ProSight Global, Inc. Reports Second Quarter 2019 Results

(1). All per share amounts have been restated to give effect to the reorganization of ProSight on July 25, 2019 (see "Reorganization") but the information shown here does not reflect the $51.6 million of net proceeds received by ProSight in its Initial Public Offering completed on July 29, 2019.

(2). Adjusted Operating Income and Underwriting Income are non-GAAP measures. See "Reconciliation of Non-GAAP Measures".

(3). Total GWP for the second quarter of 2019 including Other were $235.0 million. Total GWP for the six months ended June 30, 2019 including Other were $490.9 million. Other includes GWP from certain niches that are no longer part of our ongoing business. All GWP from exited niches are included in "Other" which consists of (i) primary and excess workers' compensation coverage for Self-Insured Groups (ii) niches exited prior to 2018, many with a concentration in commercial auto, (iii) fronting arrangements in which all premium written is ceded to a third party, (iv) participation in industry pools, and (v) emerging new business customer segments.

(4). Adjusted operating return on equity is a non-GAAP measure   Adjusted operating return on equity is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

(5). Tangible stockholders' equity and fully diluted tangible book value per share are non-GAAP measures. Tangible stockholders' equity is total common stockholders' equity excluding the value of goodwill and other intangible assets.  Fully diluted tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding, unvested restricted shares, and vested not issued shares. See "Reconciliation of Non-GAAP Measures".

(6). Adjusted loss and LAE ratio and adjusted expense ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio and adjusted expense ratio  as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. We use these adjusted ratios 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. Our adjusted loss and LAE ratio and adjusted expense ratio should not be viewed as substitutes for our loss and LAE ratio, expense ratio and combined ratio, respectively.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except per share data)

(Unaudited)

(As Restated)

June 30 

December 31 

2018

Assets    

Investments:    

Fixed income securities, available-for-sale at fair value (amortized cost

$1,855,160 in 2019 and $1,729,755 in 2018)

$1,883,989

$     1,693,382

Commercial levered loans at amortized cost (fair value $16,168 in 2019 and

$15,858 in 2018)

16,549

16,915

Limited partnerships and limited liability companies at fair value (cost $58,387 in

2019 and $51,903 in 2018)

62,351

53,432

Short-term investments

49,824

36,661

Total investments

2,012,713

1,800,390

Cash and cash equivalents

34,241

22,279

Restricted cash

8,929

7,621

Accrued investment income

13,314

12,279

Premiums and other receivables, net

196,128

200,347

Receivable from reinsurers on paid losses

9,927

12,428

Reinsurance receivables on unpaid losses

210,021

185,295

Deferred policy acquisition costs

101,740

93,613

Prepaid reinsurance premiums

59,218

44,626

Net deferred income taxes

13,724

33,239

Goodwill and net intangible assets

29,204

29,219

Fixed assets and capitalized software, net

38,145

39,001

Other assets

33,328

57,653

Assets of discontinued operations

19,278

19,719

Total assets

$2,799,444

$     2,577,106

Liabilities    

Reserve for unpaid losses and loss adjustment expenses

$1,483,660

$     1,396,812

Reserve for unearned premiums

472,907

435,933

Ceded reinsurance payable

15,987

13,281

Notes payable, net of debt issuance costs

182,517

182,355

Funds held under reinsurance agreements

72,362

63,165

Other liabilities

91,293

73,474

Liabilities of discontinued operations

22,256

Total liabilities

2,340,494

2,187,276

Stockholders' equity (1)

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares

issued or outstanding

–

–

Common stock, $0.01 par value; 200,000,000 shares authorized; 38,864,289

shares issued and 38,851,369 shares outstanding

389

389

Paid-in capital

603,163

607,260

Accumulated other comprehensive income (loss)

28,844

(22,315)

Retained deficit

(173,246)

(195,304)

Treasury shares - at cost (12,920 shares)

(200)

(200)

458,950

389,830

Total liabilities and stockholders' equity

$2,799,444

$     2,577,106

(1). All share amounts have been restated to give effect to the reorganization of ProSight on July 25, 2019. See "Reorganization".

PROSIGHT GLOBAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands)

Six Months Ended June 30

2019

2018

2019

2018

Revenues:    

  Net premiums earned    

$          202,480

$          183,123

$          398,088

$          350,579

  Net investment income    

17,398

15,548

34,556

29,257

  Realized investment gains, net    

137

686

250

399

  Other income

97

168

190

336

Total revenues    

220,112

199,525

433,084

380,571

Expenses:    

  Net losses and loss adjustment expenses incurred    

127,115

109,933

245,448

211,787

  Policy acquisition expenses    

45,533

43,253

92,106

81,624

  General and administrative expenses    

26,028

24,880

53,222

50,102

  Interest expense    

3,147

3,084

6,509

6,115

  Other expense    

7,170

–

7,170

–

Total expenses    

208,993

181,150

404,455

349,628

Income from continuing operations before income taxes    

11,119

18,375

28,629

30,943

Income tax provision:    

  Current    

82

223

(404)

  Deferred    

2,341

4,120

6,015

6,685

Total income tax expense

2,423

3,723

6,238

6,281

Net income from continuing operations

8,696

14,652

22,391

24,662

Discontinued operations:

  Net (loss) income from discontinued operations

(198)

(333)

587

Net income

$              8,618

$            14,454

$            22,058

$            25,249

Return on equity

7.9%

16.0%

10.6%

13.2%

Adjusted operating income

$            14,228

$            14,110

$            27,858

$            24,347

Adjusted operating return on equity

12.8%

15.4%

13.1%

13.1%

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

(2). Adjusted Operating Income is a non-GAAP measure. See "Reconciliation of Non-GAAP Measures".

(3). Adjusted operating return on equity is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

PROSIGHT GLOBAL, INC.

SUPPLEMENTARY UNDERWRITING INFORMATION (UNAUDITED)

($ in thousands)

Three Months Ended June 30

Six Months Ended June 30

2019

2018

2019

2018

Gross written premiums

$          235,032

$          222,555

$          490,870

$          471,975

Net written premiums

210,568

213,035

420,470

474,387

Net premiums earned

202,480

183,123

398,088

350,579

Net losses and LAE

127,115

109,933

245,448

211,787

    Catastrophe loss and LAE

3,000

-

3,000

-

    Favorable prior period development

(2,733)

(1,335)

(3,128)

(2,605)

Underwriting, acquisition, and insurance expenses

71,561

68,133

145,328

131,726

    Policy acquisition expenses

45,533

43,253

92,106

81,624

    General and administrative expenses

26,028

24,880

53,222

50,102

Underwriting income

$             3,804

$             5,057

$             7,066

Underwriting Ratios

    Ex-Cat current accident year loss and LAE ratio

62.6%

60.8%

61.7%

61.2%

    Catastrophe loss and LAE ratio

1.5%

0.0%

0.8%

0.0%

    Favorable prior period development ratio

(0.8%)

(0.8%)

(0.8%)

Loss and LAE ratio

62.8%

60.0%

61.7%

60.4%

    Policy acquisition expense ratio

22.5%

23.6%

23.1%

23.3%

    General and administrative expense ratio

12.8%

13.6%

13.4%

14.3%

Expense ratio

35.3%

37.2%

36.5%

37.6%

Combined ratio

98.1%

97.2%

98.2%

98.0%

(1). The Supplementary Underwriting Information includes the impact of "the WAQS." See "Factors Affecting Our Results of Operations" on the following page excluding the impact of "the WAQS."

PROSIGHT GLOBAL, INC.

FACTORS AFFECTING THE RESULTS OF OPERATIONS (WAQS) (UNAUDITED)

($ in thousands)

Three Months Ended June 30, 2019

Three Months Ended June 30, 2018

Including

Effect of

Excluding

Including

Effect of

Excluding

($ in thousands)

WAQS

WAQS

WAQS

WAQS

WAQS

WAQS

GWP

$

235,032

$

—

$

235,032

$

222,555

$

—

$

222,555

Ceded written premiums

(24,464)

—

(24,464)

(9,520)

18,831

(28,351)

  Net written premiums

$

210,568

$

—

$

210,568

$

213,035

$

18,831

$

194,204

  Net retention⁽¹⁾

89.6%

—

89.6%

95.7%

—

87.3%

Net earned premiums

$

202,480

$

—

$

202,480

$

183,123

$

(1,368)

$

184,491

Losses and LAE

127,115

2,255

124,860

109,933

(642)

110,575

Underwriting, acquisition and insurance

expenses 

71,561

(2,255)

73,816

68,133

(624)

68,757

Underwriting income (loss)⁽²⁾

$

3,804

$

—

$

3,804

$

5,057

$

$

5,159

Loss and LAE ratio

62.8%

—

—

60.0%

46.9%

—

Expense ratio

35.3%

—

—

37.2%

45.6%

—

Combined ratio

98.1%

—

—

97.2%

92.5%

—

Adjusted loss and LAE ratio⁽³⁾

—

—

61.7%

—

—

59.9%

Adjusted expense ratio⁽³⁾

—

—

36.4%

—

—

37.3%

Adjusted combined ratio⁽³⁾

—

—

98.1%

—

—

97.2%

Six Months Ended June 30, 2019

Six Months Ended June 30, 2018

Including

Effect of

Excluding

Including

Effect of

Excluding

($ in thousands)

WAQS

WAQS

WAQS

WAQS

WAQS

WAQS

GWP

$

490,870

$

—

$

490,870

$

471,975

$

—

$

471,975

Ceded written premiums

(70,400)

3

(70,403)

2,412

68,800

(66,388)

  Net written premiums

$

420,470

$

3

$

420,467

$

474,387

$

68,800

$

405,587

  Net retention⁽¹⁾

85.7%

—

85.7%

100.5%

—

85.9%

Net earned premiums

$

398,088

$

3

$

398,085

$

350,579

$

(14,544)

$

365,123

Losses and LAE

245,448

2,207

243,241

211,787

(8,548)

220,335

Underwriting, acquisition and insurance expenses 

145,328

(2,205)

147,533

131,726

(4,906)

136,632

Underwriting income (loss)⁽²⁾

$

7,312

$

1

$

7,311

$

7,066

$

(1,090)

$

8,156

Loss and LAE ratio

61.7%

—

—

60.4%

58.8%

—

Expense ratio

36.5%

—

—

37.6%

33.7%

—

Combined ratio

98.2%

—

—

98.0%

92.5%

—

Adjusted loss and LAE ratio⁽³⁾

—

—

61.1%

—

—

60.4%

Adjusted expense ratio⁽³⁾

—

—

37.1%

—

—

37.4%

Adjusted combined ratio⁽³⁾

—

—

98.2%

—

—

97.8%

(1). The ratio of net written premiums to gross written premiums.

(2). Underwriting income is a non-GAAP measure.  See "Reconciliation of Non-GAAP Financial Measures"

(3). Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. We use these adjusted ratios 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. Our adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss and LAE ratio, expense ratio and combined ratio, respectively.

PROSIGHT GLOBAL, INC.

SHARE AND PER SHARE INFORMATION (UNAUDITED)

(Unaudited)

(As Restated)

June 30 

December 31 

2019

2018

Shares Outstanding

38,851,369

38,851,369

Fully Diluted Shares Outstanding

39,454,929

39,454,929

Book Value Per Share⁽²⁾

$              11.81

$              10.03

Book Value Per Share (Fully Diluted)⁽²⁾

$              11.63

$               9.88

Tangible Book Value Per Share⁽²⁾

$              11.06

$               9.28

Tangible Book Value Per Share (Fully Diluted)⁽²⁾

$              10.89

$               9.14

Three Months Ended June 30

Six Months Ended June 30

2019

2018

2019

2018

Weighted Average Basic Shares Outstanding

38,851,369

38,742,842

38,851,369

38,742,842

Weighted Average Diluted Shares Outstanding

39,454,929

39,440,938

39,454,929

39,440,938

Earnings per Share - Basic:

  Net income (loss) from continuing operations

$               0.22

$               0.38

$            0.58

$          0.64

  Adjusted operating income⁽¹⁾

$               0.37

$               0.36

$            0.72

$          0.63

Earnings per Share - Diluted:

  Net income (loss) from continuing operations

$               0.22

$               0.37

$            0.57

$          0.63

  Adjusted operating income⁽¹⁾

$               0.36

$               0.36

$            0.71

$          0.62

Adjusted operating return on equity (ROE)⁽³⁾

12.8%

15.4%

13.1%

13.1%

Adjusted operating return on tangible equity (ROTE)⁽³⁾

13.8%

16.5%

14.1%

14.1%

(1). Adjusted operating income is a non-GAAP measure. See "Reconciliation of Non-GAAP Financial Measures".

(2). Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding value of goodwill and other intangible assets divided by the number of common shares outstanding.  Fully diluted book value per share is total common stockholders' equity divided by the number of common shares outstanding, unvested restricted shares, and vested not issued shares.   Fully diluted tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding, unvested restricted shares, and vested not issued shares. 

(3). Adjusted operating return on equity is the annualized value of adjusted operating income divided by average total stockholders' equity for the two most recent sequential periods.  Adjusted operating return on tangible equity is the annualized value of adjusted operating income divided by average total stockholders' equity excluding goodwill and other intangible assets for the two most recent sequential periods. 

(4). All share and per share amounts have been restated to give effect to the reorganization of ProSight on July 25, 2019. See "Reorganization".

PROSIGHT GLOBAL, INC.

GROSS WRITTEN PREMIUM BY CUSTOMER SEGMENT (UNAUDITED)

($ in millions)

Three Months Ended June 30

Six Months Ended June 30

2019

2018

% Change

2019

2018

% Change

Construction

$                32.5

$                26.6

22.2%

$                55.8

$                49.5

12.7%

Consumer Services

37.9

28.4

33.5%

65.4

50.3

30.0%

Marine and Energy

20.8

18.9

10.1%

36.8

34.2

7.6%

Media and Entertainment

39.3

38.0

3.4%

76.8

78.2

(1.8%)

Professional Services

29.1

27.9

4.3%

58.7

57.5

2.1%

Real Estate

46.6

44.1

5.7%

75.3

72.0

4.6%

Transportation

23.5

23.4

0.4%

57.5

50.4

14.1%

   Customer Segments Subtotal

229.7

207.3

10.8%

426.3

392.1

8.7%

Other

5.3

15.3

(65.4%)

64.6

79.9

(19.1%)

Total GWP

$              235.0

$              222.6

5.6%

$              490.9

$              472.0

4.0%

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

2019

2018

2019

2018

Net income from continuing operations

$             8,696

$           14,652

$           22,391

$           24,662

Income tax expense

2,423

3,723

6,238

6,281

Income before taxes

11,119

18,375

28,629

30,943

Net investment income

17,398

15,548

34,556

29,257

Net investment gains

137

686

250

399

Interest and other expense, net

10,220

2,916

13,489

5,779

Underwriting income

$             3,804

$            5,057

$             7,312

$             7,066

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

2019

2018

2019

2018

Net income from continuing operations

$             8,696

$           14,652

$           22,391

$           24,662

Income tax expense

2,423

3,723

6,238

6,281

Income before taxes

11,119

18,375

28,629

30,943

Transition expense and Net investment (gains) losses

7,033

(686)

6,920

(399)

Adjusted operating income before taxes

18,152

17,689

35,549

30,544

Less: income tax expense on adjusted operating income

3,924

3,579

7,691

6,197

Adjusted operating income

$           14,228

$           14,110

$           27,858

$           24,347

June 30, 2019

December 31, 2018

($ in thousands)

Stockholders' equity

$               458,950

$               389,830

Less: Intangible assets

29,204

29,219

Tangible stockholders' equity 

$               429,746

$               360,611

Book value per share

11.81

10.03

Tangible book value per share 

11.06

9.28