TIPTREE INC. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• 2022 revenues reached a record $1.4 billion, up 16% from prior year, with adjusted net income of $63 million.
• Fortegra's specialty insurance business had record adjusted return on equity of 26%, premium growth of 22%, combined ratio 90.7% in 2022.
• Investment portfolio increased in size by 27% to $1.2 billion, with conservative approach and anticipation of positive impact from higher interest rates.
• Tiptree Capital's shipping sector had strong results in 2022 with asset valuation and rate increases, and mortgage business faced challenges but servicing and cost management expected to help.
• Dividend increased by 25% to $0.05 per share as of March 2023, reflecting underlying strength in operating businesses.

Segment Performance

• Fortegra: 2022 revenues were $2.7 billion, with adjusted net income of $84 million and adjusted return on average equity of 26%. Fourth quarter premiums and equivalents were $724 million, up 26% year-over-year, with a quarterly combined ratio of 89.8%. Gross written premiums and equivalents have grown at a CAGR of 27% with organic growth, and unearned premiums and deferred revenue stood at $2 billion. The insurance business contributed an 18% return on equity alone, and warranty services added an additional 8 points to ROE.
• Tiptree Capital: Quarter pre-tax income was $8.5 million, driven by shipping investments. For the quarter, shipping contributed $13 million of pre-tax income, including gain from two product tanker sales. In 2022, total gains of $35 million were recognized from sale of all three dry-bulk vessels and two product tankers. Mortgage volumes in 2022 were down 29% compared to record years of 2020-2021, with margins tightening, but mortgage servicing portfolio and cost management expected to offset some impacts.

Guidance

• Fortegra's outlook remains bullish with robust specialty pipeline, $2 billion of deferred revenues/unearned premium, and history of consistent growth and profitable underwriting.
• Tiptree Capital expects to continue facing headwinds from mortgage volume and margin, but mortgage servicing portfolio and active cost management will partially offset impacts.
• Dividend increase to $0.05 per share in March 2023 reflects confidence in underlying strength of operating businesses.

Risks

• Market challenges impacting investment portfolio performance.
• Interest rate movements negatively impacting residential mortgage origination volumes.
• Deferred tax liability related to Fortegra's tax deconsolidation, which is only due if Fortegra shares are sold.

Q: Chris Colvin asks about closing the gap between current trading price and sum of the parts value and potential spin-off of Tiptree Capital.

A: Michael Barnes responds that they focus on closing the gap, mention the Warburg investment in Fortegra to continue growth, have explored IPOs in the past, and will continue to communicate Fortegra's uniqueness and growth, and consider options like IPO or monetization events to enhance shareholder value, noting they'll explore all options for best shareholder value