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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
OR
    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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareTIGThe 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 filerAccelerated filerNon-accelerated filerSmaller 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, there were 51,173,844 shares of the registrant's common stock outstanding.


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TREAN INSURANCE GROUP, INC.
TABLE OF CONTENTS
Page

2


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, 2021December 31, 2020
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 232 
Total investments427,919 409,610 
Cash and cash equivalents101,361 153,149 
Restricted cash12,469 4,085 
Accrued investment income2,329 2,458 
Premiums and other receivables131,930 109,217 
Income taxes receivable5,113 1,322 
Reinsurance recoverable361,943 343,213 
Prepaid reinsurance premiums121,004 107,971 
Deferred policy acquisition cost, net6,424 1,332 
Property and equipment, net7,780 8,254 
Right of use asset5,378 6,338 
Goodwill140,640 140,640 
Intangible assets, net72,489 75,316 
Other assets8,410 6,878 
Total assets$1,405,189 $1,369,783 
Liabilities
Unpaid loss and loss adjustment expenses$502,560 $457,817 
Unearned premiums194,388 157,987 
Funds held under reinsurance agreements161,013 174,704 
Reinsurance premiums payable51,681 57,069 
Accounts payable and accrued expenses31,017 61,240 
Lease liability5,855 6,893 
Deferred tax liability10,229 12,329 
Debt31,103 31,637 
Total liabilities987,846 959,676 
Commitments and contingencies
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 
Additional paid-in capital287,734 287,110 
Retained earnings120,628 109,060 
Accumulated other comprehensive income8,470 13,426 
Total stockholders' equity417,343 410,107 
Total liabilities and stockholders' equity$1,405,189 $1,369,783 
See accompanying notes to the condensed consolidated financial statements.
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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,
2021202020212020
Revenues
Gross written premiums$156,551 $109,612 $303,281 $217,471 
Increase in gross unearned premiums(17,927)(9,265)(36,358)(16,638)
Gross earned premiums138,624 100,347 266,923 200,833 
Ceded earned premiums(90,681)(78,968)(177,846)(156,995)
Net earned premiums47,943 21,379 89,077 43,838 
Net investment income2,103 2,525 4,375 6,770 
Net realized capital gains (losses)10 (4)23 3,230 
Other revenue1,229 1,530 5,884 5,922 
Total revenue51,285 25,430 99,359 59,760 
Expenses
Losses and loss adjustment expenses29,725 12,183 54,606 25,117 
General and administrative expenses15,267 8,293 27,158 16,442 
Other expenses845  845  
Intangible asset amortization1,413 23 2,827 34 
Noncash stock compensation419  630  
Interest expense425 501 852 962 
Total expenses48,094 21,000 86,918 42,555 
Gains (losses) on embedded derivatives(686)(3,991)1,990 (5,180)
Other income35 40 156 54 
Income before taxes2,540 479 14,587 12,079 
Income tax expense414 351 3,019 3,218 
Equity earnings in affiliates, net of tax 1,230  1,932 
Net income$2,126 $1,358 $11,568 $10,793 
Earnings per share:
Basic$0.04 $0.04 $0.23 $0.29 
Diluted$0.04 $0.04 $0.23 $0.29 
Weighted average shares outstanding:
Basic51,152,979 37,386,394 51,150,881 37,386,394 
Diluted51,166,587 37,386,394 51,173,204 37,386,394 
See accompanying notes to the condensed consolidated financial statements.
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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,
2021202020212020
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 period2,325 9,242 (6,251)8,235 
Income tax expense (benefit)488 1,938 (1,313)1,727 
Unrealized investment gains (losses), net of tax1,837 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 tax8  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 
See accompanying notes to the condensed consolidated financial statements.
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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, 2021 and 2020
(in thousands, except share and unit data)
(unaudited)

Common StockAdditional Paid in CapitalAccumulated Other Comprehensive Income Retained EarningsTotal Stockholders' Equity
SharesAmount
Balance at March 31, 202151,148,782 $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 repurchased8,222 — (6)— — (6)
Other comprehensive income— — — 1,829 — 1,829 
Net income— — — — 2,126 2,126 
Balance at June 30, 202151,157,004 $511 $287,734 $8,470 $120,628 $417,343 



Members' Equity
Redeemable Preferred StockClass A - Non VotingClass B - VotingClass B - Non VotingClass C - Non VotingCommon StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Stockholders' Equity
SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountSharesAmount
Balance at March 31, 202051 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 216,247 $216  $ $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, 202051 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 235,905 $236  $ $16,542 $12,915 $31,349 $139,284 


See accompanying notes to the condensed consolidated financial statements.
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Common StockAdditional Paid in CapitalAccumulated Other Comprehensive Income Retained EarningsTotal Stockholders' Equity
SharesAmount
Balance at December 31, 202051,148,782 $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 repurchased8,222 — (6)— — (6)
Other comprehensive loss— — — (4,956)— (4,956)
Net income— — — — 11,568 11,568 
Balance at June 30, 202151,157,004 $511 $287,734 $8,470 $120,628 $417,343 




Members' Equity
Redeemable Preferred StockClass A - Non VotingClass B - VotingClass B - Non VotingClass C - Non VotingCommon StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Stockholders' Equity
SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountSharesAmount
Balance at December 31, 201951 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 196,588 $196  $ $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, 202051 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 235,905 $236  $ $16,542 $12,915 $31,349 $139,284 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30,
20212020
Operating activities
Net income$11,568 $10,793 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization3,374 458 
Stock compensation630  
Unrealized (gains) losses on embedded derivatives(3,189)3,206 
Net capital gains(23)(5,042)
Deferred offering costs (1,339)
Bond amortization and accretion1,174 944 
Issuance of member units as compensation 40 
Equity earnings in affiliates, net of tax (1,932)
Distributions from equity method investments 2,413 
Deferred income taxes(781)(324)
Deferred financing costs84 48 
Changes in operating assets and liabilities:
Accrued investment income129 (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 asset959 (5,958)
Other assets(6,623)(3,284)
Unpaid loss and loss adjustment expenses44,742 35,784 
Unearned premiums36,401 16,638 
Funds held under reinsurance agreements3,080 (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 activities22,820 31,783 
Investing activities
Payments for capital expenditures(73)(554)
Proceeds from sale of equity method investment232 3,000 
Return of capital on equity method investment 115 
Purchase of investments, available for sale(104,183)(55,695)
Proceeds from investments sold, matured or repaid38,425 60,339 
Acquisition of subsidiary, net of cash received (1,098)
Net cash provided by (used in) investing activities(65,599)6,107 
Financing activities
Shares redeemed for payroll taxes(6) 
Proceeds from credit agreement 32,453 
Principal payments on debt(619)(21,843)
Distribution to members (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 period157,234 76,068 
Cash, cash equivalents and restricted cash ‑ end of period$113,830 $105,072 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Cash Flows
(in thousands)
(unaudited)
June 30,
Disaggregation of cash and restricted cash:20212020
Cash and cash equivalents$101,361 $97,326 
Restricted cash12,469 7,746 
Total cash, cash equivalents and restricted cash$113,830 $105,072 


Six Months Ended June 30,
Supplemental disclosure of cash flow information:20212020
Cash paid during the year for:
Interest$768 $914 
Income taxes7,548 201 
Non-cash investing and financing activity:
Right-of-use assets obtained in exchange for new operating lease liabilities31 6,906 
Non-cash transfer of investments to settle funds held for reinsurance13,562  
Non-cash transfer of investments to settle amounts held for others in accounts payable26,211  
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases1,217 906 

See accompanying notes to the condensed consolidated financial statements.
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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 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) 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, a property and casualty insurance company domiciled in the state of South Carolina; (b) 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) Trean Corporation ("Trean Corp"), a reinsurance intermediary manager and a managing general agent, which consists of the following wholly owned subsidiaries: Trean Reinsurance Services, LLC, a reinsurance intermediary broker; Benchmark Administrators LLC, a claims third-party administrator; and Westcap Insurance Services, LLC, 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 (the "2020 Form 10-K"). Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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. The impact of the prior period corrections on the condensed consolidated balance sheet and the related components of stockholders' equity is as follows:
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March 31, 2021December 31, 2020
Previously reportedAdjustmentAs reportedPreviously reportedAdjustmentAs reported
Retained earnings$119,750 $(1,248)$118,502 $112,959 $(3,899)$109,060 
Accumulated other comprehensive income5,393 1,248 6,641 9,527 3,899 13,426 


June 30, 2020March 31, 2020December 31, 2019
Previously reportedAdjustmentAs reportedPreviously reportedAdjustmentAs reportedPreviously reportedAdjustmentAs reported
Retained earnings$35,561 $(4,212)$31,349 $49,967 $(1,850)$48,117 $40,361 $(1,679)$38,682 
Accumulated other comprehensive income8,703 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 reportedAdjustmentAs reported
Net investment income$1,524 $1,001 $2,525 
Total revenue24,429 1,001 25,430 
Gains (losses) on embedded derivatives (3,991)(3,991)
Income before taxes3,469 (2,990)479 
Income tax expense979 (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 expense1,310 628 1,938 
Unrealized investment gains, net of tax4,942 2,362 7,304 
Other comprehensive income$4,942 $2,362 $7,304 


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Six Months Ended June 30, 2020
Previously reportedAdjustmentAs reported
Net investment income$4,796 $1,974 $6,770 
Total revenue57,786 1,974 59,760 
Gains (losses) on embedded derivatives (5,180)(5,180)
Income before taxes15,285 (3,206)12,079 
Income tax expense3,891 (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 expense1,054 673 1,727 
Unrealized investment gains, net of tax3,975 2,533 6,508 
Other comprehensive income$3,882 $2,533 $6,415 


The correction of the prior period amounts had no impact on total operating, investing and financing activities on the Company’s condensed consolidated and condensed combined statements of cash flows during the six months ended June 30, 2020. 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; the net investment income table in Note 4 was corrected to incorporate the income from funds held investments of $1,001 and $1,974 for the three and six months ended June 30, 2020, respectively; the effective tax rate in Note 8 was corrected from 28.2% to 73.3% for the three months ended June 30, 2020 and from 25.5% to 26.6% for the six months ended June 30, 2020; 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, 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 and LAE.

Accounting pronouncements

Recently adopted policies

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). This update provides optional expedients and exceptions 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
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the period between March 12, 2020 and December 31, 2022. The 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.