Company Quick10K Filing
Quick10K
ProSight Global
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-06-28 Public Filing
8-K 2019-09-05 Regulation FD, Exhibits
8-K 2019-08-15 Regulation FD, Exhibits
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-07-24 Enter Agreement, Sale of Shares, Shareholder Rights, Officers, Amend Bylaw, Other Events, Exhibits
PVOTF Pivot Pharmaceuticals 43
LCTC Lifeloc Technologies 13
VGRBF VGrab 6
TRIS Tri-State Generation & Transmission Association 0
ICNN Incoming 0
CXEE China Xuefeng Environmental Engineering 0
GRAS Greenfield Farms Food 0
GLFO Gulf & Orient Steamship Company 0
GRCR GRCR Partners 0
WWIN Wewin Group 0
PROS 2019-06-30
Item 2: Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part Ii: Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Mine Safety Disclosures
Item 5: Other Information
Item 6: Exhibits
EX-31.1 pros-20190630ex311d141ed.htm
EX-31.2 pros-20190630ex312576bdf.htm
EX-32.1 pros-20190630ex3213a18f8.htm

ProSight Global Earnings 2019-06-30

PROS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pros-20190630x10q.htm 10-Q pros_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file number 001-38996


 

ProSight Global, Inc.

 

(Exact name of registrant as specified in its charter)


Delaware

    

35‑2405664

 

 

 

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

412 Mt. Kemble Avenue

Suite 300

 Morristown,  NJ 07960

(973) 532-1900

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 per share

PROS

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes        No    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes   No  .

There were 42,999,027 shares of Common Stock ($0.01 par value) outstanding as of August 8, 2019.

 

 

 

 

PROSIGHT GLOBAL, INC.

TABLE OF CONTENTS

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

Page

 

 

 

 

 

 

Item 1.

 

 

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2019 and December 31, 2018

 

2

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2019 and 2018

 

3

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2019 and 2018

 

4

 

 

 

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Six Months Ended June 30, 2019 and 2018

 

5

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2019 and 2018

 

6

 

 

 

Notes to Interim Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

48

Item 4.

 

 

Controls and Procedures

 

49

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

50

Item 1A.

 

 

Risk Factors

 

51

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

Item 3.

 

 

Defaults Upon Senior Securities

 

51

Item 4.

 

 

Mine Safety Disclosures

 

51

Item 5.

 

 

Other Information

 

51

Item 6.

 

 

Exhibits

 

52

 

 

 

Signatures

 

53

 

 

1

ProSight Global, Inc.

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

($ in thousands except share amounts)

 

2019

 

2018

Assets

 

 

  

 

(As restated)

Investments:

 

 

  

 

 

  

Fixed income securities, available-for-sale at fair value (amortized cost $1,855,160 in 2019 and $1,729,755 in 2018)

 

$

1,883,989

 

$

1,693,382

Commercial levered loans at amortized cost (fair value $16,168 in 2019 and $15,858 in 2018)

 

 

16,549

 

 

16,915

Limited partnerships and limited liability companies at fair value (cost $58,387 in 2019 and $51,903 in 2018)

 

 

62,351

 

 

53,432

Short-term investments

 

 

49,824

 

 

36,661

Total investments

 

 

2,012,713

 

 

1,800,390

Cash and cash equivalents

 

 

34,241

 

 

22,279

Restricted cash

 

 

8,929

 

 

7,621

Accrued investment income

 

 

13,314

 

 

12,279

Premiums and other receivables, net

 

 

196,128

 

 

200,347

Receivable from reinsurers on paid losses

 

 

9,927

 

 

12,428

Reinsurance receivable on unpaid losses

 

 

210,021

 

 

185,295

Deferred policy acquisition costs

 

 

101,740

 

 

93,613

Prepaid reinsurance premiums

 

 

59,218

 

 

44,626

Net deferred income taxes

 

 

13,724

 

 

33,239

Goodwill and net intangible assets

 

 

29,204

 

 

29,219

Fixed assets and capitalized software, net

 

 

38,145

 

 

39,001

Funds withheld related to sale of affiliate

 

 

19,534

 

 

19,397

Other assets

 

 

33,328

 

 

57,653

Assets of discontinued operations

 

 

19,278

 

 

19,719

Total assets

 

$

2,799,444

 

$

2,577,106

 

 

 

 

 

 

 

Liabilities

 

 

  

 

 

  

Reserve for unpaid losses and loss adjustment expenses

 

$

1,483,660

 

$

1,396,812

Reserve for unearned premiums

 

 

472,907

 

 

435,933

Ceded reinsurance payable

 

 

15,987

 

 

13,281

Notes payable, net of debt issuance costs

 

 

182,517

 

 

182,355

Funds held under reinsurance agreements

 

 

72,362

 

 

63,165

Other liabilities

 

 

91,293

 

 

73,474

Liabilities of discontinued operations

 

 

21,768

 

 

22,256

Total liabilities

 

 

2,340,494

 

 

2,187,276

 

 

 

 

 

 

 

Stockholders’ equity

 

 

  

 

 

  

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding

 

 

 —

 

 

 —

Common stock, $0.01 par value; 200,000,000 shares authorized; 38,864,289 shares issued and 38,851,369 shares outstanding

 

 

389

 

 

389

Paid-in capital

 

 

603,163

 

 

607,260

Accumulated other comprehensive income (loss)

 

 

28,844

 

 

(22,315)

Retained deficit

 

 

(173,246)

 

 

(195,304)

Treasury shares - at cost (12,920 shares)

 

 

(200)

 

 

(200)

Total stockholders’ equity

 

 

458,950

 

 

389,830

Total liabilities and stockholders’ equity

 

$

2,799,444

 

$

2,577,106

 

See accompanying notes to interim consolidated financial statements (unaudited)

2

ProSight Global, Inc.

Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30

 

Six Months Ended June 30

($ in thousands except per share amounts)

    

2019

    

2018

    

2019

    

2018

Gross written premiums

 

$

235,032

 

$

222,555

 

$

490,870

 

$

471,975

Net premiums earned

 

 

202,480

 

 

183,123

 

 

398,088

 

 

350,579

Net investment income

 

 

17,398

 

 

15,548

 

 

34,556

 

 

29,257

Realized investment gains, net

 

 

137

 

 

686

 

 

250

 

 

399

Other income

 

 

97

 

 

168

 

 

190

 

 

336

Total revenues

 

 

220,112

 

 

199,525

 

 

433,084

 

 

380,571

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Net losses and loss adjustment expenses incurred

 

 

127,115

 

 

109,933

 

 

245,448

 

 

211,787

Policy acquisition expenses

 

 

45,533

 

 

43,253

 

 

92,106

 

 

81,624

General and administrative expenses

 

 

26,028

 

 

24,880

 

 

53,222

 

 

50,102

Interest expense

 

 

3,147

 

 

3,084

 

 

6,509

 

 

6,115

Other expense

 

 

7,170

 

 

 —

 

 

7,170

 

 

 —

Total expenses

 

 

208,993

 

 

181,150

 

 

404,455

 

 

349,628

Income from continuing operations before income taxes

 

 

11,119

 

 

18,375

 

 

28,629

 

 

30,943

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision:

 

 

  

 

 

  

 

 

  

 

 

  

Current

 

 

82

 

 

(397)

 

 

223

 

 

(404)

Deferred

 

 

2,341

 

 

4,120

 

 

6,015

 

 

6,685

Total income tax expense

 

 

2,423

 

 

3,723

 

 

6,238

 

 

6,281

Net income from continuing operations

 

 

8,696

 

 

14,652

 

 

22,391

 

 

24,662

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

  

 

 

  

 

 

  

 

 

  

Net (loss) income from discontinued operations

 

 

(78)

 

 

(198)

 

 

(333)

 

 

587

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,618

 

$

14,454

 

$

22,058

 

$

25,249

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic:

 

 

  

 

 

  

 

 

  

 

 

  

Net income from continuing operations

 

$

0.22

 

$

0.38

 

$

0.58

 

$

0.64

Net income

 

$

0.22

 

$

0.37

 

$

0.57

 

$

0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – diluted:

 

 

  

 

 

  

 

 

  

 

 

  

Net income from continuing operations

 

$

0.22

 

$

0.37

 

$

0.57

 

$

0.63

Net income

 

$

0.22

 

$

0.36

 

$

0.56

 

$

0.64

 

See accompanying notes to interim consolidated financial statements (unaudited)

3

ProSight Global, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30

 

Six Months Ended June 30

($ in thousands)

    

2019

    

2018

    

2019

    

2018

Net income

 

$

8,618

 

$

14,454

 

$

22,058

 

$

25,249

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

  

 

 

  

 

 

  

 

 

  

Change in unrealized holding gains (losses) on securities, net of deferred tax expense (benefit) of $6,206 and $13,447 in 2019 and $(2,769) and $(8,425) in 2018

 

 

23,624

 

 

(10,499)

 

 

51,186

 

 

(31,606)

Less: reclassification adjustment for gains included in net income, net of tax (benefit) expense of $(28) and $(52) in 2019 and $45 and $(109) in 2018

 

 

217

 

 

731

 

 

27

 

 

1,083

Other comprehensive income (loss)

 

 

23,407

 

 

(11,230)

 

 

51,159

 

 

(32,689)

Comprehensive income (loss)

 

$

32,025

 

$

3,224

 

$

73,217

 

$

(7,440)

 

See accompanying notes to interim consolidated financial statements (unaudited)

4

ProSight Global, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

    

 

 

    

Accumulated

    

 

 

    

 

 

    

 

 

 

 

Preferred

 

Common

 

Paid-In

 

Other Comprehensive

 

Retained

 

Treasury

 

 

 

($ in thousands)

 

Stock

 

Stock

 

Capital

 

Income (Loss)

 

Deficit

 

Shares

 

Total

December 31, 2017 (As restated)

 

$

 —

 

$

387

 

$

606,346

 

$

19,297

 

$

(249,847)

 

$

(200)

 

$

375,983

Stock based employee compensation plan

 

 

 —

 

 

 —

 

 

238

 

 

 —

 

 

 —

 

 

 —

 

 

238

Net unrealized loss on investment securities, net of deferred tax benefit of $(5,502)

 

 

 —

 

 

 —

 

 

 —

 

 

(21,459)

 

 

 —

 

 

 —

 

 

(21,459)

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,795

 

 

 —

 

 

10,795

March 31, 2018

 

$

 —

 

$

387

 

$

606,584

 

$

(2,162)

 

$

(239,052)

 

$

(200)

 

$

365,557

Stock based employee compensation plan

 

 

 —

 

 

 —

 

 

160

 

 

 —

 

 

 —

 

 

 —

 

 

160

Net unrealized loss on investment securities, net of deferred tax benefit of $(2,814)

 

 

 —

 

 

 —

 

 

 —

 

 

(11,230)

 

 

 —

 

 

 —

 

 

(11,230)

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14,454

 

 

 —

 

 

14,454

June 30, 2018

 

$

 —

 

$

387

 

$

606,744

 

$

(13,392)

 

$

(224,598)

 

$

(200)

 

$

368,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018 (As restated)

 

$

 —

 

$

389

 

$

607,260

 

$

(22,315)

 

$

(195,304)

 

$

(200)

 

$

389,830

Stock based employee compensation plan

 

 

 —

 

 

 —

 

 

77

 

 

 —

 

 

 —

 

 

 —

 

 

77

Net unrealized gain on investment securities, net of deferred tax expense of $7,265

 

 

 —

 

 

 —

 

 

 —

 

 

27,752

 

 

 —

 

 

 —

 

 

27,752

Equity distribution

 

 

 —

 

 

 —

 

 

(4,174)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,174)

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

13,440

 

 

 —

 

 

13,440

March 31, 2019

 

$

 —

 

$

389

 

$

603,163

 

$

5,437

 

$

(181,864)

 

$

(200)

 

$

426,925

Net unrealized gain on investment securities, net of deferred tax expense of $6,234

 

 

 —

 

 

 —

 

 

 —

 

 

23,407

 

 

 —

 

 

 —

 

 

23,407

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,618

 

 

 —

 

 

8,618

June 30, 2019

 

$

 —

 

$

389

 

$

603,163

 

$

28,844

 

$

(173,246)

 

$

(200)

 

$

458,950

 

See accompanying notes to interim consolidated financial statements (unaudited)

5

ProSight Global, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

 

Six Months Ended June 30

($ in thousands)

    

2019

    

 

2018

Operating activities

 

 

  

 

 

  

Net income from continuing operations

 

$

22,391

 

$

24,662

Net (loss) income from discontinued operations

 

 

(333)

 

 

587

Net income

 

 

22,058

 

 

25,249

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

 

 

  

Provision for deferred taxes

 

 

6,015

 

 

6,685

Net realized investment gains

 

 

(250)

 

 

(399)

Net limited partnerships gains

 

 

(2,449)

 

 

(2,825)

Net accretion from bonds and commercial loans

 

 

(2,227)

 

 

(2,080)

Depreciation and amortization

 

 

4,131

 

 

3,368

Amortization of debt issuance costs

 

 

162

 

 

169

Stock based compensation

 

 

77

 

 

398

 

 

 

 

 

 

 

Changes in:

 

 

  

 

 

  

Premiums and other receivables

 

 

4,219

 

 

(60,746)

Receivable from reinsurers on paid losses and reinsurance receivable on unpaid losses

 

 

(22,225)

 

 

(6,141)

Ceded reinsurance payable

 

 

2,706

 

 

24,185

Accrued investment income

 

 

(1,035)

 

 

(3,643)

Deferred policy acquisition costs

 

 

(8,127)

 

 

(35,010)

Prepaid reinsurance premiums

 

 

(14,592)

 

 

58,366

Reserve for unpaid losses and loss adjustment expenses

 

 

86,848

 

 

68,684

Reserve for unearned premiums

 

 

36,974

 

 

80,474

Funds withheld related to sale of affiliate

 

 

(137)

 

 

(85)

Funds held under reinsurance agreements

 

 

9,197

 

 

(43,061)

Other assets

 

 

20,149

 

 

8,757

Other liabilities

 

 

17,819

 

 

8,703

Total adjustments

 

 

137,255

 

 

105,799

Net cash provided by operating activities – continuing operations

 

 

159,646

 

 

130,461

Net cash (used in) provided by operating activities – discontinued operations

 

 

(305)

 

 

2,986

Net cash provided by operating activities

 

 

159,341

 

 

133,447

 

 

 

 

 

 

 

Investing activities

 

 

  

 

 

  

Purchases of available-for-sale fixed income securities

 

 

(221,287)

 

 

(201,987)

Sales of available-for-sale fixed income securities

 

 

32,791

 

 

73,779

Redemptions of available-for-sale fixed income securities

 

 

64,310

 

 

46,330

Purchases of commercial levered loans

 

 

 —

 

 

(2,612)

Redemptions of commercial levered loans

 

 

350

 

 

8,346

Purchases of limited partnerships

 

 

(8,244)

 

 

(27,049)

Distributions and redemptions from limited partnerships

 

 

1,775

 

 

2,080

Purchases of short-term investments

 

 

(241,574)

 

 

(80,868)

Sales of short-term investments

 

 

228,765

 

 

28,615

Acquisition of fixed assets and capitalized software

 

 

(3,260)

 

 

(4,607)

Net cash used in investing activities - continuing operations

 

 

(146,374)

 

 

(157,973)

Net cash (used in) provided by investing activities - discontinued operations

 

 

(320)

 

 

2,031

Net cash used in investing activities

 

 

(146,694)

 

 

(155,942)

 

 

 

 

 

 

 

Financing activities

 

 

  

 

 

  

Net cash provided by financing activities

 

 

 —

 

 

 —

Net change in cash and cash equivalents

 

 

12,647

 

 

(22,495)

Cash, cash equivalents and restricted cash at beginning of year - continuing operations

 

 

29,900

 

 

77,872

Cash, cash equivalents and restricted cash at beginning of year - discontinued operations

 

 

1,034

 

 

1,322

Less: cash, cash equivalents and restricted cash at end of period - discontinued operations

 

 

(411)

 

 

(6,318)

Cash, cash equivalents and restricted cash at end of period - continuing operations

 

$

43,170

 

$

50,381

 

See accompanying notes to interim consolidated financial statements (unaudited)

 

 

6

Table of Contents

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

 

1. Basis of Reporting

The accompanying unaudited interim consolidated financial statements of ProSight Global, Inc. (the Company) have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2018, included in the Company’s final prospectus filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act) on July 25, 2019 (the Prospectus). In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All significant intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year.

 

Reorganization

 

The Company was incorporated in Delaware in 2010.  Prior to July 25, 2019, the Company was a wholly-owned subsidiary of ProSight Global Holdings Limited (PGHL), a Bermuda holding company.  Effective July 25, 2019, prior to the completion of the Company’s initial public offering (IPO), PGHL merged with and into the Company, with the Company surviving the merger (the merger). The prior holders of PGHL’s equity interests then outstanding received, as merger consideration, the right to receive 6.46 shares of the Company’s common stock for each such outstanding PGHL equity interest. The total merger consideration was 38,851,369 shares of the Company’s common stock, which then comprised 100% of the shares of the Company’s outstanding common stock.

 

As a result of the merger, the assets and liabilities of the Company include, effective July 25, 2019, the assets and liabilities of PGHL. In addition, on July 24, 2019, in connection with the merger, the Company’s duly adopted amended and restated certificate of incorporation (the Certificate of Incorporation) became effective, providing for, among other things, the authorization of 200,000,000 shares of common stock and 50,000,000 shares of preferred stock. All share and per share amounts in the unaudited interim consolidated financial statements and related notes have been restated for all historical periods presented to give effect to the merger and related conversion of shares, including reclassifying an amount equal to the change in value of common stock to additional paid-in capital, as well as the effectiveness of the Certificate of Incorporation.

 

Prior to the merger, PGHL’s subsidiaries ProSight Specialty International Holdings Limited (PSIH) and ProSight Specialty European Holdings Limited (PSEH) were merged with and into the Company, effective February 5, 2019.  Additionally, effective February 5, 2019, ProSight Specialty Bermuda Limited (PSBL) became a wholly owned subsidiary of the Company. Prior to February 5, 2019, PSBL was a wholly owned subsidiary of PSEH.

 

Use of Estimates

 

The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statement balances, as well as disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Management periodically reviews its estimates and assumptions.

 

2. Recently Adopted Accounting Standards

 

No Accounting Standards Updates (ASU) have been adopted during the six months ended June 30, 2019.

 

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Table of Contents

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

 

Accounting Guidance Not Yet Adopted

 

In January 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-01, Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires equity investments to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; (iv) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) clarifies that the need for a valuation allowance on a deferred tax asset related to an available-for-sale (AFS) security should be evaluated with other deferred tax assets. The Company shall apply ASU 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. ASU 2016-01 is effective for public entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2016-01 is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2016-01 on its financial condition and results of operations.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to improve the financial reporting of leasing transactions. Under this ASU, lessees will recognize a right-of-use asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of fewer than 12 months. The liability is to be measured as the present value of the future minimum lease payments taking into account renewal options if applicable plus initial incremental direct costs such as commissions. The minimum payments are discounted using the rate implicit in the lease or, if not known, the lessee’s incremental borrowing rate. The lessee’s income statement treatment for leases will vary depending on the nature of what is being leased. A financing type lease is present when, among other matters, the asset is being leased for a substantial portion of its economic life or has an end-of-term title transfer or a bargain purchase option as in today’s practice. The payment of the liability set up for such leases will be apportioned between interest and principal; the right-of use asset will be generally amortized on a straight-line basis. If the lease does not qualify as a financing type lease, it will be accounted for on the income statement as rent on a straight-line basis. ASU 2016-02 requires the application of a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. ASU 2016-02 is effective for public entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2016-02 is effective for annual periods beginning after December 15, 2019 and interim periods within annual periods beginning after December 15, 2020. The Company is currently evaluating ASU 2016-02, and does not expect a material impact on its financial condition or results of operations from the adoption of this guidance.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, trade receivables, and reinsurance receivables. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the financial statements net of the valuation allowance. The valuation allowance is a measurement of expected losses that is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current expected credit loss model. ASU 2016-13 is effective for public entities annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2016-13 is effective for annual periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of ASU 2016-13 on its financial condition and results of operations.

 

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ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for public entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted.  For the Company, ASU 2016-16 is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019.  The Company is currently evaluating ASU 2016-16 and does not expect a material impact on its financial condition or results of operations.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. This update shall be applied retrospectively and is effective for all entities annual and interim periods beginning after December 15, 2019, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-13 will not impact the Company’s financial condition or results of operations.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 provides the option to apply prospectively to costs for activities performed on or after the date that the entity first adopts or retrospectively in accordance with guidance on accounting changes. ASU 2018-15 is effective for public entities for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2018-15 is effective for annual periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of this guidance on its financial condition or results of operations.

 

3. Supplemental Cash Flow

Supplemental cash flow information for the six months ended June 30, 2019 and 2018, is as follows:

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30

($ in thousands)

    

2019

    

2018

Cash paid during the period for:

 

 

  

 

 

  

Interest

 

$

6,566

 

$

6,105

 

 

4. Discontinued Operations

 

In March 2017, the Company announced its exit from the U.K. insurance market. The financial results and subsequent expenses directly attributable to U.K. operations are included in the Company’s financial statements and classified within discontinued operations for all periods presented. Net loss for discontinued operations was $0.1 million and $0.3 million for the three and six months ended June 30, 2019, respectively. Net loss for discontinued operations was $0.2 million and net income for discontinued operations was $0.6 million for the three and six months ended June 30, 2018, respectively.

 

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Table of Contents

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

 

The following represents the carrying amounts of assets and liabilities associated with the exit from the insurance market in the U.K. reported as discontinued operations in its consolidated balance sheet:

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

($ in thousands)

 

2019

 

2018

Assets

 

 

 

 

 

 

Total cash and investments

 

$

10,250

 

$

10,436

Other assets

 

 

9,028

 

 

9,283

Total assets

 

$

19,278

 

$

19,719

 

 

 

 

 

 

 

Liabilities

 

 

  

 

 

  

Unpaid losses and loss adjustment expenses

 

$

13,917

 

$

14,030

Other liabilities

 

 

7,851

 

 

8,226

Total liabilities

 

$

21,768

 

$

22,256

 

 

5. Investments

Fixed income securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS), collateralized loan obligations (CLO), asset backed securities (ABS) and corporate debt securities.

 

(a) The gross unrealized gains and losses on AFS securities included in assets from continuing operations at June 30, 2019, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Cost/

 

Gross

    

Gross

 

    

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

($ in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

84,377

 

$

901

 

$

(191)

 

$

85,087

Government agency securities

 

 

473

 

 

 —

 

 

 —

 

 

473

Corporate debt securities

 

 

1,300,218

 

 

21,985

 

 

(5,838)

 

 

1,316,365

Municipal debt obligations

 

 

8,274

 

 

217

 

 

 —

 

 

8,491

ABS

 

 

86,573

 

 

1,212

 

 

(231)

 

 

87,554

CLO

 

 

173,538

 

 

212

 

 

(1,609)

 

 

172,141

CMBS

 

 

65,174

 

 

1,489

 

 

(102)

 

 

66,561

RMBS - non-agency

 

 

66,350

 

 

10,916

 

 

(118)

 

 

77,148

RMBS - agency

 

 

70,183

 

 

464

 

 

(478)

 

 

70,169

Total fixed income securities

 

$

1,855,160

 

$

37,396

 

$

(8,567)

 

$

1,883,989

 

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Table of Contents

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

 

The gross unrealized gains and losses on AFS securities included in assets from continuing operations at December 31, 2018, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Cost/

    

Gross

    

Gross

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

($ in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

92,219

 

$

126

 

$

(2,017)

 

$

90,328

Corporate debt securities

 

 

1,231,352

 

 

1,216

 

 

(40,138)

 

 

1,192,430