TREAN INSURANCE GROUP, INC. – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of
operations for the three and nine months ended September 30, 2022 is qualified
by reference to and should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and the related notes
included herein and the audited consolidated financial statements and notes
included in our 2021 Form 10-K. The discussion and analysis below are based on
comparisons between our historical financial data for different periods and
include certain forward-looking statements about our business, operations, and
financial performance. These forward-looking statements are subject to risks,
uncertainties, assumptions, and other factors described in Item 1A - "Risk
Factors" in our 2021 Form 10-K. Our actual results may differ materially from
those expressed in, or implied by, those forward-looking statements. See
"Forward-Looking Statements."

All references to "we," "us," "our," "the Company," "Trean," or similar terms
refer to Trean Insurance Group, Inc. and its subsidiaries, unless the context
otherwise requires. The information contained in this quarterly report is not a
complete description of our business or the risks associated with an investment
in our common stock.

We define “NM” or “Non-Normal” as an increase or decrease of more than 200%.
meaningful.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995, which
statements involve substantial risks and uncertainties. Forward-looking
statements generally relate to future events or our future financial performance
or operating performance. In some cases, you can identify forward-looking
statements because they contain words such as "may," "will," "should,"
"expects," "plans," "anticipates," "could," "intends," "target," "projects,"
"contemplates," "believes," "estimates," "predicts," "would," "potential," or
"continue" or the negative of these words or other similar terms or expressions
that concern our expectations, strategy, plans, or intentions. 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, inflationary pressures and other macroeconomic factors
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.

The outcome of the events described in these forward-looking statements is
subject to risks, uncertainties, and assumptions, which in many cases are beyond
our control, as described in "Item 1A - Risk Factors" in our 2021 Form 10-K and
in this Quarterly Report on Form 10-Q. Our statements reflecting these risks and
uncertainties are not exhaustive, and other risks and uncertainties may
currently exist or may arise in the future that could have material effects on
our business, operations, and financial condition. We cannot assure you that the
results, events, and circumstances reflected in the forward looking statements
reflected in this Quarterly Report on Form 10-Q and our other public statements
and securities filings will be achieved or occur, and actual results, events, or
circumstances could differ materially from those described in the forward
looking statements.

These forward-looking statements speak only as of the date on which such
statements are made. We undertake no obligation, and do not intend, to update
any forward looking statements after the date of this Quarterly Report on Form
10-Q or to conform such statements to actual results or revised expectations,
except as required by applicable securities laws or the rules and regulations of
the Securities and Exchange Commission ("SEC").

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Overview

We are a provider of products and services to the specialty insurance market. We
underwrite specialty casualty insurance products both through our Program
Partners and also through our Owned MGAs. We also provide our Program Partners
with a variety of services, including issuing carrier services, claims
administration, and reinsurance brokerage, from which we generate recurring
fee-based revenues.

We have one reportable segment. We provide our insurance products and services
to our Program Partners and Owned MGAs focused on specialty lines. We target a
diversified portfolio of small to medium programs, typically with less than $30
million of premiums, that focus on niche segments of the specialty casualty
insurance market and that we believe have strong underwriting track records.

Effects of coronavirus (“COVID-19”)

We are monitoring the ongoing COVID-19 pandemic on our business, including how
it may impact our premium revenue, loss experience and loss expense, liquidity,
and our regulatory capital and surplus, and operations. Significant progress has
been made to combat the outbreak of COVID-19; however, the global pandemic,
including resulting inflationary pressures and other macroeconomic factors on
the business and operations of the Company, has adversely impacted both the
domestic and foreign economies and could still have a materially adverse impact
on the Company.

Workforce Operations

Following the emergence of the COVID-19 pandemic in early 2020, we took a number
of actions to protect the health of the public and our employees and to comply
with directives and advice of governmental authorities and public health
experts. We responded by developing a Preparedness Plan that outlined both
corporate-wide and location-specific modifications to working conditions and
operations in our offices.

We continue to navigate through these challenges with a sharp focus on and goal
of safeguarding our employees, helping our customers and managing impacts on our
business. Despite the unprecedented environment, our teams are executing at a
high level and we are advancing our strategy.

Premium Income, Claims and Losses

We have not experienced a material impact to our premium revenue as a result of
the COVID-19 pandemic. During the nine months ended September 30, 2022, compared
to the nine months ended September 30, 2021, gross written premiums decreased by
(0.7)% and net earned premiums increased by 42.9%. The decrease in gross written
premiums was driven by the Company's continued focus on maintaining underwriting
discipline in an unusually competitive environment. The increase in net earned
premiums was primarily driven by increased retention in our existing Program
Partner business. Because a majority of our gross written premiums are related
to workers' compensation insurance, revenue trends could be impacted in future
periods if the COVID-19 pandemic were to continue or significantly get worse.
However, a significant portion of our workers' compensation premiums are
pay-as-you-go programs, which reduces our downside risk from future premium
audits or refunds.

Also, there will be no material impact on reported claims or claims.
Losses incurred in the first nine months of 2022 as a result of certain
COVID19 Pandemic.

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Investment Portfolio

With respect to our investment portfolio, we seek to hold a high-quality,
diversified portfolio of investments, which are primarily in fixed maturity and
available-for-sale investments and, as such, our investment portfolio has
limited exposure to equity market volatility. For the nine months ended
September 30, 2022, we experienced a decrease of $58,333 in the fair value of
our fixed maturities investment portfolio. The decline in the fair value of our
fixed maturity investments is primarily attributable to the recent rise in
interest rates driven primarily by changing conditions in the financial markets
as compared to the comparatively lower rates that prevailed during the initial
part of the COVID-19 pandemic in 2020 and 2021, rather than underlying credit
risk within our investment portfolio. If there were to be continued equity and
debt financial market volatility, which in turn could create mark-to-market
investment valuation decreases, we expect there could be additional or increased
unrealized losses recorded or realized losses, if sold, in future reporting
periods. However, given the conservative nature of our investment portfolio, we
expect that any adverse impact on the value of our investment portfolio, as it
relates to COVID-19, will be temporary, and we do not expect a long-term
negative impact on our financial condition, results of operations or cash flows.

Other concerns

Adverse events such as changes in the overall public health environment,
changing infection patterns and new variants of COVID-19, health-related
concerns about working in our offices, restrictions on travel, the potential
impact on our business partners and customers, and other matters affecting our
general work and business environment could harm our business and delay the
implementation of our business strategy. We cannot anticipate all the ways in
which the current global health crisis and financial market conditions could
adversely impact our business in the future.

Key Factors of Operating Results

Gross written premiums: Gross written premiums are the amounts received or to be
received for insurance policies written or assumed by us during a specific
period of time without reduction for general and administrative expenses
(including policy acquisition costs), reinsurance costs or other deductions. The
volume of our gross written premiums in any given period is generally influenced
by:

• Add and keep program partner;

• Submission of new business to us program partner;

• Tie new business submissions to policies.

• Updating existing policies.When

• Average size and premium rate of bound policies.

Gross earned premiums: Gross earned premiums are the earned portion of gross
written premiums. We earn insurance premiums on a pro rata basis over the term
of the policy. Our insurance policies generally have a term of one year.

Ceded earned premiums: Ceded earned premiums are the amount of gross earned
premiums ceded to reinsurers. We enter into reinsurance contracts to limit our
maximum losses and diversify our exposure and provide statutory surplus relief.
The volume of our ceded earned premiums is affected by the level of our gross
earned premiums and any decision we make to increase or decrease limits,
retention levels, and co-participations.

Net earned premiums: Net earned premiums represent the earned portion of our
gross written premiums, less that portion of our gross written premiums that is
earned and ceded to third-party reinsurers, including our Program Partners and
professional reinsurers, under our reinsurance agreements.

Net investment income: We earn investment income on our portfolio of cash and
invested assets. Our cash and invested assets are primarily comprised of fixed
maturities, including other equity investments and short-term investments. Our
net investment income includes interest income on our invested assets, income on
funds held investments as well as unrealized gains and losses on our equity
portfolio.

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Net realized gains/losses: Net realized gains/losses are a function of the
difference between the amount received by us on the sale of a security and the
security's recorded value as well as any "other-than-temporary impairments"
relating to fixed maturity investments recognized in earnings.

Other revenue: Other revenue includes brokerage, third-party administrative,
management, consulting, and other fee-based revenues, which are commonly based
on written premiums.

Loss and loss adjustment expenses (LAE): Losses and LAE are net of reinsurance
and include claims paid, estimates of future claim payments, changes in those
estimates from prior reporting periods and costs associated with investigating,
defending, and servicing claims. In general, our losses and LAE are affected by:

the frequency of claims related to certain types of insurance policies;
what we write.

• Trends in the average magnitude of losses incurred by specific types of businesses.

• A mix of businesses written by us.

• changes in the legal or regulatory environment related to our business;
write;

• Trends in legal defense costs.

• Wage inflation.When

• Inflation in healthcare costs.

Loss and LAE are based on actuarial analysis of estimated losses.
Includes losses incurred during the period and changes in estimates from previous periods
period. Losses and LAEs may be paid over many years.

General and administrative expenses: General and administrative expenses include
net commissions, insurance-related expenses, and general and administrative
operating expenses. Net commissions consist of policy acquisition costs and
other underwriting expenses, net of ceding commissions. Policy acquisition costs
are principally comprised of the commissions we pay our brokers and program
managers. Policy acquisition costs that are directly related to the successful
acquisition or reinsurance of those policies are deferred. All policy
acquisition costs are charged to expense in proportion to premium earned over
the policy life. We receive ceding commissions on business ceded under our
reinsurance contracts. Insurance-related expenses largely consist of state
premium taxes. General and administrative operating expenses include employee
salaries and benefits, corporate business insurance costs, technology costs,
office rent, and professional services fees such as legal, accounting, audit,
tax, and actuarial services.

Intangible asset amortization: Intangible asset amortization consists of
expenses incurred related to the amortization of intangible assets recorded as a
result of business acquisitions and consists of trade names, customer lists and
relationships, and non-compete agreements.

Non-Cash Stock Compensation: Non-Cash Stock Compensation Includes Related Expenses
Fair value and issuance of restricted stock units (time, market and
performance base) and stock options.

Gains (losses) on embedded derivatives: Gains (losses) on embedded derivatives
consist of the change in fair value of derivatives, the effect of net investment
income on funds held investments, and the effect of realized gains and loss on
funds held investments.

Interest expense: Interest expense consists primarily of interest paid on our
Secured Credit Facility and Surplus Notes (See "Financial Condition, Liquidity
and capital resources - Debt and Credit Agreements").
Other income: Other income consists primarily of sublease revenue and other
miscellaneous income items.


Key Metrics

We discuss certain key financial and operating measures discussed below.
Provide useful information about our business and operational factors
It underlies our financial performance.

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Underwriting income is a non-GAAP financial measure defined as income before
taxes excluding net investment income, investment revaluation gains, net
realized gains or losses, intangible asset amortization, noncash stock
compensation, noncash changes in fair value of embedded derivatives, 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 certain items, including noncash intangible asset
amortization and stock compensation, noncash changes in fair value of embedded
derivatives, other expenses, and gains or losses that we believe do not reflect
our core operating performance, which items may have a disproportionate effect
in a given period, affecting comparability of our 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 net loss to LAE.
Got premium.

Expense ratios expressed as a percentage are general and
Administrative expenses on net premiums earned.

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 the net profit expressed as a percentage on an annualized basis
Average beginning and ending shareholders’ equity for the period.

Adjusted return on 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 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 shareholders’ equity is defined as shareholders’ 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. See "Reconciliation of Non-GAAP
Financial Measures" for a reconciliation of return on tangible equity to return
on equity in accordance with GAAP.

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.

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Results of Operations

Three-month consolidated operating results September 30, 2022
compared to September 30, 2021

The following table summarizes the operational results for three months.
Finished September 30, 2022 And in 2021:

                                           Three Months Ended September 30,
(in thousands, except for percentages)         2022                    2021                Change            Percentage Change (1)

Earnings

Gross written premiums                 $         162,183          $   177,624          $   (15,441)                 (8.7)%
Increase in gross unearned premiums               (1,061)             (28,478)              27,417                  (96.3)%
Gross earned premiums                            161,122              149,146               11,976                   8.0%
Ceded earned premiums                            (89,741)             (97,191)               7,450                  (7.7)%
Net earned premiums                               71,381               51,955               19,426                   37.4%
Net investment income                              2,951                2,187                  764                   34.9%

Net realized gains                                     9                   49                  (40)                 (81.6)%
Other revenue                                      2,140                2,799                 (659)                 (23.5)%
Total revenue                                     76,481               56,990               19,491                   34.2%
Expenses
Losses and loss adjustment expenses               45,647               32,129               13,518                   42.1%
General and administrative expenses               23,256               13,788                9,468                   68.7%

Intangible asset amortization                      1,499                1,499                    -                    -%
Noncash stock compensation                           460                  468                   (8)                 (1.7)%
Interest expense                                     931                  419                  512                  122.2%
Total expenses                                    71,793               48,303               23,490                   48.6%
Gains (losses) on embedded derivatives             4,871                 (121)               4,992                    NM
Other income                                          29                   35                   (6)                 (17.1)%
Income before taxes                                9,588                8,601                  987                   11.5%
Income tax expense                                 2,014                2,083                  (69)                 (3.3)%

Net income                             $           7,574          $     6,518          $     1,056                   16.2%

(1) We define increases or decreases greater than 200% as “NM” or insignificant.

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                                                                  Three Months Ended September 30,
(in thousands, except for percentages)                                2022                     2021
Key metrics:
Underwriting income(1)                                       $         2,478              $     6,038
Adjusted net income(1)                                       $         5,455              $     7,678
Loss ratio                                                              63.9      %              61.8  %
Expense ratio                                                           32.6      %              26.5  %
Combined ratio                                                          96.5      %              88.3  %
Return on equity                                                         7.5      %               6.2  %
Adjusted return on equity(1)                                             5.4      %               7.3  %
Return on tangible equity(1)                                            15.5      %              12.7  %
Adjusted return on tangible equity(1)                                   11.2      %              15.0  %

(1) This measure represents a non-GAAP financial measure. See: Reconciliations to Non-GAAP Financials
Measures used to reconcile this measure to applicable GAAP measures.

The table below shows gross premiums earned on a gross and net basis.
Each 3-month period:

                                          Three Months Ended September 30,
(in thousands, except for
percentages)                                  2022                    2021                Change             Percentage Change
Revenues
Gross written premiums                $         162,183          $   177,624          $   (15,441)                (8.7)%
Increase in gross unearned premiums              (1,061)             (28,478)              27,417                 (96.3)%
Gross earned premiums                           161,122              149,146               11,976                  8.0%
Ceded earned premiums                           (89,741)             (97,191)               7,450                 (7.7)%
Net earned premiums                   $          71,381          $    51,955          $    19,426                  37.4%



Gross written premiums: Gross written premiums decreased $15,441, or 8.7%, to
$162,183 for the three months ended September 30, 2022, compared to $177,624 for
the three months ended September 30, 2021. The decrease was primarily driven by
the Company's termination of an underwriting partner in a higher-risk segment at
the end of the third quarter of 2021 as the Company focuses on maintaining
underwriting discipline in a highly competitive environment.

Workers' compensation represented 54.9% of our gross written premiums for the
three months ended September 30, 2022, compared to 54.3% for the three months
ended September 30, 2021. For the three months ended September 30, 2022, gross
written premiums for workers' compensation decreased by $7,389, or 7.7%,
compared to the same period in 2021, reflecting the intentional decrease in
California business that resulted from the Company's measures undertaken to exit
certain unfavorable risks in 2021 in keeping with our overall strategy to
prioritize underwriting discipline, coupled with a recent highly competitive
market.

All other non-workers' compensation liability represented 45.1% of our gross
written premiums for the three months ended September 30, 2022, compared to
45.7% for the three months ended September 30, 2021. For the three months ended
September 30, 2022, gross written premiums for all other non-workers'
compensation liability decreased $8,052, or 9.9%, compared to the same period in
2021. The decrease is due primarily to a decline in our other liability line of
business, partially offset by growth in our accident & health, commercial and
commercial auto lines, a result of continued line of business diversification.

Gross earned premiums: Gross earned premiums increased $11,976, or 8.0%, to
$161,122 for the three months ended September 30, 2022, compared to $149,146 for
the three months ended September 30, 2021. The increase in gross earned premiums
reflects the change in the increase in gross unearned premiums of $27,417 net of
a decrease in gross written
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premium of $15,441% of total premiums earned as a percentage of gross income
Premiums increased 99.3% in the three months ended September 30, 2022,
compared to 84.0% in the 3 months ended September 30, 2021.

Ceded earned premiums: Ceded earned premiums decreased $7,450, or 7.7%, to
$89,741 for the three months ended September 30, 2022, compared to $97,191 for
the three months ended September 30, 2021. The decrease in ceded earned premiums
is primarily driven by an increase in our retention, partially offset by the
growth in gross earned premiums as described above. Ceded earned premiums as a
percentage of gross earned premiums decreased to 55.7% for the three months
ended September 30, 2022, compared to 65.2% for the three months ended
September 30, 2021, reflecting the Company's strategic decision to retain more
gross written premiums.

Net earned premiums: Net earned premiums increased $19,426, or 37.4%, to $71,381
for the three months ended September 30, 2022, compared to $51,955 for the three
months ended September 30, 2021. The increase is primarily due to the growth in
gross earned premiums as described above and the Company's strategic decision to
retain more gross written premiums.

Net investment income (loss): Net investment income increased $764, or 34.9%, to
$2,951 for the three months ended September 30, 2022, compared to $2,187 for the
three months ended September 30, 2021. The increase reflects the investment of
the surplus notes proceeds and the reinvestment of funds from lower yielding
maturities into higher yielding investments due to higher interest rates. The
increase was partially offset by the unrealized losses on equity securities of
$1,101. During the first quarter of 2022, we purchased high-yield equity
securities, which we believe will improve the yield on our portfolio.

Net Realized Gain: Net realized gain is $9 3 months ended
September 30, 2022compared to $49 3 months ended September 30
2021
.

Other revenue: Other revenue decreased $659, or 23.5%, to $2,140 for the three
months ended September 30, 2022, compared to $2,799 for the three months ended
September 30, 2021. The decrease is primarily driven by a decrease in brokerage
revenue of $408 primarily due to lower placement fees reflecting the Company's
increase in retention year over year.

Losses and loss adjustment expenses: Losses and LAE increased $13,518, or 42.1%,
to $45,647 for the three months ended September 30, 2022, compared to $32,129
for the three months ended September 30, 2021. The increase is primarily
attributable to the growth in earned premiums and increased retention during the
three months ended September 30, 2022. This resulted in a loss ratio of 63.9%
for the three months ended September 30, 2022 compared to 61.8% for the three
months ended September 30, 2021.

General and administrative expenses: General and administrative expenses
increased $9,468, or 68.7%, to $23,256 for the three months ended September 30,
2022, compared to $13,788 for the three months ended September 30, 2021. The
expense ratio was 32.6% for the three months ended September 30, 2022, compared
to 26.5% for the three months ended September 30, 2021.

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The table below shows the components of general and administrative expenses for
the respective three-month periods:

                                                        Three Months Ended September 30,
                                                           2022                    2021                Change
Direct commissions                                  $        28,650           $    27,594          $     1,056
Ceding commissions                                          (23,916)              (31,655)               7,739
Net commissions                                               4,734                (4,061)               8,795
Insurance-related expenses                                    6,038                 5,371                  667
General and administrative operating expenses                12,484                12,478                    6
Total general and administrative expenses           $        23,256         

$13,788 $9,468

General and administrative expenses - % of gross
written premiums                                                7.7   %               7.0  %
Retention rate (1)                                             44.3   %              34.8  %
Direct commission rate (2)                                     17.8   %              18.5  %
Ceding commission rate (3)                                     26.7   %              32.6  %

(1) Net premiums earned as a percentage of gross premiums earned.
(2) Direct commission as a percentage of gross premiums earned.
(3) Ceding fees as a percentage of earned premiums ceded.



Direct commissions increased $1,056 primarily due to an increase in gross earned
premiums. Ceding commissions decreased $7,739 primarily due to an increase in
retention. Insurance-related expenses increased $667 primarily as a result of an
increase in gross earned premiums. General and administrative operating expenses
increased $6.

Intangible asset amortization: Intangible asset amortization was $1,499 for the
three months ended September 30, 2022, compared to $1,499 for the three months
ended September 30, 2021.

Noncash stock compensation: Noncash stock compensation was $460 for the three
months ended September 30, 2022, compared with $468 for the three months ended
September 30, 2021. Expenses incurred during both periods relate to the fair
value of restricted stock units and stock options granted under the Company's
2020 Omnibus Plan recognized over the requisite service periods.

Gains (losses) on embedded derivatives:
The table below shows the components of gains (losses) on embedded derivatives
for the respective three-month periods:

                                                   Three Months Ended 

September 30,

                                                      2022                     2021                 Change
Change in fair value of embedded derivatives  $            5,812          $        573          $      5,239
Effect of net investment income on funds held
investments                                                 (953)                 (585)                 (368)
Effect of realized losses (gains) on funds
held investments                                              12                  (109)                  121
Total gains (losses) on embedded derivatives  $            4,871          $ 

(121) $4,992



Gains on embedded derivatives increased $4,992 to $4,871 for the three months
ended September 30, 2022, compared to a loss of $121 for the three months ended
September 30, 2021. The gain reflected an increase in the fair value of embedded
derivatives of $5,239, the effect of investment income on funds held investments
of $368 and the effect of realized losses on funds held investments of $121. The
increase in fair value of the embedded derivatives resulted primarily from the
increase in interest rates between periods, which has reduced the fair value of
the underlying funds held under reinsurance agreements.

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Income tax expense: Income tax expense was $2,014 for the three months ended
September 30, 2022, which resulted in an effective tax rate of 21.0%. The
effective tax rate equaled the statutory rate of 21% since the impact of state
taxes were offset by the impact of tax-exempt municipal income on the Company's
investments. For the three months ended September 30, 2021, income tax expense
was $2,083, which resulted in an effective tax rate of 24.2%. The increase in
the effective tax rate from the statutory rate of 21% is due primarily to the
impact of recording our 2020 tax return accrual to return true-up in the third
quarter of 2021.

Owned MGA and Program Partner Premium:

The following table shows the total premiums earned on a gross and net basis.
Owned MGA When program partner:

                                                           Three Months Ended September 30, 2022
                                                 Owned MGAs            Program Partner             Total
Gross written premiums                         $     58,567          $        103,616          $   162,183
Increase in gross unearned premiums                   2,627                    (3,688)              (1,061)
  Gross earned premiums                              61,194                    99,928              161,122
Ceded earned premiums                               (20,454)                  (69,287)             (89,741)
  Net earned premiums                          $     40,740          $         30,641          $    71,381



We utilize both quota share and catastrophe excess of loss ("XOL") contracts in
our reinsurance strategy for our Owned MGAs and Program Partners. For the three
months ended September 30, 2022, the Company retained 66.6% of gross earned
premiums for Owned MGAs, compared to 30.7% for Program Partners.

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Consolidated Results of Operations for the Nine Months Ended September 30, 2022
Compared to September 30, 2021

The following table summarizes the operating results for the nine months.
Finished September 30, 2022 And in 2021:

                                           Nine Months Ended September 30,                                  Percentage Change
(in thousands, except for percentages)        2022                    2021                Change                   (1)

Earnings

Gross written premiums                 $        477,775          $   480,905          $    (3,130)                     (0.7) %
Increase in gross unearned premiums                (972)             (64,836)              63,864                     (98.5) %
Gross earned premiums                           476,803              416,069               60,734                      14.6  %
Ceded earned premiums                          (275,235)            (275,037)                (198)                      0.1  %
Net earned premiums                             201,568              141,032               60,536                      42.9  %
Net investment income                             5,136                6,562               (1,426)                    (21.7) %

Net realized gains                                  311                   72                  239                           NM
Other revenue                                     7,145                8,683               (1,538)                    (17.7) %
Total revenue                                   214,160              156,349               57,811                      37.0  %
Expenses
Losses and loss adjustment expenses             125,727               86,735               38,992                      45.0  %
General and administrative expenses              63,235               40,946               22,289                      54.4  %
Other expenses                                      268                  845                 (577)                    (68.3) %
Intangible asset amortization                     4,498                4,326                  172                       4.0  %
Noncash stock compensation                        1,019                1,098                  (79)                     (7.2) %
Interest expense                                  1,806                1,271                  535                      42.1  %
Total expenses                                  196,553              135,221               61,332                      45.4  %
Gains on embedded derivatives                    14,463                1,869               12,594                           NM
Other income                                         76                  191                 (115)                    (60.2) %
Income before taxes                              32,146               23,188                8,958                      38.6  %
Income tax expense                                6,741                5,102                1,639                      32.1  %

Net income                             $         25,405          $    18,086          $     7,319                      40.5  %

(1) We define increases or decreases greater than 200% as “NM” or insignificant.






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                                                                   Nine Months Ended September 30,
(in thousands, except for percentages)                                2022                     2021
Key metrics:
Underwriting income(1)                                       $        12,606              $    13,351
Adjusted net income(1)                                       $        19,305              $    20,103
Loss ratio                                                              62.4      %              61.5  %
Expense ratio                                                           31.4      %              29.0  %
Combined ratio                                                          93.8      %              90.5  %
Return on equity                                                         8.2      %               5.8  %
Adjusted return on equity(1)                                             6.2      %               6.4  %
Return on tangible equity(1)                                            17.0      %              12.1  %
Adjusted return on tangible equity(1)                                   12.9      %              13.4  %

(1) This measure represents a non-GAAP financial measure. See: Reconciliations to Non-GAAP Financials
Measures used to reconcile this measure to applicable GAAP measures.

The table below shows gross premiums earned on a gross and net basis.
Each 9-month period:

                                          Nine Months Ended September 30,
(in thousands, except for
percentages)                                 2022                    2021                Change            Percentage Change
Revenues
Gross written premiums                $        477,775          $   480,905          $    (3,130)                     (0.7) %
Increase in gross unearned premiums               (972)             (64,836)              63,864                     (98.5) %
Gross earned premiums                          476,803              416,069               60,734                      14.6  %
Ceded earned premiums                         (275,235)            (275,037)                (198)                      0.1  %
Net earned premiums                   $        201,568          $   141,032          $    60,536                      42.9  %



Gross written premiums: Gross written premiums decreased $3,130, or 0.7%, to
$477,775 for the nine months ended September 30, 2022, compared to $480,905 for
the nine months ended September 30, 2021. The decrease was primarily driven by
the Company's termination of an underwriting partner in a higher-risk segment at
the end of the third quarter of 2021 as the Company focuses on maintaining
underwriting discipline in a highly competitive environment.

Workers' compensation represented 58.3% of our gross written premiums for the
nine months ended September 30, 2022, compared to 60.2% for the nine months
ended September 30, 2021. For the nine months ended September 30, 2022, gross
written premiums for workers' compensation decreased by $11,222, or 3.9%,
compared to the same period in 2021, reflecting the intentional decrease in
California business that resulted from the Company's measures undertaken to
reduce certain unfavorable risks in 2021 in keeping with our overall strategy to
prioritize underwriting discipline, coupled with a recent highly competitive
market.

All other non-workers' compensation liability represented 41.7% of our gross
written premiums for the nine months ended September 30, 2022, compared to 39.8%
for the nine months ended September 30, 2021. For the nine months ended
September 30, 2022, gross written premiums for all other non-workers'
compensation liability increased $8,092, or 4.2%, compared to the same period in
2021. The increase is due primarily to growth in our accident & health,
commercial, and commercial auto lines, partially offset by decreases in our
other liability and homeowners lines, which is a result of continued line of
business diversification.

Gross earned premiums: Gross earned premiums increased $60,734, or 14.6%, to
$476,803 for the nine months ended September 30, 2022, compared to $416,069 for
the nine months ended September 30, 2021. The increase in gross earned premiums
reflects the change in the increase in gross unearned premiums of $63,864,
slightly offset by a decrease in gross
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premium income of $3,130Total percentage of total premiums earned
Premiums written increased to 99.8% for the 9 months ended September 30
2022
compared with 86.5% in the 9 months ended September 30, 2021.

Ceded earned premiums: Ceded earned premiums increased $198, or 0.1%, to
$275,235 for the nine months ended September 30, 2022, compared to $275,037 for
the nine months ended September 30, 2021. The slight increase in ceded earned
premiums is primarily driven by the growth in gross earned premiums as described
above, mostly offset by an increase in our retention. Ceded earned premiums as a
percentage of gross earned premiums decreased to 57.7% for the nine months ended
September 30, 2022, compared to 66.1% for the nine months ended September 30,
2021, reflecting the Company's strategic decision to retain more gross written
premiums.

Net earned premiums: Net earned premiums increased $60,536, or 42.9%, to
$201,568 for the nine months ended September 30, 2022, compared to $141,032 for
the nine months ended September 30, 2021. The increase is primarily due to the
growth in gross earned premiums as described above and the Company's strategic
decision to retain more gross written premiums.

Net investment income: Net investment income decreased $1,426, or 21.7%, to
$5,136 for the nine months ended September 30, 2022, compared to $6,562 for the
nine months ended September 30, 2021. The decrease reflects unrealized losses of
$4,542 on equity securities, partially offset by higher interest and dividend
income. During the first quarter of 2022, we purchased high-yield securities,
which we believe will improve the yield on our portfolio.

Net realized gains: Net realized gains were $311 for the nine months ended
September 30, 2022, compared to net realized gains of $72 for the nine months
ended September 30, 2021. Net realized gains for the nine months ended September
30, 2022 includes earn-out proceeds received of $1,400 related to the Company's
sale of TRI in 2021. The net realized gain was offset by our repositioning
strategy to sell our lower-yielding assets and purchase higher-yielding
investments, prior to anticipated interest rate increases. This turnover in our
portfolio resulted in realized losses of $1,022 during the first quarter of
2022.

Other revenue: Other revenue decreased $1,538, or 17.7%, to $7,145 for the nine
months ended September 30, 2022, compared to $8,683 for the nine months ended
September 30, 2021. The decrease is primarily driven by a reduction in brokerage
revenue of $818 due to lower placement fees reflecting the Company's increase in
retention year over year. In addition, managing general agent fees, third-party
administrator fees, consulting and other fee-based revenue were all lower during
the period.

Losses and loss adjustment expenses: Losses and LAE increased $38,992, or 45.0%,
to $125,727 for the nine months ended September 30, 2022, compared to $86,735
for the nine months ended September 30, 2021. The increase is primarily
attributable to the growth in earned premiums and increased retention during the
nine months ended September 30, 2022. This resulted in a loss ratio of 62.4% for
the nine months ended September 30, 2022, compared to 61.5% for the nine months
ended September 30, 2021.

General and administrative expenses: General and administrative expenses
increased $22,289, or 54.4%, to $63,235 for the nine months ended September 30,
2022, compared to $40,946 for the nine months ended September 30, 2021. The
expense ratio was 31.4% for the nine months ended September 30, 2022, compared
to 29.0% for the nine months ended September 30, 2021.

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The table below shows the components of general and administrative expenses for
the respective nine-month periods:

                                                        Nine Months Ended September 30,
                                                           2022                    2021                Change
Direct commissions                                  $        85,691           $    78,304          $     7,387
Ceding commissions                                          (77,541)              (89,547)              12,006
Net commissions                                               8,150               (11,243)              19,393
Insurance-related expenses                                   17,698                14,796                2,902
General and administrative operating expenses                37,387                37,393                   (6)
Total general and administrative expenses           $        63,235         

$40,946 $22,289

General and administrative expenses - % of gross
written premiums                                                7.8   %               7.8  %
Retention rate (1)                                             42.3   %              33.9  %
Direct commission rate (2)                                     18.0   %              18.8  %
Ceding commission rate (3)                                     28.2   %              32.6  %

(1) Net premiums earned as a percentage of gross premiums earned.
(2) Direct commission as a percentage of gross premiums earned.
(3) Ceding fees as a percentage of earned premiums ceded.



Direct commissions increased $7,387 primarily due to an increase in gross earned
premiums. Ceding commissions decreased $12,006 primarily due to an increase in
retention. Insurance-related expenses increased $2,902 primarily as a result of
an increase in gross earned premiums. General and administrative operating
expenses decreased $6. The decrease in general and administrative operating
expense reflects an increase in salaries and benefits of $1,295, which related
primarily to a general increase in workforce, and a decrease in professional
fees of $806 and depreciation expense of $183.

Other expenses: Other expenses were $268 for the nine months ended September 30,
2022 and primarily relates to management and office transition costs. Other
expenses were $845 for the nine months ended September 30, 2021 and primarily
relates to secondary offering costs of $555 and executive transition costs
totaling $290.

Intangible asset amortization: Intangible asset amortization increased $172 to
$4,498 for the nine months ended September 30, 2022, compared to $4,326 for the
nine months ended September 30, 2021. The increase is primarily driven by the
addition of intangible assets acquired in the acquisition of WIC in the third
quarter of 2021.

Noncash stock compensation: Noncash stock compensation was $1,019 for the nine
months ended September 30, 2022, compared with $1,098 for the nine months ended
September 30, 2021. Expenses incurred during both periods relate to the fair
value of restricted stock units and stock options granted under the Company's
2020 Omnibus Plan recognized over the requisite service periods.

Gains on embedded derivatives:
The table below shows the components of gains (losses) on embedded derivatives
for the respective nine-month periods:

                                                            Nine Months 

Finished September 30,

                                                    2022                  2021                 Change
Change in fair value of embedded derivatives  $      16,848          $      3,761          $     13,087
Effect of net investment income on funds held
investments                                          (2,395)               (1,783)                 (612)
Effect of realized losses (gains) on funds
held investments                                         10                  (109)                  119
Total gains on embedded derivatives           $      14,463          $      1,869          $     12,594



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Gains on embedded derivatives increased $12,594 to $14,463 for the nine months
ended September 30, 2022, compared to $1,869 for the nine months ended September
30, 2021. The gain reflected an increase in the fair value of embedded
derivatives of $13,087, the effect of investment income on funds held
investments of $612 and the effect of realized losses (gains) on funds held
investments of $119. The increase in fair value of the embedded derivatives
resulted primarily from an increase in interest rates between periods, which has
reduced the value of the underlying funds held under reinsurance agreements.

Income tax expense: Income tax expense was $6,741 for the nine months ended
September 30, 2022, which resulted in an effective tax rate of 21.0%. The
effective tax rate equaled the statutory rate of 21% since the impact of state
taxes were offset by the impact of tax-exempt municipal income on the Company's
investments. For the nine months ended September 30, 2021, income tax expense
was $5,102, which resulted in an effective tax rate of 22.0%. The increase in
the effective tax rate from the statutory rate of 21% is due primarily to the
impact of recording our 2020 tax return accrual to return true-up in the third
quarter of 2021.

Owned MGA and Program Partner Premium:

The following table shows the total premiums earned on a gross and net basis.
Owned MGA When program partner:

                                                            Nine Months Ended September 30, 2022
                                                  Owned MGAs            Program Partner             Total
Gross written premiums                         $     187,050          $        290,725          $   477,775
Increase in gross unearned premiums                   (1,732)                      760                 (972)
  Gross earned premiums                              185,318                   291,485              476,803
Ceded earned premiums                                (67,781)                 (207,454)            (275,235)
  Net earned premiums                          $     117,537          $         84,031          $   201,568



We utilize both quota share and XOL contracts in our reinsurance strategy for
our Owned MGAs and Program Partners. Direct commissions for Program Partners
include third-party agent commissions and MGA service fees, while Owned MGA
direct commissions include only third-party agent commissions. For the nine
months ended September 30, 2022, the Company retained 63.4% of gross earned
premiums for Owned MGAs compared to 28.8% for Program Partners.
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Reconciliation of Non-GAAP Financial Measures

underwriting income

We define underwriting income as income before taxes excluding net investment
income, investment revaluation gains, net realized gains or losses, intangible
asset amortization, noncash stock compensation, noncash changes in fair value of
embedded derivatives, interest expense, other revenue, and other income and
expenses. Underwriting income represents the pre-tax profitability of our
underwriting operations and allows us to evaluate our underwriting performance
without regard to investment income, intangible asset amortization, noncash
stock compensation, interest expense, other revenue, and other income and
expenses. We use this metric because we believe it gives our management and
other users of our financial information useful insight into our 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,
(in thousands, except percentages)                                   2022                    2021
Net income                                                   $           7,574          $     6,518
Income tax expense                                                       2,014                2,083

Income before taxes                                                      9,588                8,601
Other revenue                                                           (2,140)              (2,799)
(Gains) losses on embedded derivatives                                  (4,871)                 121
Net investment income                                                   (2,951)              (2,187)

Net realized gains                                                          (9)                 (49)

Interest expense                                                           931                  419
Intangible asset amortization                                            1,499                1,499
Noncash stock compensation                                                 460                  468
Other income                                                               (29)                 (35)
Underwriting income                                          $           2,478          $     6,038



                                               Nine Months Ended September 30,
(in thousands, except percentages)                   2022                      2021
Net income                             $         25,405                     $ 18,086
Income tax expense                                6,741                        5,102

Income before taxes                              32,146                       23,188
Other revenue                                    (7,145)                      (8,683)
Gains on embedded derivatives                   (14,463)                      (1,869)
Net investment income                            (5,136)                      (6,562)

Net realized gains                                 (311)                         (72)
Other expenses                                      268                          845
Interest expense                                  1,806                        1,271
Intangible asset amortization                     4,498                        4,326
Noncash stock compensation                        1,019                        1,098
Other income                                        (76)                        (191)
Underwriting income                    $         12,606                     $ 13,351



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Adjusted net income

We define adjusted net income as net income excluding the impact of certain
items, including noncash intangible asset amortization and stock compensation,
noncash changes in fair value of embedded derivatives, other expenses and gains
or losses that we believe do not reflect our core operating performance, which
items may have a disproportionate effect in a given period, affecting
comparability of our results across periods. We calculate the tax impact only on
adjustments that would be included in calculating our income tax expense using
an expected effective tax rate for the applicable years. We use adjusted net
income as an internal performance measure in the management of our operations
because we believe it gives our management and other users of our financial
information useful insight into our results of operations and our 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,
(in thousands, except percentages)               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 derivative      (5,812)              (573)            (16,848)            (3,761)
Unrealized losses on equity securities            1,101                  -               4,542                  -
Realized loss (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



Adjusted return on equity

We define 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. We use adjusted return on equity as an internal
performance measure in the management of our operations because we believe it
gives our management and other users of our financial information useful insight
into our results of operations and our underlying business performance by
adjusting for items that we believe do not reflect our 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,
(in thousands, except
percentages)                             2022                   2021                    2022                    2021
Adjusted return on equity
calculation:
Numerator: adjusted net income    $        5,455           $      7,678          $        19,305           $    20,103
Denominator: average 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

We define tangible stockholders' equity as stockholders' equity less goodwill
and other intangible assets. We define 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. We define 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. We regularly evaluate acquisition opportunities and have
historically made acquisitions that affect stockholders' equity. We use return
on tangible equity and adjusted return on tangible equity as internal
performance measures in the management of our
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operations because we believe they give our management and other users of our
financial information useful insight into our results of operations and our
underlying business performance by adjusting for the effects of acquisitions on
our stockholders' equity and, in the case of adjusted return on tangible equity,
by adjusting for the items that we believe do not reflect our 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 a
substitute for return on equity or return on tangible equity, respectively,
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,
(in thousands, except percentages)                  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,
(in thousands, except percentages)                 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 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  %



Financial position, liquidity and capital resources

Funding sources and uses

We are organized as a holding company with our operations conducted through our
subsidiaries, including our wholly owned insurance subsidiaries: Benchmark,
which is domiciled in Kansas and commercially domiciled in California; ALIC,
which is domiciled in Utah; 7710, which is domiciled in South Carolina; and
BSIC, which is domiciled in Arkansas. Accordingly, the holding company may
receive cash through: (i) loans from banks; (ii) draws on a revolving loan
agreement; (iii) issuance of equity and debt securities; (iv) corporate service
fees from our operating subsidiaries; (v) payments from our subsidiaries
pursuant to our consolidated tax allocation agreement and other transactions;
and (vi) dividends from our non-insurance subsidiaries and, subject to certain
limitations discussed below, dividends from our insurance subsidiaries. We also
may use the proceeds from these sources to contribute funds to the insurance
subsidiaries in order to support premium growth, reduce our reliance on
reinsurance, pay taxes, and for other general business purposes.

State insurance laws limit the ability of insurers to declare
Shareholder dividends without prior regulatory approval.national insurance
Regulators require insurers to maintain certain statutory levels.
capital and surplus.

Under Kansas and California law, dividends payable from Benchmark without the
prior approval of the applicable insurance commissioner must not exceed the
greater of (i) 10% of Benchmark's surplus as shown on the last statutory
financial statement on file with the Kansas Insurance Department and the
California Department of Insurance, respectively; or (ii) 100% of net income
during the applicable twelve-month period (not including realized gains).
Dividends shall not include pro rata distributions of any class of Benchmark's
own securities.

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Under Utah law, dividends payable from ALIC without the prior approval of the
applicable insurance commissioner must not exceed the lesser of: (i) 10% of
ALIC's surplus as shown on the last statutory financial statement on file with
the Utah Insurance Department; or (ii) 100% of net income during the applicable
twelve- month period (not including realized gains). Dividends shall not include
pro rata distributions of any class of ALIC's own securities.

Under South Carolina law, dividends payable from 7710 without the prior approval
of the applicable insurance commissioner are limited to the following during the
preceding twelve months: (i) when paid from other than earned surplus must not
exceed the lesser of: (a) 10% of 7710's surplus as regards policyholders as
shown in 7710's most recent annual statement; or (b) the net income, not
including net realized gains or losses as shown in 7710's most recent annual
statement; or (ii) when paid from earned surplus must not exceed the greater of:
(a) 10% of 7710's surplus as regards policyholders as shown in 7710 Insurance
Company's most recent annual statement; or (b) the net income, not including net
realized gains or losses as shown in 7710's most recent annual statement.
Dividends shall not include pro rata distributions of any class of 7710's own
securities.

Under Arkansas law, dividends payable from BSIC without the prior approval of
the applicable insurance commissioner must not exceed the lesser of (i) 10% of
BSIC's surplus as shown on the last statutory financial statement on file with
the Arkansas Insurance Department; or (ii) 100% of net income during the
applicable twelve- month period (not including realized gains). Dividends shall
not include pro rata distributions of any class of BSIC's own securities.

The maximum amount of dividends the insurance subsidiaries can pay us during
2022 without regulatory approval is approximately $17,000 based on our
wholly-owned insurance subsidiaries' latest filed annual statements. Insurance
regulators have broad powers to ensure that statutory surplus remains at
adequate levels, and there is no assurance that dividends of the maximum amount
calculated under any applicable formula would be permitted. In the future, state
insurance regulatory authorities that have jurisdiction over the payment of
dividends by the insurance subsidiaries may adopt statutory provisions more
restrictive than those currently in effect.

Our insurance subsidiaries are also required by state law to maintain a minimum
level of policyholders' surplus. Kansas, Utah, Arkansas, and South Carolina
utilize a risk-based capital requirement as promulgated by the National
Association of Insurance Commissioners. Such requirements are designed to
identify the various business risks (e.g., investment risk, underwriting
profitability risk, etc.) of insurance companies and their subsidiaries. As of
September 30, 2022 and December 31, 2021, the total adjusted capital of our
insurance subsidiaries was in excess of their respective prescribed risk-based
capital requirements.

Current September 30, 2022we had $81,489 Cash and cash equivalents, comparison
To $129,577 Current December 31, 2021.

Management believes the company has sufficient liquidity.
Operating cash needs and obligations and committed capital expenditures
next 12 months.

Cash Flows

Our most significant source of cash is from premiums received from insureds, net
of the related commission amount for the policies. Our most significant cash
outflow is for claims that arise when a policyholder incurs an insured loss.
Because the payment of claims occurs after the receipt of the premium, often
years later, we invest the cash in various investment securities that generally
earn interest and dividends. The table below summarizes our net cash flows.

                                                               Nine Months 

Finished September 30,

                                                                 2022                     2021
Cash, cash equivalents and restricted cash provided by
(used in):
Operating activities                                      $         76,547          $      53,410
Investing activities                                              (154,742)               (71,131)
Financing activities                                                46,020                 (1,125)
Net increase (decrease) in cash, cash equivalents and
restricted cash                                           $        (32,175)         $     (18,846)




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Operating Activities: Net cash provided by operating activities for the nine
months ended September 30, 2022 was $76,547, compared to $53,410 for the same
period in 2021. Net cash provided by operating activities includes net income as
adjusted for depreciation and amortization, stock compensation, unrealized gains
and losses on embedded derivatives, net realized gains and losses on
investments, unrealized gains and losses on equity securities, bond amortization
and accretion, the change in deferred income taxes, and amortization of deferred
financing costs. Net cash provided by operating activities for the nine months
ended September 30, 2022 primarily reflects increased unpaid loss and loss
adjustment expenses of $34,431; increased funds held under reinsurance
agreements of $25,016; an increase in accounts payable, accrued expenses and
other liabilities of $10,518; decreased prepaid reinsurance premiums of $10,022;
partially offset by increases in premiums and other receivables of $11,520; an
increase in other assets of $9,040; and an increase in reinsurance recoverables
of $6,963. Unpaid loss and loss adjustment expenses increased primarily due to
growth in gross earned premiums and an increase in our retention. The decrease
in prepaid reinsurance premiums was the result of increased retention. Funds
held under reinsurance agreements increased due to a reduction in the
derivatives. The increases in premiums and other receivables and reinsurance
recoverables were primarily a result of steady gross written premiums during the
period and the timing of payments. The increase in accounts payable, accrued
expenses and other liabilities is primarily due to an increase in funds held by
our reinsurance brokerage services division for insurance contracts not yet
executed. Other assets increased primarily as a result of increases in our
deferred policy acquisition costs, prepaid software, and brokerage contract
asset balances.

Net cash provided by operating activities for the nine months ended September
30, 2021 reflects increases in unpaid loss and loss adjustment expenses of
$52,975; unearned premiums of $64,879; and funds held under reinsurance
agreements of $19,585; partially offset by increases in premiums and other
receivables of $25,167; reinsurance recoverables of $18,460; prepaid reinsurance
premiums of $30,252; other assets of $10,863 and decreases in reinsurance
premiums payable of $7,829; and accounts payable, accrued expenses and other
liabilities of $11,430. Unpaid loss and loss adjustment expenses and unearned
premiums increased primarily due to an increase in gross written premiums. The
increases in premiums and other receivables and reinsurance recoverables were
primarily a result of an increase in gross written premiums during the period.
Other assets increased as a result of increases in our deferred acquisition
costs and contract asset balances. Funds held under reinsurance agreements
decreased due to an arbitration settlement in the fourth quarter of 2020,
resulting in the non-cash transfer of certain investments held as collateral.
Excluding non-cash transfers, funds held under reinsurance agreements increased
as a result of an increase in gross written premium.

Investing Activities: Net cash used in investing activities for the nine months
ended September 30, 2022 was $154,742, compared to net cash used in investing
activities of $71,131 for the same period in 2021. Net cash used in investing
activities for the nine months ended September 30, 2022 includes $154,403 net
cash used in the purchase and sale of investments and $339 in capital
expenditures. Net cash used in investing activities for the nine months ended
September 30, 2021 includes $67,476 net cash used in the purchase and sale of
investments, $3,795 in cash used in the acquisition of a subsidiary, net of cash
received, $232 in cash received for the sale of equity method investments and
$92 in capital expenditures.

Financing Activities: Net cash provided by financing activities for the nine
months ended September 30, 2022 was $46,020, compared to net cash used in
financing activities of $1,125 for the same period in 2021. Net cash provided by
financing activities for the nine months ended September 30, 2022 primarily
includes $48,455 of net cash proceeds received from the issuance of surplus
notes, partially offset by principal payment made on the Company's debt of
$1,238, an earn-out payment of $750 related to our 2021 acquisition of WIC,
payments for deferred financing costs of $251 and a payment for our interest
rate cap of $173. Net cash used in financing activities for the nine months
ended September 30, 2021 primarily includes the principal payments made on the
Company's debt.

Debt and Credit Agreements

Secured Credit Facility

On July 16, 2020, we entered into the Credit Agreement with First Horizon Bank,
which, among other things, extended our credit facility for a period of five
years through May 26, 2025 and increased its term loan facility by $11,707,
resulting in a total term loan debt amount of $33,000 and a revolving credit
facility of $2,000.

On May 6, 2022, we entered into a First Amendment to the Credit Agreement to,
among other things, facilitate the approval of certain internal distributions
among the Company and certain of its subsidiaries as part of the Company's
overall capital management strategy.

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On September 28, 2022, we entered into a Second Amendment to the Second Amended
and Restated Credit Agreement that, among other things, replaces LIBOR as the
benchmark rate with Term SOFR (as defined in the Credit Agreement), reduces the
applicable margin under the Credit Agreement on Eurodollar loans from 4.50% to
3.50% and on ABR loans from 3.50% to 2.50%, and convert all extant Eurodollar
loans under the Credit Agreement to Term SOFR loans. The variable interest rate
plus applicable margin was 6.76% and 4.64% as of September 30, 2022 and
December 31, 2021, respectively. The outstanding principal balance of the loan
is to be repaid in quarterly installments that escalate from approximately $206
to $825 until March 2025. All equity securities of the subsidiaries of the
Company (other than Benchmark Holding Company and its subsidiaries) have been
pledged as collateral.

Hedging Arrangement

In September 2022, we entered into the Interest Rate Cap Agreement that became
effective September 30, 2022, to hedge cash flows associated with interest rate
fluctuations on our secured credit facility, with a termination date of May 31,
2024. The Interest Rate Cap Agreement has a notional amount of $29,700 that
effectively converted the outstanding balance of the secured credit facility
from variable rate debt to capped variable rate debt, resulting in a change in
the applicable interest rate from an interest rate of one-month SOFR plus the
applicable margin (as provided by the secured credit facility) to one-month SOFR
interest rate, capped at 5.00%, plus the applicable margin. The notional amount
of the Interest Rate Cap Agreement decreases quarterly in proportion to the
quarterly principal payments on the secured credit facility. The Interest Rate
Cap Agreement is designated as a cash flow hedge and the change in fair value is
recorded in accumulated other comprehensive income and is subsequently
reclassified to interest expense in the period when the hedged forecasted
interest payments affect earnings. The Company paid a fixed amount of $173 for
the Interest Rate Cap Agreement.

Surplus

On August 24, 2022, Benchmark issued Surplus Notes which consisted of $50,000 in
aggregate principal amount of 6.75% surplus notes due 2042 in a private
placement exempt from registration under the Securities Act. In connection with
the issuance of the Surplus Notes, Benchmark entered into the Fiscal Agency
Agreement with The Bank of New York Mellon, as fiscal agent, paying agent,
registrar and transfer agent, providing for the terms of the Surplus Notes.

The Surplus Notes are unsecured, subordinated debt obligations of the Company
and are reflected as debt on our condensed consolidated balance sheets. All
payments of principal and interest, which accrues at the rate of 6.75% per year
and is payable quarterly, on the Surplus Notes are subject to prior approval by
the Commissioner of the Kansas Insurance Department.

recorded $368 3 and
9 months finished September 30, 2022.

Reinsurance

We cede a portion of the risk we accept on our balance sheet to third-party
reinsurers through a variety of reinsurance arrangements. We manage these
arrangements to align risks with our Program Partners, optimize our net
retention relative to our financial objectives, balance sheet size and ratings
requirements, as well as to limit our maximum loss resulting from a single
program or a single event. We utilize both quota share and XOL reinsurance as
tools in our overall risk management strategy to achieve these goals, usually in
conjunction with each other. Quota share reinsurance involves the proportional
sharing of premiums and losses of each defined program. We utilize quota share
reinsurance for several purposes, including (i) to cede risk to Program
Partners, which allows us to share economics and align incentives, and (ii) to
cede risk to third-party reinsurers in order to manage our net written premiums
appropriately based on our financial objectives, capital base, A.M. Best
financial strength rating, and risk appetite. It is a core pillar of our
underwriting philosophy that Program Partners retain a portion of the
underwriting risk of their program. We believe this best aligns interests,
attracts higher quality programs, and leads to better underwriting results.
Under XOL reinsurance, losses in excess of a retention level are paid by the
reinsurer, subject to a limit, and are customized per program or across multiple
programs. We utilize XOL reinsurance to protect against catastrophic or other
unforeseen extreme loss activity that could otherwise negatively impact our
profitability and capital base. The majority of our exposure to catastrophe risk
stems from the workers' compensation premium we retain. Potential catastrophic
events include an earthquake, terrorism, or another event that could cause more
than one covered employee working at the same location to be injured in the
event. We believe we mitigate this risk by our focus on small- to mid-sized
accounts, which means that we generally do not have concentrated employee counts
at single locations that could be exposed to a catastrophic loss. The costs and
limits of the reinsurance coverage we purchase vary from year to year based on
the availability of quality reinsurance at an acceptable price and our desired
level of retention.
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evaluation

We have a financial strength rating of "A" (Excellent) from A.M. Best. A.M. Best
assigns 16 ratings to insurance companies, which currently range from "A++"
(Superior) to "S" (Rating Suspended). "A" (Excellent) is the third highest
rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers
that have, in A.M. Best's opinion, an excellent ability to meet their ongoing
obligations to policyholders. This rating is intended to provide an independent
opinion of an insurer's ability to meet its obligation to policyholders and is
not an evaluation directed at investors. See also "Risk Factors - Risks related
to our business and industry - A downgrade in the A.M. Best financial strength
ratings of our insurance company subsidiaries may negatively affect our
business." in our 2021 Form 10-K.

The financial strength ratings assigned by A.M. Best have an impact on the
ability of insurance companies to attract and retain agents and brokers and on
the risk profiles of the submissions for insurance that insurance companies
receive. The "A" (Excellent) rating obtained by us is consistent with our
business plan and allows us to actively pursue relationships with the agents and
brokers identified in our marketing plan.

contractual obligations

There are no material changes to our contractual obligations.
of September 30, 2022 compared to December 31, 2021.

finance condition

Shareholders’ equity

Current September 30, 2022total shareholders’ equity is $403,056compared to
$421,909 Current December 31, 2021a decrease in $18,853decrease in
Shareholders’ equity during the period was mainly $19,848 of the net
Comprehensive loss.

we had $2,757 of unrecognized stock-based compensation September 30, 2022
Relates to unvested stock awards granted.recognized by us $1,019
of stock-based compensation for the nine months ended September 30, 2022.

investment portfolio

Our invested asset portfolio consists of fixed maturities, equity securities,
other investments, and short-term investments. The majority of the investment
portfolio was comprised of fixed maturity securities of $530,118 at
September 30, 2022, that were classified as available-for-sale.
Available-for-sale investments are carried at fair value with unrealized gains
and losses on these securities, net of applicable taxes, reported as a separate
component of accumulated other comprehensive income.

Our investment portfolio objectives are to maintain liquidity, facilitating
financial strength and stability and ensuring regulatory and legal compliance.
Our investment portfolio consists of available-for-sale fixed maturities and
other equity investments, all of which are carried at fair value. We seek to
hold a high-quality portfolio of investments that is managed by a professional
investment advisory management firm in accordance with the Company's investment
policy and routinely reviewed by our management team. Our investments, however,
are subject to general economic conditions and market risks as well as risks
inherent to particular securities. The Company's investment portfolio has the
following objectives:

• Meet insurance regulatory requirements for investments under .
applicable insurance laws;

• maintain an adequate level of liquidity to meet the cash requirements of
Current operations and long-term obligations.

•Adjust investment risk to offset or supplement insurance risk.
The company’s total risk tolerance.When

Achieving the highest possible levels of investment returns and after-tax totals
rate of return.

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The composition of our investment portfolio is shown in the following table as
of September 30, 2022 and December 31, 2021.

                                                                        September 30, 2022
                                                                 Cost or
                                                              Amortized Cost            Fair Value
Fixed maturities:
U.S. government and government securities                   $        59,974          $       56,899
Foreign governments                                                     400                     392
States, territories and possessions                                  16,088                  14,380
Political subdivisions of states, territories and
possessions                                                          38,614                  33,863
Special revenue and special assessment obligations                  116,311                 103,318
Industrial and public utilities                                     125,572                 118,252
Commercial mortgage-backed securities                               141,552                 123,478
Residential mortgage-backed securities                               25,769                  24,171
Other loan-backed securities                                         51,857                  50,339
Hybrid securities                                                     5,798                   5,026
Total fixed maturities                                              581,935                 530,118

Equity securities                                                    39,838                  35,296
Total investments                                           $       621,773          $      565,414



                                                                        December 31, 2021
                                                                 Cost or
                                                              Amortized Cost            Fair Value
Fixed maturities:
U.S. government and government securities                   $        41,490          $       41,434
Foreign governments                                                   2,500                   2,490
States, territories and possessions                                  10,593                  10,766
Political subdivisions of states, territories and
possessions                                                          39,170                  40,002
Special revenue and special assessment obligations                   93,664                  95,991
Industrial and public utilities                                     100,774                 103,257
Commercial mortgage-backed securities                               119,378                 118,218
Residential mortgage-backed securities                               16,549                  17,368
Other loan-backed securities                                         41,236                  41,425
Hybrid securities                                                       105                     110
Total fixed maturities                                              465,459                 471,061

Equity securities                                                       984                     969
Total investments                                           $       466,443          $      472,030



The following table shows the percentage of the total estimated fair value of
our fixed maturity securities as of September 30, 2022 and December 31, 2021 by
credit rating category, using the lower of ratings assigned by Moody's Investor
Service or S&P.

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                                               September 30, 2022
(in thousands, except percentages)         Fair Value          % of Total
AAA                                    $         104,952           19.8  %
AA                                               298,615           56.3  %
A                                                 93,376           17.6  %
BBB                                               29,651            5.6  %
BB                                                 3,501            0.7  %
Below investment grade                                23            0.0  %
Total fixed maturities                 $         530,118          100.0  %



                                                        December 31, 2021
         (in thousands, except percentages)         Fair Value         % of Total
         AAA                                    $         80,455           17.1  %
         AA                                              278,557           59.1  %
         A                                                77,097           16.4  %
         BBB                                              33,959            7.2  %
         BB                                                  947            0.2  %
         Below investment grade                               46            

0.0%

         Total fixed maturities                 $        471,061          

100.0%

Critical Accounting Policies and Estimates

The unaudited interim condensed consolidated financial statements included in
this Quarterly Report on Form 10-Q include amounts based on the use of estimates
and judgments of management.

We identified the accounting estimates that are critical to the understanding of
our financial position and results of operations. Critical accounting estimates
are defined as those estimates that are both important to the portrayal of our
financial condition and results of operations and require us to exercise
significant judgment. We use significant judgment concerning future results and
developments in applying these critical accounting estimates and in preparing
our condensed consolidated financial statements. These judgments and estimates
affect our reported amounts of assets, liabilities, revenues and expenses and
the disclosure of our material contingent assets and liabilities. Actual results
may differ materially from the estimates and assumptions used in preparing the
condensed consolidated financial statements. We evaluate our estimates regularly
using information that we believe to be relevant. The estimates and judgments
that are most critical to the preparation of the condensed consolidated
financial statements include: (i) reserves for unpaid loss and LAE; (ii)
reinsurance recoveries; (iii) investment fair value measurements; (iv) goodwill
and intangible assets; and (v) business combinations. For a detailed discussion
of our accounting policies, see the "Notes to the Consolidated and Combined
Financial Statements" included in our 2021 Form 10-K.

We test for goodwill impairment at the reporting unit level during the fourth
quarter of each year and between annual tests if a triggering event indicates
the possibility of an impairment. We monitor changing business conditions as
well as industry and economic factors, among others, for events which could
trigger the need for an interim impairment analysis. The declining share price
our stock has caused the market capitalization to fall below the book value as
of September 30, 2022. As a result of the decrease in share price, we performed
an interim impairment analysis at September 30, 2022 and concluded that no
impairment relating to goodwill existed as of September 30, 2022.

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