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 ~~March 31,~~June 30, 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 (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ~~43,342,399~~43,587,642 shares of Common Stock ($0.01 par value) outstanding as of ~~May 12,~~August 10, 2020.

ProSight Global, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)



	March 31,		December 31,


					June 30,		December 31,
($ in thousands except share amounts)	2020		2019		2020		2019
Assets
Investments:
Fixed maturity securities, available-for-sale at fair value (amortized cost $2,038,469 in 2020 and $1,999,403 in 2019, allowance for credit losses $(416) in 2020 and $0 in 2019)	$	2,002,420	$	2,040,682
Commercial levered loans at amortized cost (fair value $12,246 in 2020 and $13,950 in 2019)		13,725		14,069
Non-redeemable preferred stock securities at fair value (amortized cost $11,669 in 2020 and $0 in 2019)		11,378		—
Limited partnerships and limited liability companies at fair value (cost $67,445 in 2020 and $62,226 in 2019)		65,011		66,660
Fixed maturity securities, available-for-sale at fair value (amortized cost $2,102,989 in 2020 and $1,999,403 in 2019, allowance for credit losses $(1,985) in 2020 and $0 in 2019)					$	2,162,780	$	2,040,682
Commercial levered loans at amortized cost (fair value $12,628 in 2020 and $13,950 in 2019)						13,463		14,069
Non-redeemable preferred stock securities at fair value (amortized cost $11,670 in 2020 and $0 in 2019)						11,785		—
Limited partnerships and limited liability companies at fair value (cost $74,019 in 2020 and $62,226 in 2019)						79,717		66,660
Short-term investments		19,229		43,873		496		43,873
Total investments		2,111,763		2,165,284		2,268,241		2,165,284
Cash and cash equivalents		43,141		17,284		50,637		17,284
Restricted cash		8,786		10,213		9,966		10,213
Accrued investment income		13,812		13,610		14,119		13,610
Premiums and other receivables, net		156,241		190,004		143,519		190,004
Receivable from reinsurers on paid losses, net		4,876		3,481		2,497		3,481
Reinsurance receivables on unpaid losses, net		156,866		193,952		141,427		193,952
Deferred policy acquisition costs		99,842		98,812		94,587		98,812
Prepaid reinsurance premiums		40,383		42,861		47,837		42,861
Net deferred income taxes		20,598		4,803		—		4,803
Goodwill and net intangible assets		29,181		29,189		29,174		29,189
Fixed assets and capitalized software, net		36,313		37,167		35,630		37,167
Funds withheld related to sale of affiliate		19,529		19,453		19,529		19,453
Other assets		21,615		29,537		34,218		29,537
Assets of discontinued operations		23,342		21,584		23,171		21,584
Total assets	$	2,786,288	$	2,877,234	$	2,914,552	$	2,877,234


Liabilities
Reserve for unpaid losses and loss adjustment expenses	$	1,545,799	$	1,521,648	$	1,544,123	$	1,521,648
Reserve for unearned premiums		468,486		483,223		450,934		483,223
Ceded reinsurance payable		13,148		17,768		20,324		17,768
Notes payable, net of debt issuance costs		164,778		164,693		164,862		164,693
Secured loan payable, net of issuance costs						24,997		—
Funds held under reinsurance agreements		23,374		58,855		22,858		58,855
Net deferred income taxes						75		—
Other liabilities		48,843		56,438		66,762		56,438
Liabilities of discontinued operations		33,758		31,578		33,517		31,578
Total liabilities		2,298,186		2,334,203		2,328,452		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; 43,355,319 and 43,071,186 shares issued, 43,342,399 and 43,058,266 shares outstanding in 2020 and 2019, respectively		433		431		433		431
Paid-in capital		661,203		661,761		664,895		661,761
Accumulated other comprehensive (loss) income		(23,988)		37,453
Accumulated other comprehensive income						52,756		37,453
Retained deficit		(149,346)		(156,414)		(131,784)		(156,414)
Treasury shares - at cost (12,920 shares)		(200)		(200)		(200)		(200)
Total stockholders’ equity		488,102		543,031		586,100		543,031
Total liabilities and stockholders’ equity	$	2,786,288	$	2,877,234	$	2,914,552	$	2,877,234

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)


	Three Months Ended March 31

					Three Months Ended June 30					Six Months Ended June 30
($ in thousands except per share amounts)	2020		2019		2020			2019		2020		2019
Gross written premiums	$	213,784	$	255,838	$	186,394		$	235,032	$	400,178	$	490,870
Net earned premiums		205,662		195,608		181,629			202,480		387,291		398,088
Net investment income		8,815		17,158		23,791			17,398		32,606		34,556
Realized investment gains, net		232		113		1,891			137		2,123		250
Other income		112		93		101			97		213		190
Total revenues		214,821		212,972		207,412			220,112		422,233		433,084


Expenses:
Net losses and loss adjustment expenses incurred		127,557		118,333		112,473			127,115		240,030		245,448
Policy acquisition expenses		46,986		46,573		42,033			45,533		89,019		92,106
General and administrative expenses		26,637		27,194		26,415			26,028		53,052		53,222
Interest expense		3,105		3,362		3,067			3,147		6,172		6,509
Other expense		1,737		—		1,390			7,170		3,127		7,170
Total expenses		206,022		195,462		185,378			208,993		391,400		404,455
Income from continuing operations before income taxes		8,799		17,510		22,034			11,119		30,833		28,629


Income tax provision:
Current		1,631		141		4,116			82		5,747		223
Deferred		357		3,674		635			2,341		992		6,015
Total income tax expense		1,988		3,815		4,751			2,423		6,739		6,238
Net income from continuing operations		6,811		13,695		17,283			8,696		24,094		22,391


Discontinued operations:
Net income (loss) from discontinued operations		257		(255)		279			(78)		536		(333)
Net income	$	7,068	$	13,440	$	17,562	��	$	8,618	$	24,630	$	22,058


Earnings per share – basic:
Net income from continuing operations	$	0.16	$	0.35	$	0.39		$	0.22	$	0.55	$	0.58
Net income	$	0.16	$	0.35	$	0.40		$	0.22	$	0.56	$	0.57


Earnings per share – diluted:
Net income from continuing operations	$	0.15	$	0.35	$	0.39		$	0.22	$	0.55	$	0.57
Net income	$	0.16	$	0.34	$	0.40		$	0.22	$	0.56	$	0.56

ProSight Global, Inc. and Subsidiaries

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

Three Months Ended March 31
($ in thousands)

2020

2019
Net income

$
7,068

$
13,440
Other comprehensive (loss) income, net of taxes:



Change in unrealized holding (losses) gains on available-for-sale debt securities, net of deferred tax (benefit) expense of $(16,102) in 2020 and $7,241 in 2019

(60,964)

27,562
Less: reclassification adjustment for gains (losses) included in net income, net of tax expense (benefit) of $136 in 2020 and $(24) in 2019

806

(190)
Less: reclassification adjustment for credit losses included in net income, net of tax benefit of $(87) in 2020 and $0 in 2019

(329)

—
Other comprehensive (loss) income

(61,441)

27,752
Comprehensive (loss) income

$
(54,373)

$
41,192


	Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019
Net income	$	17,562	$	8,618	$	24,630	$	22,058
Other comprehensive income, net of taxes:
Change in unrealized holding gains on available-for-sale debt securities, net of deferred tax expense of $20,851 and $4,749 in 2020 and $6,206 and $13,447 in 2019		78,456		23,624		17,492		51,186
Less: reclassification adjustment for gains included in net income, net of tax expense (benefit) of $726 and $862 in 2020 and $(28) and $(52) in 2019		2,952		217		3,758		27
Less: reclassification adjustment for credit losses included in net income, net of tax benefit of $(330) and $(417) in 2020 and $0 and $0 in 2019		(1,240)		—		(1,569)		—
Other comprehensive income		76,744		23,407		15,303		51,159
Comprehensive income	$	94,306	$	32,025	$	39,933	$	73,217

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		(Loss) Income		Deficit		Shares		Total		Stock		Stock		Capital		Income (Loss)		Deficit		Shares		Total
December 31, 2018	$	—	$	389	$	607,260	$	(22,315)	$	(195,304)	$	(200)	$	389,830	$	—	$	389	$	607,260	$	(22,315)	$	(195,304)	$	(200)	$	389,830
Stock based employee compensation plan		—		—		77		—		—		—		77		—		—		77		—		—		—		77
Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $7,265		—		—		—		27,752		—		—		27,752		—		—		—		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 available-for-sale debt securities, net of deferred tax expense of $6,234																—		—		—		23,407		—		—		23,407
Net income																—		—		—		—		8,618		—		8,618
June 30, 2019															$	—	$	389	$	603,163	$	28,844	$	(173,246)	$	(200)	$	458,950


December 31, 2019	$	—	$	431	$	661,761	$	37,453	$	(156,414)	$	(200)	$	543,031	$	—	$	431	$	661,761	$	37,453	$	(156,414)	$	(200)	$	543,031
Stock based employee compensation plan		—		2		1,754		—		—		—		1,756		—		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)		—		—		—		(61,441)		—		—		(61,441)
Retirement of common stock (tax payments on equity compensation)		—		—		(2,263)		—		—		—		(2,263)		—		—		(2,263)		—		—		—		(2,263)
Payments related to offering costs		—		—		(49)		—		—		—		(49)		—		—		(49)		—		—		—		(49)
Net income		—		—		—		—		7,068		—		7,068		—		—		—		—		7,068		—		7,068
March 31, 2020	$	—	$	433	$	661,203	$	(23,988)	$	(149,346)	$	(200)	$	488,102	$	—	$	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

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31

					Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019
Operating activities
Net income from continuing operations	$	6,811	$	13,695	$	24,094	$	22,391
Net income (loss) from discontinued operations		257		(255)		536		(333)
Net income		7,068		13,440		24,630		22,058


Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred taxes		357		3,674		992		6,015
Realized investment gains, net		(232)		(113)		(2,123)		(250)
Net limited partnerships losses (gains)		6,877		(1,251)
Net limited partnerships and limited liability companies gains						(1,254)		(2,449)
Net amortization (accretion) from bonds and commercial loans		598		(861)		1,808		(2,227)
Net change in fair value of non-redeemable preferred stock securities		291		—		(115)		—
Depreciation and amortization		1,987		2,100		4,186		4,131
Amortization of debt issuance costs		85		—		169		162
Stock based compensation		1,754		77		4,813		77


Changes in:
Premiums and other receivables, net		33,763		3,857		46,485		4,219
Receivable from reinsurers on paid losses and reinsurance receivable on unpaid losses		35,691		(20,033)		53,509		(22,225)
Ceded reinsurance payable		(4,620)		2,271		2,556		2,706
Accrued investment income		(202)		(229)		(509)		(1,035)
Deferred policy acquisition costs		(1,030)		(6,768)		4,225		(8,127)
Prepaid reinsurance premiums		2,478		(19,501)		(4,976)		(14,592)
Reserve for unpaid losses and loss adjustment expenses		24,151		52,723		22,475		86,848
Reserve for unearned premiums		(14,737)		34,027		(32,289)		36,974
Funds withheld related to sale of affiliate		(76)		—		(76)		(137)
Funds held under reinsurance agreements		(35,481)		14,621		(35,997)		9,197
Other assets		7,924		21,198		(4,465)		20,149
Other liabilities		(7,595)		(14,571)		10,324		17,819
Total adjustments		51,983		71,221		69,738		137,255
Net cash provided by operating activities – continuing operations		58,794		84,916		93,832		159,646
Net cash provided by (used in) operating activities – discontinued operations		62		(107)		115		(305)
Net cash provided by operating activities		58,856		84,809		93,947		159,341


Investing activities
Purchases of available-for-sale fixed maturity securities		(191,915)		(80,986)		(408,224)		(221,287)
Sales of available-for-sale fixed maturity securities		114,474		5,228		194,904		32,791
Redemptions of available-for-sale fixed maturity securities		38,376		38,218		111,877		64,310
Purchases of non-redeemable preferred stock securities		(11,669)		—		(11,669)		—
Redemptions of commercial levered loans		346		111		608		350
Purchases of limited partnerships		(6,873)		(1,944)		(13,651)		(8,244)
Distributions and redemptions from limited partnerships		1,644		793		1,847		1,775
Purchases of short-term investments		(25,634)		(126,088)		(34,955)		(241,574)
Sales of short-term investments		50,323		93,761		78,485		228,765
Acquisition of fixed assets and capitalized software		(1,125)		(1,654)		(2,634)		(3,260)
Net cash used in investing activities - continuing operations		(32,053)		(72,561)		(83,412)		(146,374)
Net cash (used in) provided by investing activities - discontinued operations		(15)		466
Net cash provided by (used in) investing activities - discontinued operations						634		(320)
Net cash used in investing activities		(32,068)		(72,095)		(82,778)		(146,694)


Financing activities
Payments related to offering costs		(49)		—		(49)		—
Tax withholding on stock compensation awards		(2,263)		—		(2,263)		—
Net cash used in financing activities		(2,312)		—

Proceeds from secured notes payable						24,997
Net cash provided by financing activities						22,685		—

Net change in cash and cash equivalents		24,476		12,714		33,854		12,647
Cash, cash equivalents and restricted cash at beginning of year - continuing operations		27,497		29,900		27,497		29,900
Cash, cash equivalents and restricted cash at beginning of year- discontinued operations		255		1,034		255		1,034
Less: cash, cash equivalents and restricted cash at end of period - discontinued operations		(301)		(1,348)		(1,003)		(411)
Cash, cash equivalents and restricted cash at end of period - continuing operations	$	51,927	$	42,300	$	60,603	$	43,170

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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”) have been prepared in conformity with U.S. generally accepted accounting principles (“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 included in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020, as amended by Amendment No. 1 to Form 10-K filed with the SEC on 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.

Prior to July 25, 2019, the Company was a wholly-owned subsidiary of ProSight Global Holdings Limited (“PGHL”), a Bermuda holding company. Effective July 25, 2019, prior to the completion of the Company’s initial public offering (“IPO”), PGHL merged with and into the Company, with the Company surviving the merger (the “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.

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.

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

Accounting Guidance Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016‑02,~~ 2016-02, Leases (“ASU 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 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~~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.

~~Table of Contents~~

~~ProSight Global, Inc. and Subsidiaries~~

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

The Company adopted ASU ~~2016‑02~~2016-02 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 certain of its leases). The Company

Table of Contents

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 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 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 adoption of this guidance did not have a material impact on the 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,~~ 2016-13, Financial Instruments — Credit Losses, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU ~~2016‑13~~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~~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 in the first quarter of 2020 using a modified retrospective approach. As of January 1, 2020, the Company’s adoption of this guidance did not have a material impact on 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 (“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 unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 in the first quarter of 2020 using a retrospective approach and as the requirements of this literature are disclosure only, ASU 2018-13 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 on its financial condition or 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

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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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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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Notes to Interim Consolidated Financial Statements (Unaudited)

3. Supplemental Cash Flow

The following table represents the supplemental cash flow information for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019:

Three Months Ended March 31
($ in thousands)

2020

2019
Non-cash activity:

Operating lease right-of-use assets due to adoption of ASU 2016-02 - continuing operations

$
4,810

$
—
Operating lease right-of-use assets due to adoption of ASU 2016-02 - discontinued operations

$
2,287

$
—
Operating lease liabilities due to adoption of ASU 2016-02 - continuing operations

$
5,533

$
—
Operating lease liabilities due to adoption of ASU 2016-02 - discontinued operations

$
2,665

$
—


	Six Months Ended June 30
($ in thousands)	2020		2019
Cash paid during the period for:
Interest	$	6,187	$	6,566
Non-cash activity:
Operating lease right-of-use assets due to the adoption of ASU 2016-02 - continuing operations	$	4,117	$	—
Operating lease right-of-use assets due to the adoption of ASU 2016-02 - discontinued operations	$	2,174	$	—
Operating lease liabilities due to the adoption of ASU 2016-02 - continuing operations	$	4,624	$	—
Operating lease liabilities due to the adoption of ASU 2016-02 - discontinued operations	$	2,526	$	—
Tax benefit on payments related to offering costs	$	635	$	—

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~~ProSight Global, Inc. and Subsidiaries~~

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

~~In March~~For the six months ended June 30, 2020, the Company withheld 154,629 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 284,133.

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 income ~~for~~from discontinued operations was $0.3 million and $0.5 million for the three and six months ended ~~March 31,~~June 30, 2020. Net loss ~~for~~from discontinued operations was $0.1 million and $0.3 million for the three and six months ended ~~March 31,~~June 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 sheets:


	March 31,		December 31,

					June 30,		December 31,
($ in thousands)	2020		2019		2020		2019
Assets
Cash and investments	$	10,080	$	10,428	$	10,120	$	10,428
Other assets		13,262		11,156		13,051		11,156
Total assets	$	23,342	$	21,584	$	23,171	$	21,584


Liabilities
Reserve for unpaid losses and loss adjustment expenses	$	24,149	$	24,169	$	24,146	$	24,169
Other liabilities		9,609		7,409		9,371		7,409
Total liabilities	$	33,758	$	31,578	$	33,517	$	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, and short-term investments. Fixed maturity securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), collateralized loan obligations (“CLO”), asset-backed securities (“ABS”) and corporate debt securities. Corporate debt securities may include

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Notes to Interim Consolidated Financial Statements (Unaudited)

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.

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(a) The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at ~~March 31,~~June 30, 2020, are as follows:


	Cost/				Gross		Gross
	Amortized		Credit Loss		Unrealized		Unrealized		Fair

											Cost/				Gross		Gross
											Amortized		Credit Loss		Unrealized		Unrealized		Fair
($ in thousands)	Cost		Allowance		Gains		Losses		Value		Cost		Allowance		Gains		Losses		Value
Fixed maturity securities:
U.S. Treasury securities	$	40,679	$	—	$	2,643	$	—	$	43,322	$	36,265	$	—	$	2,204	$	—	$	38,469
Government agency securities		27,998		—		591		—		28,589		28,358		—		526		—		28,884
Corporate debt securities		1,317,091		(293)		22,167		(37,278)		1,301,687		1,302,996		(615)		65,651		(15,795)		1,352,237
Municipal debt obligations		103,271		—		813		(3,443)		100,641		158,464		—		5,623		(792)		163,295
ABS		49,205		(1)		26		(3,210)		46,020		49,723		(275)		347		(1,064)		48,731
CLO		177,411		(6)		—		(19,842)		157,563		175,687		(6)		41		(7,201)		168,521
CMBS		94,816		—		1,603		(1,945)		94,474		99,218		—		5,245		(986)		103,477
RMBS - non-agency		92,189		(116)		3,411		(4,851)		90,633		115,588		(1,089)		6,369		(2,008)		118,860
RMBS - agency		135,809		—		3,738		(56)		139,491		136,690		—		3,616		—		140,306
Total fixed maturity securities	$	2,038,469	$	(416)	$	34,992	$	(70,625)	$	2,002,420	$	2,102,989	$	(1,985)	$	89,622	$	(27,846)	$	2,162,780

The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at December 31, 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 maturity securities:
U.S. Treasury securities	$	49,161	$	838	$	(14)	$	49,985	$	49,161	$	838	$	(14)	$	49,985
Government agency securities		6,522		23		(14)		6,531		6,522		23		(14)		6,531
Corporate debt securities		1,308,094		33,743		(3,025)		1,338,812		1,308,094		33,743		(3,025)		1,338,812
Municipal debt obligations		80,338		243		(766)		79,815		80,338		243		(766)		79,815
ABS		73,068		854		(340)		73,582		73,068		854		(340)		73,582
CLO		181,704		125		(2,280)		179,549		181,704		125		(2,280)		179,549
CMBS		95,810		1,863		(147)		97,526		95,810		1,863		(147)		97,526
RMBS - non-agency		62,343		9,458		(191)		71,610		62,343		9,458		(191)		71,610
RMBS - agency		142,363		1,256		(347)		143,272		142,363		1,256		(347)		143,272
Total fixed maturity securities	$	1,999,403	$	48,403	$	(7,124)	$	2,040,682	$	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)

The following table summarizes the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at December 31, 2019, grouped by asset class and by duration of time 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	$	—	$	—	$	7,469	$	(14)	$	7,469	$	(14)	$	—	$	—	$	7,469	$	(14)	$	7,469	$	(14)
Government agency securities		3,192		(14)		—		—		3,192		(14)		3,192		(14)		—		—		3,192		(14)
Corporate debt securities		133,341		(2,509)		50,695		(516)		184,036		(3,025)		133,341		(2,509)		50,695		(516)		184,036		(3,025)
Municipal debt obligations		66,355		(766)		—		—		66,355		(766)		66,355		(766)		—		—		66,355		(766)
ABS		27,884		(175)		11,165		(165)		39,049		(340)		27,884		(175)		11,165		(165)		39,049		(340)
CLO		28,485		(338)		110,825		(1,942)		139,310		(2,280)		28,485		(338)		110,825		(1,942)		139,310		(2,280)
CMBS		18,307		(102)		6,053		(45)		24,360		(147)		18,307		(102)		6,053		(45)		24,360		(147)
RMBS - non-agency		2,173		(14)		2,418		(177)		4,591		(191)		2,173		(14)		2,418		(177)		4,591		(191)
RMBS - agency		10,450		(12)		12,367		(335)		22,817		(347)		10,450		(12)		12,367		(335)		22,817		(347)
Total fixed maturity securities	$	290,187	$	(3,930)	$	200,992	$	(3,194)	$	491,179	$	(7,124)	$	290,187	$	(3,930)	$	200,992	$	(3,194)	$	491,179	$	(7,124)

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Notes to Interim Consolidated Financial Statements (Unaudited)

(d) The amortized cost and fair value of fixed maturity securities, excluding the Company’s structured securities portfolio, at ~~March 31,~~June 30, 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.


	March 31, 2020
	Amortized		Fair

					June 30, 2020
					Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	103,407	$	103,498	$	107,187	$	108,224
Due after one through five years		659,203		657,184		641,649		661,544
Due after five through ten years		449,535		445,004		494,186		520,225
Due after ten years		248,896		239,964		254,703		264,008
		1,461,041		1,445,650
						1,497,725		1,554,001
Structured securities:
Government agency securities		27,998		28,589		28,358		28,884
ABS		49,205		46,020		49,723		48,731
CLO		177,411		157,563		175,687		168,521
CMBS		94,816		94,474		99,218		103,477
RMBS - non-agency		92,189		90,633		115,588		118,860
RMBS - agency		135,809		139,491		136,690		140,306
Total fixed maturity securities	$	2,038,469	$	2,002,420	$	2,102,989	$	2,162,780

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

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

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Notes to Interim Consolidated Financial Statements (Unaudited)

extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds from limited partnerships and limited liability companies.

(f) The Company invests in commercial 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 credit losses on loans. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. There was no allowance for credit losses on ~~loan~~loans at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

(g) Proceeds from sales and redemptions in AFS securities totaled ~~$152.8~~$154.0 million and ~~$43.4~~$53.7 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. Proceeds from sales and redemptions in AFS securities totaled $306.8 million and $97.1 million for the six months ended June 30, 2020 and 2019, respectively. Gross realized gains from sales and redemptions in AFS securities totaled ~~$1.0~~$3.7 million and ~~$0.2~~$0.4 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross realized gains from sales and redemptions in AFS securities totaled $4.7 million and $0.6 million for the six months ended June 30, 2020 and 2019, respectively. Gross realized losses from sales and redemptions of AFS investments totaled ~~$0.4~~$0.2 million and ~~$0.1~~$0.3 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross realized losses from sales and redemptions of AFS investments totaled $0.6 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively.

(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 months ended ~~March 31,~~June 30, 2020 and 2019, is as follows:


	Three Months Ended March 31

					Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019		2020		2019
Fixed maturity securities	$	16,282	$	16,119	$	15,849	$	16,531	$	32,131	$	32,650
Commercial levered loans		95		219		139		159		234		378
Net limited partnerships (losses) gains		(6,877)		1,251
Net limited partnerships and limited liability companies gains						8,131		1,143		1,254		2,394
Other		(10)		89		322		92		312		181
Gross investment income		9,490		17,678		24,441		17,925		33,931		35,603
Less: investment income attributable to funds withheld liabilities		136		142		118		141		254		283
Less: expenses		539		378		532		386		1,071		764
Net investment income	$	8,815	$	17,158	$	23,791	$	17,398	$	32,606	$	34,556

(i) Included in investments at ~~March 31,~~June 30, 2020 and December 31, 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 ~~$208.3~~$230.4 million and $210.8 million, respectively. Fair value and carrying value of assets in the amount of ~~$376.9~~$399.7 million and ~~$379.5~~$381.5 million, respectively, were on deposit in collateral agreements at ~~March 31,~~June 30, 2020. Fair value and carrying value of assets in the amount of $367.1 million and $352.0 million, respectively, were on deposit in collateral agreements at December 31, 2019.

(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 loan values, on the portfolio. 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 the underlying investment of the limited partnerships and limited liability companies and the potential loss from changes in the fair value of commercial 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.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The change in fair value r~~ecognized~~recognized in income on non-redeemable preferred stock securities for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$0.3 million.~~a gain of $0.4 million and $0.1 million, respectively.

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

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 ~~March 31,~~June 30, 2020, and December 31, 2019, the Company does not hold any Level 1 securities.

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, 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.

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 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 classified under Level 3 in the fair value hierarchy are provided to the Company by an independent valuation service provider which use both observable and unobservable inputs in the calculation of fair value. Unobservable inputs, significant to the measurement and valuation of the corporate debt securities are assumptions about prepayment speed, default rates and reinvestment parameters. 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.

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ProSight Global, Inc. and Subsidiaries

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.

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~~ProSight Global, Inc. and Subsidiaries~~

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

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


	March 31, 2020

									June 30, 2020
($ in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed maturity securities:
U.S. Treasury securities	$	—	$	43,322	$	—	$	43,322	$	—	$	38,469	$	—	$	38,469
Government agency securities		—		28,589		—		28,589		—		28,884		—		28,884
Corporate debt securities		—		1,149,269		152,418		1,301,687		—		1,190,160		162,077		1,352,237
Municipal debt obligations		—		100,641		—		100,641		—		163,295		—		163,295
ABS		—		46,020		—		46,020		—		48,731		—		48,731
CLO		—		157,563		—		157,563		—		168,521		—		168,521
CMBS		—		94,474		—		94,474		—		103,477		—		103,477
RMBS - non agency		—		90,633		—		90,633		—		118,860		—		118,860
RMBS - agency		—		139,491		—		139,491		—		140,306		—		140,306
Total fixed maturity securities		—		1,850,002		152,418		2,002,420		—		2,000,703		162,077		2,162,780
Non-redeemable preferred stock securities		—		11,378		—		11,378		—		11,785		—		11,785
Total investments measured at fair value	$	—	$	1,861,380	$	152,418		2,013,798

Total categorized									$	—	$	2,012,488	$	162,077	$	2,174,565

Investments measured at net asset value:
Limited partnerships and limited liability companies								65,011								79,717
Total assets at fair value							$	2,078,809
Total of invested assets carried at fair value															$	2,254,282


	December 31, 2019

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

Total categorized									$	—	$	1,891,051	$	149,631	$	2,040,682

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

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

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 ~~March 31,~~June 30, 2020 and December 31, 2019:


	March 31, 2020
	Carrying		Fair Value

											June 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	$	13,725	$	12,246	$	—	$	—	$	12,246	$	13,463	$	12,628	$	—	$	—	$	12,628


Liabilities
Notes payable	$	165,000	$	166,288	$	—	$	166,288	$	—	$	165,000	$	166,961	$	—	$	166,961	$	—
Unamortized debt issuance costs		(222)										(138)
Notes payable, net of debt issuance costs	$	164,778									$	164,862

Secured loan payable											$	24,997	$	24,997	$	—	$	24,997	$	—
Unamortized debt issuance costs												—
Secured loan payable, net of issuance costs											$	24,997

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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 ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019:


	Level 3
	Corporate Debt

			Level 3
			Corporate Debt
($ in thousands)	Securities		Securities
Fair value, December 31, 2019	$	149,631	$	149,631
Total net (losses) gains for the period included in:
Total net losses for the period included in:
Other comprehensive loss		(10,703)		(8,563)
Net realized gain		1
Net realized loss				(2)
Purchases		14,241		22,634
Sales		—		—
Issuances		—		—
Settlements		(752)		(1,623)
Transfers into Level 3		—		—
Transfers out of Level 3		—		—
Fair value, March 31, 2020	$	152,418
Fair value, June 30, 2020			$	162,077

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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)
December 31, 2019							$	46,123	$	8,670	$	37,453
Unrealized holding gains on fixed maturity securities		34,803		7,241		27,562		22,241		4,749		17,492
Amounts reclassified into net income		(214)		(24)		(190)		4,620		862		3,758
Amounts reclassified as credit losses								(1,986)		(417)		(1,569)
Other comprehensive income		35,017		7,265		27,752		19,607		4,304		15,303
March 31, 2019	$	5,257	$	(180)	$	5,437
June 30, 2020							$	65,730	$	12,974	$	52,756


($ in thousands)	Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed maturity securities		64,633		13,447		51,186
Amounts reclassified into net income		(25)		(52)		27
Other comprehensive income		64,658		13,499		51,159
June 30, 2019	$	34,898	$	6,054	$	28,844

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

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 and its subsidiaries.~~

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~~ProSight Global, Inc. and Subsidiaries~~

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

Company.

9. Insurance Operations

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


	Three Months Ended March 31

					Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019		2020		2019
Written premiums
Direct written premiums	$	212,951	$	254,985	$	185,722	$	234,306	$	398,673	$	489,291
Assumed from other companies		833		853		672		726		1,505		1,579
Ceded to other companies		23,601		45,936		29,771		24,464		53,372		70,400
Net written premiums	$	190,183	$	209,902	$	156,623	$	210,568	$	346,806	$	420,470


Earned premiums
Direct earned premiums	$	228,580	$	223,002	$	206,028	$	231,088	$	434,608	$	454,090
Assumed from other companies		742		942		697		932		1,439		1,874
Ceded to other companies		23,660		28,336		25,096		29,540		48,756		57,876
Net earned premiums	$	205,662	$	195,608	$	181,629	$	202,480	$	387,291	$	398,088
Percent of amount assumed to net		0.4%		0.5%		0.4%		0.5%		0.4%		0.5%


Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	144,377	$	135,348	$	120,680	$	138,560	$	265,057	$	273,908
Assumed from other companies		(1,357)		2,819		1,984		2,113		627		4,932
Ceded to other companies		15,463		19,834		10,191		13,558		25,654		33,392
Net losses and loss adjustment expenses incurred	$	127,557	$	118,333	$	112,473	$	127,115	$	240,030	$	245,448

In 2017, the Company ceded significant amounts of premium under the whole account quota share reinsurance agreements (“WAQS”). In 2018, the WAQS were terminated. To the extent of unearned premium at the time of termination, ceded written premiums, net of the ceding commission, was returned. In January 2020, the WAQS were commuted at no gain or loss to the Company.

Allowances for Credit Losses

The following table is rollforward of the receivable allowance balances related to the risk of credit default as of ~~March 31,~~June 30, 2020:



($ in thousands)	Beginning Balance		Current Provision		Write-offs		Recoveries		Ending Balance
Six Months Ended June 30, 2020											December 31, 2019		Current Provision		Write-offs		Recoveries		June 30, 2020
Premium receivable	$	5,056	$	1,076	$	(130)	$	54	$	6,056	$	5,056	$	2,854		(204)		—		7,706
Reinsurance receivable on paid and unpaid losses		505		52		—		—		557		505		201				—		706
Total receivable allowance	$	5,561	$	1,128	$	(130)	$	54	$	6,613	$	5,561	$	3,055		(204)		—		8,412

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

insured level, collection agencies are typically engaged. The amount ~~currently~~ with collection agencies ~~is $5.2~~as of June 30, 2020 was $5.7 million.

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~~ProSight Global, Inc. and Subsidiaries~~

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

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 ~~March 31,~~June 30, 2020 is ~~$2.8~~$4.0 million. At ~~March 31,~~June 30, 2020, ~~97.6%~~96.3% of uncollateralized exposures are rated above investment grade.

Distribution Partners

The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner below) totaled ~~$69.1~~$80.8 million and ~~$50.2~~$80.4 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner below) totaled $146.9 million and $133.3 million for the six months ended June 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. The Company does not anticipate any future premiums from this distribution partner other than audit premiums after the first quarter of 2019.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for 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:


	March 31

					June 30
($ in thousands)	2020		2019		2020		2019
Gross reserve for unpaid losses and loss expenses, at beginning of year	$	1,521,648	$	1,396,812	$	1,521,648	$	1,396,812
Ceded reserve for unpaid losses and loss expenses, at beginning of year		193,952		185,295		193,952		185,295
Net reserve for unpaid losses and loss expenses, at beginning of year		1,327,696		1,211,517		1,327,696		1,211,517
Add:
Incurred losses and loss expenses occurring in the:
Current year		121,001		118,728		227,842		238,634
Prior years		198		(395)		508		(3,128)
Prior years attributable to adjusted premium		6,358		—		11,680		9,942
Total net losses and loss adjustment expenses incurred		127,557		118,333		240,030		245,448
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		3,665		3,528		12,168		18,725
Prior years		62,655		78,676		152,862		164,601
Total paid losses and loss expenses for claims		66,320		82,204		165,030		183,326
Net reserve for unpaid losses and loss expenses, at end of period		1,388,933		1,247,646		1,402,696		1,273,639
Ceded reserve for unpaid losses and loss expenses, at end of period		156,866		201,889		141,427		210,021
Gross reserve for unpaid losses and loss expenses, at end of period	$	1,545,799	$	1,449,535	$	1,544,123	$	1,483,660

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the Company’s reserve for unpaid losses and loss adjustment expenses for accident years 2019 and prior developed unfavorably by ~~$0.2~~$0.5 million driven by ~~$7.1 million unfavorable development of Commercial Multiple Peril and $4.4~~$12.1 million unfavorable development in General Liability and $4.3 million unfavorable development in Commercial Multiple Peril offset by $8.3 million favorable development in Workers’ Compensation, $5.2 million favorable development in Commercial Auto ~~$4.9~~and $2.4 million ~~in Workers’ Compensation and $1.3 million~~favorable development in All Other lines. In addition, the Company incurred ~~$6.4~~$11.7 million of losses and loss

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

adjustment expenses related to premium adjustments earned during the ~~three~~six months ended ~~March 31,~~June 30, 2020 attributable to prior accident years 2019 and 2018.

The unfavorable development in General Liability and Commercial Multiple Peril ~~and General Liability~~ related to 2013 through 2017 accident years due largely to increased severities in the runoff components within the Other customer segment. The favorable development in Workers’ Compensation derived from lower than expected claims severity across all customer segments primarily in accident years 2013 ~~through~~and 2015 ~~and~~through 2017. The favorable development in Commercial Auto was

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~~ProSight Global, Inc. and Subsidiaries~~

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

~~driven~~ derived by physical damage and liability ~~bodily injury~~property damage in accident ~~years 2017 through~~year 2019. The favorable development in All Other lines was in ~~Surety~~Ocean Marine, Inland Marine, Fire and ~~Ocean Marine~~Surety lines of business.

~~There were no significant drivers of~~During the six months ended June 30, 2019, the Company’s estimated losses and loss expenses for accident years 2018 and prior developed favorably by $3.1 million driven by $14.5 million favorable development in Workers’ Compensation lines and $6.7 million favorable development in Auto Liability 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 the All Other Lines category. The Company incurred $9.9 million of ~~$0.4 for~~losses and loss adjustment expenses on earned premium attributable to prior accident years during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

10. Income Taxes

The Company is subject to the tax laws and regulations of the United States and various state jurisdictions. The Company files a consolidated federal tax return.

The Company has one non-U.S. subsidiary, ProSight Specialty Bermuda Limited (“PSBL”), which has received an undertaking from the Minister of Finance in Bermuda that would exempt such 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 non-deductible expenses and discrete items recognized during the period. The Company’s effective tax rates were ~~22.6%~~21.6% and 21.8% for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The decrease in the effective tax rate for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to the decrease in non-deductible expenses. The Company’s effective tax rates were 21.9% and 21.8% for the six months ended June 30, 2020 and 2019, respectively. The increase in the effective tax rate infor the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to the same period in 2019 was primarily due to the tax effect of share-based compensation.

On March 27, 2020, the President of 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~~’sCompany’s current tax provision.

11. Segment Information

The Company has one reportable segment, Specialty Insurance segment, 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 Company’s reportable segment is based on the fact that the Company’s senior management reviews, assesses and 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 premiums by customer segments within our Specialty Insurance segment. “Other” includes gross written premiums from; (i) primary and excess workers’ compensation coverage for exited Self-Insured Groups, (ii) niches exited prior to 2018, many with a concentration in

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

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~~.

business.


	Three Months Ended March 31

									Three Months Ended June 30								Six Months Ended June 30
($ in thousands)	2020				2019				2020				2019				2020				2019
Customer Segment
Construction	$	24,514	11.5	%	$	23,248	9.1	%	$	27,704	14.9	%	$	32,495	13.8	%	$	52,218	13.0	%	$	55,743	11.4	%
Consumer Services		30,568	14.3			27,485	10.7			40,730	21.8			37,893	16.1			71,298	17.8			65,378	13.3
Marine and Energy		32,790	15.3			19,812	7.8			26,821	14.4			25,633	10.9			59,611	14.9			45,445	9.3
Media and Entertainment		30,467	14.3			29,692	11.6			17,454	9.4			32,402	13.8			47,921	12.0			62,094	12.6
Professional Services		29,698	13.9			29,562	11.6			31,891	17.1			29,104	12.4			61,589	15.4			58,666	12.0
Real Estate		33,215	15.5			28,735	11.2			47,273	25.3			46,614	19.8			80,488	20.1			75,349	15.3
Sports		9,565	4.5			7,850	3.1			4,688	2.5			6,898	3.0			14,253	3.6			14,748	3.0
Transportation		21,467	10.0			30,757	12.0			(12,340)	(6.6)			18,985	8.1			9,127	2.3			49,742	10.1
Customer segment subtotal		212,284	99.3			197,141	77.1			184,221	98.8			230,024	97.9			396,505	99.1			427,165	87.0
Other		1,500	0.7			58,697	22.9			2,173	1.2			5,008	2.1			3,673	0.9			63,705	13.0
Specialty Insurance total	$	213,784	100.0	%	$	255,838	100.0	%	$	186,394	100.0	%	$	235,032	100.0	%	$	400,178	100.0	%	$	490,870	100.0	%

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


	Three Months Ended March 31

									Three Months Ended June 30								Six Months Ended June 30
($ in thousands)	2020				2019				2020				2019				2020				2019
Line of Business
Commercial Auto	$	40,331	18.9	%	$	41,784	16.3	%	$	20,649	11.1	%	$	54,296	23.1	%	$	60,980	15.2	%	$	96,080	19.6	%
General Liability		78,533	36.7			71,295	27.9			81,876	43.9			83,156	35.4			160,409	40.1			154,451	31.5
Workers’ Compensation		28,821	13.5			90,062	35.2			20,420	10.9			34,921	14.9			49,241	12.3			124,983	25.4
Commercial Multiple Peril		16,365	7.6			19,634	7.7			10,928	5.9			17,040	7.2			27,293	6.8			36,674	7.5
All Other Lines		49,734	23.3			33,063	12.9			52,521	28.2			45,619	19.4			102,255	25.6			78,682	16.0
Specialty Insurance total	$	213,784	100.0	%	$	255,838	100.0	%	$	186,394	100.0	%	$	235,032	100.0	%	$	400,178	100.0	%	$	490,870	100.0	%

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)


	Continuing Operations						Discontinued Operations

											Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share		Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended March 31, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Three Months Ended June 30, 2019											(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	13,695	38,851	$	0.35	$	(255)	38,851	$	—	$	8,696	38,851	$	0.22	$	(78)	38,851	$	—
Effect of dilutive securities:
Stock compensation plans			604					604					604		—			604		—
Diluted EPS	$	13,695	39,455	$	0.35	$	(255)	39,455	$	(0.01)	$	8,696	39,455	$	0.22	$	(78)	39,455	$	—

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The following table summarizes the stock-based compensation transactions for the 2019 Plan for the ~~three~~six months ended ~~March 31,~~June 30, 2020:


	Number of	Weighted Average Grant Date
	Shares	Fair Value Per Share


				Number of	Weighted Average Grant Date
				Shares	Fair Value Per Share

Unvested at December 31, 2019	1,289,396	$	14.00	1,289,396	$	14.00
Granted	458,515	$	13.40	587,612	$	12.42
Vested	(179)	$	14.00	(106,460)	$	8.91
Forfeited	(5,358)	$	14.00	(5,358)	$	14.00
Unvested at March 31, 2020	1,742,374	$	13.84
Unvested at June 30, 2020				1,765,190	$	13.77

As of ~~March 31,~~June 30, 2020, The Company had approximately ~~$18.8~~$16.9 million of total unrecognized stock-based compensation expense expected to be recognized over a weighted-average period of ~~2.4~~2.1 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 $4.5 million related to the Credit Agreement were incurred and are amortized over the life of the loan.

There were no borrowings under the Credit Agreement as of June 30, 2020.

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.

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

There were no borrowings under the Agreement as of June 30, 2020. 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 $30.0 million on the Revolving Credit Facility, primarily to make capital contributions to its insurance subsidiaries.

~~14.~~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. L~~eases~~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, New York, California, Florida, Georgia and the U.K. The weighted average lease term was ~~2.9~~2.8 years and the weighted average discount rate was 2.0%.

Rent expense for the three and six months ended ~~March 31,~~June 30, 2020 was $0.8 million and $1.6 million. The following table presents the Company’s lease liabilities and right-of-use assets related to operating leases as of ~~March 31,~~June 30, 2020:



($ in thousands)	March 31, 2020		June 30, 2020
One year or less	$	3,188	$	3,025
More than one year to two years		2,449		1,677
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		5,637		4,702
Less: difference between lease payments and discounted lease liabilities		104		78
Lease liabilities	$	5,533	$	4,624


Right-of-use assets	$	4,810	$	4,117
Prepaid lease assets, net of lease allowances and incentives		723		507
Total	$	5,533	$	4,624

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

unfold and cannot, at this time, predict the impact the pandemic will have on its future consolidated financial position, cash flows or results of operations, however the impact could be material. See Item 1A. Risk Factors for additional information.

~~15.~~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.

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 our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020, as amended by Amendment No. 1 to Form 10-K filed with the SEC on March 10, 2020 (the “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 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

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;

●

the adequacy of our loss 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;

●

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 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.”~~Factors” in the 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

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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 currently write insurance coverage in eight customer segments 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, Marine and 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.

Components of Our Results of Operations

Gross Written and 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 and 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

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-~~

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~~redeemable~~non-redeemable preferred stock securities, commercial levered loans, and limited ~~partnerships. Our~~partnerships and limited liability companies. Neither our limited partnerships nor our limited liability companies are not 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 excludes changes in fair

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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 and 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 change in current expected credit loss allowance for available-for-sale investments 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;

●

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 and 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.

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Income 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. 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 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).

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.

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

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.

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

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

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1, 2017. The reinsurers’ ceding participation is an aggregate 26.0%. A provisional ceding commission of 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

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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. For the three and six months ended ~~March 31,~~June 30, 2020 ~~and 2019, respectively,~~ there was no impact of WAQS on underwriting results or ratios.

The following tables summarize the effect of the WAQS on our underwriting income for the three months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31, 2020								Three Months Ended March 31, 2019
	Including			Effect of		Excluding			Including			Effect of		Excluding

																	Three Months Ended June 30, 2020								Three Months Ended June 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	$	213,784		$	—	$	213,784		$	255,838		$	—	$	255,838		$	186,394		$	—	$	186,394		$	235,032		$	—	$	235,032
Ceded written premiums		(23,601)			—		(23,601)			(45,936)			—		(45,936)			(29,771)			—		(29,771)			(24,464)			—		(24,464)
Net written premiums	$	190,183		$	—	$	190,183		$	209,902		$	—	$	209,902		$	156,623		$	—	$	156,623		$	210,568		$	—	$	210,568
Net retention (1)		89.0%			—		89.0%			82.0%			—		82.0%			84.0%			—		84.0%			89.6%			—		89.6%
Net earned premiums	$	205,662		$	—	$	205,662		$	195,608		$	—	$	195,608		$	181,629		$	—	$	181,629		$	202,480		$	—	$	202,480
Net losses and LAE incurred		127,557			—		127,557			118,333			—		118,333			112,473			—		112,473			127,115			2,255		124,860
Underwriting, acquisition and insurance expenses		73,623			—		73,623			73,767			—		73,767			68,448			—		68,448			71,561			(2,255)		73,816
Underwriting income (2)	$	4,482		$	—	$	4,482		$	3,508		$	—	$	3,508		$	708		$	—	$	708		$	3,804		$	—	$	3,804
Loss and LAE ratio		62.0	%		—		—			60.5	%		—		—			61.9	%		—		—			62.8	%		—		—
Expense ratio		35.8	%		—		—			37.7	%		—		—			37.7	%		—		—			35.3	%		—		—
Combined ratio		97.8	%		—		—			98.2	%		—		—			99.6	%		—		—			98.1	%		—		—
Adjusted loss and LAE ratio (3)		—			—		62.0	%		—			—		60.5	%		—			—		61.9	%		—			—		61.7	%
Adjusted expense ratio (3)		—			—		35.8	%		—			—		37.7	%		—			—		37.7	%		—			—		36.4	%
Adjusted combined ratio (3)		—			—		97.8	%		—			—		98.2	%		—			—		99.6	%		—			—		98.1	%

(1)

⁽¹⁾

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

(2)

⁽²⁾

Underwriting income is a non-GAAP financial measure. See ~~“—Reconciliation~~“Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income to underwriting 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 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 income for the six months ended June 30, 2020 and 2019:


	Six Months Ended June 30, 2020								Six Months Ended June 30, 2019
	Including			Effect of		Excluding			Including			Effect of		Excluding
($ in thousands)	WAQS			WAQS		WAQS			WAQS			WAQS		WAQS
GWP	$	400,178		$	—	$	400,178		$	490,870		$	—	$	490,870
Ceded written premiums		(53,372)			—		(53,372)			(70,400)			3		(70,403)
Net written premiums	$	346,806		$	—	$	346,806		$	420,470		$	3	$	420,467
Net retention ⁽¹⁾		86.7%			—		86.7%			85.7%			—		85.7%
Net earned premiums	$	387,291		$	—	$	387,291		$	398,088		$	3	$	398,085
Net losses and LAE incurred		240,030			—		240,030			245,448			2,207		243,241
Underwriting, acquisition and insurance expenses		142,071			—		142,071			145,328			(2,205)		147,533
Underwriting income ⁽²⁾	$	5,190		$	—	$	5,190		$	7,312		$	1	$	7,311
Loss and LAE ratio		62.0	%		—		—			61.7	%		—		—
Expense ratio		36.7	%		—		—			36.5	%		—		—
Combined ratio		98.7	%		—		—			98.2	%		—		—
Adjusted loss and LAE ratio ⁽³⁾		—			—		62.0	%		—			—		61.1	%
Adjusted expense ratio ⁽³⁾		—			—		36.7	%		—			—		37.1	%
Adjusted combined ratio ⁽³⁾		—			—		98.7	%		—			—		98.2	%

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

(2)	Underwriting income is a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income to underwriting income.

(3)

Outlook

As the ~~coronavirus (COVID-19)~~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 ~~have~~ made in our technology infrastructure over time, we ~~were able~~continued to ~~seamlessly transition to~~operate in a remote work ~~model~~environment while maintaining the service and support levels that our customers expect. We are fully operational, and we believe we are ~~in a good position to continue~~capable of working remotely for as long as necessary.

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There was noa significant impact on our ~~premiums and losses~~premium revenues in the ~~first~~second quarter relating to the ~~pandemic.~~pandemic’s effect on the insured exposure base of certain customers. It is too early to determine the ultimate effect of the economic shut-down as a result of the pandemic on our ~~revenues,~~losses, however, ~~assuming a sluggish economic recovery that begins~~we continue to take hold in the third quarter of 2020, we estimate that this event could have a negative impact on GWP for the remainder of the year, with the most significant impact expected in the second quarter. Additionally, we may have a modest decline in yield with respect to our fixed maturity portfolio for 2020, with potential volatility in net investment income for the remainder of the year due to our limited partnership investments. Also, weevaluate claims individually and pay losses where coverage applies. We may see an increase in claims activity and expense due to the pandemic, and potentially 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.

Our investment portfolio ~~incurred significant valuation adjustments~~experienced an appreciation in fair value during the ~~first~~second quarter as credit spreads ~~widened and liquidity contracted;~~narrowed; this ~~was reflected~~offset a decline in fair value experienced in first quarter financial results ~~and while~~driven by widening credit spreads during the onset of the COVID-19 pandemic. While we have seen an improvement in unrealized investment positions, ~~as of the end of April,~~ we expect there could be continued volatility in the unrealized position and uncertainty for the remainder of the ~~year.~~

year due to COVID-19.

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Results of Operations

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019

The following table summarizes the results of continuing operations for the three months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31						Change

											Three Months Ended June 30						Change
($ in thousands)	2020			2019			$		Percent		2020			2019			$		Percent
GWP	$	213,784		$	255,838		$	(42,054)	(16.4)	%	$	186,394		$	235,032		$	(48,638)	(20.7)	%
Ceded written premiums		(23,601)			(45,936)			22,335	(48.6)			(29,771)			(24,464)			(5,307)	21.7
Net written premiums	$	190,183		$	209,902		$	(19,719)	(9.4)		$	156,623		$	210,568		$	(53,945)	(25.6)


Net earned premiums	$	205,662		$	195,608		$	10,054	5.1		$	181,629		$	202,480		$	(20,851)	(10.3)
Net losses and LAE incurred:		127,557			118,333			9,224	7.8			112,473			127,115			(14,642)	(11.5)
Underwriting, acquisition and insurance expenses		73,623			73,767			(144)	(0.2)			68,448			71,561			(3,113)	(4.4)
Underwriting income (1)		4,482			3,508			974	27.8			708			3,804			(3,096)	(81.4)
Interest and other expenses, net		4,730			3,269			1,461	44.7			4,356			10,220			(5,864)	(57.4)
Net investment income		8,815			17,158			(8,343)	(48.6)			23,791			17,398			6,393	36.7
Realized investment gains, net		232			113			119	105.3			1,891			137			1,754	1,280.3
Income before taxes		8,799			17,510			(8,711)	(49.7)			22,034			11,119			10,915	98.2
Income tax expense		1,988			3,815			(1,827)	(47.9)			4,751			2,423			2,328	96.1
Net income from continuing operations	$	6,811		$	13,695		$	(6,884)	(50.3)		$	17,283		$	8,696		$	8,587	98.7
Adjusted operating income (1)	$	7,976		$	13,582		$	(5,606)	(41.3)	%	$	16,890		$	14,228		$	2,662	18.7	%


Adjusted operating return on equity (1)		6.2	%		13.3	%						12.6	%		12.8	%
Return on equity		5.3	%		13.4	%						12.9	%		7.9	%


Loss and LAE ratio:		62.0	%		60.5	%						61.9	%		62.8	%
Loss and LAE ratio – excluding catastrophe		62.0	%		60.5	%						59.9	%		61.3	%
Loss and LAE ratio – catastrophe losses		–			–							2.0	%		1.5	%
Expense ratio		35.8	%		37.7	%						37.7	%		35.3	%
Combined ratio		97.8	%		98.2	%						99.6	%		98.1	%


Adjusted loss and LAE ratio (2)		62.0	%		60.5	%						61.9	%		61.7	%
Adjusted loss and LAE ratio – excluding catastrophe		62.0	%		60.5	%						59.9	%		60.2	%
Adjusted loss and LAE ratio – catastrophe losses		-			-							2.0	%		1.5	%
Adjusted expense ratio (2)		35.8	%		37.7	%						37.7	%		36.4	%
Adjusted combined ratio (2)		97.8	%		98.2	%						99.6	%		98.1	%

(1)

⁽¹⁾

Underwriting 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 income and adjusted operating income.

(2)

⁽²⁾

Net Income from Continuing Operations

Net income was ~~$6.8 million~~ ~~for the three months ended March 31, 2020 compared to $13.7~~$17.3 million for the three months ended ~~March 31,~~June 30, 2020 compared to $8.7 million for the three months ended June 30, 2019, ~~a decrease~~an increase of ~~$6.9~~$8.6 million, or ~~50.3%~~98.7%.The ~~decrease~~increase in net income primarily resulted from ~~a mark-to-market valuation adjustment of $8.2 million~~an increase in ~~March 2020~~net investment income driven by the unrealized gains on investments in limited ~~partnerships within net investment income.~~

partnerships.

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Premiums

~~Premiums~~

GWP were ~~$213.8~~$186.4 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$255.8~~$235.0 million for the three months ended ~~March 31,~~June 30, 2019, a decrease of ~~$42.1~~$48.6 million, or ~~16.4%~~20.7%.

The following table presents the GWP by customer segment for the three months ended ~~March 31,~~June 30, 2020 and 2019:



($ in millions)	Three Months Ended March 31						Three Months Ended June 30
Customer Segment	2020		2019		% Change		2020		2019		% Change
Construction	$	24.5	$	23.3	5.2	%	$	27.7	$	32.5	(14.8)	%
Consumer Services		30.6		27.5	11.3			40.7		37.9	7.4
Marine and Energy		32.8		19.8	65.7			26.8		25.6	4.7
Media and Entertainment		30.5		29.7	2.7			17.4		32.4	(46.3)
Professional Services		29.7		29.6	0.3			31.9		29.1	9.6
Real Estate		33.2		28.7	15.7			47.3		46.6	1.5
Sports		9.5		7.8	21.8			4.7		6.9	(31.9)
Transportation		21.5		30.7	(30.0)			(12.3)		19.0	(164.7)
Customer segments subtotal	$	212.3	$	197.1	7.7			184.2		230.0	(19.9)
Other		1.5		58.7	(97.4)			2.2		5.0	(56.0)
Total	$	213.8	$	255.8	(16.4)	%	$	186.4	$	235.0	(20.7)	%

GWP from customer segments (excluding GWP within “Other”) for the three months ended ~~March 31,~~June 30, 2020 ~~grew~~contracted by ~~7.7%~~19.9% primarily driven by new business and increased renewals within previously existing niches combined with entry into new niches. The growth was most significant within the Marine and Energy, Real Estate, and Consumer Services customer segments, offset by contractiondue to endorsement transactions within the Transportation customer ~~segment.~~segment due to exposure reductions driven by the COVID-19 pandemic. The contraction was also significant within the Media and Entertainment customer segment due to a reduction in insured exposure due to COVID-19.

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

●

~~Marine and Energy~~Transportation GWP ~~increased~~contracted by ~~65.7%~~164.7% to ~~$32.8~~($12.3) million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$19.8~~$19.0 million for the three months ended ~~March 31,~~June 30, 2019. The reduction of premium ~~growth is~~for the period was driven by endorsement transactions for changes in exposure due to ~~growth across all~~COVID-19. Negative premium endorsements of $12.6 million for School Bus, $7.0 million for Taxis, and $3.0 million for Charter Bus niches ~~within this segment. Premium growth in these niches is primarily driven~~were processed to provide immediate relief to our insureds and align the premium with exposure base.

●

Media and Entertainment GWP contracted by ~~an increase in new business of $12.4 million when compared~~46.3% to ~~the first quarter of 2019.~~

~~Real Estate GWP increased by 15.7% to $33.2~~$17.4 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$28.7~~$32.4 million for the three months ended ~~March 31,~~June 30, 2019. The premium ~~growth~~contraction is ~~primarily~~driven by approximately $4.0 million of exposure reductions due to ~~increases~~COVID-19, $6.0 of declines in ~~the Metrobuilders and Builders’ Risk niches. Premium growth in these niches is primarily due to an increase of $5.2 million for Metrobuilders driven by both new and~~ renewal business, and ~~an increase in~~$4.0 million of reduced new business ~~of $2.7 million for Builders’ Risk, when compared~~opportunities in the Live Entertainment and Film niches.

●

Construction GWP contracted by 14.8% to ~~2019.~~

~~Consumer Services GWP increased by 11.3% to $30.6~~$27.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$27.5~~$32.5 million for the three months ended ~~March 31,~~June 30, 2019. The premium ~~growth~~contraction is due to ~~continued maturity of several niches, partially offset by premium contraction within the Professional Employer Organizations~~reduced new business opportunities and ~~Social Services niches due to market conditions in primary workers’ compensation.~~

~~Transportation GWP decreased by 30.0% to $21.5 million for the three months ended March 31, 2020 compared to $30.7 million for the three months ended March 31, 2019. The premium reduction is~~renewals due to the ~~contraction from underwriting actions within the Intermodal niche.~~

impact of COVID-19 across several niches.

Net written premiums decreased by ~~$19.7~~$53.9 million, or ~~9.4%~~25.6%, to ~~$190.2~~$156.6 million for the three months ended ~~March 31,~~June 30, 2020 from ~~$209.9~~$210.6 million for the three months ended ~~March 31,~~June 30, 2019. The change in net written premiums was primarily related to the contraction in GWP.

Net earned premiums decreased by $20.9 million, or 10.3%, to $181.6 million for the three months ended June 30, 2020 from $202.5 million for the three months ended June 30, 2019. The decrease in net earned premiums was directly related to the contraction in ~~GWP.~~

~~Net earned~~net written premiums ~~increased~~ ~~by $10.1 million, or 5.1%, to $205.7 million for~~in the ~~three months ended~~ ~~March 31,~~first half of 2020 ~~from $195.6 million for~~ and includes the ~~three months ended~~ ~~March 31, 2019.~~ ~~The increase in~~impact of non-recurring net earned premiums ~~was~~

~~Table~~ of ~~Contents~~

~~directly related to~~$21.2 million from the ~~growth in net written premiums throughout 2019. Due to the lag effect~~exit of ~~earned premium, the contraction of net written premium in the first quarter of 2020 will not be fully realized in earned premium during the first quarter.~~ excess workers’ compensation.

Loss and LAE Ratio

Our loss and LAE ratio was ~~62.0%~~61.9% for the three months ended ~~March 31,~~June 30, 2020 compared to ~~60.5%~~62.8% for the three months ended ~~March 31,~~June 30, 2019. For the three months ended ~~March 31,~~June 30, 2020 our reserve for unpaid losses and loss adjustment

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expenses for accident years 2019 and prior developed unfavorably by ~~$0.2~~$0.3 million driven by ~~$7.1~~$7.7 million unfavorable development of General Liability offset by $3.4 million favorable development in Workers’ Compensation, $2.8 million in Commercial Multiple Peril and ~~$4.4 million unfavorable development in General Liability offset by $5.2 million favorable development in Commercial Auto, $4.9 million in Workers’ Compensation and $1.3~~$1.1 million in All Other lines. In addition, the Company incurred ~~$6.4~~$5.3 million of losses and loss adjustment expenses related to premium adjustments earned during the three months ended ~~March 31,~~June 30, 2020 attributable to prior accident years 2019 and 2018. ~~There were no significant drivers~~Catastrophe losses of ~~favorable development of $0.4~~$3.6 million for the three months ended ~~March 31, 2019.~~June 30, 2020 were driven by civil unrest in various cities across the U.S., adding 2.0 points to the current accident year loss ratio compared to catastrophe losses of $3.0 million for the three months ended June 30, 2019, driven by weather related events, which added 1.5 points to the current accident year loss ratio of the prior period.

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 ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31
	2020				2019
			% of Earned				% of Earned

									Three Months Ended June 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	$	127,359	61.9	%	$	118,728	60.7	%	$	108,530	59.8	%	$	126,848	62.6	%
Current accident year – catastrophe losses (1)		—	—			—	—			3,633	2.0			3,000	1.5
Effect of prior year development		198	0.1			(395)	(0.2)			310	0.1			(2,733)	(1.3)
Total	$	127,557	62.0	%	$	118,333	60.5	%	$	112,473	61.9	%	$	127,115	62.8	%


	Three Months Ended March 31
	2020				2019
			% of Earned				% of Earned

									Three Months Ended June 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	$	127,359	61.9	%	$	118,728	60.7	%	$	108,530	59.8	%	$	126,848	62.6	%
Current accident year – catastrophe losses (1)		—	—			—	—			3,633	2.0			3,000	1.5
Effect of prior year development		198	0.1			(395)	(0.2)			310	0.1			(4,988)	(2.4)
Total	$	127,557	62.0	%	$	118,333	60.5	%	$	112,473	61.9	%	$	124,860	61.7	%

(1)

⁽¹⁾

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 ~~35.8%~~37.7% for the three months ended ~~March 31,~~June 30, 2020 compared to ~~37.7%~~35.3% for the three months ended ~~March 31,~~June 30, 2019. The ~~improvement~~increase in the expense ratio is driven primarily by ~~an increase~~a decrease in net earned premiums in the period and ~~reduced acquisition costs, partially offset by an increase in the~~$1.5 million of increased credit allowance related to premium collections impacted by COVID-19. In addition, the prior year expense ratio was favorably impacted by 1.1 points of non-recurring cede commission on ~~premium receivables due to COVID-19.~~

~~Table of Contents~~

the WAQS.

The following table summarizes the components of the expense ratio for the three months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31
	2020				2019
			% of Earned				% of Earned

									Three Months Ended June 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	$	46,986	22.8	%	$	46,573	23.8	%	$	42,033	23.1	%	$	47,788	23.6	%
Underwriting and insurance expenses		26,637	13.0			27,194	13.9			26,415	14.6			26,028	12.8
Underwriting, acquisition and insurance expenses (1)		73,623	35.8			73,767	37.7			68,448	37.7			73,816	36.4
Effect of WAQS (1)		—	—			—	—			—	—			(2,255)	(1.1)
Total underwriting, acquisition and insurance expenses	$	73,623	35.8	%	$	73,767	37.7	%	$	68,448	37.7	%	$	71,561	35.3	%

(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 ~~March 31,~~June 30, 2020 and 2019.

Table of Contents

Underwriting Income

Underwriting income was ~~$4.5~~$0.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$3.5~~$3.8 million for the three months ended ~~March 31,~~June 30, 2019, ~~an increase~~a decrease of ~~$1.0 million, or 27.8%.~~$3.1 million. The ~~increase~~decrease in underwriting income is primarily due ~~an improvement~~to the reduction in net earned premium and the increase in the ~~expense ratio.~~credit allowance for premium receivable due to COVID-19.

Combined Ratio

Our combined ratio and adjusted combined ratio ~~was 97.8%~~were 99.6% for the three months ended ~~March 31, 20~~20June 30, 2020 compared to ~~98.2%~~98.1% for the three months ended ~~March 31, 20~~19. June 30, 2019.

Investing Results

Our net investment income ~~decreased~~increased by ~~48.6%~~36.7% to ~~$8.8~~$23.8 million for the three months ended ~~March 31,~~June 30, 2020 from ~~$17.2~~$17.4 million for the three months ended ~~March 31, 2019.~~ June 30, 2019. The ~~decrease~~increase in net investment income is primarily due to ~~a mark-to-market valuation adjustment of $8.2 million in March~~unrealized gains on investments in limited ~~partnerships.~~partnerships and limited liability companies. Net investment yield was ~~1.6%~~4.3% for the three months ended ~~March 31,~~June 30, 2020 and ~~3.6%~~3.5% for the three months ended ~~March 31,~~June 30, 2019. Realized investment gains, net includes a ~~$0.4~~$1.6 million credit loss allowance expense for fixed maturity securities for the three months ended ~~March 31,~~June 30, 2020.

The weighted average duration of our fixed maturity portfolio, including cash equivalents, was ~~4.1~~4.5 years at ~~March 31,~~June 30, 2020 and ~~2.8~~2.9 years at ~~March 31,~~June 30, 2019.

The following table summarizes the components of net investment income and net investment gains for the three months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31

							Three Months Ended June 30
($ in thousands)	2020		2019		$ Change		2020		2019		$ Change
Interest from securities	$	16,282	$	16,119	$	163
Fixed maturity securities							$	15,849	$	16,531	$	(682)
Other investments		(6,792)		1,559		(8,351)		8,592		1,394		7,198
Gross investment income		9,490		17,678		(8,188)		24,441		17,925		6,516
Investment expenses		(675)		(520)		(155)		(650)		(527)		(123)
Net investment income		8,815		17,158		(8,343)		23,791		17,398		6,393
Realized investment gains, net		232		113		119		1,891		137		1,754
Total	$	9,047	$	17,271	$	(8,224)	$	25,682	$	17,535	$	8,147
Average invested assets at book value	$	2,175,621	$	1,908,971	$	266,650
Average cash and invested assets							$	2,234,396	$	1,964,254	$	270,142

Interest and Other Expenses, Net

Our interest and other expenses ~~increased~~decreased by ~~$1.5~~$5.9 million to ~~$4.7~~$4.4 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$3.3~~$10.2 million for the three months ended ~~March 31, 2019.~~June 30, 2019. The ~~increase~~decrease is primarily driven by $7.2 million of payments made to our former Chief Executive Officer (“CEO”) for termination of service as CEO and his service as Executive Chairman in the prior period.

Income Tax Expense

Our effective tax rate for the three months ended June 30, 2020 and 2019 was 21.6% and 21.8%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to a reduction in non-deductible expenses.

Our income tax expense was $4.8 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively. The increase is due to the increase in income before income taxes compared to the same period in 2019.

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Adjusted Operating Income

Adjusted operating income was $16.9 million for the three months ended June 30, 2020, an increase of $2.7 million, or 18.7% from the adjusted operating income of $14.2 million for the three months ended June 30, 2019.

Adjusted Operating Return on Equity

Our adjusted operating return on equity was 12.6% for the three months ended June 30, 2020, a decrease of 0.2 percentage points from 12.8% for the three months ended June 30, 2019 primarily due to the increase in average book value.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

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


	Six Months Ended June 30						Change
($ in thousands)	2020			2019			$		Percent
GWP	$	400,178		$	490,870		$	(90,692)	(18.5)	%
Ceded written premiums		(53,372)			(70,400)			17,028	(24.2)
Net written premiums	$	346,806		$	420,470		$	(73,664)	(17.5)

Net earned premiums	$	387,291		$	398,088		$	(10,797)	(2.7)
Net losses and LAE incurred:		240,030			245,448			(5,418)	(2.2)
Underwriting, acquisition and insurance expenses		142,071			145,328			(3,257)	(2.2)
Underwriting income ⁽¹⁾		5,190			7,312			(2,122)	(29.0)
Interest and other expenses, net		9,086			13,489			(4,403)	(32.6)
Net investment income		32,606			34,556			(1,950)	(5.6)
Realized investment gains, net		2,123			250			1,873	749.2
Income before taxes		30,833			28,629			2,204	7.7
Income tax expense		6,739			6,238			501	8.0
Net income from continuing operations	$	24,094		$	22,391		$	1,703	7.6
Adjusted operating income ⁽¹⁾	$	24,879		$	27,858		$	(2,979)	(10.7)	%

Adjusted operating return on equity ⁽¹⁾		8.8	%		13.1	%
Return on equity		8.5	%		10.6	%

Loss and LAE ratio:		62.0	%		61.7	%
Loss and LAE ratio – excluding catastrophe		61.1	%		60.9	%
Loss and LAE ratio – catastrophe losses		0.9	%		0.8	%
Expense ratio		36.7	%		36.5	%
Combined ratio		98.7	%		98.2	%

Adjusted loss and LAE ratio ⁽²⁾		62.0	%		61.1	%
Adjusted loss and LAE ratio – excluding catastrophe		61.1	%		60.3	%
Adjusted loss and LAE ratio – catastrophe losses		0.9	%		0.8	%
Adjusted expense ratio ⁽²⁾		36.7	%		37.1	%
Adjusted combined ratio ⁽²⁾		98.7	%		98.2	%

(1)	Underwriting 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 income and adjusted operating income.

(2)

Table of Contents

~~expenses~~Net Income from Continuing Operations

Net income was $24.1 million for the six months ended June 30, 2020 compared to $22.4 million for the six months ended June 30, 2019, an increase of $1.7 million, or 7.6%. The increase in net income is due to ~~non-recurring stock compensation grants in connection with our IPO and~~a reduction of other expense which includes $7.2 million of payments made to our former CEO for termination of service as CEO and his service as Executive ~~Chairman.~~Chairman in the prior period, partially offset by the reduction in underwriting profit driven by reduced net earned premium.

Premiums

GWP were $400.2 million for the six months ended June 30, 2020 compared to $490.9 million for the six months ended June 30, 2019, a decrease of $90.7 million, or 18.5%.

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


($ in millions)	Six Months Ended June 30
Customer Segment	2020		2019		% Change
Construction	$	52.2	$	55.8	(6.5)	%
Consumer Services		71.3		65.4	9.0
Marine and Energy		59.6		45.5	31.0
Media and Entertainment		47.9		62.1	(22.9)
Professional Services		61.6		58.7	4.9
Real Estate		80.5		75.3	6.9
Sports		14.3		14.7	(2.7)
Transportation		9.1		49.7	(81.7)
Customer segments subtotal		396.5		427.2	(7.2)
Other		3.7		63.7	(94.2)
Total	$	400.2	$	490.9	(18.5)	%

GWP from customer segments (excluding GWP within “Other”) for the six months ended June 30, 2020 contracted by 7.2% primarily due to endorsement transactions within the Transportation customer segment due to exposure reductions driven by the COVID-19 pandemic in the second quarter of 2020. The contraction was also significant within the Media and Entertainment customer segment due to a reduction in insured exposure due to COVID-19 during the second quarter of 2020.

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

●

Transportation GWP contracted by 81.7% to $9.1 million for the six months ended June 30, 2020 compared to $49.7 million for the six months ended June 30, 2019. The premium contraction is driven by exposure reductions as well as reduced renewal and new business opportunities due to COVID-19. Negative premium endorsements of due to exposure reductions of $12.6 million for School Bus, $7.0 million for Taxis, and $3.0 million for Charter Bus niches were processed during the second quarter of 2020, to provide immediate relief to our insureds and align premium with exposures.

●

Media and Entertainment GWP contracted by 22.9% to $47.9 million for the six months ended June 30, 2020 compared to $62.1 million for the six months ended June 30, 2019. The premium contraction is driven by exposure reductions due to COVID-19 and reduced renewal and new business opportunities during the second quarter of 2020 in both the Live Entertainment and Film niches.

●

Marine and Energy GWP grew by 31.0% to $59.6 million for the six months ended June 30, 2020 compared to $45.5 million for the six months ended June 30, 2019. The premium growth is primarily due to new business within the Propane and Fuel Dealers niche and increased renewal premium in Solar Contractors and Marine & Excess Energy niches.

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Net written premiums decreased by $73.7 million, or 17.5%, to $346.8 million for the six months ended June 30, 2020 from $420.5 million for the six months ended June 30, 2019. The reduction in net written premiums was directly related to the contraction in GWP.

Net earned premiums decreased by $10.8 million, or 2.7%, to $387.3 million for the six months ended June 30, 2020 from $398.1 million for the six months ended June 30, 2019. The decrease in net earned premiums was directly related to the contraction in net written premiums during the first half of 2020, which includes the impact of non-recurring net earned premiums of $39.9 million from the exit of excess workers’ compensation.

Loss and LAE Ratio

Our loss and LAE ratio was 62.0% for the six months ended June 30, 2020 compared to 61.7% for the six months ended June 30, 2019. For the six months ended June 30, 2020, our reserve for unpaid losses and loss adjustment expenses for accident years 2019 and prior developed unfavorably by $0.5 million driven by $12.1 million unfavorable development in General Liability and $4.3 million unfavorable development in Commercial Multiple Peril offset by $8.3 million favorable development in Workers’ Compensation, $5.2 million in Commercial Auto and $2.4 million favorable development in All Other lines. In addition, the Company incurred $11.7 million of losses and loss adjustment expenses related to premium adjustments earned during the six months ended June 30, 2020 attributable to prior accident years 2019 and 2018. Catastrophe losses of $3.6 million for the six months ended June 30, 2020 were driven by civil unrest in various cities across the U.S. during the second quarter, adding 0.9 points to the current accident year loss ratio compared to catastrophe losses of $3.0 million for the six months ended June 30, 2019, driven by weather related events in the second quarter of 2019, which added 0.8 points to the current accident year loss ratio of the prior period.

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 months ended June 30, 2020 and 2019:


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

Loss and LAE:
Current accident year – excluding catastrophe	$	235,889	60.9	%	$	245,576	61.7
Current accident year – catastrophe losses ⁽¹⁾		3,633	0.9			3,000	0.8
Effect of prior year development		508	0.2			(3,128)	(0.8)
Total	$	240,030	62.0	%	$	245,448	61.7


	Six Months Ended June 30
	2020				2019
			% of Earned				% of Earned
($ in thousands)	Losses and LAE		Premiums		Losses and LAE		Premiums
Adjusted loss and LAE:
Current accident year – excluding catastrophe	$	235,889	60.9	%	$	245,576	61.7
Current accident year – catastrophe losses ⁽¹⁾		3,633	0.9			3,000	0.8
Effect of prior year development		508	0.2			(5,335)	(1.4)
Total	$	240,030	62.0	%	$	243,241	61.1

(1)

Expense Ratio

Our expense ratio was 36.7% for the six months ended June 30, 2020 compared to 36.5% for the six months ended June 30, 2019. The increase in the expense ratio is driven primarily by the impact of the WAQS in 2019 and $2.5 million of increased credit allowance related to premium collections impacted by COVID-19.

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


	Six Months Ended June 30
	2020				2019
			% of Earned				% of Earned
($ in thousands)	Expenses		Premiums		Expenses		Premiums
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance	$	89,019	23.0	%	$	94,311	23.7	%
Underwriting and insurance expenses		53,052	13.7			53,222	13.4
Underwriting, acquisition and insurance expenses⁽¹⁾		142,071	36.7			147,533	37.1
Effect of WAQS⁽¹⁾		—	—			(2,205)	(0.6)
Total underwriting, acquisition and insurance expenses	$	142,071	36.7	%	$	145,328	36.5	%

(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 six months ended June 30, 2020 and 2019.

Underwriting Income

Underwriting income was $5.2 million for the six months ended June 30, 2020 compared to $7.3 million for the six months ended June 30, 2019, a decrease of $2.1 million, or 29.0%. The decrease in underwriting income is primarily due the reduction in net earned premium.

Combined Ratio

Our combined ratio and adjusted combined ratio were 98.7% for the six months ended June 30, 2020 compared to 98.2% for the six months ended June 30, 2019.

Investing Results

Our net investment income decreased by 5.6% to $32.6 million for the six months ended June 30, 2020 from $34.6 million for the six months ended June 30, 2019. The decrease in net investment income is primarily due lower net investment yields in the current year. Net investment yield was 3.0% for the six months ended June 30, 2020 and 3.5% for the six months ended June 30, 2019. Realized investment gains, net, includes a $1.9 million credit loss allowance for fixed maturity securities for the six months ended June 30, 2020.

The weighted average duration of our fixed maturity portfolio, including cash equivalents, was 4.5 years at June 30, 2020 and 2.9 years at June 30, 2019.

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


	Six Months Ended June 30
($ in thousands)	2020		2019		$ Change
Fixed maturity securities	$	32,131	$	32,650	$	(519)
Other investments		1,800		2,953		(1,153)
Gross investment income		33,931		35,603		(1,672)
Investment expenses		(1,325)		(1,047)		(278)
Net investment income		32,606		34,556		(1,950)
Realized investment gains, net		2,123		250		1,873
Total	$	34,729	$	34,806	$	(77)
Average cash and invested assets	$	2,210,278	$	1,965,651	$	244,627

Interest and Other Expenses, Net

Our interest and other expenses decreased by $4.4 million to $9.1 million for the six months ended June 30, 2020 compared to $13.5 million for the six months ended June 30, 2019. The decrease is primarily driven by $7.2 million of

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payments made to our former CEO for termination of services as CEO and his service as Executive Chairman in the prior period.

Income Tax Expense

Our effective tax rate for the ~~periods~~six months ended ~~March 31,~~June 30, 2020 and 2019 was ~~22.6%~~21.9% and 21.8%, respectively. The increase in the effective tax rate in the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to the same period in 2019 was primarily due to the tax effect of share-based compensation.

Our income tax expense was ~~$2.0~~$6.7 million and ~~$3.8~~$6.2 million for the periods ended ~~March 31, 20~~20June 30, 2020 and 2019, respectively. The ~~decrease~~increase is due to the ~~decrease~~increase in income before income taxes compared to the same period in 2019.

Adjusted Operating Income

Adjusted operating income was ~~$8.0~~$24.9 million for the ~~three~~six months ended ~~March 31, 2020,~~June 30, 2020, a decrease of ~~$5.6~~$3.0 million, or ~~41.3%~~10.7% from the adjusted operating income of ~~$13.6~~$27.9 million for the ~~three~~six months ended ~~March 31, 2019.~~June 30, 2019.

Adjusted Operating Return on Equity

Our adjusted operating return on equity was ~~6.2%~~8.8% for the ~~three~~ six months ended ~~March 31,~~June 30, 2020,, a decrease of ~~7.1%~~4.3% percentage points from ~~13.3%~~13.1% for the ~~three~~six months ended ~~March 31, 20~~19June 30, 2019 primarily due to the increase in average book value following our raise of primary equity during our initial public offering in 2019 combined with the decrease in adjusted operating ~~income combined with an increase in stockholders’ equity from $426.9 million in the first quarter of 2019 to $488.1 million in the first quarter of 2020.~~income.

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 (i) loans from banks, (ii) draws on a revolving loan agreement, (iii) issuance of equity and debt securities, (iv) corporate service fees from our operating subsidiaries, (v) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions and (vi) 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.

~~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.~~

Our outstanding $140.0 million aggregate principal amount of 7.5% Senior Unsecured Notes and $25.0 million aggregate principal amount of 6.5% Senior Notes (collectively, the “Notes”) mature in November 2020. ~~We are currently in discussions~~

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 ~~number of counterparties related to different options~~$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 and expect to enter into agreements with one or more counterparties to provide for the refinancing of the Notes prior to their maturity date. We believe that we will be able to close on such a refinancing transaction effectively and in a timely manner.

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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 Applicable Margin for Base Rate Borrowings is 100 basis points lower than the Applicable Margin for Eurodollar Borrowings. The initial Applicable Margin was 3.00% and applied from the Effective Date until the date of the filing of this Quarterly Report. Following such date, the Applicable Margin will be determined as set forth above.

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 initial ticking fee and commitment fee (if applicable) were 0.30% and applied from the Effective Date until the date of the filing of this Form 10-Q. Following such date, the ticking fee and the commitment fee will be determined as set forth above.

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.

As of June 30, 2020, there were no amounts outstanding under the Credit Agreement.

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. As of June 30, 2020, there were no amounts outstanding under the Revolving Credit Facility, however, subsequent to the quarter, we drew $5.0 million and $30.0 million under the Revolving Credit Facility on July 14, 2020 and August 3, 2020, respectively.

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. We

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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. ~~We also use cash to pay for~~The operating ~~expenses such as salaries, rent and taxes and capital expenditures such as technology systems.~~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, typically allow us to generate significant operating cash 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 ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 were:


	Three Months Ended March 31

					Six Months Ended June 30
					2020		2019
	2020		2019
($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	58,856	$	84,809	$	93,947	$	159,341
Investing activities		(32,068)		(72,095)		(82,778)		(146,694)
Financing activities		(2,312)		—		22,685		—
Change in cash and cash equivalents	$	24,476	$	12,714
Net change in cash and cash equivalents					$	33,854	$	12,647

The decrease in cash provided by operating activities for the ~~three~~six months ended ~~March 31, 2020,~~June 30, 2020, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2019, was largely driven by timing of claim payments and premium ~~collections.~~collection declines due to COVID-19. Cash used byin investing activities is primarily funded by cash flow from operations. The decrease in cash used byin investing activities ~~of $40.0 million~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2019, primarily reflected the amount of operating funds available for investment in the current quarter. The ~~decrease~~increase in cash provided by financing activities ~~of $2.3 million~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2019, was primarily due to the issuance of the $24.9 million secured loan in June 2020, offset partly by cash outflows related to stock compensation plans in the current quarter.

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 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 agreements 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.

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The following is a summary of our significant in-force excess of loss reinsurance programs as of ~~March 31,~~June 30, 2020:


Line of Business Covered
~~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		Supported Umbrella: $6.0 million excess of $4.0 million Unsupported Umbrella: $5.0 million excess of $5.0 million Professional Liability: $5.0 million excess of $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

(1)

⁽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. The allowance related to credit default with respect to our reinsurance assets as of ~~March 31,~~June 30, 2020 and December 31, 2019 was ~~$0.6~~$0.7 million and $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 ~~March 31, 2020, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better.~~

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 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 22, 2019 is consistent with our business plan and allows us to actively pursue relationships with the distribution partners identified in our marketing plan.

Financial Condition

Stockholders’ Equity

At ~~March 31,~~June 30, 2020, total stockholders’ equity was ~~$488.1~~$586.1 million and tangible stockholders’ equity was ~~$458.9~~$556.9 million, compared to total stockholders’ equity of $543.0 million and tangible stockholders’ equity of $513.8 million at December 31, 2019. The ~~decrease~~increase in both total and tangible stockholders’ equity was primarily due to net income from continuing operations of $24.1 million and net unrealized ~~losses~~gains on investment securities, net of ~~$61.4 million, partially offset by net income~~tax of ~~$7.1~~$15.3 million, for the ~~three~~six months ended ~~March 31,~~June 30, 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

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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.

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



					June 30, 2020		December 31, 2019
	March 31, 2020		December 31, 2019
($ in thousands)
Stockholders’ equity	$	488,102	$	543,031	$	586,100	$	543,031
Less: goodwill and net intangible assets		29,181		29,189		29,174		29,189
Tangible stockholders’ equity	$	458,921	$	513,842	$	556,926	$	513,842
Book value per share	$	11.26	$	12.61	$	13.52	$	12.61
Tangible book value per share	$	10.59	$	11.93	$	12.85	$	11.93

Investment Portfolio

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

At ~~March 31,~~June 30, 2020, the majority of the portfolio, or ~~$2.0~~$2.1 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 loss. Also included in our investments were ~~$217.4~~$240.1 million of alternative investments carried at fair value. Our securities, including cash equivalents, had a weighted average duration of ~~4.1~~4.5 years and an average rating of “A” at ~~March 31,~~June 30, 2020.

At ~~March 31,~~June 30, 2020 and December 31, 2019,, the cost and fair value on cash and invested assets were as follows:


	March 31, 2020						December 31, 2019
			Estimated		% of Total				Estimated Fair		% of Total Fair

													June 30, 2020						December 31, 2019
															Estimated		% of Total				Estimated Fair		% of Total Fair
													Cost		Fair Value		Fair Value		Cost		Value		Value
	Cost		Fair Value		Fair Value		Cost		Value		Value
($ in thousands)
Fixed and floating rate securities	$	1,875,903	$	1,850,002	85.6	%	$	1,848,964	$	1,891,148	86.3	%	$	1,934,536	$	2,002,420	86.0	%	$	1,848,964	$	1,891,148	86.3	%
Alternate available-for-sale		162,566		152,418	7.0			150,439		149,534	6.8			168,453		160,360	6.9			150,439		149,534	6.8
Total bonds		2,038,469		2,002,420	92.6			1,999,403		2,040,682	93.1
Total fixed maturity securities														2,102,989		2,162,780	92.9			1,999,403		2,040,682	93.1
Other investments:
Commercial levered loans		13,725		12,246	0.6			14,069		13,950	0.6			13,463		12,628	0.5			14,069		13,950	0.6
Non-redeemable preferred stock securities		11,669		11,378	0.5			—		—	—			11,670		11,785	0.5			—		—	—
Limited partnerships		65,011		65,011	3.0			66,660		66,660	3.0
Limited partnerships and limited liability companies														79,717		79,717	3.4			66,660		66,660	3.0
Short-term investments		19,229		19,229	0.9			43,873		43,873	2.0			496		496	0.0			43,873		43,873	2.0
Total other investments		109,634		107,864	5.0			124,602		124,483	5.6			105,346		104,626	4.5			124,602		124,483	5.6
Total investments		2,148,103		2,110,284	97.6			2,124,005		2,165,165	98.7			2,208,335		2,267,406	97.4			2,124,005		2,165,165	98.7
Cash and cash equivalents		51,927		51,927	2.4			27,497		27,497	1.3
Cash, cash equivalents, and restricted cash														60,603		60,603	2.6			27,497		27,497	1.3
Total	$	2,200,030	$	2,162,211	100.0	%	$	2,151,502	$	2,192,662	100.0	%	$	2,268,938	$	2,328,009	100.0	%	$	2,151,502	$	2,192,662	100.0	%

As of ~~March 31,~~June 30, 2020, approximately ~~16.1%~~15.7% 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

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~~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 ~~March 31,~~June 30, 2020 and December 31, 2019, as rated by Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) or Equivalent Designation:


	June 30, 2020				December 31, 2019
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
($ in thousands)
AAA	$	205,898	9.5	%	$	219,696	10.8	%
AA		491,628	22.8			356,924	17.5
A		684,047	31.6			719,394	35.2
BBB		569,274	26.3			563,680	27.6
Below BBB/Not rated		211,933	9.8			180,988	8.9
Total	$	2,162,780	100.0	%	$	2,040,682	100.0	%

The table below presents the credit quality of total fixed maturity securities at June 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:

March 31, 2020

December 31, 2019

Standard & Poor’s or Equivalent Designation

Estimated Fair Value

% of Total


Estimated Fair Value

% of Total

($ in thousands)

AAA

$
188,248

9.4
%

$
219,696

10.8
%
AA

432,544

21.6

356,924

17.5

A

653,760

32.6

719,394

35.2

BBB

512,253

25.6

563,680

27.6

Below BBB/Not rated

215,615

10.8

180,988

8.9

Total

$
2,002,420

100.0
%

$
2,040,682

100.0
%


	June 30, 2020
	NAIC Designation (Estimated Fair Value)
Standard & Poor’s or Equivalent Designation	1		2		3		4		5		6		Total
($ in thousands)
BB	$	2,495	$	30,526	$	47,369	$	1,680	$	-	$	-	$	82,070
B		1,573		492		4,619		7,622		-		-		14,306
CCC		33,088		25		671		1,397		1,725		-		36,906
CC or lower		33,053		19,809		59		3,144		5		22,581		78,651
Total	$	70,209	$	50,852	$	52,718	$	13,843	$	1,730	$	22,581	$	211,933


	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

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The amortized cost and fair value of our fixed maturity securities by contractual maturity are shown below as of ~~March 31,~~June 30, 2020 and December 31, 2019.


		March 31, 2020					December 31, 2019
			Estimated		% of Fair				Estimated Fair

														June 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	$	103,407	$	103,498	5.2	%	$	99,035	$	99,326	4.9	%	$	107,187	$	108,224	5.0	%	$	99,035	$	99,326	4.9	%
Due after one year through five years		659,203		657,184	32.8			679,649		692,219	33.9			641,649		661,544	30.6			679,649		692,219	33.9
Due after five years through ten years		449,535		445,004	22.2			507,803		523,276	25.6			494,186		520,225	24.1			507,803		523,276	25.6
Due after ten years		248,896		239,964	12.0			151,105		153,790	7.5			254,703		264,008	12.2			151,105		153,790	7.5
Government agency securities		27,998		28,589	1.4			6,523		6,532	0.3			28,358		28,884	1.3			6,523		6,532	0.3
Asset-backed securities		49,205		46,020	2.3			73,068		73,582	3.6			49,723		48,731	2.3			73,068		73,582	3.6
Collateralized loan obligations		177,411		157,563	7.9			181,704		179,549	8.8			175,687		168,521	7.8			181,704		179,549	8.8
Commercial mortgage-backed securities		94,816		94,474	4.7			95,810		97,526	4.8			99,218		103,477	4.8			95,810		97,526	4.8
Residential mortgage-backed securities – non-agency		92,189		90,633	4.5			62,343		71,610	3.5			115,588		118,860	5.5			62,343		71,610	3.5
Residential mortgage-backed securities – agency		135,809		139,491	7.0			142,363		143,272	7.0			136,690		140,306	6.5			142,363		143,272	7.0
Total fixed maturities	$	2,038,469	$	2,002,420	100.0	%	$	1,999,403	$	2,040,682	100.0	%	$	2,102,989	$	2,162,780	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.

Restricted 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 ~~$585.2~~$630.2 million at ~~March 31, 2020~~.June 30, 2020. This includes ~~$145.1~~$151.8 million of funds in trust for the mutual benefit of our insurance companies due to participation in our intercompany pooling agreement. Restricted investments increased ~~1.3%~~9.0%, or ~~$7.3~~$52.3 million, when compared to December 31, 2019 primarily due to an increase in reinsurance collateral and state deposits, ~~offset by~~and market ~~depreciation~~appreciation from fixed maturity securities.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements as of ~~March 31, 2020.~~June 30, 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.

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Reconciliation of Non-GAAP Financial Measures

Reconciliation of Underwriting Income

Underwriting 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 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 income should not be considered in isolation or viewed as a substitute for net income calculated in accordance with GAAP, and other companies may calculate underwriting income differently.

Net income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019 reconciles to underwriting income as follows:


	Three Months Ended March 31

					Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019		2020		2019
Net income from continuing operations	$	6,811	$	13,695	$	17,283	$	8,696	$	24,094	$	22,391
Income tax expense		1,988		3,815		4,751		2,423		6,739		6,238
Income before taxes		8,799		17,510
Income from continuing operations before taxes						22,034		11,119		30,833		28,629
Net investment income		8,815		17,158		23,791		17,398		32,606		34,556
Realized investment gains, net		232		113		1,891		137		2,123		250
Interest and other expense, net		4,730		3,269		4,356		10,220		9,086		13,489
Underwriting income	$	4,482	$	3,508	$	708	$	3,804	$	5,190	$	7,312

Reconciliation of 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 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 calculated in accordance with GAAP. Other companies may calculate adjusted operating income differently.

Adjusted operating income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019 reconciles to net income as follows:


	Three Months Ended March 31

					Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	2020		2019		2020		2019		2020		2019
Net income from continuing operations	$	6,811	$	13,695	$	17,283	$	8,696	$	24,094	$	22,391
Income tax expense		1,988		3,815		4,751		2,423		6,739		6,238
Income before taxes		8,799		17,510
Income from continuing operations before taxes						22,034		11,119		30,833		28,629
Other expense		1,737		—		1,390		7,170		3,127		7,170
Realized investment (gains), net		(232)		(113)
Realized investment gains, net						(1,891)		(137)		(2,123)		(250)
Adjusted operating income before taxes		10,304		17,397		21,533		18,152		31,837		35,549
Less: income tax expense on adjusted operating income		2,328		3,815		4,643		3,924		6,958		7,691
Adjusted operating income	$	7,976	$	13,582	$	16,890	$	14,228	$	24,879	$	27,858

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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 the Company’s 2019 Annual Report.

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

Item 3: Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information about market risk set forth in the Company’s 2019 Annual Report. The COVID-19 pandemic does present new and emerging uncertainty to the financial markets. See further discussion in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A., Risk Factors, of this Quarterly Report on Form 10-Q.

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 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.

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 ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

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.

Item 1A: Risk Factors

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

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

Beginning in March 2020, the 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 quarter 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.

●

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

~~Table of Contents~~

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 SEC. Additional risks and uncertainties not currently known to us or that we deem to be immaterial also may materially and adversely affect our business, results of operations, financial position or liquidity.

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

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

On July 29, 2019, we closed our initial public offering of 7,857,145 shares of common stock, including the issuance and sale by the Company of 4,285,715 shares of common stock and the sale by the selling stockholders of 3,571,430 shares of common stock. On August 15, 2019, the selling stockholders completed the sale of 1,178,570 shares of common stock pursuant to the underwriters’ exercise of their over-allotment option granted in connection with the initial public offering.

The offer and sale of all of the shares in the initial public offering (including pursuant to the underwriters’ overallotment option) were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-232440), which was declared effective by the SEC on July 24, 2019. Goldman Sachs & Co. LLC and Barclays acted as the lead underwriters. The public offering price of the shares sold in the offering was $14.00 per share. The total gross proceeds from the offering to us were approximately $60.0 million. After deducting underwriting discounts and commissions of approximately $3.9 million and offering expenses payable by us of approximately $5.3 million, we received approximately $50.8 million. We did not receive any of the proceeds from the sale of the shares of common stock sold by the selling stockholders in the initial public offering or pursuant to the underwriters’ exercise of the overallotment option. On August 8, 2019, a portion of such proceeds was used to repay $18.0 million in outstanding debt under our amended and restated revolving loan agreement. The remainder of such net proceeds were used throughout fiscal 2019 and first quarter of fiscal 2020 for general corporate purposes, including capital contributions to our insurance subsidiaries. As of March 31, 2020, none of such proceeds were remaining. There was no material change in the use of proceeds from our initial public offering as described in our final prospectus (dated July 24, 2019) filed with the SEC on July 25, 2019 pursuant to Rule 424(b) of the Securities Act.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information

None.

~~Table of Contents~~

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		~~Amendment to Transition and Separation~~Credit Agreement, dated ~~January 23,~~as of June 12, 2020, ~~between~~among Prosight Global, Inc., the lenders from time to time party thereto, and Truist Bank as administrative agent.
10.2		Incremental Facility Agreement and Amendment, dated as of June 30, 2020, by and among ProSight Global, Inc., each other loan party signatory thereto, Truist Bank as administrative agent, and ~~Joseph Beneducci (incorporated by reference to Exhibit 10.18 to~~each of the ~~Company’s Annual Report on Form 10-K/A filed March 10, 2020).~~incremental revolving lenders.
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.

4853

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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: ~~May 12,~~August 11, 2020	By:	/s/ Lawrence Hannon
		Lawrence Hannon
		President and Chief Executive Officer

Dated: ~~May 12,~~August 11, 2020	By:	/s/ Anthony S. Piszel
		Anthony S. Piszel
		Chief Financial Officer

4954


	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
Corporate debt securities	$	495,656	$	(31,005)	$	83,577	$	(6,273)	$	579,233	$	(37,278)	$	131,043	$	(10,502)	$	76,754	$	(5,293)	$	207,797	$	(15,795)
Municipal debt obligations		66,579		(3,278)		5,584		(165)		72,163		(3,443)		25,587		(456)		11,372		(336)		36,959		(792)
ABS		33,474		(2,604)		8,425		(606)		41,899		(3,210)		9,504		(693)		16,883		(371)		26,387		(1,064)
CLO		59,491		(5,053)		98,072		(14,789)		157,563		(19,842)		47,434		(1,278)		116,188		(5,923)		163,622		(7,201)
CMBS		26,478		(1,935)		3,031		(10)		29,509		(1,945)		16,564		(859)		4,725		(127)		21,289		(986)
RMBS - non-agency		45,431		(3,042)		12,115		(1,809)		57,546		(4,851)		36,568		(1,189)		9,317		(819)		45,885		(2,008)
RMBS - agency		6,585		(55)		1		(1)		6,586		(56)
Total fixed maturity securities	$	733,694	$	(46,972)	$	210,805	$	(23,653)	$	944,499	$	(70,625)	$	266,700	$	(14,977)	$	235,239	$	(12,869)	$	501,939	$	(27,846)


	Page

PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~	~~Page~~

Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) as of ~~March 31,~~June 30, 2020 and December 31, 2019	2	2
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	3	3
	Consolidated Statements of Comprehensive ~~(Loss)~~ Income (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	4	4
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	5	5
	Consolidated Statements of Cash Flows (Unaudited) for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	6	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	7	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51	45
Item 4.	Controls and Procedures		45
		51

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	51	46
Item 1A.	Risk Factors	51	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53	47
Item 3.	Defaults Upon Senior Securities	53	47
Item 4.	Mine Safety Disclosures	53	47
Item 5.	Other Information	53	47
Item 6.	Exhibits	53	48
	Signatures	54	49


	Beginning		Additions		Reduction		Reduction		Change in Securities		Ending

													December 31,		Additions		Reduction		Reduction		Change in Securities		June 30,
($ in thousands)	Balance		New Securities		Sales		Intent to Sell		with Previous Allowance		Balance		2019		New Securities		Sales		Intent to Sell		with Previous Allowance		2020
Fixed maturity securities:
Corporate debt securities	$	—	$	293	$	—	$	—	$	—	$	293	$	—	$	615	$	—	$	—	$	—	$	615
ABS		—		1		—		—		—		1		—		275		—		—		—		275
CLO		—		6		—		—		—		6		—		6		—		—		—		6
RMBS - non-agency		—		116		—		—		—		116		—		1,090		(1)		—		—		1,089
Total fixed maturity securities allowance	$	—	$	416	$	—	$	—	$	—	$	416	$	—	$	1,986	$	(1)	$	—	$	—	$	1,985


	Line in Consolidated	Three Months Ended March 31

						Line in Consolidated	Three Months Ended June 30				Six Months Ended June 30
($ in thousands)	Statements of Operations	2020		2019		Statements of Operations	2020		2019		2020		2019
AOCI
Unrealized gains (losses) on securities	Realized investment gains, net	$	942	$	(214)	Realized investment gains, net	$	3,678	$	189	$	4,620	$	(25)
	Income tax expense		136		(24)
						Income tax expense		726		(28)		862		(52)
Reclassification adjustment for credit losses included in net income	Realized investment losses, net		(416)		—	Realized investment losses, net		(1,570)		—		(1,986)		—
	Income tax expense		(87)		—
						Income tax expense		(330)		—		(417)		—
Total reclassifications		$	477	$	(190)		$	1,712	$	217	$	2,189	$	27


	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Income		Shares	Per Share
Six Months Ended June 30, 2020	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	24,094	43,866	$	0.55	$	536	43,866	$	0.01
Effect of dilutive securities:
Stock compensation plans			190		—			190		—
Diluted EPS	$	24,094	44,056	$	0.55	$	536	44,056	$	0.01


	March 31, 2020				December 31, 2019
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
($ in thousands)
AAA	$	188,248	9.4	%	$	219,696	10.8	%
AA		432,544	21.6			356,924	17.5
A		653,760	32.6			719,394	35.2
BBB		512,253	25.6			563,680	27.6
Below BBB/Not rated		215,615	10.8			180,988	8.9
Total	$	2,002,420	100.0	%	$	2,040,682	100.0	%