Tiptree Inc. (TIPT) has concluded its fourth quarter 2023 earnings call, showcasing a year of exceptional performance with significant growth in revenues and profitability. The company reported an 18% increase in revenues, reaching $1.6 billion for the year, and an impressive adjusted return on equity of 15%. The specialty insurance business, The Fortegra Group, was a standout performer, delivering record results with a 21% growth in premiums and a remarkable 29% adjusted return on equity.
Key Takeaways
- Tiptree Inc. revenues rose to $1.6 billion, marking an 18% increase for the year.
- Quarterly dividend increased by 20% to $0.06 per share.
- The Fortegra Group achieved a combined ratio of 90%, indicating strong underwriting discipline.
- Tiptree Capital deployed $178 million across various business segments despite a challenging mortgage market.
- The company's balance sheet remains robust with no holding company debt and ample cash for future deployment.
Company Outlook
- Tiptree Inc. maintains a positive outlook with a focus on long-term absolute returns.
- The company is well-positioned for growth with a strong balance sheet and no holding company debt.
Bearish Highlights
- High mortgage rates have led to muted origination volumes in the mortgage business.
Bullish Highlights
- Fortegra's record results and robust premium growth signal strong performance in the specialty insurance sector.
- The company's investment in data science and expansion in Europe are expected to drive future growth.
Misses
- A $9 million deferred tax expense impacted the fourth quarters of 2023 and 2022 due to the deconsolidation of Fortegra for tax purposes.
Q&A Highlights
- There were no questions asked during the Q&A session of the earnings call.
In the fourth quarter, Tiptree Inc. experienced a 24% increase in revenues, excluding unrealized gains and losses, primarily driven by growth in insurance underwriting and fee-based service revenues. The company's consolidated net income was $6.9 million, with adjusted net income for the quarter reaching $13.9 million, a 43% increase from the previous year.
The insurance segment reported a 38% year-over-year increase in gross written premiums and equivalents, amounting to $724 million, and a 57% increase in net written premiums to $384 million.
The investment portfolio ended the year at $1.3 billion, with 90% invested in high-quality, liquid securities and cash, and an average S&P rating of AA. The fixed income portfolio's duration is approximately 2.5 years, positioning the company to take advantage of higher yields as rates improve.
Tiptree Inc. enters 2024 with a strong financial position and a positive outlook, bolstered by Fortegra's continued success and favorable specialty market conditions. The company is committed to capital allocation strategies aimed at long-term value creation.
InvestingPro Insights
Tiptree Inc. (TIPT) has demonstrated a robust financial performance in its latest earnings report, which is further highlighted by key metrics from InvestingPro. The company's market capitalization stands at a moderate $643.6 million, reflecting a sizeable presence in the industry. Despite a high P/E ratio of 46, the company's PEG ratio of 0.5 suggests that its earnings growth rate could justify the higher earnings multiple, indicating potential for future value. Additionally, Tiptree has maintained a consistent dividend payout, with a dividend yield of 1.14% and a notable dividend growth of 25% in the last twelve months as of Q4 2023.
InvestingPro Tips also shed light on the company's financial health and investor value. Tiptree is trading at a low P/E ratio relative to near-term earnings growth, which could attract investors looking for growth at a reasonable price. Furthermore, the company has been profitable over the last twelve months, a reassuring sign of financial stability.
Investors seeking more comprehensive analysis and additional InvestingPro Tips can find them on the InvestingPro platform. For instance, there are 5 additional tips available for Tiptree Inc., which could provide deeper insights into the company's financial nuances and investment potential. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/TIPT. This offer can help investors make more informed decisions by leveraging the extensive data and analytics available on InvestingPro.
Full transcript - Tiptree Fin (TIPT) Q4 2023:
Operator: Greetings. Welcome to Tiptree Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I’ll now turn the conference over to Scott McKinney, Chief Financial Officer. Thank you. you may begin.
Scott McKinney: Good morning, and welcome to our fourth quarter 2023 earnings call. Joining me today are Michael Barnes, our Executive Chairman; and Jonathan Ilany, CEO. Some of our comments today will contain forward-looking statements and actual future results may differ materially. Please see our most recent SEC filings which identify the principal risks and uncertainties that could affect future performance. In today’s call, we will discuss non-GAAP financial metrics, which are described in more detail in our presentation. Reconciliations of these metrics and additional disclosures can be found in our SEC filings, the appendix to our presentation, and on our website. With that, I will turn the call over to Michael.
Michael Barnes: Thanks, Scott, and good morning to everyone. 2023 proved to be a year of exceptional performance for Tiptree. Our operating businesses continued to build upon their track record of growth and profitability, resulting in an 18% increase in revenues to $1.6 billion for the year, alongside an adjusted return on equity of 15%. In light of our continuing positive performance, we are pleased to have increased our quarterly dividend by 20% to $0.06 per share. The Fortegra Group, our specialty insurance business achieved record results for the year with premium and premium equivalent growth of 21% and an adjusted return on equity of 29%. Underwriting results remained consistent posting a combined ratio of 90%, underscoring the company’s tradition of disciplined, specialized underwriting. Although, the recent market environment has been unconducive for a public offering, we firmly believe Fortegra is strategically well-positioned to maintain the trajectory of consistent growth and sustained underwriting profitability over the long-term. Tiptree Capital finished the year with $178 million of capital deployed across our mortgage origination and servicing business. Our liquid investment portfolio and cash at reliance continued high mortgage rates kept origination volumes muted. Although, the income and sustained market value of our retained servicing book allowed the business to remain stable for the year. This result significantly outperforms the broader mortgage industry for 2023. We maintain a positive outlook for the business with greater potential for future profit as mortgage rates stabilize. For Tiptree, we remain focused on seeking opportunities to achieve long-term absolute returns. Our balance sheet remains well capitalized with no holding company debt and cash for future deployment. With strong performance in 2023, we are well-positioned for growth and we maintain a positive outlook for the company. With that, I’ll turn the call over to Scott to discuss our financial results.
Scott McKinney: Thank you, Michael. For the quarter, Tiptree’s revenues were up 24%, excluding unrealized gains and losses, driven by growth in insurance underwriting and fee-based service revenues. Consolidated net income of $6.9 million was driven by growth in our insurance operations and unrealized investment gains partially offset by the sale of our five vessels in 2022. Impacting the fourth quarters of 2023 and 2022 was a $9 million deferred tax expense related to the deconsolidation of Fortegra for tax purposes. This deferred tax liability is only crystallized on a sale of Fortegra. Adjusted net income for the quarter was $13.9 million, representing an increase of 43% compared to the prior year period. As Michael mentioned, our balance sheet remains well-positioned. We ended the quarter with a highly rated liquid investment portfolio, substantial cash balances, and we continue to maintain a conservative position with respect to our loss reserves at the insurance company. Turning to our insurance results for the quarter, gross written premiums and equivalents increased 38% year-over-year to $724 million, driven by robust growth in specialty E&S and admitted insurance lines along with the benefits from a book-roll transaction with one of our commercial MGA partners. Operationally, there continues to be robust submission activity and a healthy pipeline of new underwriting opportunities across our specialty lines. Net written premiums were $384 million for the quarter, an increase of 57% in line with the growth in gross written premiums, along with increased retention on our whole account quota share agreement from 30% to 40%, which went effective April 1, 2023. Revenues grew by 25% to $433 million and the combined ratio remained consistent at 89.8%. Underwriting improvements were offset by an increased expense ratio as we continue to invest in data science initiatives, bolster our excess and surplus lines capabilities and continue to expand in Europe. Adjusted return on equity for the year was 29%, driven by growth, profitable underwriting and the scalability of our technology enabled platform. Flipping to the investment results, for the year, net investment income, when combined with interest on cash and cash equivalents yielded $38 million compared to $15 million in the prior year. With the decline in rates, we also experienced a $19 million recovery that impacted comprehensive income in 2023. The portfolio ended the year at $1.3 billion with 90% invested in a combination of high credit quality, liquid securities and cash with an average S&P rating of AA. Our embedded book yield was 3.3% at year end, up nearly 60 basis points from the prior year, driven by improving yields on short duration fixed income securities and money market funds. The duration of our fixed income portfolio was approximately 2.5 years, which positions us well as maturities roll and the portfolio grows to reinvest at higher yields. Each quarter, we include the next set of charts to display a snapshot of Fortegra’s results over time. Gross written premium and equivalents have grown 26% annually since 2019, primarily driven by organic growth. For the year, the team delivered $2.7 billion of premiums, an increase of 21% over prior year. Excess and surplus lines represented 30%, or just over $800 million of our 2023 written premiums and equivalents. The combined ratio remains consistent in the low 90s, improving two points over the past five years. As the business mix increasingly trends toward specialty P&C lines, you’ll notice a rise in the loss ratio, which is more than compensated for by decreases in our acquisition expenses and operational efficiencies. Adjusted net income crossed $100 million mark this year, ultimately delivering $116 million or 38% growth year-over-year. Looking ahead, we anticipate the continued hard market environment, in tandem with adding new agents and distribution partners, will continue to extend Fortegra’s growth profile. Turning to Tiptree Capital, the pre-tax loss for the quarter was $2.1 million, driven primarily by losses on invest and our mortgage servicing asset, partially offset by gains on other investments. Mortgage originations for the year were $877 million, down 23% from the prior year, as elevated mortgage rates impacted volumes across the industry. As Michael mentioned, with expectations of lower mortgage rates ahead, we expect origination volumes and margins to normalize throughout 2024. Tiptree Capital ended the quarter with $178 million of book value, with two-thirds allocated to highly liquid investments. Now I’ll pass the call back to Michael to wrap up our prepared remarks.
Michael Barnes: Thanks, Scott. Our fourth quarter was a great finish to the year and a true testament to the hard work and expertise of Tiptree’s team of professionals and those of our related companies. We began 2024 well positioned financially and we could not be more excited about Tiptree’s future. Fortegra once again post record results. The pipeline of new opportunities continues to build and specialty market conditions remain favorable. We at Tiptree will continue to look for opportunities to allocate capital for long-term value creation. I’d now like to turn the call back over to the operator for Q&A. Operator?
Operator: Thank you. [Operator Instructions] There are no questions at this time. We will conclude today’s conference. Thank you for your participation. You may now disconnect.
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