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

For the quarterly period ended ~~June 30, 2021~~March 31, 2022

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

For the transition period from ___________ to ___________

Commission file number: 001-39392

TREAN INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)


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

150 Lake Street West

Wayzata, MN 55391

(Address of principal executive offices and zip code)

(952) 974-2200

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

TIG

The Nasdaq Global Select Market

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

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

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

Large accelerated filer

☐

Accelerated filer

☐☒

Non-accelerated filer

☒☐

Smaller reporting company

☐

Emerging growth company

☒

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

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

As of ~~August 6, 2021,~~May 4, 2022, there were ~~51,173,844~~51,192,196 shares of the registrant's common stock outstanding.

Table of Contents

TREAN INSURANCE GROUP, INC.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION

Item 1	Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated ~~and Condensed Combined~~ Statements of Operations	4
	Condensed Consolidated ~~and Condensed Combined~~ Statements of Comprehensive Income	5
	Condensed Consolidated ~~and Condensed Combined~~ Statements of Stockholders’ Equity and Redeemable Preferred Stock	6
	Condensed Consolidated ~~and Condensed Combined~~ Statements of Cash Flows	87
	Notes to the Condensed Consolidated ~~and Condensed Combined~~ Financial Statements	109
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	3325
Item 3	Quantitative and Qualitative Disclosures About Market Risk	5742
Item 4	Controls and Procedures	5742

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	5843
Item 1A	Risk Factors	5843
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5843
Item 3	Defaults Upon Senior Securities	5943
Item 4	Mine Safety Disclosures	5943
Item 5	Other Information	5943
Item 6	Exhibits	6044

Signatures		6145

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets	(unaudited)				Assets	(unaudited)
Fixed maturities, at fair value (amortized cost of $414,166 and $388,409, respectively)		$	424,943	$	405,604
Preferred stock, at fair value (amortized cost of $243 and $243, respectively)		235		240
Common stock, at fair value (cost $741 and $1,554, respectively)		2,741		3,534
Equity method investments		0		232
Fixed maturities, at fair value (amortized cost of $464,502 and $465,459, respectively)						Fixed maturities, at fair value (amortized cost of $464,502 and $465,459, respectively)	$	447,349	$	471,061

Equity securities, at fair value (cost $34,119 and $984, respectively)						Equity securities, at fair value (cost $34,119 and $984, respectively)	34,162		969

Total investments	Total investments	427,919		409,610		Total investments	481,511		472,030
Cash and cash equivalents	Cash and cash equivalents	101,361		153,149		Cash and cash equivalents	103,865		129,577
Restricted cash	Restricted cash	12,469		4,085		Restricted cash	478		407
Accrued investment income	Accrued investment income	2,329		2,458		Accrued investment income	2,610		2,344
Premiums and other receivables	Premiums and other receivables	131,930		109,217		Premiums and other receivables	153,053		141,920
Income taxes receivable	Income taxes receivable	5,113		1,322		Income taxes receivable	—		460
Reinsurance recoverable	Reinsurance recoverable	361,943		343,213		Reinsurance recoverable	380,587		377,241
Prepaid reinsurance premiums	Prepaid reinsurance premiums	121,004		107,971		Prepaid reinsurance premiums	121,072		129,411
Deferred policy acquisition cost, net	Deferred policy acquisition cost, net	6,424		1,332		Deferred policy acquisition cost, net	15,547		13,344
Property and equipment, net	Property and equipment, net	7,780		8,254		Property and equipment, net	7,689		7,632
Right of use asset	Right of use asset	5,378		6,338		Right of use asset	4,167		4,530
Goodwill	Goodwill	140,640		140,640		Goodwill	142,347		142,347
Intangible assets, net	Intangible assets, net	72,489		75,316		Intangible assets, net	71,615		73,114
Other assets	Other assets	8,410		6,878		Other assets	10,173		8,658
Total assets	Total assets	$	1,405,189	$	1,369,783	Total assets	$	1,494,714	$	1,503,015
Liabilities	Liabilities					Liabilities
Unpaid loss and loss adjustment expenses	Unpaid loss and loss adjustment expenses	$	502,560	$	457,817	Unpaid loss and loss adjustment expenses	$	550,981	$	544,320
Unearned premiums	Unearned premiums	194,388		157,987		Unearned premiums	222,902		219,940
Funds held under reinsurance agreements	Funds held under reinsurance agreements	161,013		174,704		Funds held under reinsurance agreements	196,025		199,410
Reinsurance premiums payable	Reinsurance premiums payable	51,681		57,069		Reinsurance premiums payable	46,895		45,130
Accounts payable and accrued expenses	Accounts payable and accrued expenses	31,017		61,240		Accounts payable and accrued expenses	22,424		29,448
Lease liability	Lease liability	5,855		6,893		Lease liability	4,554		4,976
Income taxes payable						Income taxes payable	553		—
Deferred tax liability	Deferred tax liability	10,229		12,329		Deferred tax liability	3,991		7,520
Debt	Debt	31,103		31,637		Debt	29,992		30,362
Total liabilities	Total liabilities	987,846		959,676		Total liabilities	1,078,317		1,081,106
Commitments and contingencies	Commitments and contingencies			0		Commitments and contingencies			0
Stockholders' equity	Stockholders' equity					Stockholders' equity
Common stock, $0.01 par value per share (600,000,000 authorized; 51,157,004 and 51,148,782 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)		511		511
Common stock, $0.01 par value per share (600,000,000 authorized; 51,192,196 and 51,176,887 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)						Common stock, $0.01 par value per share (600,000,000 authorized; 51,192,196 and 51,176,887 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)	512		512
Additional paid-in capital	Additional paid-in capital	287,734		287,110		Additional paid-in capital	288,771		288,623
Retained earnings	Retained earnings	120,628		109,060		Retained earnings	140,730		128,390
Accumulated other comprehensive income		8,470		13,426
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(13,616)		4,384
Total stockholders' equity	Total stockholders' equity	417,343		410,107		Total stockholders' equity	416,397		421,909
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,405,189	$	1,369,783	Total liabilities and stockholders' equity	$	1,494,714	$	1,503,015

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated ~~and Condensed Combined~~ Statements of Operations

(in thousands, except share and per share data)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Revenues	Revenues									Revenues
Gross written premiums	Gross written premiums	$	156,551	$	109,612	$	303,281	$	217,471	Gross written premiums		$	161,403	$	146,730
Increase in gross unearned premiums	Increase in gross unearned premiums	(17,927)		(9,265)		(36,358)		(16,638)		Increase in gross unearned premiums		(2,864)		(18,431)
Gross earned premiums	Gross earned premiums	138,624		100,347		266,923		200,833		Gross earned premiums		158,539		128,299
Ceded earned premiums	Ceded earned premiums	(90,681)		(78,968)		(177,846)		(156,995)		Ceded earned premiums		(94,362)		(87,165)
Net earned premiums	Net earned premiums	47,943		21,379		89,077		43,838		Net earned premiums		64,177		41,134
Net investment income	Net investment income	2,103		2,525		4,375		6,770		Net investment income		2,576		2,272
Net realized capital gains (losses)		10		(4)		23		3,230

Net realized gains (losses)										Net realized gains (losses)		(1,047)		13
Other revenue	Other revenue	1,229		1,530		5,884		5,922		Other revenue		3,201		4,655
Total revenue	Total revenue	51,285		25,430		99,359		59,760		Total revenue		68,907		48,074
Expenses	Expenses									Expenses
Losses and loss adjustment expenses	Losses and loss adjustment expenses	29,725		12,183		54,606		25,117		Losses and loss adjustment expenses		39,193		24,881
General and administrative expenses	General and administrative expenses	15,267		8,293		27,158		16,442		General and administrative expenses		18,300		11,891
Other expenses		845		0		845		0

Intangible asset amortization	Intangible asset amortization	1,413		23		2,827		34		Intangible asset amortization		1,499		1,414
Noncash stock compensation	Noncash stock compensation	419		0		630		0		Noncash stock compensation		156		211
Interest expense	Interest expense	425		501		852		962		Interest expense		408		427
Total expenses	Total expenses	48,094		21,000		86,918		42,555		Total expenses		59,556		38,824
Gains (losses) on embedded derivatives		(686)		(3,991)		1,990		(5,180)
Gains on embedded derivatives										Gains on embedded derivatives		6,236		2,676
Other income	Other income	35		40		156		54		Other income		23		121
Income before taxes	Income before taxes	2,540		479		14,587		12,079		Income before taxes		15,610		12,047
Income tax expense	Income tax expense	414		351		3,019		3,218		Income tax expense		3,270		2,605
Equity earnings in affiliates, net of tax		0		1,230		0		1,932

Net income	Net income	$	2,126	$	1,358	$	11,568	$	10,793	Net income		$	12,340	$	9,442
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.04	$	0.04	$	0.23	$	0.29	Basic		$	0.24	$	0.18
Diluted	Diluted	$	0.04	$	0.04	$	0.23	$	0.29	Diluted		$	0.24	$	0.18
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	51,152,979		37,386,394		51,150,881		37,386,394		Basic		51,177,908		51,148,782
Diluted	Diluted	51,166,587		37,386,394		51,173,204		37,386,394		Diluted		51,177,908		51,179,820

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated ~~and Condensed Combined~~ Statements of Comprehensive Income

(in thousands)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income $ 2,126 $ 1,358 $ 11,568 $ 10,793
Other comprehensive gain (loss), net of tax:
Unrealized investment gains (losses):
Unrealized investment gains (losses) arising during the period 2,325 9,242 (6,251) 8,235
Income tax expense (benefit) 488 1,938 (1,313) 1,727
Unrealized investment gains (losses), net of tax 1,837 7,304 (4,938) 6,508
Less reclassification adjustments to:
Net realized investment gains (losses) included in net realized capital gains (losses) 10 (1) 23 118
Income tax expense (benefit) 2 (1) 5 25
Total reclassifications included in net income, net of tax 8 0 18 93
Other comprehensive income (loss) 1,829 7,304 (4,956) 6,415
Total comprehensive income $ 3,955 $ 8,662 $ 6,612 $ 17,208


	Three Months Ended March 31,
		2022		2021

Net income		$	12,340	$	9,442
Other comprehensive loss, net of tax:
Unrealized investment losses:
Unrealized investment losses arising during the period		(23,804)		(8,576)
Income tax benefit		(4,993)		(1,801)
Unrealized investment losses, net of tax		(18,811)		(6,775)
Less reclassification adjustments to:
Net realized investment gains (losses) included in net realized gains (losses)		(1,027)		13
Income tax expense (benefit)		(216)		3
Total reclassifications included in net income, net of tax		(811)		10
Other comprehensive loss		(18,000)		(6,785)
Total comprehensive income (loss)		$	(5,660)	$	2,657

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated ~~and Condensed Combined~~ Statements of Stockholders' Equity and Redeemable Preferred Stock

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~

(in thousands, except share and unit data)

(unaudited)

Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity
Shares Amount
Balance at March 31, 2021 51,148,782 $ 511 $ 287,321 $ 6,641 $ 118,502 $ 412,975
Stock compensation expense — — 419 — — 419
Common stock issuances pursuant to equity compensation awards, net of shares repurchased 8,222 — (6) — — (6)
Other comprehensive income — — — 1,829 — 1,829
Net income — — — — 2,126 2,126
Balance at June 30, 2021 51,157,004 $ 511 $ 287,734 $ 8,470 $ 120,628 $ 417,343


	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2021	51,176,887	$	512	$	288,623	$	4,384	$	128,390	$	421,909
Stock compensation expense	—	—		156		—		—		156
Common stock issued pursuant to equity compensation awards	15,309	—		(8)		—		—		(8)
Other comprehensive loss	—	—		—		(18,000)		—		(18,000)
Net income	—	—		—		—		12,340		12,340
Balance at March 31, 2022	51,192,196	$	512	$	288,771	$	(13,616)	$	140,730	$	416,397

Members' Equity
Redeemable Preferred Stock Class A - Non Voting Class B - Voting Class B - Non Voting Class C - Non Voting Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity
Shares Amount Units Amount Units Amount Units Amount Units Amount Shares Amount
Balance at March 31, 2020 51 $ 5,100 65,036,780 $ 65,037 5,045,215 $ 5,045 8,159,775 $ 8,160 216,247 $ 216 0 $ 0 $ 17,995 $ 5,611 $ 48,117 $ 150,181
Issuance of Class C units — — — — — — — — 19,658 20 — — — — — 20
Distributions to members — — — — — — — — — — — — (1,453) — (18,043) (19,496)
Dividends on Series B preferred stock — — — — — — — — — — — — — — (83) (83)
Other comprehensive income — — — — — — — — — — — — — 7,304 — 7,304
Net income — — — — — — — — — — — — — — 1,358 1,358
Balance at June 30, 2020 51 $ 5,100 65,036,780 $ 65,037 5,045,215 $ 5,045 8,159,775 $ 8,160 235,905 $ 236 0 $ 0 $ 16,542 $ 12,915 $ 31,349 $ 139,284



	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2020	51,148,782	$	511	$	287,110	$	13,426	$	109,060	$	410,107
Stock compensation expense	—	—		211		—		—		211
Other comprehensive loss	—	—		—		(6,785)		—		(6,785)
Net income	—	—		—		—		9,442		9,442
Balance at March 31, 2021	51,148,782	$	511	$	287,321	$	6,641	$	118,502	$	412,975

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity
Shares Amount
Balance at December 31, 2020 51,148,782 $ 511 $ 287,110 $ 13,426 $ 109,060 $ 410,107
Stock compensation expense — — 630 — — 630
Common stock issuances pursuant to equity compensation awards, net of shares repurchased 8,222 — (6) — — (6)
Other comprehensive loss — — — (4,956) — (4,956)
Net income — — — — 11,568 11,568
Balance at June 30, 2021 51,157,004 $ 511 $ 287,734 $ 8,470 $ 120,628 $ 417,343
Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Members' Equity
Redeemable Preferred Stock Class A - Non Voting Class B - Voting Class B - Non Voting Class C - Non Voting Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity
Shares Amount Units Amount Units Amount Units Amount Units Amount Shares Amount
Balance at December 31, 2019 51 $ 5,100 65,036,780 $ 65,037 5,045,215 $ 5,045 8,159,775 $ 8,160 196,588 $ 196 0 $ 0 $ 17,995 $ 6,500 $ 38,682 $ 141,615
Issuance of Class C units — — — — — — — — 39,317 40 — — — — — 40
Distributions to members — — — — — — — — — — — — (1,453) — (18,043) (19,496)
Dividends on Series B preferred stock — — — — — — — — — — — — — — (83) (83)
Other comprehensive income — — — — — — — — — — — — — 6,415 — 6,415
Net income — — — — — — — — — — — — — — 10,793 10,793
Balance at June 30, 2020 51 $ 5,100 65,036,780 $ 65,037 5,045,215 $ 5,045 8,159,775 $ 8,160 235,905 $ 236 0 $ 0 $ 16,542 $ 12,915 $ 31,349 $ 139,284


	Three Months Ended March 31,
	2022		2021
Operating activities
Net income	$	12,340	$	9,442
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	1,675		1,690
Stock compensation	156		211
Unrealized gains on embedded derivatives	(6,896)		(3,356)
Net (gains) losses on investments	1,047		(24)

Bond amortization and accretion	432		588



Deferred income taxes	1,249		95
Deferred financing costs	42		42
Changes in operating assets and liabilities:
Accrued investment income	(266)		206
Premiums and other receivables	(11,133)		(12,523)
Reinsurance recoverable on paid and unpaid losses	(3,346)		(17,698)
Prepaid reinsurance premiums	8,339		(2,327)
Right of use asset	363		494
Other assets	(3,718)		(6,154)
Unpaid loss and loss adjustment expenses	6,661		27,714
Unearned premiums	2,962		18,473
Funds held under reinsurance agreements	3,511		(8,869)
Reinsurance premiums payable	1,765		(94)
Accounts payable and accrued expenses	(7,025)		(12,899)
Lease liability	(423)		(521)
Income taxes payable	1,013		2,546
Net cash provided by (used in) operating activities	8,748		(2,964)
Investing activities
Payments for capital expenditures	(232)		(73)
Proceeds from sale of equity method investment	—		232

Purchase of investments, available for sale	(96,948)		(37,678)
Proceeds from investments sold, matured or repaid	63,211		20,391


Net cash used in investing activities	(33,969)		(17,128)
Financing activities
Shares redeemed for payroll taxes	(7)		—



Principal payments on debt	(413)		(206)



Net cash used in financing activities	(420)		(206)
Net decrease in cash, cash equivalents and restricted cash	(25,641)		(20,298)
Cash, cash equivalents and restricted cash – beginning of period	129,984		157,234
Cash, cash equivalents and restricted cash – end of period	$	104,343	$	136,936

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated ~~and Condensed Combined~~ Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended June 30,
2021 2020
Operating activities
Net income $ 11,568 $ 10,793
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 3,374 458
Stock compensation 630 0
Unrealized (gains) losses on embedded derivatives (3,189) 3,206
Net capital gains (23) (5,042)
Deferred offering costs 0 (1,339)
Bond amortization and accretion 1,174 944
Issuance of member units as compensation 0 40
Equity earnings in affiliates, net of tax 0 (1,932)
Distributions from equity method investments 0 2,413
Deferred income taxes (781) (324)
Deferred financing costs 84 48
Changes in operating assets and liabilities:
Accrued investment income 129 (137)
Premiums and other receivables (22,714) (10,666)
Reinsurance recoverable on paid and unpaid losses (18,730) (26,786)
Prepaid reinsurance premiums (13,033) (11,223)
Right of use asset 959 (5,958)
Other assets (6,623) (3,284)
Unpaid loss and loss adjustment expenses 44,742 35,784
Unearned premiums 36,401 16,638
Funds held under reinsurance agreements 3,080 (1,306)
Reinsurance premiums payable (5,388) 409
Accounts payable and accrued expenses (4,011) 19,591
Lease liability (1,038) 6,186
Income taxes payable (3,791) 3,270
Net cash provided by operating activities 22,820 31,783
Investing activities
Payments for capital expenditures (73) (554)
Proceeds from sale of equity method investment 232 3,000
Return of capital on equity method investment 0 115
Purchase of investments, available for sale (104,183) (55,695)
Proceeds from investments sold, matured or repaid 38,425 60,339
Acquisition of subsidiary, net of cash received 0 (1,098)
Net cash provided by (used in) investing activities (65,599) 6,107
Financing activities
Shares redeemed for payroll taxes (6) 0
Proceeds from credit agreement 0 32,453
Principal payments on debt (619) (21,843)
Distribution to members 0 (19,496)
Net cash used in financing activities (625) (8,886)
Net increase (decrease) in cash, cash equivalents and restricted cash (43,404) 29,004
Cash, cash equivalents and restricted cash ‑ beginning of period 157,234 76,068
Cash, cash equivalents and restricted cash ‑ end of period $ 113,830 $ 105,072

~~See accompanying notes to the condensed consolidated financial statements.~~

~~Table of Contents~~

~~Trean Insurance Group, Inc. and Subsidiaries~~

~~Condensed Consolidated and Condensed Combined Statements of Cash Flows~~

~~(in thousands)~~

~~(unaudited)~~


		June 30,					March 31,
Disaggregation of cash and restricted cash:	Disaggregation of cash and restricted cash:	2021		2020		Disaggregation of cash and restricted cash:	2022		2021
Cash and cash equivalents	Cash and cash equivalents	$	101,361	$	97,326	Cash and cash equivalents	$	103,865	$	130,940
Restricted cash	Restricted cash	12,469		7,746		Restricted cash	478		5,996
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	113,830	$	105,072	Total cash, cash equivalents and restricted cash	$	104,343	$	136,936


		Six Months Ended June 30,					Three Months Ended March 31,
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:	2021		2020		Supplemental disclosure of cash flow information:	2022		2021
Cash paid during the year for:	Cash paid during the year for:					Cash paid during the year for:
Interest	Interest	$	768	$	914	Interest	$	366	$	385
Income taxes	Income taxes	7,548		201		Income taxes	1,002		—
Non-cash investing and financing activity:	Non-cash investing and financing activity:					Non-cash investing and financing activity:
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	31		6,906		Right-of-use assets obtained in exchange for new operating lease liabilities	146		2
Non-cash transfer of investments to settle funds held for reinsurance		13,562		0
Non-cash transfer of investments to settle amounts held for others in accounts payable		26,211		0

Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	1,217		906		Operating cash flows from operating leases	624		615

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Notes to the Condensed Consolidated ~~and Condensed Combined~~ Financial Statements

Note 1. Business and Basis of Presentation

~~In July 2020,~~ Trean Insurance Group, Inc. (together with its wholly owned subsidiaries, the "Company") completed its initial public offering ("IPO") of common stock. Prior to the completion of the IPO, the Company effected the following reorganization transactions: (i) each of Trean Holdings LLC ("Trean"), an insurance services company, and BIC Holdings LLC ("BIC"), a property and casualty insurance holding company, contributed all of their respective assets and liabilities to Trean Insurance Group, Inc., a newly formed direct subsidiary of BIC, in exchange for shares of common stock in Trean Insurance Group, Inc. and (ii) upon the completion of the transfers by Trean and BIC, Trean and BIC were dissolved and distributed in-kind common shares to the pre-IPO unitholders.

For the purpose of financial statement disclosures, references to the condensed consolidated financial statements for all post-IPO periods include the accounts of Trean Insurance Group, Inc., along with its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. References to the condensed consolidated financial statements for all pre-IPO periods include the condensed combined financial statements of BIC and Trean, along with their wholly owned subsidiaries, after elimination of intercompany accounts and transactions. All dollar amounts are shown in thousands, except share and per share amounts.

~~The Company~~ provides products and services to the specialty insurance market. Historically, the Company has focused on specialty casualty markets that are believed to be under-served and where the Company’s expertise allows the Company to achieve higher rates, such as niche workers' compensation markets and small- to medium-sized specialty casualty insurance programs. The Company underwrites specialty-casualty insurance products both through programs where the Company partners with other organizations ("Program Partners"), and also through ~~the Company’s own~~Company owned managing general agencies ("Owned MGAs"). The Company also provides Program Partners with a variety of services, including issuing carrier services, claims administration, and reinsurance brokerage from which the Company generates fee-based revenues.

The Company's wholly owned subsidiaries ~~include (a)~~include: (i) Benchmark Holding Company, a property and casualty insurance holding company, which owns Benchmark Insurance Company ("Benchmark"), a property and casualty insurance company domiciled in the state of Kansas, American Liberty Insurance Company ("ALIC"), a property and casualty insurance company domiciled in the state of Utah, ~~and~~ 7710 Insurance Company ("7710"), a property and casualty insurance company domiciled in the state of South ~~Carolina; (b)~~Carolina and Benchmark Specialty Insurance Company ("BSIC"), a property and casualty insurance company domiciled in the state of Arkansas; (ii) Trean Compstar Holdings, LLC, a limited liability company created originally for the purchase of Compstar Insurance Services LLC, a California-based general agency; and ~~(c)~~(iii) Trean Corporation ("Trean Corp"), a reinsurance intermediary manager and a managing general agent, which consists of the following wholly owned subsidiaries: (a) Trean Reinsurance Services, LLC ("TRS"), a reinsurance intermediary broker; Benchmark Administrators LLC (BIC Admin"), a claims third-party administrator; (b) Western Integrated Care, LLC ("WIC"), a managed care organization; and (c) Westcap Insurance Services, LLC ("Westcap"), a managing general agent based in California.

The accompanying condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q under the Securities Exchange Act of 1934. Accordingly, they do not contain all of the information included in the Company's annual consolidated financial statements and notes. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the Company’s condensed consolidated financial position and results of operations for the periods presented have been included. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~"2020~~"2021 Form 10-K"). Operating results for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

During the second quarter of 2021, the Company determined that its funds held agreements with reinsurers contain embedded derivatives relating to a total return swap on the underlying investments. As a result, the Company ~~will now~~has revised the presentation of its financial results to report the change in fair value of the embedded derivatives in gains ~~(losses)~~ on embedded derivatives in the condensed consolidated ~~and combined~~ statements of operations. In addition, investment earnings credited to the funds withheld accounts ~~will be~~are reported in gains ~~(losses)~~ on embedded derivatives in the condensed consolidated ~~and combined~~ statements of operations, whereas previously these were reported as an offset to net investment income. While the prior period amounts have been corrected for comparability, the correction was not material to the previously reported condensed consolidated ~~and condensed combined~~ financial statements. The impact of the prior period corrections on the condensed consolidated balance sheet and the related components of stockholders' equity is as follows:


	December 31, 2020						March 31, 2021
	Previously reported		Adjustment		As adjusted		Previously reported		Adjustment		As adjusted
Retained earnings	$	112,959	$	(3,899)	$	109,060	$	119,750	$	(1,248)	$	118,502
Accumulated other comprehensive income	9,527		3,899		13,426		5,393		1,248		6,641

Table of Contents

March 31, 2021 December 31, 2020
Previously reported Adjustment As reported Previously reported Adjustment As reported
Retained earnings $ 119,750 $ (1,248) $ 118,502 $ 112,959 $ (3,899) $ 109,060
Accumulated other comprehensive income 5,393 1,248 6,641 9,527 3,899 13,426

June 30, 2020 March 31, 2020 December 31, 2019
Previously reported Adjustment As reported Previously reported Adjustment As reported Previously reported Adjustment As reported
Retained earnings $ 35,561 $ (4,212) $ 31,349 $ 49,967 $ (1,850) $ 48,117 $ 40,361 $ (1,679) $ 38,682
Accumulated other comprehensive income 8,703 4,212 12,915 3,761 1,850 5,611 4,821 1,679 6,500

The impact of the prior period corrections on the condensed consolidated statements of operations and other comprehensive income is as follows:

Three Months Ended June 30, 2020
Previously reported Adjustment As reported
Net investment income $ 1,524 $ 1,001 $ 2,525
Total revenue 24,429 1,001 25,430
Gains (losses) on embedded derivatives 0 (3,991) (3,991)
Income before taxes 3,469 (2,990) 479
Income tax expense 979 (628) 351
Net income $ 3,720 $ (2,362) $ 1,358
Earnings per share:
Basic $ 0.10 $ (0.06) $ 0.04
Diluted $ 0.10 $ (0.06) $ 0.04
Other comprehensive income, net of tax
Unrealized investment gains:
Unrealized investment gains arising during the period $ 6,252 $ 2,990 $ 9,242
Income tax expense 1,310 628 1,938
Unrealized investment gains, net of tax 4,942 2,362 7,304
Other comprehensive income $ 4,942 $ 2,362 $ 7,304

~~Table of Contents~~

Six Months Ended June 30, 2020
Previously reported Adjustment As reported
Net investment income $ 4,796 $ 1,974 $ 6,770
Total revenue 57,786 1,974 59,760
Gains (losses) on embedded derivatives 0 (5,180) (5,180)
Income before taxes 15,285 (3,206) 12,079
Income tax expense 3,891 (673) 3,218
Net income $ 13,326 $ (2,533) $ 10,793
Earnings per share:
Basic $ 0.36 $ (0.07) $ 0.29
Diluted $ 0.36 $ (0.07) $ 0.29
Other comprehensive income, net of tax
Unrealized investment gains:
Unrealized investment gains arising during the period $ 5,029 $ 3,206 $ 8,235
Income tax expense 1,054 673 1,727
Unrealized investment gains, net of tax 3,975 2,533 6,508
Other comprehensive income $ 3,882 $ 2,533 $ 6,415


	Three Months Ended March 31, 2021
	Previously reported		Adjustment		As adjusted
Net investment income	$	1,592	$	680	$	2,272
Total revenue	47,394		680		48,074
Gains on embedded derivatives	—		2,676		2,676
Income before taxes	8,691		3,356		12,047
Income tax expense	1,900		705		2,605
Net income	$	6,791	$	2,651	$	9,442

Earnings per share:
Basic	$	0.13	$	0.05	$	0.18
Diluted	$	0.13	$	0.05	$	0.18

Other comprehensive loss, net of tax
Unrealized investment losses:
Unrealized investment losses arising during the period	$	(5,220)	$	(3,356)	$	(8,576)
Income tax benefit	(1,096)		(705)		(1,801)
Unrealized investment losses, net of tax	(4,124)		(2,651)		(6,775)
Other comprehensive loss	$	(4,134)	$	(2,651)	$	(6,785)

The correction of the prior period amounts had no impact on total operating, investing, and financing activities as presented on the Company’s condensed consolidated ~~and condensed combined~~ statements of cash flows during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. In conjunction with the correction of the prior period amounts, the fair value leveling table as of December 31, 2020 in Note 3 was corrected from $174,704, which represented the total funds withheld under reinsurance agreements liability, to $4,937, which relates only to the fair value of the embedded derivative;amounts; the net investment income table in Note 4 was corrected to incorporate the income from funds held investments of ~~$1,001 and $1,974~~$680 for the three ~~and six~~ months ended ~~June 30, 2020, respectively;~~March 31, 2021; the effective tax rate in Note 8 was corrected from ~~28.2%~~21.9% to ~~73.3%~~21.6% for the three months ended ~~June 30, 2020 and from 25.5%~~March 31, 2021; Note 13 has been corrected to ~~26.6% for~~reflect the ~~six months ended June 30, 2020;~~changes to earning per share described above; and Note 14 has been corrected to reflect the changes to other comprehensive income described above.

Use of estimates

While preparing the condensed consolidated financial statements, the Company has made certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, as well as reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require extensive use of estimates include the reserves for unpaid losses and loss adjustment expenses ("LAE"), reinsurance ~~recoveries,~~recoverables, investments, ~~and~~ goodwill, and other intangible assets. Except for the captions on the condensed consolidated balance sheets and condensed consolidated statements of comprehensive income, generally, the term loss(es) is used to collectively refer to both ~~loss~~losses and LAE.

Accounting pronouncements

Recently adopted policies

In ~~March~~January 2020, the Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("ASU")~~ASU No. ~~2020-04,~~2020-01, ~~Reference Rate Reform~~Investments - Equity Securities (Topic ~~848): Facilitation of~~321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815) - Clarifying the ~~Effects of Reference Rate Reform on Financial Reporting~~Interactions between Topic 321, Topic 323 and Topic 815 ~~("ASU 2020-04")~~(ASU 2020-01). This update ~~provides optional expedients and exceptions~~addresses the accounting for ~~applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if~~ certain ~~criteria are met. This standard is effective for~~equity securities upon the application or discontinuation of the equity method of accounting. Further,

1210

Table of Contents

the ~~period between March 12, 2020~~update addresses scope considerations for forward contracts and purchased options on certain securities. ASU 2020-01 is effective for annual periods beginning after December ~~31,~~15, 2021, including interim periods thereafter. The Company adopted this standard effective January 1, 2022. ~~The adoption~~Adoption of this standard did not have a material impact on the condensed consolidated financial statements.

Pending policies

The Company completed its IPO in July 2020, and is an emerging growth company as defined under federal securities laws. As such, the Company has elected to adopt pending accounting policies under the dates required for private companies. Therefore, the dates included within this section reflect the effective dates for the adoption of new accounting policies required by private companies.

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (ASU 2020-03). This update represents changes to clarify and improve the codification to allow for easier application by eliminating inconsistencies and providing clarification on items such as (i) the application of fair value option disclosures; (ii) the accounting for fees related to modifications of debt; and (iii) aligning the contractual term of a net investment in a lease in accordance with ASC Topic 326, Financial Instruments - Credit Losses, and the lease term determined in accordance with ASC Topic 842, Leases. The Company adopted items (i) and (ii) effective January 1, 2020 and will adopt item (iii) on January 1, 2023. Adoption of this standard has not had, and is not expected to have, a material impact on the condensed consolidated financial statements.

In ~~January 2020, the FASB issued ASU No. 2020-01,~~ Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323 and Topic 815 (ASU 2020-01). This update addresses the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting. Further, the update addresses scope considerations for forward contracts and purchased options on certain securities. ASU 2020-01 is effective for annual periods beginning after December 15, 2021, including interim periods thereafter. The Company will adopt this standard effective January 1, 2022. Adoption of this standard is not expected to have a material impact on the condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income. Additionally, credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses, with the amount of the allowance limited to the amount by which the fair value is below the amortized cost. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this standard effective January 1, 2023. The Company is currently evaluating the impact of this standard on the condensed consolidated financial statements.

Note 2. Acquisitions

~~7710 Insurance Company~~Western Integrated Care

Effective ~~October 1, 2020, Benchmark Holding Company~~July 6, 2021, Trean Corp acquired 100% ownership of ~~7710 Insurance Company as well as its associated program manager and agency, 7710 Service Company, LLC and Creekwood Insurance Agency, LLC,~~WIC for a total purchase price of ~~$12,140. 7710 Insurance Company underwrites~~$5,500, which included $1,500 that is contingent on WIC's future earnings, as defined in the agreement. WIC is a managed care organization that offers services to workers' compensation ~~primarily for emergency services, including firefighters~~insurers to enable employees who are injured on the job to access qualified medical treatment. The Company recorded $1,501 of goodwill and ~~emergency medical services ("EMS"). 7710 Insurance Company focuses on reducing costs and claims through~~intangible assets of $3,624 associated with the ~~implementation of a proprietary safety preparedness and loss control program, created and staffed by experienced firefighters and EMS professionals.~~business combination.

1311

Table of Contents

~~The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date:~~


~~Fair value of total consideration transferred~~	$	~~12,140~~
~~Recognized amounts of identifiable assets acquired and liabilities assumed:~~
~~Fixed maturities~~	~~895~~
~~Cash and cash equivalents~~	~~2,704~~
~~Accrued investment income~~	7
~~Premiums and other receivables~~	~~2,618~~
~~Reinsurance recoverable~~	~~5,069~~
~~Prepaid reinsurance premiums~~	~~920~~
~~Deferred policy acquisition costs~~	~~466~~
~~Property and equipment~~	22
~~Right of use asset~~	~~196~~
~~Goodwill~~	~~2,873~~
~~Intangible assets~~	~~3,299~~
~~Other assets~~	~~7,435~~
~~Unpaid loss and loss adjustment expenses~~	~~(8,117)~~
~~Unearned premiums~~	~~(3,831)~~
~~Funds held under reinsurance agreements~~	~~(421)~~
~~Accounts payable and accrued expenses~~	~~(1,112)~~
~~Lease liability~~	~~(220)~~
~~Deferred tax liabilities~~	~~(394)~~
~~Debt~~	~~(269)~~
~~Net assets acquired~~	$	~~12,140~~

The assessment of fair value, the determination of the liability for unpaid loss and loss adjustment expense assumed, deferred taxes and other payables and receivables are preliminary and are based on the information that was available at the time the consolidated financial statements were prepared. Accordingly, the allocation of purchase price to intangible assets, goodwill, deferred tax assets and liabilities and the liability for unpaid loss and loss adjustment expense is preliminary and, therefore, subject to adjustment in future periods.

The Company recorded $2,873 of goodwill associated with the business combination. The goodwill recognized is attributable to the assembled workforce and the expected growth resulting from the acquisition.

~~The Company also recorded preliminary intangible assets totaling $3,299, which are comprised of the following:~~

~~Useful Life~~

~~Balance~~

~~Trade name~~

~~15 years~~

~~458~~

~~Customer relationships~~

~~10 years~~

~~2,841~~

~~Total intangible assets~~

~~3,299~~

~~Table of Contents~~

~~Compstar Holding Company LLC~~

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

The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date. The assessment of fair value and the determination of deferred taxes and other payables and receivables are preliminary and are based on the information that was available at the time the condensed consolidated financial statements were prepared. Accordingly, the allocation of purchase price to intangible assets and to deferred tax assets and liabilities is preliminary and, therefore, subject to adjustment in future periods.


~~Fair value of total consideration transferred~~	$	~~99,204~~
~~Previous investment in subsidiary~~	~~11,321~~
~~Fair value adjustment to prior investment~~	~~69,846~~
~~Fair value of assets acquired and liabilities assumed~~	~~180,371~~
~~Recognized amounts of identifiable assets acquired and liabilities assumed:~~
~~Cash and cash equivalents~~	~~11,891~~
~~Premiums and other receivables~~	~~3,632~~
~~Property and equipment~~	~~444~~
~~Right of use asset~~	~~1,020~~
~~Goodwill~~	~~134,428~~
~~Intangible assets, net~~	~~73,954~~
~~Other assets~~	~~184~~
~~Accounts payable and accrued expenses~~	~~(11,328)~~
~~Lease liability~~	~~(1,302)~~
~~Deferred tax liabilities~~	~~(12,487)~~
~~Debt~~	~~(20,065)~~
~~Net assets acquired~~	$	~~180,371~~

The Company recorded $134,428 of goodwill associated with the business combination. The goodwill recognized is attributable to the assembled workforce, the expected growth resulting from the acquisition and synergies gained through the reduction of operating expenses.

~~The Company also recorded intangible assets totaling $73,954, which are comprised of the following:~~

~~Useful Life~~

~~Balance~~

~~Trade name~~

~~15 years~~

~~3,157~~

~~Customer relationships~~

~~14 years~~

~~70,797~~

~~Total intangible assets~~

~~73,954~~

~~Table of Contents~~

~~LCTA Risk Services, Inc.~~

Effective April 1, 2020, Trean Corp purchased 100% of the operating assets and assumed the liabilities of LCTA Risk Services, Inc. The total purchase price was $1,400. The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date:


~~Fair value of total consideration transferred~~	$	~~1,400~~
~~Recognized amounts of identifiable assets acquired and liabilities assumed:~~
~~Cash and cash equivalents~~	~~302~~
~~Premiums and other receivables~~	55
~~Property and equipment~~	63
~~Goodwill~~	~~517~~
~~Intangible assets, net~~	~~482~~
~~Other assets~~	12
~~Accounts payable~~	~~(17)~~
~~Income taxes payable~~	~~(14)~~
~~Net assets acquired~~	$	~~1,400~~

The Company recorded $517 of goodwill associated with the business combination. The goodwill recognized is attributable to the expected growth resulting from the acquisition and the synergies gained through the reduction of operating expenses.

Note 3. Fair Value Measurements

The Company’s financial instruments include assets and liabilities carried at fair value. The inputs to valuation techniques used to measure fair value are prioritized into a three level hierarchy. The fair value hierarchy is as follows:

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

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

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

The Company classifies the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. The following tables present the estimated fair value of the Company’s significant financial instruments.

~~Table of Contents~~


		June 30, 2021									March 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Fixed maturities:	Fixed maturities:									Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	28,531	$	175	$	0	$	28,706	U.S. government and government securities	$	40,610	$	—	$	—	$	40,610
Foreign governments	Foreign governments	0		2,600		0		2,600		Foreign governments	—		393		—		393
States, territories and possessions	States, territories and possessions	0		8,456		0		8,456		States, territories and possessions	—		10,822		—		10,822
Political subdivisions of states territories and possessions	Political subdivisions of states territories and possessions	0		32,166		0		32,166		Political subdivisions of states territories and possessions	—		37,419		—		37,419
Special revenue and special assessment obligations	Special revenue and special assessment obligations	0		93,441		0		93,441		Special revenue and special assessment obligations	—		94,078		—		94,078
Industrial and public utilities	Industrial and public utilities	0		105,987		0		105,987		Industrial and public utilities	—		106,298		—		106,298
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		13,129		0		13,129		Commercial mortgage-backed securities	—		97,267		—		97,267
Residential mortgage-backed securities	Residential mortgage-backed securities	0		95,652		0		95,652		Residential mortgage-backed securities	—		18,800		—		18,800
Other loan-backed securities	Other loan-backed securities	0		44,444		0		44,444		Other loan-backed securities	—		41,662		—		41,662
Hybrid securities		0		362		0		362
Total fixed maturities	Total fixed maturities	28,531		396,412		0		424,943		Total fixed maturities	40,610		406,739		—		447,349
Equity securities:
Preferred stock		0		235		0		235
Common stock		0		741		2,000		2,741
Total equity securities		0		976		2,000		2,976
Equity securities										Equity securities	14,053		20,109		—		34,162
Total investments	Total investments	$	28,531	$	397,388	$	2,000	$	427,919	Total investments	$	54,663	$	426,848	$	—	$	481,511

Embedded derivatives on funds held under reinsurance agreements	Embedded derivatives on funds held under reinsurance agreements	$	111	$	1,636	$	0	$	1,747	Embedded derivatives on funds held under reinsurance agreements	$	(1,070)	$	(5,555)	$	—	$	(6,625)
Debt	Debt	0		31,763		0		31,763		Debt	—		30,525		—		30,525

1712

Table of Contents


		December 31, 2020									December 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Fixed maturities:	Fixed maturities:									Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	17,471	$	0	$	0	$	17,471	U.S. government and government securities	$	2,392	$	39,042	$	—	$	41,434
Foreign governments	Foreign governments	0		302		0		302		Foreign governments	—		2,490		—		2,490
States, territories and possessions	States, territories and possessions	0		7,774		0		7,774		States, territories and possessions	—		10,766		—		10,766
Political subdivisions of states, territories and possessions	Political subdivisions of states, territories and possessions	0		33,212		0		33,212		Political subdivisions of states, territories and possessions	—		40,002		—		40,002
Special revenue and special assessment obligations	Special revenue and special assessment obligations	0		81,714		0		81,714		Special revenue and special assessment obligations	—		95,991		—		95,991
Industrial and public utilities	Industrial and public utilities	0		113,741		0		113,741		Industrial and public utilities	—		103,257		—		103,257
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		18,066		0		18,066		Commercial mortgage-backed securities	—		118,218		—		118,218
Residential mortgage-backed securities	Residential mortgage-backed securities	0		93,017		0		93,017		Residential mortgage-backed securities	—		17,368		—		17,368
Other loan-backed securities	Other loan-backed securities	0		39,945		0		39,945		Other loan-backed securities	—		41,425		—		41,425
Hybrid securities	Hybrid securities	0		362		0		362		Hybrid securities	—		110		—		110
Total fixed maturities	Total fixed maturities	17,471		388,133		0		405,604		Total fixed maturities	2,392		468,669		—		471,061
Equity securities:
Preferred stock		0		240		0		240
Common stock		958		576		2,000		3,534
Total equity securities		958		816		2,000		3,774

Equity securities										Equity securities	—		969		—		969

Total investments	Total investments	$	18,429	$	388,949	$	2,000	$	409,378	Total investments	$	2,392	$	469,638	$	—	$	472,030

Embedded derivatives on funds held under reinsurance agreements	Embedded derivatives on funds held under reinsurance agreements	$	176	$	4,761	$	0	$	4,937	Embedded derivatives on funds held under reinsurance agreements	$	(4)	$	275	$	—	$	271
Debt	Debt	0		32,381		0		32,381		Debt	—		30,938		—		30,938

~~Bonds~~Fixed maturities and equity securities: The Company, ~~in conjunction with~~through its third-party pricing service provider, uses a variety of sources to estimate the fair value of investments such as ~~Reuters, Iboxx,~~Refinitiv (formerly Reuters), PricingDirect, ~~ICE BofAML Index,~~ ICE Data Services, and for equities, ~~Bloomberg.~~Bloomberg or S&P Capital IQ Pro. Equity securities are generally valued at the closing price on the exchange on which they are primarily traded as provided by a third-party pricing service. Fixed income securities are generally valued at an evaluated bid as provided by a third-party pricing service. Securities and other assets generally valued using third-party pricing services may also be valued at broker/dealer ~~bid quotations.~~indications. Values obtained from third-party pricing services can utilize several market data sources for inputs such as transaction data, yield, quality, coupon rate, maturity, issue type, trading characteristics, and other market activity. To validate the reasonableness of the ~~quoted~~ prices, the Company performs various qualitative and quantitative procedures such as analysis of recent trading activity, analytical review of fair values and an evaluation of the underlying pricing methodologies. Based on these procedures, the Company did not adjust the prices or quotes from the third-party pricing service.

Embedded derivatives: The Company enters into funds held contracts under reinsurance agreements which create embedded derivatives on the underlying investments. These embedded derivatives are valued based upon the unrealized gain or loss position of the funds held portfolio, which is determined consistent with other investments using third-party pricing services. To validate the reasonableness of the quoted prices, the Company performs various qualitative and quantitative procedures such as analysis of recent activity, analytical review of fair values and an evaluation of the underlying pricing methodologies. Based on these procedures, the Company did not adjust the prices or quotes from the third-party pricing service.

Debt: The Company holds debt related to its secured credit facility. The Company has determined that the remaining balance of the debt reflected its fair value as this would represent the total amount to repay the debt.

1813

Table of Contents

Note 4. Investments

Fixed maturity securities primarily include bonds and asset-backed securities. Fixed income securities, which may be sold prior to their contractual maturity, are designated as available-for-sale and are carried at fair value. Equity securities primarily include common stocks, mutual funds, and non-redeemable preferred stocks, which are carried at fair value. Equity securities includes non-redeemable preferred stock that were previously disclosed separately.

The cost or amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the Company's fixed maturities investments are as follows:


		June 30, 2021									March 31, 2022
		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities:	Fixed maturities:									Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	28,510	$	217	$	(21)	$	28,706	U.S. government and government securities	$	42,026	$	12	$	(1,428)	$	40,610
Foreign governments	Foreign governments	2,599		1		0		2,600		Foreign governments	400		—		(7)		393
States, territories and possessions	States, territories and possessions	8,240		225		(9)		8,456		States, territories and possessions	11,388		14		(580)		10,822
Political subdivisions of states, territories and possessions	Political subdivisions of states, territories and possessions	31,120		1,087		(41)		32,166		Political subdivisions of states, territories and possessions	39,166		142		(1,889)		37,419
Special revenue and special assessment obligations	Special revenue and special assessment obligations	90,047		3,634		(240)		93,441		Special revenue and special assessment obligations	98,436		493		(4,851)		94,078
Industrial and public utilities	Industrial and public utilities	101,624		4,450		(87)		105,987		Industrial and public utilities	107,816		703		(2,221)		106,298
Commercial mortgage-backed securities	Commercial mortgage-backed securities	12,032		1,097		0		13,129		Commercial mortgage-backed securities	104,291		37		(7,061)		97,267
Residential mortgage-backed securities	Residential mortgage-backed securities	95,667		890		(905)		95,652		Residential mortgage-backed securities	19,040		83		(323)		18,800
Other loan-backed securities	Other loan-backed securities	43,972		501		(29)		44,444		Other loan-backed securities	41,939		24		(301)		41,662
Hybrid securities	Hybrid securities	355		7		0		362		Hybrid securities	—		—		—		—
Total fixed maturities available for sale	Total fixed maturities available for sale	414,166		12,109		(1,332)		424,943		Total fixed maturities available for sale	$	464,502	$	1,508	$	(18,661)	$	447,349
Equity securities:
Preferred stock		243		0		(8)		235
Common stock		741		2,000		0		2,741
Total equity securities		984		2,000		(8)		2,976
Total investments		$	415,150	$	14,109	$	(1,340)	$	427,919


	December 31, 2021
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities:
U.S. government and government securities	$	41,490	$	113	$	(169)	$	41,434
Foreign governments	2,500		—		(10)		2,490
States, territories and possessions	10,593		189		(16)		10,766
Political subdivisions of states, territories and possessions	39,170		975		(143)		40,002
Special revenue and special assessment obligations	93,664		2,920		(593)		95,991
Industrial and public utilities	100,774		2,835		(352)		103,257
Commercial mortgage-backed securities	119,378		591		(1,751)		118,218
Residential mortgage-backed securities	16,549		843		(24)		17,368
Other loan-backed securities	41,236		248		(59)		41,425
Hybrid securities	105		5		—		110
Total fixed maturities available for sale	$	465,459	$	8,719	$	(3,117)	$	471,061

1914

Table of Contents

December 31, 2020
Cost or
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Fixed maturities:
U.S. government and government securities $ 17,135 $ 336 $ 0 $ 17,471
Foreign governments 300 2 0 302
States, territories and possessions 7,500 274 0 7,774
Political subdivisions of states, territories and possessions 31,759 1,453 0 33,212
Special revenue and special assessment obligations 77,329 4,422 (37) 81,714
Industrial and public utilities 107,017 6,768 (44) 113,741
Commercial mortgage-backed securities 16,242 1,848 (24) 18,066
Residential mortgage-backed securities 91,478 1,626 (87) 93,017
Other loan-backed securities 39,293 719 (67) 39,945
Hybrid securities 356 6 0 362
Total fixed maturities available for sale 388,409 17,454 (259) 405,604
Equity securities:
Preferred stock 243 0 (3) 240
Common stock 1,554 2,053 (73) 3,534
Total equity securities 1,797 2,053 (76) 3,774
Total investments $ 390,206 $ 19,507 $ (335) $ 409,378

The following table illustrates the Company’s gross unrealized losses and fair value of fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


		June 30, 2021													March 31, 2022
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Fixed maturities:	Fixed maturities:													Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	6,627	$	(21)	$	0	$	0	$	6,627	$	(21)	U.S. government and government securities	$	37,166	$	(1,352)	$	1,550	$	(76)	$	38,716	$	(1,428)
Foreign governments	Foreign governments	0		0		0		0		0		0		Foreign governments	393		(7)		—		—		393		(7)
States, territories and possessions	States, territories and possessions	316		(9)		0		0		316		(9)		States, territories and possessions	6,855		(529)		274		(51)		7,129		(580)
Political subdivisions of states, territories and possessions	Political subdivisions of states, territories and possessions	4,188		(41)		0		0		4,188		(41)		Political subdivisions of states, territories and possessions	23,420		(1,866)		277		(23)		23,697		(1,889)
Special revenue and special assessment obligations	Special revenue and special assessment obligations	17,868		(240)		0		0		17,868		(240)		Special revenue and special assessment obligations	56,698		(4,375)		3,812		(476)		60,510		(4,851)
Industrial and public utilities	Industrial and public utilities	15,323		(87)		0		0		15,323		(87)		Industrial and public utilities	47,899		(2,022)		1,547		(199)		49,446		(2,221)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		0		0		0		0		0		Commercial mortgage-backed securities	60,033		(3,636)		34,197		(3,425)		94,230		(7,061)
Residential mortgage-backed securities	Residential mortgage-backed securities	57,307		(877)		737		(28)		58,044		(905)		Residential mortgage-backed securities	10,045		(323)		—		—		10,045		(323)
Other loan-backed securities	Other loan-backed securities	10,464		(9)		2,480		(20)		12,944		(29)		Other loan-backed securities	33,037		(242)		2,885		(59)		35,922		(301)
Hybrid securities		250		0		0		0		250		0
Total bonds		$	112,343	$	(1,284)	$	3,217	$	(48)	$	115,560	$	(1,332)

Total fixed maturities														Total fixed maturities	$	275,546	$	(14,352)	$	44,542	$	(4,309)	$	320,088	$	(18,661)

~~Table of Contents~~


		December 31, 2020													December 31, 2021
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Fixed maturities:	Fixed maturities:													Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	4,518	$	0	$	0	$	0	$	4,518	$	0	U.S. government and government securities	$	26,935	$	(168)	$	23	$	(1)	$	26,958	$	(169)
Foreign governments	Foreign governments	0		0		0		0		0		0		Foreign governments	2,490		(10)		—		—		2,490		(10)
States, territories and possessions	States, territories and possessions	0		0		0		0		0		0		States, territories and possessions	935		(16)		—		—		935		(16)
Political subdivisions of states, territories and possessions	Political subdivisions of states, territories and possessions	0		0		0		0		0		0		Political subdivisions of states, territories and possessions	11,115		(143)		—		—		11,115		(143)
Special revenue and special assessment obligations	Special revenue and special assessment obligations	2,923		(37)		0		0		2,923		(37)		Special revenue and special assessment obligations	29,917		(593)		—		—		29,917		(593)
Industrial and public utilities	Industrial and public utilities	2,106		(44)		0		0		2,106		(44)		Industrial and public utilities	24,042		(286)		1,058		(66)		25,100		(352)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	999		(24)		0		0		999		(24)		Commercial mortgage-backed securities	80,126		(1,565)		6,212		(186)		86,338		(1,751)
Residential mortgage-backed securities	Residential mortgage-backed securities	8,811		(74)		262		(13)		9,073		(87)		Residential mortgage-backed securities	4,539		(24)		—		—		4,539		(24)
Other loan-backed securities	Other loan-backed securities	2,037		(10)		9,036		(57)		11,073		(67)		Other loan-backed securities	20,153		(36)		2,477		(23)		22,630		(59)
Hybrid securities		250		0		0		0		250		0
Total bonds		$	21,644	$	(189)	$	9,298	$	(70)	$	30,942	$	(259)

Total fixed maturities														Total fixed maturities	$	200,252	$	(2,841)	$	9,770	$	(276)	$	210,022	$	(3,117)

The unrealized losses on the Company’s available for sale securities as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were primarily attributable to an increase in interest rates, which predominantly impacted fixed maturities acquired since the second quarter of 2020.

Table of Contents

The amortized cost and estimated fair value of fixed maturities as of ~~June 30, 2021,~~March 31, 2022, by contractual maturity, are as follows:


		Cost or Amortized Cost		Fair Value			Cost or Amortized Cost		Fair Value
Available for sale:	Available for sale:					Available for sale:
Due in one year or less	Due in one year or less	$	30,510	$	30,870	Due in one year or less	$	33,559	$	33,669
Due after one year but before five years	Due after one year but before five years	103,298		106,728		Due after one year but before five years	110,891		108,584
Due after five years but before ten years	Due after five years but before ten years	64,393		67,848		Due after five years but before ten years	90,397		86,968
Due after ten years	Due after ten years	64,294		66,272		Due after ten years	64,385		60,399
Commercial mortgage-backed securities	Commercial mortgage-backed securities	12,032		13,129		Commercial mortgage-backed securities	104,291		97,267
Residential mortgage-backed securities	Residential mortgage-backed securities	95,667		95,652		Residential mortgage-backed securities	19,040		18,800
Other loan-backed securities	Other loan-backed securities	43,972		44,444		Other loan-backed securities	41,939		41,662
Total	Total	$	414,166	$	424,943	Total	$	464,502	$	447,349

Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

~~Table of Contents~~

Realized gains and losses on investments included in the condensed consolidated statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ are as follows:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Fixed maturities:
Gains $ 18 $ 0 $ 98 $ 119
Losses (8) (1) (75) (1)
Total fixed maturities 10 (1) 23 118
Equity securities:
Equity method investments:
Gains 0 0 0 3,115
Total equity securities 0 0 0 3,115
Total net investment realized gains (losses) $ 10 $ (1) $ 23 $ 3,233


	Three Months Ended March 31,
		2022		2021
Fixed maturities:
Gains		$	109	$	80
Losses		(1,136)		(67)
Total fixed maturities		(1,027)		13
Funds held investments:
Gains		8		—
Losses		(16)		—
Total funds held investments		(8)		—
Equity securities:

Gains		—		—
Losses		(12)		—
Total equity securities		(12)		—
Total net realized gains (losses)		$	(1,047)	$	13

Net investment income consists of the following for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Fixed maturities	Fixed maturities	$	1,577	$	1,408	$	3,137	$	2,880	Fixed maturities		$	1,754	$	1,560
Income on funds held investments	Income on funds held investments	519		1,001		1,199		1,974		Income on funds held investments		668		680
Preferred stock		6		34		36		20
Common stock		0		75		0		1,874
Equity securities										Equity securities		154		30

Interest earned on cash and short-term investments	Interest earned on cash and short-term investments	1		7		3		22		Interest earned on cash and short-term investments		—		2
Net investment income	Net investment income	$	2,103	$	2,525	$	4,375	$	6,770	Net investment income		$	2,576	$	2,272

Table of Contents

Unrealized gains (losses) recognized during the three months ended March 31, 2022 and 2021 are as follows:


	Three Months Ended March 31,
	2022		2021
Net gains and losses recognized during the period on equity securities	$	32	$	17
Less: Net gains and (losses) recognized during the period on equity securities sold during the period	(12)		—
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	44	$	17

Embedded derivatives

The Company enters into funds held contracts under reinsurance agreements which create embedded derivatives ~~which~~that are measured at fair value. The embedded derivatives within our funds held under reinsurance agreements relate to a total return swap on the underlying investments. ~~Total funds held under reinsurance agreements includes the following:~~

June 30, 2021 December 31, 2020
Funds held under reinsurance agreements, at cost $ 159,266 $ 169,767
Embedded derivatives, at fair value 1,747 4,937
Total funds held under reinsurance agreements $ 161,013 $ 174,704

The change in value of embedded derivatives for the three months ended June 30, 2021 and 2020 was a loss of $167 and $2,990, respectively. The change in value of embedded derivatives for the six months ended June 30, 2021 was a gain of $3,189, compared to a loss of $3,206 for the six months ended June 30, 2020. Changes in value of embedded derivatives is included in gains (losses) on embedded derivatives in the consolidated statement of operations. Investment expenses associated with the embedded derivatives for the three and six months ended June 30, 2021 was $519 and $1,199, respectively, compared to $1,001 and $1,974 for the three and six months ended June 30, 2020, which is included in gains (losses) on embedded derivatives on the consolidated statement of operations. These embedded derivatives had no impact on total operating, investing and financing activities as presented on the Company’s condensed consolidated statements of cash flows during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. Total funds held under reinsurance agreements includes the following:


	March 31, 2022		December 31, 2021
Funds held under reinsurance agreements, at cost	$	202,650	$	199,139
Embedded derivatives, at fair value	(6,625)		271
Total funds held under reinsurance agreements	$	196,025	$	199,410

~~Table~~

Gains on embedded derivatives consists of ~~Contents~~the following for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
		2022		2021
Change in fair value of embedded derivatives		$	6,896	$	3,356
Effect of net investment income on funds held investments		(668)		(680)
Effect of realized gains on funds held investments		8		—
Total gains on embedded derivatives		$	6,236	$	2,676

Note 5. Equity Method Investments

The Company had investments in Compstar and Trean Intermediaries ("TRI"). Equity earnings and losses are reported in equity earnings in affiliates, net of tax on the condensed consolidated statements of operations.

On July 15, 2020, the Company purchased the remaining 55% ownership interest in Compstar (See Note 2) and, as a result, Compstar is no longer recorded as an equity method investment. For the three and six months ended June 30, 2020, the Company recorded earnings of $1,230 and $1,932, respectively, and received distributions of $1,024 and $2,302, respectively.

On January 3, 2020, the Company sold 15% of its previous 25% ownership in TRI for cash proceeds of $3,000, resulting in a remaining ownership interest of 10%. As a result of its significant ownership reduction and its lack of significant influence over the operations and policies of TRI, the Company reclassified its TRI investment, at fair value, to investments in common stock in the first quarter of 2020. The Company realized a gain on the sale of $3,115, which iswas included in net realized ~~capital~~ gains (losses) on the ~~condensed~~ consolidated statements of operations. The Company subsequently re-measured its TRI investment shares resulting in an unrealized gain of $2,000 which is recorded in net investment income on the ~~condensed~~ consolidated statement of operations. The Company ~~received distributions~~sold all of ~~$225 for the six months ended June 30, 2020. The Company currently maintains a 4%~~its remaining ownership interest in TRI ~~due to further ownership dilution under its current operating agreement.~~during Q3 2021 for $1,888, resulting in a realized loss of $112, which was included in net realized gains (losses) on the consolidated statement of operations. The sale agreement includes an earn out which would increase the amount received based on TRI's future performance.

The Company recorded $50 of revenue for consulting services provided to TRI for both the three months ended March 31, 2022 and 2021, respectively.

Table of Contents

Note 6. Debt

Debt consisted of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Secured credit facility	Secured credit facility	$	31,763	$	32,381	Secured credit facility	$	30,525	$	30,938

Less: unamortized deferred financing costs	Less: unamortized deferred financing costs	(660)		(744)		Less: unamortized deferred financing costs	(533)		(576)
Net debt	Net debt	$	31,103	$	31,637	Net debt	$	29,992	$	30,362

Secured Credit Facility

In April 2018, Trean Corp entered into a credit agreement with a bank which includes a term loan facility totaling $27,500 and a revolving credit facility of $3,000. Borrowings are secured by substantially all of the assets of Trean and its subsidiaries.

On ~~May 26,~~July 16, 2020, the Company entered into a new Amended and Restated Credit Agreement which, among other things, extended the Company's credit facility for a period of five years through May 26, 2025 and increased its term loan facility by $11,707, resulting in a total term loan debt amount of $33,000 and a revolving credit facility of $2,000 at the time of closing. The loan has a variable interest rate of LIBOR plus 4.50%, which was ~~4.71%~~4.73% and ~~4.72%~~4.64% as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The outstanding principal balance of the loan is to be repaid in quarterly installments which escalate from $206 to $825. All equity securities of the subsidiaries of Trean Insurance Group, Inc. (other than Benchmark Holding Company and its subsidiaries) have been pledged as collateral.

~~The Company recorded $383 and $388 of interest expense with its credit facility during~~During the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively. During the six months ended June 30, 2021 and 2020,~~ the Company recorded ~~$768~~$366 and ~~$722~~$385 of interest expense, respectively, associated with its credit facility.

The terms of the credit facility require the Company to maintain certain financial covenants and ratios. The Company was in compliance with all covenants and ratios as of ~~June 30, 2021 and December~~March 31, ~~2020.~~2022.

~~Table of Contents~~

Note 7. Revenue from Contracts with Customers

Revenue from contracts with customers, included in other revenue, includes brokerage, management, third-party administrative, and consulting and other fee-based revenue. Revenue from contracts with customers was ~~$1,229 and $5,884~~$3,201 for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~$1,530 and $5,922~~$4,655 for the three ~~and six~~ months ended ~~June 30, 2020, respectively.~~March 31, 2021.

The following table presents the revenues recognized from contracts with customers included in the condensed consolidated statements of operations.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Brokerage	Brokerage	$	770	$	755	$	4,225	$	4,448	Brokerage		$	2,593	$	3,455
Managing general agent fees	Managing general agent fees	30		254		319		408		Managing general agent fees		84		289
Third-party administrator fees	Third-party administrator fees	376		383		754		767		Third-party administrator fees		323		378
Consulting and other fee-based revenue	Consulting and other fee-based revenue	53		138		586		299		Consulting and other fee-based revenue		201		533
Total revenue from contracts with customers	Total revenue from contracts with customers	$	1,229	$	1,530	$	5,884	$	5,922	Total revenue from contracts with customers		$	3,201	$	4,655

The Company did not have any contract liabilities as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. The following table provides information related to the contract assets from contracts with customers. Contract assets are included within other assets on the condensed consolidated balance sheets.

June 30, 2021 December 31, 2020
Contract assets $ 4,623 $ 3,405


	March 31, 2022		December 31, 2021
Contract assets	$	4,413	$	3,353

Note 8. Income Taxes

Income tax expense for interim periods is measured using an estimated effective income tax rate for the annual period. The Company's effective tax rate was ~~16.3%~~20.9% for the three months ended ~~June 30, 2021.~~March 31, 2022. The decrease in the effective tax rate ~~differed~~ from the statutory rate for this period was primarily due to the impact of tax-exempt municipal income on the Company's ~~investments. The Company's effective tax rate was 20.7% for the six months ended June 30, 2021. The effective tax rate differed from the statutory rate primarily due to~~

Table of Contents

investments, partially offset by the impact of ~~tax-exempt municipal income on the Company's investments.~~

state taxes. The Company’s effective tax rate was ~~73.3% and 26.6%~~21.6% for the three ~~and six~~ months ended ~~June 30, 2020, respectively. The effective tax rate~~March 31, 2021, which differed from the statutory rate primarily due to the impact of state ~~taxes and the deferred tax effect of a tax accounting method change on excess ceding commissions.~~taxes.

~~Table of Contents~~

Note 9. Liability for Unpaid Losses and Loss Adjustment Expense

The following table represents a reconciliation of changes in the liability for unpaid losses and LAE.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Unpaid losses and LAE reserves at beginning of period $ 485,532 $ 418,757 $ 457,817 $ 406,716
Less losses ceded through reinsurance (353,158) (312,105) (335,655) (304,005)
Net unpaid losses and LAE at beginning of period 132,374 106,652 122,162 102,711
Incurred losses and LAE related to:
Current period 30,178 13,020 55,085 27,189
Prior period (453) (837) (479) (2,072)
Total incurred losses and LAE 29,725 12,183 54,606 25,117
Paid losses and LAE, net of reinsurance, related to:
Current period 8,950 3,392 12,473 4,590
Prior period 9,190 5,708 20,336 13,503
Total paid losses and LAE 18,140 9,100 32,809 18,093
Net unpaid losses and LAE at end of period 143,959 109,735 143,959 109,735
Plus losses ceded through reinsurance 358,601 332,765 358,601 332,765
Unpaid losses and LAE reserves at end of period $ 502,560 $ 442,500 $ 502,560 $ 442,500

~~During the three and six months ended June 30, 2021, the reserves for unpaid losses and LAE developed favorably by $453 and $479, respectively, primarily attributable to net case reserve releases.~~

During the three and six months ended June 30, 2020, the reserves for unpaid losses and LAE developed favorably by $837 and $2,072, respectively, primarily attributable to the development in the Company’s workers’ compensation book of business.


	Three Months Ended March 31,
		2022		2021
Unpaid losses and LAE reserves at beginning of period		$	544,320	$	457,817
Less losses ceded through reinsurance		(369,008)		(335,655)
Net unpaid losses and LAE at beginning of period		175,312		122,162
Incurred losses and LAE related to:
Current period		39,568		24,907
Prior period		(375)		(26)
Total incurred losses and LAE		39,193		24,881
Paid losses and LAE, net of reinsurance, related to:
Current period		5,394		3,523
Prior period		22,409		11,146
Total paid losses and LAE		27,803		14,669
Net unpaid losses and LAE at end of period		186,702		132,374
Plus losses ceded through reinsurance		364,279		353,158
Unpaid losses and LAE reserves at end of period		$	550,981	$	485,532

Note 10. Reinsurance

The Company utilizes reinsurance contracts to reduce its exposure to losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not relieve the Company from its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of its reinsurers.

A summary of the impact of ceded reinsurance on premiums written and premiums earned is as follows:

Three Months Ended June 30,
2021 2020
Gross Assumed Ceded Net Gross Assumed Ceded Net
Written premiums $ 153,049 $ 3,502 $ (101,306) $ 55,245 $ 107,596 $ 2,016 $ (86,586) $ 23,026
Earned premiums 136,362 2,262 (90,681) 47,943 98,337 2,010 (78,968) 21,379

~~Table of Contents~~


		Six Months Ended June 30,																	Three Months Ended March 31,
		2021								2020									2022								2021
		Gross		Assumed		Ceded		Net		Gross		Assumed		Ceded		Net			Gross		Assumed		Ceded		Net		Gross		Assumed		Ceded		Net
Written premiums	Written premiums	$	297,947	$	5,334	$	(190,790)	$	112,491	$	213,573	$	3,898	$	(168,218)	$	49,253	Written premiums	$	159,366	$	2,037	$	(85,925)	$	75,478	$	144,898	$	1,832	$	(89,484)	$	57,246
Earned premiums	Earned premiums	262,766		4,157		(177,846)		89,077		196,880		3,953		(156,995)		43,838		Earned premiums	156,203		2,336		(94,362)		64,177		126,404		1,895		(87,165)		41,134

Note 11. Leases

The Company's leases consist of operating leases for office space and equipment. The Company determines if an arrangement is a lease at its inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of the Company's leases include options to extend the term, which isare only included in the lease liability and right-of-use asset calculation when it is reasonably certain the Company will exercise ~~that~~an option. Our leases have remaining terms ranging from one month to 4839 months, some of which have options to extend the lease for up to ~~5 years.~~an additional 60 months. As of ~~June 30, 2021,~~March 31, 2022, the lease liability and right-of-use assets did not include the impact of any lease extension options as it is not reasonably certain that the Company will exercise the extension options.

Table of Contents

Total lease expense for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$597,~~$617, inclusive of ~~$18~~$24 in variable lease expense. Total lease expense for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$535,~~$674, inclusive of ~~$22~~$75 in variable lease expense. The Company also sublets some of its leased office space and recorded ~~$23~~$21 and ~~$36~~$18 of sublease income for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, which is included in other income on the condensed consolidated statement of operations.~~

Total lease expense for the six months ended June 30, 2021 was $1,205, inclusive of $27 in variable lease expense. Total lease expense for the six months ended June 30, 2020 was $1,114, inclusive of $142 in variable lease expense. The Company also sublets some of its leased office space and recorded $41 and $48 of sublease income for the six months ended June 30, 2021 and 2020, respectively, which is included in other income on the condensed consolidated statement of operations.

Supplemental balance sheet information, the weighted average remaining lease term and weighted average discount rate related to leases were as follows:


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
Right of use asset	Right of use asset	$	5,378		$	6,338		Right of use asset	$	4,167		$	4,530
Lease liability	Lease liability	$	5,855		$	6,893		Lease liability	$	4,554		$	4,976
Weighted average remaining lease term	Weighted average remaining lease term	2.82 years			3.26 years			Weighted average remaining lease term	1.56 years			2.42 years
Weighted average discount rate	Weighted average discount rate	6.36		%	6.37		%	Weighted average discount rate	6.02		%	6.33		%

~~Table of Contents~~

Future maturities of lease liabilities as of ~~June 30, 2021~~March 31, 2022 are as follows:


		Operating Leases			Operating Leases
2021		$	1,208
2022	2022	2,369		2022	$	1,846
2023	2023	1,783		2023	1,847
2024	2024	934		2024	1,011
2025	2025	94		2025	129
2026				2026	33

Total lease payments	Total lease payments	6,388		Total lease payments	4,866
Less: imputed interest	Less: imputed interest	(533)		Less: imputed interest	(312)
Total lease liabilities	Total lease liabilities	$	5,855	Total lease liabilities	$	4,554

Note 12. Equity

~~Initial Public Offering and Reorganization~~

On July 20, 2020, Trean Insurance Group, Inc. closed the sale of 10,714,286 shares of its common stock in its IPO, comprised of 7,142,857 shares issued and sold by Trean Insurance Group, Inc. and 3,571,429 shares sold by selling stockholders. On July 22, 2020, Trean Insurance Group, Inc. closed the sale of an additional 1,207,142 shares by certain selling stockholders in the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares to cover over-allotments. The IPO price per share was $15.00. The aggregate IPO price for all shares sold in the IPO was approximately $107,142 and the aggregate initial public offering price for all shares sold by the selling stockholders in the IPO was approximately $71,678. The shares began trading on the Nasdaq Global Select Market on July 16, 2020 under the symbol "TIG". The offer and sale was pursuant to a registration statement on Form S-1 (File No. 333-239291), which was declared effective by the SEC on July 15, 2020.

Trean Insurance Group, Inc. received net proceeds from the sale of shares in the IPO of approximately $93,139 after deducting underwriting discounts and commissions of $7,500 and estimated offering expenses of $6,503. Trean Insurance Group, Inc. did not receive any proceeds from the sale of shares by the selling stockholders. In addition, and in conjunction with its IPO, Trean Insurance Group, Inc. issued 6,613,606 shares of common stock, with a purchase price value of $99,204, to acquire the remaining 55% ownership in Compstar Holding Company LLC.

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

Common Stock

The Company currently has authorized 600,000,000 shares of common stock with a par value of $0.01. As of ~~June 30,~~March 31, 2022 and December 31, 2021, there were ~~51,157,004~~51,192,196 and 51,176,887 shares of common stock issued and ~~outstanding.~~

~~Members' Equity~~

~~Prior to the IPO of Trean Insurance Group, Inc., the Company had three classes of ownership units, each with its respective rights, preferences and privileges as follows:~~outstanding, respectively.

1)~~Class A Units~~: Received an allocation of profits and losses incurred by the Company as well as maintained the right to receive distributions, along with Class B Units, on a pro rata basis prior to distributions made to other classes of ownership units.

~~Table of Contents~~

2)~~Class B Units~~: Received an allocation of profits and losses incurred by the Company as well as maintained the right to receive distributions, along with Class A Units, on a pro rata basis prior to distributions made to other classes of ownership units. Class B maintained both voting and non-voting units. Each Class B Voting Unit was entitled to one vote per Class B Voting Unit on each matter to which the members were entitled to vote. Class B Non-Voting Units maintained all rights, preferences and privileges allowed to Class B Voting Units with the exception of voting rights.

3)~~Class C Units~~: Received an allocation of profits and losses incurred by the Company. Participating Class C Units maintained the right to receive distributions after any Class A or Class B units based on the unit holders’ pro rata share.

As part of the corporate reorganization performed in conjunction with the IPO of Trean Insurance Group, all ownership units were exchanged for a total of 37,386,394 shares of the Company's common stock.

Note 13. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares outstanding during reported periods. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods and is calculated using the treasury stock method. As a result of the Company's IPO and corporate reorganization in the third quarter of 2020, the number of shares used to compute earnings per share for pre-reorganization 2020 periods presented was retrospectively adjusted to reflect the recapitalization akin to a split-like situation.

Table of Contents

The following table presents the calculation of basic and diluted EPS of common stock:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Net income — basic and diluted	Net income — basic and diluted	$	2,126	$	1,358	$	11,568	$	10,793	Net income — basic and diluted		$	12,340	$	9,442

Weighted average number of shares outstanding — basic	Weighted average number of shares outstanding — basic	51,152,979		37,386,394		51,150,881		37,386,394		Weighted average number of shares outstanding — basic		51,177,908		51,148,782
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock units	Restricted stock units	13,608		0		22,323		0		Restricted stock units		—		31,038
Dilutive shares	Dilutive shares	13,608		0		22,323		0		Dilutive shares		—		31,038
Weighted average number of shares outstanding — diluted	Weighted average number of shares outstanding — diluted	51,166,587		37,386,394		51,173,204		37,386,394		Weighted average number of shares outstanding — diluted		51,177,908		51,179,820

Excluded: Antidilutive common stock equivalents										Excluded: Antidilutive common stock equivalents		117,371		60,729

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.04	$	0.04	$	0.23	$	0.29	Basic		$	0.24	$	0.18
Diluted	Diluted	$	0.04	$	0.04	$	0.23	$	0.29	Diluted		$	0.24	$	0.18

For the three months ended June 30, 2021, a total of 53,690 stock options with an exercise price of $17.50 per share were excluded from the calculation of diluted EPS because the options' exercise price was greater than the average market price of common shares, resulting in an antidilutive effect.

For the six months ended June 30, 2021, a total of 53,690 stock options with an exercise price of $17.50 per share were excluded from the calculation of diluted EPS because the options' exercise price was greater than the average market price of common shares, resulting in an antidilutive effect.

~~Table of Contents~~

Note 14. Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) for unrealized gains and losses on available-for-sale securities:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Balance at beginning of period $ 6,641 $ 5,611 $ 13,426 $ 6,500
Other comprehensive gain (loss), net of tax:
Unrealized investment gain (loss):
Unrealized investment gains (losses) arising during the period $ 2,325 $ 9,242 $ (6,251) $ 8,235
Income tax expense (benefit) $ 488 $ 1,938 $ (1,313) $ 1,727
Unrealized investment gain (loss), net of tax $ 1,837 $ 7,304 $ (4,938) $ 6,508
Less: reclassification adjustments to:
Net realized investment gains (losses) included in net realized capital gains (losses) $ 10 $ (1) $ 23 $ 118
Income tax expense (benefit) $ 2 $ (1) $ 5 $ 25
Total reclassifications included in net income, net of tax $ 8 $ 0 $ 18 $ 93
Other comprehensive income (loss) $ 1,829 $ 7,304 $ (4,956) $ 6,415
Balance at end of period $ 8,470 $ 12,915 $ 8,470 $ 12,915


	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	4,384	$	13,426
Other comprehensive loss, net of tax:
Unrealized investment losses:
Unrealized investment losses arising during the period	$	(23,804)	$	(8,576)
Income tax benefit	$	(4,993)	$	(1,801)
Unrealized investment losses, net of tax	$	(18,811)	$	(6,775)
Less reclassification adjustments to:
Net realized investment gains (losses) included in net realized gains (losses)	$	(1,027)	$	13
Income tax expense (benefit)	$	(216)	$	3
Total reclassifications included in net income, net of tax	$	(811)	$	10
Other comprehensive loss	$	(18,000)	$	(6,785)
Balance at end of period	$	(13,616)	$	6,641

Note 15. Stock Compensation

As of ~~June 30, 2021,~~March 31, 2022, the Company has one incentive plan, the Trean Insurance Group, Inc. 2020 Omnibus Incentive Plan, (the "2020 Omnibus Plan"). The purposes of the 2020 Omnibus Plan are to provide additional incentive to selected officers, employees, non-employee directors, independent contractors, and consultants of the Company whose contributions are essential to the growth and success of the business of the Company and its affiliates, to strengthen the commitment and motivate such individuals to faithfully and diligently perform their responsibilities and to attract competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company and its affiliates. The 2020 Omnibus Plan is administered by the Compensation, Nominating, and Corporate Governance Committee of the Company's board of directors and provides for the issuance of up to 5,058,085 shares of the Company's common stock granted in the

Table of Contents

form of stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, other stock awards, or any combination of the foregoing.

Stock Options

Compensation expense is recognized for all stock compensation arrangements by the Company. Stock compensation expense related to stock option awards was ~~$34~~$51 and ~~$69~~$35 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, respectively.

Employee stock option awards granted set forth, among other things, the option exercise price, the option term, provisions regarding option exercisability, and whether the option is intended to be an incentive stock option ("ISO") or a nonqualified stock ~~option.~~option ("NQ"). Stock options may be granted to employees at such exercise prices as the Company’s board of directors may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. Employee options vest one third annually over a period of three years and have contractual terms of 10 years from the date of grant.

The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. The Company’s expected volatility for the period iswas based on a weighted average expected volatility of an industry peer group of insurance companies of similar size, life cycle, and lines of business. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company’s stock option grants qualify as plain vanilla options and as such the Company uses the

~~Table of Contents~~

simplified method in estimating its expected option term as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its common shares have been publicly traded. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.


			~~Fiscal 2021~~
~~Expected volatility~~			~~29.8%~~
~~Expected term~~			~~6 years~~
~~Risk-free interest rate~~			~~1.32%~~


	Fiscal 2022	Fiscal 2021
Expected volatility	29.8%	29.8%
Expected term	6 years	6 years
Risk-free interest rate	1.92%	1.32%

A summary of the status of the Company's stock option activity as of ~~June 30, 2021~~March 31, 2022 and changes during the ~~six-month~~three-month period then ended are as follows:

Stock Options Weighted Average Exercise Price
Balance outstanding, December 31, 2020 89,920 $ 15.00
Granted 60,729 $ 17.50
Forfeited or cancelled (27,646) $ 15.64
Balance outstanding, June 30, 2021 123,003 $ 16.09
Options exercisable, June 30, 2021 0 $ 0


	Stock Options	Weighted Average Exercise Price
Balance outstanding, December 31, 2021	120,187	$	16.06
Granted	64,694	$	7.04
Forfeited or cancelled	(2,816)	$	17.50
Balance outstanding, March 31, 2022	182,065	$	12.83
Options exercisable, March 31, 2022	40,373	$	15.99

Table of Contents

The following table summarizes information regarding stock options outstanding as of ~~June 30, 2021:~~March 31, 2022:


		Options Outstanding						Options Vested or Expected to Vest							Options Outstanding						Options Vested or Expected to Vest
Stock Options	Stock Options	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value		Stock Options	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
2020 Omnibus Plan	2020 Omnibus Plan	123,003	$	16.09	9.22 years	$	91	123,003	$	16.09	9.22 years	$	91	2020 Omnibus Plan	182,065	$	12.83	8.98 years	$	—	182,065	$	12.83	8.98 years	$	—

The weighted average grant-date fair value of options granted in the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 was ~~$5.49.~~$2.30 and $5.49, respectively. As of ~~June 30, 2021,~~March 31, 2022, total unrecognized compensation cost related to stock options was ~~$472~~$449 and is expected to be recognized over a weighted average period of approximately ~~1.3~~1.2 years.

Restricted Stock Units

Compensation expense relating to restricted stock unit grants was ~~$385~~$105 and ~~$561~~$176 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, respectively. As of ~~June 30, 2021,~~March 31, 2022, there was ~~$4,088~~$3,387 of total unrecognized compensation cost related to non-vested restricted stock unit grants, which is expected to be recognized over a weighted average life of ~~2.6~~2.1 years. The total fair value of restricted stock units vested during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 was ~~$136.~~$77.

The Company has granted time-based restricted stock units ("RSUs"), performance stock units ("PSUs"), and market-based stock units ("MSUs") to certain key employees as part of the Company's long-term incentive program. The estimated fair value of restricted stock units is based on the grant date closing price of the Company's common stock for time-based and performance-based vesting awards. A Monte Carlo valuation model is used to estimate the fair value for market-based vesting awards. RSUs generally vest in three equal annual installments beginning one year from the grant date and are

~~Table of Contents~~

amortized as compensation expense over the three-year vesting period. The Company has also granted time-based restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each time-based restricted stock grant to non-employee directors vests on the day immediately preceding the next annual meeting of stockholders following the date of grant. The grants are amortized as director compensation expense over the vesting period. The Company recognizes compensation expense on PSUs ratably over the requisite performance period of the award and to the extent management views the performance goal attainment as probable. The Company recognizes compensation expense on MSUs ratably over the requisite performance period of the award.

For the 2022 and 2021 fiscal year, the Company granted PSUs to certain key employees pursuant to the Company's 2020 Omnibus Plan. The number of shares earned is based on the Company’s achievement of pre-established target threshold goals for total gross written premiums over a three-year performance measurement period. The performance goals allow for a payout ranging from 0% to 200% of the target award. If performance satisfies minimum requirements to result in shares of Company common stock being awarded, the number of shares will be determined between 50% and 200% of target thresholds, as defined in the applicable award agreements. Any earned PSU will vest if the employee’s service has been continuous through the vesting date. Any PSU not earned because of failure to achieve the minimum performance goal at the end of the performance period will be immediately forfeited. The grant date fair value of the PSUs was determined based on the grant date closing price of the Company’s stock.

Table of Contents

For the 2022 and 2021 fiscal year, the Company granted MSUs to certain key employees pursuant to the Company's 2020 Omnibus Plan. The number of restricted stock units earned is based on the Company’s cumulative total shareholder return ("TSR"), as defined in the applicable award agreement, over a three-year performance measurement period. If TSR satisfies minimum requirements to result in shares being awarded, the number of shares will be determined between 50% and 200% shown in the table below. Any MSU not earned because of failure to achieve the minimum performance goal at the end of the performance period will be immediately forfeited. Grant date fair values were determined using a Monte Carlo valuation model based on the following assumptions:


	~~Fiscal 2021~~
~~Total grant date fair value~~	$	~~845~~
~~Total grant date fair value per share~~	$	~~13.92~~
~~Expected volatility~~	~~35.0~~		%
~~Weighted average expected life~~	~~2.77 years~~
~~Risk-free interest rate~~	~~0.27~~		%


	Fiscal 2022			Fiscal 2021
Total grant date fair value	$	391		$	845
Total grant date fair value per share	$	6.04		$	13.92
Expected volatility	40.0		%	35.0		%
Weighted average expected life	2.81 years			2.77 years
Risk-free interest rate	1.79		%	0.27		%

The percent of the target MSU that will be earned based on the Company’s TSR is as follows:

Cumulative TSR % Percent of Units Vested
Below 25.1% 0%
25.1% 50%
47.2% 100%
69.3% and above 200%


Cumulative TSR %		Percent of Units Vested
Fiscal 2022 Grants	Fiscal 2021 Grants
Below 29.2%	Below 25.1%	0%
29.2%	25.1%	50%
52.1%	47.2%	100%
74.9% and above	69.3% and above	200%

~~Table of Contents~~

A summary of the status of the Company’s non-vested restricted stock unit activity as of ~~June 30, 2021~~March 31, 2022 and changes during the ~~six-month~~three-month period then ended is as follows:


		RSUs			MSUs			PSUs			Total				RSUs			MSUs			PSUs			Total
		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Non-vested outstanding, December 31, 2020		111,588	$	14.99	0	$	0	0	$	0	111,588	$	14.99
Non-vested outstanding, December 31, 2021														Non-vested outstanding, December 31, 2021	117,109	$	15.53	50,861	$	13.92	101,748	$	17.50	269,718	$	15.97
Granted	Granted	60,729	$	17.50	60,715	$	13.92	121,458	$	17.50	242,902	$	16.61	Granted	64,708	$	7.04	64,709	$	6.04	64,693	$	7.04	194,110	$	6.71
Vested	Vested	(8,541)	$	15.21	0	$	0	0	$	0	(8,541)	$	15.21	Vested	(16,961)	$	17.50	—	$	—	—	$	—	(16,961)	$	17.50
Forfeited or cancelled	Forfeited or cancelled	(27,646)	$	16.02	(7,039)	$	13.92	(14,078)	$	17.50	(48,763)	$	16.14	Forfeited or cancelled	(1,877)	$	17.50	(2,815)	$	13.92	(5,632)	$	17.50	(10,324)	$	16.52
Non-vested outstanding, June 30, 2021		136,130	$	15.89	53,676	$	13.92	107,380	$	17.50	297,186	$	16.11
Non-vested outstanding, March 31, 2022														Non-vested outstanding, March 31, 2022	162,979	$	11.93	112,755	$	9.40	160,809	$	13.29	436,543	$	11.78

~~Note 16. Transactions with Related Parties~~

~~The Company recorded $50 and $100 of revenue for consulting services provided to TRI for the three and six months ended June 30, 2021 and 2020, respectively.~~

Effective July 15, 2020, Trean Compstar Holdings LLC purchased the remaining ownership interest in Compstar (See Note 2). Prior to the acquisition, the Company owned a 45% interest in Compstar, a program manager that handles the underwriting, premium collection and servicing of insurance policies for the Company. The Company recorded $43,917 and $90,199 of gross earned premiums resulting in gross commissions of $7,737 and $17,709 due to Compstar for the three and six months ended June 30, 2020, respectively.

~~Note 17. Subsequent Events~~

Events or transactions that occur after the balance sheet date, but before the condensed consolidated financial statements are complete, are reviewed by the Company to determine if they are to be recognized and/or disclosed as appropriate.

On July 6, 2021, Trean Corp acquired 100% ownership in Western Integrated Care, LLC ("WIC") for a base purchase price of $4,000. WIC offers services to workers' compensation insurers to enable employees who are injured on the job to access qualified medical treatment.

~~On August 11, 2021, Trean Corp sold its remaining ownership interest in TRI for $1,888.~~

All of the effects of subsequent events that provide additional evidence about conditions that existed at the condensed consolidated balance sheet date, including the estimates inherent in the process of preparing the condensed consolidated financial statements, are recognized in the condensed consolidated financial statements.

3224

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 is qualified by reference to and should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included herein and the audited consolidated financial statements and notes included in our ~~2020~~2021 Form 10-K. The discussion and analysis below are based on comparisons between our historical financial data for different periods and include certain forward-looking statements about our business, operations, and financial performance. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors described in Item 1A — "Risk Factors" in our ~~2020~~2021 Form 10-K. Our actual results may differ materially from those expressed in, or implied by, those forward-looking statements. See "Forward-Looking Statements."

All references to "we," "us," "our," "the Company," "Trean," or similar terms refer to ~~(i) Trean, BIC and their subsidiaries before the consummation of the reorganization transactions in anticipation of our IPO, and (ii) to~~ Trean Insurance Group, Inc. and its subsidiaries, ~~after such reorganization transactions,~~ unless the context otherwise requires. The information contained in this quarterly report is not a complete description of our business or the risks associated with an investment in our common stock.

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

Forward-Looking Statements

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

The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and assumptions, which in many cases are beyond our control, as described in "Item 1A — Risk ~~Factors,"~~Factors" in our 2021 Form 10-K and ~~elsewhere~~ in this Quarterly Report on Form 10-Q. Our statements reflecting these risks and uncertainties are not exhaustive, and other risks and uncertainties may currently exist or may arise in the future that could have material effects on our business, operations, and financial condition. We cannot assure you that the results, events, and circumstances reflected in the forward looking statements reflected in this Quarterly Report on Form 10-Q and our other public statements and securities filings will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward looking statements.

These forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation, and do not intend, to update any forward looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by applicable securities laws or the rules and regulations of the ~~SEC.~~Securities and Exchange Commission ("SEC").

Overview

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

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

Table of Contents

~~Initial Public Offering and Reorganization~~

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

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

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

~~Secondary Offering of Common Stock~~

On May 19, 2021, Trean Insurance Group, Inc. closed the sale of 5,000,000 shares of its common stock, comprised entirely of shares sold by selling stockholders. We did not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering. As a result of this offering, the Altaris Funds no longer beneficially own more than 50% of the outstanding common stock of the Company.

~~Acquisition of Compstar~~

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

~~Acquisition of 7710~~

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

~~Table of Contents~~

~~Embedded Derivatives~~

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

Coronavirus ("COVID-19") Impact

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

Workforce Operations

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

Premium Revenue, Claims and Losses

We have not experienced a material impact to our premium revenue ~~in the first six months of 2021~~ as a result of the COVID-19 pandemic. ~~Less than 20.0% of our business falls under hospitality, healthcare, and education, where the majority of layoffs in response to the pandemic have occurred so far.~~ During the ~~quarter~~three months ended ~~June 30, 2021~~March 31, 2022, compared to the quarter ended June 30, 2020, gross written premiums increased 42.8%, primarily driven by growth in our existing Program Partner business as well as the addition of new Program Partners, and gross earned premiums increased 38.1%, primarily driven by the increase in gross written premiums. During the sixthree months ended ~~June 30,~~March 31, 2021, ~~compared to the six months ended June 30, 2020,~~ gross written premiums increased by ~~39.5%~~10.0% and gross earned premiums increased by ~~32.9%~~23.6%, primarily driven by ~~both~~ significant growth in our existing Program Partner ~~business as well as the addition of new Program Partners.~~business. Because a majority of our gross written premiums are related to workers’ compensation insurance, ~~we expect that future~~ revenue trends could be impacted ~~by higher unemployment rates as businesses slowly restart~~in future periods if the COVID-19 pandemic were to continue or ~~if unemployment levels continue to trend high over the balance of 2021 and possibly beyond.~~significantly get worse. However, a significant portion of our workers’ compensation premiums are pay-as-you-go programs, which reduces our downside risk from future premium audits or refunds.

We also have not experienced a material impact in our reported claims or incurred losses in the first ~~six~~three months of ~~2021~~2022 as a specific result of the COVID-19 pandemic. Losses and LAE increased $17,542, or 144.0%, to $29,725 for the three months ended June 30, 2021, compared to $12,183 for the three months ended June 30, 2020. On a year-to-date basis, loss and LAE increased $29,489, or 117.4%, to $54,606 for the six months ended June 30, 2021, compared to $25,117 for the six months ended June 30, 2020, with the increase primarily attributable to the growth in earned premiums during the period. In addition, our loss ratio increased to 62.0% and 61.3%, respectively, during the three and six months ending June 30, 2021 from 57.0% and 57.3%, respectively, for the comparable 2020 periods, attributable primarily to losses incurred on our workers' compensation line of business as well as property losses incurred during the first quarter.

~~Table of Contents~~

Investment Portfolio

With respect to our investment portfolio, we seek to hold a high-quality, diversified portfolio of investments, which are primarily in fixed maturity and available-for-sale investments and as such, our investment portfolio has limited exposure to ~~the recent~~ equity market volatility. For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we experienced a ~~slight~~ decrease of ~~$6,251, or 1.5%,~~$23,804 in the fair value of our fixed maturities investment ~~portfolio due to a reduction in unrealized gains on the value of our fixed maturity investments.~~ portfolio. The decline in the fair value of our fixed maturity investments is primarily attributable to ~~rising~~the recent rise in interest rates ~~following 2020 COVID-19~~ driven primarily by changing conditions in the financial markets as compared to the comparatively lower rates ~~as opposed to~~that prevailed during the initial part of the COVID-19 pandemic in 2020 and 2021, rather than underlying credit risk within our investment portfolio. If there were to be continued debt market volatility, which in turn could create mark-to-market investment valuation decreases, we expect there could be additional or increased unrealized losses recorded or realized losses, if sold, in future reporting periods. In addition, if there were to be continued equity ~~and debt~~ financial market volatility, which in turn could create mark-to-market investment valuation decreases, we expect there could be additional or increased unrealized losses on equity investments held, which are recorded ~~during the balance of the year.~~through net investment income, in future reporting periods. However, given the conservative nature of our investment portfolio, we expect that any adverse impact on the value of our investment portfolio, as it relates to COVID-19, will be temporary, and we do not expect a long-term negative impact on our financial condition, results of operations or cash flows.

Other Concerns

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

Significant Components of Results of Operations

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

Table of Contents

•addition and retention of Program Partners;

•new business submissions to our Program Partners;

•binding of new business submissions into policies;

•renewals of existing policies; and

•average size and premium rate of bound policies.

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

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

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

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

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

~~Table of Contents~~

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

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

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

•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~~costs.

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

General and administrative expenses: General and administrative expenses include net commissions, insurance-related expenses, and general and administrative operating expenses. Net commissions consist of policy acquisition costs and other underwriting ~~expenses.~~expenses, net of ceding commissions. Policy acquisition costs are principally comprised of the commissions we pay our brokers and program ~~managers, net of ceding commissions we receive on business ceded under our reinsurance contracts.~~managers. Policy acquisition costs that are directly related to the successful acquisition or reinsurance of those policies are deferred. ~~The amortization of such~~All policy acquisition costs isare charged to expense in proportion to premium earned over the policy life. ~~Other general~~We receive ceding commissions on business ceded under our reinsurance contracts. Insurance-

Table of Contents

related expenses largely consist of state premium taxes. General and administrative operating expenses primarily include employee salaries and benefits, corporate business insurance costs, technology costs, office rent, and professional services fees such as legal, accounting, audit, tax, and actuarial services.

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

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

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

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

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

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

Key Metrics

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

Underwriting income is a non-GAAP financial measure defined as income before taxes excluding net investment income, investment revaluation gains, net realized ~~capital~~ gains or losses, ~~IPO-related expenses,~~ intangible asset amortization, noncash stock compensation, gains and losses on embedded derivatives, interest expense, other revenue, and other income and

~~Table of Contents~~

expenses. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of underwriting income to income before taxes in accordance with GAAP.

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

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

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

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

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

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

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

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

Table of Contents

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

~~Table of Contents~~

Results of Operations

Consolidated Results of Operations for the Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to ~~June 30, 2020~~March 31, 2021

The following table summarizes our results of operations for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Change				Percentage Change (1)			Three Months Ended March 31,					Change		Percentage Change (1)
(in thousands, except for percentages)	(in thousands, except for percentages)	2021		2020				(in thousands, except for percentages)	2022					2021
Revenues	Revenues														Revenues
Gross written premiums	Gross written premiums	$	156,551	$	109,612	$	46,939			42.8	%	Gross written premiums	161,403			146,730		$	14,673	10.0	%
Increase in gross unearned premiums	Increase in gross unearned premiums	(17,927)		(9,265)		(8,662)				93.5	%	Increase in gross unearned premiums	(2,864)			(18,431)		15,567		(84.5)	%
Gross earned premiums	Gross earned premiums	138,624		100,347		38,277				38.1	%	Gross earned premiums	158,539			128,299		30,240		23.6	%
Ceded earned premiums	Ceded earned premiums	(90,681)		(78,968)		(11,713)				14.8	%	Ceded earned premiums	(94,362)			(87,165)		(7,197)		8.3	%
Net earned premiums	Net earned premiums	47,943		21,379		26,564				124.3	%	Net earned premiums	64,177			41,134		23,043		56.0	%
Net investment income	Net investment income	2,103		2,525		(422)				(16.7)	%	Net investment income	2,576			2,272		304		13.4	%
Net realized capital gains (losses)		10		(4)		14				NM

Net realized gains (losses)												Net realized gains (losses)	(1,047)			13		(1,060)		NM
Other revenue	Other revenue	1,229		1,530		(301)				(19.7)	%	Other revenue	3,201			4,655		(1,454)		(31.2)	%
Total revenue	Total revenue	51,285		25,430		25,855				101.7	%	Total revenue	68,907			48,074		20,833		43.3	%
Expenses	Expenses											Expenses
Losses and loss adjustment expenses	Losses and loss adjustment expenses	29,725		12,183		17,542				144.0	%	Losses and loss adjustment expenses	39,193			24,881		14,312		57.5	%
General and administrative expenses	General and administrative expenses	15,267		8,293		6,974				84.1	%	General and administrative expenses	18,300			11,891		6,409		53.9	%
Other expenses		845		—		845				NM

Intangible asset amortization	Intangible asset amortization	1,413		23		1,390				NM		Intangible asset amortization	1,499			1,414		85		6.0	%
Noncash stock compensation	Noncash stock compensation	419		—		419				NM		Noncash stock compensation	156			211		(55)		(26.1)	%
Interest expense	Interest expense	425		501		(76)				(15.2)	%	Interest expense	408			427		(19)		(4.4)	%
Total expenses	Total expenses	48,094		21,000		27,094				129.0	%	Total expenses	59,556			38,824		20,732		53.4	%
Gains (losses) on embedded derivatives		(686)		(3,991)		3,305				(82.8)	%
Gains on embedded derivatives												Gains on embedded derivatives	6,236			2,676		3,560		133.0	%
Other income	Other income	35		40		(5)				(12.5)	%	Other income	23			121		(98)		(81.0)	%
Income before taxes	Income before taxes	2,540		479		2,061				NM		Income before taxes	15,610			12,047		3,563		29.6	%
Income tax expense	Income tax expense	414		351		63				17.9	%	Income tax expense	3,270			2,605		665		25.5	%
Equity earnings in affiliates, net of tax		—		1,230		(1,230)				(100.0)	%

Net income	Net income	$	2,126	$	1,358	$	768			56.6	%	Net income	$	12,340		$	9,442	$	2,898	30.7	%
																						(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

3929

Table of Contents

Three Months Ended June 30,
(in thousands, except for percentages) 2021 2020
Key metrics:
Underwriting income(1)
$ 2,951 $ 903
Adjusted net income(1)
$ 4,316 $ 4,789
Loss ratio 62.0 % 57.0 %
Expense ratio 31.8 % 38.8 %
Combined ratio 93.8 % 95.8 %
Return on equity 2.0 % 3.8 %
Adjusted return on equity(1)
4.2 % 13.2 %
Return on tangible equity(1)
4.2 % 3.8 %
Adjusted return on tangible equity(1)
8.6 % 13.6 %
(1) This metric represents a non-GAAP financial measure. See 'Reconciliation of Non-GAAP Financial Measures' for a reconciliation of this metric to the applicable GAAP metric.

~~Gross written premiums~~: Gross written premiums increased $46,939, or 42.8%, to $156,551 for the three months ended June 30, 2021, compared to $109,612 for the three months ended June 30, 2020. The increase is primarily attributable to the growth in our existing Program Partner business, the addition of new Program Partners added since the second quarter of 2020 and the acquisition of 7710 Insurance Company in the fourth quarter of 2020. The changes in gross written premiums were most notably due to the following lines of business:

Workers' compensation represented 60.0% of our gross written premiums for the three months ended June 30, 2021, compared to 75.9% for the three months ended June 30, 2020. For the three months ended June 30, 2021, gross written premiums for workers' compensation increased by $10,815, or 13.0%, compared to the same period in 2020.

All other non-workers' compensation liability, which primarily includes commercial auto, homeowners, other liability and accident & health lines of business, represented 40.0% of our gross written premiums for the three months ended June 30, 2021, compared to 24.1% for the three months ended June 30, 2020. For the three months ended June 30, 2021, gross written premiums for all other non-workers' compensation liability increased $36,124, or 136.6%, compared to the same period in 2020.

~~Gross earned premiums~~: Gross earned premiums increased $38,277, or 38.1%, to $138,624 for the three months ended June 30, 2021, compared to $100,347 for the three months ended June 30, 2020. The increase is a result of the increase in gross written premiums, offset by the increase in gross unearned premiums of $8,662, driven by the overall growth in premiums, which are largely unearned as of June 30, 2021. Gross earned premiums as a percentage of gross written premiums decreased to 88.5% for the three months ended June 30, 2021, compared to 91.5%, for the three months ended June 30, 2020.

~~Ceded earned premiums~~: Ceded earned premiums increased $11,713, or 14.8%, to $90,681 for the three months ended June 30, 2021, compared to $78,968 for the three months ended June 30, 2020. The increase in ceded earned premiums is primarily due to the addition of new Program Partners since the second quarter of 2020 whose premiums are largely ceded. The total ceded earned premiums as a percentage of gross earned premiums decreased to 65.4% for the three months ended June 30, 2021, compared to 78.7% for the three months ended June 30, 2020, primarily driven by the Company's retention of a larger portion of gross written premiums.

~~Net earned premiums~~: Net earned premiums increased $26,564, or 124.3%, to $47,943 for the three months ended June 30, 2021, compared to $21,379 for the three months ended June 30, 2020. The increase is primarily due to the increase in gross written and earned premiums described above, offset by the increase in ceded earned premiums over the three months ended June 30, 2021.

~~Table of Contents~~

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

Three Months Ended June 30,
Percentage Change (1)
(in thousands, except percentages) 2021 2020 Change
Revenues:
Gross written premiums $ 156,551 $ 109,612 $ 46,939 42.8 %
Increase in gross unearned premiums (17,927) (9,265) (8,662) 93.5 %
Gross earned premiums 138,624 100,347 38,277 38.1 %
Ceded earned premiums (90,681) (78,968) (11,713) 14.8 %
Net earned premiums $ 47,943 $ 21,379 $ 26,564 124.3 %
(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.


	Three Months Ended March 31,
(in thousands, except for percentages)	2022			2021
Key metrics:
Underwriting income(1)	$	6,684		$	4,362
Adjusted net income(1)	$	8,304		$	8,109
Loss ratio	61.1		%	60.5		%
Expense ratio	28.5		%	28.9		%
Combined ratio	89.6		%	89.4		%
Return on equity	11.8		%	9.2		%
Adjusted return on equity(1)	7.9		%	7.9		%
Return on tangible equity(1)	24.1		%	19.2		%
Adjusted return on tangible equity(1)	16.2		%	16.5		%

(1) This metric represents a non-GAAP financial measure. See 'Reconciliation of Non-GAAP Financial Measures' for a reconciliation of this metric to the applicable GAAP metric.


	Three Months Ended March 31,				Change		Percentage Change (1)
(in thousands, except for percentages)	2022		2021
Revenues
Gross written premiums	$	161,403	$	146,730	$	14,673	10.0	%
Increase in gross unearned premiums	(2,864)		(18,431)		15,567		(84.5)	%
Gross earned premiums	158,539		128,299		30,240		23.6	%
Ceded earned premiums	(94,362)		(87,165)		(7,197)		8.3	%
Net earned premiums	$	64,177	$	41,134	$	23,043	56.0	%

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

Gross written premiums: Gross written premiums increased $14,673, or 10.0%, to $161,403 for the three months ended March 31, 2022, compared to $146,730 for the three months ended March 31, 2021. The increase is primarily attributable to the growth in our existing Program Partner business and the changes in gross written premiums were due to the following:

Workers' compensation represented 61.1% of our gross written premiums for the three months ended March 31, 2022, compared to 67.6% for the three months ended March 31, 2021. For the three months ended March 31, 2022, gross written premiums for workers' compensation decreased by $593, or 0.6%, compared to the same period in 2021. The moderation in growth and shift in mix reflects our ongoing effort to diversify our lines of business and a strategic decrease in our California worker's compensation business that resulted from the Company's measures undertaken to exit certain unfavorable risks in 2021.

All other non-workers' compensation liability represented 38.9% of our gross written premiums for the three months ended March 31, 2022, compared to 32.4% for the three months ended March 31, 2021. For the three months ended March 31, 2022, gross written premiums for all other non-workers' compensation liability increased $15,266, or 32.1%, compared to the same period in 2021. The increase is due primarily to growth in our accident & health, commercial auto and commercial lines, a result of continued line of business diversification.

Gross earned premiums: Gross earned premiums increased $30,240, or 23.6%, to $158,539 for the three months ended March 31, 2022, compared to $128,299 for the three months ended March 31, 2021. The increase in gross earned premiums reflects the increase in gross written premiums of $14,673 net of a reduction in gross unearned premiums of $15,567. Gross

Table of Contents

earned premiums as a percentage of gross written premiums increased to 98.2% for the three months ended March 31, 2022, compared to 87.4% for the three months ended March 31, 2021.

Ceded earned premiums: Ceded earned premiums increased $7,197, or 8.3%, to $94,362 for the three months ended March 31, 2022, compared to $87,165 for the three months ended March 31, 2021. The increase in ceded earned premiums is driven by the growth in gross earned premiums as described above, partially offset by an increase in our retention. Ceded earned premiums as a percentage of gross earned premiums decreased to 59.5% for the three months ended March 31, 2022, compared to 67.9% for the three months ended March 31, 2021, reflecting the Company's strategic decision to retain more gross written premiums.

Net earned premiums: Net earned premiums increased $23,043, or 56.0%, to $64,177 for the three months ended March 31, 2022, compared to $41,134 for the three months ended March 31, 2021. The increase is due to the growth in gross earned premiums as described above and the Company's strategic decision to retain more gross written premiums.

Net investment income: Net investment income ~~decreased $422,~~increased $304, or ~~16.7%~~13.4%, to ~~$2,103~~$2,576 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$2,525~~$2,272 for the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease is due primarily to a reduction~~increase reflects the reinvestment of funds from lower yielding maturities, pay downs and redemptions into higher yielding investments and an increase in ~~income from funds held investments.~~our average invested balance. During the first quarter of 2022, we purchased $33,288 higher-yielding equity securities, which we believe will improve the yield on our portfolio.

Net realized ~~capital~~ gains (losses): Net realized ~~capital gains increased $14 to $10~~losses were $1,047 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to net ~~capital losses~~realized gains of $4$13 for the three months ended ~~June 30, 2020.~~March 31, 2021. We executed a repositioning strategy to sell some of our lower-yielding assets and purchased higher-yielding investments, prior to anticipated interest rate increases. This turnover in our portfolio resulted in realized losses recorded of $1,022.

Other revenue: Other revenue decreased ~~$301,~~$1,454, or ~~19.7%~~31.2%, to ~~$1,229~~$3,201 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,530~~$4,655 for the three months ended ~~June 30, 2020.~~March 31, 2021. The decrease is largely driven by a reduction in ~~management fees~~brokerage revenue of $862 due to lower placement rates reflecting the ~~expiration of~~Company's continued increase in retention year over year. In addition, there was a ~~management contract at~~slight reduction in managing general agent fees, consulting and other fee-based revenue during the ~~end of the first quarter of 2021.~~period.

Losses and loss adjustment expenses: Losses and LAE increased ~~$17,542,~~$14,312, or ~~144.0%~~57.5%, to ~~$29,725~~$39,193 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$12,183~~$24,881 for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase is ~~directly~~primarily attributable to the growth in earned premiums ~~during the period as well as an increase in the Company's loss ratio experienced~~and increased retention during the three months ended ~~June 30, 2021. The Company's~~March 31, 2022. This resulted in a loss ratio ~~increased to 62.0%~~of 61.1% for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~57.0%~~60.5% for the three months ended ~~June 30, 2020, primarily attributable to a number of unusually large losses experienced during the first half of~~March 31, 2021.

General and administrative expenses: General and administrative expenses increased ~~$6,974,~~$6,409, or ~~84.1%~~53.9%, to ~~$15,267~~$18,300 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$8,293~~$11,891 for the three months ended ~~June 30, 2020. This change resulted in a decrease in the Company's~~March 31, 2021. The expense ratio ~~to 31.8%~~was 28.5% for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~38.8%~~28.9% for the three months ended June 30, 2020, a 700 basis point improvement. Net commissions increased $2,507, driven primarily by an increase in retention, partially offset by a reduction in our net commission rate. Insurance-related expenses increased $1,525, primarily as a result of an increase in gross earned premiums. General and administrative operating expenses increased $2,942, primarily as a result of (i) an increase in salaries and benefits of $2,416, of which $1,381 directly resulted from acquisitions made in the second half of 2020 and a general increase in workforce; (ii) an increase in office-related expenses and rent totaling $1,016 due to an increase in business insurance expense as well as the addition of new office locations; and (iii) additional IT software and systems costs totaling $490 related to new software implementation and automation initiatives; offset by a decrease in professional fees of $1,408 as a result of the Company's IPO readiness effort in 2020.March 31, 2021.

4131

Table of Contents

The table below shows the components of general and administrative expenses for the respective ~~three month~~three-month periods:


		Three Months Ended June 30,									Three Months Ended March 31,
		2021			2020			Change			2022			2021			Change
Direct commissions	Direct commissions	$	27,602		$	21,463		$	6,139	Direct commissions	$	27,908		$	23,108		$	4,800
Ceding commissions	Ceding commissions	(29,684)			(26,052)			(3,632)		Ceding commissions	(26,997)			(28,208)			1,211
Net commissions	Net commissions	(2,082)			(4,589)			2,507		Net commissions	911			(5,100)			6,011
Insurance-related expenses	Insurance-related expenses	5,149			3,624			1,525		Insurance-related expenses	5,771			4,276			1,495
General and administrative operating expenses	General and administrative operating expenses	12,200			9,258			2,942		General and administrative operating expenses	11,618			12,715			(1,097)
Total general and administrative expenses	Total general and administrative expenses	$	15,267		$	8,293		$	6,974	Total general and administrative expenses	$	18,300		$	11,891		$	6,409

General and administrative expenses — % of gross written premiums	General and administrative expenses — % of gross written premiums	7.8		%	8.4		%			General and administrative expenses — % of gross written premiums	7.2		%	8.7		%
Retention rate (1)	Retention rate (1)	34.6		%	21.3		%			Retention rate (1)	40.5		%	32.1		%
Direct commission rate (2)	Direct commission rate (2)	19.9		%	21.4		%			Direct commission rate (2)	17.6		%	18.0		%
Ceding commission rate (3)	Ceding commission rate (3)	32.7		%	33.0		%			Ceding commission rate (3)	28.6		%	32.4		%
																			(1) Net earned premium as a percentage of gross earned premiums.	(2) Direct commissions as a percentage of gross earned premiums.	(3) Ceding commissions as a percentage of ceded earned premiums.

~~Other~~Direct commissions increased $4,800 primarily due to an increase in gross earned premiums. Ceding commissions decreased $1,211 due to an increase in retention, partially offset by an increase in ceded earned premiums reflecting the increase in gross earned premiums. Insurance-related expenses~~: Other~~ increased $1,495 primarily as a result of an increase in gross earned premiums. General and administrative operating expenses ~~were $845 for~~decreased $1,097. The decrease in general and administrative operating expense is primarily the ~~three months ended June 30, 2021, which primarily relates to secondary offering costs~~result of ~~$555~~a decrease in professional fees of $801 and ~~executive transition and other costs totaling $290.~~depreciation of $89.

Intangible asset amortization: Intangible asset amortization increased ~~$1,390~~$85 to ~~$1,413~~$1,499 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$23~~$1,414 for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase is driven by the addition of intangible assets acquired ~~as a result~~in the acquisition of ~~the purchase of the remaining equity interest of Compstar~~WIC in the third quarter of ~~2020 and 7710 Insurance Company in the fourth quarter of 2020.~~2021.

Noncash stock compensation: Noncash stock compensation was ~~$419~~$156 for the three months ended ~~June 30,~~March 31, 2022, compared with $211 for the three months ended March 31, 2021. Expenses incurred during both periods relates to the ~~period related to~~fair value of restricted stock units and stock options granted under the Company's 2020 Omnibus ~~Plan.~~Plan amortized over appropriate and applicable vesting periods.

Gains ~~(losses)~~ on embedded derivatives:

The ~~Company recorded losses~~table below shows the components of gains on embedded derivatives ~~of $686~~for the respective three-month periods:


	Three Months Ended March 31,
	2022		2021		Change
Change in fair value of embedded derivatives	$	6,896	$	3,356	$	3,540
Effect of net investment income on funds held investments	(668)		(680)		12
Effect of realized gains on funds held investments	8		—		8
Total gains on embedded derivatives	$	6,236	$	2,676	$	3,560

Gains on embedded derivatives increased $3,560 to $6,236 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$3,991~~$2,676 for the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease is primarily due to a reduction~~gain reflected an increase in ~~unrealized losses~~the change in fair value of embedded derivatives of $3,540, the effect of investment income on funds held investments of ~~$2,823~~$12 and ~~a reduction~~the effect of ~~expenses~~realized gains on

Table of Contents

funds held investments of ~~$482.~~$8. The increase in the fair value of the embedded derivatives is a result of the recent increase in interest rates, which has reduced the value of the underlying funds held investments under reinsurance agreements.

Income tax expense: Income tax expense was ~~$414~~$3,270 for the three months ended ~~June 30, 2021,~~March 31, 2022, which resulted in an effective tax rate of ~~16.3%~~20.9%. The decrease in the effective tax rate from the statutory rate of 21% iswas primarily due ~~primarily~~ to the impact of ~~tax exempt~~tax-exempt municipal income on the Company's ~~investments.~~investments, partially offset by the impact of state taxes. For the three months ended ~~June 30, 2020~~March 31, 2021, income tax expense was ~~$351,~~$2,605, which resulted in an effective tax rate of ~~73.3%~~21.6%. The increase in the effective tax rate from the statutory rate of 21% is due primarily to the impact of state ~~taxes and the deferred tax effect of a tax accounting method change on excess ceding commissions.~~taxes.

~~Equity earnings in affiliates, net of tax~~Owned MGAs and Program Partner Premiums: Equity earnings in affiliates, net of tax decreased $1,230 to $0 for the three months ended June 30, 2021, compared to $1,230 for the three months ended June 30, 2020. This decrease is due to the reduction in the Company's share of earnings in Compstar of $1,230 as a result of the acquisition of the remaining ownership interest during the third quarter of 2020.

~~Table of Contents~~

~~Consolidated Results of Operations for the Six Months Ended June 30, 2021 Compared to June 30, 2020~~

The following table ~~summarizes our results of operations for the six months ended June 30, 2021 and 2020:~~

Six Months Ended June 30, Change
Percentage Change (1)
(in thousands, except for percentages) 2021 2020
Revenues
Gross written premiums $ 303,281 $ 217,471 $ 85,810 39.5 %
Increase in gross unearned premiums (36,358) (16,638) (19,720) 118.5 %
Gross earned premiums 266,923 200,833 66,090 32.9 %
Ceded earned premiums (177,846) (156,995) (20,851) 13.3 %
Net earned premiums 89,077 43,838 45,239 103.2 %
Net investment income 4,375 6,770 (2,395) (35.4) %
Net realized capital gains 23 3,230 (3,207) (99.3) %
Other revenue 5,884 5,922 (38) (0.6) %
Total revenue 99,359 59,760 39,599 66.3 %
Expenses
Losses and loss adjustment expenses 54,606 25,117 29,489 117.4 %
General and administrative expenses 27,158 16,442 10,716 65.2 %
Other expenses 845 — 845 NM
Intangible asset amortization 2,827 34 2,793 NM
Noncash stock compensation 630 — 630 NM
Interest expense 852 962 (110) (11.4) %
Total expenses 86,918 42,555 44,363 104.2 %
Gains (losses) on embedded derivatives 1,990 (5,180) 7,170 (138.4) %
Other income 156 54 102 188.9 %
Income before taxes 14,587 12,079 2,508 20.8 %
Income tax expense 3,019 3,218 (199) (6.2) %
Equity earnings in affiliates, net of tax — 1,932 (1,932) (100.0) %
Net income $ 11,568 $ 10,793 $ 775 7.2 %
(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

~~Table of Contents~~

Six Months Ended June 30,
(in thousands, except for percentages) 2021 2020
Key metrics:
Underwriting income(1)
$ 7,313 $ 2,279
Adjusted net income(1)
$ 12,425 $ 11,122
Loss ratio 61.3 % 57.3 %
Expense ratio 30.5 % 37.5 %
Combined ratio 91.8 % 94.8 %
Return on equity 5.6 % 15.4 %
Adjusted return on equity(1)
6.0 % 15.8 %
Return on tangible equity(1)
11.6 % 15.8 %
Adjusted return on tangible equity(1)
12.5 % 16.2 %
(1) This metric represents a non-GAAP financial measure. See 'Reconciliation of Non-GAAP Financial Measures' for a reconciliation of this metric to the applicable GAAP metric.

~~Gross written premiums~~: Gross written premiums increased $85,810, or 39.5%, to $303,281 for the six months ended June 30, 2021, compared to $217,471 for the six months ended June 30, 2020. The increase is primarily attributable to the growth in our existing Program Partner business, the addition of new Program Partners added since the second quarter of 2020 and the acquisition of 7710 Insurance Company in the fourth quarter of 2020. The changes in gross written premiums were most notably due to the following lines of business:

Workers' compensation represented 63.7% of our gross written premiums for the six months ended June 30, 2021, compared to 79.3% for the six months ended June 30, 2020. For the six months ended June 30, 2021, gross written premiums for workers' compensation increased by $20,644, or 12.0%, compared to the same period in 2020.

All other non-workers' compensation liability, which primarily includes commercial auto, homeowners, other liability and accident & health lines of business, represented 36.3% of our gross written premiums for the six months ended June 30, 2021, compared to 20.7% for the six months ended June 30, 2020. For the six months ended June 30, 2021, gross written premiums for all other non-workers' compensation liability increased $65,166, or 145.0%, compared to the same period in 2020.

~~Gross earned premiums~~: Gross earned premiums increased $66,090, or 32.9%, to $266,923 for the six months ended June 30, 2021, compared to $200,833 for the six months ended June 30, 2020. The increase is a result of the increase in gross written premiums, offset by the increase in gross unearned premiums of $19,720, driven by the overall growth in premiums, which are largely unearned as of June 30, 2021. Gross earned premiums as a percentage of gross written premiums decreased to 88.0% for the six months ended June 30, 2021, compared to 92.3% for the six months ended June 30, 2020.

~~Ceded earned premiums~~: Ceded earned premiums increased $20,851, or 13.3%, to $177,846 for the six months ended June 30, 2021, compared to $156,995 for the six months ended June 30, 2020. The increase in ceded earned premiums is primarily due to the addition of new Program Partners since the second quarter of 2020 whose premiums are largely ceded. The total ceded earned premiums as a percentage of gross earned premiums decreased to 66.6% for the six months ended June 30, 2021, compared to 78.2% for the six months ended June 30, 2020, primarily driven by the Company's retention of a larger portion of gross written premiums.

~~Net earned premiums~~: Net earned premiums increased $45,239, or 103.2%, to $89,077 for the six months ended June 30, 2021, compared to $43,838 for the six months ended June 30, 2020. The increase is primarily due to the increase in gross written and earned premiums described above, offset by the increase in ceded earned premiums over the six months ended June 30, 2021.

~~Table of Contents~~

~~The table below~~ shows the total premiums earned on a gross and net basis for ~~the respective six-month periods:~~Owned MGAs and Program Partners:


		Six Months Ended June 30,						Percentage Change (1)			Three Months Ended March 31, 2022
(in thousands, except percentages)		2021		2020		Change
Revenues:
											Owned MGAs		Program Partner		Total
Gross written premiums	Gross written premiums	$	303,281	$	217,471	$	85,810	39.5	%	Gross written premiums	$	68,644	$	92,759	$	161,403
Increase in gross unearned premiums	Increase in gross unearned premiums	(36,358)		(16,638)		(19,720)		118.5	%	Increase in gross unearned premiums	(5,259)		2,395		(2,864)
Gross earned premiums	Gross earned premiums	266,923		200,833		66,090		32.9	%	Gross earned premiums	63,385		95,154		158,539
Ceded earned premiums	Ceded earned premiums	(177,846)		(156,995)		(20,851)		13.3	%	Ceded earned premiums	(25,389)		(68,973)		(94,362)
Net earned premiums	Net earned premiums	$	89,077	$	43,838	$	45,239	103.2	%	Net earned premiums	$	37,996	$	26,181	$	64,177

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

~~Net investment income: Net investment income decreased $2,395, or 35.4%, to $4,375~~We utilize both quota share and catastrophe excess of loss ("XOL") contracts in our reinsurance strategy for our Owned MGAs and Program Partners. For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company retained 59.9% of gross earned premiums for Owned MGAs compared to ~~$6,770~~27.5% for the six months ended June 30, 2020. The decrease is primarily attributable to the fair value re-measurement and common stock investment reclassification of the Company's investment in TRI during the first quarter of 2020, which was previously classified as an equity method investment, which resulted in an unrealized gain of $2,000.

~~Net realized capital gains~~: Net realized capital gains decreased $3,207 to $23 for the six months ended June 30, 2021, compared to $3,230 for the six months ended June 30, 2020. The decrease is primarily due to the recording of a $3,115 realized gain on the sale of a portion of the Company's investment in TRI during the first quarter of 2020.

~~Other revenue~~: Other revenue decreased $38, or 0.6%, to $5,884 for the six months ended June 30, 2021, compared to $5,922 for the six months ended June 30, 2020. The decrease is driven by a decrease in brokerage and management fees, partially offset by an increase in consulting and other fee-based revenue.

~~Losses and loss adjustment expenses~~: Losses and LAE increased $29,489, or 117.4%, to $54,606 for the six months ended June 30, 2021, compared to $25,117 for the six months ended June 30, 2020. The increase is directly attributable to the growth in earned premiums during the period as well as an increase in the Company's loss ratio experienced during the six months ended June 30, 2021. The Company's loss ratio increased to 61.3% for the six months ended June 30, 2021 compared to 57.3% for the six months ended June 30, 2020, primarily attributable to a number of unusually large losses experienced during the first half of 2021.

~~General and administrative expenses~~: General and administrative expenses increased $10,716, or 65.2%, to $27,158 for the six months ended June 30, 2021, compared to $16,442 for the six months ended June 30, 2020. This change resulted in a decrease in the Company's expense ratio to 30.5% for the six months ended June 30, 2021, compared to 37.5% for the six months ended June 30, 2020, a 700 basis point improvement. Net commissions increased $1,641, driven primarily by an increase in retention, partially offset by a reduction in our net commission rate. Insurance-related expenses increased $1,864 primarily as a result of an increase in gross earned premiums. General and administrative operating expenses increased $7,211, primarily as a result of (i) an increase in salaries and benefits of $4,885, of which $2,756 directly resulted from acquisitions made in the second half of 2020 and a general increase in workforce; (ii) additional rent and office-related expenses totaling $1,786 due to an increase in business insurance expense as well as the addition of new office locations; and (iii) additional IT software and systems costs totaling $1,003 related to new software implementation and automation initiatives; offset by a decrease in professional fees of $975 as a result of the Company's IPO readiness effort in 2020.

Program Partners.

~~Table of Contents~~

~~The table below shows the components of general and administrative expenses for the respective six-month periods:~~

Six Months Ended June 30,
2021 2020 Change
Direct commissions $ 50,710 $ 43,938 $ 6,772
Ceding commissions (57,892) (52,761) (5,131)
Net commissions (7,182) (8,823) 1,641
Insurance-related expenses 9,425 7,561 1,864
General and administrative operating expenses 24,915 17,704 7,211
Total general and administrative expenses $ 27,158 $ 16,442 $ 10,716
General and administrative expenses — % of gross written premiums 8.2 % 8.1 %
Retention rate (1)
33.4 % 21.8 %
Direct commission rate (2)
19.0 % 21.9 %
Ceding commission rate (3)
32.6 % 33.6 %
(1) Net earned premium as a percentage of gross earned premiums.
(2) Direct commissions as a percentage of gross earned premiums.
(3) Ceding commissions as a percentage of ceded earned premiums.

~~Other expenses: Other expenses were $845 for the six months ended June 30, 2021, which primarily relates to secondary offering costs of $555 and executive transition and other costs totaling $290.~~

~~Intangible asset amortization~~: Intangible asset amortization increased $2,793 to $2,827 for the six months ended June 30, 2021, compared to $34 for the six months ended June 30, 2020. The increase is driven by the addition of intangible assets acquired as a result of the purchase of the remaining equity interest of Compstar in the third quarter of 2020 and 7710 Insurance Company in the fourth quarter of 2020.

~~Noncash stock compensation~~: Noncash stock compensation was $630 for the six months ended June 30, 2021. Expenses incurred during the period related to restricted stock units and stock options granted under the Company's 2020 Omnibus Plan.

~~Gains (losses) on embedded derivatives~~: The Company recorded gains on embedded derivatives of $1,990 for the six months ended June 30, 2021, compared to losses of $5,180 for the six months ended June 30, 2020. The increase is driven primarily by an increase in unrealized gains on funds held investments of $6,396 as well as a reduction in expenses from funds held investments of $774.

~~Income tax expense~~: Income tax expense was $3,019 for the six months ended June 30, 2021, which resulted in an effective tax rate of 20.7%. The decrease in the effective tax rate from the statutory rate of 21% is due primarily to the impact of tax-exempt municipal income on the Company's investments. For the six months ended June 30, 2020, income tax expense was $3,218, which resulted in an effective tax rate of 26.6%. The increase in the effective tax rate from the statutory rate of 21% is due primarily to the impact of state taxes and the deferred tax effect of a tax accounting method change on excess ceding commissions.

~~Equity earnings in affiliates, net of tax~~: Equity earnings in affiliates, net of tax decreased $1,932 to $0 for the six months ended June 30, 2021, compared to $1,932 for the six months ended June 30, 2020. This decrease is due to the reduction in the Company's share of earnings in Compstar of $1,932 as a result of the acquisition of the remaining ownership interest during the third quarter of 2020.

4633

Table of Contents

Reconciliation of Non-GAAP Financial Measures

Underwriting income

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

Three Months Ended June 30,
Percentage Change (1)
(in thousands, except percentages) 2021 2020
Net income $ 2,126 $ 1,358 56.6 %
Income tax expense 414 351 17.9 %
Equity earnings in affiliates, net of tax — (1,230) (100.0) %
Income before taxes 2,540 479 NM
Other revenue (1,229) (1,530) (19.7) %
Gains (losses) on embedded derivatives 686 3,991 (82.8) %
Net investment income (2,103) (2,525) (16.7) %
Net realized capital gains (losses) (10) 4 NM
Other expenses 845 — NM
Interest expense 425 501 (15.2) %
Intangible asset amortization 1,413 23 NM
Noncash stock compensation 419 — NM
Other income (35) (40) (12.5) %
Underwriting income $ 2,951 $ 903 NM


	Three Months Ended March 31,				Percentage Change (1)
(in thousands, except percentages)	2022		2021
Net income	$	12,340	$	9,442	30.7	%
Income tax expense	3,270		2,605		25.5	%
Equity earnings in affiliates, net of tax	—		—		NM
Income before taxes	15,610		12,047		29.6	%
Other revenue	(3,201)		(4,655)		(31.2)	%
Gains on embedded derivatives	(6,236)		(2,676)		133.0	%
Net investment income	(2,576)		(2,272)		13.4	%

Net realized (gains) losses	1,047		(13)		NM

Interest expense	408		427		(4.4)	%
Intangible asset amortization	1,499		1,414		6.0	%
Noncash stock compensation	156		211		(26.1)	%
Other income	(23)		(121)		(81.0)	%
Underwriting income	$	6,684	$	4,362	53.2	%

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

4734

Table of Contents

Six Months Ended June 30,
Percentage Change (1)
(in thousands, except percentages) 2021 2020
Net income $ 11,568 $ 10,793 7.2 %
Income tax expense 3,019 3,218 (6.2) %
Equity earnings in affiliates, net of tax — (1,932) (100.0) %
Income before taxes 14,587 12,079 20.8 %
Other revenue (5,884) (5,922) (0.6) %
Gains (losses) on embedded derivatives (1,990) 5,180 (138.4) %
Net investment income (4,375) (6,770) (35.4) %
Net realized capital gains (23) (3,230) (99.3) %
Other expenses 845 — NM
Interest expense 852 962 (11.4) %
Intangible asset amortization 2,827 34 NM
Noncash stock compensation 630 — NM
Other income (156) (54) 188.9 %
Underwriting income $ 7,313 $ 2,279 NM
(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.

Adjusted net income

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

Three Months Ended June 30,
Percentage Change (1)
(in thousands, except percentages) 2021 2020
Net income $ 2,126 $ 1,358 56.6 %
Intangible asset amortization 1,413 23 NM
Noncash stock compensation 419 — NM
Unrealized losses on embedded derivatives 167 2,990 (94.4) %
Other expenses 845 — NM
Expenses associated with Altaris management fee, including cash bonuses paid to unit holders — 442 (100.0) %
Expenses associated with IPO and other one-time legal and consulting expenses — 788 (100.0) %
Expenses related to debt issuance costs — 135 (100.0) %
Total adjustments 2,844 4,378 (35.0) %
Tax impact of adjustments (654) (947) (30.9) %
Adjusted net income $ 4,316 $ 4,789 (9.9) %

~~Table of Contents~~

Six Months Ended June 30,
Percentage Change (1)
(in thousands, except percentages) 2021 2020
Net income $ 11,568 $ 10,793 7.2 %
Intangible asset amortization 2,827 34 NM
Noncash stock compensation 630 — NM
Unrealized (gains) losses on embedded derivatives (3,189) 3,206 (199.5) %
Other expenses 845 — NM
Expenses associated with Altaris management fee, including cash bonuses paid to unit holders — 883 (100.0) %
Expenses associated with IPO and other one-time legal and consulting expenses — 1,200 (100.0) %
Expenses related to debt issuance costs — 135 (100.0) %
FMV adjustment of remaining investment in affiliate — (2,000) (100.0) %
Net gain on purchase & disposal of affiliates — (3,115) (100.0) %
Total adjustments 1,113 343 NM
Tax impact of adjustments (256) (14) NM
Adjusted net income $ 12,425 $ 11,122 11.7 %
(1) The Company defines increases or decreases greater than 200% as "NM" or not meaningful.


	Three Months Ended March 31,
(in thousands, except percentages)	2022		2021
Net income	$	12,340	$	9,442
Intangible asset amortization	1,499		1,414
Noncash stock compensation	156		211
Change in fair value of embedded derivatives	(6,896)		(3,356)






Total adjustments	(5,241)		(1,731)
Tax impact of adjustments	1,205		398
Adjusted net income	$	8,304	$	8,109

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

Adjusted return on equity

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			2021			2020			(in thousands, except percentages)		2022			2021
Adjusted return on equity calculation:	Adjusted return on equity calculation:													Adjusted return on equity calculation:
Numerator: adjusted net income	Numerator: adjusted net income	$	4,316		$	4,789		$	12,425		$	11,122		Numerator: adjusted net income		$	8,304		$	8,109
Denominator: average equity	Denominator: average equity	415,159			144,733			413,725			140,450			Denominator: average equity		419,153			411,541
Adjusted return on equity	Adjusted return on equity	4.2		%	13.2		%	6.0		%	15.8		%	Adjusted return on equity		7.9		%	7.9		%
Return on equity	Return on equity	2.0		%	3.8		%	5.6		%	15.4		%	Return on equity		11.8		%	9.2		%

4935

Table of Contents

Return on tangible equity and adjusted return on tangible equity

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			2021			2020			(in thousands, except percentages)		2022			2021
Return on tangible equity calculation:	Return on tangible equity calculation:													Return on tangible equity calculation:
Numerator: net income	Numerator: net income	$	2,126		$	1,358		$	11,568		$	10,793		Numerator: net income		$	12,340		$	9,442
Denominator:	Denominator:													Denominator:
Average stockholders' equity	Average stockholders' equity	415,159			144,733			413,725			140,450			Average stockholders' equity		419,153			411,541
Less: average goodwill and other intangible assets	Less: average goodwill and other intangible assets	213,836			3,453			214,543			3,459			Less: average goodwill and other intangible assets		214,712			215,250
Average tangible stockholders' equity	Average tangible stockholders' equity	201,323			141,280			199,182			136,991			Average tangible stockholders' equity		204,441			196,291
Return on tangible equity	Return on tangible equity	4.2		%	3.8		%	11.6		%	15.8		%	Return on tangible equity		24.1		%	19.2		%
Return on equity	Return on equity	2.0		%	3.8		%	5.6		%	15.4		%	Return on equity		11.8		%	9.2		%


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			2021			2020			(in thousands, except percentages)		2022		2021
Adjusted return on tangible equity calculation:	Adjusted return on tangible equity calculation:													Adjusted return on tangible equity calculation:
Numerator: adjusted net income	Numerator: adjusted net income	$	4,316		$	4,789		$	12,425		$	11,122		Numerator: adjusted net income		8,304		8,109
Denominator: average tangible equity	Denominator: average tangible equity	201,323			141,280			199,182			136,991			Denominator: average tangible equity		204,441		196,291
Adjusted return on tangible equity	Adjusted return on tangible equity	8.6		%	13.6		%	12.5		%	16.2		%	Adjusted return on tangible equity		16.2	%	16.5	%
Return on equity	Return on equity	2.0		%	3.8		%	5.6		%	15.4		%	Return on equity		11.8	%	9.2	%

Financial Condition, Liquidity and Capital Resources

Sources and Uses of Funds

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

~~Table of Contents~~

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

Table of Contents

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

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

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

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

The maximum amount of dividends the insurance subsidiaries can pay us during ~~2021~~2022 without regulatory approval is ~~$23,859.~~approximately $17,800. Insurance regulators have broad powers to ensure that statutory surplus remains at adequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted. In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by the insurance subsidiaries may adopt statutory provisions more restrictive than those currently in effect.

Our insurance subsidiaries are also required by state law to maintain a minimum level of policyholders' surplus. Kansas, Utah, Arkansas and South Carolina utilize a risk-based capital requirement as promulgated by the National Association of Insurance Commissioners. Such requirements are designed to identify the various business risks (e.g., investment risk, underwriting profitability risk, etc.) of insurance companies and their subsidiaries. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the total adjusted capital of our insurance subsidiaries was in excess of their respective prescribed risk-based capital requirements.

As of ~~June 30, 2021,~~March 31, 2022, we had ~~$101,361~~$103,865 in cash and cash equivalents, compared to ~~$153,149~~$129,577 as of December 31, ~~2020.~~2021.

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

5137

Table of Contents

Cash Flows

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


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash, cash equivalents and restricted cash provided by (used in):	Cash, cash equivalents and restricted cash provided by (used in):					Cash, cash equivalents and restricted cash provided by (used in):
Operating activities	Operating activities	$	22,820	$	31,783	Operating activities	$	8,748	$	(2,964)
Investing activities	Investing activities	(65,599)		6,107		Investing activities	(33,969)		(17,128)
Financing activities	Financing activities	(625)		(8,886)		Financing activities	(420)		(206)
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	$	(43,404)	$	29,004	Net increase (decrease) in cash, cash equivalents and restricted cash	$	(25,641)	$	(20,298)

Operating Activities: Net cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$22,820,~~$8,748, compared to ~~$31,783~~net cash used in operating activities of $2,964 for the same period in ~~2020.~~2021. Net cash provided by operating activities includes net income as adjusted for depreciation and amortization, stock compensation, unrealized gains ~~and losses~~ on embedded derivatives, net ~~capital~~realized gains and losses, bond amortization and accretion, the change in deferred income taxes, and amortization of deferred financing costs. Net cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 primarily reflects ~~increases in~~decreased prepaid reinsurance premiums of $8,339, increased unpaid loss and loss adjustment expenses of ~~$44,742,~~$6,661, increased unearned premiums of ~~$36,401 and~~$2,962, increased funds held under reinsurance agreements of ~~$3,080;~~$3,511; increases in reinsurance premiums payable of $1,765 and increased income taxes payable of $1,013, partially offset by increases in premiums and other receivables of ~~$22,714, reinsurance recoverables of $18,730, prepaid reinsurance premiums of $13,033, other assets of $6,623 and decreases~~$11,133, a decrease in ~~reinsurance premiums payable of $5,388,~~ accounts payable and accrued expenses of ~~$4,011~~$7,025, an increase in reinsurance recoverables of $3,346, and ~~income taxes payable~~an increase in other assets of ~~$3,791.~~$3,718. The decrease in prepaid reinsurance premiums was the result of increased retention, partially offset by the increase in ceded premiums. Unpaid loss and loss adjustment expenses and unearned premiums increased primarily due to an increase in gross written premiums and an increase in our retention. Funds held under reinsurance agreements decreased due a reduction in the fair value of the embedded derivatives, partially offset by an increase in ceded premiums. The increases in premiums and other receivables and reinsurance recoverables were primarily a result of an increase in gross written premiums during the period. The decrease in accounts payable and accrued expenses is due to reductions in accrued bonuses, accrued 401(k) match and accrued premium taxes, all paid in the first quarter of 2022. Other assets increased as a result of increases in our deferred acquisition costs and contract asset balances. Funds held under reinsurance agreements decreased due to an arbitration settlement in the fourth quarter of 2020, resulting in the non-cash transfer of certain investments held as collateral. Excluding non-cash transfers, funds held under reinsurance agreements increased as a result of an increase in gross written premium. Net cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 reflects ~~distributions received from equity method investments and~~ incremental cash ~~received~~used for operating assets and liabilities.

Investing Activities: Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$65,599~~$33,969 compared to net ~~cash provided by~~used in investing activities of ~~$6,107~~$17,128 for the same period in ~~2020.~~2021. Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 includes ~~$65,758~~$33,737 net cash used in the purchase and sale of investments and $232 in capital expenditures. Net cash provided by investing activities for the three months ended March 31, 2021 includes $17,287 net cash used in the purchase and sale of investments and $73 in capital expenditures, ~~and~~partially offset by $232 in cash received for the sale of equity method investments. Additionally, the six months ended June 30, 2021 includes non-cash transfers of investments to settle amounts owed for funds held for reinsurance agreements by $13,562 and accounts payable and accrued expenses by $26,211. Net cash provided by investing activities for the six months ended June 30, 2020 includes $4,644 net cash received from the purchase and sale of investments, $3,000 in cash received for the sale of equity method investments, $115 received for the return of capital on equity method investments, $1,098 in cash used in the acquisition of a subsidiary, net of cash received and $554 in capital expenditures.

Financing Activities: Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$625~~$420 compared to ~~$8,886~~net cash used in financing activities of $206 for the same period in ~~2020.~~2021. Net cash used in financing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 primarily includes the principal payments made on the Company's debt. Net cash used in financing activities for the six months ended June 30, 2020 included $19,496 in distributions to pre-IPO unitholders, partially offset by $10,610 in cash provided by the Company's long-term debt, net of principal payments.

5238

Table of Contents

Debt and Credit Agreements

First Horizon Credit Agreement

In April 2018, Trean Corporation and Trean Compstar entered into a credit agreement with First Horizon Bank (formerly, First Tennessee Bank National Association) (the "2018 First Horizon Credit Agreement"), which included a term loan facility totaling $27.5 million and a revolving credit facility of $3.0 million.

On ~~May 26,~~July 16, 2020, the Company entered into an Amended and Restated Credit Agreement with First Horizon Bank, which, among other things, extended the Company's credit facility for a period of five years through May 26, 2025 and increased its term loan facility by $11,707, resulting in a total term loan debt amount of $33,000 and a revolving credit facility of $2,000. Borrowings under the facility are secured by substantially all of the assets of the Company other than Benchmark Holding Company and its subsidiaries. The loan has a variable interest rate of 3-month LIBOR plus 4.50%, which was ~~4.71%~~4.73% as of ~~June 30, 2021~~March 31, 2022 and ~~4.72%~~4.64% as of December 31, ~~2020~~2021 (under the 2018 First Horizon Credit Agreement). The outstanding principal balance of the loan is to be repaid in quarterly installments that escalate from approximately $206 to $825 until March 2025. All equity securities of the subsidiaries of the Company (other than Benchmark Holding Company and its subsidiaries) have been pledged as collateral.

Reinsurance

We ~~use reinsurance to convert underwriting~~cede a portion of the risk ~~to credit risk, protect the~~we accept on our balance sheet ~~reduce earnings volatility~~to third-party reinsurers through a variety of reinsurance arrangements. We manage these arrangements to align risks with our Program Partners, optimize our net retention relative to our financial objectives, balance sheet size and ~~increase overall premium writing capacity.~~ratings requirements, as well as to limit our maximum loss resulting from a single program or a single event. We utilize both quota share and ~~excess of loss~~XOL reinsurance as tools in our overall risk management strategy to achieve these goals, usually in ~~combination~~conjunction with each other. Quota share reinsurance involves the proportional sharing of premiums and ~~losses. Under excess~~losses of ~~loss reinsurance, losses in excess of a retention level are paid by the reinsurer, subject to a limit.~~

~~Quota share reinsurance~~

each defined program. We utilize quota share reinsurance ~~to:~~for several purposes, including (i) to cede ~~premium~~risk to Program Partners, ~~(non-professional reinsurers)~~which allows us to ~~transfer underwriting risk~~share economics and align incentives and (ii) to cede ~~premium~~risk to ~~professional~~third-party reinsurers in order to ~~increase the amount of gross~~manage our net written premiums ~~we can write while managing net premiums written~~ appropriately based on ~~its~~our financial objectives, capital base, A.M. Best financial strength rating, and risk appetite. It is a core pillar of ~~the Company's~~our underwriting philosophy that Program Partners retain a ~~significant~~ portion of the underwriting risk of their program. We believe this best aligns interests, attracts higher quality programs, and leads to better underwriting results.

~~Excess of loss and catastrophe~~ Under XOL reinsurance,

~~We purchase~~ losses in excess of ~~loss~~a retention level are paid by the reinsurer, subject to a limit, and ~~catastrophe~~are customized per program or across multiple programs. We utilize XOL reinsurance ~~from professional reinsurers~~ to protect against catastrophic ~~large loss and/~~or other unforeseen extreme loss activity that could otherwise negatively impact ~~the Company’s~~our profitability and capital base. The majority of our exposure to catastrophe risk stems from the workers’ compensation premium we ~~retain net of premiums ceded to Program Partners and professional reinsurers.~~retain. Potential catastrophic events include an earthquake, terrorism, or another event that could cause more than one covered employee working at the same location to be injured in the event. ~~This catastrophic exposure is generally ameliorated~~We believe we mitigate this risk by ~~the type of accounts we underwrite. Due to~~ our focus on small- to mid-sized accounts, ~~(i.e., few employees per policy and location),~~which means that we generally do not have concentrated employee counts at single locations that ~~can serve as the basis for~~could be exposed to a catastrophic loss. The ~~limited catastrophic risk that does exist is ceded~~cost and limits of the reinsurance coverage we purchase vary from year to ~~large, professional reinsurers through excess~~year based on the availability of ~~loss~~quality reinsurance ~~contracts.~~at an acceptable price and our desired level of retention.

Ratings

We have a financial strength rating of "A" (Excellent) from A.M. Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from "A++" (Superior) to "S" (Rating Suspended). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer’s ability to meet its obligation to policyholders and is not an evaluation directed at investors. See also "Risk factors — Risks related to our business and industry — A downgrade in the A.M. Best financial strength ratings of our insurance company subsidiaries may negatively affect our business." in our ~~2020~~2021 Form 10-K.

~~Table of Contents~~

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

~~Contractual Obligations and Commitments~~

There have been no material changes in the Company's contractual obligations as of ~~June 30, 2021~~March 31, 2022 compared to December 31, ~~2020.~~2021.

Table of Contents

Financial condition

Stockholders' Equity

As of ~~June 30, 2021,~~March 31, 2022, total stockholders' equity was ~~$417,343,~~$416,397, compared to ~~$410,107~~$421,909 as of December 31, ~~2020, an increase~~2021, a decrease of ~~$7,236.~~$5,512. The ~~increase~~decrease in stockholders' equity over the period was driven primarily by ~~$6,612~~$5,660 of net comprehensive ~~income.~~loss.

We had ~~$4,560~~$3,836 of unrecognized stock compensation as of ~~June 30, 2021~~March 31, 2022 related to non-vested stock compensation granted. The Company recognized ~~$630~~$156 of stock compensation during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

Investment Portfolio

Our invested asset portfolio consists of fixed maturities, equity securities, other investments, and short-term investments. The majority of the investment portfolio was comprised of fixed maturity securities of ~~$424,943~~$447,349 at ~~June 30, 2021,~~March 31, 2022, that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.

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

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

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

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

•~~Realize~~realize the highest possible levels of investment income ~~while generating superior~~and after-tax total rates of return.

~~Table of Contents~~

The composition of our investment portfolio is shown in the following table as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

June 30, 2021
Cost or
Amortized Cost Fair Value
Fixed maturities:
U.S. government and government securities $ 28,510 $ 28,706
Foreign governments 2,599 2,600
States, territories and possessions 8,240 8,456
Political subdivisions of states, territories and possessions 31,120 32,166
Special revenue and special assessment obligations 90,047 93,441
Industrial and public utilities 101,624 105,987
Commercial mortgage-backed securities 12,032 13,129
Residential mortgage-backed securities 95,667 95,652
Other loan-backed securities 43,972 44,444
Hybrid securities 355 362
Total fixed maturities 414,166 424,943
Equity securities:
Preferred stock 243 235
Common stock 741 2,741
Total equity securities 984 2,976
Total investments $ 415,150 $ 427,919


		December 31, 2020					March 31, 2022
		Cost or Amortized Cost		Fair Value			Cost or Amortized Cost		Fair Value
Fixed maturities:	Fixed maturities:					Fixed maturities:
U.S. government and government securities	U.S. government and government securities	$	17,135	$	17,471	U.S. government and government securities	$	42,026	$	40,610
Foreign governments	Foreign governments	300		302		Foreign governments	400		393
States, territories and possessions	States, territories and possessions	7,500		7,774		States, territories and possessions	11,388		10,822
Political subdivisions of states, territories and possessions	Political subdivisions of states, territories and possessions	31,759		33,212		Political subdivisions of states, territories and possessions	39,166		37,419
Special revenue and special assessment obligations	Special revenue and special assessment obligations	77,329		81,714		Special revenue and special assessment obligations	98,436		94,078
Industrial and public utilities	Industrial and public utilities	107,017		113,741		Industrial and public utilities	107,816		106,298
Commercial mortgage-backed securities	Commercial mortgage-backed securities	16,242		18,066		Commercial mortgage-backed securities	104,291		97,267
Residential mortgage-backed securities	Residential mortgage-backed securities	91,478		93,017		Residential mortgage-backed securities	19,040		18,800
Other loan-backed securities	Other loan-backed securities	39,293		39,945		Other loan-backed securities	41,939		41,662
Hybrid securities	Hybrid securities	356		362		Hybrid securities	—		—
Total fixed maturities	Total fixed maturities	388,409		405,604		Total fixed maturities	464,502		447,349
Equity securities:
Preferred stock		243		240
Common stock		1,554		3,534
Total equity securities		1,797		3,774

Equity securities						Equity securities	34,119		34,162
Total investments	Total investments	$	390,206	$	409,378	Total investments	$	498,621	$	481,511

5540

Table of Contents


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



Equity securities	984		969
Total investments	$	466,443	$	472,030

The following table shows the percentage of the total estimated fair value of our fixed maturity securities as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 by credit rating category, using the lower of ratings assigned by Moody's Investor Service or S&P.


		June 30, 2021					March 31, 2022
(in thousands, except percentages)	(in thousands, except percentages)	Fair Value		% of Total		(in thousands, except percentages)	Fair Value		% of Total
AAA	AAA	$	69,921	16.4	%	AAA	$	76,317	17.1	%
AA	AA	240,731		56.7	%	AA	254,759		56.9	%
A	A	80,405		18.9	%	A	77,351		17.3	%
BBB	BBB	31,847		7.5	%	BBB	34,308		7.7	%
BB	BB	1,986		0.5	%	BB	4,588		1.0	%
Below investment grade	Below investment grade	53		—	%	Below investment grade	26		—	%
Total fixed maturities	Total fixed maturities	$	424,943	100.0	%	Total fixed maturities	$	447,349	100.0	%


		December 31, 2020					December 31, 2021
(in thousands, except percentages)	(in thousands, except percentages)	Fair Value		% of Total		(in thousands, except percentages)	Fair Value		% of Total
AAA	AAA	$	59,887	14.8	%	AAA	$	80,455	17.1	%
AA	AA	224,371		55.3	%	AA	278,557		59.1	%
A	A	89,975		22.2	%	A	77,097		16.4	%
BBB	BBB	29,404		7.2	%	BBB	33,959		7.2	%
BB	BB	1,921		0.5	%	BB	947		0.2	%
Below investment grade	Below investment grade	46		—	%	Below investment grade	46		—	%
Total fixed maturities	Total fixed maturities	$	405,604	100.0	%	Total fixed maturities	$	471,061	100.0	%

Table of Contents

Critical Accounting Policies and Estimates

The unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q include amounts based on the use of estimates and judgments of management.

We identified the accounting estimates that are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. The estimates and judgments that are most critical to the preparation of the condensed consolidated financial statements include: ~~(a)~~(i) reserves for unpaid loss and LAE; ~~(b)~~(ii) reinsurance recoveries; ~~(c)~~(iii) investment fair value measurements; ~~(d)~~(iv) goodwill and intangible assets; and ~~(e)~~(v) business combinations. For a detailed discussion of our accounting policies, see the "Notes to the Consolidated and Combined Financial Statements" included in our ~~2020~~2021 Form 10-K.

~~Off-Balance Sheet Arrangements~~

~~We have no off-balance sheet arrangements as of June 30, 2021.~~

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates, and commodity prices. The primary components of market risk affecting us are credit risk, interest rate risk, and equity rate risk, which are described in detail in Item 7A — "Quantitative and Qualitative Disclosures About Market Risk" in our ~~2020~~2021 Form 10-K. We do not have exposure to foreign currency exchange rate risk or commodity risk.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures ~~are~~were effective as of March 31, 2022 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our ~~principal~~chief executive and ~~principal~~chief financial ~~officers,~~officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

5742

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time-to-time, the Company may be involved in legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually or in the aggregate, will not have a material adverse effect on our consolidated financial position.

Item 1A. Risk Factors

We have disclosed in our ~~2020~~2021 Form 10-K the most significant risk factors that can impact year-to-year comparisons and that may affect the future performance of the Company's business. On a quarterly basis, we review these disclosures and update the risk factors, as appropriate. As of the date of this report, there have been no material changes to the risk factors from those disclosed in our ~~2020~~2021 Form 10-K.

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

Unregistered Sales of Equity Securities

The following table sets forth information concerning purchases of our common stock for the three months ended ~~June 30, 2021:~~March 31, 2022:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021 — $ — — —
May 1, 2021 - May 31, 2021 319 $ 17.83 — —
June 1, 2021 - June 30, 2021 — $ — — —
319 —


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2022 - January 31, 2022	—		$	—	—	—
February 1, 2022 - February 28, 2022	—		$	—	—	—
March 1, 2022 - March 31, 2022	1,652	(a)	$	4.55	—	—
	1,652				—

~~Use of Proceeds~~

~~On July 20, 2020, we closed~~a) Shares acquired represent shares relinquished to the sale of 10,714,286 shares of our common stock in our IPO, comprised of 7,142,857 shares issued and sold by us and 3,571,429 shares sold by selling stockholders. On July 22, 2020, we closed the sale of an additional 1,207,142 sharesCompany by certain selling stockholders in the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares to cover over-allotments. The IPO terminated upon completion of the sale of the above-referenced shares.

~~The IPO price per share was $15.00. The aggregate IPO price~~employees for all shares sold by us in the IPO was approximately $107.1 million and the aggregate I price for all shares sold by the selling stockholders in the IPO was approximately $71.7 million. The offer and sale was pursuant to a registration statement on Form S-1 (File No. 333-239291), which was declared effective by the SEC on July 15, 2020. J.P. Morgan Securities LLC, Evercore Group, L.L.C. and William Blair & Company, L.L.C. acted as joint book-running managers of the IPO, and JMP Securities LLC acted as co-manager.

We received net proceeds from the sale of shares by us in the IPO of approximately $93.1 million after deducting underwriting discounts and commissions of $7.5 million and offering expenses of $6.5 million. We did not receive any proceeds from the sale of shares by the selling stockholders. We used the net proceeds from the sale of shares by us in the IPO to (i) redeem all $5.1 million aggregate liquidation preference of the Series B Nonconvertible Preferred Stock of our subsidiary Benchmark Holding Company, (ii) pay $7.7 million to redeem all outstanding Subordinated Notes, (iii) use $19.3 million to repay in full all outstanding term loan borrowings under the credit agreement with Oak Street Funding LLC, (iv) pay an aggregate one-time payment of ~~approximately $7.6 million to Altaris Capital Partners, LLC in connection with the termination~~taxes or option cost upon vesting of our consulting and advisory agreements with Altaris Capital Partners, LLC and (v) pay an aggregate $3.1 million to certain pre-IPO unitholders and other employees in connection with the reorganization transactions and pursuant to

~~Table of Contents~~

the operating agreements for Trean and BIC. The remaining net proceeds were used for general corporate purposes, including to fund cash needs of our subsidiaries and to support the growth of our business. As of June 30, 2021, all net proceeds from the IPO had been utilized.restricted stock units or option exercise.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

5943

Table of Contents

Item 6. Exhibits


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Trean Insurance Group, Inc. (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 28, 2020 and incorporated by reference herein)
3.2						Amended and Restated By-Laws of Trean Insurance Group, Inc. (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 28, 2020 and incorporated by reference herein)
31.1+						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference to any filing under the Securities Act of 1933, as amended, or the Exchange Act.
+ Filed herewith.

6044

Table of Contents

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.


		TREAN INSURANCE GROUP, INC.

Date:	~~August 13, 2021~~May 9, 2022	By:	/s/ Andrew M. O'Brien
			Andrew M. O'Brien
			Chief Executive Officer
			(Principal Executive Officer)

Date:	~~August 13, 2021~~May 9, 2022	By:	/s/ Nicholas J. Vassallo
			Nicholas J. Vassallo
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

6145


				Members' Equity
	Redeemable Preferred Stock			Class A - Non Voting			Class B - Voting			Class B - Non Voting			Class C - Non Voting			Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders' Equity
	Shares	Amount		Units	Amount		Units	Amount		Units	Amount		Units	Amount		Shares	Amount
Balance at March 31, 2020	51	$	5,100	65,036,780	$	65,037	5,045,215	$	5,045	8,159,775	$	8,160	216,247	$	216	0	$	0	$	17,995	$	5,611	$	48,117	$	150,181
Issuance of Class C units	—	—		—	—		—	—		—	—		19,658	20		—	—		—		—		—		20
Distributions to members	—	—		—	—		—	—		—	—		—	—		—	—		(1,453)		—		(18,043)		(19,496)
Dividends on Series B preferred stock	—	—		—	—		—	—		—	—		—	—		—	—		—		—		(83)		(83)
Other comprehensive income	—	—		—	—		—	—		—	—		—	—		—	—		—		7,304		—		7,304
Net income	—	—		—	—		—	—		—	—		—	—		—	—		—		—		1,358		1,358
Balance at June 30, 2020	51	$	5,100	65,036,780	$	65,037	5,045,215	$	5,045	8,159,775	$	8,160	235,905	$	236	0	$	0	$	16,542	$	12,915	$	31,349	$	139,284


	June 30, 2020						March 31, 2020						December 31, 2019
	Previously reported		Adjustment		As reported		Previously reported		Adjustment		As reported		Previously reported		Adjustment		As reported
Retained earnings	$	35,561	$	(4,212)	$	31,349	$	49,967	$	(1,850)	$	48,117	$	40,361	$	(1,679)	$	38,682
Accumulated other comprehensive income	8,703		4,212		12,915		3,761		1,850		5,611		4,821		1,679		6,500


	Three Months Ended June 30, 2020
	Previously reported		Adjustment		As reported
Net investment income	$	1,524	$	1,001	$	2,525
Total revenue	24,429		1,001		25,430
Gains (losses) on embedded derivatives	0		(3,991)		(3,991)
Income before taxes	3,469		(2,990)		479
Income tax expense	979		(628)		351
Net income	$	3,720	$	(2,362)	$	1,358

Earnings per share:
Basic	$	0.10	$	(0.06)	$	0.04
Diluted	$	0.10	$	(0.06)	$	0.04

Other comprehensive income, net of tax
Unrealized investment gains:
Unrealized investment gains arising during the period	$	6,252	$	2,990	$	9,242
Income tax expense	1,310		628		1,938
Unrealized investment gains, net of tax	4,942		2,362		7,304
Other comprehensive income	$	4,942	$	2,362	$	7,304


	Six Months Ended June 30, 2020
	Previously reported		Adjustment		As reported
Net investment income	$	4,796	$	1,974	$	6,770
Total revenue	57,786		1,974		59,760
Gains (losses) on embedded derivatives	0		(5,180)		(5,180)
Income before taxes	15,285		(3,206)		12,079
Income tax expense	3,891		(673)		3,218
Net income	$	13,326	$	(2,533)	$	10,793

Earnings per share:
Basic	$	0.36	$	(0.07)	$	0.29
Diluted	$	0.36	$	(0.07)	$	0.29

Other comprehensive income, net of tax
Unrealized investment gains:
Unrealized investment gains arising during the period	$	5,029	$	3,206	$	8,235
Income tax expense	1,054		673		1,727
Unrealized investment gains, net of tax	3,975		2,533		6,508
Other comprehensive income	$	3,882	$	2,533	$	6,415


	Stock Options	Weighted Average Exercise Price
Balance outstanding, December 31, 2020	89,920	$	15.00
Granted	60,729	$	17.50
Forfeited or cancelled	(27,646)	$	15.64
Balance outstanding, June 30, 2021	123,003	$	16.09
Options exercisable, June 30, 2021	0	$	0