Company Quick10K Filing
ProSight Global
Price18.85 EPS0
Shares43 P/E48
MCap812 P/FCF15
Net Debt-32 EBIT28
TEV780 TEV/EBIT28
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-02-24
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-08
S-1 2019-06-28 Public Filing
8-K 2020-06-17
8-K 2020-06-12
8-K 2020-05-18
8-K 2020-05-11
8-K 2020-05-07
8-K 2020-04-16
8-K 2020-03-13
8-K 2020-02-24
8-K 2020-01-24
8-K 2020-01-23
8-K 2019-11-06
8-K 2019-09-05
8-K 2019-08-15
8-K 2019-08-08
8-K 2019-07-24

PROS 10Q Quarterly Report

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-20200331ex311f0c422.htm
EX-31.2 pros-20200331ex3126f85cb.htm
EX-32.1 pros-20200331ex321960e3a.htm

ProSight Global Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.92.31.71.20.60.02018201820192020
Assets, Equity
0.30.20.20.10.10.02018201820192020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12018201820192020
Ops, Inv, Fin

10-Q 1 pros-20200331x10q.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 March 31, 2020

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 43,342,399 shares of Common Stock ($0.01 par value) outstanding as of May 12, 2020.

 

 

 

 

PROSIGHT GLOBAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

Page

 

 

 

 

 

 

Item 1.

 

 

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019

 

2

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

3

 

 

 

Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

 

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

5

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

6

 

 

 

Notes to Interim Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

 

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

 

27

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

45

Item 4.

 

 

Controls and Procedures

 

45

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

46

Item 1A.

 

 

Risk Factors

 

46

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

Item 3.

 

 

Defaults Upon Senior Securities

 

47

Item 4.

 

 

Mine Safety Disclosures

 

47

Item 5.

 

 

Other Information

 

47

Item 6.

 

 

Exhibits

 

48

 

 

 

Signatures

 

49

 

 

1

ProSight Global, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

($ in thousands except share amounts)

 

2020

 

2019

Assets

 

 

  

 

 

Investments:

 

 

  

 

 

  

Fixed maturity securities, available-for-sale at fair value (amortized cost $2,038,469 in 2020 and $1,999,403 in 2019, allowance for credit losses $(416) in 2020 and $0 in 2019)

 

$

2,002,420

 

$

2,040,682

Commercial levered loans at amortized cost (fair value $12,246 in 2020 and $13,950 in 2019)

 

 

13,725

 

 

14,069

Non-redeemable preferred stock securities at fair value (amortized cost $11,669 in 2020 and $0 in 2019)

 

 

11,378

 

 

 —

Limited partnerships and limited liability companies at fair value (cost $67,445 in 2020 and $62,226 in 2019)

 

 

65,011

 

 

66,660

Short-term investments

 

 

19,229

 

 

43,873

Total investments

 

 

2,111,763

 

 

2,165,284

Cash and cash equivalents

 

 

43,141

 

 

17,284

Restricted cash

 

 

8,786

 

 

10,213

Accrued investment income

 

 

13,812

 

 

13,610

Premiums and other receivables, net

 

 

156,241

 

 

190,004

Receivable from reinsurers on paid losses, net

 

 

4,876

 

 

3,481

Reinsurance receivables on unpaid losses, net

 

 

156,866

 

 

193,952

Deferred policy acquisition costs

 

 

99,842

 

 

98,812

Prepaid reinsurance premiums

 

 

40,383

 

 

42,861

Net deferred income taxes

 

 

20,598

 

 

4,803

Goodwill and net intangible assets

 

 

29,181

 

 

29,189

Fixed assets and capitalized software, net

 

 

36,313

 

 

37,167

Funds withheld related to sale of affiliate

 

 

19,529

 

 

19,453

Other assets

 

 

21,615

 

 

29,537

Assets of discontinued operations

 

 

23,342

 

 

21,584

Total assets

 

$

2,786,288

 

$

2,877,234

 

 

 

 

 

 

 

Liabilities

 

 

  

 

 

  

Reserve for unpaid losses and loss adjustment expenses

 

$

1,545,799

 

$

1,521,648

Reserve for unearned premiums

 

 

468,486

 

 

483,223

Ceded reinsurance payable

 

 

13,148

 

 

17,768

Notes payable, net of debt issuance costs

 

 

164,778

 

 

164,693

Funds held under reinsurance agreements

 

 

23,374

 

 

58,855

Other liabilities

 

 

48,843

 

 

56,438

Liabilities of discontinued operations

 

 

33,758

 

 

31,578

Total liabilities

 

 

2,298,186

 

 

2,334,203

 

 

 

 

 

 

 

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; 43,355,319 and 43,071,186 shares issued, 43,342,399 and 43,058,266 shares outstanding in 2020 and 2019, respectively

 

 

433

 

 

431

Paid-in capital

 

 

661,203

 

 

661,761

Accumulated other comprehensive (loss) income

 

 

(23,988)

 

 

37,453

Retained deficit

 

 

(149,346)

 

 

(156,414)

Treasury shares - at cost (12,920 shares)

 

 

(200)

 

 

(200)

Total stockholders’ equity

 

 

488,102

 

 

543,031

Total liabilities and stockholders’ equity

 

$

2,786,288

 

$

2,877,234

 

See accompanying notes to interim consolidated financial statements (unaudited)

2

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31 

($ in thousands except per share amounts)

    

2020

    

2019

Gross written premiums

 

$

213,784

 

$

255,838

Net earned premiums

 

 

205,662

 

 

195,608

Net investment income

 

 

8,815

 

 

17,158

Realized investment gains, net

 

 

232

 

 

113

Other income

 

 

112

 

 

93

Total revenues

 

 

214,821

 

 

212,972

 

 

 

 

 

 

 

Expenses:

 

 

  

 

 

  

Net losses and loss adjustment expenses incurred

 

 

127,557

 

 

118,333

Policy acquisition expenses

 

 

46,986

 

 

46,573

General and administrative expenses

 

 

26,637

 

 

27,194

Interest expense

 

 

3,105

 

 

3,362

Other expense

 

 

1,737

 

 

 —

Total expenses

 

 

206,022

 

 

195,462

Income from continuing operations before income taxes

 

 

8,799

 

 

17,510

 

 

 

 

 

 

 

Income tax provision:

 

 

  

 

 

  

Current

 

 

1,631

 

 

141

Deferred

 

 

357

 

 

3,674

Total income tax expense

 

 

1,988

 

 

3,815

Net income from continuing operations

 

 

6,811

 

 

13,695

 

 

 

 

 

 

 

Discontinued operations:

 

 

  

 

 

  

Net income (loss) from discontinued operations

 

 

257

 

 

(255)

Net income

 

$

7,068

 

$

13,440

 

 

 

 

 

 

 

Earnings per share – basic:

 

 

  

 

 

  

Net income from continuing operations

 

$

0.16

 

$

0.35

Net income

 

$

0.16

 

$

0.35

 

 

 

 

 

 

 

Earnings per share – diluted:

 

 

  

 

 

 

Net income from continuing operations

 

$

0.15

 

$

0.35

Net income

 

$

0.16

 

$

0.34

 

See accompanying notes to interim consolidated financial statements (unaudited)

3

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31 

($ in thousands)

    

2020

    

2019

Net income

 

$

7,068

 

$

13,440

Other comprehensive (loss) income, net of taxes:

 

 

  

 

 

 

Change in unrealized holding (losses) gains on available-for-sale debt securities, net of deferred tax (benefit) expense of $(16,102) in 2020 and $7,241 in 2019

 

 

(60,964)

 

 

27,562

Less: reclassification adjustment for gains (losses) included in net income, net of tax expense (benefit) of $136 in 2020 and $(24) in 2019

 

 

806

 

 

(190)

Less: reclassification adjustment for credit losses included in net income, net of tax benefit of $(87) in 2020 and $0 in 2019

 

 

(329)

 

 

 —

Other comprehensive (loss) income

 

 

(61,441)

 

 

27,752

Comprehensive (loss) income

 

$

(54,373)

 

$

41,192

 

See accompanying notes to interim consolidated financial statements (unaudited)

4

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Accumulated

    

 

 

    

 

 

    

 

 

 

 

Preferred

 

Common

 

Paid-In

 

Other Comprehensive

 

Retained

 

Treasury

 

 

 

($ in thousands)

 

Stock

 

Stock

 

Capital

 

(Loss) Income

 

Deficit

 

Shares

 

Total

December 31, 2018

 

$

 —

 

$

389

 

$

607,260

 

$

(22,315)

 

$

(195,304)

 

$

(200)

 

$

389,830

Stock based employee compensation plan

 

 

 —

 

 

 —

 

 

77

 

 

 —

 

 

 —

 

 

 —

 

 

77

Net unrealized gain on available-for-sale debt 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

$

 —

 

$

431

 

$

661,761

 

$

37,453

 

$

(156,414)

 

$

(200)

 

$

543,031

Stock based employee compensation plan

 

 

 —

 

 

 2

 

 

1,754

 

 

 —

 

 

 —

 

 

 —

 

 

1,756

Net unrealized loss on available-for-sale debt securities, net of deferred tax benefit of $(16,151)

 

 

 —

 

 

 —

 

 

 —

 

 

(61,441)

 

 

 —

 

 

 —

 

 

(61,441)

Retirement of common stock (tax payments on equity compensation)

 

 

 —

 

 

 —

 

 

(2,263)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,263)

Payments related to offering costs

 

 

 —

 

 

 —

 

 

(49)

 

 

 —

 

 

 —

 

 

 —

 

 

(49)

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,068

 

 

 —

 

 

7,068

March 31, 2020

 

$

 —

 

$

433

 

$

661,203

 

$

(23,988)

 

$

(149,346)

 

$

(200)

 

$

488,102

 

See accompanying notes to interim consolidated financial statements (unaudited)

5

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31 

($ in thousands)

    

2020

    

2019

Operating activities

 

 

  

 

 

  

Net income from continuing operations

 

$

6,811

 

$

13,695

Net income (loss) from discontinued operations

 

 

257

 

 

(255)

Net income

 

 

7,068

 

 

13,440

 

 

 

 

 

 

 

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

 

 

  

 

 

  

Provision for deferred taxes

 

 

357

 

 

3,674

Realized investment gains, net

 

 

(232)

 

 

(113)

Net limited partnerships losses (gains)

 

 

6,877

 

 

(1,251)

Net amortization (accretion) from bonds and commercial loans

 

 

598

 

 

(861)

Net change in fair value of non-redeemable preferred stock securities

 

 

291

 

 

 —

Depreciation and amortization

 

 

1,987

 

 

2,100

Amortization of debt issuance costs

 

 

85

 

 

 —

Stock based compensation

 

 

1,754

 

 

77

 

 

 

 

 

 

 

Changes in:

 

 

 

 

 

 

Premiums and other receivables, net

 

 

33,763

 

 

3,857

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

 

 

35,691

 

 

(20,033)

Ceded reinsurance payable

 

 

(4,620)

 

 

2,271

Accrued investment income

 

 

(202)

 

 

(229)

Deferred policy acquisition costs

 

 

(1,030)

 

 

(6,768)

Prepaid reinsurance premiums

 

 

2,478

 

 

(19,501)

Reserve for unpaid losses and loss adjustment expenses

 

 

24,151

 

 

52,723

Reserve for unearned premiums

 

 

(14,737)

 

 

34,027

Funds withheld related to sale of affiliate

 

 

(76)

 

 

 —

Funds held under reinsurance agreements

 

 

(35,481)

 

 

14,621

Other assets

 

 

7,924

 

 

21,198

Other liabilities

 

 

(7,595)

 

 

(14,571)

Total adjustments

 

 

51,983

 

 

71,221

Net cash provided by operating activities – continuing operations

 

 

58,794

 

 

84,916

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

 

 

62

 

 

(107)

Net cash provided by operating activities

 

 

58,856

 

 

84,809

 

 

 

 

 

 

 

Investing activities

 

 

  

 

 

  

Purchases of available-for-sale fixed maturity securities

 

 

(191,915)

 

 

(80,986)

Sales of available-for-sale fixed maturity securities

 

 

114,474

 

 

5,228

Redemptions of available-for-sale fixed maturity securities

 

 

38,376

 

 

38,218

Purchases of non-redeemable preferred stock securities

 

 

(11,669)

 

 

 —

Redemptions of commercial levered loans

 

 

346

 

 

111

Purchases of limited partnerships

 

 

(6,873)

 

 

(1,944)

Distributions and redemptions from limited partnerships

 

 

1,644

 

 

793

Purchases of short-term investments

 

 

(25,634)

 

 

(126,088)

Sales of short-term investments

 

 

50,323

 

 

93,761

Acquisition of fixed assets and capitalized software

 

 

(1,125)

 

 

(1,654)

Net cash used in investing activities - continuing operations

 

 

(32,053)

 

 

(72,561)

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

 

 

(15)

 

 

466

Net cash used in investing activities

 

 

(32,068)

 

 

(72,095)

 

 

 

 

 

 

 

Financing activities

 

 

  

 

 

  

Payments related to offering costs

 

 

(49)

 

 

 —

Tax withholding on stock compensation awards

 

 

(2,263)

 

 

 —

Net cash used in financing activities

 

 

(2,312)

 

 

 —

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

24,476

 

 

12,714

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

 

 

27,497

 

 

29,900

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

 

 

255

 

 

1,034

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

 

 

(301)

 

 

(1,348)

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

 

$

51,927

 

$

42,300

 

See accompanying notes to interim consolidated financial statements (unaudited)

 

6

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

 

1. Basis of Reporting

The accompanying unaudited interim consolidated financial statements of ProSight Global, Inc. and its subsidiaries (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 included in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020, as amended by Amendment No. 1 to Form 10-K filed with the SEC on March 10, 2020. 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.

 

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.

 

All share and per share amounts in the unaudited interim consolidated financial statements and related notes have been restated for all historical periods prior to July 25, 2019, 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.

 

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

 

Accounting Guidance Adopted

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016‑02, Leases (“ASU 2016-02”) 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 the lease. 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.

 

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

 

The Company adopted ASU 2016‑02 in the first quarter of 2020, and as part of its implementation, elected the modified retrospective method approach at the beginning of the period of adoption and did not retrospectively adjust prior periods presented. The Company elected to not separate lease components from non-lease components (such as office cleanings, security and maintenance services provided by the Company’s lessors for certain of its leases). The Company also elected the package of practical expedients under the transition guidance, which allowed the Company to not reevaluate existing lease classifications, among others. As of January 1, 2020, the Company’s adoption of this guidance resulted in recognition of a right-of-use asset of $5.6 million and a corresponding lease liability of $6.3 million in continuing operations, and a right-of-use asset of $2.5 million and a corresponding lease liability of $3.0 million in discontinued operations. The adoption of this guidance did not have a material impact on the Company’s retained earnings. See Note 15. Leases for further information on the Company’s leases.

 

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments — Credit Losses, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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. The Company adopted ASU 2016-13 in the first quarter of 2020 using a modified retrospective approach. As of January 1, 2020, the Company’s adoption of this guidance did not have a material impact on the Company’s retained earnings.

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”). 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 unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 in the first quarter of 2020 using a retrospective approach and as the requirements of this literature are disclosure only, ASU 2018-13 did not have an impact on the Company’s financial condition or results of operations.

 

Accounting Guidance Not Yet Adopted

 

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU 2017-08 shortens the amortization period of the premium for certain callable debt securities, from the contractual maturity date to the earliest call date. ASU 2017-08 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 2017-08 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 the impact of this guidance on its 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 2016-15”). 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

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

 

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.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods.  An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates.  Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective.  This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate.  Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis.  However, current guidance provides an exception that when a loss in an interim period exceeds the anticipate loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year.  ASU 2019-12 removes this exception and provides that in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate.  ASU 2019-12 is effective for public entities for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2019-12 is effective for annual periods beginning after December 15, 2021 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.

 

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). ASU 2020-01 will clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. ASU 2020-01 is effective for public entities for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. For the Company, ASU 2020-01 is effective for annual periods beginning after December 15, 2021 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

The following table represents the supplemental cash flow information for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31 

($ in thousands)

    

2020

    

2019

Non-cash activity:

 

 

 

 

 

 

Operating lease right-of-use assets due to adoption of ASU 2016-02 - continuing operations

 

$

4,810

 

$

 —

Operating lease right-of-use assets due to adoption of ASU 2016-02 - discontinued operations

 

$

2,287

 

$

 —

Operating lease liabilities due to adoption of ASU 2016-02 - continuing operations

 

$

5,533

 

$

 —

Operating lease liabilities due to adoption of ASU 2016-02 - discontinued operations

 

$

2,665

 

$

 —

 

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

 

In March 2020, the Company withheld 154,629 shares of common stock from employees related to tax liabilities incurred upon the settlement of vested restricted stock units (“RSUs”). The number of shares of common stock issued, upon the settlement of vested RSUs net of tax withholding, was 284,133.

 

4. Discontinued Operations

 

In March 2017, the Company announced its exit from the United Kingdom (“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 income for discontinued operations was $0.3 million for the three months ended March 31, 2020. Net loss for discontinued operations was $0.3 million for the three months ended March 31, 2019.

 

The following table 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 sheets:

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

($ in thousands)

 

2020

 

2019

Assets

 

 

 

 

 

 

Cash and investments

 

$

10,080

 

$

10,428

Other assets

 

 

13,262

 

 

11,156

Total assets

 

$

23,342

 

$

21,584

 

 

 

 

 

 

 

Liabilities

 

 

  

 

 

  

Reserve for unpaid losses and loss adjustment expenses

 

$

24,149

 

$

24,169

Other liabilities

 

 

9,609

 

 

7,409

Total liabilities

 

$

33,758

 

$

31,578

 

 

5. Investments

The Company’s investment portfolio consists of fixed maturity securities, commercial levered loans, limited partnerships and limited liability companies, non-redeemable preferred stock securities, and short-term investments. Fixed maturity 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. Corporate debt securities may include investment grade and below investment grade bonds, bank loan investments and redeemable preferred stock securities. The Company has designated its investments in fixed maturity securities as available-for-sale (“AFS”) securities.

 

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ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

 

(a) The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at March 31, 2020, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Cost/

 

 

 

Gross

    

Gross

    

 

 

 

 

Amortized

 

Credit Loss

 

Unrealized

 

Unrealized

 

Fair

($ in thousands)

 

Cost

 

Allowance

 

Gains

 

Losses

 

Value

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

40,679

 

$

 —

 

$

2,643

 

$

 —

 

$

43,322

Government agency securities

 

 

27,998

 

 

 —

 

 

591

 

 

 —

 

 

28,589

Corporate debt securities

 

 

1,317,091

 

 

(293)

 

 

22,167

 

 

(37,278)

 

 

1,301,687

Municipal debt obligations

 

 

103,271

 

 

 —

 

 

813

 

 

(3,443)

 

 

100,641

ABS

 

 

49,205

 

 

(1)

 

 

26

 

 

(3,210)

 

 

46,020

CLO

 

 

177,411

 

 

(6)

 

 

 —

 

 

(19,842)

 

 

157,563

CMBS

 

 

94,816

 

 

 —

 

 

1,603

 

 

(1,945)

 

 

94,474

RMBS - non-agency

 

 

92,189

 

 

(116)

 

 

3,411

 

 

(4,851)

 

 

90,633

RMBS - agency

 

 

135,809

 

 

 —

 

 

3,738

 

 

(56)

 

 

139,491

Total fixed maturity securities

 

$

2,038,469

 

$

(416)

 

$

34,992

 

$

(70,625)

 

$

2,002,420

 

The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at December 31, 2019, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Cost/

 

Gross

    

Gross

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

($ in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

49,161

 

$

838

 

$

(14)

 

$

49,985

Government agency securities

 

 

6,522

 

 

23

 

 

(14)

 

 

6,531

Corporate debt securities

 

 

1,308,094

 

 

33,743

 

 

(3,025)

 

 

1,338,812

Municipal debt obligations

 

 

80,338

 

 

243

 

 

(766)

 

 

79,815

ABS

 

 

73,068

 

 

854

 

 

(340)

 

 

73,582

CLO

 

 

181,704

 

 

125

 

 

(2,280)

 

 

179,549

CMBS

 

 

95,810

 

 

1,863

 

 

(147)

 

 

97,526

RMBS - non-agency

 

 

62,343

 

 

9,458

 

 

(191)

 

 

71,610

RMBS - agency

 

 

142,363

 

 

1,256

 

 

(347)

 

 

143,272

Total fixed maturity securities