Tiptree Financial Inc. (NASDAQ:TIPT) Q1 2020 Earnings Conference Call - Final Transcript

May 08, 2020 • 09:00 am ET

Previous

Tiptree Financial Inc. (NASDAQ:TIPT) Q1 2020 Earnings Conference Call - Final Transcript

Share
Close

Loading Event

Loading Transcript

Presentation
Executive
Sandra Bell

capital using operating EBITDA, to which the latest 12-month period was $66.9 million, up 14.2% from the latest 12-month period ending Q1 2019. Our total return of approximately 9.7% is driven by a 13.2% return in Tiptree Insurance and a 13.4% return in Tiptree Capital. The key drivers for the period were growth in insurance underwriting income and fee revenues across all product lines, including contributions from Smart AutoCare for the first quarter of 2020; positive contributions from shipping and mortgage operations in Tiptree Capital; and relatively stable corporate expenses.

The most recent 12-month period included approximately $12 million of dividends from our holdings of Invesque. Our earnings from Tiptree Capital will reap the benefit of approximately $2.5 million of earnings per quarter, while Invesque dividend is suspended. With that, let's turn to Tiptree Insurance results for the quarter. On Page 7, we highlight our underwriting performance and then, on the following page, returns from the investment portfolio.

We continue to see positive top-line growth across our product lines. Gross written premiums were $277 million, up 40%. Net written premiums grew by $11.5 million, driven by growth in warranty and specialty programs. Underwriting margin was up $9.6 million or 29.5%. And our combined ratio held steady at 93.3%, demonstrating our ability to continue to grow profitably in our insurance business. Unearned premiums and deferred revenue on the balance sheet stand at over $1 billion at the end of the quarter, up 55.5% from this time last year, including $158 million from Smart AutoCare.

While we expect to see a slowing in this growth trajectory in Q2 as the economies reopen in the U.S. and Europe, we expect to slowly return to normalized growth rates in the second half of the year. Turning to the investment portfolio on Page 8. Our net investments grew by $67 million year over year, up 14.4%, driven by growth in net written premiums. $407 million of the portfolio or 76% is held in liquid, highly rated fixed income securities.

The average rating on that portion of the portfolio is AA, which we believe should continue to provide sufficient support to our claims paying ability despite the current volatile market. Net investment income for the quarter was $3.5 million, down $0.8 million, as we reduced our exposure to levered corporate credit, combined with an overall decline in interest rates. Despite the decline in income, we believe that the portfolio benefits created by the stability in our fixed income portfolio as a result of these moves more than offsets the short-term loss of income.

We ended the quarter with $19 million of cash available for reinvestment in the portfolio. Net portfolio loss was $29.7 million, down approximately $39 million versus the prior-year period, driven by unrealized and realized losses of $33.6 million on equities and other securities in the portfolio, $10.2 million of which was related to Invesque. The unrealized losses were primarily driven by the financial market disruptions related to the economic impacts from COVID-19.

On