Trean Insurance Group Reports Third Quarter 2022 Results

11/2/22 4:15:00 PM ET

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Net Income of $7.6 Million and Adjusted Net Income of $5.5 Million

Diluted Earnings per Share of $0.15 and Adjusted Diluted Earnings per Share of $0.11

Updates Full Year 2022 Outlook

WAYZATA, Minn., Nov. 02, 2022 (GLOBE NEWSWIRE) -- Trean Insurance Group, Inc. (NASDAQ:TIG) ("Trean" or the "Company"), a leading provider of products and services to the specialty insurance market, today reported results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights

Gross written premiums were $162.2 million, a $15.4 million, or 8.7%, decline compared to the same prior-year period.
Net earned premiums were $71.4 million, a $19.4 million, or 37.4%, increase compared to the same prior-year period.
Net income was $7.6 million, or $0.15 per diluted share, compared to $6.5 million, or $0.13 per diluted share in the same prior-year period.
Adjusted net income⁽¹⁾ was $5.5 million, or $0.11 per diluted share, compared to $7.7 million, or $0.15 per diluted share in the same prior-year period.
Underwriting income was $2.5 million, compared to $6.0 million in the same prior-year period.
Loss and expense ratios were 63.9% and 32.6%, respectively, compared to 61.8% and 26.5%, respectively, in the same prior-year period.
Combined ratio was 96.5%, compared to 88.3% for the same prior-year period.
Return on equity of 7.5%; adjusted return on equity⁽¹⁾ of 5.4%; return on tangible equity of 15.5%; and adjusted return on tangible equity⁽¹⁾ of 11.2%.
Strengthened balance sheet through issuance of $50 million 6.75% Surplus Notes due August 2042.
Announced partnership in the surplus lines insurance market with Beat Capital, giving Trean its first partnership in the large non-admitted insurance underwriting space.

⁽¹⁾ Adjusted net income, adjusted diluted earnings per share, adjusted return on equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See discussion of "Key Metrics" below.

"We are very pleased with our performance this quarter, outpacing both our gross written premium and adjusted net income expectations, and again generating a solid double-digit adjusted return on tangible equity," said Julie Baron, President and Chief Executive Officer of Trean. "Our year-to-date loss ratio remained relatively consistent at 62.4%, up slightly from 61.5% at the end of the prior quarter. In addition, we strengthened our balance sheet through our surplus notes offering, had our ‘A' rating reaffirmed by A.M. Best, and announced an exclusive partnership with Beat Capital, which enables Trean to enter the rapidly growing non-admitted market. As a result, we continue to strengthen our position to drive sustainable and profitable growth over the long term."

Underwriting Results

Gross written premiums were $162.2 million for the third quarter of 2022, an 8.7% reduction compared to $177.6 million for the third quarter of 2021, primarily driven by the Company's termination of an underwriting partner in a higher-risk segment at the end of the third quarter 2021 as the Company focuses on maintaining underwriting discipline.

Gross unearned premiums increased $1.1 million in the third quarter of 2022, compared to an increase of $28.5 million in the same prior-year period. As of September 30, 2022, the Company had net unearned premiums reflected on its balance sheet of $101.5 million, a decrease of $3.0 million, or 2.9%, compared to June 30, 2022 and up $16.9 million, or 19.9%, from September 30, 2021. Net unearned premium represents a material source of deferred potential profit.

Net earned premiums increased 37.4% to $71.4 million for the third quarter of 2022, compared to $52.0 million for the third quarter of 2021, primarily driven by an increase in both gross earned premiums and retention of gross written premiums.

General and administrative expenses were $23.3 million for the third quarter of 2022, compared to $13.8 million for the same prior-year period, primarily driven by an increase in net commissions resulting from increased retention and increased gross earned premiums. G&A operating expenses of $12.5 million were comparable to the same prior-year period. The Company's expense ratio was 32.6% for the third quarter of 2022, compared to 26.5% for the same prior-year period.

Net income was $7.6 million for the third quarter of 2022, compared to net income of $6.5 million for the same prior-year period. Diluted earnings per share for the third quarter of 2022 was $0.15. Adjusted net income⁽¹⁾, which excludes intangible asset amortization, noncash stock compensation, the change in fair value of embedded derivatives and their related tax impact, and unrealized gains or losses on equity securities, was $5.5 million for the third quarter of 2022, compared to adjusted net income of $7.7 million for the same prior-year period. Adjusted diluted earnings per share for the third quarter of 2022 was $0.11.

Underwriting income of $2.5 million resulted in a combined ratio of 96.5% for the third quarter of 2022, compared to underwriting income of $6.0 million and a combined ratio of 88.3% for the same prior-year period. Losses and loss adjustment expenses for the third quarter of 2022 were $45.6 million, which resulted in a 63.9% loss ratio, compared to 61.8% in the same prior-year period. Prior period favorable loss development for the third quarter 2022 totaled $0.03 million.

Investment Results

Net investment income was $3.0 million for the third quarter of 2022, compared to $2.2 million in the same prior-year period, primarily due to an increase in income from fixed maturities, income from funds held investments and equity securities, and partially offset by unrealized losses on equity securities incurred in the third quarter of 2022.

Cash and invested assets consist primarily of fixed maturities, equity securities and cash equivalents. The Company's investment portfolio totaled $565.4 million as of September 30, 2022 and was primarily comprised of fixed maturity securities that were classified as available-for-sale. The Company also had $81.5 million of cash and cash equivalents on its balance sheet as of September 30, 2022. The Company's fixed maturities portfolio had an average rating of "AA" as of both September 30, 2022 and December 31, 2021.

Other

Other revenue was $2.1 million for the third quarter of 2022, compared to $2.8 million for the same prior-year period, due primarily to a year-over-year decrease in brokerage revenue.

Stockholders' Equity and Returns

Total stockholders' equity was $403.1 million at September 30, 2022, compared to $421.9 million at December 31, 2021. Return on equity was 7.5% for the third quarter of 2022, compared to 6.2% for the same prior-year period, and adjusted return on equity⁽¹⁾ was 5.4% for the third quarter of 2022, compared to 7.3% for the same prior-year period. Return on tangible equity was 15.5% for the third quarter of 2022, compared to 12.7% for the same prior-year period and adjusted return on tangible equity was 11.2% for the third quarter of 2022, compared to 15.0% for the same prior-year period.

Full Year 2022 Outlook

The Company is updating its outlook for the full year 2022 to the following:

Gross written premium is now expected to be between $620 million and $630 million, compared to the prior range of between $615 million and $630 million. The new range represents a year-over-year reduction of 2% on the low end and 1% on the high end and reflects the Company's continued focus on underwriting discipline in an unusually competitive environment.
Net earned premium outlook is now expected to be between $263 million and $268 million, compared to the prior range of between $255 million and $265 million. This represents year-over-year growth of 32% on the lower end and 35% on the upper end and reflects an expected increased retention rate throughout 2022 based on current contracts in-force.
Total revenue is now expected to be between $278 million and $283 million, compared to the prior range of between $268 million and $278 million.
Expense ratio is still expected to be between 32% and 33% of net earned premium. Expense ratio reflects the aforementioned increase in retention, which reduces the Company's ceding commission offset to general and administrative expenses, as well as additional reductions in ceding commissions resulting from adding more short-tail lines of business, which typically have lower front fees, and expected continued operational investments in the Company.

Fourth Quarter 2022 Outlook

The company is providing the following outlook for the fourth quarter 2022:

Gross written premium between $142 million and $152 million.
Adjusted net income between $2.8 million and $3.8 million.
Barring any large unusual loss activity, the Company expects its loss ratio in the fourth quarter of 2022 to be consistent with its loss ratio in the third quarter of 2022.
With the addition of the $50 million surplus note at 6.75% and rising interest rates, the Company expects fourth quarter interest expense to be approximately $1.5 million.

The Company reminds investors that its outlook is forward-looking information and is based on management's assumptions and expectations as of the date of this release and is inherently subject to a number of risks and uncertainties, including as to the Company's level of losses and loss development, many of which are beyond the Company's immediate control.

Webcast and Conference Call

A webcast and conference call to discuss the Company's results will be held today beginning at 5:00 p.m. (Eastern Time). The audio webcast is accessible through the investor relations section of the Company's website at https://investors.trean.com.

The dial-in number for the conference call is (877) 407-3982 (toll-free) or (201) 493-6780 (international), conference ID# 13732954. Any person interested in listening to the call should dial in or access the website at least 10 minutes before the call.

A replay of the call will be available at https://www.trean.com/ for one year following the call.

Key Metrics

The Company discusses certain key financial and operating metrics, described below, which provide useful information about its business and the operational factors underlying its 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, intangible asset amortization, noncash stock compensation, interest expense, other revenue and other income and 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 various specific events, noncash intangible asset amortization and stock compensation, other expenses and gains or losses that the Company does not believe reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability of the Company's 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 loss adjustment expenses 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 measured 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.

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 equity in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are not historical or current facts. These statements may discuss the Company's net income, cash flow, financial condition, impairments, expenditures, growth, strategies, plans, achievements, capital structure, organizational structure, market opportunities and general market and industry conditions. Such forward-looking statements can be identified by words such as "anticipate," "estimate," "expect," "intend," "plan," "predict," "project," "believe," "seek," "outlook," "future," "will," "would," "should," "could," "may," "can have," "likely" and similar terms. Forward-looking statements are based on management's current expectations and assumptions about future events. These statements are only predictions and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements if the underlying assumptions prove to be incorrect or as a result of risks, uncertainties, and other factors, including the impact of the COVID-19 pandemic on the business and operations of the Company, our program partners and other business relations. Other factors that may cause such differences include the risks described in the Company's filings with the U.S. Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2021. These forward-looking statements speak only as of the date on which they are made. Except as required by applicable securities laws, the Company disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, changes in assumptions or otherwise. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this press release or in other filings and public statements of the Company.

About Trean Insurance Group, Inc.

Trean Insurance Group, Inc. (NASDAQ:TIG) provides products and services to the specialty insurance market. Trean underwrites specialty casualty insurance products both through its program partners and its own managing general agencies. Trean also provides its program partners with a variety of services including issuing carrier services, claims administration and reinsurance brokerage. Trean is licensed to write business across 49 states and the District of Columbia. For more information, please visit www.trean.com.

Contacts

Investor Relations

[email protected]

(952) 974-2260

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Operations

(in thousands, except for share and per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenues
Gross written premiums	$	162,183		$	177,624		$	477,775		$	480,905
Increase in gross unearned premiums		(1,061	)		(28,478	)		(972	)		(64,836	)
Gross earned premiums		161,122			149,146			476,803			416,069
Ceded earned premiums		(89,741	)		(97,191	)		(275,235	)		(275,037	)
Net earned premiums		71,381			51,955			201,568			141,032
Net investment income		2,951			2,187			5,136			6,562
Net realized gains		9			49			311			72
Other revenue		2,140			2,799			7,145			8,683
Total revenue		76,481			56,990			214,160			156,349
Expenses
Losses and loss adjustment expenses		45,647			32,129			125,727			86,735
General and administrative expenses		23,256			13,788			63,235			40,946
Other expenses		-			-			268			845
Intangible asset amortization		1,499			1,499			4,498			4,326
Noncash stock compensation		460			468			1,019			1,098
Interest expense		931			419			1,806			1,271
Total expenses		71,793			48,303			196,553			135,221
Gains (losses) on embedded derivatives		4,871			(121	)		14,463			1,869
Other income		29			35			76			191
Income before taxes		9,588			8,601			32,146			23,188
Income tax expense		2,014			2,083			6,741			5,102
Net income	$	7,574		$	6,518		$	25,405		$	18,086

Earnings per share:
Basic	$	0.15		$	0.13		$	0.50		$	0.35
Diluted	$	0.15		$	0.13		$	0.50		$	0.35

Weighted average shares outstanding:
Basic		51,216,869			51,171,416			51,197,296			51,157,726
Diluted		51,217,005			51,171,416			51,197,482			51,172,602

Key Metrics

(in thousands, except for percentages)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Key metrics:
Underwriting income⁽¹⁾	$	2,478		$	6,038		$	12,606		$	13,351
Adjusted net income⁽¹⁾	$	5,455		$	7,678		$	19,305		$	20,103
Loss ratio		63.9	%		61.8	%		62.4	%		61.5	%
Expense ratio		32.6	%		26.5	%		31.4	%		29.0	%
Combined ratio		96.5	%		88.3	%		93.8	%		90.5	%
Return on equity		7.5	%		6.2	%		8.2	%		5.8	%
Adjusted return on equity⁽¹⁾		5.4	%		7.3	%		6.2	%		6.4	%
Return on tangible equity⁽¹⁾		15.5	%		12.7	%		17.0	%		12.1	%
Adjusted return on tangible equity⁽¹⁾		11.2	%		15.0	%		12.9	%		13.4	%

⁽¹⁾Adjusted net income, adjusted return on equity, return on tangible equity, adjusted return on tangible equity and underwriting income are non-GAAP financial measures. See "Reconciliation of Non-GAAP Financial Measures" below for a reconciliation to the applicable GAAP measure.

Trean Insurance Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

	September 30, 2022			December 31, 2021
Assets	(unaudited)
Fixed maturities, available for sale	$	530,118		$	471,061
Equity securities, at fair value		35,296			969
Total investments		565,414			472,030

Cash and cash equivalents		81,489			129,577
Restricted cash		16,320			407
Accrued investment income		3,441			2,344
Premiums and other receivables		153,440			141,920
Income taxes receivable		1,584			460
Reinsurance recoverable		384,204			377,241
Prepaid reinsurance premiums		119,389			129,411
Deferred policy acquisition cost, net		15,011			13,344
Property and equipment, net		7,369			7,632
Right of use asset		3,292			4,530
Deferred tax asset		3,454			-
Goodwill		142,347			142,347
Intangible assets, net		68,616			73,114
Other assets		16,205			8,658
Total assets	$	1,581,575		$	1,503,015

Liabilities
Unpaid loss and loss adjustment expenses	$	578,751		$	544,320
Unearned premiums		220,891			219,940
Funds held under reinsurance agreements		204,828			199,410
Reinsurance premiums payable		49,512			45,130
Accounts payable, accrued expenses and other liabilities		43,449			29,448
Lease liability		3,629			4,976
Deferred tax liability		-			7,520
Debt		77,459			30,362
Total liabilities		1,178,519			1,081,106
Commitments and contingencies
Stockholders' Equity
Common stock, $0.01 par value per share (600,000,000 authorized; 51,220,485 and 51,176,887 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)		512			512
Additional paid-in capital		289,618			288,623
Retained earnings		153,795			128,390
Accumulated other comprehensive income (loss)		(40,869	)		4,384
Total stockholders' equity		403,056			421,909
Total liabilities and stockholders' equity	$	1,581,575		$	1,503,015

Supplemental Table of Other Revenue Components

	Three Months Ended September 30,				Nine Months Ended September 30,
(unaudited, in thousands)	2022		2021		2022		2021
Other Revenue
Brokerage	$	1,581	$	1,989	$	5,396	$	6,214
Managing general agent fees		83		88		251		407
Third-party administrator fees		266		437		838		1,191
Consulting and other fee-based revenue		210		285		660		871
Total other revenue	$	2,140	$	2,799	$	7,145	$	8,683

Supplemental Table of Net Investment Income Components

	Three Months Ended September 30,					Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021		2022			2021
Fixed maturities	$	2,628		$	1,597	$	6,189		$	4,734
Income on funds held investments		953			585		2,395			1,783
Equity securities		421			5		1,031			41
Unrealized losses on equity securities		(1,101	)		-		(4,542	)		-
Interest on cash and short-term investments		50			-		63			4
Total net investment income	$	2,951		$	2,187	$	5,136		$	6,562

Supplemental Table of Gains (Losses) on Embedded Derivative Components

	Three Months Ended September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Change in fair value of embedded derivatives	$	5,812		$	573		$	16,848		$	3,761
Effect of net investment income on funds held investments		(953	)		(585	)		(2,395	)		(1,783	)
Effect of realized gains on funds held investments		12			(109	)		10			(109	)
Total gains (losses) on embedded derivatives	$	4,871		$	(121	)	$	14,463		$	1,869

Supplemental Table of Net G&A Components

	Three Months Ended September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Direct commissions	$	28,650		$	27,594		$	85,691		$	78,304
Ceding commissions		(23,916	)		(31,655	)		(77,541	)		(89,547	)
Net commissions		4,734			(4,061	)		8,150			(11,243	)
Insurance-related expense		6,038			5,371			17,698			14,796
G&A operating expenses		12,484			12,478			37,387			37,393
Total G&A expense	$	23,256		$	13,788		$	63,235		$	40,946

G&A operating expense - % of GWP		7.7	%		7.0	%		7.8	%		7.8	%
Retention rate⁽¹⁾		44.3	%		34.8	%		42.3	%		33.9	%
Direct commission rate⁽²⁾		17.8	%		18.5	%		18.0	%		18.8	%
Ceding commission rate⁽³⁾		26.7	%		32.6	%		28.2	%		32.6	%

⁽¹⁾Net earned premiums 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.

Reconciliation of Non-GAAP Financial Measures

Underwriting income

The Company defines underwriting income as income before taxes excluding net investment income, non-cash changes in fair value of embedded derivatives, investment revaluation gains, net realized capital gains or losses, intangible asset amortization, noncash stock compensation, interest expense, other revenue and other income and expenses. Underwriting income represents the pre-tax profitability of the Company's underwriting operations and allows management to evaluate the Company's underwriting performance without regard to investment income, intangible asset amortization, noncash stock compensation, interest expense, other revenue and other income and expenses. The Company uses this metric because the Company believes it gives management and other users of the Company's financial information useful insight into the Company's 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 September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Net income	$	7,574		$	6,518		$	25,405		$	18,086
Income tax expense		2,014			2,083			6,741			5,102
Income before taxes		9,588			8,601			32,146			23,188
Other revenue		(2,140	)		(2,799	)		(7,145	)		(8,683	)
Change in fair value of embedded derivatives		(4,871	)		121			(14,463	)		(1,869	)
Net investment income		(2,951	)		(2,187	)		(5,136	)		(6,562	)
Net realized gains		(9	)		(49	)		(311	)		(72	)
Other expenses		-			-			268			845
Interest expense		931			419			1,806			1,271
Intangible asset amortization		1,499			1,499			4,498			4,326
Noncash stock compensation		460			468			1,019			1,098
Other income		(29	)		(35	)		(76	)		(191	)
Underwriting income	$	2,478		$	6,038		$	12,606		$	13,351

Adjusted net income and adjusted net income outlook

The Company defines adjusted net income as net income excluding the impact of certain items, including noncash intangible asset amortization and stock compensation, non-cash changes in fair value of embedded derivatives, other expenses and gains or losses that the Company believes do not reflect its core operating performance, which items may have a disproportionate effect in a given period, affecting comparability the Company's results across periods. The Company calculates the tax impact only on adjustments that would be included in calculating the Company's income tax expense using an expected effective tax rate for the applicable years. The Company uses adjusted net income as an internal performance measure in the management of its operations because the Company believes it gives its management and other users of its financial information useful insight into the Company's results of operations and 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 September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Net income	$	7,574		$	6,518		$	25,405		$	18,086
Intangible asset amortization		1,499			1,499			4,498			4,326
Noncash stock compensation		460			468			1,019			1,098
Change in fair value of embedded derivatives		(5,812	)		(573	)		(16,848	)		(3,761	)
Unrealized losses on equity securities		1,101			-			4,542			-
Realized gain on sale of investment		-			112			(1,400	)		112
Other expenses		-			-			268			845
Total adjustments		(2,752	)		1,506			(7,921	)		2,620
Tax impact of adjustments		633			(346	)		1,821			(603	)
Adjusted net income	$	5,455		$	7,678		$	19,305		$	20,103

The Company's outlook for fourth quarter 2022 adjusted net income constitutes forward-looking information and the Company believes that it cannot reconcile such forward-looking information to the most comparable GAAP measure without unreasonable efforts. Certain of the GAAP components cannot be reliably quantified due to the combination of variability and volatility of such components and may, depending on the size of the components, have a significant impact on the reconciliation.

Adjusted return on equity

The Company defines 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. The Company uses adjusted return on equity as an internal performance measure in the management of its operations because the Company believes it gives management and other users of the Company's financial information useful insight into the Company's results of operations and underlying business performance by adjusting for items that the Company believes do not reflect its 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 September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Adjusted return on equity calculation:
Numerator: adjusted net income	$	5,455		$	7,678		$	19,305		$	20,103
Denominator: average stockholders' equity		406,587			419,818			412,483			416,200
Adjusted return on equity		5.4	%		7.3	%		6.2	%		6.4	%
Return on equity		7.5	%		6.2	%		8.2	%		5.8	%

Return on tangible equity and adjusted return on tangible equity

The Company defines tangible stockholders' equity as stockholders' equity less goodwill and other intangible assets. The Company defines 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. The Company defines 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. The Company regularly evaluates acquisition opportunities and have historically made acquisitions that affect stockholders' equity. The Company uses return on tangible equity and adjusted return on tangible equity as internal performance measures in the management of the Company's operations because the Company believes they give management and other users of its financial information useful insight into the Company's results of operations and underlying business performance by adjusting for the effects of acquisitions on the Company's stockholders' equity and, in the case of adjusted return on tangible equity, by adjusting for items that the Company believes do not reflect its 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 substitutes for return on equity calculated in accordance with GAAP, and other companies may define return on tangible equity and adjusted return on tangible equity differently.

	Three Months Ended September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Return on tangible equity calculation:
Numerator: net income	$	7,574		$	6,518		$	25,405		$	18,086
Denominator:
Average stockholders' equity		406,587			419,818			412,483			416,200
Less: Average goodwill and other intangible assets		211,713			214,942			213,212			216,356
Average tangible stockholders' equity		194,874			204,876			199,271			199,844
Return on tangible equity		15.5	%		12.7	%		17.0	%		12.1	%
Return on equity		7.5	%		6.2	%		8.2	%		5.8	%


	Three Months Ended September 30,						Nine Months Ended September 30,
(unaudited, in thousands)	2022			2021			2022			2021
Adjusted return on tangible equity calculation:
Numerator: adjusted net income	$	5,455		$	7,678		$	19,305		$	20,103
Denominator: average tangible stockholders' equity		194,874			204,876			199,271			199,844
Adjusted return on tangible equity		11.2	%		15.0	%		12.9	%		13.4	%
Return on equity		7.5	%		6.2	%		8.2	%		5.8	%

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Date	Price Target	Rating	Analyst
3/31/2022	$6.50 → $5.50	Outperform → In-line	Evercore ISI
3/29/2022	$9.00 → $6.00	Overweight → Neutral	JP Morgan
1/14/2022	$18.00 → $14.00	Market Outperform	JMP Securities
11/11/2021	$21.00 → $18.00	Market Outperform	JMP Securities
8/13/2021	$18.00 → $15.00	Neutral → Overweight	JP Morgan
8/12/2021		Outperform → Market Perform	William Blair

Trean Insurance Group Reports Third Quarter 2022 Results

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