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Table of Contents
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 September 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 November 5, 2021, there were 51,174,887 shares of the registrant's common stock outstanding.


Table of Contents
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)
September 30, 2021December 31, 2020
Assets(unaudited)
Fixed maturities, at fair value (amortized cost of $417,288 and $388,409, respectively)
$425,596 $405,604 
Preferred stock, at fair value (amortized cost of $243 and $243, respectively)
231 240 
Common stock, at fair value (cost $741 and $1,554, respectively)
741 3,534 
Equity method investments 232 
Total investments426,568 409,610 
Cash and cash equivalents134,821 153,149 
Restricted cash3,567 4,085 
Accrued investment income2,378 2,458 
Premiums and other receivables135,354 109,217 
Income taxes receivable1,393 1,322 
Reinsurance recoverable361,673 343,213 
Prepaid reinsurance premiums138,223 107,971 
Deferred policy acquisition cost, net8,966 1,332 
Property and equipment, net7,588 8,254 
Right of use asset5,028 6,338 
Goodwill142,141 140,640 
Intangible assets, net74,614 75,316 
Other assets10,124 6,878 
Total assets$1,452,438 $1,369,783 
Liabilities
Unpaid loss and loss adjustment expenses$510,792 $457,817 
Unearned premiums222,866 157,987 
Funds held under reinsurance agreements176,838 174,704 
Reinsurance premiums payable49,240 57,069 
Accounts payable and accrued expenses25,766 61,240 
Lease liability5,491 6,893 
Deferred tax liability8,233 12,329 
Debt30,920 31,637 
Total liabilities1,030,146 959,676 
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value per share (600,000,000 authorized; 51,174,887 and 51,148,782 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)
512 511 
Additional paid-in capital288,114 287,110 
Retained earnings127,146 109,060 
Accumulated other comprehensive income6,520 13,426 
Total stockholders' equity422,292 410,107 
Total liabilities and stockholders' equity$1,452,438 $1,369,783 

See accompanying notes to the condensed consolidated financial statements.
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Table of Contents
Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenues
Gross written premiums$177,624 $132,284 $480,905 $349,755 
Increase in gross unearned premiums(28,478)(22,963)(64,836)(39,601)
Gross earned premiums149,146 109,321 416,069 310,154 
Ceded earned premiums(97,191)(81,465)(275,037)(238,460)
Net earned premiums51,955 27,856 141,032 71,694 
Net investment income2,187 2,364 6,562 9,134 
Gain on revaluation of Compstar investment 69,846  69,846 
Net realized capital gains49 115 72 3,345 
Other revenue2,799 5,401 8,683 11,323 
Total revenue56,990 105,582 156,349 165,342 
Expenses
Losses and loss adjustment expenses32,129 15,564 86,735 40,681 
General and administrative expenses13,788 6,995 40,946 23,437 
Other expenses 11,054 845 11,054 
Intangible asset amortization1,499 1,120 4,326 1,154 
Noncash stock compensation468 307 1,098 307 
Interest expense419 520 1,271 1,482 
Total expenses48,303 35,560 135,221 78,115 
Gains (losses) on embedded derivatives(121)(367)1,869 (5,547)
Other income35 209 191 263 
Income before taxes8,601 69,864 23,188 81,943 
Income tax expense2,083 817 5,102 4,035 
Equity earnings in affiliates, net of tax 401  2,333 
Net income$6,518 $69,448 $18,086 $80,241 
Earnings per share:
Basic$0.13 $1.42 $0.35 $1.94 
Diluted$0.13 $1.42 $0.35 $1.94 
Weighted average shares outstanding:
Basic51,171,416 49,054,441 51,157,726 41,304,132 
Diluted51,171,416 49,056,001 51,172,602 41,304,652 

See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income$6,518 $69,448 $18,086 $80,241 
Other comprehensive gain (loss), net of tax:
Unrealized investment gains (losses):
Unrealized investment gains (losses) arising during the period(2,419)546 (8,670)8,781 
Income tax expense (benefit)(508)115 (1,821)1,842 
Unrealized investment gains (losses), net of tax(1,911)431 (6,849)6,939 
Less reclassification adjustments to:
Net realized investment gains (losses) included in net realized capital gains (losses)49 114 72 232 
Income tax expense10 24 15 49 
Total reclassifications included in net income, net of tax39 90 57 183 
Other comprehensive income (loss)(1,950)341 (6,906)6,756 
Total comprehensive income$4,568 $69,789 $11,180 $86,997 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity and Redeemable Preferred Stock
For the Three and Nine Months Ended September 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 June 30, 202151,157,004 $511 $287,734 $8,470 $120,628 $417,343 
Stock compensation expense— — 468 — — 468 
Common stock issuances pursuant to equity compensation awards, net of shares repurchased17,883 1 (88)— — (87)
Other comprehensive income— — — (1,950)— (1,950)
Net income— — — — 6,518 6,518 
Balance at September 30, 202151,174,887 $512 $288,114 $6,520 $127,146 $422,292 



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 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 
Issuance of Class C units— — — — — — — — 157,270 157 — — — — — 157 
Dividends on Series B preferred stock— — — — — — — — — — — — — — (45)(45)
Redemption of Series B Redeemable Preferred Stock(51)(5,100)— — — — — — — — — — — — — — 
Corporate recapitalization— — (65,036,780)(65,037)(5,045,215)(5,045)(8,159,775)(8,160)(393,175)(393)37,386,394 374 78,261 — —  
Issuance of common shares for acquisition of Compstar— — — — — — — — — — 6,613,606 66 99,138 — — 99,204 
Proceeds from common stock sold in initial public offering, net of offering costs— — — — — — — — — — 7,142,857 71 93,068 — — 93,139 
Common stock issuances pursuant to equity compensation awards— — — — — — — — — — 5,925 — (82)— — (82)
Stock compensation expense— — — — — — — — — — — — 307 — — 307 
Other comprehensive income— — — — — — — — — — — — — 341 — 341 
Net income— — — — — — — — — — — — — — 69,448 69,448 
Balance at September 30, 2020 $  $  $  $  $ 51,148,782 $511 $287,234 $13,256 $100,752 $401,753 


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— — 1,098 — — 1,098 
Common stock issuances pursuant to equity compensation awards, net of shares repurchased26,105 1 (94)— — (93)
Other comprehensive loss— — — (6,906)— (6,906)
Net income— — — — 18,086 18,086 
Balance at September 30, 202151,174,887 $512 $288,114 $6,520 $127,146 $422,292 




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— — — — — — — — 196,587 197 — — — — — 197 
Distributions to members— — — — — — — — — — — — (1,453)— (18,043)(19,496)
Dividends on Series B preferred stock— — — — — — — — — — — — — — (128)(128)
Redemption of Series B Redeemable Preferred Stock(51)(5,100)— — — — — — — — — — — — — — 
Corporate recapitalization— — (65,036,780)(65,037)(5,045,215)(5,045)(8,159,775)(8,160)(393,175)(393)37,386,394 374 78,261 — —  
Issuance of common shares for acquisition of Compstar— — — — — — — — — — 6,613,606 66 99,138 — — 99,204 
Proceeds from common stock sold in initial public offering, net of offering costs— — — — — — — — — — 7,142,857 71 93,068 — — 93,139 
Common stock issuances pursuant to equity compensation awards— — — — — — — — — — 5,925 — (82)— — (82)
Stock compensation expense— — — — — — — — — — — — 307 — — 307 
Other comprehensive income— — — — — — — — — — — — — 6,756 — 6,756 
Net income— — — — — — — — — — — — — — 80,241 80,241 
Balance at September 30, 2020 $  $  $  $  $ 51,148,782 $511 $287,234 $13,256 $100,752 $401,753 


See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Operating activities
Net income$18,086 $80,241 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization5,123 1,823 
Stock compensation1,098 307 
Unrealized (gains) losses on embedded derivatives(3,761)3,066 
Net capital gains(72)(5,242)
Gain on revaluation of Compstar (69,846)
Bond amortization and accretion1,715 1,465 
Issuance of member units as compensation 197 
Equity earnings in affiliates, net of tax (2,333)
Distributions from equity method investments 2,953 
Deferred income taxes(2,259)(317)
Deferred financing costs126 90 
Changes in operating assets and liabilities:
Accrued investment income80 50 
Premiums and other receivables(25,167)(13,308)
Reinsurance recoverable on paid and unpaid losses(18,460)(43,087)
Prepaid reinsurance premiums(30,252)(23,841)
Right of use asset1,444 (5,538)
Other assets(10,863)(8,729)
Unpaid loss and loss adjustment expenses52,975 58,787 
Unearned premiums64,879 39,601 
Funds held under reinsurance agreements19,585 (5,942)
Reinsurance premiums payable(7,829)6,136 
Accounts payable and accrued expenses(11,430)11,448 
Lease liability(1,537)5,752 
Income taxes payable(71)(1,525)
Net cash provided by operating activities53,410 32,208 
Investing activities
Payments for capital expenditures(92)(665)
Proceeds from sale of equity method investment 3,000 
Return of capital on equity method investment232 115 
Purchase of investments, available for sale(129,474)(84,125)
Proceeds from investments sold, matured or repaid61,998 89,374 
Acquisition of subsidiary, net of cash received(3,795)(1,098)
Cash received in the acquisition of Compstar 11,891 
Net cash provided by (used in) investing activities(71,131)18,492 
Financing activities
Shares redeemed for payroll taxes(94)(82)
Proceeds from initial public offering 99,643 
Deferred offering costs (5,839)
Proceeds from credit agreement 32,453 
Principal payments on debt(1,031)(41,789)
Buyback of preferred shares (5,100)
Distribution to members (19,496)
Dividends paid on preferred stock (128)
Net cash provided by (used in) financing activities(1,125)59,662 
Net increase (decrease) in cash, cash equivalents and restricted cash(18,846)110,362 
Cash, cash equivalents and restricted cash – beginning of period
157,234 76,068 
Cash, cash equivalents and restricted cash – end of period
$138,388 $186,430 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
September 30,
Disaggregation of cash and restricted cash:20212020
Cash and cash equivalents$134,821 $165,255 
Restricted cash3,567 21,175 
Total cash, cash equivalents and restricted cash$138,388 $186,430 


Nine Months Ended September 30,
Supplemental disclosure of cash flow information:20212020
Cash paid during the year for:
Interest$1,145 $1,391 
Income taxes7,395 5,809 
Non-cash investing and financing activity:
Right-of-use assets obtained in exchange for new operating lease liabilities319 8,245 
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  
Contingent consideration for the acquisition of subsidiary1,500  
Shares issued for the acquisition of subsidiary 99,204 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases1,824 1,484 

See accompanying notes to the condensed consolidated financial statements.
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Notes to the Condensed Consolidated 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.

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; Western Integrated Care, LLC, a managed care organization; 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 nine months ended September 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 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 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:

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December 31, 2020September 30, 2020
Previously reportedAdjustmentAs adjustedPreviously reportedAdjustmentAs adjusted
Retained earnings$112,959 $(3,899)$109,060 $104,853 $(4,101)$100,752 
Accumulated other comprehensive income9,527 3,899 13,426 9,155 4,101 13,256 


June 30, 2020December 31, 2019
Previously reportedAdjustmentAs adjustedPreviously reportedAdjustmentAs adjusted
Retained earnings$35,561 $(4,212)$31,349 $40,361 $(1,679)$38,682 
Accumulated other comprehensive income8,703 4,212