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Item 8. Financial Statements and Supplementary Data

Trean Insurance Group, Inc. and Subsidiaries

Index to Consolidated ~~and Combined~~ Financial Statements

			Page
Report of Independent Registered Public Accounting Firm			7776
Consolidated and Combined Balance Sheets			78
Consolidated Balance Sheets			77
Consolidated and Combined Statements of Operations			79
Consolidated Statements of Operations			78
Consolidated and Combined Statements of Comprehensive Income			80
Consolidated Statements of Comprehensive Income (Loss)			79
Consolidated and Combined Statements of Stockholders' Equity and Redeemable Preferred Stock			81
Consolidated Statements of Stockholders' Equity and Redeemable Preferred Stock			80
Consolidated and Combined Statements Cash Flows			83
Consolidated Statements of Cash Flows			82
Notes to the Consolidated and Combined Financial Statements			85
Notes to the Consolidated Financial Statements			84
Schedule II - Condensed Financial Information of Registrant - Parent Company Only			~~124~~121

Pursuant to Rule 7-05 of Regulation S-X, Financial Statement Schedules I, III, IV, V and VI have been omitted as the information to be set forth therein is not applicable or has been included in the Consolidated ~~and Combined~~ Financial Statements or notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Trean Insurance Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Trean Insurance Group, Inc. and subsidiaries (the “"Company”") as of December 31, ~~2021~~2022 and ~~2020~~2021, the related consolidated ~~and combined~~ statements of operations, comprehensive income, stockholders’' equity and redeemable preferred stock, and cash flows, for each of the three years in the period ended December 31, ~~2021~~2022, ~~and~~ the related notes and the schedules listed in the Index at Item 8 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2021~~2022 and ~~2020~~2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2021~~2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 1516, ~~2022~~2023

We have served as the Company’s auditor since 2019.

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Trean Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

	December 31,
	2021		2020
	2022		2021
Assets
Fixed maturities, at fair value (amortized cost of $465,459 and $388,409, respectively)	$	471,061	$	405,604
Fixed maturities, at fair value (amortized cost of $600,398 and $465,459, respectively)	$	552,243	$	471,061
Preferred stock, at fair value (amortized cost of $243 and $243, respectively)	228		240
Equity securities, at fair value (cost $39,882 and $984, respectively)	35,041		969
Common stock, at fair value (cost $741 and $1,554, respectively)	741		3,534
Total investments	587,284		472,030
Equity method investments	—		232
Cash and cash equivalents	107,991		129,577
Total investments	472,030		409,610
Restricted cash	1,083		407
Cash and cash equivalents	129,577		153,149
Accrued investment income	3,726		2,344
Restricted cash	407		4,085
Premiums and other receivables	160,282		141,920
Accrued investment income	2,344		2,458
Income taxes receivable	5,841		460
Premiums and other receivables	141,920		109,217
Reinsurance recoverable	408,522		377,241
Income taxes receivable	460		1,322
Prepaid reinsurance premiums	124,269		129,411
Reinsurance recoverable	377,241		343,213
Deferred policy acquisition cost, net	18,858		13,344
Prepaid reinsurance premiums	129,411		107,971
Property and equipment, net	7,151		7,632
Deferred policy acquisition cost, net	13,344		1,332
Right of use asset	2,764		4,530
Property and equipment, net	7,632		8,254
Deferred tax asset, net	5,958		—
Right of use asset	4,530		6,338
Goodwill	66,294		142,347
Goodwill	142,347		140,640
Intangible assets, net	67,117		73,114
Intangible assets, net	73,114		75,316
Other assets	14,799		8,658
Other assets	8,658		6,878
Total assets	$	1,581,939	$	1,503,015
Total assets	$	1,503,015	$	1,369,783
Liabilities
Unpaid loss and loss adjustment expenses	$	~~544~~632,~~320~~910	$	~~457~~544,~~817~~320
Unearned premiums	~~219~~229,~~940~~112		~~157~~219,~~987~~940
Funds held under reinsurance agreements	~~199~~241,~~410~~291		~~174~~199,~~704~~410
Reinsurance premiums payable	4550,~~130~~861		5745,~~069~~130
Accounts payable and accrued expenses	29,448		61,240
Accounts payable, accrued expenses and other liabilities	32,609		29,448
Lease liability	43,~~976~~063		64,~~893~~976
Deferred tax liability, net	~~7,520~~—		127,~~329~~520
Debt	3077,~~362~~074		3130,~~637~~362
Total liabilities	1,~~081~~266,~~106~~920		~~959~~1,~~676~~081,106
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value per share (600,000,000 authorized, respectively; 51,176,887 and 51,148,782 issued and outstanding, respectively)	512		511
Preferred stock, $0.01 par value per share (100,000,000 authorized, zero issued and outstanding)	—		—
Additional paid-in capital	288,623		287,110
Common stock, $0.01 par value per share (600,000,000 authorized, respectively; 51,222,485 and 51,176,887 issued and outstanding, respectively)	512		512
Retained earnings	128,390		109,060
Additional paid-in capital	290,095		288,623
Accumulated other comprehensive income	4,384		13,426
Retained earnings	62,435		128,390
Total stockholders' equity	421,909		410,107
Accumulated other comprehensive income (loss)	(38,023)		4,384
Total liabilities and stockholders' equity	$	1,503,015	$	1,369,783
Total stockholders' equity	315,019		421,909
Total liabilities and stockholders' equity	$	1,581,939	$	1,503,015

See accompanying notes to the consolidated financial statements.

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Trean Insurance Group, Inc. and Subsidiaries

Consolidated ~~and Combined~~ Statements of Operations

(in thousands, except share and per share data)

	Year Ended December 31,
	2021		2020		2019
	2022		2021		2020
Revenues
Gross written premiums	$	~~634~~651,~~164~~303	$	~~484~~634,~~249~~164	$	~~411~~484,~~401~~249
Increase in gross unearned premiums	(619,~~911~~074)		(5261,~~215~~911)		(1352,~~598~~215)
Gross earned premiums	~~572~~642,~~253~~229		~~432~~572,~~034~~253		~~397~~432,~~803~~034
Ceded earned premiums	(~~373~~357,~~573~~605)		(~~323~~373,~~567~~573)		(~~311~~323,~~325~~567)
Net earned premiums	~~198~~284,~~680~~624		~~108~~198,~~467~~680		86108,~~478~~467
Net investment income	810,~~721~~087		118,~~669~~721		911,~~567~~669
Gain on revaluation of Compstar investment	—		~~69,846~~—		—69,846
Net realized gains	49285		~~3,365~~49		~~667~~3,365
Other revenue	108,~~240~~246		1210,~~104~~240		912,~~125~~104
Total revenue	~~217~~303,~~690~~242		~~205~~217,~~451~~690		~~105~~205,~~837~~451
Expenses
Losses and loss adjustment expenses	~~130~~203,~~772~~877		50130,~~774~~772		4450,~~661~~774
General and administrative expenses	5486,~~706~~210		3854,~~668~~706		2038,~~959~~668
Other expenses	~~845~~3,349		~~13,427~~845		—13,427
Intangible asset amortization	5,~~826~~998		25,~~573~~826		462,573
Noncash stock compensation	1,~~522~~496		~~506~~1,522		—506
Interest expense	13,~~685~~270		1,~~922~~685		21,~~169~~922
Total expenses	195,356		107,870		67,835
Goodwill impairment	76,053		—		—
Gains (losses) on embedded derivatives	2,226		(6,155)		(7,321)
Total expenses	380,253		195,356		107,870
Other income	219		1,025		121
Gains (losses) on embedded derivatives	12,024		2,226		(6,155)
Income before taxes	24,779		92,451		30,802
Other income	106		219		1,025
Income tax expense	5,449		6,235		6,234
Income (loss) before taxes	(64,881)		24,779		92,451
Equity earnings in affiliates, net of tax	—		2,333		3,558
Income tax expense	1,074		5,449		6,235
Net income	$	19,330	$	88,549	$	28,126
Equity earnings in affiliates, net of tax	—		—		2,333
Earnings per share:
Net income (loss)	$	(65,955)	$	19,330	$	88,549
Basic	$	0.38	$	2.02	$	0.75
Earnings (loss) per share:
Diluted	$	0.38	$	2.02	$	0.75
Basic	$	(1.29)	$	0.38	$	2.02
Diluted	$	(1.29)	$	0.38	$	2.02
Weighted average shares outstanding:
Basic	51,~~162~~203,~~293~~370		4351,~~744~~162,~~003~~293		3743,~~386~~744,~~394~~003
Diluted	51,~~173~~203,~~450~~370		4351,~~744~~173,~~744~~450		3743,~~386~~744,~~394~~744

See accompanying notes to the consolidated ~~and combined~~ financial statements.

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Consolidated ~~and Combined~~ Statements of Comprehensive Income (Loss)

(in thousands)

	Year Ended December 31,
	2021		2020		2019
	2022		2021		2020
Net income	$	19,330	$	88,549	$	28,126
Net income (loss)	$	(65,955)	$	19,330	$	88,549
Other comprehensive income (loss), net of tax:
Unrealized investment gains (losses):
Unrealized gains (losses):
Unrealized investment gains (losses) arising during the period	(1154,~~386~~720)		9(11,~~028~~386)		129,~~707~~028
Income tax expense (benefit)	(2,391)		1,903		2,671
Decrease in fair value of interest rate cap	(45)		—		—
Unrealized investment gains (losses), net of tax	(8,995)		7,125		10,036
Income tax expense (benefit)	(11,488)		(2,391)		1,903
Unrealized gains (losses), net of tax	(43,277)		(8,995)		7,125
Less reclassification adjustments to:
Net realized investment gains included in net realized gains	59		252		67
Net realized investment gains (losses) included in net realized gains (losses)	(1,101)		59		252
Income tax expense	12		53		14
Income tax expense (benefit)	(231)		12		53
Total reclassifications included in net income, net of tax	47		199		53
Total reclassifications included in net income (loss), net of tax	(870)		47		199
Other comprehensive income (loss)	(942,~~042~~407)		6(9,~~926~~042)		96,~~983~~926
Total comprehensive income	$	10,288	$	95,475	$	38,109
Total comprehensive income (loss)	$	(108,362)	$	10,288	$	95,475

See accompanying notes to the consolidated ~~and combined~~ financial statements.

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Trean Insurance Group, Inc. and Subsidiaries

Consolidated ~~and Combined~~ Statements of Stockholders’ Equity and Redeemable Preferred Stock

(in thousands, except share and unit data)

	Redeemable Preferred Stock						Members' Equity																	Accumulated Other Comprehensive Income (Loss)
				Preferred Stock			Class A - Non Voting			Class B - Voting			Class B - Non Voting			Class C - Non Voting			Common Stock			Additional Paid in Capital				Retained Earnings (Deficit)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Units	Amount		Units	Amount		Units	Amount		Units	Amount		Shares	Amount
Balance at January 1, 2019	60	$	6,000	10	$	1,000	65,036,780	$	65,037	5,045,215	$	5,045	8,159,775	$	8,160	117,953	$	118	—	$	—	$	17,995	$	(3,483)	$	11,259	$	105,131
Balance at January 1, 2020	51	$	5,100	—	$	—	65,036,780	$	65,037	5,045,215	$	5,045	8,159,775	$	8,160	196,588	$	196	—	$	—	$	17,995	$	6,500	$	38,682	$	141,615
Cumulative effect of adopting ASC topic 606	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		695		695
Issuance of Class C units	—	—		—	—		—	—		—	—		—	—		78,635	78		—	—		—		—		—		78
Distributions to members	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		(1,144)		(1,144)
Dividends on Series A preferred stock	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		(43)		(43)
Dividends on Series B preferred stock	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		(211)		(211)
Redemption of Series A Redeemable Preferred Stock	—	—		(10)	(1,000)		—	—		—	—		—	—		—	—		—	—		—		—		—		(1,000)
Issuance of Series B Redeemable Preferred Stock	(9)	(900)		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		—
Other comprehensive loss	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		9,983		—		9,983
Net income	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		28,126		28,126
Balance at December 31, 2019	51	$	5,100	—	$	—	65,036,780	$	65,037	5,045,215	$	5,045	8,159,775	$	8,160	196,588	$	196	—	$	—	$	17,995	$	6,500	$	38,682	$	141,615
Issuance of Class C units	—	—		—	—		—	—		—	—		—	—		196,587	197		—	—		—		—		—		197
Distributions to members	—	—		—	—		—	—		—	—		—	—		—	—		—	—		(1,776)		—		(18,043)		(19,819)
Dividends on Series B preferred stock	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		(128)		(128)
Redemption of Series B redeemable preferred stock	(51)	(5,100)		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		—
Redemption of Series B Redeemable Preferred Stock	(51)	(5,100)		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		—
Corporate recapitalization	—	—		—	—		(65,036,780)	(65,037)		(5,045,215)	(5,045)		(8,159,775)	(8,160)		(393,175)	(393)		37,386,394	374		78,261		—		—		—
Issuance of common shares for acquisition of Compstar	—	—		—	—		—	—		—	—		—	—		—	—		6,613,606	66		99,138		—		—		99,204
Proceeds from common stock sold in initial public offering, net of offering costs	—	—		—	—		—	—		—	—		—	—		—	—		7,142,857	71		93,068		—		—		93,139
Common stock issuances pursuant to equity compensation awards	—	—		—	—		—	—		—	—		—	—		—	—		5,925	—		(82)		—		—		(82)
Stock compensation expense	—	—			—		—	—		—	—		—	—		—	—		—	—		506		—		—		506
Other comprehensive income	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		6,926		—		6,926
Net income	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		88,549		88,549
Balance at December 31, 2020	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	51,148,782	$	511	$	287,110	$	13,426	$	109,060	$	410,107

See accompanying notes to the consolidated ~~and combined~~ financial statements.

Table of Contents



	Preferred Stock				Common Stock	Additional Paid in Capital	Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Stockholders' Equity
		Shares	Amount													Shares		Amount
Balance at December 31, 2020		—	$	—			51,148,782	$	511		$	287,110		$	13,426	$	109,060		$	410,107








Stock compensation expense		—	—				—	—			1,522			—		—			1,522
Common stock issuances pursuant to equity compensation awards		—	—				28,105	1			(94)			—		—			(93)
Proceeds from short swing rule		—	—				—	—			85			—		—			85
Other comprehensive loss		—	—				—	—			—			(9,042)		—			(9,042)
Net income		—	—				—	—			—			—		19,330			19,330
Balance at December 31, 2021		—	—				51,176,887	$	512		$	288,623		$	4,384	$	128,390		$	421,909

Filing Compare · Trean Insurance Group, Inc.