UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For the quarterly period ended ~~June~~September 30, ~~2019~~2020

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

☐~~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 001-38996

ProSight Global, Inc.

(Exact name of registrant as specified in its charter)

Delaware		~~35‑2405664~~35-2405664

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

412 Mt. Kemble Avenue

Suite 300

Morristown, NJ 07960

(973) 532-1900

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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, Par Value $0.01 per share	PROS	New York Stock Exchange

Indicate by check mark whether the ~~registrant~~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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T 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, 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~~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 is a shell company (as defined in Rule ~~12b‑2~~12b-2 of the Exchange Act). Yes ☐ No ☒.

There were ~~42,999,027~~43,644,146 shares of Common Stock ($0.01 par value) outstanding as of ~~August 8, 2019.~~November 9, 2020.

ProSight Global, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)



	June 30,		December 31,


					September 30,		December 31,
($ in thousands except share amounts)	2019		2018		2020		2019
Assets			(As restated)
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
Fixed maturity securities, available-for-sale at fair value (amortized cost $2,176,775 in 2020 and $1,999,403 in 2019, allowance for credit losses $(1,670) in 2020 and $0 in 2019)					$	2,260,193	$	2,040,682
Commercial levered loans at amortized cost (fair value $12,991 in 2020 and $13,950 in 2019)						13,433		14,069
Non-redeemable preferred stock securities at fair value (cost $11,670 in 2020 and $0 in 2019)						11,913		—
Bond exchange-traded funds at fair value (cost $12,878 in 2020 and $0 in 2019)						12,838		—
Limited partnerships and limited liability companies at fair value (cost $73,358 in 2020 and $62,226 in 2019)						84,608		66,660
Short-term investments		49,824		36,661		154		43,873
Total investments		2,012,713		1,800,390		2,383,139		2,165,284
Cash and cash equivalents		34,241		22,279		26,609		17,284
Restricted cash		8,929		7,621		7,625		10,213
Accrued investment income		13,314		12,279		13,967		13,610
Premiums and other receivables, net		196,128		200,347		134,915		190,004
Receivable from reinsurers on paid losses		9,927		12,428
Reinsurance receivable on unpaid losses		210,021		185,295
Receivable from reinsurers on paid losses, net						2,571		3,481
Reinsurance receivables on unpaid losses, net						158,856		193,952
Deferred policy acquisition costs		101,740		93,613		93,298		98,812
Prepaid reinsurance premiums		59,218		44,626		60,392		42,861
Net deferred income taxes		13,724		33,239		—		4,803
Goodwill and net intangible assets		29,204		29,219		29,166		29,189
Fixed assets and capitalized software, net		38,145		39,001		34,961		37,167
Funds withheld related to sale of affiliate		19,534		19,397		19,529		19,453
Other assets		33,328		57,653		27,708		29,537
Assets of discontinued operations		19,278		19,719		23,484		21,584
Total assets	$	2,799,444	$	2,577,106	$	3,016,220	$	2,877,234


Liabilities
Reserve for unpaid losses and loss adjustment expenses	$	1,483,660	$	1,396,812	$	1,589,162	$	1,521,648
Reserve for unearned premiums		472,907		435,933		443,528		483,223
Ceded reinsurance payable		15,987		13,281		34,693		17,768
Notes payable, net of debt issuance costs		182,517		182,355		199,947		164,693
Secured loan payable, net of debt issuance costs						24,243		—
Funds held under reinsurance agreements		72,362		63,165		21,895		58,855
Net deferred income taxes						4,976		—
Other liabilities		91,293		73,474		55,950		56,438
Liabilities of discontinued operations		21,768		22,256		33,954		31,578
Total liabilities		2,340,494		2,187,276		2,408,348		2,334,203


Stockholders’ equity
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
Common stock, $0.01 par value; 200,000,000 shares authorized; 43,436,134 and 43,071,186 shares issued, 43,423,214 and 43,058,266 shares outstanding in 2020 and 2019, respectively						434		431
Paid-in capital		603,163		607,260		666,875		661,761
Accumulated other comprehensive income (loss)		28,844		(22,315)
Accumulated other comprehensive income						71,029		37,453
Retained deficit		(173,246)		(195,304)		(130,266)		(156,414)
Treasury shares - at cost (12,920 shares)		(200)		(200)		(200)		(200)
Total stockholders’ equity		458,950		389,830		607,872		543,031
Total liabilities and stockholders’ equity	$	2,799,444	$	2,577,106	$	3,016,220	$	2,877,234

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)


	Three Months Ended June 30				Six Months Ended June 30

									Three Months Ended September 30				Nine Months Ended September 30
($ in thousands except per share amounts)	2019		2018		2019		2018		2020		2019		2020		2019
Gross written premiums	$	235,032	$	222,555	$	490,870	$	471,975	$	203,539	$	227,196	$	603,717	$	718,066
Net premiums earned		202,480		183,123		398,088		350,579
Net earned premiums										172,376		202,455		559,667		600,543
Net investment income		17,398		15,548		34,556		29,257		20,307		16,974		52,913		51,530
Realized investment gains, net		137		686		250		399		1,398		245		3,521		495
Other income		97		168		190		336		61		196		274		386
Total revenues		220,112		199,525		433,084		380,571		194,142		219,870		616,375		652,954


Expenses:
Net losses and loss adjustment expenses incurred		127,115		109,933		245,448		211,787		123,249		127,196		363,279		372,644
Policy acquisition expenses		45,533		43,253		92,106		81,624		40,387		45,953		129,406		138,059
General and administrative expenses		26,028		24,880		53,222		50,102		22,986		25,967		76,038		79,189
Interest expense		3,147		3,084		6,509		6,115		4,216		3,216		10,388		9,725
Other expense		7,170		—		7,170		—		1,394		7,162		4,521		14,332
Total expenses		208,993		181,150		404,455		349,628		192,232		209,494		583,632		613,949
Income from continuing operations before income taxes		11,119		18,375		28,629		30,943		1,910		10,376		32,743		39,005


Income tax provision:
Current		82		(397)		223		(404)		407		146		6,154		369
Deferred		2,341		4,120		6,015		6,685		5		1,869		997		7,884
Total income tax expense		2,423		3,723		6,238		6,281		412		2,015		7,151		8,253
Net income from continuing operations		8,696		14,652		22,391		24,662		1,498		8,361		25,592		30,752


Discontinued operations:
Net (loss) income from discontinued operations		(78)		(198)		(333)		587

Net income (loss) from discontinued operations										20		(49)		556		(382)
Net income	$	8,618	$	14,454	$	22,058	$	25,249	$	1,518	$	8,312	$	26,148	$	30,370


Earnings per share – basic:
Net income from continuing operations	$	0.22	$	0.38	$	0.58	$	0.64	$	0.03	$	0.20	$	0.58	$	0.77
Net income	$	0.22	$	0.37	$	0.57	$	0.66	$	0.03	$	0.19	$	0.60	$	0.76


Earnings per share – diluted:
Net income from continuing operations	$	0.22	$	0.37	$	0.57	$	0.63	$	0.03	$	0.19	$	0.58	$	0.76
Net income	$	0.22	$	0.36	$	0.56	$	0.64	$	0.03	$	0.19	$	0.59	$	0.75

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited)

Three Months Ended June 30

Six Months Ended June 30
($ in thousands)

2019

2018

2019

2018
Net income

$
8,618

$
14,454

$
22,058

$
25,249

Other comprehensive income (loss), net of taxes:








Change in unrealized holding gains (losses) on securities, net of deferred tax expense (benefit) of $6,206 and $13,447 in 2019 and $(2,769) and $(8,425) in 2018

23,624

(10,499)

51,186

(31,606)
Less: reclassification adjustment for gains included in net income, net of tax (benefit) expense of $(28) and $(52) in 2019 and $45 and $(109) in 2018

217

731

27

1,083
Other comprehensive income (loss)

23,407

(11,230)

51,159

(32,689)
Comprehensive income (loss)

$
32,025

$
3,224

$
73,217

$
(7,440)


	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2020		2019		2020		2019
Net income	$	1,518	$	8,312	$	26,148	$	30,370
Other comprehensive income, net of taxes:
Change in unrealized holding gains on available-for-sale debt securities, net of deferred tax expense of $5,190 and $9,939 in 2020 and $2,651 and $16,098 in 2019		19,826		9,292		37,318		60,478
Less: reclassification adjustment for gains included in net income, net of tax expense of $228 and $1,090 in 2020 and $156 and $104 in 2019		1,303		4,206		5,061		4,233
Less: reclassification adjustment for credit losses included in net income, net of tax expense (benefit) of $66 and $(351) in 2020 and $0 and $0 in 2019		250		—		(1,319)		—
Other comprehensive income		18,273		5,086		33,576		56,245
Comprehensive income	$	19,791	$	13,398	$	59,724	$	86,615

See accompanying notes to interim consolidated financial statements (unaudited)

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


							Accumulated
	Preferred		Common		Paid-In		Other Comprehensive		Retained		Treasury

																					Accumulated
															Preferred		Common		Paid-In		Other Comprehensive		Retained		Treasury
($ in thousands)	Stock		Stock		Capital		Income (Loss)		Deficit		Shares		Total		Stock		Stock		Capital		Income (Loss)		Deficit		Shares		Total
December 31, 2017 (As restated)	$	—	$	387	$	606,346	$	19,297	$	(249,847)	$	(200)	$	375,983
December 31, 2018															$	—	$	389	$	607,260	$	(22,315)	$	(195,304)	$	(200)	$	389,830
Stock based employee compensation plan		—		—		238		—		—		—		238		—		—		77		—		—		—		77
Net unrealized loss on investment securities, net of deferred tax benefit of $(5,502)		—		—		—		(21,459)		—		—		(21,459)
Net income		—		—		—		—		10,795		—		10,795
March 31, 2018	$	—	$	387	$	606,584	$	(2,162)	$	(239,052)	$	(200)	$	365,557
Stock based employee compensation plan		—		—		160		—		—		—		160
Net unrealized loss on investment securities, net of deferred tax benefit of $(2,814)		—		—		—		(11,230)		—		—		(11,230)
Net income		—		—		—		—		14,454		—		14,454
June 30, 2018	$	—	$	387	$	606,744	$	(13,392)	$	(224,598)	$	(200)	$	368,941

December 31, 2018 (As restated)	$	—	$	389	$	607,260	$	(22,315)	$	(195,304)	$	(200)	$	389,830
Stock based employee compensation plan		—		—		77		—		—		—		77
Net unrealized gain on investment securities, net of deferred tax expense of $7,265		—		—		—		27,752		—		—		27,752
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $7,265																—		—		—		27,752		—		—		27,752
Equity distribution		—		—		(4,174)		—		—		—		(4,174)		—		—		(4,174)		—		—		—		(4,174)
Net income		—		—		—		—		13,440		—		13,440		—		—		—		—		13,440		—		13,440
March 31, 2019	$	—	$	389	$	603,163	$	5,437	$	(181,864)	$	(200)	$	426,925	$	—	$	389	$	603,163	$	5,437	$	(181,864)	$	(200)	$	426,925
Net unrealized gain on investment securities, net of deferred tax expense of $6,234		—		—		—		23,407		—		—		23,407
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $6,234																—		—		—		23,407		—		—		23,407
Net income		—		—		—		—		8,618		—		8,618		—		—		—		—		8,618		—		8,618
June 30, 2019	$	—	$	389	$	603,163	$	28,844	$	(173,246)	$	(200)	$	458,950	$	—	$	389	$	603,163	$	28,844	$	(173,246)	$	(200)	$	458,950
Stock based employee compensation plan																—		—		6,785		—		—		—		6,785
Shares cancelled																—		(1)		1		—		—		—		—
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $2,495																—		—		—		5,086		—		—		5,086
Retirement of common stock (tax payments on equity compensation)																—		—		(149)		—		—		—		(149)
Proceeds from common stock sold in initial public offering, net of offering costs																—		42		51,557		—		—		—		51,599
Net income																—		—		—		—		8,312		—		8,312
September 30, 2019															$	—	$	430	$	661,357	$	33,930	$	(164,934)	$	(200)	$	530,583


December 31, 2019															$	—	$	431	$	661,761	$	37,453	$	(156,414)	$	(200)	$	543,031
Stock based employee compensation plan																—		2		1,754		—		—		—		1,756
Net unrealized loss on available-for-sale debt securities, net of deferred tax benefit of $(16,151)																—		—		—		(61,441)		—		—		(61,441)
Retirement of common stock (tax payments on equity compensation)																—		—		(2,263)		—		—		—		(2,263)
Payments related to offering costs																—		—		(49)		—		—		—		(49)
Net income																—		—		—		—		7,068		—		7,068
March 31, 2020															$	—	$	433	$	661,203	$	(23,988)	$	(149,346)	$	(200)	$	488,102
Stock based employee compensation plan																—		—		3,057		—		—		—		3,057
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $20,455																—		—		—		76,744		—		—		76,744
Tax benefit on payments related to offering costs																—		—		635		—		—		—		635
Net income																—		—		—		—		17,562		—		17,562
June 30, 2020															$	—	$	433	$	664,895	$	52,756	$	(131,784)	$	(200)	$	586,100
Stock based employee compensation plan																—		1		2,106		—		—		—		2,107
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $4,896																—		—		—		18,273		—		—		18,273
Retirement of common stock (tax payments on equity compensation)																—		—		(126)		—		—		—		(126)
Net income																—		—		—		—		1,518		—		1,518
September 30, 2020															$	—	$	434	$	666,875	$	71,029	$	(130,266)	$	(200)	$	607,872

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30

					Nine Months Ended September 30
($ in thousands)	2019			2018	2020		2019
Operating activities
Net income from continuing operations	$	22,391	$	24,662	$	25,592	$	30,752
Net (loss) income from discontinued operations		(333)		587
Net income (loss) from discontinued operations						556		(382)
Net income		22,058		25,249		26,148		30,370


Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred taxes		6,015		6,685		997		7,884
Net realized investment gains		(250)		(399)
Net limited partnerships gains		(2,449)		(2,825)
Net accretion from bonds and commercial loans		(2,227)		(2,080)
Realized investment gains, net						(3,521)		(495)
Net limited partnerships and limited liability companies gains						(6,759)		(2,917)
Net amortization (accretion) from bonds and commercial loans						2,861		(1,568)
Net change in fair value of non-redeemable preferred stock securities						(243)		—
Net change in fair value of bond exchange-traded funds						61		—
Depreciation and amortization		4,131		3,368		6,392		6,222
Amortization of debt issuance costs		162		169		748		254
Stock based compensation		77		398		6,920		6,862


Changes in:
Premiums and other receivables		4,219		(60,746)
Premiums and other receivables, net						55,089		20,427
Receivable from reinsurers on paid losses and reinsurance receivable on unpaid losses		(22,225)		(6,141)		36,006		(22,103)
Ceded reinsurance payable		2,706		24,185		16,925		(9,182)
Accrued investment income		(1,035)		(3,643)		(357)		(1,173)
Deferred policy acquisition costs		(8,127)		(35,010)		5,514		(9,929)
Prepaid reinsurance premiums		(14,592)		58,366		(17,531)		(2,659)
Reserve for unpaid losses and loss adjustment expenses		86,848		68,684		67,514		118,412
Reserve for unearned premiums		36,974		80,474		(39,695)		36,828
Funds withheld related to sale of affiliate		(137)		(85)		(76)		(169)
Funds held under reinsurance agreements		9,197		(43,061)		(36,960)		5,078
Other assets		20,149		8,757		1,555		22,249
Other liabilities		17,819		8,703		(487)		7,555
Total adjustments		137,255		105,799		94,953		181,576
Net cash provided by operating activities – continuing operations		159,646		130,461		120,545		212,328
Net cash (used in) provided by operating activities – discontinued operations		(305)		2,986
Net cash provided by (used in) operating activities – discontinued operations						165		(267)
Net cash provided by operating activities		159,341		133,447		120,710		212,061


Investing activities
Purchases of available-for-sale fixed income securities		(221,287)		(201,987)
Sales of available-for-sale fixed income securities		32,791		73,779
Redemptions of available-for-sale fixed income securities		64,310		46,330
Purchases of commercial levered loans		—		(2,612)
Purchases of available-for-sale fixed maturity securities						(574,039)		(423,335)
Sales of available-for-sale fixed maturity securities						215,856		67,848
Redemptions of available-for-sale fixed maturity securities						182,981		100,713
Purchases of non-redeemable preferred stock securities						(11,669)		—
Redemptions of commercial levered loans		350		8,346		640		2,298
Purchases of bond exchange-traded funds						(20,985)		—
Sales of bond exchange-traded funds						8,085		—
Purchases of limited partnerships		(8,244)		(27,049)		(14,329)		(13,016)
Distributions and redemptions from limited partnerships		1,775		2,080		3,139		4,043
Purchases of short-term investments		(241,574)		(80,868)		(34,955)		(293,065)
Sales of short-term investments		228,765		28,615		78,827		315,767
Acquisition of fixed assets and capitalized software		(3,260)		(4,607)		(4,164)		(4,903)
Net cash used in investing activities - continuing operations		(146,374)		(157,973)
Net cash (used in) provided by investing activities - discontinued operations		(320)		2,031
Net cash used in investing activities – continuing operations						(170,613)		(243,650)
Net cash provided by (used in) investing activities – discontinued operations						1,286		(380)
Net cash used in investing activities		(146,694)		(155,942)		(169,327)		(244,030)


Financing activities
Payments related to offering costs						(49)		—
Proceeds from shares issued						—		51,599
Tax withholding on stock compensation awards						(2,389)		(149)
Proceeds from secured loan payable						24,997		—
Repayment of secured loan payable						(754)		—
Proceeds from notes payable						35,000		—
Repayment of notes payable						—		(18,000)
Net cash provided by financing activities		—		—		56,805		33,450

Net change in cash and cash equivalents		12,647		(22,495)		8,188		1,481
Cash, cash equivalents and restricted cash at beginning of year - continuing operations		29,900		77,872
Cash, cash equivalents and restricted cash at beginning of year - discontinued operations		1,034		1,322
Less: cash, cash equivalents and restricted cash at end of period - discontinued operations		(411)		(6,318)
Cash, cash equivalents and restricted cash at end of period - continuing operations	$	43,170	$	50,381
Cash, cash equivalents and restricted cash at beginning of year – continuing operations						27,497		29,900
Cash, cash equivalents and restricted cash at beginning of year – discontinued operations						255		1,034
Less: cash, cash equivalents and restricted cash at end of period – discontinued operations						(1,706)		(387)
Cash, cash equivalents and restricted cash at end of period – continuing operations					$	34,234	$	32,028

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

1. Basis of Reporting

The accompanying unaudited interim consolidated financial statements of ProSight Global, Inc. and its subsidiaries (the ~~Company)~~“Company”) have been prepared in conformity with U.S. generally accepted accounting principles ~~(GAAP)~~(“GAAP”) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto ~~as of and for the year ended December 31, 2018,~~ included in the Company’s ~~final prospectus~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission ~~(SEC) pursuant to Rule 424(b) under the Securities Act of 1933,~~(“SEC”) on February 24, 2020, as amended ~~(the Securities Act)~~by Amendment No. 1 to Form 10-K filed with the SEC on ~~July 25, 2019 (the Prospectus).~~March 10, 2020. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All significant intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year.

~~Reorganization~~

~~The Company was incorporated in Delaware in 2010.~~ Prior to July 25, 2019, the Company was a wholly-owned subsidiary of ProSight Global Holdings Limited ~~(PGHL)~~(“PGHL”), a Bermuda holding company. Effective July 25, 2019, prior to the completion of the Company’s initial public offering ~~(IPO)~~(“IPO”), PGHL merged with and into the Company, with the Company surviving the merger (the ~~merger)~~“merger”). The prior holders of PGHL’s equity interests then outstanding received, as merger consideration, the right to receive 6.46 shares of the Company’s common stock for each such outstanding PGHL equity interest. ~~The total merger consideration was 38,851,369 shares of the Company’s common stock, which then comprised 100% of the shares of the Company’s outstanding common stock.~~

As a result of the merger, the assets and liabilities of the Company include, effective July 25, 2019, the assets and liabilities of PGHL. In addition, on July 24, 2019, in connection with the merger, the Company’s duly adopted amended and restated certificate of incorporation (the Certificate of Incorporation) became effective, providing for, among other things, the authorization of 200,000,000 shares of common stock and 50,000,000 shares of preferred stock. All share and per share amounts in the unaudited interim consolidated financial statements and related notes have been restated for all historical periods prior to July 25, 2019, presented to give effect to the merger and related conversion of shares, including reclassifying an amount equal to the change in value of common stock to additional paid-in capital, as well as the effectiveness of the Certificate of Incorporation.

Prior to the merger, PGHL’s subsidiaries ProSight Specialty International Holdings Limited (PSIH) and ProSight Specialty European Holdings Limited (PSEH) were merged with and into the Company, effective February 5, 2019. Additionally, effective February 5, 2019, ProSight Specialty Bermuda Limited (PSBL) became a wholly owned subsidiary of the Company. Prior to February 5, 2019, PSBL was a wholly owned subsidiary of PSEH.

Use of Estimates

The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statement balances, as well as disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Management periodically reviews its estimates and assumptions.

2.2. Recently Adopted Accounting Standards

~~No Accounting Standards Updates (ASU) have been adopted during the six months ended June 30, 2019.~~

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

Accounting Guidance ~~Not Yet~~ Adopted

In ~~January~~February 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU ~~2016-01,~~ ~~Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities~~. ASU 2016-01 provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires equity investments to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; (iv) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) clarifies that the need for a valuation allowance on a deferred tax asset related to an available-for-sale (AFS) security should be evaluated with other deferred tax assets. The Company shall apply ASU 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. ASU 2016-01 is effective for public entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2016-01 is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2016-01 on its financial condition and results of operations.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~2016-02”)to improve the financial reporting of leasing transactions. Under this ASU, lessees will recognize a right-of-use asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of fewer than 12 months. The liability is to be measured as the present value of the future minimum lease payments taking into account renewal options, if applicable, plus initial incremental direct costs such as commissions. The minimum payments are discounted using the rate implicit in the lease or, if not known, the lessee’s incremental borrowing rate. The lessee’s income statement treatment for leases will vary depending on the nature of ~~what is being leased.~~the lease. A financing type lease is present when, among other matters, the asset is being leased for a substantial portion of its economic life or has an end-of-term title transfer or a bargain purchase option as in today’s practice. The payment of the liability set up for such leases will be apportioned between interest and principal; the right-of use asset will be generally amortized on a straight-line basis. If the lease does not qualify as a financing type lease, it will be accounted for on the income statement as rent on a straight-line basis. ASU 2016-02 requires the application of a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The Company adopted ASU 2016-02 ~~is effective~~in the first quarter of 2020, and as part of its implementation, elected the modified retrospective method approach at the beginning of the period of adoption and did not retrospectively adjust prior periods presented. The Company elected to not separate lease components from non-lease components (such as office cleanings, security and maintenance services provided by the Company’s lessors for ~~public entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. For~~certain of its leases). The Company

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

also elected the package of practical expedients under the transition guidance, which allowed the Company ~~ASU 2016-02 is effective for annual periods beginning after December 15, 2019~~to not reevaluate existing lease classifications, among others. As of January 1, 2020, the Company’s adoption of this guidance resulted in recognition of a right-of-use asset of $5.6 million and ~~interim periods within annual periods beginning after December 15, 2020.~~a corresponding lease liability of $6.3 million in continuing operations, and a right-of-use asset of $2.5 million and a corresponding lease liability of $3.0 million in discontinued operations. The ~~Company is currently evaluating ASU 2016-02, and does~~adoption of this guidance did not ~~expect~~have a material impact on ~~its financial condition or results of operations from~~ the ~~adoption of this guidance.~~Company’s retained earnings. See Note 15. Leases for further information on the Company’s leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments –— Credit Losses, Measurement of Credit Losses on Financial Instruments(“ASU 2016-13”). ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, trade receivables, and reinsurance receivables. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the financial statements net of the valuation allowance. The valuation allowance is a measurement of expected losses that is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current expected credit loss model. The Company adopted ASU 2016-13 ~~is effective for public entities annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. For~~in the ~~Company, ASU 2016-13 is effective for annual periods beginning after December 15,~~first quarter of 2020 ~~and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of ASU 2016-13 on its financial condition and results of operations.~~

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes, Intra-Entity Transfersof Assets Other Than Inventory~~. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 should be applied onusing a modified retrospective ~~basis through a cumulative-effect adjustment directly to retained earnings as~~approach. As of January 1, 2020, the ~~beginning~~Company’s adoption of the period of adoption. ASU 2016-16 is effective for public entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2016-16 is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The Company is currently evaluating ASU 2016-16 and doesthis guidance did not ~~expect~~have a material impact on ~~its financial condition or results of operations.~~the Company’s retained earnings.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value ~~Measurement.~~Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant ~~observable~~unobservable inputs used to develop Level 3 fair value measurements. ~~This update shall be applied retrospectively~~The Company adopted ASU 2018-13 in the first quarter of 2020 using a retrospective approach and ~~is effective for all entities annual and interim periods beginning after December 15, 2019, with early adoption permitted. As~~as the requirements of this literature are disclosure only, ASU 2018-13 ~~will~~did not have an impact on the Company’s financial condition or results of operations.

Accounting Guidance Not Yet Adopted

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU 2017-08 shortens the amortization period of the premium for certain callable debt securities, from the contractual maturity date to the earliest call date. ASU 2017-08 is effective for public entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2017-08 is effective for annual periods beginning after December 15, 2019 and interim periods within annual periods beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance and does not expect a material impact on its financial condition and results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract(“ASU 2016-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 provides the option to apply prospectively to costs for activities performed on or after the date that the entity first adopts or retrospectively in accordance with guidance on accounting changes. ASU 2018-15 is effective for public entities for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2018-15 is effective for annual periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of this guidance on its financial condition or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipate loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for public entities for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2019-12 is effective for annual periods beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of this guidance on its financial condition or results of operations.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). ASU 2020-01 will clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. ASU 2020-01 is effective for public entities for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2020-01 is effective for annual periods beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of this guidance on its financial condition or results of operations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition away from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Companies can elect to adopt ASU 2020-04 as of the beginning of the interim period that includes March 2020, or any date thereafter through December 31, 2022. The Company is currently evaluating the impact of this guidance on its financial condition and results of operations.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

3. Supplemental Cash Flow

~~Supplemental~~The following table represents the supplemental cash flow information for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018, is as follows:~~2019:


	Nine Months Ended September 30
($ in thousands)	2020		2019
Cash paid (received) during the period for:
Interest	$	6,427	$	6,783
Federal income tax	$	5,553	$	(366)
Non-cash activity:
Operating lease right-of-use assets due to the adoption of ASU 2016-02 - continuing operations	$	3,454	$	—
Operating lease right-of-use assets due to the adoption of ASU 2016-02 - discontinued operations	$	2,164	$	—
Operating lease liabilities due to the adoption of ASU 2016-02 - continuing operations	$	3,849	$	—
Operating lease liabilities due to the adoption of ASU 2016-02 - discontinued operations	$	2,506	$	—
Tax benefit on payments related to offering costs	$	635	$	—

Six Months Ended June 30
($ in thousands)

2019

2018
Cash paid during the period for:




Interest

$
6,566

$
6,105

For the nine months ended September 30, 2020, the Company withheld 185,806 shares of common stock from employees related to tax liabilities incurred upon the settlement of vested restricted stock units (“RSUs”). The number of shares of common stock issued, upon the settlement of vested RSUs net of tax withholding, was 364,948.

4. Discontinued Operations

In March 2017, the Company announced its exit from the United Kingdom (“U.K.”) insurance market. The financial results and subsequent expenses directly attributable to U.K. operations are included in the Company’s financial statements and classified within discontinued operations for all periods presented. Net ~~loss for~~income from discontinued operations was ~~$0.1~~$0.0 million and ~~$0.3 million for the three and six months ended June 30, 2019, respectively. Net loss for discontinued operations was $0.2 million and net income for discontinued operations was~~ $0.6 million for the three and ~~six~~nine months ended ~~June~~September 30, ~~2018, respectively.~~

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

2020. Net loss from discontinued operations was $0.0 million and $0.4 million for the three and nine months ended September 30, 2019.

The following table represents the carrying amounts of assets and liabilities associated with the exit from the insurance market in the U.K. reported as discontinued operations in its consolidated balance ~~sheet:~~sheets:


	June 30,		December 31,

					September 30,		December 31,
($ in thousands)	2019		2018		2020		2019
Assets
Total cash and investments	$	10,250	$	10,436
Cash and investments					$	10,464	$	10,428
Other assets		9,028		9,283		13,020		11,156
Total assets	$	19,278	$	19,719	$	23,484	$	21,584


Liabilities
Unpaid losses and loss adjustment expenses	$	13,917	$	14,030
Reserve for unpaid losses and loss adjustment expenses					$	24,418	$	24,169
Other liabilities		7,851		8,226		9,536		7,409
Total liabilities	$	21,768	$	22,256	$	33,954	$	31,578

5. Investments

The Company’s investment portfolio consists of fixed maturity securities, commercial levered loans, limited partnerships and limited liability companies, non-redeemable preferred stock securities, bond exchange-traded funds, and short-term investments. Fixed ~~income~~maturity securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, residential ~~mortgage backed~~mortgage-backed securities ~~(RMBS)~~(“RMBS”), commercial ~~mortgage backed~~mortgage-backed securities ~~(CMBS)~~

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

(“CMBS”), collateralized loan obligations ~~(CLO)~~(“CLO”), ~~asset backed~~asset-backed securities ~~(ABS)~~(“ABS”) and corporate debt securities.

Corporate debt securities may include investment grade and below investment grade bonds, bank loan investments and redeemable preferred stock securities. The Company has designated its investments in fixed maturity securities as available-for-sale (“AFS”) securities.

(a) The gross unrealized gains and losses on ~~AFS~~fixed maturity securities included in assets from continuing operations at ~~June~~September 30, ~~2019,~~2020, are as follows:


	Cost/		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair

									Cost/				Gross		Gross
									Amortized		Credit Loss		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value		Cost		Allowance		Gains		Losses		Value
Fixed income securities:
Fixed maturity securities:
U.S. Treasury securities	$	84,377	$	901	$	(191)	$	85,087	$	29,426	$	—	$	2,087	$	—	$	31,513
Government agency securities		473		—		—		473		28,990		—		546		(16)		29,520
Corporate debt securities		1,300,218		21,985		(5,838)		1,316,365		1,319,438		(1,052)		72,390		(8,798)		1,381,978
Municipal debt obligations		8,274		217		—		8,491		179,694		—		6,547		(323)		185,918
ABS		86,573		1,212		(231)		87,554		53,705		—		574		(732)		53,547
CLO		173,538		212		(1,609)		172,141		174,589		(6)		88		(3,501)		171,170
CMBS		65,174		1,489		(102)		66,561		113,076		—		7,076		(427)		119,725
RMBS - non-agency		66,350		10,916		(118)		77,148		112,904		(612)		7,366		(1,723)		117,935
RMBS - agency		70,183		464		(478)		70,169		164,953		—		3,947		(13)		168,887
Total fixed income securities	$	1,855,160	$	37,396	$	(8,567)	$	1,883,989
Total fixed maturity securities									$	2,176,775	$	(1,670)	$	100,621	$	(15,533)	$	2,260,193

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

The gross unrealized gains and losses on ~~AFS~~fixed maturity securities included in assets from continuing operations at December 31, ~~2018,~~2019, are as follows:


	Cost/		Gross		Gross
	Amortized		Unrealized		Unrealized		Fair

									Cost/		Gross		Gross
									Amortized		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Fixed income securities:
Fixed maturity securities:
U.S. Treasury securities	$	92,219	$	126	$	(2,017)	$	90,328	$	49,161	$	838	$	(14)	$	49,985
Government agency securities										6,522		23		(14)		6,531
Corporate debt securities		1,231,352		1,216		(40,138)		1,192,430		1,308,094		33,743		(3,025)		1,338,812
Municipal debt obligations		6,238		—		(153)		6,085		80,338		243		(766)		79,815
ABS		82,603		1,095		(117)		83,581		73,068		854		(340)		73,582
CLO		161,421		160		(4,668)		156,913		181,704		125		(2,280)		179,549
CMBS		55,980		—		(2,137)		53,843		95,810		1,863		(147)		97,526
RMBS - non-agency		68,594		11,078		(121)		79,551		62,343		9,458		(191)		71,610
RMBS - agency		31,348		—		(697)		30,651		142,363		1,256		(347)		143,272
Total fixed income securities	$	1,729,755	$	13,675	$	(50,048)	$	1,693,382
Total fixed maturity securities									$	1,999,403	$	48,403	$	(7,124)	$	2,040,682

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

(b) The following table summarizes ~~all~~the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at ~~June~~September 30, ~~2019, the fair value and gross unrealized loss~~2020, grouped by asset class and by ~~length~~duration of time ~~those securities have been~~ in a continuous unrealized loss position:


	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized

													Less Than 12 Months				Greater Than 12 Months				Total
																							Total
													Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses		Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	2,499	$	(5)	$	41,771	$	(186)	$	44,270	$	(191)
Government agency securities													$	4,639	$	(16)	$	—	$	—	$	4,639	$	(16)
Corporate debt securities		119,250		(1,646)		179,264		(4,192)		298,514		(5,838)		71,409		(1,875)		122,671		(6,923)		194,080		(8,798)
Municipal debt obligations														26,466		(237)		3,441		(86)		29,907		(323)
ABS		30,311		(208)		2,795		(23)		33,106		(231)		7,612		(497)		15,264		(235)		22,876		(732)
CLO		81,999		(552)		56,217		(1,057)		138,216		(1,609)		30,319		(171)		131,400		(3,330)		161,719		(3,501)
CMBS		1,000		—		9,611		(102)		10,611		(102)		13,207		(311)		5,727		(116)		18,934		(427)
RMBS - non-agency		1,104		(11)		2,703		(107)		3,807		(118)		24,347		(762)		9,965		(961)		34,312		(1,723)
RMBS - agency		12,456		(308)		5,490		(170)		17,946		(478)		7,741		(13)		—		—		7,741		(13)
Total	$	248,619	$	(2,730)	$	297,851	$	(5,837)	$	546,470	$	(8,567)
Total fixed maturity securities													$	185,740	$	(3,882)	$	288,468	$	(11,651)	$	474,208	$	(15,533)

The following table summarizes ~~all~~the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at December 31, ~~2018, the fair value and gross unrealized loss~~2019, grouped by asset class and by ~~length~~duration of time ~~those securities have been~~ in a continuous unrealized loss position:


	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized

													Less Than 12 Months				Greater Than 12 Months				Total
																							Total
													Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses		Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	8,263	$	(82)	$	69,727	$	(1,935)	$	77,990	$	(2,017)	$	—	$	—	$	7,469	$	(14)	$	7,469	$	(14)
Government agency securities														3,192		(14)		—		—		3,192		(14)
Corporate debt securities		393,931		(10,241)		710,482		(29,897)		1,104,413		(40,138)		133,341		(2,509)		50,695		(516)		184,036		(3,025)
Municipal debt obligations		—		—		6,085		(153)		6,085		(153)		66,355		(766)		—		—		66,355		(766)
ABS		25,258		(61)		4,249		(56)		29,507		(117)		27,884		(175)		11,165		(165)		39,049		(340)
CLO		146,004		(4,668)		—		—		146,004		(4,668)		28,485		(338)		110,825		(1,942)		139,310		(2,280)
CMBS		—		—		53,843		(2,137)		53,843		(2,137)		18,307		(102)		6,053		(45)		24,360		(147)
RMBS - non-agency		529		(13)		2,449		(108)		2,978		(121)		2,173		(14)		2,418		(177)		4,591		(191)
RMBS - agency		27,150		(513)		3,502		(184)		30,652		(697)		10,450		(12)		12,367		(335)		22,817		(347)
Total	$	601,135	$	(15,578)	$	850,337	$	(34,470)	$	1,451,472	$	(50,048)
Total fixed maturity securities													$	290,187	$	(3,930)	$	200,992	$	(3,194)	$	491,179	$	(7,124)

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

~~risk related. Other-than-temporary impairments (OTTI) charges are recognized as a realized loss to the extent that they are credit related, unless the Company has the intent~~intend to sell the ~~security or~~investments and it is ~~more-likely-than~~not more likely than not that the Company will be required to sell the ~~security. In those circumstances,~~investments before recovery of their amortized cost bases, which may be maturity.

The Company analyzes fixed maturity securities in an unrealized loss position for credit losses if they meet the following criteria: (i) they are trading in a significant loss position, (ii) failure of the issuer of the security ~~is written down~~ to ~~fair~~make scheduled interest or principal payments, (iii) there have been negative credit events with respect to the issuer, or (iv) there have been negative current events surrounding an issuer or the environment in which an issuer operates.

For fixed maturity securities in an unrealized loss position that require a credit loss analysis, the Company estimates a present value ~~with~~of expected cash flows. If the ~~entire~~results of the cash flow analysis indicate that the Company will not recover the full amount of its amortized cost basis, the ~~write-down charged~~Company records a credit loss for the excess of amortized cost over the present value of expected cash flows, not to ~~earnings as a component~~exceed the unrealized loss. Changes in the credit loss allowance are recognized through realized investment gains, net on the consolidated statements of ~~realized losses.~~operations. The ~~Company had no OTTI charges~~credit loss allowance benefit for fixed maturity securities was $0.3 million for the three ~~and six~~ months ended ~~June~~September 30, ~~2019~~2020. The credit loss allowance expense for fixed maturity securities was $1.7 million for the nine months ended September 30, 2020.

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ProSight Global, Inc. and ~~2018.~~Subsidiaries

~~(c)~~Notes to Interim Consolidated Financial Statements (Unaudited)

The following table is a rollforward of the credit loss allowance for fixed maturity securities:


	December 31,		Additions		Reduction		Reduction		Change in Securities		September 30,
($ in thousands)	2019		New Securities		Sales		Intent to Sell		with Previous Allowance		2020
Fixed maturity securities:
Corporate debt securities	$	—	$	1,171	$	(119)	$	—	$	—	$	1,052
ABS		—		3		(3)		—		—		—
CLO		—		6		—		—		—		6
RMBS - non-agency		—		696		(84)		—		—		612
Total fixed maturity securities allowance	$	—	$	1,876	$	(206)	$	—	$	—	$	1,670

(d) The amortized cost and fair value of fixed ~~income~~maturity securities, ~~which excludes~~excluding the Company’s structured securities portfolio, at ~~June~~September 30, ~~2019,~~2020, by contractual maturity are shown below. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2019
	Amortized		Fair

					September 30, 2020
					Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	85,287	$	85,352	$	120,270	$	121,506
Due after one through five years		724,384		731,504		617,687		643,790
Due after five through ten years		499,428		510,299		513,039		543,555
Due after ten years		84,243		83,261		277,562		290,558
		1,393,342		1,410,416
						1,528,558		1,599,409
Structured securities:
Government agency securities						28,990		29,520
ABS		86,573		87,554		53,705		53,547
CLO		173,538		172,141		174,589		171,170
CMBS		65,174		66,561		113,076		119,725
RMBS - non-agency		66,350		77,148		112,904		117,935
RMBS - agency		70,183		70,169		164,953		168,887
Total	$	1,855,160	$	1,883,989
Total fixed maturity securities					$	2,176,775	$	2,260,193

The Company did not have any non-income producing fixed ~~income~~maturity investments as of ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~(d)~~(e) The Company ~~elected~~records its limited partnership and limited liability companies using net asset value, which the Company has determined to ~~account~~be the best indicator of fair value for ~~its investments in~~these investments. At September 30, 2020 and December 31, 2019, the fair value of limited partnerships and limited liability companies ~~of $62.4~~were $84.6 million and ~~$53.4~~$66.7 million, ~~at June 30, 2019 and December 31, 2018, respectively, at fair value.~~respectively. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income. The largest investment within the portfolio is the ~~PIMCO~~Pacific Investment Management Company LLC Tactical Opportunities fund, which is carried at ~~$32.0~~$44.5 million at ~~June~~September 30, ~~2019.~~2020.

The carrying values used for ~~investment~~investments in limited partnerships and limited liability companies generally are established on the basis of the current valuations provided ~~monthly or quarterly~~ by the managers of such investments. These valuations are determined based upon the valuation criteria established by the governing documents of such investments or utilized in the normal course of such manager’s business, which are reflective of fair value. Such valuations may differ significantly from the values that would have been used had available markets for these investments existed and the differences could be material.

The Company’s strategies for its investments in limited partnerships and limited liability companies include investment funds that employ diverse and fundamentally driven approaches to investing which include effective risk management, hedging strategies and leverage. The portfolio of investments in limited partnerships and limited liability

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

companies consists of common stocks, real estate assets, options, swaps, derivative instruments and other structured products.

The limited partnerships and limited liability companies in which the Company invests sometimes impose limitations on the timing of withdrawals from the funds. The Company’s inability to withdraw its investment quickly from a particular limited partnership or a limited liability company that is performing poorly could result in losses and may

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

affect liquidity. All of the Company’s limited partnerships and limited liability companies have timing limitations. Most limited partnerships and limited liability companies require a 90-day notice period in order to withdraw funds. Some limited partnerships and limited liability companies may require a withdrawal only at the end of their fiscal year. The Company may also be subject to withdrawal fees in the event the limited partnerships and limited liability companies isare sold within a minimum holding period, which may be up to one year. Many limited partnerships and limited liability companies have invoked gated provisions that allow the fund to disperse redemption proceeds to investors over an extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds from limited partnerships and limited liability companies.

~~(e)~~(f) The Company invests in commercial ~~levered~~ loans, which are private placements. Loans are reported at the principal amount outstanding, reduced by unearned discounts, net deferred loan fees, and an allowance for ~~loan losses.~~credit losses on loans. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. The allowance for loan losses related to impaired loans is determined based on the difference of the carrying value of loans and the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the loan’s observable market price. There was no allowance for ~~loan~~credit losses on loans at ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~(f)~~(g) Proceeds from sales and redemptions in AFS securities totaled ~~$53.7~~$92.0 million and ~~$57.1~~$71.5 million for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Proceeds from sales and redemptions in AFS securities totaled ~~$97.1~~$398.8 million and ~~$120.1~~$168.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Gross realized gains from sales and redemptions in AFS securities totaled ~~$0.4~~$1.1 million and ~~$0.7~~$0.3 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively. Gross realized gains from sales and ~~2018, respectively, and $0.6~~redemptions in AFS securities totaled $5.8 million and ~~$0.8~~$0.9 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Gross realized losses from sales and redemptions of AFS investments totaled ~~$0.3~~$0.0 million and ~~an insignificant amount~~$0.0 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively. Gross realized losses from sales and ~~2018, respectively,~~redemptions of AFS investments totaled $0.6 million and $0.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, ~~and 2018.~~respectively.

~~(g)~~(h) Net investment income included in net income from continuing operations in the consolidated statements of operations from each major category of investments for the three and ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018,~~2019, is as follows:



									Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	Three Months Ended June 30				Six Months Ended June 30				2020		2019		2020		2019
		2019		2018		2019		2018
Fixed income securities	$	16,531	$	14,016	$	32,650	$	26,408
Commercial levered loans		159		301		378		665
Net limited partnerships gains		1,143		1,563		2,394		2,825
Fixed maturity securities									$	15,040	$	16,764	$	47,171	$	49,414
Net limited partnerships and limited liability companies gains										5,508		468		6,762		2,862
Other		92		6		181		23		685		309		1,231		868
Gross investment income		17,925		15,886		35,603		29,921		21,233		17,541		55,164		53,144
Less: investment income attributable to funds withheld liabilities										(98)		141		156		424
Less: expenses		527		338		1,047		664		1,024		426		2,095		1,190
Net investment income	$	17,398	$	15,548	$	34,556	$	29,257	$	20,307	$	16,974	$	52,913	$	51,530

~~(h)~~(i) Included in investments at ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, are securities required to be held by the Company (or those that are on deposit) with various regulatory authorities as required by law with a fair value of ~~$211.2~~$231.5 million and ~~$188.6~~$210.8 million, respectively. Fair value and carrying value of assets in the amount of ~~$358.4~~$330.0 million and ~~$347.4~~$313.5 million, respectively, were on deposit in collateral agreements at ~~June~~September 30, ~~2019.~~2020. Fair value and carrying value of assets in the amount of ~~$358.5~~$367.1 million and ~~$368.0~~$352.0 million, respectively, were on deposit in collateral agreements at December 31, ~~2018.~~2019.

~~(i)~~(j) The investment portfolio has exposure to market risks, which include the effect of adverse changes in interest rates, credit quality, limited partnership value and illiquid securities, including commercial ~~loans and RMBS~~loan values, on the portfolio.

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Risks from investments in limited partnerships and limited liability companies and illiquid securities risks include the potential loss from the diminution in the value of

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

the underlying investment of the limited partnerships and limited liability companies and the potential loss from changes in the fair value of commercial ~~loans~~loans.

(k) Non-redeemable preferred stock securities with readily determinable fair values are recorded at fair value. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income.

The change in fair value recognized in income on non-redeemable preferred stock securities for the three and ~~RMBS.~~nine months ended September 30, 2020 was a gain of $0.1 million and $0.2 million, respectively.

(l) Bond exchange-traded funds with readily determinable fair values are recorded at fair value. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income.

The change in fair value recognized in income on bond exchange-traded funds for the three and nine months ended September 30, 2020 was $0.0 million.

6. Fair Value Measurements

The Company has established a framework for valuing financial assets and financial liabilities. The framework is based on a hierarchy of inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the hierarchy:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available.

~~As of June 30, 2019 and December 31, 2018, the Company does not hold any~~The Company’s Level 1 ~~securities.~~assets include bond exchange-traded funds.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, nonbinding quotes in markets that are not active for identical or similar assets and other market observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).

The Company’s Level 2 assets include U.S. Treasury securities, government agency securities, municipal debt obligations, RMBS, CMBS, CLO, ABS, ~~and~~ corporate debt securities, and non-redeemable preferred stock securities.

The Company generally obtains valuations from third-party pricing services and/or security dealers for identical or comparable assets or liabilities by obtaining nonbinding broker quotes (when pricing service information is not available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third-party market participant would be willing to pay in an arm’s-length transaction.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Level 3 – Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market participants would use in pricing the asset or liability.

The Company’s Level 3 assets include its investments in certain corporate debt securities, certain non-redeemable preferred stock securities and commercial levered loans as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level of trades of such investments. Commercial levered loans are also not considered within the Level 3 tabular disclosure, because they are in the “held for investment” category and are also not measured at fair value on a recurring basis.

The corporate debt securities and non-redeemable preferred stock securities classified under Level 3 in the fair value hierarchy are either provided to the Company by an independent valuation service provider ~~which use both~~or calculated by the Company. For certain securities, the Company uses observable ~~and unobservable~~ inputs such as readily available indices as well as change in ~~the calculation of fair value.~~estimated fund returns provided by third party investment managers. Unobservable inputs, significant to the measurement and valuation of the corporate debt securities are assumptions about prepayment speed, default rates and ~~reinvestment parameters.~~recovery rates. Significant changes to any of these inputs, or combination of inputs, could significantly change the fair value measurement for these securities when using the income approach.

~~Table of Contents~~

~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

The primary pricing sources for the Company’s investments in commercial levered loans are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on nonbinding quotes from brokers or other market makers.

The following are the major categories of assets measured at fair value on a recurring basis at ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):


	June 30, 2019
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs

									September 30, 2020
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total		Level 1		Level 2		Level 3		Total
Fixed income securities:
Fixed maturity securities:
U.S. Treasury securities	$	—	$	85,087	$	—	$	85,087	$	—	$	31,513	$	—	$	31,513
Government agency securities		—		473		—		473		—		29,520		—		29,520
Corporate debt securities		—		1,188,347		128,018		1,316,365		—		1,196,059		185,919		1,381,978
Municipal debt obligations		—		8,491		—		8,491		—		185,918		—		185,918
ABS		—		87,554		—		87,554		—		53,547		—		53,547
CLO		—		172,141		—		172,141		—		171,170		—		171,170
CMBS		—		66,561		—		66,561		—		119,725		—		119,725
RMBS - non agency		—		77,148		—		77,148		—		117,935		—		117,935
RMBS - agency		—		70,169		—		70,169		—		168,887		—		168,887
Total fixed income securities	$	—	$	1,755,971	$	128,018		1,883,989

Total fixed maturity securities										—		2,074,274		185,919		2,260,193
Non-redeemable preferred stock securities										—		10,513		1,400		11,913
Bond exchange-traded funds										12,838		—		—		12,838
Total categorized									$	12,838	$	2,084,787	$	187,319	$	2,284,944

Investments measured at net asset value:
Limited partnerships and limited liability companies								62,351								84,608
Total assets at fair value							$	1,946,340
Total of invested assets carried at fair value															$	2,369,552

December 31, 2018

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Inputs

($ in thousands)

(Level 1)

(Level 2)

(Level 3)

Total
Fixed income securities:

U.S. Treasury securities

$
—

$
90,328

$
—

$
90,328
Corporate debt securities

—

1,065,933

126,497

1,192,430
Municipal debt obligations

—

6,085

—

6,085
ABS

—

83,581

—

83,581
CLO

—

156,913

—

156,913
CMBS

—

53,843

—

53,843
RMBS - non agency

—

79,551

—

79,551
RMBS - agency

—

30,651

—

30,651
Total fixed income securities

$
—

$
1,566,885

$
126,497

1,693,382

Investments measured at net asset value:








Limited partnerships and limited liability companies





53,432
Total assets at fair value





$
1,746,814

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)


	December 31, 2019
($ in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities:
U.S. Treasury securities	$	—	$	49,985	$	—	$	49,985
Government agency securities		—		6,531		—		6,531
Corporate debt securities		—		1,189,181		149,631		1,338,812
Municipal debt obligations		—		79,815		—		79,815
ABS		—		73,582		—		73,582
CLO		—		179,549		—		179,549
CMBS		—		97,526		—		97,526
RMBS - non agency		—		71,610		—		71,610
RMBS - agency		—		143,272		—		143,272
Total categorized	$	—	$	1,891,051	$	149,631	$	2,040,682

Investments measured at net asset value:
Limited partnerships and limited liability companies								66,660
Total of invested assets carried at fair value							$	2,107,342

~~There were no transfers between Levels 1 and 2 for the six months ended June 30, 2019 and the year ended December 31, 2018.~~

~~In 2018, securities in the amount of $126.5 million were transferred from Level 2 into Level 3 as it was determined that these securities trade in inactive markets.~~

~~Management believes that the use of the fair value option as specified in Accounting Standards Codification No. 825, Financial Instruments~~ ~~(ASC 825)~~to record limited partnerships and limited liability companies is consistent with its objective for such investments. As such, the entire limited partnership portfolio of $62.4 million and $53.4 million as of June 30, 2019 and December 31, 2018, respectively and was recorded using net asset value, which the Company has determined to be the best indicator of fair value for these investments.

The following tables disclose the carrying value and fair value of financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	June 30, 2019
	Carrying		Fair Value

											September 30, 2020
											Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3		Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	16,549	$	16,168	$	—	$	—	$	16,168	$	13,433	$	12,991	$	—	$	—	$	12,991


Liabilities
Notes payable		182,993		185,979		—		185,979		—	$	200,000	$	200,888	$	—	$	200,888	$	—
Unamortized debt issuance costs		(476)										(53)
Total notes payable	$	182,517
Notes payable, net of debt issuance costs											$	199,947

Secured loan payable											$	24,243	$	24,502	$	—	$	24,502	$	—
Unamortized debt issuance costs												—
Secured loan payable, net of issuance costs											$	24,243


	December 31, 2018
	Carrying		Fair Value

											December 31, 2019
											Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3		Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	16,915	$	15,858	$	—	$	—	$	15,858	$	14,069	$	13,950	$	—	$	—	$	13,950


Liabilities
Notes payable		183,000		183,999		—		183,999		—	$	165,000	$	167,507	$	—	$	167,507	$	—
Unamortized debt issuance costs		(645)										(307)
Total notes payable	$	182,355
Notes payable, net of debt issuance costs											$	164,693

The fair value of the notes payable at ~~June~~September 30, ~~2019,~~2020, approximated a price equal to ~~$186.0~~$200.9 million or ~~101.6%~~100.4% of the par value. The fair value of the secured loan payable at September 30, 2020, approximated a price equal to $24.5 million or 101.1% of the par value. The fair value of the notes payable at December 31, ~~2018,~~2019, approximated a price equal to ~~$184.0~~$167.5 million or ~~100.5%~~101.5% of the par value.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The following tables provides a summary of the changes in the fair value of securities measured using Level 3 inputs during the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Level 3
	Corporate

					Non-Redeemable
			Corporate Debt		Preferred Stock		Level 3
($ in thousands)	Securities		Securities		Securities		Total
Fair value, December 31, 2018	$	126,497
Total net gains (losses) for the period included in:
Other comprehensive income		921
Fair value, December 31, 2019			$	149,631	$	—	$	149,631
Total net losses for the period included in:
Other comprehensive loss				(355)		—		(355)
Net realized loss		(71)		(4)		—		(4)
Purchases		3,516		39,364		1,400		40,764
Sales		—		—		—		—
Issuances		—		—		—		—
Settlements		(2,845)		(2,717)		—		(2,717)
Transfers into Level 3		—		—		—		—
Transfers out of Level 3		—		—		—		—
Fair value, June 30, 2019	$	128,018
Fair value, September 30, 2020			$	185,919	$	1,400	$	187,319

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)




($ in thousands)	Gross		Tax		Net		Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed income securities		64,633		13,447		51,186
December 31, 2019							$	46,123	$	8,670	$	37,453
Unrealized holding gains on fixed maturity securities								47,257		9,939		37,318
Amounts reclassified into net income		(25)		(52)		27		6,151		1,090		5,061
Amounts reclassified as credit losses								(1,670)		(351)		(1,319)
Other comprehensive income		64,658		13,499		51,159		42,776		9,200		33,576
June 30, 2019	$	34,898	$	6,054	$	28,844
September 30, 2020							$	88,899	$	17,870	$	71,029

($ in thousands)

Gross

Tax

Net
December 31, 2017

$
22,265

$
2,968

$
19,297
Unrealized holding losses on fixed income securities

(40,031)

(8,425)

(31,606)
Amounts reclassified into net income

974

(109)

1,083
Other comprehensive loss

(41,005)

(8,316)

(32,689)
June 30, 2018

$
(18,740)

$
(5,348)

$
(13,392)


($ in thousands)	Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed maturity securities		76,576		16,098		60,478
Amounts reclassified into net income		4,337		104		4,233
Other comprehensive income		72,239		15,994		56,245
September 30, 2019	$	42,479	$	8,549	$	33,930

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

award agreements. Additionally, the Company cancelled 137,987 shares of common stock in July 2019, with no consideration as per the terms of the Separation Agreement.

On January 23, 2020, the Company and the former CEO entered into an amendment to the Separation Agreement, which, among other things, provides that effective as of February 1, 2020, the former CEO resigned from his position as Executive Chairman of the Company.

Additionally, the Company entered into a niche management agreement with an independent agency founded by the former CEO. The Company recorded an expense of $0.2 million for the three and nine months ended September 30, 2020.

9. Insurance Operations

Total reinsurance ceded and assumed relating to written premiums, ~~written,~~ earned premiums and ~~net~~ losses and loss adjustment expenses incurred, are as follows:


	Three Months Ended June 30				Six Months Ended June 30

									Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Written premiums
Direct written premiums	$	234,306	$	221,116	$	489,291	$	468,205	$	202,972	$	226,209	$	601,645	$	715,500
Assumed from other companies		726		1,439		1,579		3,770		567		987		2,072		2,566
Ceded to other companies		24,464		9,520		70,400		(2,412)		44,135		17,722		97,507		88,122
Net written premiums	$	210,568	$	213,035	$	420,470	$	474,387	$	159,404	$	209,474	$	506,210	$	629,944


Earned premiums
Direct earned premiums	$	231,088	$	212,835	$	454,090	$	411,736	$	205,877	$	229,816	$	640,485	$	683,906
Assumed from other companies		932		2,294		1,874		7,164		743		920		2,182		2,794
Ceded to other companies		29,540		32,006		57,876		68,321		34,244		28,281		83,000		86,157
Net earned premiums	$	202,480	$	183,123	$	398,088	$	350,579	$	172,376	$	202,455	$	559,667	$	600,543
Percent of amount assumed to net		0.5%		1.3%		0.5%		2.0%		0.4%		0.5%		0.4%		0.5%


Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	166,696	$	135,069	$	302,044	$	255,453	$	153,352	$	129,991	$	418,409	$	403,899
Assumed from other companies		(26,023)		(5,669)		(23,204)		(6,678)		3,086		1,230		3,713		6,162
Ceded to other companies		13,558		19,467		33,392		36,988		33,189		4,025		58,843		37,417
Net losses and loss adjustment expenses incurred	$	127,115	$	109,933	$	245,448	$	211,787	$	123,249	$	127,196	$	363,279	$	372,644

Three Months Ended June 30
($ in thousands)

2019

2018
Ceded written premium (return of ceded prepaid)

$
—

$
(18,831)
Ceded earned premium

—

1,368
(Increase) reduction to net loss and loss adjustment expenses incurred

(2,255)

642
Reduction to policy acquisition expenses

2,255

624
Reduction to pre-tax income

$
-

$
102

Six Months Ended June 30
($ in thousands)

2019

2018
Ceded written premium (return of ceded prepaid)

$
(3)

$
(68,800)
Ceded earned premium

(3)

14,544
(Increase) reduction to net loss and loss adjustment expenses incurred

(2,207)

8,548
Reduction to policy acquisition expenses

2,205

4,906
(Increase) reduction to pre-tax income

$
(1)

$
1,090

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Allowances for Credit Losses

The following table is rollforward of the receivable allowance balances related to the risk of credit default as of September 30, 2020:


($ in thousands)
Nine Months Ended September 30, 2020	December 31, 2019		Current Provision		Write-offs		Recoveries		September 30, 2020
Premium receivable	$	5,056	$	3,002	$	(412)		—	$	7,646
Reinsurance receivable on paid and unpaid losses		505		201		—		—		706
Total receivable allowance	$	5,561	$	3,203	$	(412)		—	$	8,352

The allowance for credit loss for premium receivable is an assessment of ultimate non-collectability based on historical experience applicable to the respective current collection action status, age of the amount outstanding and expected collection costs.

The majority of the allowance relates to audit premium on workers’ compensation coverages assessed during or after the period of coverage whereby there is limited ability to cancel or limit coverage. In the final collection action at the insured level, collection agencies are typically engaged. The amount with collection agencies as of September 30, 2020 was $6.3 million.

The reinsurance receivable allowance for credit loss is based on sources of credit ratings of reinsurers and applies probabilities of default and loss given default to the total uncollateralized exposure including incurred but not reported (“IBNR”) by rating class. The amount of uncollateralized exposure on unrated or counterparties rated below investment grade at September 30, 2020 is $5.5 million. At September 30, 2020, 95.6% of uncollateralized exposures are rated above investment grade.

Distribution Partners

The three distribution partners contributing the largest amounts of direct written premium (excluding the former distribution partner) totaled $60.9 million and $75.4 million for the three months ended September 30, 2020 and 2019, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the former distribution partner) totaled $207.8 million and $208.4 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company negotiates with distribution partners to write direct premium on behalf of the Company’s affiliates. In January 2019, a distribution partner of the Company was acquired by a third-party insurance carrier. ~~In 2018, the Company has sourced 13.5% of direct premium from this distribution partner.~~ The Company does not anticipate any future premiums from this distribution partner other than audit premiums after the first quarter of 2019. ~~The three distribution partners contributing the largest amounts~~

Table of ~~direct written premium (excluding the distribution partner above) totaled $80.4 million~~Contents

ProSight Global, Inc. and $72.5 million for the three months ended June 30, 2019 and 2018, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $133.3 million and $131.9 million for the six months ended June 30, 2019 and 2018, respectively.Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for ~~incurred but not reported (IBNR)~~IBNR losses and loss adjustment expenses. The following table provides a roll forward of the Company’s reserve for unpaid losses and loss adjustment expenses:


	June 30

					September 30
($ in thousands)	2019		2018		2020		2019
Gross unpaid losses and loss expenses, at beginning of year	$	1,396,812	$	1,258,237
Ceded unpaid losses and loss expenses, at beginning of year		185,295		201,156
Net reserve for losses and loss expenses, at beginning of year		1,211,517		1,057,081
Gross reserve for unpaid losses and loss expenses, at beginning of year					$	1,521,648	$	1,396,812
Ceded reserve for unpaid losses and loss expenses, at beginning of year						193,952		185,295
Net reserve for unpaid losses and loss expenses, at beginning of year						1,327,696		1,211,517
Add:
Incurred losses and loss expenses occurring in the:
Current year		238,634		214,392		347,955		356,926
Prior years		(3,128)		(2,605)		560		2,367
Prior years attributable to adjusted premium		9,942		-		14,764		13,351
Total incurred losses and loss expenses		245,448		211,787
Total net losses and loss adjustment expenses incurred						363,279		372,644
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		18,725		17,179		32,014		39,742
Prior years		164,601		127,696		228,655		243,172
Total paid losses and loss expenses for claims		183,326		144,875		260,669		282,914
Net reserves for losses and loss expenses, at end of period		1,273,639		1,123,993
Ceded unpaid losses and loss expenses, at end of period		210,021		202,928
Gross unpaid losses and loss expenses, at end of period	$	1,483,660	$	1,326,921
Net reserve for unpaid losses and loss expenses, at end of period						1,430,306		1,301,247
Ceded reserve for unpaid losses and loss expenses, at end of period						158,856		213,977
Gross reserve for unpaid losses and loss expenses, at end of period					$	1,589,162	$	1,515,224

During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company’s reserve for unpaid losses and loss adjustment expenses for accident years 2019 and prior developed unfavorably by $0.6 million driven by $23.2 million unfavorable development in General Liability and $10.2 million unfavorable development in Commercial Multiple Peril offset by $24.8 million favorable development in Workers’ Compensation, $1.0 million favorable development in Commercial Auto and $7.0 million favorable development in All Other lines. In addition, the Company incurred $14.8 million of losses and loss adjustment expenses related to premium adjustments earned during the nine months ended September 30, 2020 attributable to prior accident years 2019 and 2018.

The unfavorable development in General Liability and Commercial Multiple Peril related to 2013 through 2017 accident years due largely to increased severities in runoff components. The favorable development in Workers’ Compensation derived from lower than expected claims severity across all customer segments primarily in accident years 2015 through 2018. The favorable development in Commercial Auto was derived by physical damage and liability property damage in accident year 2019.

During the nine months ended September 30, 2019, the Company’s estimated losses and loss expenses for accident years 2018 and prior developed ~~favorably~~unfavorably by ~~$3.1~~$2.4 million driven by ~~$14.5~~$23.2 million unfavorable development in General Liability lines partially offset by $18.7 million favorable development in Workers’ Compensation lines and ~~$6.7~~$2.7 million of favorable development in ~~Auto Liability~~Surety lines. ~~The favorable experience was partially offset by $13.2 million in unfavorable development in General Liability lines and $4.6 million unfavorable development in Marine Liability lines within~~In addition, the ~~All Other Lines category. The~~ Company incurred ~~$9.9~~$13.4 million of losses and loss adjustment expenses on earned premium attributable to prior accident years during the ~~six~~nine months ended ~~June~~September 30, 2019. During the six months ended June 30, 2018, the Company’s estimated losses and loss expenses for accident years 2017 and prior developed favorably by $2.6 million driven by $7.2 million of favorable development in Workers’ Compensation, $7.8 million of favorable development in Commercial Auto lines and $2.1 million of favorable development in Marine Liability lines within the All Other Lines category, partially offset by $8.3 million of unfavorable development in General Liability lines and $6.1 million of unfavorable development in Commercial Multiple Peril lines.

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

10. Income Taxes

The Company ~~and its respective U.S. subsidiaries are~~is subject to the tax laws and regulations of the United States and various state jurisdictions. The Company files a consolidated federal tax ~~return that includes all domestic subsidiaries.~~

return.

The Company has one non-U.S. subsidiary, ~~PSBL,~~ProSight Specialty Bermuda Limited (“PSBL”), which has received an undertaking from the Minister of Finance in Bermuda that would exempt itsuch company from Bermudian taxation until March 2035.

In 2019, PSBL became a direct subsidiary of the Company and is subject to U.S. tax on its income.

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate primarily as a result of ~~applying the Bermuda statutory tax rate of 0% to Bermuda income before taxes, tax-exempt investment income~~non-deductible expenses and ~~any~~ discrete items recognized during the period. The Company’s effective tax rates were ~~21.8%~~21.6% and ~~20.3%~~19.4% for the three ~~and six~~ months ended ~~June~~September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in the effective tax rate infor the three ~~and six~~ months ended ~~June~~September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 was primarily due to ~~prior year adjustments recorded~~the tax effect of share-based compensation. The Company’s effective tax rates were 21.8% and 21.2% for the nine months ended September 30, 2020 and 2019, respectively. The increase in the effective tax rate for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to the tax effect of ~~2018 related to state income taxes.~~

~~11. Debt~~share-based compensation.

On March ~~15, 2019,~~27, 2020, the ~~Company entered~~President of the United States signed into ~~an amended~~law the Coronavirus Aid, Relief, and ~~restated revolving loan agreement (as amended, the revolving facility),~~Economic Security Act (the “CARES Act”). The CARES Act, among other things, ~~(a) extended~~includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the ~~maturity date~~Company’s current tax provision.

11. Segment Information

The Company has one reportable segment, Specialty Insurance, which primarily offers property and casualty insurance products through its customers segments that include Construction, Consumer Services, Marine and Energy, Media and Entertainment, Professional Services, Real Estate, Sports, and Transportation. The primary criteria to determine the ~~earlier of (i) March 15, 2022, or (ii) 91 days before~~Company’s reportable segment is based on the ~~maturity of~~fact that the Company’s senior ~~notes due November 2020 or, if such senior notes are amended or replaced, 91 days before the maturity of such amendment or replacement~~management reviews, assesses and ~~(b) increased the aggregate principal amount of $25.0 million to $50.0 million.~~

~~12. Segment Information~~allocates resources both on a financial and personnel basis on an entity-wide level.

The following table provides a summary of the Company’s gross written ~~premium~~premiums by customer segments within our Specialty Insurance ~~reportable~~ segment. ~~Gross~~“Other” includes gross written premiums ~~included in “Other” consist of~~from; (i) primary and excess workers’ compensation coverage for exited Self-Insured Groups, (ii) niches exited prior to 2018, many with a concentration in commercial auto, (iii) certain 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.~~business.


	Three Months Ended June 30						Six Months Ended June 30

													Three Months Ended September 30								Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018			2020				2019				2020				2019
Customer Segment
Construction	$	32,495	13.8%	$	26,575	11.9%	$	55,743	11.4%	$	49,528	10.5%	$	27,405	13.5	%	$	27,296	12.0	%	$	79,623	13.2	%	$	83,039	11.6	%
Consumer Services		37,893	16.1%		28,387	12.8%		65,378	13.3%		50,294	10.6%		23,712	11.7			35,502	15.6			95,010	15.7			100,880	14.0
Marine and Energy		20,845	8.9%		18,884	8.5%		36,779	7.5%		34,146	7.2%		27,677	13.6			26,064	11.5			87,288	14.5			71,509	10.0
Media and Entertainment		39,300	16.7%		37,977	17.1%		76,842	15.7%		78,231	16.6%		17,334	8.5			28,702	12.6			65,255	10.8			90,796	12.6
Professional Services		29,104	12.4%		27,939	12.5%		58,666	11.9%		57,504	12.2%		34,740	17.1			27,015	11.9			96,329	16.0			85,681	11.9
Real Estate		46,614	19.9%		44,072	19.8%		75,349	15.3%		72,030	15.3%		34,866	17.1			41,566	18.3			115,354	19.1			116,915	16.3
Sports														5,383	2.6			8,086	3.6			19,636	3.2			22,834	3.2
Transportation		23,499	10.0%		23,448	10.5%		57,514	11.7%		50,362	10.7%		30,802	15.1			29,621	13.0			39,929	6.6			79,363	11.1
Customer Segment subtotal		229,750	97.8%		207,282	93.1%		426,271	86.8%		392,095	83.1%
Customer segment subtotal														201,919	99.2			223,852	98.5			598,424	99.1			651,017	90.7
Other		5,282	2.2%		15,273	6.9%		64,599	13.2%		79,880	16.9%		1,620	0.8			3,344	1.5			5,293	0.9			67,049	9.3
Specialty Insurance total	$	235,032		$	222,555		$	490,870		$	471,975		$	203,539	100.0	%	$	227,196	100.0	%	$	603,717	100.0	%	$	718,066	100.0	%

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The following table provides a summary of the Company’s gross written ~~premium~~premiums by line of business within our Specialty Insurance segment:


	Three Months Ended June 30						Six Months Ended June 30

													Three Months Ended September 30								Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018			2020				2019				2020				2019
Line of Business
Commercial Auto	$	54,296	23.1%	$	34,451	15.5%	$	96,080	19.6%	$	72,702	15.4%	$	56,355	27.7	%	$	52,693	23.2	%	$	117,335	19.4	%	$	148,773	20.7	%
General Liability		83,156	35.4%		81,585	36.7%		154,451	31.5%		145,630	30.9%		80,594	39.6			84,932	37.4			241,003	39.9			239,383	33.4
Workers’ Compensation		34,921	14.9%		45,278	20.3%		124,983	25.4%		144,048	30.5%		9,710	4.8			27,242	12.0			58,951	9.8			152,225	21.1
Commercial Multiple Peril		17,040	7.2%		18,812	8.4%		36,674	7.5%		34,072	7.2%		14,533	7.1			16,276	7.1			41,826	6.9			52,950	7.4
All Other Lines		45,619	19.4%		42,429	19.1%		78,682	16.0%		75,523	16.0%		42,347	20.8			46,053	20.3			144,602	24.0			124,735	17.4
Specialty Insurance total	$	235,032		$	222,555		$	490,870		$	471,975		$	203,539	100.0	%	$	227,196	100.0	%	$	603,717	100.0	%	$	718,066	100.0	%

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

12. Earnings per Share

The following table provides a reconciliation of the numerators and denominators of basic and diluted earnings per share ~~(EPS) based on restated shares:~~(“EPS”):


	Continuing Operations						Discontinued Operations
($ in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended June 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

											Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)											Income		Shares	Per Share		Income		Shares	Per Share
Three Months Ended September 30, 2020											(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	8,696	38,851	$	0.22	$	(78)	38,851	$	—
Net income available to common stockholders											$	1,498	43,916	$	0.03	$	20	43,916	$	—
Effect of dilutive securities:
Stock compensation plans			604		—			604		—			102					102
Diluted EPS	$	8,696	39,455	$	0.22	$	(78)	39,455	$	—	$	1,498	44,018	$	0.03	$	20	44,018	$	—


	Continuing Operations						Discontinued Operations
($ in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended June 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

											Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)											Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2019											(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	14,652	38,743	$	0.38	$	(198)	38,743	$	(0.01)	$	8,361	42,642	$	0.20	$	(49)	42,642	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			698		0.01			698		—			418					418
Diluted EPS	$	14,652	39,441	$	0.37	$	(198)	39,441	$	(0.01)	$	8,361	43,060	$	0.19	$	(49)	43,060	$	—

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan, including shares underlying RSUs granted under the Company’s Amended and Restated 2010 Equity Incentive Plan.

The following table summarizes the stock-based compensation transactions for the 2019 Plan for the nine months ended September 30, 2020:


	Number of	Weighted Average Grant Date
	Shares	Fair Value Per Share

Unvested at December 31, 2019	1,289,396	$	14.00
Granted	587,612	$	12.32
Vested	(134,001)	$	9.96
Forfeited	(27,253)	$	13.57
Unvested at September 30, 2020	1,715,754	$	13.48

As of September 30, 2020, The Company had approximately $14.0 million of total unrecognized stock-based compensation expense expected to be recognized over a weighted-average period of 1.9 years.

14. Debt

Recent Financing Transactions

Termination of the Prior Credit Agreement

The Company, as borrower, was a party to a revolving loan agreement (the “Prior Credit Agreement”) dated January 29, 2018 and amended on March 15, 2019, for $50.0 million which was scheduled to mature on the earlier of (i) March 15, 2022, or (ii) 91 days before maturity of the Company’s 7.5% Senior Unsecured Notes due November 2020 and the Company’s 6.5% Senior Unsecured Notes due November 2020 (collectively, the “Notes”) or, if the Notes are amended or replaced, 91 days before the maturity of such amendment or replacement. The Company exercised its termination rights under the Prior Credit Agreement on June 12, 2020. There were no borrowings under the Prior Credit Agreement on the date of termination.

Credit Agreement

On June 12, 2020 (the “Effective Date”), the Company entered into a credit agreement (the “Credit Agreement”) with third-party lenders and an administrative agent. The Credit Agreement, which matures on June 11, 2023 (the “Maturity Date”), provides for (i) a delayed draw term loan facility in the aggregate principal amount of up to $165.0 million (the “Term Loan Facility”), and (ii) an uncommitted revolving credit facility of up to $35.0 million (the “Revolving Credit Facility”), for which commitments had not been obtained as of the closing date.

Interest on borrowings under the Term Loan Facility and the Revolving Credit Facility are calculated at each drawdown date based on variable rates described in the Credit Agreement.

Issuance costs of $4.8 million related to the Credit Agreement were incurred and are amortized over the life of the loan.

Continuing Operations

Discontinued Operations
($ in thousands, except per share amounts)

Income

Shares

Per Share

Income

Shares

Per Share
Six Months Ended June 30, 2018

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount
Basic EPS:

Net income available to common stockholders

$
24,662

38,743

$
0.64

$
587

38,743

$
0.02
Effect of dilutive securities:

Stock compensation plans

698

0.01

698

0.01
Diluted EPS

$
24,662

39,441

$
0.63

$
587

39,441

$
0.01

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Incremental Facility Agreement

On June 30, 2020, the Company entered into an Incremental Facility Agreement and Amendment (the “Agreement”), in the aggregate amount of $65.0 million, subject to the terms of the Credit Agreement. The Agreement had lenders commit to the previously uncommitted Revolving Credit Facility, and increased the available amount from the $35.0 million noted above to an aggregate of $65.0 million.

On July 14, 2020, the Company drew down $5.0 million on the Revolving Credit Facility and on August 3, 2020, the Company drew down an additional $30.0 million, primarily to make capital contributions to its insurance subsidiaries.

Secured Loan Payable

In June 2020, the Company entered into a $24.9 million lease transaction that for accounting purposes is treated as a loan secured by a portion of the Company’s fixed assets and capitalized software, payable at 4.83% interest with a maturity date of July 1, 2025 and providing for monthly interest and principal payments.

15. Commitments and Contingencies

Leases

The Company determines if an arrangement is a lease on the commencement date of the contract. The right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The right-of-use assets and lease liabilities are measured by the present value of the future minimum lease payments over the lease term. The Company uses the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate. The right-of-use asset is then adjusted to exclude lease incentives. Certain leases may contain rental escalation, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. Variable lease payment amounts that cannot be determined at the commencement of the lease are not included in the right-to-use assets or lease liabilities. Leases covering a period of fewer than 12 months are not recorded on the Company’s consolidated balance sheets. Rent expense is calculated using the straight-line method.

The Company leases certain facilities and equipment under non-cancelable lease agreements that expire at various dates through 2025, which are generally renewed or replaced by similar leases. The lease agreements do not contain any material restrictive covenants, do not contain any conditions of residual value guarantees and are substantially all considered to be operating leases. The Company’s leases relate to office facilities in New Jersey, California, Florida, Georgia and the U.K. The weighted average lease term was 2.7 years and the weighted average discount rate was 2.0%.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Rent expense for the three and nine months ended September 30, 2020 was $0.7 million and $2.3 million. The following table presents the Company’s lease liabilities and right-of-use assets related to operating leases as of September 30, 2020:


($ in thousands)	September 30, 2020
One year or less	$	3,003
More than one year to two years		902
More than two years to three years		—
More than three years to four years		—
More than four years to five years		—
More than five years		—
Total undiscounted future minimum lease payments		3,905
Less: difference between lease payments and discounted lease liabilities		56
Lease liabilities	$	3,849

Right-of-use assets	$	3,454
Prepaid lease assets, net of lease allowances and incentives		395
Total	$	3,849

The right-of-use assets are reported as a component of other assets and the lease liabilities are reported as a component of other liabilities on the Company’s consolidated balance sheets.

~~14.~~16. Legal Proceedings

In the normal course of business, the Company’s insurance subsidiaries are subject to disputes, including litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.

~~15. Subsequent Events~~

~~Initial Public Offering~~

On July 29, 2019, the Company completed the IPO with the sale of 7,857,145 shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (collectively, the GS Investors) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively the TPG Investors and together with the GS Investors, the Principal Stockholders) of 3,571,430 shares of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company from the IPO were approximately $51.6 million. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO. Following the IPO, the GS Investors continue to hold approximately 40.9% of the Company’s outstanding common stock and the TPG Investors continue to hold approximately 39.4% of the Company’s outstanding common stock.

~~2019 Equity Incentive Plan~~

~~In connection with, and prior to the completion of the IPO, PGHL’s Amended and Restated 2010 Equity Incentive Plan (the 2010 Plan) was terminated. Immediately prior to the merger, all outstanding~~ ~~P Shares granted under the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan converted into RSUs based on the shares of common stock of the Company~~.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the 2019 Plan) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance shares, and units and other cash‑based or share‑based awards.

The 2019 Plan is administered by the compensation committee of the Company’s board of directors. Subject to the provisions of the 2019 Plan, the compensation committee determines in its discretion the persons to whom and the times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee charter) and the terms and conditions of awards.

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~~ProSight Global, Inc.~~

~~Notes to Interim Consolidated Financial Statements (Unaudited)~~

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan, including shares underlying RSUs granted under the 2010 Plan, which converted into the Company’s common stock, effective July 25, 2019, as a result of the merger.

~~The following is a summary of the post-offering compensation included in the 2019 Plan, including the number of common stock reserved to each award mentioned below:~~

~~(i)~~

183,095 annual long-term incentive awards in respect of 2019, 50% of which are time-vesting RSUs and 50% of which are performance-vesting RSUs, granted to management in connection with the IPO. The fair value of such awards is $2.6 million at grant date.

~~(ii)~~

1,302,198 supplemental RSU awards, 100% of which are time-vesting RSUs, granted to management in connection with the IPO and subject to vesting as follows: 25% vested at grant date, 25% will vest on the second anniversary of the grant date, subject to continued service, and 50% will vest on the third anniversary of the grant date, subject to continued service. The fair value of the supplemental RSUs is $18.2 million.

~~(iii)~~

~~250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant date. These awards will cliff vest on the third anniversary of the grant date.~~

~~(iv)~~

26,399 non-employee director RSU awards with a fair value of $0.4 million at grant date (other than RSUs granted to non-employee directors designated by the Company’s principal stockholders, if any, which will be determined by the Board of Directors. These awards are fully vested on grant date.

~~(v)~~

~~668,135 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the Company’s common stock upon the consummation of the merger.~~

~~2019 Employee Stock Purchase Plan~~

On July 24, 2019, the Company’s 2019 Employee Stock Purchase Plan (the 2019 ESPP) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. A ~~total of 1,000,000 shares of the Company’s common stock will be reserved and available for sale under the 2019 ESPP.~~

~~The compensation committee of the board of directors administers the 2019 ESPP and have full authority to interpret the terms of the 2019 ESPP.~~

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), and in conjunction with our audited consolidated financial statements and the notes thereto included in ~~the final prospectus~~our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on ~~July 25, 2019~~February 24, 2020, as amended by Amendment No. 1 to Form 10-K filed with the SEC on March 10, 2020 (the ~~“Prospectus”~~“2019 Annual Report”).

Certain restatements have been made to historical information to give effect to the merger and related transactions. SeeNote 11. – Basis of Reporting in the notes to the ~~condensed~~ consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

References to the "Company," "ProSight," "we," "us," and "our" are to ProSight Global, Inc. and its consolidated subsidiaries unless the context otherwise requires. References to “insurance subsidiaries” are to New York Marine and General Insurance Company (“New York Marine”), Gotham Insurance Company (“Gotham”) and Southwest Marine and General Insurance Company (“Southwest Marine”) unless the context otherwise requires.

~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~Special Note Regarding Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain forward-looking statements that are subject to risks, uncertainties and other factors described in “Risk Factors” in this Quarterly Report. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “should,” “seek,” and other words and terms of similar meaning. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

●

our strategies to continue our growth trajectory, expand our distribution network and maintain underwriting profitability;

●

the impact of coronavirus disease 2019 (“COVID-19”) and related economic conditions and governmental actions, including the Company's assessment of the vulnerability of certain categories of investments to the economic disruptions associated with COVID-19;

●

future growth in existing niches or by entering into new niches;

●

our loss expectations and expectation to decrease our loss ratio; and

●

our expectations with respect to the ultimate financial obligations to the buyers of our United Kingdom (“U.K.”) operations.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include:

●

the performance of and our relationship with third-party agents and vendors we rely upon to distribute certain business on our behalf;

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●

the adequacy of our loss ~~reserves;~~

reserves, including as a result of changes in the legal, regulatory, and economic environments in which the Company operates or the impacts of COVID-19;

●

the direct and indirect impacts of COVID-19 and related risks such as governmental responses and economic contraction, including on the Company’s investments and business operations, its distribution or other key partners and its customers;

●

the effects of uncertain emerging claim and coverage issues on the Company’s business, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as effectively expanding workers’ compensation coverage by instituting presumptions of compensability of claims for certain types of workers or requiring insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage);

●

the effectiveness of our risk management policies and procedures;

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●

potential technology breaches or failure of our or our business partners’ systems;

●

adverse changes in the economy which could lower the demand for our insurance products;

●

our ability to effectively start up or integrate new product opportunities;

●

cyclical changes in the insurance industry;

●

the effects of natural and man-made catastrophic events;

●

our ability to adequately assess risks and estimate losses;

●

the availability and affordability of reinsurance;

●

changes in interest rates, government monetary policies, general economic conditions, liquidity and overall market conditions;

●

changes in the business, financial condition or results of operations of the entities in which we invest;

●

increased costs as a result of operating as a public company, and time our management will be required to devote to new compliance initiatives;

●

our ability to protect intellectual property rights;

●

the impact of government regulation, including the impact of restrictions on our business activities under the ~~BHC~~Bank Holding Company (“BHC”) Act;

●

our status as an emerging growth company;

●

the absence of a previous public market for shares of our common stock; and

●

potential conflicts of interests with our principal stockholders.

We discuss many of these risks in greater detail under the section titled Item 1A. “Risk Factors” in ~~our prospectus filed with~~ the ~~Securities and Exchange Commission pursuant to Rule 424(b) and the Securities Act of 1933, as amended, on July 25, 2019.~~Company’s 2019 Annual Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview

We are an entrepreneurial specialty insurance company that since our founding in 2009 has built products, services and solutions with the goal of significantly improving the experience and value proposition for our customers. We write property and casualty insurance with a focus on underwriting specialty risks by partnering with a select number of distributors, often on an exclusive basis. We ~~have a diverse business mix covering specialty niches within the seven~~currently write insurance coverage in eight customer segments ~~in which we operate.~~across a broad range of specialty lines of business. Our customer segments currently include: Media and Entertainment, Real Estate, Professional Services, Transportation, Construction, Consumer Services, ~~and~~ Marine and ~~Energy.~~Energy, and Sports. Within each customer segment, we have multiple niches which represent similar groups of customers. We believe having deep expertise in these niches across our organization is critical and therefore, we have aligned various functional areas at the niche level, including underwriting, operations and claims. We focus on small and medium-sized customers, a market segment which we believe has been, and will continue to be, less affected by intense competitive dynamics of the broader property and casualty insurance industry. Over time, the composition of business within our customer segments evolves as we identify certain niches that present opportunities to develop distinct customer solutions with attractive profit potential and others that were at one time attractive but may become less so. We are focused on delivering consistent underwriting profitability with low volatility of underwriting results. We market and distribute our insurance product offerings in all 50 states on both an admitted and non-admitted basis. ~~We are focused on delivering consistent underwriting profitability with low volatility of underwriting results.~~

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Components of Our Results of Operations

Gross ~~written~~Written and ~~earned premiums~~Earned Premiums

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

●

Expansion or retraction of business within existing niches;

●

Entrance into new customer segments or niches;

●

Exit from customer segments or niches;

●

Average size and premium rate of newly issued and renewed policies; and

●

The amount of policy endorsements, audit premiums, and cancellations.

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. Net earned premiums represent the earned portion of our GWP, less that portion of our GWP that is earned and ceded to third-party reinsurers under our reinsurance agreements.

Ceded ~~written~~Written and ~~earned premiums~~Earned Premiums

Ceded written premiums are the amount of GWP ceded to reinsurers. We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect our capital. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered and the underlying policies. The volume of our ceded written premiums is impacted by the level of our GWP and any decision we make to increase or decrease retention levels.

Net ~~investment income~~Investment Income

We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of ~~debt~~fixed maturity securities, and may also include cash and cash equivalents, short-term investments, non-redeemable preferred stock securities, bond exchange-traded funds, commercial levered loans, and ~~alternative investments.~~limited partnerships and limited liability companies. Neither our limited partnerships nor our limited liability companies are accounted for on a lag and thus reflect the current period fair value adjustments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost ~~(which~~

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(which excludes changes in fair value, such as changes in interest rates and credit spreads), the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims and operating expenses.

Realized ~~investment gains~~Investment Gains and ~~losses~~Losses

Realized investment gains and losses are a function of the difference between the amount received by us on the sale of a security and the security’s amortized cost, as well as any ~~“other-than-temporary” impairments~~change in current expected credit loss allowance for available-for-sale fixed maturity securities recognized in earnings.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses (“LAE”) are a function of the amount and type of insurance contracts we write, the loss experience associated with the underlying coverage, and the expenses incurred in the handling of the losses. In general, our losses and LAE are affected by:

●

Frequency of claims associated with the particular types of insurance contracts that we write;

●

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

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●

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 paid and estimated outstanding losses, including losses incurred during the period and changes in estimates from prior periods. Losses and LAE may be paid out over a number of ~~years~~years.

Within Losses and LAE, we report catastrophe losses separately. Catastrophe losses are unusual in nature and do not reflect upon the normal loss results of our underlying business. We define catastrophe losses as any one claim, or group of claims, with an accumulation of paid and estimated outstanding losses equal to or greater than $1.0 million related to a single, natural or man-made loss event as designated by Property Claims Services (“PCS”).

Underwriting, ~~acquisition~~Acquisition and ~~insurance expenses~~Insurance Expenses

Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our distribution partners and ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs that are directly related to the successful acquisition of those policies are deferred. The amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life. Other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs, telecommunication and technology costs, the costs of our leases, and legal and auditing fees.

Income ~~tax expense~~Tax Expense

Substantially all of our income tax expense relates to U.S. federal income taxes. Our insurance companies are generally not subject to income taxes in the states in which they operate; however, our non-insurance subsidiaries are subject to state income taxes. The amount of income tax expense or benefit recorded in future periods will depend on the

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jurisdictions in which we operate and the tax laws and regulations in effect. ~~Among other things, the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017, lowered the U.S. federal corporate tax rate from 35% to 21% starting January 1, 2018.~~ Our income tax expense for periods beginning in 2018 is based on the U.S. federal corporate income tax rate of 21%.

Key Metrics

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

Net income is the amount of profit or loss remaining after deducting all incurred expenses, including income taxes, from the total earned revenues for an accounting period.

Underwriting (loss) income is calculated by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums.

Adjusted operating income is net income excluding net realized investment gains and losses, expenses relating to various transactions that we consider to be unique and non-recurring in nature (net of estimated tax impact)~~, and excluding the income tax expense resulting from implementation of TCJA.~~.

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

Loss and LAE ratio, excluding catastrophe, is the ratio of losses and LAE, allocated and unallocated, excluding those losses categorized as catastrophe losses, to net earned premiums, net of the effects of reinsurance, excluding the impact of reinsurance premiums related to catastrophe losses.

Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net earned premiums.

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

Combined ratio, excluding catastrophe losses and related items, is the sum of the loss and LAE ratio, excluding catastrophe losses and related items and the expense ratio.

Adjusted loss and LAE ratio is the loss and LAE ratio excluding the effects of the ~~WAQS~~whole account quota share reinsurance agreement (“WAQS”) (as defined below).

Adjusted Loss and LAE ratio, excluding catastrophe, is the ratio of losses and LAE, allocated and unallocated, excluding the effects of the WAQS, and excluding those losses categorized as catastrophe losses, to net earned premiums, net of the effects of reinsurance, excluding the impact of reinsurance premiums related to catastrophe losses.

Adjusted expense ratio is the expense ratio excluding the effects of the WAQS.

Adjusted combined ratio is the combined ratio excluding the effects of the WAQS.

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 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.

Net retention ratio is the ratio of net written premiums to GWP.

Underwriting (loss) income, adjusted operating income, adjusted loss and LAE ratio, adjusted expense ratio, adjusted combined ratio and adjusted operating return on equity are ~~non-GAAP~~non-generally accepted accounting principles (“GAAP”) financial measures. See ~~“—Reconciliation~~“Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income

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in accordance with GAAP to underwriting (loss) income and adjusted operating income. See ~~“—Factors~~“Factors Affecting Our Results of Operations—The WAQS” for additional detail on the impact of the WAQS on our results of operations.

Factors Affecting Our Results of Operations

The WAQS

In connection with the divestment of our U.K. business, New York Marine as reinsured entered into ~~Whole Account Quota Share Reinsurance Agreements (the “WAQS”)~~the WAQS with third party reinsurers to maintain reasonable underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K. divestment. The effective date of the WAQS was April 1, 2017. The reinsurers’ ceding participation is an aggregate 26.0%. A provisional ceding commission of ~~30%~~30.0% to 30.5% is received as a reduction in the amount of ceded premium. ~~Subject to limits, these ceding commissions will vary in subsequent periods based on contractual ultimate loss ratios.~~ During 2018 and following the transition of the U.S. business back to New York Marine, the WAQS were terminated. Previously ceded written and unearned premium, net of the ceding commission, was reversed. Loss reserves on premium earned prior to the cut-off termination remain ceded loss reserves. Loss reserve development on the reserves ceded under the WAQS is included in continuing operations. Effective January 1, 2020, the WAQS was commuted at an amount equal to ceded reserves.

The effect of the WAQS on our results of operations is primarily reflected in our ceded written premiums, losses and LAE, as well as our underwriting, acquisition and insurance expenses.

~~Table~~ For the three and nine months ended September 30, 2020 there was no impact of ~~Contents~~

WAQS on underwriting results or ratios.

The following tables summarize the effect of the WAQS on our underwriting (loss) income for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
	Including		Effect of		Excluding		Including		Effect of		Excluding

													Three Months Ended September 30, 2020								Three Months Ended September 30, 2019
													Including			Effect of		Excluding			Including			Effect of		Excluding
($ in thousands)	WAQS		WAQS		WAQS		WAQS		WAQS		WAQS		WAQS			WAQS		WAQS			WAQS			WAQS		WAQS
GWP	$	235,032	$	—	$	235,032	$	222,555	$	—	$	222,555	$	203,539		$	—	$	203,539		$	227,196		$	—	$	227,196
Ceded written premiums		(24,464)		—		(24,464)		(9,520)		18,831		(28,351)		(44,135)			—		(44,135)			(17,722)			(6)		(17,716)
Net written premiums	$	210,568	$	—	$	210,568	$	213,035	$	18,831	$	194,204	$	159,404		$	—	$	159,404		$	209,474		$	(6)	$	209,480
Net retention(1)		89.6%		—		89.6%		95.7%		—		87.3%		78.3%			—		78.3%			92.2%			—		92.2%
Net earned premiums	$	202,480	$	—	$	202,480	$	183,123	$	(1,368)	$	184,491	$	172,376		$	—	$	172,376		$	202,455		$	—	$	202,455
Losses and LAE		127,115		2,255		124,860		109,933		(642)		110,575
Net losses and LAE incurred														123,249			—		123,249			127,196			1,632		125,564
Underwriting, acquisition and insurance expenses		71,561		(2,255)		73,816		68,133		(624)		68,757		63,373			—		63,373			71,920			(1,632)		73,552
Underwriting income (loss)(2)	$	3,804	$	—	$	3,804	$	5,057	$	(102)	$	5,159
Underwriting (loss) income ⁽²⁾													$	(14,246)		$	—	$	(14,246)		$	3,339		$	—	$	3,339
Loss and LAE ratio		62.8%		—		—		60.0%		46.9%		—		71.5	%		—		—			62.8	%		—		—
Expense ratio		35.3%		—		—		37.2%		45.6%		—		36.8	%		—		—			35.5	%		—		—
Combined ratio		98.1%		—		—		97.2%		92.5%		—		108.3	%		—		—			98.3	%		—		—
Adjusted loss and LAE ratio(3)		—		—		61.7%		—		—		59.9%		—			—		71.5	%		—			—		62.0	%
Adjusted expense ratio(3)		—		—		36.4%		—		—		37.3%		—			—		36.8	%		—			—		36.3	%
Adjusted combined ratio(3)		—		—		98.1%		—		—		97.2%		—			—		108.3	%		—			—		98.3	%

(1)

⁽¹⁾

~~The~~Net retention is a non-GAAP measure. We define net retention as the ratio of net written premiums to GWP.

(2)

⁽²⁾

Underwriting (loss) income is a non-GAAP financial measure. See ~~“—Reconciliation~~“Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income ~~in accordance with GAAP~~ to underwriting (loss) income.

(3)

⁽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.

Our results of operations may be difficult to compare from year to year due to the origination and termination of the WAQS. In light of the impact of the WAQS on our results of operations, we internally evaluated our financial performance both including and excluding the effect of the WAQS.

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The following tables summarize the effect of the WAQS on our underwriting (loss) income for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
	Including		Effect of		Excluding		Including		Effect of		Excluding

													Nine Months Ended September 30, 2020								Nine Months Ended September 30, 2019
													Including			Effect of		Excluding			Including			Effect of		Excluding
($ in thousands)	WAQS		WAQS		WAQS		WAQS		WAQS		WAQS		WAQS			WAQS		WAQS			WAQS			WAQS		WAQS
GWP	$	490,870	$	—	$	490,870	$	471,975	$	—	$	471,975	$	603,717		$	—	$	603,717		$	718,066		$	—	$	718,066
Ceded written premiums		(70,400)		3		(70,403)		2,412		68,800		(66,388)		(97,507)			—		(97,507)			(88,122)			(3)		(88,119)
Net written premiums	$	420,470	$	3	$	420,467	$	474,387	$	68,800	$	405,587	$	506,210		$	—	$	506,210		$	629,944		$	(3)	$	629,947
Net retention(1)		85.7%		—		85.7%		100.5%		—		85.9%		83.8%			—		83.8%			87.7%			—		87.7%
Net earned premiums	$	398,088	$	3	$	398,085	$	350,579	$	(14,544)	$	365,123	$	559,667		$	—	$	559,667		$	600,543		$	3	$	600,540
Losses and LAE		245,448		2,207		243,241		211,787		(8,548)		220,335
Net losses and LAE incurred														363,279			—		363,279			372,644			3,839		368,805
Underwriting, acquisition and insurance expenses		145,328		(2,205)		147,533		131,726		(4,906)		136,632		205,444			—		205,444			217,248			(3,837)		221,085
Underwriting income (loss)(2)	$	7,312	$	1	$	7,311	$	7,066	$	(1,090)	$	8,156
Underwriting (loss) income ⁽²⁾													$	(9,056)		$	—	$	(9,056)		$	10,651		$	1	$	10,650
Loss and LAE ratio		61.7%		—		—		60.4%		58.8%		—		64.9	%		—		—			62.1	%		—		—
Expense ratio		36.5%		—		—		37.6%		33.7%		—		36.7	%		—		—			36.2	%		—		—
Combined ratio		98.2%		—		—		98.0%		92.5%		—		101.6	%		—		—			98.3	%		—		—
Adjusted loss and LAE ratio(3)		—		—		61.1%		—		—		60.4%		—			—		64.9	%		—			—		61.4	%
Adjusted expense ratio(3)		—		—		37.1%		—		—		37.4%		—			—		36.7	%		—			—		36.8	%
Adjusted combined ratio(3)		—		—		98.2%		—		—		97.8%		—			—		101.6	%		—			—		98.2	%

(1)

⁽¹⁾

~~The~~Net retention is a non-GAAP measure. We define net retention as the ratio of net written premiums to GWP.

(2)

⁽²⁾

(3)

⁽³⁾

Outlook

As the COVID-19 pandemic continues to impact individuals and businesses worldwide, we are focused on the health and safety of our employees while fulfilling our obligations to our customers and distribution partners. Through the investments we made in our technology infrastructure over time, we continue to operate primarily in a remote work environment while maintaining the service and support levels that our customers expect. We are fully operational, and we believe we are capable of working remotely for as long as necessary.

There was a significant impact on our premium revenues in the second and third quarters relating to the pandemic’s effect on the insured exposure base of certain customers, particularly our customers in the Media and Entertainment as well as the Transportation customer segments. It is too early to determine the ultimate effect of the economic shut-down as a result of the pandemic on our losses, however, we continue to evaluate claims individually and pay losses where coverage applies. We have seen higher expense costs due to bad debt provisioning related to regulatory actions taken in response to COVID-19 to provide premium refunds, grant extended grace periods for premium payments, and provide extended time to pay past due premiums.

While we have seen an increase in unrealized investment gains in the second and third quarters, we expect there could be continued volatility in the unrealized position and uncertainty for the remainder of the year due to COVID-19.

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Results of Operations

Three Months Ended ~~June~~September 30, ~~2019~~2020 Compared to Three Months Ended ~~June~~September 30, ~~2018~~2019

The following table summarizes the results of continuing operations for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30				Change

								Three Months Ended September 30						Change
($ in thousands)	2019		2018		$		Percent	2020			2019			$		Percent
GWP	$	235,032	$	222,555	$	12,477	5.6%	$	203,539		$	227,196		$	(23,657)	(10.4)	%
Ceded written premiums		(24,464)		(9,520)		(14,944)	(157.0%)		(44,135)			(17,722)			(26,413)	149.0
Net written premiums	$	210,568	$	213,035	$	(2,467)	(1.2%)	$	159,404		$	209,474		$	(50,070)	(23.9)	%


Net earned premiums	$	202,480	$	183,123	$	19,357	10.6%	$	172,376		$	202,455		$	(30,079)	(14.9)	%
Losses and LAE:		127,115		109,933		17,182	15.6%
Net losses and LAE incurred:									123,249			127,196			(3,947)	(3.1)
Underwriting, acquisition and insurance expenses		71,561		68,133		3,428	5.0%		63,373			71,920			(8,547)	(11.9)
Underwriting income(1)		3,804		5,057		(1,253)	(24.8%)
Underwriting (loss) income ⁽¹⁾									(14,246)			3,339			(17,585)	(526.7)
Interest and other expenses, net		10,220		2,916		7,304	250.5%		5,549			10,182			(4,633)	(45.5)
Net investment income		17,398		15,548		1,850	11.9%		20,307			16,974			3,333	19.6
Net investment gains		137		686		(549)	(80.0%)
Realized investment gains, net									1,398			245			1,153	470.6
Income before taxes		11,119		18,375		(7,256)	(39.5%)		1,910			10,376			(8,466)	(81.6)
Income tax expense		2,423		3,723		(1,300)	(34.9%)		412			2,015			(1,603)	(79.6)
Net income from continuing operations	$	8,696	$	14,652	$	(5,956)	(40.6%)	$	1,498		$	8,361		$	(6,863)	(82.1)	%
Adjusted operating income(1)	$	14,228	$	14,110	$	118	0.8%	$	1,495		$	13,825		$	(12,330)	(89.2)	%


Adjusted operating return on equity(1)		12.8%		15.4%					1.0	%		11.2	%
Return on equity		7.9%		16.0%					1.0	%		6.8	%


Loss and LAE ratio:		62.8%		60.0%					71.5	%		62.8	%
Loss and LAE ratio – excluding catastrophe		61.3%		60.0%
Loss and LAE ratio – Catastrophe		1.5%		–
Loss and LAE ratio – excluding catastrophe ⁽²⁾									59.9	%		62.8	%
Loss and LAE ratio – catastrophe losses									11.6	%		-	%
Expense ratio		35.3%		37.2%					36.8	%		35.5	%
Combined ratio		98.1%		97.2%					108.3	%		98.3	%


Adjusted loss and LAE ratio~~(2)~~(3)		61.7%		59.9%					71.5	%		62.0	%
Adjusted loss and LAE ratio – excluding catastrophe(2)		60.2%		59.9%					59.9	%		62.0	%
Adjusted loss and LAE ratio – Catastrophe		1.5%		–
Adjusted loss and LAE ratio – catastrophe losses									11.6	%		-	%
Adjusted expense ratio~~(2)~~(3)		36.4%		37.3%					36.8	%		36.3	%
Adjusted combined ratio~~(2)~~(3)		98.1%		97.2%					108.3	%		98.3	%

(1)

⁽¹⁾

Underwriting (loss) income, adjusted operating income and adjusted operating return on equity are non-GAAP financial measures. See ~~“—Reconciliation~~“Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in accordance with GAAP to underwriting (loss) income and adjusted operating income.

(2)	⁽²⁾ Loss and LAE ratio – excluding catastrophe and Adjusted loss and LAE ratio – excluding catastrophe is adjusted to exclude the impact of reinsurance reinstatement premiums related to catastrophe losses incurred during the period from net earned premium.

(3)

Net Income from Continuing Operations

Net income was ~~$8.7 million~~ ~~for the three months ended June 30, 2019 compared to $14.7~~$1.5 million for the three months ended ~~June~~September 30, ~~2018,~~2020 compared to $8.4 million for the three months ended September 30, 2019, a de~~crease~~decrease of ~~$6.0~~$6.9 million, or ~~40.6%~~82.1%.The decrease in net income primarily resulted from ~~an increase~~catastrophe losses experienced during the period, partially offset by a decrease in interest and other expenses ~~of $7.2 million due to costs associated~~combined with ~~the transition of our former Chief Executive Officer, partially offset by~~ an increase in net investment ~~income~~income. In the third quarter of ~~$1.9 million.~~

2020, the Company incurred $16.9 million of

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net catastrophe losses and $5.1 million of related reinstatement premiums on reinsurance contracts primarily resulting from Hurricane Laura and the California and Oregon wildfires. In the third quarter of 2019, the Company incurred other expense of $6.8 million due to non-recurring grants of restricted stock units (“RSUs”) in connection with the initial public offering (“IPO”).

Premiums

GWP were ~~$235.0~~$203.5 million for the three months ended ~~June~~September 30, ~~2019~~2020 compared to ~~$222.6~~$227.2 million for the three months ended ~~June~~September 30, ~~2018, an increase~~ 2019, a decrease of ~~$12.5~~$23.7 million, or ~~5.6%~~10.4%.

The following table presents the GWP by customer segment for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:



($ in millions)	Three Months Ended June 30					Three Months Ended September 30
Customer Segment	2019		2018		% Change	2020		2019		% Change
Construction	$	32.5	$	26.6	22.2%	$	27.4	$	27.3	0.4	%
Consumer Services		37.9		28.4	33.5%		23.7		35.5	(33.2)
Marine and Energy		20.8		18.9	10.1%		27.7		26.1	6.1
Media and Entertainment		39.3		38.0	3.4%		17.3		28.7	(39.7)
Professional Services		29.1		27.9	4.3%		34.7		27.0	28.5
Real Estate		46.6		44.1	5.7%		34.9		41.6	(16.1)
Sports							5.4		8.1	(33.3)
Transportation		23.5		23.4	0.4%		30.8		29.6	4.1
Customer segments subtotal	$	229.7	$	207.3	10.8%		201.9		223.9	(9.8)
Other		5.3		15.3	(65.4%)		1.6		3.3	(51.5)
Total GWP	$	235.0	$	222.6	5.6%
Total						$	203.5	$	227.2	(10.4)	%

~~Premium growth~~GWP from customer segments (excluding GWP within “Other”) for the three months ended ~~June~~September 30, ~~2019 was~~2020 contracted by 9.8% primarily ~~driven by new business~~due to reduced insured exposures of customers within the Transportation, Media & Entertainment, and ~~renewals within existing niches and the addition of a new niche. Excluding the decline of GWP within “Other,” premiums for the three months ended June 30, 2019 increased 10.8% compared~~Real Estate customer segments due to the ~~three months ended June 30, 2018.~~economic downturn from the COVID-19 pandemic.

The changes in GWP were most notable in the following customer segments and niches:

●

~~Consumer Services~~Transportation GWP increased by ~~33.5%~~4.1% to ~~$37.9 million for~~ ~~the three months ended June 30, 2019 compared to $28.4~~$30.8 million for the three months ended ~~June~~September 30, ~~2018.~~ ~~The~~ premium growth is due to increases in the Auto Dealers niche and the new Parking Facilities niche, partially offset by a decline in premium within the Professional Employer Organizations niche. Auto Dealers increased $8.0 million during the second quarter of 2019 when2020 compared to the second quarter of 2018, primarily due to new business. Parking Facilities generated $6.6 million in premium in the three months ended June 30, 2019. Professional Employer Organizations declined $4.5 million in the second quarter of 2019 when compared to the second quarter of 2018. Renewal premium retention was limited by unfavorable pricing conditions in primary workers compensation.

~~Construction GWP increased by 22.2% to $32.5~~$29.6 million for the three months ended ~~June~~September 30, 2019. The premium growth is driven by $16.8 of new captive opportunities. Excluding new captive opportunities, GWP contracted 52.6% from September 30, 2019, ~~compared~~driven by reduction in new business of $5.7 million in Taxis, $3.9 million in School Bus, $2.5 million in Charter Bus, and $2.2 million in Intermodal due to ~~$26.6~~the economic downturn from COVID-19.

●

Media and Entertainment GWP contracted by 39.7% to $17.3 million for the three months ended ~~June~~September 30, ~~2018. The premium growth is primarily due to an increase in renewal premium retention of $4.9 million across all niches within the customer segment in the second quarter of 2019 when~~2020 compared to ~~the second quarter of 2018.~~

~~Marine and Energy GWP increased by 10.1% to $20.8~~$28.7 million for the three months ended ~~June~~September 30, ~~2019 compared~~2019. The premium contraction is driven by $4.9 million of declines in renewal business, $4.0 million of exposure reductions and $1.8 million of reduced new business opportunities in the Live Entertainment and Film niches primarily due to ~~$18.9~~regulatory restrictions and mandatory social distancing resulting from COVID-19.

●

Consumer Services GWP contracted by 33.2% to $23.7 million for the three months ended ~~June~~September 30, 2020 compared to $35.5 million for the three months ended September 30, 2019. The premium contraction is primarily driven by the decision to reduce monoline workers’ compensation.

●

Professional Services GWP increased by 28.5% to $34.7 million for the three months ended September 30, 2020 compared to $27.0 million for the three months ended September 30, 2019. The premium growth is ~~primarily due to~~driven by approximately $4.4 million of increased renewal business and $1.4 million of increased new business ~~of $2.0 million within the Oil Field Contractors niche~~ in the ~~second quarter of 2019 when compared to the second quarter of 2018.~~

Credit Unions niche.

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●

~~Other~~Real Estate GWP ~~decreased~~contracted by ~~65.4%~~16.1% to ~~$5.3~~$34.9 million for the three months ended ~~June~~September 30, ~~2019~~2020 compared to ~~$15.3~~$41.6 million for the three months ended ~~June~~September 30, ~~2018.~~2019. The ~~decline in GWP was~~premium contraction is driven by approximately $3.1 million of reduced or delayed new business opportunities in Metrobuilders due to the ~~exit of the excess workers compensation niche.~~

economic downturn from COVID-19.

Net written premiums decreased by ~~$2.5~~$50.1 million, or ~~1.2%~~23.9%, to ~~$210.6~~$159.4 million for the three months ended ~~June~~September 30, ~~2019~~ 2020 from ~~$213.0~~$209.5 million for the three months ended ~~June~~September 30, ~~2018.~~2019. The decrease in net written premiums was ~~directly~~primarily related to the ~~termination of the WAQS~~contraction in ~~2018.~~ ~~Our net retention ratio was 89.6% and 95.7% for the three months ended June 30, 2019 and 2018, respectively. Excluding the effects of the WAQS, net written~~GWP.

Net earned premiums ~~for the three months~~

~~Table of Contents~~

~~ended June 30, 2019 increased~~decreased by ~~$16.3~~$30.1 million, or ~~8.4%~~14.9%, to ~~$210.6~~$172.4 million for the three months ended ~~June~~September 30, ~~2019~~2020 from ~~$194.2 million for the three months ended June 30, 2018. The increase in net written premiums was directly related to the growth in GWP in 2019.~~

~~Net earned premiums increased~~ ~~by $19.4 million, or 10.6%, to~~ $202.5 million for the three months ended ~~June~~September 30, ~~2019 from $183.1 million for the three months ended June 30, 2018.~~ 2019. The ~~increase~~decrease in net earned premiums was directly related to the ~~growth~~contraction in ~~GWP~~net written premiums in the first nine months of 2020 and includes the impact of non-recurring net earned premiums of $11.3 million from the exit of excess workers’ compensation in 2019.

Loss and LAE ~~ratio~~Ratio

Our loss and LAE ratio was 71.5% for the three months ended September 30, 2020 compared to 62.8% for the three months ended ~~June~~September 30, ~~2019 compared to 60.0% for the three months ended June 30, 2018.~~2019. For the three months ended ~~June~~September 30, 2020 our reserve for unpaid losses and loss adjustment expenses for accident years 2019 ~~we incurred favorable~~and prior ~~period~~developed unfavorably by $0.1 million driven by $11.1 million unfavorable development of ~~$2.7~~General Liability and $5.9 million ~~which includes~~unfavorable development in Commercial Multiple Peril offset by $16.5 million favorable development in ~~primary workers compensation, partially offset by unfavorable development in general liability, as compared~~Workers’ Compensation. In addition, the Company incurred $3.1 million of losses and loss adjustment expenses related to ~~favorable development~~premium adjustments earned during the three months ended September 30, 2020 attributable to prior accident years 2019 and 2018.

Catastrophe losses of ~~$1.3~~$16.9 million for the three months ended ~~June~~September 30, ~~2018.~~ 2020 were driven by Hurricane Laura and the California and Oregon wildfires, adding 9.8 points to the current accident year loss ratio compared to no catastrophe losses for the three months ended September 30, 2019. The Company also incurred $5.1 million of reinsurance reinstatement premiums, related to catastrophe losses during the period, which increased the loss ratio by 1.8 points for the three months ended September 30, 2020. The loss and LAE ratio, excluding catastrophe losses and related items was 59.9% for the three months ended September 30, 2020.

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and adjusted loss and LAE ratios for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Three Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums	Losses and LAE		Premiums		Losses and LAE		Premiums

Loss and LAE:
Current accident year – excluding catastrophe	$	126,848	62.6%	$	111,268	60.8%
Current accident year – catastrophe losses		3,000	1.5%		—	0.0%
Current accident year – excluding catastrophe ⁽¹⁾							$	106,304	59.9	%	$	121,701	60.1	%
Current accident year – catastrophe losses ⁽²⁾								16,893	11.6			—	—
Effect of prior year development		(2,733)	(1.3%)		(1,335)	(0.8%)		52	—			5,495	2.7
Total	$	127,115	62.8%	$	109,933	60.0%	$	123,249	71.5	%	$	127,196	62.8	%


	Three Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Three Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums	Losses and LAE		Premiums		Losses and LAE		Premiums
Adjusted loss and LAE:
Current accident year – excluding catastrophe(1)	$	126,848	62.6%	$	111,910	60.7%	$	106,304	59.9	%	$	121,701	60.1	%
Current accident year – catastrophe losses(2)		3,000	1.5%		—	0.0%		16,893	11.6			—	—
Effect of prior year development		(4,988)	(2.4%)		(1,335)	(0.8%)		52	—			3,863	1.9
Total	$	124,860	61.7%	$	110,575	59.9%	$	123,249	71.5	%	$	125,564	62.0	%

~~Expense ratio~~

~~Our expense ratio~~ ~~was 35.3% for~~ the three months ended June 30, 2019 compared to 37.2% for the three months ended June 30, 2018. The improvement in the expense ratio reflects an increase in net earned premiums and the effect of WAQS for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

(1)	Earned premiums are adjusted to exclude the impact of reinsurance reinstatement premiums related to catastrophe losses incurred during the period.

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(2)

Catastrophe losses are any one claim, or group of claims, equal or greater than $1.0 million related to a single PCS designated catastrophe event. PCS is Property Claim Services, a Verisk company. PCS has defined catastrophes in the United States, Puerto Rico, and the U.S. Virgin Islands as events that cause $25.0 million or more in direct insured losses to property and affect a significant number of policyholders and insurers.

Expense Ratio

Our expense ratio was 36.8% for the three months ended September 30, 2020 compared to 35.5% for the three months ended September 30, 2019. The increase in the expense ratio is driven primarily by a decrease in net earned premiums, which more than offset a decrease in underwriting and insurance expenses of $3.0 million, during the three months ended September 30, 2020. In addition, the prior year expense ratio was favorably impacted by 0.8 points of non-recurring cede commission on the WAQS.

The following table summarizes the components of the expense ratio for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Three Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Expenses		Premiums	Expenses		Premiums	Expenses		Premiums		Expenses		Premiums
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance	$	47,788	23.6%	$	43,877	23.8%	$	40,387	23.4	%	$	47,585	23.5	%
Underwriting and insurance expenses		26,028	12.8%		24,880	13.5%		22,986	13.4			25,967	12.8
Underwriting, acquisition and insurance expenses(1)		73,816	36.4%		68,757	37.3%		63,373	36.8			73,552	36.3
Effect of WAQS(1)		(2,255)	(1.1%)		(624)	(0.1%)		—	—			(1,632)	(0.8)
Total underwriting, acquisition and insurance expenses	$	71,561	35.3%	$	68,133	37.2%	$	63,373	36.8	%	$	71,920	35.5	%

(1)

⁽¹⁾

Total underwriting, acquisition and insurance expenses and the effect of the WAQS are calculated based on the net earned premiums including the effects of the WAQS for three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018.~~

2019.

Underwriting ~~income~~(Loss) Income

Underwriting ~~income~~loss was ~~$3.8~~$14.2 million for the three months ended ~~June~~September 30, ~~2019~~2020 compared to ~~$5.1~~an underwriting income of $3.3 million for the three months ended ~~June~~September 30, ~~2018,~~2019, a decrease of ~~$1.3 million, or 24.8%.~~$17.5 million. The ~~change from the three months ended June 30, 2018 to the three months ended June 30, 2019~~decrease in underwriting income is primarily due ~~an increase~~to the catastrophe losses experienced during the period combined with the reduction in ~~the loss and LAE ratio offset by a decrease in the expense ratio.~~net earned premium.

Combined ~~ratio~~Ratio

Our combined ratio and adjusted combined ratio ~~was 98.1%~~were 108.3% for the three months ended ~~June~~September 30, ~~2019~~2020 compared to ~~97.2%~~98.3% for the three months ended ~~June~~September 30, 2019. The combined ratio, excluding the impact of catastrophes was 96.7% for the three months ended September 30 , ~~2018.~~2020 compared to 98.3% for the three months ended September 30, 2019.

Investing ~~results~~Results

Our net investment income increased by ~~11.9%~~19.6% to ~~$17.4~~$20.3 million for the three months ended ~~June~~September 30, ~~2019~~2020 from ~~$15.5~~$17.0 million for the three months ended ~~June~~September 30, ~~2018.~~ 2019. The increase in net investment income is primarily due to ~~a larger portfolio size.~~the change in fair value on investments in limited partnerships and limited liability companies. Net investment yield ~~decreased by 0.2 percentage points to~~ was 3.5% for the three months ended September 30, 2020 and 3.3% for the three months ended ~~June~~September 30, 2019 compared to 3.7% for the three months ended June 30, 2018. Gross investment income increased by 12.8% to $17.9 million for the three months ended June 30, 2019 compared to $15.9 million for the three months ended June 30, 2018. 2019.

~~The weighted average duration of our fixed income portfolio, including cash equivalents,~~ ~~was 2.9 years~~ ~~at June 30, 2019 and 3.5 years at June 30, 2018.~~

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The following table summarizes the components of net investment income and net investment gains for the three months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30

							Three Months Ended September 30
($ in thousands)	2019		2018		$ Change		2020		2019		$ Change
Interest from securities	$	16,531	$	14,016	$	2,515
Fixed maturity securities							$	15,040	$	16,764	$	(1,724)
Other investments		1,394		1,870		(476)		6,193		777		5,416
Gross investment income		17,925		15,886		2,039		21,233		17,541		3,692
Investment expenses		(527)		(338)		(189)		(926)		(567)		(359)
Net investment income		17,398		15,548		1,850		20,307		16,974		3,333
Net realized investment gains		137		686		(549)
Realized investment gains, net								1,398		245		1,153
Total	$	17,535	$	16,234	$	1,301	$	21,705	$	17,219	$	4,486
Average cash and invested assets	$	2,003,150	$	1,674,782	$	328,368
Average invested assets							$	2,301,504	$	2,069,327	$	232,178

Interest and ~~other expenses~~Other Expenses, Net

Our interest and other expenses ~~increased~~decreased by ~~$7.3~~$4.6 million to $5.5 million for the three months ended September 30, 2020 compared to $10.2 million for the three months ended ~~June~~September 30, ~~2019 compared to $2.9 million for the three months ended June 30, 2018.~~2019. The ~~increase~~decrease is primarily driven by ~~other expenses of $7.2~~$6.8 million due to ~~costs associated~~non-recurring grants of RSUs in connection with the ~~transition of our former Chief Executive Officer.~~IPO.

Income ~~tax expense~~Tax Expense

Our effective tax rate for the three months ended ~~June~~September 30, 2020 and 2019 ~~was 21.8% compared to 20.3% for the three months ended June 30, 2018.~~ were 21.6% and 19.4%, respectively. The increase in the effective tax rate infor the ~~second quarter of 2019~~three months ended September 30, 2020 compared to the ~~second quarter of 2018~~same period in 2019 was primarily due to the tax effect of ~~state income taxes.~~ share-based compensation.

Our income tax ~~payments for the three months ended June 30, 2019 and 2018 were $0.1~~expense was $0.4 million and ~~$0.1 million, respectively.~~

~~Adjusted operating income~~

~~Adjusted operating~~ ~~income~~ ~~was $14.2~~$2.0 million for the three months ended ~~June~~September 30, 2020 and 2019, ~~an increase~~respectively. The decrease is due to the decrease in income before income taxes compared to the same period in 2019.

On March 27, 2020, the President of ~~$0.1~~the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision.

Adjusted Operating Income

Adjusted operating income was $1.5 million for the three months ended September 30, 2020, a decrease of $12.3 million, or ~~0.8%~~89.2% from the adjusted operating income of ~~$14.1~~$13.8 million for the three months ended ~~June~~September 30, ~~2018.~~2019, primarily due to the reduction in underwriting income offset by increased net investment income.

Adjusted ~~operating return~~Operating Return on ~~equity~~Equity

Our adjusted operating return on equity was ~~12.8%~~1.0% for the three months ended ~~June~~September 30, ~~2019,~~2020, a decrease of ~~2.6~~10.2 percentage points from ~~15.4%~~11.2% for the three months ended ~~June~~September 30, ~~2018~~2019 primarily due to the reduction in adjusted operating income combined with the increase in ~~stockholders’ equity from $368.9 million in the second quarter of 2018 to $459.0 million in the second quarter of 2019.~~

average book value.

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~~Six~~Nine Months Ended ~~June~~September 30, ~~2019~~2020 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, ~~2018~~2019

The following table summarizes the results of continuing operations for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended June 30				Change

								Nine Months Ended September 30						Change
($ in thousands)	2019		2018		$		Percent	2020			2019			$		Percent
GWP	$	490,870	$	471,975	$	18,895	4.0%	$	603,717		$	718,066		$	(114,349)	(15.9)	%
Ceded written premiums		(70,400)		2,412		(72,812)	(3018.7%)		(97,507)			(88,122)			(9,385)	10.7
Net written premiums	$	420,470	$	474,387	$	(53,917)	(11.4%)	$	506,210		$	629,944		$	(123,734)	(19.6)	%


Net earned premiums	$	398,088	$	350,579	$	47,509	13.6%	$	559,667		$	600,543		$	(40,876)	(6.8)	%
Losses and LAE:		245,448		211,787		33,661	15.9%
Net losses and LAE incurred:									363,279			372,644			(9,365)	(2.5)
Underwriting, acquisition and insurance expenses		145,328		131,726		13,602	10.3%		205,444			217,248			(11,804)	(5.4)
Underwriting income(1)		7,312		7,066		246	3.5%
Underwriting (loss) income ⁽¹⁾									(9,056)			10,651			(19,707)	(185.0)
Interest and other expenses, net		13,489		5,779		7,710	133.4%		14,635			23,671			(9,036)	(38.2)
Net investment income		34,556		29,257		5,299	18.1%		52,913			51,530			1,383	2.7
Net investment gains		250		399		(149)	(37.3%)
Realized investment gains, net									3,521			495			3,026	611.3
Income before taxes		28,629		30,943		(2,314)	(7.5%)		32,743			39,005			(6,262)	(16.1)
Income tax expense		6,238		6,281		(43)	(0.7%)		7,151			8,253			(1,102)	(13.4)
Net income from continuing operations	$	22,391	$	24,662	$	(2,271)	(9.2%)	$	25,592		$	30,752		$	(5,160)	(16.8)	%
Adjusted operating income(1)	$	27,858	$	24,347	$	3,511	14.4%	$	26,374		$	41,683		$	(15,309)	(36.7)	%


Adjusted operating return on equity(1)		13.1%		13.1%					6.1	%		12.1	%
Return on equity		10.6%		13.2%					5.9	%		8.9	%


Loss and LAE ratio:		61.7%		60.4%					64.9	%		62.1	%
Loss and LAE ratio – excluding catastrophe		60.9%		60.4%
Loss and LAE ratio – Catastrophe		0.8%		–
Loss and LAE ratio – excluding catastrophe ⁽²⁾									60.7	%		61.6	%
Loss and LAE ratio – catastrophe losses									4.2	%		0.5	%
Expense ratio		36.5%		37.6%					36.7	%		36.2	%
Combined ratio		98.2%		98.0%					101.6	%		98.3	%


Adjusted loss and LAE ratio~~(2)~~(3)		61.1%		60.4%					64.9	%		61.4	%
Adjusted loss and LAE ratio – excluding catastrophe(2)		60.3%		60.4%					60.7	%		60.9	%
Adjusted loss and LAE ratio – Catastrophe		0.8%		–
Adjusted loss and LAE ratio – catastrophe losses									4.2	%		0.5	%
Adjusted expense ratio~~(2)~~(3)		37.1%		37.4%					36.7	%		36.8	%
Adjusted combined ratio~~(2)~~(3)		98.2%		97.8%					101.6	%		98.2	%

(1)

⁽¹⁾

Underwriting (loss) income, adjusted operating income and adjusted operating return on equity are non-GAAP financial measures. See “—Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in accordance with GAAP to underwriting (loss) income and adjusted operating income.

(2)	⁽²⁾ Loss and LAE ratio – excluding catastrophe and Adjusted loss and LAE ratio – excluding catastrophe is adjusted to exclude the impact of reinsurance reinstatement premiums related to catastrophe losses incurred during the period from net earned premium.

(3)

Net Income from Continuing Operations

Net income was ~~$22.4 million~~ ~~for the six months ended June 30, 2019 compared to $24.7~~$25.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2020 compared to $30.8 million for the nine months ended September 30, 2019, a decrease of ~~$2.3~~$5.2 million, or ~~9.2%~~16.8%. The decrease in net income is primarily ~~resulted from an increase~~due to catastrophe losses experienced during the third quarter of 2020, primarily Hurricane Laura and the California and Oregon wildfires, partially offset by a decrease of interest and other expense which includes $7.6 million of expense for our former CEO for termination of service as CEO and his services as Executive Chairman in ~~other expenses of $7.2~~the prior period and $6.8 million due to ~~costs associated~~non-recurring grants of RSUs in connection with the ~~transition of our former Chief Executive Officer, partially offset by an increase~~IPO in ~~net investment income of $5.3 million.~~

the prior period.

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Premiums

~~Premiums~~

GWP were ~~$490.9~~$603.7 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to $718.1 million for the nine months ended September 30, 2019, ~~compared~~ ~~to $472.0 million~~ ~~for the six months ended June 30, 2018, an increase~~ a decrease of ~~$18.9~~$114.4 million, or ~~4.0%~~15.9%.

The following table presents the GWP by customer segment for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


($ in millions)	Nine Months Ended September 30
Customer Segment	2020		2019		% Change
Construction	$	79.6	$	83.1	(4.2)	%
Consumer Services		95.0		100.9	(5.8)
Marine and Energy		87.3		71.5	22.1
Media and Entertainment		65.3		90.8	(28.1)
Professional Services		96.3		85.7	12.4
Real Estate		115.4		116.9	(1.3)
Sports		19.6		22.8	(14.0)
Transportation		39.9		79.4	(49.7)
Customer segments subtotal		598.4		651.1	(8.1)
Other		5.3		67.0	(92.1)
Total	$	603.7	$	718.1	(15.9)	%

($ in millions)

Six Months Ended June 30

Customer Segment

2019

2018

% Change

Construction

$
55.8

$
49.5

12.7%

Consumer Services

65.4

50.3

30.0%

Marine and Energy

36.8

34.2

7.6%

Media and Entertainment

76.8

78.2

(1.8%)

Professional Services

58.7

57.5

2.1%

Real Estate

75.3

72.0

4.6%

Transportation

57.5

50.4

14.1%

Customer segments subtotal

$
426.3

$
392.1

8.7%

Other

64.6

79.9

(19.1%)

Total GWP

$
490.9

$
472.0

4.0%

~~Premium growth~~GWP from customer segments (excluding GWP within “Other”) for the ~~six~~nine months ended ~~June~~September 30, ~~2019 was~~2020 contracted by 8.1% primarily due to endorsement transactions and reduction in insured exposures within the Transportation and Media and Entertainment customer segments driven by ~~increases~~the COVID-19 pandemic in ~~new business~~the second and ~~premium retention within previously existing niches. Excluding the decline~~third quarters of ~~GWP within “Other,” premiums for the six months ended June 30, 2019 increased 8.7% compared to the six months ended June 30, 2018.~~ 2020.

The changes in GWP were most notable in the following customer segments and niches:

●

Transportation GWP contracted by 49.7% to $39.9 million for the nine months ended September 30, 2020 compared to $79.4 million for the nine months ended September 30, 2019. The premium contraction is driven by exposure reduction as well as reduced new business opportunities $28.1 million due to COVID-19. Negative premium endorsements of $13.5 for School Bus, $9.1 million for Taxis, and $3.7 million for Charter Bus were processed to provide immediate relief to our insureds and align the premium with exposures. The premium contraction was offset by $18.0 million of new business in transportation related captive opportunities.

~~Consumer~~●

Media and Entertainment GWP contracted by 28.1% to $65.3 million for the nine months ended September 30, 2020 compared to $90.8 million for the nine months ended September 30, 2019. The premium contraction is driven by approximately $9.8 million of exposure reductions due to regulatory actions and mandatory social distancing related to COVID-19, $8.7 million of declines in renewal business, and $6.2 million of reduced new business opportunities in the Live Entertainment and Film niches.

●

Marine and Energy GWP increased by 22.1% to $87.3 million for the nine months ended September 30, 2020 compared to $71.5 million for the nine months ended September 30, 2019. The premium growth is primarily due to $5.9 million of new business within the Propane and Fuel Dealers niche and $4.9 million of increased total renewal premiums in Solar Contractors and Propane and Fuel Dealers niches.

●

Professional Services GWP increased by ~~30.0%~~12.4% to ~~$65.4 million for~~ ~~the six months ended June 30, 2019 compared to $50.3~~$96.3 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2020 compared to $85.7 million for the nine months ended September 30, 2019. The premium growth is ~~due to increases~~driven by approximately $9.1 million of increased renewal business in the Auto Dealers niche, addition of the Parking Facilities niche, and partially offset by declines in premium within the Professional Employer Organizations and Social Services niches. Auto Dealers increased $16.4 million during the six months of 2019 when compared to the six months of 2018 primarily related to new business. Parking Facilities generated $6.6 million in premium in the six months ended June 30, 2019. For the Professional Employer Organization and Social Services niches, premiums declined by $4.7 million and $3.0 million, respectively, during the first six months of 2019 when compared to the first six months of 2018, respectively. New business growth and renewal premium retention were limited by unfavorable pricing conditions in primary workers compensation.

Credit Unions niche.

Transportation GWP increased by 14.1% to $57.5 million for the six months ended June 30, 2019 compared to $50.4 million for the six months ended June 30, 2018. Most of the premium growth for the six months ended June 30, 2019 when compared to six months ended June 30, 2018 is due to Taxi and Charter Bus niches of $3.7 million and $3.0 million, respectively, primarily due to new business and rate increases of 10.6% across the customer segment also contributed to the growth during the six months ended June 30, 2019.

~~Construction GWP increased by 12.7% to~~ ~~$55.8 million for~~ ~~the six months ended June 30, 2019 compared to $49.5 million for the six months ended June 30, 2018.~~ ~~The~~ premium growth is due to increases in the Federal Contractors and Marine Contractors niches. Federal Contractors increased $2.8 million during the six months of 2019 when compared to the six months of 2018, due to new business of $1.6 million and premium retention of $1.2 million. Marine Contractors increased $2.2 million for the six months ended June 30, 2019 when compared to the six months ended June 2018 primarily due to increased renewal premium retention of $1.8 million.

Other GWP decreased by 19.1% to $64.6 million for the six months ended June 30, 2019 compared to $79.9 million for the six months ended June 30, 2018. The decline in premium during the first six months of 2019

~~Table of Contents~~

~~when compared to the first six months of 2018 was driven by a decline in excess workers compensation, following the acquisition of our distribution partner, Midlands, in early 2019.~~

Net written premiums decreased by ~~$53.9~~$123.7 million, or ~~11.4%~~19.6%, to ~~$420.5~~$506.2 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~ 2020 from ~~$474.4~~$629.9 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2019. The ~~decrease~~reduction in net written premiums was directly related to the ~~termination~~contraction in GWP.

Table of ~~the WAQS in 2018.~~ ~~Our net retention ratio was 85.7% and 100.5% for the six months ended June 30, 2019 and 2018, respectively. Excluding the effects of the WAQS, net written~~Contents

Net earned premiums ~~for the six months ended June 30, 2019 increased~~decreased by ~~$14.9~~$40.9 million, or ~~3.7%~~6.8%, to ~~$420.5~~$559.7 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 from ~~$405.6~~$600.5 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018 primarily related to the growth in GWP in~~ 2019. ~~Our net retention ratio was 85.7% and 85.9% for the six months ended June 30, 2019 and 2018, respectively~~

~~Net earned premiums increased~~ ~~by $47.5 million, or 13.6%, to $398.1 million for the six months ended June 30, 2019 from $350.6 million for the six months ended June 30, 2018.~~ The ~~increase~~decrease in net earned premiums ~~for~~was directly related to the contraction in net written premiums during the first ~~six~~nine months of ~~2019 compared to~~2020, which includes the ~~first six months~~impact of ~~2018 was due to the to the growth in written premium in 2019, and due to the termination of the WAQS in 2018.~~ ~~Excluding the effects of the WAQS,~~non-recurring net earned premiums ~~for~~of $41.3 million from the ~~six months ended June 30, 2019 were~~ ~~$398.1 million, an increase~~exit of ~~9.0% from~~ ~~the six months ended June 30, 2018 of $365.1 million.~~ excess workers’ compensation in 2019.

Loss and LAE ~~ratio~~Ratio

Our loss and LAE ratio was ~~61.7%~~64.9% for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to 62.1% for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, our reserve for unpaid losses and loss adjustment expenses for accident years 2019 and prior developed unfavorably by $0.6 million driven by $23.2 million unfavorable development in General Liability and $10.2 million unfavorable development in Commercial Multiple Peril offset by $24.8 million favorable development in Workers’ Compensation, $1.0 million favorable development in Commercial Auto and $7.0 million favorable development in All Other lines. In addition, the Company incurred $14.8 million of losses and loss adjustment expenses related to premium adjustments earned during the nine months ended September 30, 2020 attributable to prior accident years 2019 and 2018.

Catastrophe losses of $20.5 million for the nine months ended September 30, 2020 were driven by Hurricane Laura, the California and Oregon wildfires, and other weather events across the U.S., during the second and third quarters, adding 3.7 points to the current accident year loss ratio compared to catastrophe losses of $3.0 million for the nine months ended September 30, 2019, ~~compared~~driven by weather related events in the second quarter of 2019, which added 0.5 points to ~~60.4%~~the current accident year loss ratio of the prior period. The Company also incurred $5.1 million of reinsurance reinstatement premiums, related to catastrophe losses during the third quarter, which increased the loss ratio by 0.5 points for the ~~six~~nine months ended ~~June~~September 30, ~~2018. Included within the~~2020. The loss and LAE ratio, ~~of 61.7% is a~~excluding catastrophe ~~loss of $3.0 million, or 0.8%, from one tornado event in~~losses and related items was 60.7% for the ~~first six months of 2019 compared to no catastrophes in the first six months of 2018.~~

~~For the six~~nine months ended ~~June~~September 30, 2019, we incurred favorable prior period development of $3.1 million as compared to favorable development of $2.6 million for the first six months ended June 30, 2018 due to favorable development in primary workers compensation and commercial auto, partially offset by unfavorable development in general liability.2020.

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and adjusted loss and LAE ratios for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Nine Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums	Losses and LAE		Premiums		Losses and LAE		Premiums

Loss and LAE:
Current accident year – excluding catastrophe	$	245,576	61.7%	$	214,392	61.2%
Current accident year – catastrophe losses		3,000	0.8%		—	0.0%
Current accident year – excluding catastrophe ⁽¹⁾							$	342,193	60.6	%	$	367,277	61.2	%
Current accident year – catastrophe losses ⁽²⁾								20,526	4.2			3,000	0.5
Effect of prior year development		(3,128)	(0.8%)		(2,605)	(0.8%)		560	0.1			2,367	0.4
Total	$	245,448	61.7%	$	211,787	60.4%	$	363,279	64.9	%	$	372,644	62.1	%


	Six Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Nine Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums	Losses and LAE		Premiums		Losses and LAE		Premiums
Adjusted loss and LAE:
Current accident year – excluding catastrophe(1)	$	245,576	61.7%	$	222,940	61.1%	$	342,193	60.6	%	$	367,277	61.2	%
Current accident year – catastrophe losses(2)		3,000	0.8%		—	-		20,526	4.2			3,000	0.5
Effect of prior year development		(5,335)	(1.4%)		(2,605)	(0.7%)		560	0.1			(1,472)	(0.3)
Total	$	243,241	61.1%	$	220,335	60.4%	$	363,279	64.9	%	$	368,805	61.4	%

(1)	Earned premiums are adjusted to exclude the impact of reinsurance reinstatement premiums related to catastrophe losses incurred during the period.

(2)

~~Expense ratio~~

~~Our expense ratio~~ ~~was 36.5% for~~ ~~the six months ended June 30, 2019 compared to 37.6% for the six months ended June 30, 2018. The decrease in expense ratio was driven by premium growth in excess of expense growth and due~~

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Expense Ratio

Our expense ratio was 36.7% for the nine months ended September 30, 2020 compared to 36.2% for the ~~effect of the WAQS.~~nine months ended September 30, 2019. The ~~effect of WAQS resulted in a 0.8 percentage points improvement~~increase in the ~~underwriting, acquisition and insurance~~ expense ~~ratio. Excluding~~ratio is driven primarily by the impact of the WAQS ~~our expense ratio was 37.1% and 37.4% for the six months ended June 30,~~in 2019 and ~~June 30, 2018, respectively.~~ reductions in net earned premiums related to COVID-19 in the current year.

The following table summarizes the components of the expense ratio for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended June 30
	2019			2018
			% of Earned			% of Earned

							Nine Months Ended September 30
							2020				2019
									% of Earned				% of Earned
($ in thousands)	Expenses		Premiums	Expenses		Premiums	Expenses		Premiums		Expenses		Premiums
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance	$	94,311	23.7%	$	86,530	23.7%	$	129,406	23.1	%	$	141,896	23.6	%
Underwriting and insurance expenses		53,222	13.4%		50,102	13.7%		76,038	13.6			79,189	13.2
Underwriting, acquisition and insurance expenses(1)		147,533	37.1%		136,632	37.4%		205,444	36.7			221,085	36.8
Effect of WAQS(1)		(2,205)	(0.6%)		(4,906)	0.2%		—	—			(3,837)	(0.6)
Total underwriting, acquisition and insurance expenses	$	145,328	36.5%	$	131,726	37.6%	$	205,444	36.7	%	$	217,248	36.2	%

(1)

⁽¹⁾

Total underwriting, acquisition and insurance expenses and the effect of the WAQS are calculated based on the net earned premiums including the effects of the WAQS for ~~the six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018.~~

2019.

Underwriting ~~income~~(Loss) Income

Underwriting ~~income~~loss was ~~$7.3~~$9.1 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to an underwriting income of $10.7 million for the nine months ended September 30, 2019, ~~compared to $7.1 million for~~ ~~the six months ended June 30, 2018, an increase~~a decrease of ~~$0.2~~$19.8 million, or ~~3.5%~~185.0%. The decrease in underwriting income is primarily due the catastrophe losses experienced during the third quarter of the current year combined with the reduction in net earned premium.

Combined ~~ratio~~Ratio

Our combined ratio ~~was 98.2% for~~ ~~the six months ended June 30, 2019 compared~~ ~~to 98.0% for~~ ~~the six months ended June 30,~~ ~~2018. Our~~and adjusted combined ratio were 101.6% for the nine months ended September 30, 2020 compared to 98.3% for the nine months ended September 30, 2019. The combined ratio, excluding the impact of catastrophes was ~~98.2%~~97.4% for the ~~six~~ nine months ended ~~June~~September 30 ~~2019~~, 2020 compared to 97.8% for ~~for~~ the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2019.

Investing ~~results~~Results

Our net investment income increased by ~~18.1%~~2.7% to ~~$34.6~~$52.9 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 from ~~$29.3~~$51.5 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~ 2019. The increase in net investment income is primarily due to ~~an increase~~growth in the ~~amount of invested assets.~~ investment portfolio partially offset by lower net investment yields in the current year. Net investment yield ~~increased by 0.1 percentage points to 3.6%~~was 3.1% for the ~~six~~nine months ended ~~June~~September 30, ~~2019 compared to~~2020 and 3.5% for the ~~six~~nine months ended ~~June~~September 30, ~~2018. Gross~~2019. Realized investment ~~income increased by 19.0% to $35.6~~gains, net, includes a $1.7 million credit loss allowance for fixed maturity securities for the ~~six~~nine months ended ~~June~~September 30, ~~2019 compared to $29.9 million for the six months ended June 30, 2018.~~ 2020.

The weighted average duration of our fixed ~~income~~maturity portfolio, including cash equivalents, was ~~2.9~~4.6 years at ~~June~~September 30, ~~2019~~2020 and ~~3.5~~3.0 years at ~~June~~September 30, ~~2018.~~ 2019.

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The following table summarizes the components of net investment income and net investment gains for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended June 30

							Nine Months Ended September 30
($ in thousands)	2019		2018		$ Change		2020		2019		$ Change
Interest from securities	$	32,650	$	26,408	$	6,242
Fixed maturity securities							$	47,171	$	49,414	$	(2,243)
Other investments		2,953		3,513		(560)		7,993		3,730		4,263
Gross investment income		35,603		29,921		5,682		55,164		53,144		2,020
Investment expenses		(1,047)		(664)		(383)		(2,251)		(1,614)		(637)
Net investment income		34,556		29,257		5,299		52,913		51,530		1,383
Net realized investment gains		250		399		(149)
Realized investment gains, net								3,521		495		3,026
Total	$	34,806	$	29,656	$	5,150	$	56,434	$	52,025	$	4,409
Average cash and invested assets	$	1,943,087	$	1,667,962	$	275,125
Average invested assets							$	2,242,729	$	1,989,131	$	253,598

Interest and ~~other expenses~~Other Expenses, Net

Our interest and other expenses ~~increased~~decreased by ~~$7.7~~$9.0 million to ~~$13.5~~$14.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 compared to ~~$5.8~~$23.7 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2019. The ~~increase~~decrease is primarily driven by ~~other expenses~~$7.6 million of ~~$7.2~~expense for our former CEO for termination of service as CEO and his services as Executive Chairman in the prior period and $6.8 million due to ~~costs associated~~non-recurring grants of RSUs in connection with the ~~transition of our former Chief Executive Officer.~~IPO and an increase in net investment income.

Income ~~tax expense~~Tax Expense

Our effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was 21.8% ~~compared to 20.3% for the six months ended June 30, 2018.~~ and 21.2%, respectively. The increase in the effective tax rate in ~~2019~~the nine months ended September 30, 2020 compared to the same period in ~~2018~~2019 was primarily due to the tax effect of ~~state income taxes.~~ share-based compensation.

Our income tax ~~payments~~expense was $7.2 million and $8.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively. The decrease is primarily due to the decrease in income before income taxes compared to the same period in 2019.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and ~~2018 were $0.1 million~~Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes certain income tax provisions for individuals and ~~$0.1 million, respectively.~~corporations; however, these benefits do not impact the Company’s current tax provision.

Adjusted Operating Income

Adjusted operating income

~~Adjusted operating~~ ~~income~~ was ~~$27.9~~$26.4 million for the ~~six~~nine months ended ~~June~~September 30, ~~2019, an increase~~2020, a decrease of ~~$3.5~~$15.3 million, or ~~14.4%~~36.7% from the adjusted operating income of ~~$24.3~~$41.7 million for ~~six~~the nine months ended ~~June 30, 2018. The increase in adjusted operating income for the six months ended June~~September 30, 2019, ~~was~~ primarily ~~related~~due to the ~~increase~~reduction in underwriting income offset by decreased interest and ~~net investment income of $0.2 million and $5.3 million, respectively.~~other expenses.

Adjusted ~~operating return~~Operating Return on ~~equity~~Equity

Our adjusted operating return on equity was ~~13.1%~~6.1% for the ~~six~~ nine months ended ~~June~~September 30, 2020, a decrease of 6.0 percentage points from 12.1% for the nine months ended September 30, 2019 ~~and 13.1% for~~primarily due to the ~~six months ended June 30, 2018.~~reduction in adjusted operating income combined with the increase in average book value.

Liquidity and Capital Resources

Sources and Uses of Funds

We are organized as a holding company with our operations primarily conducted by our wholly owned insurance subsidiaries, New York Marine and Gotham, which are domiciled in New York, and Southwest Marine, which is domiciled in Arizona. Accordingly, the holding company may receive cash through ~~(1)~~(i) loans from banks, ~~(2)~~(ii) draws on a revolving loan agreement, ~~(3)~~(iii) issuance of equity and debt securities, ~~(4)~~(iv) corporate service fees from our operating subsidiaries, ~~(5)~~ (v)

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payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions and ~~(6)~~(vi) 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, and pay dividends and taxes and for other business purposes.

We receive corporate service fees from the operating subsidiaries to reimburse us for most of the operating expenses that we incur. Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs.

~~Table~~Our outstanding $140.0 million aggregate principal amount of ~~Contents~~

7.5% Senior Unsecured Notes and $25.0 million aggregate principal amount of 6.5% Senior Notes (collectively, the “Notes”) mature in November 2020.

Management believes that the Company has sufficient liquidity available to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

Credit Agreement

On June 12, 2020 (the “Effective Date”), we entered into a credit agreement (the “Credit Agreement”) with certain lenders and Truist Bank, N.A., as administrative agent (“Truist”), providing for a $165.0 million delayed draw term loan facility (the “Term Loan Facility”). Borrowings under the Term Loan Facility will be used to refinance the Notes at maturity. The Credit Agreement includes a letter of credit sub-limit of up to $5.0 million and a swingline loan sub-limit of up to $5.0 million. Further, the Credit Agreement provided for an uncommitted revolving loan facility (the “Revolving Credit Facility”) in an initial aggregate amount of $35.0 million, which subsequently became committed and increased to an aggregate of $65.0 million pursuant to the Incremental Agreement (defined below). At our option, borrowings under the Term Loan Facility and the Revolving Credit Facility would be (i) a “Base Rate Borrowing” which would bear interest at the Base Rate (as defined below) plus the Applicable Margin (as described below), or (ii) an “Eurodollar Borrowing” which would bear interest at the Adjusted LIBO Rate (defined as reserve-adjusted LIBOR, subject to a floor of 0.75%), for periods of one, two, three or six months, plus the Applicable Margin. The Base Rate is the highest of (a) the rate of interest announced publicly by Truist as its prime lending rate, (b) 0.5% above the federal funds rate, (c) the Adjusted LIBO Rate determined on a daily basis for a one-month period (subject to a floor of 0.75%) plus 1.00%, and (d) zero percent. The Applicable Margin for a Eurodollar Borrowing will range from 2.00% to 3.25% per annum based upon ProSight’s Debt to Capitalization Ratio (as defined in the Credit Agreement) in effect on such date. The initial Applicable Margin for Base Rate Borrowings is 100 basis points lower than the Applicable Margin for Eurodollar Borrowings. The Applicable Margin is currently 2.75%.

We agreed to pay a ticking fee with respect to the undrawn portion of the commitments for the Term Loan Facility, ranging from 0.20% to 0.30% per annum based upon our Debt to Capitalization Ratio (as defined in the Credit Agreement) in effect on such date. We also agreed to pay a commitment fee on the unused portion of the Revolving Credit Facility, ranging from 0.20% to 0.30% per annum and determined in the same way as ticking fee with respect to the Term Loan Facility. The ticking fee and commitment fee (if applicable) are currently 0.25%.

As a condition precedent to entry into the Credit Agreement, we terminated our amended and restated revolving loan agreement, dated as of March 15, 2019, with Citizens Bank, N.A. (“Citizens”), which had previously provided for a $50.0 million revolving credit facility. No amounts were outstanding at termination.

Revolving Credit Facility

On June 30, 2020, we entered into an incremental facility agreement and amendment (the “Incremental Agreement”) with certain lenders and Truist as administrative agent. The Incremental Agreement supplemented the Credit Agreement by obtaining from lenders commitments with respect to the Revolving Credit Facility provided for under the Credit Agreement, and increasing the Revolving Credit Facility from $35.0 million as stated in the Credit Agreement to an aggregate amount of $65.0 million.

The Revolving Credit Facility may be used for general corporate purposes, including, without limitation, to support business growth and to provide additional liquidity if needed. On July 14, 2020, the Company drew down $5.0 million on the Revolving Credit Facility and on August 3, 2020, the Company drew down an additional $30.0 million,

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primarily to make capital contributions to its insurance subsidiaries. Amounts outstanding under the Revolving Credit Facility as of the date of the filing are three-month Eurodollar Borrowings, bearing interest at 3.50%.

Master Lease Agreement

On June 26, 2020, we sold certain assets, in exchange for approximately $24.9 million of proceeds and agreed to lease such assets back from Citizens in exchange for monthly payments bearing interest at 4.83%. The lease expires on July 1, 2025, on which date we will repurchase the assets from Citizens for one dollar. This transaction is treated as a secured loan payable under U.S. GAAP. For a discussion of the secured loan payable, see Note 14. Debt – Recent Financing Transactions – Secured Loan Payable.

Cash Flows

~~Our~~The most significant source of cash for our operating subsidiaries is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period, and 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.~~ We also use cash to pay for operating expenses such as salaries, rent and taxes and capital expenditures such as technology systems. Because the payment of claims occurs well after the receipt of the premium, we invest the cash in various investment securities that generally earn interest and dividends. The operating subsidiaries’ investment portfolios represent an additional source of liquidity that could be accessed if needed. As described under “—Reinsurance” below, we use reinsurance to manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.

The casualty-focused nature of our products, and limited property exposures, ~~enabled~~typically allow us to generate significant ~~and increasing~~ operating cash ~~flow generation. The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received.~~flow. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and maturities, and investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019 were:


	Six Months Ended June 30

					Nine Months Ended September 30
					2020		2019
	2019		2018
($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	159,341	$	133,447	$	120,710	$	212,061
Investing activities		(146,694)		(155,942)		(169,327)		(244,030)
Financing activities		—		—		56,805		33,450
Effect of exchange rate differences on cash		—		—
Change in cash and cash equivalents	$	12,647	$	(22,495)
Net change in cash and cash equivalents					$	8,188	$	1,481

The ~~increase~~decrease in cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, ~~2019,~~2020, compared to the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2019, was largely driven by ~~the~~ timing of ~~reinsurance activity.~~claim payments and premium collection declines due to COVID-19. Cash used in investing activities is primarily funded by cash flow from operations. The decrease in cash used in investing activities for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily reflected the amount of operating funds available for investment in the current quarter.

The increase in cash provided by financing activities for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily due to proceeds from the Revolving Credit Facility of $35.0 million and the issuance of the $24.9 million secured loan in 2020 compared to $51.6 million of proceeds related to the IPO offset by the $18.0 million pay down of the Citizens Revolving Credit agreement in 2019.

Reinsurance

We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect our capital. Reinsurance involves a primary insurance company transferring, or “ceding”, a portion of its premium and

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losses in order to limit its exposure. The ceding of liability to a reinsurer does not relieve the obligation of the primary insurance to the policyholder. The primary insurer remains liable for the entire loss if the reinsurer fails to meet its obligations under the reinsurance agreement. Our reinsurance isagreements are primarily contracted under excess of loss agreements. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses, in excess of a specified amount. In excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company’s losses.

We use quota share and facultative ~~reinsurance in selected niches, on a limited basis.~~reinsurance. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.

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Our largest quota share reinsurance agreements were the WAQS. In connection with the divestment of our U.K. business, New York Marine as reinsured entered into the WAQS with third party reinsurers to maintain reasonable underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K. divestment. During 2018, and following the transition of the U.S. business back to New York Marine, the WAQS were terminated. Effective January 1, 2020, the WAQS were commuted.

The following is a summary of our significant in-force excess of loss reinsurance programs as of ~~June~~September 30, ~~2019:~~2020:


Line of Business Covered		Reinsurance Coverage
Property - per risk		$37.0 million excess of $3.0 million
Property - catastrophe		$195.0 million excess of $5.0 million
Casualty - 77% placed; 22.5% co-participation		~~General Liability: $3.0~~Supported Umbrella: $6.0 million excess of ~~$2.0~~$4.0 million ~~Supported~~ Unsupported Umbrella: ~~$9.0~~$5.0 million excess of ~~$1.0~~$5.0 million ~~Unsupported Umbrella: $8.0~~ Professional Liability: $5.0 million excess of ~~$2.0~~$5.0 million
Primary ~~Workers~~Workers' Compensation		$37.0 million excess of $3.0 million
~~Excess Workers Compensation~~Marine		$~~95.0 million excess of $5.0 million~~
~~Marine~~		~~$42.5~~45.0 million excess of $2.5 million

Custom Bonds

⁽¹⁾

$38.0 million excess of $2.0 million

(1)	Our excess of loss reinsurance reduces the financial impact of a loss occurrence. Our excess of loss reinsurance includes reinstatement provisions, inuring relationships, and other clauses that may impact the amount recovered on a loss occurrence.

At each annual renewal, we consider any plans to change the underlying insurance coverage we offer, as well as updated loss activity, the level of our capital and surplus, changes in our risk appetite and the cost and availability of reinsurance treaties.

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible. ~~At each~~The allowance related to credit default with respect to our reinsurance assets as of ~~June~~September 30, 2020 and December 31, 2019 ~~and 2018 the allowance for uncollectible reinsurance~~ was ~~$7.2~~$0.7 million and ~~$5.5~~$0.5 million respectively. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At June 30, 2019, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better. The remaining reinsurance recoverable with non rated reinsurers is collateralized through funds held and letters of credit.

Ratings

ProSight and its insurance subsidiaries 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 “F” (In Liquidation). 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

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Business—A downgrade in our Financial Strength Ratings (“FSRs”) from A.M. Best could negatively affect our results of operations.”

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance subsidiaries to attract and retain our distribution partners and on the risk profiles of the submissions for insurance that the insurance subsidiaries receive. The “A-” (Excellent) rating affirmed by A.M. Best on November ~~1, 2018~~22, 2019 is consistent with our business plan and allows us to actively pursue relationships with the distribution partners identified in our marketing plan.

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Financial Condition

Stockholders’ ~~equity~~Equity

At ~~June~~September 30, ~~2019,~~2020, total stockholders’ equity was ~~$459.0~~$607.9 million and tangible stockholders’ equity was ~~$429.7~~$578.7 million, compared to total stockholders’ equity of ~~$389.8~~$543.0 million and tangible stockholders’ equity of ~~$360.6~~$513.8 million at December 31, ~~2018.~~2019. The increase in both total and tangible stockholders’ equity was primarily due to net income from continuing operations of $25.6 million and net unrealized gains on ~~investment~~available-for-sale fixed maturity securities, net of ~~$51.2 million and net income~~tax of ~~$22.4~~$33.6 million, for the ~~six~~nine months ended ~~June~~September 30, ~~2019.~~2020.

Tangible stockholders’ equity is a non-GAAP financial measure. We define tangible stockholders’ equity as stockholders’ equity less goodwill and intangible assets. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders’ equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.

Stockholders’ equity at ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018~~2019 reconciles to tangible stockholders’ equity as follows:



					September 30, 2020		December 31, 2019
	June 30, 2019		December 31, 2018
($ in thousands)
Stockholders’ equity	$	458,950	$	389,830	$	607,872	$	543,031
Less: Intangible assets		29,204		29,219
Less: goodwill and net intangible assets						29,166		29,189
Tangible stockholders’ equity	$	429,746	$	360,611	$	578,706	$	513,842
Book value per share	$	11.81	$	10.03	$	14.00	$	12.61
Tangible book value per share	$	11.06	$	9.28	$	13.33	$	11.93

~~Initial Public Offering~~

On July 29, 2019, the Company completed its initial public offering (“IPO”) with the sale of 7,857,145 shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (collectively, the “GS Investors”) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively the “TPG Investors” and together with the GS Investors, the “Principal Stockholders”) of 3,571,430 shares of the Company’s common stock.

~~2019 Equity Incentive Plan~~

In connection with, and prior to the completion of the IPO, PGHL’s Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”) was terminated. Immediately prior to the merger, all outstanding ~~P Shares granted under the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan converted into RSUs based on the shares of common stock of the Company~~.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance shares, and units and other cash‑based or share‑based awards.

~~The following is a summary of the post-offering compensation included in the 2019 Plan, including the number of common stock reserved to each award mentioned below:~~

~~(i)~~

~~(ii)~~

~~(iii)~~

~~250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant date. These awards will cliff vest on the third anniversary of the grant date.~~

~~(iv)~~

~~(v)~~

~~668,135 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the Company’s common stock upon the consummation the merger.~~

~~2019 Employee Stock Purchase Plan~~

On July 24, 2019, the Company’s 2019 Employee Stock Purchase Plan (the “2019 ESPP”) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. A ~~total of 1,000,000 shares of the Company’s common stock will be reserved and available for sale under the 2019 ESPP.~~

~~The compensation committee of the board of directors administers the 2019 ESPP and have full authority to interpret the terms of the 2019 ESPP.~~

~~Investment portfolio~~Portfolio

Our cash and invested assets consist of debt securities, cash and cash equivalents, short-term investments, commercial levered loans and alternative investments.

At ~~June~~September 30, ~~2019~~2020, the majority of the portfolio, or ~~$1.9~~$2.2 billion, was comprised of securities that are classified as available-for sale and 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. Also included in our investments were ~~$190.4~~$270.4 million of alternative investments carried at fair value. Our securities, including cash equivalents, had a weighted average duration of ~~2.9~~4.6 years and an average rating of “A” at ~~June~~September 30, ~~2019. Our investment portfolio had a gross return of 3.7% at June 30, 2019, compared to 3.6% at June 30, 2018.~~ 2020.

At ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the ~~amortized~~ cost and fair value on ~~fixed-maturity securities~~cash and invested assets were as follows:

June 30, 2019

December 31, 2018

Estimated

% of Total

Estimated Fair

% of Total Fair

Amortized Cost

Fair Value

Fair Value

Amortized Cost

Value

Value

($ in thousands)










Fixed rate securities:

$
1,092,429

$
1,111,505

53.7
%

$
1,045,990

$
1,010,781

55.3
%
Floating rate securities:

631,504

644,466

31.8
%

554,626

556,104

30.4
%
Alternate available-for-sale:

131,227

128,018

6.2
%

129,139

126,497

6.9
%
Total Bonds

1,855,160

1,883,989

91.7
%

1,729,755

1,693,382

92.6
%
Other investments:







Commercial levered loans

16,549

16,168

0.8
%

16,915

15,858

0.9
%
Limited partnerships

62,351

62,351

3.0
%

53,432

53,432

2.9
%
Short-term investments

49,824

49,824

2.4
%

36,661

36,661

2.0
%
Cash and cash equivalents

43,170

43,170

2.1
%

29,900

29,900

1.6
%
Total other investments

171,894

171,513

8.3
%

136,908

135,851

7.4
%
Total Investments

$
2,027,054

$
2,055,502

100.0
%

$
1,866,663

$
1,829,233

100.0
%


	September 30, 2020						December 31, 2019
			Estimated		% of Total				Estimated Fair		% of Total Fair
	Cost		Fair Value		Fair Value		Cost		Value		Value

($ in thousands)
Fixed and floating rate securities	$	1,989,098	$	2,074,391	85.8	%	$	1,848,964	$	1,891,148	86.3	%
Alternate available-for-sale		187,677		185,802	7.7			150,439		149,534	6.8
Total fixed maturity securities		2,176,775		2,260,193	93.5			1,999,403		2,040,682	93.1
Other investments:
Commercial levered loans		13,433		12,991	0.6			14,069		13,950	0.6
Bond exchange-traded funds		12,878		12,838	0.5			—		—	—
Non-redeemable preferred stock securities		11,670		11,913	0.5			—		—	—
Limited partnerships and limited liability companies		84,608		84,608	3.5			66,660		66,660	3.0
Short-term investments		154		154	0.0			43,873		43,873	2.0
Total other investments		122,743		122,504	5.1			124,602		124,483	5.6
Total investments		2,299,518		2,382,697	98.6			2,124,005		2,165,165	98.7
Cash, cash equivalents, and restricted cash		34,234		34,234	1.4			27,497		27,497	1.3
Total	$	2,333,752	$	2,416,931	100.0	%	$	2,151,502	$	2,192,662	100.0	%

As of September 30, 2020, approximately 14.8% of our fixed maturity securities portfolio was comprised of investment securities that have a floating interest rate compared to approximately 33.1%, as of December 31, 2019. Included in December 31, 2019, within our floating interest rate securities was 12.2% of total fair value that is no longer considered floating interest rate securities such as asset-backed securities, corporate securities, commercial mortgage-backed securities, agency residential mortgage-backed securities and non-agency residential mortgage-backed securities. These securities were reclassified by our new investment accounting service provider to fixed rate securities due to characteristics that better align with coupon variability. Our floating rate securities are classified as having coupons that reset at a set schedule off of an index rate.

The table below presents the credit quality of total ~~bonds~~fixed maturity securities at ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, as rated by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) or Equivalent Designation:


	September 30, 2020				December 31, 2019
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
($ in thousands)
AAA	$	218,857	9.7	%	$	219,696	10.8	%
AA		542,023	24.0			356,924	17.5
A		705,998	31.2			719,394	35.2
BBB		603,282	26.7			563,680	27.6
Below BBB/Not rated		190,032	8.4			180,988	8.9
Total	$	2,260,193	100.0	%	$	2,040,682	100.0	%

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The table below presents the credit quality of total fixed maturity securities at September 30, 2020 and December 31, 2019, either rated below BBB or not rated by Standard & Poor’s and their National Association of Insurance Commissioners (“NAIC”) designation:

June 30, 2019

December 31, 2018

Standard & Poor’s or Equivalent Designation

Estimated Fair Value

% of Total


Estimated Fair Value

% of Total

($ in thousands)

AAA

$
207,318

11.0
%

$
172,575

10.2
%
AA

271,246

14.4
%

295,704

17.4
%
A

663,241

35.2
%

570,846

33.7
%
BBB

569,331

30.2
%

493,900

29.2
%
Below BBB/Not rated

172,853

9.2
%

160,357

9.5
%
Total

$
1,883,989

100.0
%

$
1,693,382

100.0
%


		September 30, 2020
		NAIC Designation (Estimated Fair Value)
Standard & Poor’s or Equivalent Designation		1		2		3		4		5		6		Total
($ in thousands)
BB	$	2,395	$	31,587	$	51,849	$	889	$	546	$	-	$	87,266
B		3,963		539		4,342		6,486		-		-		15,330
CCC		32,226		-		675		985		3,508		-		37,394
CC or lower		27,049		-		-		-		-		22,994		50,043
Total	$	65,633	$	32,126	$	56,866	$	8,360	$	4,053	$	22,994	$	190,032


		December 31, 2019
		NAIC Designation (Estimated Fair Value)
Standard & Poor’s or Equivalent Designation		1		2		3		4		5		6		Total
($ in thousands)
BB	$	11,533	$	-	$	60,917	$	2,516	$	-	$	-	$	74,966
B		698		-		111		12,691		-		-		13,500
CCC		33,893		-		-		-		-		-		33,893
CC or lower		35,590		32		-		-		-		23,007		58,629
Total	$	81,714	$	32	$	61,028	$	15,207	$	-	$	23,007	$	180,988

The amortized cost and fair value of our ~~available-for-sale investments in~~ fixed maturity securities ~~presented~~ by contractual maturity are shown below as of ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018, were as follows:~~2019.


		June 30, 2019					December 31, 2018
			Estimated		% of Fair				Estimated Fair

														September 30, 2020					December 31, 2019
															Estimated		% of Fair				Estimated Fair
													Amortized Cost		Fair Value		Value		Amortized Cost		Value		% of Fair Value
	Amortized Cost		Fair Value		Value		Amortized Cost		Value		% of Fair Value
($ in thousands)
Due in one year or less	$	85,287	$	85,352	4.5	%	$	82,048	$	81,553	4.8	%	$	120,270	$	121,506	5.4	%	$	99,035	$	99,326	4.9	%
Due after one year through five years		724,384		731,504	38.8	%		613,707		602,223	35.6	%		617,687		643,790	28.5			679,649		692,219	33.9
Due after five years through ten years		499,428		510,299	27.1	%		552,061		529,257	31.2	%		513,039		543,555	24.0			507,803		523,276	25.6
Due after ten years		84,243		83,261	4.4	%		81,993		75,810	4.5	%		277,562		290,558	12.8			151,105		153,790	7.5
Government agency securities														28,990		29,520	1.3			6,523		6,532	0.3
Asset-backed securities		86,573		87,554	4.7	%		82,603		83,581	4.9	%		53,705		53,547	2.4			73,068		73,582	3.6
Collateralized Loan Obligations		173,538		172,141	9.2	%		161,421		156,913	9.3	%
Commercial Mortgage Backed Securities		65,174		66,561	3.5	%		55,980		53,843	3.2	%
Residential Mortgage Backed Securities– non-agency		66,350		77,148	4.1	%		68,594		79,551	4.7	%
Residential Mortgage Backed Securities – agency		70,183		70,169	3.7	%		31,348		30,651	1.8	%
Collateralized loan obligations														174,589		171,170	7.6			181,704		179,549	8.8
Commercial mortgage-backed securities														113,076		119,725	5.3			95,810		97,526	4.8
Residential mortgage-backed securities – non-agency														112,904		117,935	5.2			62,343		71,610	3.5
Residential mortgage-backed securities – agency														164,953		168,887	7.5			142,363		143,272	7.0
Total fixed maturities	$	1,855,160	$	1,883,989	100.0	%	$	1,729,755	$	1,693,382	100.0	%	$	2,176,775	$	2,260,193	100.0	%	$	1,999,403	$	2,040,682	100.0	%

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.

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Restricted ~~investments~~Investments

In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of cash or certain high-grade securities.

The fair value of our restricted assets was ~~$569.6~~$561.5 million at ~~June~~September 30, ~~2019.~~2020. This includes ~~$124.4~~$153.2 million of funds in trust for the mutual benefit of our insurance companies due to participation in our intercompany pooling agreement. Restricted investments ~~increased 4.1%~~decreased 2.8%, or ~~$22.5~~$16.4 million, when compared to December 31, ~~2018~~2019 primarily due to the closure of two collateral trust accounts in the third quarter offset by an increase in reinsurance collateral and state ~~deposits.~~deposits, and market appreciation from fixed maturity securities.

~~Off-balance sheet arrangements~~Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements as of ~~June~~September 30, ~~2019.~~2020.

As part of the 2017 sale transaction to divest our U.K. business, we entered into Aggregate Stop-Loss and 100% Quota Share reinsurance agreements as reinsurer, with Lloyd’s Syndicate 1110 as our reinsured and committed to fund Lloyd’s Syndicate 1110’s “Funds At Lloyd’s” requirements until June 30, 2020, though such Funds at Lloyd’s obligations would effectively terminate when the 2017 Year of Account completes a “Reinsurance to Close” transaction, which is expected by March 2020. We entered into a Letter of Credit facility arranged to fulfill a portion of these requirements. The facility has a principal amount of £17.7 million and contains certain covenants that require us, among other items, to maintain a minimum net worth, to remain within maximum leverage ratios, meet a minimum RBC ratio and maintain specified liquidity levels.

Reconciliation of Non-GAAP Financial Measures

Reconciliation of ~~underwriting income~~Underwriting (Loss) Income

Underwriting (loss) income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income. Underwriting income represents the pre-tax profitability of our insurance operations and is derived by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums. We use underwriting (loss) income as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations and our underlying business performance. Underwriting (loss) income should not be considered in isolation or viewed as a substitute for net income from continuing operations calculated in accordance with GAAP, and other companies may calculate underwriting (loss) income differently.

Net income from continuing operations for the three and ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019 reconciles to underwriting (loss) income as follows:


	Three Months Ended June 30				Six Months Ended June 30

									Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	8,696	$	14,652	$	22,391	$	24,662
Net income from continuing operations									$	1,498	$	8,361	$	25,592	$	30,752
Income tax expense		2,423		3,723		6,238		6,281		412		2,015		7,151		8,253
Income before taxes		11,119		18,375		28,629		30,943
Income from continuing operations before taxes										1,910		10,376		32,743		39,005
Net investment income		17,398		15,548		34,556		29,257		20,307		16,974		52,913		51,530
Net investment gains		137		686		250		399
Realized investment gains, net										1,398		245		3,521		495
Interest and other expense, net		10,220		2,916		13,489		5,779		5,549		10,182		14,635		23,671
Underwriting income	$	3,804	$	5,057	$	7,312	$	7,066
Underwriting (loss) income									$	(14,246)	$	3,339	$	(9,056)	$	10,651

Reconciliation of ~~adjusted operating income~~Adjusted Operating Income

Adjusted operating income is a non-GAAP financial measure that we use 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 underlying business performance, by excluding items that are not part of

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our underlying profitability drivers or likely to re-occur in the foreseeable future. Adjusted operating income should not be considered in isolation or viewed as a substitute for our net income from continuing operations calculated in accordance with GAAP. Other companies may calculate adjusted operating income differently.

~~Adjusted operating~~Net income from continuing operations for the three and ~~six~~nine months ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019 reconciles to ~~net~~adjusted operating income as follows:


	Three Months Ended June 30				Six Months Ended June 30

									Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	8,696	$	14,652	$	22,391	$	24,662
Net income from continuing operations									$	1,498	$	8,361	$	25,592	$	30,752
Income tax expense		2,423		3,723		6,238		6,281		412		2,015		7,151		8,253
Income before taxes		11,119		18,375		28,629		30,943
Transition expense and net investment (gains)		7,033		(686)		6,920		(399)
Income from continuing operations before taxes										1,910		10,376		32,743		39,005
Other expense										1,394		7,162		4,521		14,332
Realized investment gains, net										(1,398)		(245)		(3,521)		(495)
Adjusted operating income before taxes		18,152		17,689		35,549		30,544		1,906		17,293		33,743		52,842
Less: income tax expense on adjusted operating income		3,924		3,579		7,691		6,197		411		3,468		7,369		11,159
Adjusted operating income	$	14,228	$	14,110	$	27,858	$	24,347	$	1,495	$	13,825	$	26,374	$	41,683

Critical ~~accounting estimates~~Accounting Estimates

We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of 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. Our critical accounting policies and estimates are described in ~~our annual consolidated financial statements and~~ the ~~related notes in the Prospectus.~~Company’s 2019 Annual Report.

For additional information about our critical accounting policies and estimates, see the disclosure included in the ~~Prospectus,~~Company’s 2019 Annual Report, as well as Note 11. – Basis of Reporting in the notes to the ~~condensed~~ consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

~~Market risk is the risk of economic losses due to adverse~~There have been no material 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~~information about market risk ~~affecting us are credit risk~~set forth in the Company’s 2019 Annual Report. The COVID-19 pandemic does present new and ~~interest rate risk. We do not have significant exposure~~emerging uncertainty to ~~equity risk, foreign currency exchange rate risk or commodity 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 debt instruments. Our risk management strategy and investment policy is 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, 2018, our securities portfolio had an average rating of “A,” with approximately 66.2% of securities in that portfolio rated “A” or better by at least one nationally recognized rating organization. Our policy is to invest in investment-grade securities and to limit investments in fixed maturities that are unrated or rated below investment-grade. At December 31, 2018, approximately 7.4% of our securities portfolio was unrated or rated below investment-grade. We monitor the financial ~~condition~~markets. See further discussion in Item 2, Management’s Discussion and Analysis of ~~all~~Financial Condition and Results of ~~the issuers~~Operations, and Part II, Item 1A., Risk Factors, of ~~securities in our portfolio.~~this Quarterly Report on Form 10-Q.

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. We address this credit risk by selecting reinsurers that generally have an A.M. Best rating of “A-” (Excellent) or better at the time we enter into the agreement and by performing, along with our reinsurance broker, periodic credit reviews of our reinsurers. If one of our reinsurers suffers a credit downgrade, we may consider various options to lessen the risk of asset impairment, including commutation, novation and letters of credit.

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The primary market risk to our investment portfolio is interest rate risk associated with investments in 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 securities decreases. Conversely, as interest rates fall, the fair value of our 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 in directional relation 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, including cash equivalents, was 2.9 years as of December 31, 2018.

We had securities that were subject to interest rate risk with a fair value of $1.7 billion at December 31, 2018 and $1.5 billion at December 31, 2017. The table below illustrates the sensitivity of the fair value of our securities to selected hypothetical changes in interest rates as of December 31, 2018 and 2017.

December 31, 2018

December 31, 2017

($ in thousands)

Estimated Fair Value

Estimated Change in Fair Value

Estimated % Increase (Decrease) in Fair Value

Estimated Fair Value

Estimated Change in Fair Value

Estimated % Increase (Decrease) in Fair Value

200 basis points increase

$
1,600,239

$
(93,143)

(5.5)
%

$
1,376,647

$
(107,784)

(7.3)
%
100 basis points increase

$
1,645,364

$
(48,018)

(2.8)
%

$
1,428,390

$
(56,041)

(3.8)
%
No Change

$
1,693,382

$
-

-
%

$
1,484,431

$
-

-
%
100 basis points decrease

$
1,744,292

$
50,910

3.0
%

$
1,544,770

$
60,399

4.1
%
200 basis points decrease

$
1,798,095

$
104,713

6.2
%

$
1,609,406

$
124,975

8.4
%

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form ~~10‑Q,~~10-Q, the Company’s management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules ~~13a‑15(e)~~13a-15(e) and ~~15d‑15(e)~~15d-15(e) under the Securities Exchange ~~Act.~~Act of 1934 (“Exchange Act”). Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective in ensuring that material information relating to the Company required to be disclosed in the Company’s periodic SEC filings is made known to them in a timely manner.

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Changes in Internal Controls over Financial Reporting

No changes in our internal control over financial reporting (as defined in Rules ~~13a‑15(f)~~13a-15(f) and ~~15d‑15(f)~~15d-15(f) under the Exchange Act) occurred during the quarter ended ~~June~~September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

Part II: Other Information

Item 1: Legal Proceedings

We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.

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Item 1A: Risk Factors

~~There~~Except as set forth below, as of the date of this report, there have been no material changes with respect to ~~our~~those risk factors previously disclosed in our 2019 Annual Report.

The impact of COVID-19 and related risks could materially affect our results of operations, financial position or liquidity.

Beginning in March 2020, the ~~Company’s Prospectus filed~~pandemic related to the novel coronavirus COVID-19 began to impact the global economy. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 could include, without limitation, the following:

●

Revenues. The impact of COVID-19 on general economic activity has negatively impacted our premium volumes in the second and third quarters of 2020, and may continue to negatively impact our premium volumes to a degree that will vary based on the extent and duration of any economic contraction or related behavioral changes.

●

Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address the impact of COVID-19 may continue to adversely affect us. We may become subject to legislative and/or regulatory action that retroactively mandates coverage for losses that our insurance policies were not intended or priced to cover, including business interruption claims, despite terms included in our policies to preclude coverage or that creates presumptions of compensability not otherwise present (including for example in workers’ compensation exposures). Regulatory requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel policies, collect premiums, or requiring us to refund premiums in a manner not otherwise required.

●

Claims and Claim Adjustment Expenses. We may incur higher claims and claim adjustment expenses in certain lines of business due to increases in claims frequency and/or severity. Short-term and long-term impacts of COVID-19 could impact our various product lines in ways we cannot adequately predict.

●

Losses and Loss Reserves. Anticipated and unknown risks related to COVID-19 may cause uncertainty in the process of estimating losses and loss reserves. As a result, our estimated loss reserves may change. Higher inflation than anticipated could lead to an increase in our loss costs and a need to strengthen loss reserves. Such impacts could be more pronounced for those lines of business requiring a relatively longer period of time to finalize and settle claims.

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●

Investments. The value of corporate, municipal and structured securities (including mortgage-backed securities) in our investment portfolio may be adversely impacted by ratings downgrades, government deficits, increased bankruptcies, credit spread widening, and real estate market disruption/devaluation, or could be subject to impairment as a result of issuer creditworthiness deterioration, default, and/or interest rate increases. Further disruption in global financial markets due to the continuing pandemic could result in net realized investment losses.

●

Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of management, a significant percentage of our workforce, or the workforce of certain third parties (including our agents, brokers or service providers) are unable to continue to work because of illness, government directives or otherwise. The interruption of system capabilities for our agents, brokers or service providers could result in deterioration of our ability to perform necessary business functions, and the shift to remote work arrangements by us, our business partners, and our service providers could heighten the risk of cybersecurity or data security incidents.

The extent of the impact of COVID-19 on our business, results of operations, financial position or liquidity will depend largely on future developments, which are highly uncertain and cannot be predicted. To the extent the COVID-19 pandemic continues to adversely affect the U.S. or global economy or adversely affects our business, results of operations, financial position or liquidity, it may also have the effect of increasing the likelihood or magnitude of the other risks described in our 2019 Annual Report or in our other filings with the ~~Securities~~SEC. Additional risks and ~~Exchange Commission on July 25, 2019 pursuant~~uncertainties not currently known to ~~Rule 424(b)~~us or that we deem to be immaterial also may materially and adversely affect our business, results of ~~the Securities Act of 1933, as amended.~~operations, financial position or liquidity.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

~~(b) Use of Proceeds~~None.

On July 29, 2019, the Company completed its IPO with the sale of 7,857,145 shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by the Principal Stockholders of 3,571,430 shares of the Company’s common stock. Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00 pursuant to the Prospectus that formed part of the Company’s Registration Statement on Form S-1 (File No. 333-232440), which became effective on July 24, 2019. After deducting underwriting discounts and commissions and estimated offering expenses, net proceeds from the IPO were approximately $51.6 million. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO.

We intend to use the net proceeds from the IPO for general corporate purposes, which may include capital contributions to our insurance subsidiaries in conjunction with future growth of premiums written. The principal purposes of the IPO are to create a public market for our common stock, obtain additional capital, facilitate future access to public equity markets, increase awareness of our company in the market, facilitate the use our common stock as a means of attracting and retaining key employees and provide liquidity to our current stockholders.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information

None.

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Item 6: Exhibits

We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.


	Exhibit Index
Exhibit Number	~~Exhibit Index~~Description
~~Exhibit Number~~3.1	~~Description~~
~~3.1~~	Amended and Restated Certificate of Incorporation of ProSight Global, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 29, 2019).
3.2	Amended and Restated Bylaws of ProSight Global, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed July 29, 2019).
4.1	Form of Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K/A filed March 10, 2020).
4.2	Registration Rights Agreement between ProSight Global, Inc. and the Holders party thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 29, 2019).
10.1	Transition Agreement, dated September 2, 2020, between the Company and Frank Papalia.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	These certifications are furnished and are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

5256

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ProSight Global, Inc.
	~~ProSight Global, Inc.~~

Dated: ~~August 8, 2019~~November 10, 2020	By:	/s/ Lawrence Hannon
		Lawrence Hannon
		President and Chief Executive Officer

Dated: ~~August 8, 2019~~November 10, 2020	By:	/s/ Anthony S. Piszel
		Anthony S. Piszel
		Chief Financial Officer

5357


PART I. FINANCIAL INFORMATION		Page

Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) as of ~~June~~September 30, ~~2019~~2020 and December 31, ~~2018~~2019	2
	Consolidated Statements of Operations (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019	3
	Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019	4
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019	5
	Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25 29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48 53
Item 4.	Controls and Procedures	49
			53

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	50 54
Item 1A.	Risk Factors	51 54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51 55
Item 3.	Defaults Upon Senior Securities	51 55
Item 4.	Mine Safety Disclosures	51 55
Item 5.	Other Information	51 55
Item 6.	Exhibits	52 56
	Signatures	53 57



($ in thousands)	Gross		Tax		Net
December 31, 2017	$	22,265	$	2,968	$	19,297
Unrealized holding losses on fixed income securities		(40,031)		(8,425)		(31,606)
Amounts reclassified into net income		974		(109)		1,083
Other comprehensive loss		(41,005)		(8,316)		(32,689)
June 30, 2018	$	(18,740)	$	(5,348)	$	(13,392)


	Line in Consolidated	Three Months Ended June 30				Six Months Ended June 30

										Line in Consolidated	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	Statements of Operations	2019		2018		2019		2018		Statements of Operations	2020		2019		2020		2019
AOCI
Unrealized gains on securities	Realized investment gains (losses)	$	189	$	776	$	(25)	$	974	Realized investment gains, net	$	1,531	$	4,362	$	6,151	$	4,337
	Income tax (benefit) expense		(28)		45		(52)		(109)
										Income tax expense		228		156		1,090		104
Reclassification adjustment for credit losses included in net income										Realized investment gains, net		316		—		(1,670)		—
										Income tax expense		66		—		(351)		—
Total reclassifications	Net realized investment gains	$	217	$	731	$	27	$	1,083		$	1,553	$	4,206	$	3,742	$	4,233


	June 30, 2019				December 31, 2018
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
($ in thousands)
AAA	$	207,318	11.0	%	$	172,575	10.2	%
AA		271,246	14.4	%		295,704	17.4	%
A		663,241	35.2	%		570,846	33.7	%
BBB		569,331	30.2	%		493,900	29.2	%
Below BBB/Not rated		172,853	9.2	%		160,357	9.5	%
Total	$	1,883,989	100.0	%	$	1,693,382	100.0	%